Case: Administrator Of S.U.,U.T.I.  Vs. Garware Polyster Ltd

1. 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 termsin(Rs. Crores)DeferredInterestTotal1.IDBI 15.5% PPD99.5043.70143.202.IDBI 16% NCD2.180.873.053.ICICI ZCD6.001.957.954.UTI 16% NCD9.803.9213.725.UTI 18.5% PPS4.001.855.856.LIC 18.5% PPD10.003.4113.417.GIC 18.5% PPD1.750.812.568.NEW INDIA18.5% PPD1.750.812.569.NATIONAL 18.5% PPD1.050.491.5410.OIC 18.5% PPD1.050.491.5411.UTI 18.5% PPD1.400.652.05Total 197.4381% 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 1.4.2006Deferred 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.Wherever used in this Agreement, unless the context otherwise requires the following terms shall have the following meanings :a) *** *** ***b) *** ***"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.COMPANYS REQUEST FOR FINANCIAL ASSISTANCE3. 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 holdersLetter No. and DateAmount in lacsUTIDOI/2945/G-76/96-97 23.4.97400LICINV:C:KAJ DT. 21.4.971000GICINV./97 DT. 23.5.97175NICINVT/UW/DEBS DT. 30.5.97105NIAINV/PM/BUD/72/96175DT. 10.6.97OICDEPTT. INVESTMENT105DT. 30.5.97UIIHQ:INV:262:97 DT. 30.5.97140Total 2100DEBENTURE SHALL RANK PARI PASSU:4. 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.RIGHT TO REVIEW THE RATE OF INTEREST:5. 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).REPAYMENT:6. 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 ofyear from theRs. in lacsAt the end of5th year date of6th yearallotmentUTI133.33133.33133.34LIC333.33333.33333.34GIC58.3358.3358.34NIC35.0035.0035.00NIA58.3358.3358.34OIC35.0035.0035.00UTI46.6646.6746.67Total 699.98 699.99 700.03The 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. 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,. Unless the debenture holders/trustees shall otherwise agree, the Company shall note 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 suche 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 anyAMENDMENT OF MEMORANDUM AND ARTICLES OFits Memorandum and Articles of Association or alter its capital structure except as specified herein.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 COMPANYMake any investment by way of deposits, loans, share capital etc. in any manner.f) REVALUATION OF ASSETSRevalue its assets.g) TRADING ACTIVITYCarry 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 underMODIFICATIONS 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 xxxThird Schedule above referred to Financial Covenants and ConditionsDEBENTURES TO RANK PARI PASSUThe debentures shall rank pari passu inter se without any preference or priority of one over the other or others of them.VARIATION OF DEBENTURE HOLDERS RIGHTSThe 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 theFourth Schedule Above Referred toForm of Debenture CertificateXxx xxx xxxThe 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 Companys 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".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.g 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 underDebenture 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.12. 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.13. 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.14. 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.

Court's reasoning:
28. 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.29. 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.30. 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.32. The underlying or basic thread of the agreement vis-a-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.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.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 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.44. The Company Judge by reason of the impugned judgment while exercising a supervisory jurisdiction only accepted the scheme. The High Courts decision is not being questioned as unfair.45. The Respondent in view of the Scheme has no remedy other than approaching the High Court under Section 391 of the Companies Act.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 wasBoth 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.". There is no quarrel with the aforementioned position of law.