2005 Supreme(SC) 818

2005(4) Supreme 359
Supreme Court of India
(From Bombay High Court)
B.P. Singh & S.B. Sinha, JJ.
Administrator of the Specified Undertaking of the Unit Trust of India —Appellant
versus
Garware Polyster Ltd. —Respondent
Civil Appeal No. 3196 of 2005
(Arising out of SLP (Civil) No. 20174 of 2004)
Decided on 9-5-2005
Counsel for the Parties :
For the Appellants : Dr. Rajeev Dhawan, Sr. Advocate, Ms. Shubhr Kapur and Sanjay Kapur, Advocates.
For the Respondent : Soli J. Sorabjee, Sr. Advocate, Bhargava V. Desai, Nimish Pandya, Ms. Kamala N. Pandya, Nikhil Sakhardande and Sanjeev Kr. Singh, Advocates.­

Headnote:Companies Act, 1956—Sections 391 and 393—Civil Procedure Code, 1908—Order XXIII Rule 1—Application under Section 391 of the Act—Scope and jurisdiction of Company Court—Respondent Company engaged in manufacture of polyester film went for a massive expansion in year 1996—Scheme of the expansion was financed by obtaining term loans and issuance of debentures by various financial institutions including appellant 2—For various reasons, including imposition of European Union Levelled Anti Dumping Duties, respondent suffered a cumulative loss of Rs. 228 crores—A restructuring proposal was mooted—All the debenture holders agreed to the said proposal of restructuring package except the appellants—Respondent having regard to the restructuring scheme filed an application u/s 391 of the Act—In those proceedings except UTI, all other debenture holders sanctioned the restructuring package—Proposed scheme of arrangement challenged as unfair, unreasonable and unjust—Restructuring package was evolved at the instance of Industrial Development Bank of India which was the largest lender—Whether petition filed under Section 391 of the Act was maintainable—(No).

       Held : 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. (Para 32)

       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. (Paras 35 and 36)

       In view of the our findings aforementioned, we are of the opinion that the Appellants herein having failed to establish that they could hold the entire scheme to ransom so as to stall the proceedings as a result whereof the majority of debenture holders would be deprived, the purpose or object motivating the Appellants to advance such a huge amount to the Respondent against issue of debentures is a matter of little or of no concern to the Respondent - company or other debenture holders. A special or a new right cannot be found in favour of the Appellants in the agreement when it creates none. The scheme applies equally to all debenture holders and as such the Appellants cannot be treated as a separate class. Once the Respondent-Company prima facie showed that the scheme is fair and reasonable and also that the requisite majority of the debenture holders recorded their decision in its favour, the court in absence of any unforeseen unjustness or unreasonableness therein ought not to reject the same. The Company Judge by reason of the impugned judgment while exercising a supervisory jurisdiction only accepted the scheme. The High Court’s decision is not being questioned as unfair. The Respondent in view of the Scheme has no remedy other than approaching the High Court under Section 391 of the Companies Act. (Paras 37 to 39)