S.B. SINHA, J. - (1.) LEAVE granted.
(2.) 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. AH 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 : JUDGEMENT_300_JT5_2005Html1.htm 81% of the principal outstanding carrying interest @ 12.5% need to be repaid in 28 quarterly instalments 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 instalments commencing from 1.4.2006 Deferred interest being the interest outstanding carrying nil rate of interest need to be repaid in 24 quarterly instalments 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 instalments 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 JUDGEMENT_300_JT5_2005Html2.htm 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 ending in the 6th year from allotment. Name of debenture holders 4th year from the Rs. in lacs At the end of 5th year date of 6th year allotment JUDGEMENT_300_JT5_2005Html3.htm 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 instalment 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 instalment(s) of redemption wit! 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 instalments 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. 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. 0 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 HOLD- ERS' 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 operate 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." "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 exercis- able 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 in terms 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."
(3.) 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 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.;