Companies Act Case Law Administrator of S.U., U.T.I. & Anr Vs Garware Polyester Ltd.

Appeal (civil) 3196 of 2005

Administrator of S.U., U.T.I. & Anr.

Garware Polyester Ltd.

DATE OF JUDGMENT: 09/05/2005

B.P. Singh & S.B. Sinha


[Arising out of S.L.P. (Civil) No.20174 of 2004]

Leave granted.
The Respondent herein is a company registered under the Companies
Act, 1956, and engaged in the manufacture of polyester film; 50% of which
production used to be exported to United States of America, United
Kingdom, Europe, Far East, Middle East, Japan, New Zealand etc. Having
regard to the adoption of liberalization policy by the Government of India,
the Company intended to become globally competitive and went for a
massive expansion in the year 1996. The scheme of the said expansion was
financed by obtaining term loans and issuance of debentures by various
financial institutions including the Appellant No.2 herein. For various
reasons, including imposition of European Union Levelled Anti Dumping
Duties, the Respondent suffered a cumulative loss of Rs.228.58 crores by
March 2001. In the said circumstance, the Respondent approached the
Industrial Development Bank of India with a request for a restructuring
package to clear its liabilities. A restructuring proposal was mooted;
wherefor two meetings were held in March 2001 and October 2001 wherein
the Unit Trust of India (UTI) participated. All the debenture holders upon
due deliberations agreed to the said proposal of restructuring package
except the Appellants herein. It is not in dispute that pursuant to or in
furtherance of the said restructuring package, the Respondent herein paid a
sum of Rs.64.44 crores to various financial institutions between the period
1.10.2001 and 15.1.2003 in the following terms :

Principal in
IDBI 15.5% PPD
UTI 18.5% PPS
LIC 18.5% PPD
GIC 18.5% PPD
18.5% PPD
18.5% PPD
OIC 18.5% PPD
UTI 18.5% PPD



81% of the principal outstanding carrying interest @
12.5% need to be repaid in 28 quarterly installments
commencing from 1.4.2003.

19% of the principal outstanding carrying nil rate of
interest need to be repaid partly to the extent of 385 during
2003-2004 and the balance to be repaid with a premium of 85%
in 24 quarterly installments commencing from 1.4.2006

Deferred interest being the interest outstanding carrying
nil rate of interest need to be repaid in 24 quarterly installments
commencing from 1.4.2006.

Penal interest and Liquidated damages outstanding as on
31.3.2001 to be waived.

In addition to the above, sacrifice being the amount
representing the difference between the contracted rate of
interest and the rate as per the restructuring package will be
paid on net present value (NPV) basis in 12 quarterly
installments commencing from 1.4.2002.”
On or about 19.6.1997, a Common Subscription Agreement was
entered into by and between the Respondent and the debenture holders; the
relevant clauses whereof are as under :

“1.1. Wherever used in this Agreement, unless the context
otherwise requires the following terms shall have the following
meanings :

a) *** *** ***
b) *** *** ***

c) “Debenture holders” means LIC, UTI, GIC, NIC,
NIA, OIC and UTI or the holders of the Debentures for the time
being deriving their title to the Debentures.


The Company has approached the Debenture holders for
financial assistance to the company for long term capital
requirements and the Debenture holders have agreed to advance
financial assistance in the form of subscription to 18.5%, 21,00,000
non-convertible. Privately placed debentures of Rs.100/- each to the
extent mentioned below :

Name of
Debenture holders
Letter No. & Date
Amount in lacs
INV./97 DT. 23.5.97
DT. 10.6.97
HQ:INV:262:97 DT.


The Company shall ensure that the Debentures shall rank
pari passu inter se to all intents and purposes without any
preference or priority of one over the other.


The Company agrees and undertakes that the Debenture
holder(s) shall have a right to review the rate of interest as
mentioned herein. The Company shall pay interest on the
Debentures at the rate that may be stipulated by the debenture
holder(s) as a result of such review. The company also agrees
and undertakes to obtain all necessary consents from the
concerned authorities in accordance with the then prevailing rules
and regulations and to sign all deeds and documents that may be
required in this regard and to endorse the revised interest rates on
the Debenture Certificates as and when communicated by the
Debenture holder(s).


The Company agrees and undertakes to redeem the
debentures to all the debenture holders in three equal yearly
installments from the end of 4th year from the date of allotment
and ending in the 6th year from allotment.

Name of Debenture Rs. in lacs
Holders At the end of

4th year
5th year
6th year
from the
date of

The debenture holders may at the request of the company in
suitable circumstances and also in the absolute discretion of the
Debenture holders, subject to the statutory guidelines as may be
applicable for the purpose, revise/postpone the redemption of the
debentures or any party thereof outstanding for the time being or
any installment of redemption of the said debentures or any part
thereof upon such terms and conditions as may be decided.

If for any reason the amount of the Debentures finally
subscribed for by the debenture holders is less than the amount of
the debentures agreed to be subscribed the installment(s) of
redemption will be reduced proportionately but will however be
payable on the due date as specified.


The Company shall issue debenture certificate/s to the
debenture holder/s after making necessary compliance to the
provisions of section 113(1) of the Companies Act, 1956 read with
the Companies (Issues of share Certificate) Rules, 1960..


Unless the debenture holders/trustees shall otherwise agree,
the Company shall not :


Declare and/or pay any dividend to any of its
shareholders, whether equity or preference, during any
financial year unless the company has paid to the debenture
holders the installments of principal, if any interest
commitment charges, costs charges and other moneys
payable under this agreement upto and during that year or
has made provisions satisfactory to the debenture holders for
making such payment.


Create or permit any charges or lien on any assets of
the Company except as provided in Article-IV, hereof. For
the purpose of this clause, the term ‘Lien’ shall include
mortgages, pledges, shares, privileges and priorities of any
kind and the term ‘assets’ shall include revenues and
property of any kind.


Amend its Memorandum and Articles of Association
or alter its capital structure except as specified herein.


Undertake or permit any merger, consolidation,
re-organization, scheme of arrangements or compromise
with its creditors or share holders or effect any scheme of
amalgamation or reconstruction,


Make any investment by way of deposits, loans, share
capital etc. in any manner.


Revalue its assets.


Carry on any general trading activity other than the
sale of its own product.”
In terms of the Common Subscription Agreement on or about
17.9.1997, a Debenture Trust Deed was created, the relevant clauses
whereof are as under :


The Trustees shall concur with the Company in
making any modifications in these presents which in the
opinion of the Trustees shall be expedient to make.
Provided that once a modification has been approved by
consent in writing of the holder(s) of the Debentures
representing not less than three fourths in value of the
Debentures for the time being outstanding or by a special
resolution duly passed at a meeting of the Debenture holders
convened in accordance with the provisions set out in Fifth
Schedule hereunder written, the Trustees shall give effect to
the same by executing necessary Deed(s) supplemental to
these presents.

xxx xxx xxx

“The Third Schedule above referred to Financial Covenants
and Conditions


The debentures shall rank pari passu inter se without
any preference or priority of one over the other or others of


The rights, privileges and conditions attached to the
Debentures may be varied, modified or abrogated in
accordance with the Articles of Association of the Company
and the Act and with the consent of the holders of the
debentures by a Special Resolution passed at the meeting of
the Debenture holders, provided that nothing in such
resolution shall be operative against the Company where
such resolution modifies or varies the terms and conditions
governing the Debenture if the same are not acceptable to
the Company.”

“The Fourth Schedule Above Referred to

Form of Debenture Certificate

Xxx xxx xxx

The Fifth Schedule Above Referred to
Provisions for the Meeting of the Debenture holders
22. A meeting of the Debenture holders shall,
inter alia, have the following powers exercisable in the
manner hereinafter specified in Clause 23 hereof :

xxx xxx xxx

(ii) Power to sanction any compromise or
arrangement proposed to be made between the Company
and the Debenture holders.

(iv) Power to assent to any scheme for
reconstruction or amalgamation of or by the Company
whether by sale or transfer of assets under any power in
the Company’s Memorandum of Association or
otherwise under the Act or provisions of any law.

23. The powers set out in Clause 22 hereof shall
be exercisable by a Special Resolution passed at a
meeting of the provisions herein contained and carried by
a majority consisting of not less than three-fourths of the
persons voting thereat upon a show of hands or if a poll
is demanded by a majority representing not less than
three-fourths in value of the votes cast on such poll. Such
a Resolution is hereinafter called “Special Resolution”.

24. A Resolution, passed at a general meeting of
the Debenture holder duly convened and held in
accordance with these presents shall, be binding upon all
the Debenture holders whether present or not, at such
meeting and each of the Debenture holders shall be
bound to give effect thereto accordingly, and the passing
of any such resolutions shall be conclusive evidence that
the circumstances justify the passing thereof, the
intentions being that it shall rest with the meeting to
determine without appeal whether or not the
circumstances justify the passing of such resolution.

25. Notwithstanding anything herein contained,
it shall be competent for all the Debenture holders to
exercise the rights, powers and authorities of the
Debenture holders under the said Trust Deed by a letter
or letters signed by or on behalf of the holder or holders
of at least three-fourths in value of the Debentures
outstanding without convening a meeting of the
Debenture holders as if such letter or letters constituted a
resolution or a special resolution, as the case may be
passed at a meeting duly convened and held as aforesaid
and shall have effect accordingly.”
Encumbrances having admittedly been created in favour of the
debenture holders including the Appellant No.2 herein, in respect of the
properties of the Respondent herein situated at Chikalthana, Nasik and
Waluj in the State of Maharashtra wherefor a legal mortgage by way of
Debenture Trust Deed was created on the Debenture Certificate issued to the
parties as contained in Annexure R-4 appended to the Counter Affidavit
filed on behalf of the Respondent, the relevant provisions whereof read as
under :

“The Debenture Certificate is issued in terms of
the Debenture Trust Deed dated 17th day of September,
1997 (“the Trust Deed”) entered into between the
Company and the Industrial Credit and Investment
Corporation of India Limited (“the Trustees”). The
Trustees will act as Trustees for the holders for the time
being of the Debentures (“the Debentures holders”) in
accordance with the provisions of the Trust Deed. The
Debenture holders are entitled to the benefit of and are
bound by and are deemed to have notice of all the
provisions of the Trust Deed. All rights and remedies of
the Debenture holders against the Company in respect of
arising out of or incidental to the Debenture shall be
exercisable by the Debenture holders only though the

The Debentures are issued subject to and with the
benefit of the Financial Covenants and Conditions
endorsed hereon which shall be binding on the Company
and the Debenture holders and all persons claiming by,
through or under any of them and shall enure for the
benefit of the Trustees and all persons claiming by,
through or under them. The Company hereby agrees and
undertakes to duly and punctually pay, observe and
perform the Financial Covenants and Conditions
endorsed hereon.”

It is accepted that the total sums invested by the financial institutions
in the aforementioned debentures is to the tune of Rs.197.43 crores whereas
UTI invested a sum of Rs.19.57 crores i.e. only about 10% of the total

The Respondent herein having regard to the aforementioned
restructuring scheme filed an application before the High Court of Judicature
at Bombay in terms of Section 391 of the Companies Act which was marked
as Company Petition No.269 of 2003. In the said proceedings except UTI,
all other debenture holders sanctioned the restructuring package.

Before the learned Company Judge, the Appellants herein, inter alia,
contended : (1) having regard to clause 7.5 of the agreement, the Respondent
is totally precluded from filing the said application before the court without
its consent; (2) the Respondent had suppressed material facts in the sense
that disclosure to the effect that the Respondent-Company was granted
relief under the Bombay Relief Undertakings Act, 1958 had not been made
to the said court; (3) the proposed scheme of arrangement is unfair,
unreasonable and unjust which no prudent businessman will accept; and (4)
UTI being an investment company forms a separate class by itself and, thus,
cannot be compared with other financial institutions, as they are only
lenders whereas UTI is an investing agency.

The learned Company Judge rejected all the contentions raised on
behalf of the Appellants herein in terms of its judgment and order dated
1.10.2003. Aggrieved by and dissatisfied therewith, an appeal was preferred
by the Appellants herein, which was dismissed by a Division Bench of the
said Court by reason of the impugned order dated 12.4.2004.
Dr. Rajeev Dhawan, the learned Senior Counsel appearing on behalf
of the Appellants, took us through various documents and principally raised
the following two contentions in support of this appeal : (i) Clause 7.5 of the
agreement having not been found unfair or unconscionable is not hit by
Section 28 of the Indian Contract Act and (ii) The negative covenant as
contained in clause 7.5 of the agreement in relation to the matters specified
therein is imperative in nature.

Dr. Dhawan would urge that clause 7.5 being a consent clause, the
Respondent herein could not have taken any action in violation thereof as
thereby the entire investment plan of the Appellants would be put to

Our attention was drawn to the fact that the Respondent herein
obtained moratorium in terms of the provisions of the Bombay Relief
Undertakings (Special Provisions) Act, 1958 on 6.8.2001 whereupon a
notification was issued declaring the Respondent Company as “Relief
Undertaking” and thereby directing that any right, privilege, obligation or
liability accrued before 6.8.2001 would be suspended and any remedy for
enforcement thereof shall also be suspended and all proceedings relating
thereto before any court, tribunal, officer or authority shall be stayed. Such
moratorium was extended by notifications dated 6.2.2002, 5.2.2003; and
February 2004 for a period of one year commencing from 6.2.2004 to
Referring to Section 28 of the Indian Contract Act, Dr. Dhawan
would submit that the said provisions must be read in the light of the
definition of ‘consideration’ as contained in Section 2(d) thereof having
regard to the fact that the negative covenants are included as a part of
consideration therein and, thereby no absolute bar was created for enforcing
the rights of the Respondent under or in respect of the agreement in any
ordinary tribunal. The Respondent, Dr. Dhawan would argue, had no legal
right to maintain an application under Section 391 of the Companies Act as
it was not an ordinary Tribunal. A Company Judge, according to Dr.
Dhawan, merely exercises a supervisory jurisdiction in terms of Section
391 of the Companies Act and keeping in view the fact that by reason of a
negative covenant even a right can be extinguished or foreclosed, the High
Court committed a serious error in holding that clause 7.5 would be hit by
Section 28 of the Indian Contract Act. In support of the said contentions,
strong reliance has been placed by Dr. Dhawan on M/s M.G. Brothers Lorry
Service vs. M/s Prasad Textiles [(1983) 3 SCC 61]; A.B.C. Laminart Pvt.
Ltd. and Another vs. A.P. Agencies, Salem [(1989) 2 SCC 163]; Food
Corporation of India vs. New India Assurance Co. Ltd. and Others etc.
[(1994) 3 SCC 324]; National Insurance Co. Ltd. vs. Sujir Ganesh Nayak &
Co. and Another [(1997) 4 SCC 366]; Nutan Kumar and Others vs. IInd
Additional District Judge and Others (2002) 8 SCC 31];. Shri Lachoo Mal
vs. Shri Radhey Shyam [(1971) 1 SCC 619]; Miheer H. Mafatlal vs.
Mafatlal Industries Ltd [(1997) 1 SCC 579]; Kempe and another (joint
liquidators of Mentor Insurance Ltd. Vs. Ambassador Insurance Co. (in
liquidation [1998) 1 BCLC 234]; and Re Hawk Insurance Co. Ltd. [(2001) 2
BCLC 480].

The learned counsel would contend that the Appellants herein stand
absolutely on a different footing vis-`-vis the other creditors as they invest
money on a long term basis whereas the Appellants make investment for the
benefit of the members of the mutual fund.

Mr. Soli J. Sorabjee, the learned Senior Counsel appearing on behalf
of the Respondent, on the other hand, would submit that the agreement dated
19.6.1997 must be read with the trust of deed dated 17.9.1997 and so read it
would be seen that the Appellants herein did not have any power of veto so
as to frustrate such a scheme which is beneficial to all the debenture holders.
According to the learned counsel, clause 7.5 does not confer an absolute or
unbriddled power upon all the debenture holders but the same having regard
to the principle of corporate democracy would only mean that such a
decision would be taken by the majority of debenture holders. As the
Appellants herein, the learned counsel would argue, made contribution only
to the extent of 10% of the total amount lent by the debenture holders and
their right being pari passu with other debenture holders, they cannot claim a
preferential right. If clause 7.5 of the agreement is read in the manner, as
suggested by the Appellants herein, Mr. Sorabjee would urge that thereby
words have to be added thereto which is impermissible in law as by reason
thereof one debenture holder would be conferred a power of veto resulting
whereof not only in violation of the principle of corporate democracy would
be violated, but a change in the integrity of the document would also be
brought about.

Section 28 of the Indian Contract Act was invoked by the Respondent
before the High Court, it was contended, only because the Appellants herein
raised a contention that by reason of clause 7.5 an absolute bar has been
created in moving an application under Section 391 of the Companies Act.

For the purpose of this case, we shall proceed on the premise that
clause 7.5 of the agreement is valid and is not hit by Section 28 of the Indian
Contract Act.

A Common Subscription Agreement was entered into by and between
the Respondent herein and all the debenture holders. The debenture holders
named therein are collectively referred to by that expression and the
expression means the debenture holders specified therein deriving their title
to the debenture. The said agreement was entered into having regard to the
fact that the Respondent approached all the debenture holders for financial
assistance for meeting their long term capital requirement in response
whereto which debenture holders agreed to advance various sums of monies,
in the form of subscription to 18.5%, 21,00,000 non-convertible privately
placed debentures of Rs.100/- each. Out of the total investment of
Rs.21,00,00,000/- made by the debenture holders, the contribution of the
Appellant is only Rs.4,00,00,000/. The Respondent in terms of the said
agreement had undertaken to redeem the debentures in three equal
instalments from the end of fourth year of the date of allotment and ending
in the sixth year.

In terms of clause 2.2 all debenture holders are entitled to be treated
pari passu inter se wherefor no preference or priority of one over the other
can be given.

The Industrial Credit and Investment Corporation Limited became the
trustee for the debenture holders. In the agreement wherever an individual
right has been conferred upon the debenture holders, they have been
described as debenture holder(s) or debenture-holder/s. Debenture
certificates were issued to the debenture holders in terms of the Debentures
Trust Deed pursuant whereto they became entitled to the benefits specified
therein but they were bound by and were deemed to have notice of all the
provisions of the Trust Deed. The rights and remedies of the debenture
holders against the company were to be exercised only through the trustee.

Clause 7.5 contains a negative covenant which enjoined the company
not to undertake or affect any scheme of amalgamation or re-construction
unless the debenture holders/trustees would otherwise agree.

Does this mean that all the debenture holders/trustees singularly or
collectively must agree thereto that the decision of the majority shall prevail,
is the question involved in this appeal.

We may at the outset notice that clause 7.8 of the said agreement uses
the expression ‘any or all of debenture holders’. The parties to the
agreement, therefore, have used two different expressions in the said
agreement, namely, (1) debenture-holders/trustees; and (2) any or all of
debenture holders. We have noticed hereinbefore that the debenture holders
have been referred to in the agreement in the said capacity collectively. The
definition of debenture holders contains the expression ‘means’ which
shows that it is not an expansive definition. The category of the debenture
holders are confined to those who in terms of the agreement are holders of
the debentures deriving their title thereto.

In terms of clause 10 of the Trust Deed, the rights, privileges and
conditions attached to the debentures may be varied, modified or abrogated
only in accordance with the Articles of Association of the Company and the
Act and with the consent of the debenture holders by a special resolution
passed at the meeting of the debenture holders but in terms of the proviso
appended thereto nothing in such resolution shall be operative against the
company where such resolution modifies or varies the terms and conditions
governing the debentures, if the same are not acceptable to the company.
The Trust Deed speaks of such resolution also in terms of clauses 22 and 24
thereof. Clause 25 provides that such a resolution may be adopted by
circulation of letter or letters. The provisions of the Trust Deed and in
particular clauses 22, 23, 24 and 25 thereof leave no manner of doubt that a
resolution has to be passed in the manner laid down therein and/or in terms
of the Companies Act.

The common subscription agreement is an investment/ loan
agreement. The provisions contained therein are required to be read in their
entirety and for the said purpose it is permissible to read the negative
covenants with the positive covenants. It will, however, not be correct to
say that the common subscription agreement has to be interpreted on its own
without any reference to the trust deed. The provisions of the trust deed, in
our opinion, can be referred to for the purpose of giving a true meaning to
the agreement, as there does not exist any conflict between the two. They
are to be considered together for the purpose of finding out as to how the
agreement can be worked out.

This Court in this case is not called upon to interpret the nature of a
document or the covenants entered into by and between the parties. The
agreement specifies the rights and privileges of the parties thereto and in
particular the rights and privileges of the debenture holder either
collectively or individually.

The underlying or basic thread of the agreement vis-`-vis the trust
deed is that the majority principle was accepted by the authorities. They do
not provide for an unanimity; or any veto power in favour of one debenture
holder so as to scuttle the decision of the majority.

In Moti Ram and others vs. State of Madhya Pradesh [AIR 1978 SC
1594], this Court noticed the observation of Justice Frankfurter in
Massachusetts B. & Insurance Co. vs. U.S. [(1956) 352 US 128 at 138],
which is to the following effect :

“there is no surer way to misread a document than to read
it literally”
It is true that a negative covenant by itself is not invalid in law. But it
is also true that it requires a strict construction. The agreement is a
commercial document. Commercial documents must be construed in a
manner as are understood in commercial parlance. A commercial document
must be read reasonably. It must be construed in such a manner so that it is
made workable.

The parties to the agreement are commercial concerns. Each party
would indisputably try to protect its interest when advancing loans or
making investment but it must also be conceded that they were aware of the
risk factor involved therein. The factors which are responsible for
sufferance of loss by the Respondent herein to the extent of 228.58 crores
was as a result of market situation then prevailing, i.e. steep devaluation of
currencies of Korea and Indonesia who were the major suppliers of film in
the international market as a result whereof they started dumping the
materials at cheap prices in Europe, and the levy of anti-dumping/anti-
subsidy duties by the European Union as a result whereof sales to European
countries came down drastically.

The restructuring package was evolved at the instance of the Industrial
Development Bank of India which was the largest lender and the trustee
upon obtaining a report in that behalf from KPMG, a reputed concern. A
scheme envisaged under Section 391 of the Companies Act, it is well-
settled, is a commercial document.

Section 391 read with Section 393 of the Act postulate that where a
compromise or arrangement is proposed between a company and its
creditors or any class of them; or between a company and its members or
any class of them, the court is required to direct holding of meetings of
creditors or class of creditors or members or class of members who are
concerned with such a scheme. In the event majority of the creditors
representing three-fourths in value of the creditors or class of creditors or
members or class of members, as the case may be, present or voting either in
person or by proxy at such a meeting accord their approval thereto thus put
to vote, whereupon, the court may consider the question of grant of sanction
thereto. Section 391(1)(a) enjoins that requisite information therefor should
be placed for consideration before the voters, in terms whereof the creditors
or class of creditors can take an informed decision in relation thereto. The
court, however, would not grant sanction to such a scheme only because the
same reflects the will of the majority of the creditors or a class of them but
it must consider all aspects of the matter so as to arrive at a finding that the
scheme is fair, just and reasonable and does not contravene public policy or
any statutory provision. Such a care or caution is required to be exercised by
all courts including the Civil Court in terms of Order XXIII, Rule 1 of the
Code of Civil Procedure.

The scope and jurisdiction of the Company Court has been examined
at some length by a Division Bench of this Court in Miheer H. Mafatlal
(supra) wherein the broad contours of such jurisdiction have been
enumerated indicating :

“6. That the proposed scheme of compromise and
arrangement is not found to be violative of any provision
of law and is not contrary to public policy. For
ascertaining the real purpose underlying the scheme with
a view to be satisfied on this aspect, the Court, if
necessary, can pierce the veil of apparent corporate
purpose underlying the scheme and can judiciously X-ray
the same.

*** *** ***

8. That the scheme as a whole is also found to be just,
fair and reasonable from the point of view of prudent
men of business taking a commercial decision beneficial
to the class represented by them for whom the scheme is

In J.K. (Bombay) (P) Ltd. vs. New Kaiser-I-Hind Spg. & Wvg. Co.
Ltd. & Ors. etc. [(1969) 2 SCR 866], it was held :

“The principle is that a scheme sanctioned by the court
does not operate as a mere agreement between the parties
: it becomes binding on the company, the creditors and
the shareholders and has statutory force, and, therefore
the joint-debtor could not invoke the principle of accord
and satisfaction. By virtue of the provisions of sec. 391
of the Act, a scheme is statutorily binding even on
creditors and shareholders who dissented from or
opposed to its being sanctioned. It has statutory force in
that sense and therefore cannot be altered except with the
sanction of the Court even if the shareholders and the
creditors acquiesce in such alteration”

It is not the case of the Appellants that the learned Company Judge
has exceeded his jurisdiction and acted in violation of the said guidelines.
Once it is held that the normal rule, namely, the principle of majority in
corporate democracy or in other words, governance of the company by
majority, is accepted, the Appellants could not be heard to say that they had
an absolute right to exercise veto power and thereby scuttle a bona fide
attempt to revive a company. Efforts to keep a company from becoming
insolvent and even to revive an insolvent corporate have been receiving
legislative and executive support, as would be evident from several
Parliamentary Act, as for example the Sick Industrial Companies (Special
Provisions) Act, 1985 and the Securitization and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002.

It is difficult for us to agree with the submission of Dr. Dhawan that
clause 7.5 puts a total embargo on the part of the company or other creditors
to file a compromise under Section 391 of the Companies Act without
obtaining the consent of all debenture holders. Clause 7.5 neither can be
read in such a manner nor should be read. Such a construction would be
unwarranted having regard to the fact that two different expressions have
been used in different clauses. Wherever a right has been conferred upon an
individual debenture holder, the agreement used the expression ‘any or all
the debenture holders’ as contrasted by all debenture holders. The
debenture holders are required to exercise their right through the trustee save
and except in the cases which confer specified power to them. The
Appellants herein cannot claim any priority or preference in the matter of
realization of their dues over the other debenture holders. Each debenture
holders has a pari passu right with each other, as is evident from clause 2.2.

In J.K. (Bombay) (P) Ltd. (supra), it was held :

“The Court could not have completed, as contended by
the appellants, their rights which were still incomplete or
order the company to execute a debenture trust deed or
the second mortgage, and thus set up the appellants and
the other Sch. ‘B’ creditors as secured creditors against
the rest of the unsecured creditors. Such an order could
not be passed as it would be contrary to and in breach of
the right of distribution pari passu of the joint body of
unsecured creditors.”

[See also Andhra Bank Vs. Official Liquidator and Anr., 2005 (3)
SCALE 178]

In view of the our findings aforementioned, we are of the
opinion that the Appellants herein having failed to establish that they could
hold the entire scheme to ransom so as to stall the proceedings as a result
whereof the majority of debenture holders would be deprived, the purpose or
object motivating the Appellants to advance such a huge amount to the
Respondent against issue of debentures is a matter of little or of no concern
to the Respondent – company or other debenture holders. A special or a new
right cannot be found in favour of the Appellants in the agreement when it
creates none. The scheme applies equally to all debenture holders and as
such the Appellants cannot be treated as a separate class. Once the
Respondent-Company prima facie showed that the scheme is fair and
reasonable and also that the requisite majority of the debenture holders
recorded their decision in its favour, the court in absence of any unforeseen
unjustness or unreasonableness therein ought not to reject the same.

The Company Judge by reason of the impugned judgment while
exercising a supervisory jurisdiction only accepted the scheme. The High
Court’s decision is not being questioned as unfair.

The Respondent in view of the Scheme has no remedy other than
approaching the High Court under Section 391 of the Companies Act.

In Sardar Amarjit Singh Kalra (Dead) by Lrs. and Others etc. vs.
Pramod Gupta (Smt.) (Dead) by Lrs. and Others etc. [(2003) 3 SCC 272],
this Court stated :
“As far as possible, courts must always aim to
preserve and protect the rights of the parties and extend
help to enforce them rather than deny relief and thereby
render the rights themselves otiose, “ubi jusibi
remedium” (where there is a right, there is a remedy)
being a basic principle of jurisprudence. Such a course
would be more conducive and better conform to a fair,
reasonable and proper administration of justice.”
We may at this stage refer to the decisions relied upon by Dr.

In the case of Nanakram Vs. Kundalrai [(1986) 3 SCC 83] as also
Nutan Kumar and Others Vs. IInd Additional District Judge and Others
[(2002) 8 SCC 31] the question which arose for consideration was as to
whether a lease in violation of statutory provision was void. Such a question
does not arise for consideration herein.

In Delhi Development Authority Vs. Durga Chand Kaushish [(1973) 2
SCC 825], the court was concerned with the interpretation of a deed of lease.
It was noticed:

“19. Both sides have relied upon certain passages
in Odgers’ Construction of Deeds and Statutes
(5th Edn. 1967). There (at pp. 28-29), the First
General Rule of Interpretation formulated is: “The
meaning of the document or of a particular part of
it is therefore to be sought for in the document
itself”. That is, undoubtedly, the primary rule of
construction to which Sections 90 to 94 of the
Indian Evidence Act give statutory recognition and
effect, with certain exceptions contained in
Sections 95 to 98 of the Act. Of course, “the
document” means “the document” read as a whole
and not piecemeal.”
(Emphasis supplied)
There is no quarrel with the aforementioned position of law.

In Smt. Rajbir Kaur and Another Vs. M/s. S. Chokesiri and Co.
[(1989) 1 SCC 19], the court was concerned with the interpretation as to
whether a document in question was a lease or a licence. The said decision
has been rendered on the fact of the said case and on the basis of the
evidence brought on records as to whether the tailor and the ice-cream
vendors had been put in exclusive possession in the tenanted premises. The
said decision has no application to the fact of the present case.

Delta International Ltd. Vs. Shyam Sundar Ganeriwalla and Another
[(1999) 4 SCC 545] again dealt with a similar question. It was observed:

“27. Lastly, it is to be noted that if the document is
a camouflage as stated earlier, the mask or veil is
required to be removed for determining the true
intent and purpose of the document. In the present
case, there is no pleading by the defendants that
the document was a camouflage so as to defeat the
rights of a tenant who had inducted the appellant
or that of the owner of the premises. As stated
earlier, the document contemplates three types of
agreements, one, that of a leave and licence;
secondly, in case a consent is obtained from the
tenant (sic landlord), for execution of a sub-lease
which would create an interest in the property as a
sub-tenant and thirdly, in case of a sub-lease, for
purchase of equipment, fitting and fixtures at a
price of Rs 2,50,000. The second and third parts
of the agreement never came into operation.
Hence, for the reasons discussed above, we hold
that the agreement dated 18-7-1970 is a deed of
“leave and licence” and not a “lease”.”

The said decision also has no application in the instant case.

In view of our findings aforementioned, it is not necessary for us to
enter into the question as to whether clause 7.5 of the agreement is hit by
Section 28 of the Indian Contract Act or not.

We do not find any merit in this appeal which is dismissed
accordingly. However, in the facts and circumstances of the case, there shall
be no order as to costs.

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