{"id":269165,"date":"2005-05-09T00:00:00","date_gmt":"2005-05-08T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/administrator-of-s-u-u-t-i-vs-garware-polyester-ltd-on-9-may-2005"},"modified":"2015-12-19T19:10:30","modified_gmt":"2015-12-19T13:40:30","slug":"administrator-of-s-u-u-t-i-vs-garware-polyester-ltd-on-9-may-2005","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/administrator-of-s-u-u-t-i-vs-garware-polyester-ltd-on-9-may-2005","title":{"rendered":"Administrator Of S.U., U.T.I. & … vs Garware Polyester Ltd on 9 May, 2005"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Administrator Of S.U., U.T.I. & … vs Garware Polyester Ltd on 9 May, 2005<\/div>\n
Author: S.B. Sinha<\/div>\n
Bench: B.P. Singh, S.B. Sinha<\/div>\n
           CASE NO.:\nAppeal (civil)  3196 of 2005\n\nPETITIONER:\nAdministrator of S.U., U.T.I. & Anr.\n\nRESPONDENT:\nGarware Polyester Ltd.\n\nDATE OF JUDGMENT: 09\/05\/2005\n\nBENCH:\nB.P. Singh & S.B. Sinha\n\nJUDGMENT:\n<\/pre>\n
J U D G M E N T<\/p>\n
[Arising out of S.L.P. (Civil) No.20174 of 2004]<\/p>\n
S.B. SINHA, J :\n<\/p>\n
\tLeave granted.\n<\/p>\n
\tThe Respondent herein is a company registered under the Companies
\nAct<\/a>, 1956, and  engaged in the manufacture of polyester film; 50% of which
\nproduction used to be exported to United States of America, United
\nKingdom, Europe, Far East, Middle East, Japan, New Zealand etc.  Having
\nregard to the adoption of liberalization policy by the Government of India,
\nthe Company intended to become globally competitive and went for a
\nmassive expansion in the year 1996.  The scheme of the said expansion was
\nfinanced by obtaining term loans and issuance of debentures by various
\nfinancial institutions including the Appellant No.2 herein. For various
\nreasons, including imposition of European Union Levelled Anti Dumping
\nDuties, the Respondent suffered a cumulative loss of Rs.228.58 crores by
\nMarch 2001.  In the said circumstance, the Respondent approached the
\nIndustrial Development Bank of India with a request  for a restructuring
\npackage to clear its liabilities.  A restructuring proposal was mooted;
\nwherefor two meetings were held in March 2001 and October 2001 wherein
\nthe Unit Trust of India (UTI) participated.  All the debenture holders upon
\ndue deliberations agreed to the said proposal of restructuring  package
\nexcept the Appellants herein.  It is not in dispute that pursuant to or in
\nfurtherance of the said restructuring package, the Respondent herein paid a
\nsum of  Rs.64.44 crores to various financial institutions between the period
\n1.10.2001 and 15.1.2003 in the following terms :\n<\/p>\n
“Sr.\n<\/p>\n
No.\n<\/p>\n
Institution
\nPrincipal in
\n(Rs.Crores)
\nDeferred
\nInterest
\nTotal\n<\/p>\n
1.
\nIDBI 15.5% PPD
\n99.50
\n43.70
\n143.20\n<\/p>\n
2.
\nIDBI 16% NCD
\n2.18
\n0.87
\n3.05\n<\/p>\n
3.
\nICICI ZCD
\n6.00
\n1.95
\n7.95\n<\/p>\n
4.
\nUTI 16% NCD
\n9.80
\n3.92
\n13.72\n<\/p>\n
5.
\nUTI 18.5% PPS
\n4.00
\n1.85
\n5.85\n<\/p>\n
6.
\nLIC 18.5% PPD
\n10.00
\n3.41
\n13.41\n<\/p>\n
7.
\nGIC 18.5% PPD
\n1.75
\n0.81
\n2.56\n<\/p>\n
8.
\nNEW INDIA
\n18.5%  PPD
\n1.75
\n0.81
\n2.56\n<\/p>\n
9.
\nNATIONAL
\n18.5% PPD
\n1.05
\n0.49
\n1.54\n<\/p>\n
10.
\nOIC 18.5% PPD
\n1.05
\n0.49
\n1.54\n<\/p>\n
11.
\nUTI 18.5% PPD
\n1.40
\n0.65
\n2.05<\/p>\n
Total
\n197.43<\/p>\n
\t81% of the principal outstanding carrying interest @
\n12.5% need to be repaid in 28 quarterly installments
\ncommencing from 1.4.2003.\n<\/p>\n
\t19% of the principal outstanding carrying nil rate of
\ninterest need to be repaid partly to the extent of 385 during
\n2003-2004 and the balance to be repaid with a premium of 85%
\nin 24 quarterly installments commencing from 1.4.2006<\/p>\n
\tDeferred interest being the interest outstanding carrying
\nnil rate of interest need to be repaid in 24 quarterly installments
\ncommencing from 1.4.2006.\n<\/p>\n
\tPenal interest and Liquidated damages outstanding as on
\n31.3.2001 to be waived.\n<\/p>\n
\tIn addition to the above, sacrifice being the amount
\nrepresenting the difference between the contracted rate of
\ninterest and the rate as per the restructuring package will be
\npaid on net present value (NPV) basis in 12 quarterly
\ninstallments commencing from 1.4.2002.”\n<\/p>\n
On or about 19.6.1997,  a Common Subscription Agreement was
\nentered into by and between the Respondent and the debenture holders; the
\nrelevant clauses whereof are as under :\n<\/p>\n
\t“1.1.\tWherever used in this Agreement, unless the context
\notherwise requires the following terms shall have the following
\nmeanings :\n<\/p>\n
\ta)\t***\t\t***\t\t***\n<\/p>\n
\tb)\t***\t\t***\t\t***\t<\/p>\n
\tc)\t“Debenture holders” means LIC, UTI, GIC, NIC,
\nNIA, OIC and UTI or the holders of the Debentures for the time
\nbeing deriving their title to the Debentures.\n<\/p>\n
\t\t2.\tCOMPANY’S REQUEST FOR FINANCIAL
\nASSISTANCE.\n<\/p>\n
\t\tThe Company has approached the Debenture holders for
\nfinancial  assistance to the company for long term capital
\nrequirements and the Debenture holders have agreed to advance
\nfinancial assistance in the form of subscription to 18.5%,  21,00,000
\nnon-convertible.  Privately placed debentures of Rs.100\/- each to the
\nextent mentioned below :\n<\/p>\n
Name of
\nDebenture holders
\nLetter No. & Date
\nAmount in lacs
\nUTI
\nDOI\/2945\/G-76\/96-97
\n23.4.97
\n400<\/span>
\nLIC
\nINV:C:KAJ DT.\n<\/p>\n
21.4.97
\n1000<\/span>
\nGIC
\nINV.\/97  DT. 23.5.97
\n175<\/span>
\nNIC
\nINVT\/UW\/DEBS
\nDT.30.5.97
\n105<\/span>
\nNIA
\nINV\/PM\/BUD\/72\/96
\nDT. 10.6.97
\n175<\/span>
\nOIC
\nDEPTT.\n<\/p>\n
INVESTMENT DT
\n30.5.97
\n105<\/span>
\nUII
\nHQ:INV:262:97 DT.\n<\/p>\n
30.5.97
\n140<\/span><\/p>\n
Total
\n2100<\/span><\/p>\n
2.2\tDEBENTURE SHALL RANK PARI PASSU :\n<\/p>\n
The Company shall ensure that the Debentures shall rank
\npari passu inter se to all intents and purposes without any
\npreference or priority of one over the other.\n<\/p>\n
3.3\tRIGHT TO REVIEW THE RATE OF INTEREST :\n<\/p>\n
The Company agrees and undertakes that the Debenture
\nholder(s) shall have a right to review the rate of interest as
\nmentioned herein.  The Company shall pay interest on the
\nDebentures at the rate that may be stipulated by the debenture
\nholder(s) as a result of such review.  The company also agrees
\nand undertakes to obtain all necessary consents from the
\nconcerned authorities in accordance with the then prevailing rules
\nand regulations and to sign all deeds and documents that may be
\nrequired in this regard and to endorse the revised interest rates on
\nthe Debenture Certificates as and when communicated by the
\nDebenture holder(s).\n<\/p>\n
  3.7\tREPAYMENT :\n<\/p>\n
The Company agrees and undertakes to redeem the
\ndebentures to all the debenture holders in three equal yearly
\ninstallments from the end of 4th year from the date of allotment
\nand ending in the 6th year from allotment.\n<\/p>\n
\t  Name of Debenture\t\t\t         Rs. in lacs \n\t  Holders\t\t\t\t\t      At the end of \n\n4th year\n5th year\n6th year\n\n\nfrom    the \n date   of \nallotment\nUTI\n133.33\n133.33\n133.34\nLIC\n333.33\n333.33\n333.34\nGIC\n 58.33\n  58.33\n  58.34\nNIC\n 35.00\n  35.00\n 35.00\nNIA\n 58.33\n 58.33\n 58.34\nOIC\n  35.00\n 35.00\n 35.00\nUTI\n  46.66\n 46.67\n 46.67\n    Total\n699.98\n699.99\n700.03\n\n<\/pre>\n
The debenture holders may at the request of the company in
\nsuitable circumstances and also in the absolute discretion of the
\nDebenture holders, subject to the statutory guidelines as may be
\napplicable for the purpose, revise\/postpone the redemption of the
\ndebentures or any party thereof outstanding for the time being or
\nany installment of redemption of the said debentures or any part
\nthereof upon such terms and conditions as may be decided.\n<\/p>\n
If for any reason the amount of the Debentures finally
\nsubscribed for by the debenture holders is less than the amount of
\nthe debentures agreed to be subscribed the installment(s) of
\nredemption will be reduced proportionately but will however be
\npayable on the due date as specified.\n<\/p>\n
3.9\tDEBENTURE CERTIFICATE :\n<\/p>\n
The Company shall issue debenture certificate\/s to the
\ndebenture holder\/s after making necessary compliance to the
\nprovisions of section 113(1)<\/a> of the Companies Act, 1956 read with
\nthe Companies (Issues of share Certificate) Rules, 1960..\n<\/p>\n
7.5\tNEGATIVE COVENANTS :\n<\/p>\n
Unless the debenture holders\/trustees shall otherwise agree,
\nthe Company shall not :\n<\/p>\n
a)\tDIVIDEND<\/p>\n
Declare and\/or pay any dividend to any of its
\nshareholders, whether equity or preference, during any
\nfinancial year unless the company has paid to the debenture
\nholders the installments of principal, if any interest
\ncommitment charges, costs charges and other moneys
\npayable under this agreement upto and during that year or
\nhas made provisions satisfactory to the debenture holders for
\nmaking such payment.\n<\/p>\n
b)\tCHARGES<\/p>\n
Create or permit any charges or lien on any assets of
\nthe Company except as provided in Article-IV<\/a>, hereof.  For
\nthe purpose of this clause, the term ‘Lien’ shall include
\nmortgages, pledges, shares, privileges and priorities of any
\nkind and the term ‘assets’ shall include revenues and
\nproperty of any kind.\n<\/p>\n
c)\tAMENDMENT OF MEMORANDUM AND
\nARTICLES OF ASSOCIATION <\/p>\n
Amend its Memorandum and Articles of Association
\nor alter its capital structure except as specified herein.\n<\/p>\n
d)\tMERGER, CONSOLIDATION ETC.\n<\/p>\n
\tUndertake or permit any merger, consolidation,
\nre-organization, scheme of arrangements or compromise
\nwith its creditors or share holders or effect any scheme of
\namalgamation or reconstruction,<\/p>\n
\te)\tINVESTMENT BY THE COMPANY<\/p>\n
Make any investment by way of deposits, loans, share
\ncapital etc. in any manner.\n<\/p>\n
\tf)\tREVALUATION OF ASSETS<\/p>\n
\t\tRevalue its assets.\n<\/p>\n
\tg)\tTRADING ACTIVITY<\/p>\n
Carry on any general trading activity other than the
\nsale of its own product.”\n<\/p>\n
In terms of the Common Subscription Agreement on or about
\n17.9.1997, a Debenture Trust Deed was created, the relevant clauses
\nwhereof are as under :\n<\/p>\n
“45.\tMODIFICATIONS TO THESE PRESENTS :\n<\/p>\n
The Trustees shall concur with the Company in
\nmaking any modifications in these presents which in the
\nopinion of the Trustees shall be expedient to make.
\nProvided that once a modification has been approved by
\nconsent in writing of the holder(s) of the Debentures
\nrepresenting not less than three fourths in value of the
\nDebentures for the time being outstanding or by a special
\nresolution duly passed at a meeting of the Debenture holders
\nconvened in accordance with the provisions set out in Fifth
\nSchedule hereunder written, the Trustees shall give effect to
\nthe same by executing necessary Deed(s) supplemental to
\nthese presents.\n<\/p>\n
xxx\t\t\txxx\t\t\txxx<\/p>\n
“The Third Schedule above referred to Financial Covenants
\nand Conditions<\/p>\n
1.\tDEBENTURES TO RANK PARI PASSU <\/p>\n
The debentures shall rank pari passu inter se without
\nany preference or priority of one over the other or others of
\nthem.\n<\/p>\n
10.\tVARIATION OF DEBENTURE HOLDERS’
\nRIGHTS<\/p>\n
The rights, privileges and conditions attached to the
\nDebentures may be varied, modified or abrogated in
\naccordance with the Articles of Association of the Company
\nand the Act and with the consent of the holders of the
\ndebentures by a Special Resolution passed at the meeting of
\nthe Debenture holders, provided that nothing in such
\nresolution shall be operative against the Company where
\nsuch resolution modifies or varies the terms and conditions
\ngoverning the Debenture if the same are not acceptable to
\nthe Company.”\n<\/p>\n
\t“The Fourth Schedule Above Referred to<\/p>\n
\tForm of  Debenture Certificate <\/p>\n
\tXxx\t\t\txxx\t\t\txxx<\/p>\n
\tThe Fifth Schedule Above Referred to
\n\tProvisions for the Meeting of the Debenture holders\n<\/p>\n
\t22.\tA meeting of the Debenture holders shall,
\ninter alia, have the following powers exercisable in the
\nmanner hereinafter specified in Clause 23 hereof :\n<\/p>\n
xxx\t\t\txxx\t\t\txxx<\/p>\n
(ii)\tPower to sanction any compromise or
\narrangement proposed to be made between the Company
\nand the Debenture holders.\n<\/p>\n
(iv)\tPower to assent to any scheme for
\nreconstruction or amalgamation of or by the Company
\nwhether by sale or transfer of assets under any power in
\nthe Company’s Memorandum of Association or
\notherwise under the Act or provisions of any law.\n<\/p>\n
23.\tThe powers set out in Clause 22 hereof shall
\nbe exercisable by a Special Resolution passed at a
\nmeeting of the provisions herein contained and carried by
\na majority consisting of not less than three-fourths of the
\npersons voting thereat upon a show of hands or if a poll
\nis demanded by a majority representing not less than
\nthree-fourths in value of the votes cast on such poll. Such
\na Resolution is hereinafter called “Special Resolution”.\n<\/p>\n
24.\tA Resolution, passed at a general meeting of
\nthe Debenture holder duly convened and held in
\naccordance with these presents shall, be binding upon all
\nthe Debenture holders whether present or not, at such
\nmeeting and each of the Debenture holders shall be
\nbound to give effect thereto accordingly, and the passing
\nof any such resolutions shall be conclusive evidence that
\nthe circumstances justify the passing thereof, the
\nintentions being that it shall rest with the meeting to
\ndetermine without appeal whether or not the
\ncircumstances justify the passing of such resolution.\n<\/p>\n
25.\tNotwithstanding anything herein contained,
\nit shall be competent for all the Debenture holders to
\nexercise the rights, powers and authorities of the
\nDebenture holders under the said Trust Deed by a letter
\nor letters signed by or on behalf of the holder or holders
\nof at least three-fourths in value of the Debentures
\noutstanding without convening a meeting of the
\nDebenture holders as if such letter or letters constituted a
\nresolution or a special resolution, as the case may be
\npassed at a meeting duly convened and held as aforesaid
\nand shall have effect accordingly.”\n<\/p>\n
Encumbrances having admittedly been created in favour of the
\ndebenture holders including the Appellant No.2 herein, in respect of the
\nproperties of the Respondent herein situated at Chikalthana, Nasik and
\nWaluj in the State of Maharashtra wherefor a legal mortgage by way of
\nDebenture Trust Deed was created on the Debenture Certificate issued to the
\nparties as contained in Annexure R-4 appended to the Counter Affidavit
\nfiled on behalf of the Respondent, the relevant provisions whereof read as
\nunder :\n<\/p>\n
“The Debenture Certificate is issued in terms of
\nthe Debenture Trust Deed dated 17th day of September,
\n1997 (“the Trust Deed”) entered into between the
\nCompany and the Industrial Credit and Investment
\nCorporation of India Limited (“the Trustees”).  The
\nTrustees will act as Trustees for the holders for the time
\nbeing of the Debentures  (“the Debentures holders”) in
\naccordance with the provisions of the Trust Deed.  The
\nDebenture holders are entitled to the benefit of and are
\nbound by and are deemed to have notice of all the
\nprovisions of the Trust Deed.   All rights and remedies of
\nthe Debenture holders against the Company in respect of
\narising out of or incidental to the  Debenture shall be
\nexercisable by the Debenture holders only though the
\nTrustees.\n<\/p>\n
The Debentures are issued subject to and with the
\nbenefit of the Financial Covenants and Conditions
\nendorsed hereon which shall be binding on the Company
\nand the Debenture holders and all persons claiming by,
\nthrough or under any of them and shall enure for the
\nbenefit of the Trustees and all persons claiming by,
\nthrough or under them.  The Company hereby agrees and
\nundertakes to duly and punctually pay, observe and
\nperform the Financial Covenants and Conditions
\nendorsed hereon.”\n<\/p>\n
\tIt is accepted that the total sums invested by the financial institutions
\nin the aforementioned debentures is to the tune of Rs.197.43 crores whereas
\nUTI invested a sum of Rs.19.57 crores i.e. only about 10% of the total
\ninvestment.\n<\/p>\n
The Respondent herein having regard to the aforementioned
\nrestructuring scheme filed an application before the High Court of Judicature
\nat Bombay in terms of Section 391<\/a> of the Companies Act which was marked
\nas Company Petition No.269 of 2003.  In the said proceedings except  UTI,
\nall other debenture holders sanctioned the restructuring package.\n<\/p>\n
Before the learned Company Judge, the Appellants herein, inter alia,
\ncontended : (1) having regard to clause 7.5 of the agreement, the Respondent
\nis totally precluded from filing the said application before the court without
\nits consent; (2) the Respondent had suppressed material facts in the sense
\nthat disclosure  to the effect that the Respondent-Company was granted
\nrelief under the Bombay  Relief Undertakings Act, 1958 had not been made
\nto the said court;  (3) the proposed scheme of arrangement is unfair,
\nunreasonable and unjust which no prudent businessman will accept; and (4)
\nUTI being an investment company forms a separate class by itself and, thus,
\ncannot be compared with other financial institutions, as they are  only
\nlenders whereas UTI is an investing agency.\n<\/p>\n
The learned Company Judge rejected all the contentions raised on
\nbehalf of the Appellants herein in terms of its judgment and order dated
\n1.10.2003.  Aggrieved by and dissatisfied therewith, an appeal was preferred
\nby the Appellants herein, which was dismissed by a Division Bench of the
\nsaid Court by reason of the impugned order dated 12.4.2004.\n<\/p>\n
\tDr. Rajeev Dhawan, the learned  Senior Counsel appearing on behalf
\nof the Appellants, took  us through various documents and  principally raised
\nthe following two contentions in support of this appeal : (i) Clause 7.5 of the
\nagreement having not been found unfair or unconscionable is not hit by
\nSection 28<\/a> of the Indian Contract Act and (ii) The negative covenant as
\ncontained in clause 7.5 of the agreement in relation to the matters specified
\ntherein is imperative in nature.\n<\/p>\n
\tDr. Dhawan would urge that clause 7.5 being a consent clause, the
\nRespondent herein could not have taken any action in violation thereof as
\nthereby the entire investment plan of the Appellants would be put to
\njeopardy.\n<\/p>\n
\tOur attention was drawn to the fact that the Respondent herein
\nobtained moratorium in terms of the provisions of the Bombay Relief
\nUndertakings (Special Provisions) Act, 1958 on 6.8.2001 whereupon a
\nnotification was issued declaring the Respondent Company as “Relief
\nUndertaking” and thereby directing that any right, privilege, obligation or
\nliability accrued before 6.8.2001 would be suspended and any remedy for
\nenforcement thereof shall also be suspended and all proceedings relating
\nthereto before any court, tribunal, officer or authority shall be stayed.  Such
\nmoratorium was extended by notifications dated 6.2.2002, 5.2.2003; and
\nFebruary 2004 for a period of one year commencing from 6.2.2004 to
\n5.2.2005.\n<\/p>\n
 Referring to Section 28<\/a> of the Indian Contract Act, Dr. Dhawan
\nwould submit that the said provisions must be read in the light of the
\ndefinition of ‘consideration’ as contained in Section 2(d)<\/a> thereof having
\nregard to the fact that the negative covenants are included as a part of
\nconsideration therein and, thereby  no absolute bar was created for enforcing
\nthe rights of the Respondent under or in respect of the agreement in any
\nordinary tribunal.  The Respondent, Dr. Dhawan would argue, had no legal
\nright to maintain an application under Section 391<\/a> of the Companies Act as
\nit was not an ordinary Tribunal.  A Company Judge, according to Dr.
\nDhawan,   merely exercises a supervisory jurisdiction in terms of Section
\n391<\/a> of the Companies Act and keeping in view the fact that by reason of a
\nnegative covenant even a right can be extinguished or foreclosed, the High
\nCourt committed a serious error in holding that clause 7.5 would be hit by
\nSection 28<\/a> of the Indian Contract Act.  In support of the said contentions,
\nstrong reliance has been placed by Dr. Dhawan on M\/s M.G. Brothers Lorry
\nService vs. M\/s Prasad Textiles<\/a>  [(1983) 3 SCC 61];  A.B.C. Laminart Pvt.
\nLtd. and Another vs. A.P. Agencies, Salem<\/a> [(1989) 2 SCC 163]; Food
\nCorporation of  India vs. New India Assurance Co. Ltd. and Others<\/a> etc.
\n[(1994) 3 SCC 324]; National Insurance Co. Ltd. vs. Sujir Ganesh Nayak &
\nCo. and Another<\/a> [(1997) 4 SCC 366]; Nutan Kumar and Others vs. IInd
\nAdditional District Judge and Others<\/a> (2002) 8 SCC 31];. Shri Lachoo Mal
\nvs. Shri Radhey Shyam<\/a> [(1971) 1 SCC 619]; Miheer H. Mafatlal vs.
\nMafatlal Industries Ltd<\/a> [(1997) 1 SCC 579]; Kempe and another (joint
\nliquidators of Mentor Insurance Ltd. Vs. Ambassador Insurance Co. (in
\nliquidation [1998) 1 BCLC 234]; and Re Hawk Insurance Co. Ltd. [(2001) 2
\nBCLC 480].\n<\/p>\n
\tThe learned counsel would contend that the Appellants herein stand
\nabsolutely on a different footing vis-`-vis the other creditors as they invest
\nmoney on a long term basis whereas the Appellants make investment for the
\nbenefit of the members of the mutual fund.\n<\/p>\n
\tMr. Soli J. Sorabjee, the learned Senior Counsel appearing on behalf
\nof the Respondent, on the other hand, would submit that the agreement dated
\n19.6.1997 must be read with the trust of deed dated 17.9.1997 and so read it
\nwould be seen that the Appellants herein did not have any power of veto so
\nas to frustrate such a scheme which is beneficial to all the debenture holders.
\nAccording to the learned counsel, clause 7.5 does not confer an absolute or
\nunbriddled power upon all the debenture holders but the same having regard
\nto the principle of corporate democracy would only mean that such a
\ndecision would be taken by the majority of debenture holders.  As the
\nAppellants herein, the learned counsel would argue, made contribution only
\nto the extent of 10% of the total amount lent by the debenture holders and
\ntheir right being pari passu with other debenture holders, they cannot claim a
\npreferential right.  If clause 7.5 of the agreement is read in the manner, as
\nsuggested by the Appellants herein, Mr. Sorabjee would urge that thereby
\nwords have to be added thereto which is impermissible in law as by reason
\nthereof one debenture holder would be conferred a power of veto resulting
\nwhereof not only in violation of the principle of corporate democracy would
\nbe violated, but a change in the integrity of the document would also be
\nbrought about.\n<\/p>\n
Section 28<\/a> of the Indian Contract Act was invoked by the Respondent
\nbefore the High Court,  it was contended, only because the Appellants herein
\nraised a contention that by reason of clause 7.5 an absolute bar has been
\ncreated in moving an application under Section 391<\/a> of the Companies Act.\n<\/p>\n
\tFor the purpose of this case, we shall proceed on the premise that
\nclause 7.5 of the agreement is valid and is not hit by Section 28<\/a> of the Indian
\nContract Act.\n<\/p>\n
\tA Common Subscription Agreement was entered into by and between
\nthe Respondent herein and all the debenture holders.  The debenture holders
\nnamed therein are collectively referred to by that expression and the
\nexpression means the debenture holders specified therein deriving their title
\nto the debenture.  The said agreement was entered into having regard to the
\nfact that the Respondent approached all the debenture holders for financial
\nassistance for meeting their long term capital requirement in response
\nwhereto which debenture holders agreed to advance various sums of monies,
\nin the form of subscription to 18.5%, 21,00,000 non-convertible privately
\nplaced debentures of Rs.100\/- each.  Out of the total investment of
\nRs.21,00,00,000\/- made by the debenture holders, the contribution of the
\nAppellant is only Rs.4,00,00,000\/.  The Respondent in terms of the said
\nagreement had  undertaken  to redeem the debentures in three equal
\ninstalments from the end of fourth year of the date of allotment and ending
\nin the sixth year.\n<\/p>\n
In terms of clause 2.2 all debenture holders are entitled to be treated
\npari passu inter se wherefor no preference or priority of one over the other
\ncan be given.\n<\/p>\n
The Industrial Credit and Investment Corporation Limited became the
\ntrustee for the debenture holders.  In the agreement wherever an individual
\nright has been conferred upon the debenture holders, they have been
\ndescribed as debenture holder(s) or debenture-holder\/s.  Debenture
\ncertificates  were issued to the debenture holders in terms of  the Debentures
\nTrust Deed pursuant whereto they became entitled to the benefits specified
\ntherein but they were bound by and were deemed to have notice of all the
\nprovisions of the Trust Deed.  The rights and remedies of the debenture
\nholders against the company were to be exercised only through the trustee.\n<\/p>\n
Clause 7.5 contains a negative covenant which enjoined the company
\nnot to undertake or affect any scheme  of amalgamation or re-construction
\nunless the debenture holders\/trustees would otherwise agree.\n<\/p>\n
Does this mean that all the debenture holders\/trustees singularly or
\ncollectively must agree thereto that the decision of the majority shall prevail,
\nis the question involved in this appeal.\n<\/p>\n
 We may at the outset notice that clause 7.8 of the said agreement uses
\nthe expression ‘any or all of debenture holders’.  The parties to the
\nagreement, therefore, have used two different expressions in the said
\nagreement, namely, (1) debenture-holders\/trustees; and (2) any or all of
\ndebenture holders.  We have noticed hereinbefore that the debenture holders
\nhave been referred to in the agreement in the said capacity collectively.  The
\ndefinition of debenture holders contains the expression  ‘means’ which
\nshows  that it is not an expansive definition.  The category of the debenture
\nholders are confined to those who in terms of the agreement are holders of
\nthe debentures deriving their title thereto.\n<\/p>\n
\t  In terms of clause 10 of the Trust Deed, the rights, privileges and
\nconditions attached to the debentures may be varied, modified or abrogated
\nonly in accordance with the Articles of Association of the Company and the
\nAct and with the consent of the debenture holders by a special resolution
\npassed at the meeting of the debenture holders but in terms of the proviso
\nappended thereto nothing in  such resolution shall be operative against the
\ncompany where such resolution modifies or varies the terms and conditions
\ngoverning the debentures, if the same are not acceptable to the company.
\nThe Trust Deed speaks of  such resolution also in terms of clauses 22 and 24
\nthereof.  Clause 25 provides that such a resolution may be adopted by
\ncirculation of letter or letters.  The provisions of the Trust Deed and in
\nparticular clauses 22, 23, 24 and 25 thereof leave no manner of doubt that a
\nresolution has to be passed in the manner laid down therein and\/or in terms
\nof the Companies Act<\/a>.\n<\/p>\n
\tThe common subscription agreement is an investment\/ loan
\nagreement.  The provisions contained therein are required to be read in their
\nentirety and for the said purpose it is permissible to read the negative
\ncovenants with the positive covenants.  It will, however, not be correct to
\nsay that the common subscription agreement has to be interpreted on its own
\nwithout any reference to the trust deed.  The provisions of the trust deed, in
\nour opinion, can be referred to for the purpose of giving a true meaning to
\nthe agreement, as there does not exist any conflict between the two.  They
\nare to be considered together for the purpose of finding out as to how the
\nagreement can be worked out.\n<\/p>\n
 \tThis Court in this case is not called upon to interpret the nature of a
\ndocument or the covenants entered into by and between the parties.  The
\nagreement specifies the rights and privileges of the parties thereto and in
\nparticular the rights and privileges of the debenture  holder either
\ncollectively or individually.\n<\/p>\n
 \tThe underlying or basic thread of the agreement vis-`-vis the trust
\ndeed is that the majority principle was accepted by the authorities.  They do
\nnot provide for an unanimity; or any veto power in favour of one debenture
\nholder so as to scuttle the decision of the majority.\n<\/p>\n
In Moti Ram and others vs. State of Madhya Pradesh<\/a> [AIR 1978 SC
\n1594], this Court noticed the observation of Justice Frankfurter in
\nMassachusetts B. & Insurance Co. vs. U.S. [(1956)  352 US 128 at 138],
\nwhich is to the following effect :\n<\/p>\n
“there is no surer way to misread a document than to read
\nit literally”\n<\/p>\n
\tIt is true that a negative covenant by itself is not invalid in law.  But it
\nis also true that it requires a strict construction.  The agreement is a
\ncommercial document.  Commercial documents must be construed in a
\nmanner as are understood in commercial parlance. A commercial document
\nmust be read reasonably.  It must be construed in such a manner so that it is
\nmade workable.\n<\/p>\n
The parties to the agreement are commercial concerns.  Each party
\nwould indisputably try to protect its interest when advancing loans or
\nmaking investment but it must also be conceded that they were aware of the
\nrisk factor involved therein.  The factors which are responsible for
\nsufferance of loss by the Respondent herein to the extent of 228.58 crores
\nwas as a result of market situation then prevailing, i.e.  steep devaluation of
\ncurrencies of Korea and Indonesia who were the  major suppliers of film in
\nthe international market as a result whereof they started dumping the
\nmaterials at cheap prices in Europe, and the levy of anti-dumping\/anti-
\nsubsidy duties by the European Union as a result whereof sales to European
\ncountries came down drastically.\n<\/p>\n
The restructuring package was evolved at the instance of the Industrial
\nDevelopment Bank of India which was the largest lender and the trustee
\nupon obtaining a report in that behalf from KPMG, a reputed concern.  A
\nscheme envisaged under Section 391<\/a> of the Companies Act, it is well-
\nsettled,  is a commercial document.\n<\/p>\n
 \tSection 391<\/a> read with Section 393<\/a> of the Act postulate that where a
\ncompromise or arrangement is proposed between a company and its
\ncreditors or any class of them; or between a company and its members or
\nany class of them, the court is required to direct holding of meetings of
\ncreditors or class of creditors or members or class of members  who are
\nconcerned with such a scheme.  In the event majority of the creditors
\nrepresenting three-fourths in value of the creditors or class of creditors or
\nmembers or class of members, as the case may be, present or voting either in
\nperson or by proxy at such a meeting accord their approval thereto thus put
\nto vote,  whereupon, the court may consider the question of grant of sanction
\nthereto.  Section 391(1)(a)<\/a> enjoins that requisite information therefor should
\nbe placed for consideration before the voters, in terms whereof the creditors
\nor class of creditors can take an informed decision in relation thereto.  The
\ncourt, however, would not grant sanction to such a scheme only because the
\nsame reflects the will of the majority of the creditors or a class of them  but
\nit must consider all aspects of the matter so as to arrive at a finding that the
\nscheme is fair, just and reasonable and does not contravene public policy or
\nany statutory provision.  Such a care or caution is required to be exercised by
\nall courts including the Civil Court in terms of Order XXIII, Rule 1 of  the
\nCode of Civil Procedure.\n<\/p>\n
The scope and jurisdiction of the Company Court has been  examined
\nat some length by a Division Bench of this Court in Miheer H. Mafatlal
\n(supra) wherein the broad contours of such jurisdiction have been
\nenumerated indicating :\n<\/p>\n
“6. That the proposed scheme of compromise and
\narrangement is not found to be violative of any provision
\nof law and is not contrary to public policy. For
\nascertaining the real purpose underlying the scheme with
\na view to be satisfied on this aspect, the Court, if
\nnecessary, can pierce the veil of apparent corporate
\npurpose underlying the scheme and can judiciously X-ray
\nthe same.\n<\/p>\n
***\t\t\t***\t\t***<\/p>\n
8. That the scheme as a whole is also found to be just,
\nfair and reasonable from the point of view of prudent
\nmen of business taking a commercial decision beneficial
\nto the class represented by them for whom the scheme is
\nmeant.”\n<\/p>\n
\tIn J.K. (Bombay) (P) Ltd. vs. New Kaiser-I-Hind Spg. & Wvg. Co.
\nLtd. & Ors<\/a>. etc. [(1969) 2 SCR  866], it was held :\n<\/p>\n
“The principle is that a scheme sanctioned by the court
\ndoes not operate as a mere agreement between the parties
\n: it becomes binding on the company, the creditors and
\nthe shareholders and has statutory force, and, therefore
\nthe joint-debtor could not invoke the principle of accord
\nand satisfaction.  By virtue of the provisions of sec. 391
\nof the Act, a scheme is statutorily binding even on
\ncreditors and shareholders who dissented from or
\nopposed to its being sanctioned.  It has statutory force in
\nthat sense and therefore cannot be altered except with the
\nsanction of the Court even if the shareholders and the
\ncreditors acquiesce in such alteration”\n<\/p>\n
\tIt is not the case of the Appellants that the learned Company Judge
\nhas exceeded his jurisdiction and acted in violation of the said guidelines.
\nOnce it is held that the normal rule, namely, the principle of majority in
\ncorporate democracy or in other words, governance of the company by
\nmajority, is accepted, the Appellants could not be heard to say that they had
\nan absolute right to exercise veto power and thereby scuttle a bona fide
\nattempt to revive a company.  Efforts to keep a company from becoming
\ninsolvent and even to revive an insolvent corporate have been receiving
\nlegislative and executive support, as would be evident from several
\nParliamentary Act<\/a>, as for example  the Sick Industrial Companies (Special
\nProvisions) Act<\/a>, 1985 and the Securitization and Reconstruction of Financial
\nAssets and Enforcement of Security Interest Act<\/a>, 2002.\n<\/p>\n
\tIt is difficult for us to agree with the submission of Dr. Dhawan that
\nclause 7.5 puts a total embargo on the part of the company or other creditors
\nto file a compromise under Section 391<\/a> of the Companies Act without
\nobtaining the consent of all debenture holders.  Clause 7.5 neither can be
\nread in such a manner nor should be read.   Such a construction would  be
\nunwarranted having regard to the fact that two different expressions have
\nbeen used in different clauses.  Wherever a right has been conferred upon an
\nindividual debenture holder,  the agreement used the expression ‘any or all
\nthe debenture holders’ as contrasted  by all debenture holders.  The
\ndebenture holders are required to exercise their right through the trustee save
\nand except in the cases which confer specified power to them.   The
\nAppellants herein cannot claim any priority or preference in the matter of
\nrealization of their dues over the other debenture holders.   Each debenture
\nholders has a pari passu right with each other, as is evident from clause 2.2.\n<\/p>\n
\tIn J.K. (Bombay) (P) Ltd. (supra), it was held :\n<\/p>\n
“The Court could not have completed, as contended by
\nthe appellants, their rights which were still incomplete or
\norder the company to execute a debenture trust deed or
\nthe second mortgage, and thus set up the appellants and
\nthe other Sch. ‘B’ creditors as secured creditors against
\nthe rest of the unsecured creditors.  Such an order could
\nnot be passed as it would be contrary to and in breach of
\nthe right of distribution pari passu of the joint body of
\nunsecured creditors.”\n<\/p>\n
 \t[See also Andhra Bank Vs. Official Liquidator and Anr., 2005 (3)
\nSCALE 178]<\/p>\n
\tIn view of the our findings aforementioned, we are of the
\nopinion that the Appellants herein having failed to establish that they could
\nhold the entire scheme to ransom so as to stall the proceedings as a result
\nwhereof the majority of debenture holders would be deprived, the purpose or
\nobject motivating the Appellants to advance such a huge amount to the
\nRespondent against issue of debentures is a matter of little or of no concern
\nto the Respondent – company or other debenture holders.  A special or a new
\nright cannot be found in favour of the Appellants in the agreement when it
\ncreates none.  The scheme applies equally to all debenture holders and as
\nsuch the Appellants cannot be treated as a separate class.  Once the
\nRespondent-Company  prima facie showed that the scheme is fair and
\nreasonable and also that the requisite majority of the debenture holders
\nrecorded their decision in its favour, the court  in absence of any unforeseen
\nunjustness or unreasonableness therein ought not to reject the same.\n<\/p>\n
The Company Judge by reason of the impugned judgment while
\nexercising a supervisory jurisdiction only accepted the scheme.  The High
\nCourt’s decision is not being questioned as unfair.\n<\/p>\n
The Respondent in view of the Scheme has no remedy other than
\napproaching the High Court under Section 391<\/a> of the Companies Act.\n<\/p>\n
In Sardar Amarjit Singh Kalra (Dead) by Lrs. and Others etc. vs.
\nPramod Gupta (Smt.) (Dead) by Lrs. and Others etc. [(2003) 3 SCC 272],
\nthis Court stated :\n<\/p>\n
\t“As far as possible, courts must always aim to
\npreserve and protect the rights of the parties and extend
\nhelp to enforce them rather than deny relief and thereby
\nrender the rights themselves otiose, “ubi jusibi
\nremedium” (where there is a right, there is a remedy)
\nbeing a basic principle of jurisprudence.  Such a course
\nwould be more conducive and better conform to a fair,
\nreasonable and proper administration of justice.”\n<\/p>\n
\tWe may at this stage refer to the decisions relied upon by Dr.
\nDhawan.\n<\/p>\n
 \tIn the case of Nanakram Vs. Kundalrai [(1986) 3 SCC 83] as also
\nNutan Kumar and Others Vs. IInd Additional District Judge and Others
\n[(2002) 8 SCC 31] the question which arose for consideration was as to
\nwhether a lease in violation of statutory provision was void.  Such a question
\ndoes not arise for consideration herein.\n<\/p>\n
 \tIn Delhi Development Authority Vs. Durga Chand Kaushish [(1973) 2
\nSCC 825], the court was concerned with the interpretation of a deed of lease.
\nIt was noticed:\n<\/p>\n
“19. Both sides have relied upon certain passages
\nin Odgers’ Construction of Deeds and Statutes
\n(5th Edn. 1967). There (at pp. 28-29), the First
\nGeneral Rule of Interpretation formulated is: “The
\nmeaning of the document or of a particular part of
\nit is therefore to be sought for in the document
\nitself”. That is, undoubtedly, the primary rule of
\nconstruction to which Sections 90<\/a> to 94<\/a> of the
\nIndian Evidence Act give statutory recognition and
\neffect, with certain exceptions contained in
\nSections 95<\/a> to 98<\/a> of the Act. Of course, “the
\ndocument” means “the document” read as a whole
\nand not piecemeal.”\n<\/p>\n
\t\t\t\t\t\t(Emphasis supplied)<\/p>\n
\tThere is no quarrel with the aforementioned position of law.\n<\/p>\n
 \tIn Smt. Rajbir Kaur and Another Vs. M\/s. S. Chokesiri and Co.
\n[(1989) 1 SCC 19], the court was concerned with the interpretation as to
\nwhether a document in question was a lease or a licence.  The said decision
\nhas been rendered on the fact of the said case and on the basis of the
\nevidence brought on records as to whether the tailor and the ice-cream
\nvendors had been put in exclusive possession in the tenanted premises.  The
\nsaid decision has no application to the fact of the present case.\n<\/p>\n
 \tDelta International Ltd. Vs. Shyam Sundar Ganeriwalla and Another
\n[(1999) 4 SCC 545] again dealt with a similar question.  It was observed:\n<\/p>\n
“27. Lastly, it is to be noted that if the document is
\na camouflage as stated earlier, the mask or veil is
\nrequired to be removed for determining the true
\nintent and purpose of the document. In the present
\ncase, there is no pleading by the defendants that
\nthe document was a camouflage so as to defeat the
\nrights of a tenant who had inducted the appellant
\nor that of the owner of the premises. As stated
\nearlier, the document contemplates three types of
\nagreements, one, that of a leave and licence;
\nsecondly, in case a consent is obtained from the
\ntenant (sic landlord), for execution of a sub-lease
\nwhich would create an interest in the property as a
\nsub-tenant and thirdly, in case of a sub-lease, for
\npurchase of equipment, fitting and fixtures at a
\nprice of Rs \t2,50,000. The second and third parts
\nof the agreement never came into operation.
\nHence, for the reasons discussed above, we hold
\nthat the agreement dated 18-7-1970 is a deed of
\n“leave and licence” and not a “lease”.”\n<\/p>\n
 \tThe said decision also has no application in the instant case.\n<\/p>\n
\tIn view of our findings aforementioned, it is not necessary for us to
\nenter into the question as to whether clause 7.5 of the agreement is hit by
\nSection 28<\/a> of the Indian Contract Act or not.\n<\/p>\n
We do not find any merit in this appeal which is dismissed
\naccordingly.  However, in the facts and circumstances of the case, there shall
\nbe no order as to costs.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Administrator Of S.U., U.T.I. & … vs Garware Polyester Ltd on 9 May, 2005 Author: S.B. Sinha Bench: B.P. Singh, S.B. Sinha CASE NO.: Appeal (civil) 3196 of 2005 PETITIONER: Administrator of S.U., U.T.I. & Anr. RESPONDENT: Garware Polyester Ltd. DATE OF JUDGMENT: 09\/05\/2005 BENCH: B.P. Singh & S.B. Sinha JUDGMENT: […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-269165","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nAdministrator Of S.U., U.T.I. & ... vs Garware Polyester Ltd on 9 May, 2005 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/administrator-of-s-u-u-t-i-vs-garware-polyester-ltd-on-9-may-2005\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Administrator Of S.U., U.T.I. & ... vs Garware Polyester Ltd on 9 May, 2005 - 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