TaxTMI 
TaxTMI 
2005 (5) TMI 328
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....ing 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 : "Sr. No. Institution Principal in Deferred Total (Rs. Crores) Interest 1. IDBI 15.5% PPD 99.50 43.70 143.20 2. IDBI 16% NCD 2.18 0.87 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 3.4....
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....t Dt. 30-5-1997 UTI HQ: Inv: 262:97 140 Dt. 30-5-1997 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 instalments from the end of 4th year from the date of allotment and e....
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....um and articles of association - Amend its 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 shareholders 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." 3. 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 modification 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....
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....uch 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." 4. Encumbrances having admittedly been created in favour of the deben-ture 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 wh....
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.... 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. 8. 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. 9. Dr. Rajeev Dhawan, the learned Senior Counsel appearing on behalf of the Appellants, took us through various documents and principally raised the following two contentions in support of this appeal: (i) Clause 7.5 of the agreement having not been found unfair or unconscionable is not hit by section 28 of the Indian Contract Act and (ii) The negative covenant a....
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.... Nutan Kumar v. IInd Additional District Judge [2002] 8 SCC 31; Lachoo Mal v. Radhey Shyam [1971] 1 SCC 619; Miheer H. Mafatlal v. Mafatlal Industries Ltd. [1997] 1 SCC 579; Kempe, Joint Liquidators of Mentor Insurance Ltd. v. Ambassador Insurance Co., in Liquidation [1998] 1 BCLC 234; and Re Hawk Insurance Co. Ltd. [2001] 2 BCLC 480. 13. The learned counsel would contend that the Appellants herein stand absolutely on a different footing vis-a-vis the other creditors as they invest money on long-term basis whereas the Appellants make investment for the benefit of the members of the mutual fund. 14. 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 suc....
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....ty of one over the other can be given. 19. 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. 20. 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. 21. 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. 22. We may at the outset notice that clause 7.8 of the said agreement uses the expression 'any or all of ....
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....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. 26. 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. 27. In Moti Ram v. State of Madhya Pradesh AIR 1978 SC 1594, this Court noticed the observation of Justice Frankfurter in Massachusetts B. & Insurance Co. v. 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". 28. 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. 29. The parties to the agreement....
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....sed by all courts including the Civil Court in terms of Order XXIII, Rule 1 of the Code of Civil Procedure. 32. 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's case (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." 33. In J.K. (Bom.)(P.) Ltd. v. New Kaiser-I-Hind Spg. & Wvg. Co. Ltd. [1969] 2 SCR 866, it was held : ". . . The principle is that a scheme sanctioned by the court does not operate as a mere agreement between the parties; it bec....
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....her, as is evident from clause 2.2. 36. In J.K. (Bom.) (P.) Ltd. ( supra), it was held : ". . . The Court could not have completed, as contended by the appellants, their rights which were still incomplete or order the company to execute a debenture trust deed or the second mortgage, and thus set up the appellants and the other Sch. 'B' creditors as secured creditors against the rest of the unsecured creditors. Such an order could not be passed as it would be contrary to and in breach of the right of distribution pari passu of the joint body of unsecured creditors. . . ." 37. [See also Andhra Bank v. Official Liquidator 2005 (3) SCALE 178] 38. In view of 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 A....