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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: J U D G M E N T

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

S.B. SINHA, J :

       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 :          "Sr.  No. Institution Principal in  (Rs.Crores) Deferred   Interest Total 1. IDBI 15.5% PPD 99.50 43.70 143.20 2. IDBI 16% NCD 2.18 0.87

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3.05 3. ICICI ZCD 6.00 1.95 7.95 4. UTI 16% NCD 9.80 3.92 13.72 5. UTI 18.5% PPS 4.00 1.85 5.85 6. LIC 18.5% PPD 10.00 3.41 13.41 7. GIC 18.5% PPD 1.75 0.81 2.56 8. NEW INDIA  18.5%  PPD 1.75 0.81 2.56 9. NATIONAL  18.5% PPD 1.05 0.49 1.54 10. OIC 18.5% PPD 1.05 0.49 1.54 11. UTI 18.5% PPD 1.40 0.65 2.05

Total  197.43

       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

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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.   

               2.      COMPANY’S REQUEST FOR FINANCIAL  ASSISTANCE.

               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 UTI DOI/2945/G-76/96-97  23.4.97 400 LIC INV:C:KAJ DT.  21.4.97  1000 GIC INV./97  DT. 23.5.97 175 NIC INVT/UW/DEBS  DT.30.5.97 105 NIA INV/PM/BUD/72/96  DT. 10.6.97 175 OIC DEPTT.  INVESTMENT DT  30.5.97 105

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UII HQ:INV:262:97 DT.  30.5.97 140

Total   2100

2.2     DEBENTURE SHALL RANK PARI PASSU : 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.

3.3     RIGHT TO REVIEW THE RATE OF INTEREST :   

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).

 3.7   REPAYMENT :

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  allotment UTI 133.33 133.33 133.34 LIC 333.33 333.33 333.34 GIC  58.33   58.33   58.34 NIC  35.00   35.00  35.00 NIA  58.33  58.33  58.34

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OIC   35.00  35.00  35.00 UTI   46.66  46.67  46.67     Total 699.98 699.99 700.03

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.

3.9     DEBENTURE CERTIFICATE :

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..

7.5     NEGATIVE COVENANTS :

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

a)      DIVIDEND

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.

b)      CHARGES

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.             c)      AMENDMENT OF MEMORANDUM AND  ARTICLES OF ASSOCIATION  

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

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d)      MERGER, CONSOLIDATION ETC.

       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,

       e)      INVESTMENT BY THE COMPANY

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

       f)      REVALUATION OF ASSETS

               Revalue its assets.

       g)      TRADING ACTIVITY

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 :  

"45.    MODIFICATIONS TO THESE PRESENTS :

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

1.      DEBENTURES TO RANK PARI PASSU  

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

10.     VARIATION OF DEBENTURE HOLDERS’  RIGHTS

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."

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       "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

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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  Trustees.

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  investment.

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

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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  jeopardy.

       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  5.2.2005.

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

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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

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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

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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  meant."

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

"\005The 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

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creditors acquiesce in such alteration\005"

       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 :

"\005The 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\005."  

       [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

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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 :

       "\005As 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.  Dhawan.

       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

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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.