Gyanendra Kumar, J. - (1.) THESE are three connected appeals against the judgment and order of Takru J. dated October 16, 1967, arising in the following circumstances. Messrs. Vikram Cotton Mills Ltd., Lucknow (hereinafter called " the company ") took a loan of Rs. 10,50,000 on December 19, 1950 from Messrs. Industrial Finance Corporation of India (hereinafter called " the Corporation "), on mortgage of its entire land, buildings and machinery, stipulating repayment by instalments in seven years, beginning from 1953. Due to the company's failure to pay the stipulated instalments, the Corporation took possession of the mortgaged property from the company. The company was also indebted to a number of unsecured creditors, so the company discussed its position with them as well as the Corporation and with the concurrence of all the creditors, it made an application to this court in July 1954, under Section 158 of the then Indian Companies Act, 1913, for sanction of the scheme of arrangement annexed thereto, in order to enable the resuscitation and working of the company, rather than allow it to go into liquidation. In substance, the arrangement was that the corporation would lease the Mills to the General Fibre Dealers Ltd., Calcutta (hereinafter called " the Fibres ") for a period of 10 years to start with, on a yearly rental of Rs. 2,50,000 which would be utilised for the liquidation of the debts of the company. However, that scheme could not be sanctioned because the Industrial Finance Corporation Act, 1948, did not contemplate the creation of a lease of the property held by it as a mortgagee. Subsequently, the aforesaid Act was amended in 1955 which permitted the creation of a lease of the mortgaged property by the Corporation. So another application for the sanction of the scheme of arrangement under Section 391 of the Companies Act, 1956, was presented with a lease -cum -maintenance programme. The above scheme was sanctioned by the company judge on May 21, 1956. In pursuance of the aforesaid sanction, the Corporation executed a lease deed in favour of the Fibres on July 6, 1956. This was followed by a deed of agreement dated July 15, 1956, between the company and the Fibres, with the result that the lease became operative with effect from July 15, 1956.
(2.) IN order to appreciate the controversy between the parties, it is necessary to refer to the broad features of the lease, which may be summarised as below : Paragraph 14 of the lease deed says that Rs. 11,17,171 for principal and Rs. 2,22,222 -5 -0 for interest calculated at the rate of 5 1/2 per cent, per annum with six monthly rests (totalling Rs. 13,29,393 -5 -0) was payable up to June 14, 1956, by the company to the Corporation. Paragraph 21 says that on April 5, 1956, the Fibres had paid a sum of Rs. 1,25,000 to the Corporation for appropriation towards the first half -yearly instalment of rent and had further paid a sum of Rs. 1,25,000 to the Corporation as soon as they got possession on July 15, 1956, for appropriation towards the eighth instalment falling due at the end of the fourth year. It was further agreed that the second half -yearly instalment of the lease rent of Rs. 1,25,000 would become payable six months after the date of the running of the Mills by the Fibres. Clause 1 of the lease -deed provides that the lessee would " hold the mortgaged premises... for the term of ten years, commencing from the day possession of the Mills is delivered to the lessee, yielding and paying therefore the yearly rent of Rs. 2,50,000 only by equal six monthly instalments."
(3.) THE arrangement was that during the first four years the entire lease rent of Rs. 2,50,000 per annum was to be paid to the Corporation, aggregating to a payment of Rs. 10,00,000. Clause 1(d) says : " After the aggregate payment of rupees ten lakhs shall have been made to the Corporation then during the next six years or such further period as may become necessary for liquidation of the dues of the Corporation in full pay to the Corporation an yearly minimum sum of rupees fifty thousand by equal six monthly payments...... until all dues of the Corporation now existing or accruing due hereinafter including the future interest on the balance of principal sum due from time to time are paid in full Provided however that in the event of it taking more than ten years to liquidate the amount due to the Corporation, the terms of this lease shall be automatically extended by such period as may be necessary to Pay the entire amount due to the Corporation." Clause 2(b) provides that the Fibres shall provide a bank guarantee in the sum of Rs. 16,75,000 for ensuring payment of rent to the Corporation regularly as and when the same becomes due. Clause 2(f) requires the lessee " not to remove the mortgaged plant or any part thereof from the mortgaged premises without the previous consent in writing of the Corporation. " Clause 2(i) enjoins the lessee "to use, manage, run and work..... the mortgaged premises or any part or parts thereof in a proper and workmanlike manner and in the same way as plant, engines and machinery would usually be run and worked by a man of ordinary prudence under similar circumstances of his own plant, engines and machinery and to maintain such plant, engines and machinery in good condition and replace all such spares and accessories as may be necessary. " Clause 2(n) says, "On the expiration or sooner determination of these presents to remove at its own costs all its additions to the mortgaged premises after repairing all damages caused by such removal and yield up quiet and peaceful possession of the mortgaged premises in as good condition as the same now are, subject only to the changes caused by natural wear and tear. " Clause 4(d) says, "If any half -yearly instalment of rent be not paid on the date fixed for the payment thereof the same shall bear interest at the rate of six per cent, per annum..." Clause 4(a) provides, " The lessee shall at his own costs be entitled to make additions and extensions to the plant and machinery but the value of such additions and extensions shall not without the consent in writing of the Corporation exceed rupees five lakhs. In making such additions and extensions the lessees shall not do any act whereby the value of the existing plant and machinery shall be adversely affected or depreciated......The Corporation shall have a charge on the said additions and extensions for all rent and other monies due to it hereunder.....The lessee shall be entitled at any time on or before the determination of these presents, provided no rent be then in arrears, to dismantle, remove or take away all such additions and extensions in plant, machinery, provided that it shall make good all damages caused by such removal and restore the mortgaged premises to their former state or condition or pay such damages as may be caused to the mortgaged premises by such additions and extensions or such removal." Clause 4(f) says, " On or before the expiry of the said term......the lessee may obtain a renewed lease for a further period of ten years of the mortgaged premises from the Corporation (in case something is still due to it under the mortgage) .....at such rent and on such terms and conditions as may be mutually agreed upon between the lessee and the Corporation....." Clause 4(g) lays down, " In case the lessee shall neglect to pay rents, rates, taxes and assessments......or to insure and keep insured the same..... it shall be lawful for..... the Corporation to pay any such rents, rates, taxes and assessments and to insure and keep insured the mortgaged premises.....and the lessee shall on demand pay to the Corporation all rents, rates, taxes and assessments and insurance premia with interest thereon at the rate of six per cent, per annum from the date of payment by the Corporation to the date of payment by the lessee.";