the law applicable to cases of a pledge that the creditor has two rights which are concurrent, and the right to proceed against the property pledged is not merely accessory to the right to proceed against the debtor personally. For the pledge may have a right to sue for sale of the property even in the absence of a right to sue for a personal decree. The same principles would apply to the case of hypothecation or mortgages of moveable property."= CIVIL APPEAL NO. 2701 OF 2006 Infrastructure Leasing & Financial Services Limited ... Appellant Versus B.P.L. Limited ... Respondent

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO. 2701 OF 2006


Infrastructure Leasing & Financial
Services  Limited                            ... Appellant

                                   Versus

B.P.L. Limited                                     ... Respondent




                               J U D G M E N T


Dipak Misra, J.


      BPL  Limited,  the  respondent  herein,  was  incorporated  under  the
Companies Act, 1956 (for brevity 'the Act") and  on  16.4.1963,  certificate
of  incorporation  in  the  name  of  the  company   as   British   Physical
Laboratories India Pvt. Ltd.  was issued.  The company became deemed  public
company and the word "Private" stood deleted  with  effect  from  24.3.1981.
Subsequently, the name of the company was changed to BPL Limited  and  fresh
certificate of incorporation was issued by the  Registrar  of  Companies  on
16.3.1992.   In the year 1982 the company  had  diversified  its  activities
into Consumer Electronics, Colour Television Receivers, Black and  White  TV
Receivers and Video Cassettes Recorders.   The company embarked  on  various
diversifications, expansion programmes and had  facilities  for  manufacture
of television, Alkaline batteries, colour monitors, etc.   It  also  entered
into the arena of manufacturing of refrigerators and  electronic  components
through associate companies and had grown  into  a  diversified  group  with
multiple products and services.  Due to manifold reasons, the company  faced
cash flow constraints which adversely affected its operations.  It  suffered
a loss of Rs.287.8 crores in the last 18 months for  the  period  ending  on
30.09.2003 as there was decline of sales of goods.  Due to  the  said  loss,
the debt of the company increased to 1494.57 crores as  on  31.03.2003.   As
many  a  international  brand  had  entered  into  the  Indian  market,  the
respondent company in order to keep pace with the technological  advancement
in the field of business initiated  a  comprehensive  restructuring  of  its
operations which primarily involved rejuvenating its main  business  through
a joint venture with  "Sanyo  Electric  Co.  Ltd.",  Japan  and  accordingly
entered into a shareholder agreement.  In terms of  the  agreement  the  BPL
had to transfer its existing CTV business undertaking to the  joint  venture
constituting BPL brand for CTV business  manufacturing  services,  marketing
and distribution.  Both the companies BPL and Sanyo  had  equal  partnership
in the ratio 50:50 in the joint venture.  The CTV  business  was  valued  at
Rs.368 crores and BPL was required to invest approximately Rs.46  crores  in
the joint venture company and  to  receive  a  net  cash  inflow  of  Rs.322
crores.  Initially, BPL proposed a scheme of arrangement which  was  finally
modified and in the said scheme  various  business  institutions  and  banks
were involved.  There were 36 creditors whose names featured in the  scheme.

After approval of the scheme  the  respondent  filed  an  application  under
Section 391 (1) of the Act read with Rule 9  the  Companies  (Court)  Rules,
1959 seeking  permission  for   holding  a  meeting  for  consideration  for
approval of compromise or arrangement proposed to be made between  companies
and the creditors.  The second prayer had been  made  for  orders  governing
the procedures to be complied with.  There were 15 respondents.   After  the
application was filed forming the subject matter  of  MCA  No.  84  of  2004
notices were issued and many  financial  institutions  filed  their  counter
affidavits/objections.  The  present  appellant,  Infrastructure  Leasing  &
Fin. Services Ltd.,  which  was  the  8th  respondent,  filed  its  counter-
affidavit and in it, had  raised  objections  to  the  prayer  for  stay  of
various  proceedings  before  number  of  forums  including  Debt   Recovery
Tribunal, etc. on the foundation that the Memorandum of Association  of  the
company does not authorise it to enter into  any  arrangement  as  proposed;
that the scheme concealed more than it revealed, for  when  such  a  drastic
transformation was taking place it was  imperative  that  there  had  to  be
exhaustive disclosure; that the application filed under Section 391  of  the
Act was totally silent as to how and on what basis the valuation  of  Rs.368
crores had been arrived at, which agency  had  done  the  valuation  and  at
whose instance the valuation was done;  that  the  scheme  did  not  mention
whether the BPL had any other option to raise  the  capital  when  retaining
CTV business; that  no  detailed  information  had  been  furnished  in  the
application or in the proposed scheme of arrangement as  to  on  what  basis
the various percentage payments which  were  proposed  to  be  made  to  the
unsecured creditors were arrived at by the company;  and  that  the  company
court had no jurisdiction to stay the criminal  prosecution  under  exercise
of its power under Section 391 (6) of the Act.
BPL filed a reply stating, inter alia, that very purpose of  Section  391(6)
of  the  Act  is  that  till  effective  consideration  of  the  scheme  and
finalization of the scheme under Section 391 of the Act there has  to  be  a
stage of abeyance from all aspects so that the  Company  Court  can  examine
the workability of the same and grant requisite relief.  As regards the non-
disclosure by BPL, it was asserted that the disclosure had  been  adequately
made, for what was proposed to be transferred to the joint  venture  company
was the colour television business of the BPL and brand associated  with  it
and the residual company would retain the other business of the  group  such
as medical electronics, batteries, components, etc.  It was also  put  forth
that Price Water House Coopers (PWC) was  appointed  by  the  ICICI  at  the
instance of all lenders and PWC  had  assessed  that  the  residual  company
could sustain a debt to the extent of Rs.480 to 520 crores  and  the  report
submitted by PWC was already in possession  of  the  lenders  including  8th
respondent therein. It was alleged as the operation had been  stagnated  for
a period of two years the valuation made by the PWC was absolutely fair.
Be it stated, some  of  the  respondents  filed  affidavits  supporting  the
scheme and some others opposing the same,  from many an angle.
The  learned  Company  Judge  taking  note  of  the  factual   matrix,   the
submissions advanced at the Bar, the  proceeding  before  the  DRT  and  the
criminal cases, referred to the maintainability of the scheme  and  came  to
hold that the application preferred under Section 391(1)  was  maintainable;
that the court had the jurisdiction to consider the application filed  under
Section 391(1) of the Act, even for the purpose of convening  a  meeting  of
its creditors and its  jurisdiction  was  not  affected  solely  because  an
application had been filed before  the  Debt  Recovery  Tribunal;  that  the
company Court in exercise of power under Section 391(6) has no  jurisdiction
to  stay  the  criminal  proceeding  initiated  under  Section  138  of  the
Negotiable  Instrument  Act  or  the  proceeding  pending  before  the  Debt
Recovery Tribunal  under  Securitisation  and  Reconstruction  of  Financial
Assets and Enforcement of Security Interest Act, 2002;   that it is for  the
creditors at the first instance to consider the  scheme  proposed  and  only
the approved scheme by the required majority is  to  be  considered  by  the
court for grant of sanction under Section 391 (2) of the  Act;   that  there
is a distinction between Section 391(1) and 391(2) of the Act  regard  being
had to the language employed therein and if  the  contentions  mentioned  in
the proviso to sub-Section  (2)  of  Section  391  of  the  Act  had  to  be
considered at the stage of Section 391(1) that will amount  to  reading  the
latter provision  to the earlier one; and that  the  distinction  which  has
been set forth in various sub-Sections  have  to  be  appositely  understood
because there are various phases till the scheme is approved and each  stage
has its own room to operate. After so stating  the  court  referred  to  the
stand of the 8th respondent and came to hold  as follows:-
"49.  The 8th respondents among other things also taken  up  the  contention
that at all material times they were  only  an  unsecured  creditor  of  the
applicant-Company and according to them, they are wrongly impleaded in  C.A.
No. 1718/2004.  Accordingly to them, the short-terms  loan  was  granted  on
terms and conditions agreed upon by the parties and on a reading  of  Clause
15 of the terms and  conditions  security  to  be  created  by  the  Hewlett
Packard (India) Ltd. through an ascrow account which will  separately  open.
According to them, no account was opened  subsequently  and  no  amount  was
channelised  through  the  account  as   contemplated   by   the   mechanism
prescribed.   Hence,  no  security  was  created  in  favour  of   the   8th
respondent.  These conditions were raised in an additional  affidavit  filed
by the 8th respondent.  The applicant-company has also filed  an  additional
affidavit answering those conditions.  In  the  additional  reply  affidavit
filed on 24/1/2005 the applicant-company has  averred  that  the  contention
that they are only unsecured creditors was raised during agreement  and  the
affidavit was also filed during the course  of  arguments.   The  applicant-
Company took copies of the documents creating charge in favour  of  the  8th
respondent.  They have  produced  Annexure-X  hypothecation  deed  which  is
executed in 2001.  Copies of Form No. 8 return dated 1.1.2001 and  Form  No.
13 return dated 1.1.2001 filed with the Registrar of Companies are  produced
as Annexures-Y and Z. Annexures-AA  in  a  copy  of  the  letter  ILES  (8th
respondent) dated 4.7.2001.  It is the  contention  of  the  applicant  that
from the above it is  clear  that  there  is  a  charge  in  respect  of  he
specified assets of the applicant-company in favour of the  8th  respondent.
Annexure-X is an unattested deed of hypothecation executed by the  Applicant
in favour of the 8th respondent.  The applicant is described as  "Borrower".
 This is a  hypothecation  deed  creating  exclusive  charge  involving  all
monies and right, title and interest, to be received from and or payable  by
Hewlett Packard Ltd., towards sale of colour monitors, to  the  borrower  as
security for the said facility arranged by the 8th respondents  as  security
for the payment by the borrower of the balance outstanding.   Annexure-Y  is
Form No.8 filed by the applicant-Company under Section 125 of the  Companies
Act.  The hypothecation deed executed by the applicant-Company in favour  of
the 8th respondent is an instrumental creating a charge and  amount  secured
is contained as Rs. 150 millions.   It  shows  that  the  above  charge  was
registered with the Registrar of Companies as  per  the  provisions  of  the
Companies Act. Annexure-Z is From No. 13 in  which  the  amount  secured  is
shown as Rs. 150 million. Annexure-AA is the letter of consent  by  the  8th
respondent which shows that the 8th respondents has  offered  for  providing
short-term loan facility upto Rs. 150 million and the term loan facility  is
enclosed in the Annexure.  The loan facility availed  by  them  to  the  BPL
Ltd. is also to be considered  as  part  of  the  above-mentioned  facility.
Annexure-AA attached therein would show that the lender  is  8th  respondent
and the borrower is BPL Ltd. and the purpose for which the loan advanced  is
to meet working capital requirements and the security offered is  first  and
exclusive charge on receivables of Hewlett Packard (India) Ltd.  It is  also
seen  that  the  applicant-Company  has  to  undertake   to   complete   all
formalities towards creation of charge and the escrow arrangement within  30
days from the date of disbursement.  The  proposal  made  even  as  per  the
Scheme of Arrangement is to apply to all existing  charge  holders  and  8th
respondent is one such charge holder, to whom the Scheme is extended.

50. In the light of the above  facts,  I  do  not  find  any  merit  in  the
contention that the Scheme proposed will not cover  the  8th  respondent  or
that they are not secured creditors, to whom the Scheme will not apply. "

Be it stated, the court did not accept the contention that the scheme  could
not be worked out on the ground that the scheme was entitled to  be  amended
either in the meeting or even subsequently by the Court and it was  not  the
stage to suggest any amendment and accordingly  contentions  raised  by  the
respondents in that regard were kept open.
On the basis of the aforesaid analysis, the Company Judge held that MCA  No.
84/2004 was maintainable and other applications seeking grant of  stay  were
sans merit and accordingly dismissed the same.   Certain  applications  were
kept to be considered at a later stage.  The prayer of the respondents  that
they were not covered by the scheme proposed by the amendment and  they  are
not secured creditors was rejected.  Ultimately  the  Company  Judge  issued
the following directions:-
"54. M.C.A. No. 84/2004 is allowed. It is ordered that a meeting of  secured
creditors (working Capital Lenders and Term Lenders) be  convened  and  held
at the Registered office of he Applicant Company at  Palghat  on  16.04.2005
at 2.00 P.M. for the purpose of considering and if  thought  fit,  approving
with or  without  modification  of  he  compromise/arrangement  proposed  as
Annexure-G as modified by Annexure-N to be made between the Company and  the
creditors abovenamed.

55. Mr. Justice T. V. Ramakrishnan, a Retired Judge of  the  High  Court  is
appointed as the Chairman for the Meeting

56.  Notice convening the above meeting shall be published in  all  editions
of Economic Times, Indian Express  and  Malayala  Manorama  giving  21  days
clear notice.
    xxx     xxx        xxx
58. That the value each member/creditor shall  be  in  accordance  with  the
books of the Company and in case of dispute, the  Chairman  shall  determine
the value."

Being aggrieved by the aforesaid order, the  8th  respondent  filed  Company
Appeal No. 5 of 2005.  Before the appellate Court,  it  was  contended  that
Section 391 of the Act, although refers to the power of  companies  to  make
arrangements with creditors and members, such  compromise  could  have  only
been possible between a company and its creditors or any class of them,  and
when an application was filed before the court, where it had  been  possible
to find out that the  arrangement  was  not  intended  to  be  made  with  a
homogeneous class, the court should have accepted the objection  so  raised.
It was also urged, ignoring the same, a binding order, could not  have  been
issued.  It was contended that the meeting was proposed to be  held  between
the company and its secured creditors and even if  it  was  to  be  presumed
that the appellant initially was a secured creditor, it  had  been  disrobed
of the said status  consequent  to  subsequent  developments,  including  an
arbitration award, well before the application  came  to  be  filed  in  the
court.
The appellant argued that though as  required  by  the  hypothecation  deed,
Form Nos. 8 and 13 thereof  had  been  submitted  before  the  Registrar  of
Companies, yet no further action was taken by BPL Ltd. to fulfil the  agreed
arrangement between the parties.  It was asserted that as per  the  deed  of
hypothecation, the borrower was  obliged  to  open  an  escrow  and  no-lien
account with a designated bank, and was to  undertake  to  deposit  all  the
receivables from Hewlett Packard India  Ltd.  in  the  said  escrow  account
only, however, no escrow account had been opened and the agreed  arrangement
remained only on  paper.  The  escrow  mechanism  was  the  essence  of  the
agreement, but it had never been put into operation and, therefore,  it  was
not permissible for BPL Ltd. to contend that the  appellant  was  a  secured
creditor and the original claims  of  the  appellant  could  not  have  been
watered down.
The next contention that was advanced in the company appeal  was  that  even
if it could have been assumed that because of  the  hypothecation  deed,  at
one point of time, the appellant could have been  considered  as  a  secured
creditor, the position had changed because of the  arbitration  award  which
has been passed on consent. Emphasis was laid on the fact that there was  an
agreement recorded in the award that the criminal proceedings would  not  be
pursued and more importantly it was a settlement of money claim and  nothing
remained in respect of the claims on  hypothecation,  which  originally  had
been entered into by the parties. Thus, the status  of  a  secured  creditor
thereby irrevocably had been metamorphosed.  Relying on the  authority  Deva
Ram v. Ishwar  Chand[1],  a  submission  was  advanced  that  on  principles
gatherable from Order II, Rule 2, of CPC, after  the  award  had  come  into
existence, it would not have been possible for the appellant to  pursue  his
claims on the basis of  the  hypothecation  deed,  for  the  rights  of  the
parties got crystallised to a pure and simple money claim,  and  hence,  the
security earlier offered and created had lost its relevance and  transformed
itself to a decree debt.
Apart from the above contentions, it was also propounded that the  appellant
deemed to have relinquished rights of hypothecation  security  and  being  a
party to the proceedings, BPL Ltd. could  not  have  turned  round  and  put
forward a technical contention that the appellant continued to be a  secured
creditor.  To buttress the said stand, reliance was placed upon  the  dictum
laid down in  K.V.  George  v. Secretary  to  Government,  Water  and  Power
Department[2].
The aforesaid contentions were resisted by the counsel  for   the  BPL  that
the  order passed by the learned  company  Judge  was  absolutely  flawless;
that the stand that the appellant was no more a secured creditor because  of
the award passed between the parties was totally devoid of any merit;   that
the scheme or arrangement  was  approved  in  the  meeting  of  the  secured
creditors held by the Chairman and the appellant company had been  issued  a
substantial sum but it had refused to accept the same;  that  the  appellant
remained a secured creditor for all legal purposes and hence, it  was  bound
by the scheme in question.
The Division Bench adverted to the deed of  hypothecation  executed  by  the
BPL in favour of the appellant  company  and  opined   that  the  appellant-
company had failed to take follow up action to get an escrow  account;  that
the formalities relating to creation of charge had been duly followed;  that
in the arbitration award there was no reference that BPL had agreed to  lift
the charge created; in the absence of the agreed position  that  the  charge
be got lifted, and the appellant continued to  be  a  secured  creditor  and
passing of the arbitration award did not create any change in the status.
The Division Bench appreciating the contentions further came  to  hold  that
the appellant was a  secured  creditor  after  the  hypothecation  deed  was
executed; that once the charge had been created it  continued  to  bind  the
parties till steps were regressed; and that  the  finding  recorded  by  the
learned company Judge was unexceptionable.  That apart, the  Division  Bench
also took note of the  fact  that  the  persons  who  had  to  be  adversely
affected were not parties to the appeal.  Being of the  view,  it  dismissed
the appeal.   The said judgment and order are the subject matter  of  assail
in this appeal.
We have heard Mr. Shyam Divan, learned senior counsel for the appellant  and
Mr. V. Giri, learned senior counsel for the respondent.
It is submitted by Mr. Divan that that  once  an  arbitral  award  has  been
passed on consent between the parties it  extinguishes  the  status  of  the
appellant as a secured  creditor  and  it  stands  on  a  different  footing
altogether.  It  is  further  urged  that  the  registration  as  a  secured
creditor does not bind the appellant and, more so, when the  arbitral  award
has come into existence.  It  is  his  submission  that  after  the  parties
settled by way of  arbitration,  the  conceptual  requisites  of  a  secured
creditor became non-existent.  Learned  senior  counsel  would  further  put
forth that the hypothecation had never  become  operational  as  is  evident
from various documents on record and hence, the analysis made  by  the  High
Court is absolutely fallible.   It  is  contended  that  once  the  deed  of
hypothecation is not fructified, mere registration  as  a  secured  creditor
with the Registrar of Companies  would  not  confer  on  the  appellant  the
status of a secured creditor and, in any case, the said  registration  would
not bind it.  It is canvassed by him that once the  appellant  has  accepted
the award as passed by the arbitrator, it operates as res  judicata  against
the  respondent  company  to  treat  the  appellant  company  as  a  secured
creditor.  That apart, urges the  learned  senior  counsel,  the  principles
inherent in Order II, Rule 2 would be  attracted  and  the  High  Court  has
completely erred by totally brushing it aside. The learned  senior  counsel,
to  support  his  submissions  raised  by  him,  has  referred  to   various
provisions of the Companies Act and placed reliance on  the  authorities  in
Firm Chunna Mal Ram Nath v. Firm  Mool  Chand  Ram  Bhagat[3],  Jagad  Bandu
Chatterjee v. Nilima Rani[4], Indian Bank v. Official Liquidator,  Chemmeens
Exports (P) Ltd[5]., Ranganayakamma v. K.S.  Prakash[6]  and  Jitendra  Nath
Singh v. Official Liquidator and ors.[7]
Mr. Giri, learned senior counsel appearing  for  the  respondent,  resisting
the aforesaid proponements, would submit that the  arbitral  award,  whether
passed on consent or on contest, has the status  of  a  decree  but  such  a
decree does not extinguish the charge  and  thereby  does  not  disrobe  the
status of a secured creditor.  Learned senior  counsel  would  contend  that
despite the relinquishment made by the appellant, it  would  not  take  away
the legal status conferred by it in law.  Emphasis  has  been  laid  on  the
issue of registration before the Registrar under Sections  138  and  139  of
the Act and how the record establishes that  the  status  and  the  arbitral
award will not change the registered status.  It is contended  by  Mr.  Giri
that by no stretch of imagination, the principle of resjudicata would  apply
to the case at hand, for the proceedings are of different nature.  He  would
also urge that the lis would not be hit by the bar created under  Order  II,
Rule 2 of the CPC. Learned senior counsel has commended us to the  decisions
in Lonankutty v. Thomman and Another[8], Harbans Singh and  others  v.  Sant
Hari Singh and others[9], and Indian Bank v. Official Liquidator,  Chemmeens
Exports (P) Ltd. and others[10].
From  the  narration  of  facts  and  the  contentions   which   have   been
highlighted, it is clear that two facts  are  beyond  dispute.   First,  the
appellant stands registered as a secured creditor of the respondent  company
on the record of the Registrar of Companies under the Act; and  second,  the
arbitral tribunal has passed an award on the basis of  consent  and  it  has
the status of a decree which is executable in law.  Keeping  in  view  these
two undisputed facts, we have to appreciate the rival submissions raised  at
the Bar.  In this context, reference to relevant portions  of  Sections  391
and 393 of the Act would be appropriate.  They are as follows:
"391. (1) Where a compromise or arrangement is proposed-

(a) between a company and its creditors or any class of them; or
(b) between a company and its members or any class of them;
the Court may, on the application of the  company  or  of  any  creditor  or
member of the company, or in the case of a company which is being wound  up,
of the liquidator, order a meeting of the creditors or class  of  creditors,
or of the members or class of members, as the case may  be,  to  be  called,
held and conducted in such manner as the Court directs.
(2) If a majority in number  representing  three-fourths  in  value  of  the
creditors, or class of creditors, or members, or class  of  members  as  the
case may be, present and voting either  in  person  or,  where  proxies  are
allowed under the rules made under Section 643, by proxy,  at  the  meeting,
agree to any  compromise  or  arrangement,  the  compromise  or  arrangement
shall, if sanctioned by the Court, be binding on all the creditors, all  the
creditors of the class, all the members, or all the members  of  the  class,
as the case may be, and also on the company,  or,  [pic]in  the  case  of  a
company which is being wound up, on the  liquidator  and  contributories  of
the company:

Provided that no order sanctioning any compromise or  arrangement  shall  be
made by the Court unless the Court is satisfied  that  the  company  or  any
other person by whom an application has been made under sub-section (1)  has
disclosed to the Court,  by  affidavit  or  otherwise,  all  material  facts
relating to the company, such  as  the  latest  financial  position  of  the
company, the latest auditor's report on the accounts  of  the  company,  the
pendency of any investigation proceedings in relation to the  company  under
Sections 235 to 251, and the like."

                              xxxxx xxxxx xxxxx

"393. (1) Where a meeting of creditors or any  class  of  creditors,  or  of
members or any class of members, is called under Section 391,-

(a) with every notice calling the meeting which is sent  to  a  creditor  or
member, there shall be sent also a statement setting forth the terms of  the
compromise or arrangement and explaining  its  effect,  and  in  particular,
stating  any  material  interests  of  the  directors,  managing  directors,
managing agents, secretaries and  treasurers  or  manager  of  the  company,
whether in their capacity as such or as members or creditors of the  company
or otherwise, and the effect  on  those  interests,  of  the  compromise  or
arrangement, if, and insofar as, it is different  from  the  effect  on  the
like interests of other persons; and

(b) in every notice calling the meeting which  is  given  by  advertisement,
there  shall  be  included  either  such  a  statement  as  aforesaid  or  a
notification of the place at which and the  manner  in  which  creditors  or
members entitled  to  attend  the  meeting  may  obtain  copies  of  such  a
statement as aforesaid."

Sub-Section (1) of Section 391 stipulates that a compromise  or  arrangement
can be proposed between a company or its creditor or any class  of  them  or
between a company and its members or any class of  them.   It  need  not  be
between all the creditors or  all  the  members.   Contextually,  "class  of
creditors" or "class of members" has a different  meaning  and  connotation.
It gains significance when the question of approval of scheme under the  Act
arises for consideration.  While dealing with the approval of a scheme,  the
Company Court is required to direct holding of meeting of the said class  of
creditors or members concerned and only when the scheme is approved  by  the
majority in number representing 3/4th in value by the  class  of  creditors,
or members present either in person  or  through  proxy,  the  same  becomes
binding on the said class of creditors or members.  Once there is  a  voting
and the 3/4th majority has voted in favour of the scheme, it is  binding  on
those who have dissented and had voted  against  the  scheme  or  those  who
remained silent.
While analyzing the scope and ambit of the powers of the  Company  Court  in
respect of Section 391 and 393 of the Act and the role of the Court  a  two-
Judge Bench in  Miheer H.  Mafatlal  V.  Mafatlal  Industries  Ltd.[11]  has
observed thus:-
"Before sanctioning such a scheme even though approved by a majority of  the
concerned creditors or members the [pic]Court has to be satisfied  that  the
company or any other person moving such an application  for  sanction  under
sub-section (2) of Section  391  has  disclosed  all  the  relevant  matters
mentioned in the proviso to sub-section (2) of that section. So far  as  the
meetings of the creditors or members, or their respective classes  for  whom
the Scheme is proposed are concerned, it is enjoined  by  Section  391(1)(a)
that the requisite information as contemplated  by  the  said  provision  is
also required to be placed for consideration  of  the  voters  concerned  so
that the parties concerned before whom the scheme is placed for  voting  can
take an informed and objective decision whether to vote for  the  scheme  or
against it. On a conjoint reading of the  relevant  provisions  of  Sections
391 and 393 it becomes at once clear that the Company Court which is  called
upon to sanction such a scheme has not merely to go by  the  ipse  dixit  of
the majority of the shareholders or creditors or  their  respective  classes
who might have voted in favour of the scheme by requisite majority  but  the
Court has to consider the pros and  cons  of  the  scheme  with  a  view  to
finding out whether the scheme is fair,  just  and  reasonable  and  is  not
contrary to any provisions of  law  and  it  does  not  violate  any  public
policy. This is implicit in the very concept of  compromise  or  arrangement
which is required to receive the imprimatur of a court of law. No  court  of
law would ever countenance any scheme of compromise or  arrangement  arrived
at between the parties  and  which  might  be  supported  by  the  requisite
majority if the Court finds that it  is  an  unconscionable  or  an  illegal
scheme or is otherwise unfair or unjust to  the  class  of  shareholders  or
creditors for whom it is meant.  Consequently  it  cannot  be  said  that  a
Company Court before whom an application is moved  for  sanctioning  such  a
scheme which might have got the requisite majority support of the  creditors
or members or any class of them  for  whom  the  scheme  is  mooted  by  the
company concerned, has to act merely as  a  rubber  stamp  and  must  almost
automatically put its seal of approval on such a scheme. It is trite to  say
that once the scheme gets sanctioned by the Court it  would  bind  even  the
dissenting minority shareholders or creditors. Therefore,  the  fairness  of
the scheme qua them also has to be kept in view by the Company  Court  while
putting its seal  of  approval  on  the  scheme  concerned  placed  for  its
sanction."

Thereafter, the Court  referred  to  Section  392  of  the  Act.   The  said
provision deals with the supervisory jurisdiction of the Company Court.   It
is necessary to reproduce the same:
"392. (1) Where a High Court makes an order under Section 391 sanctioning  a
compromise or an arrangement in respect of a company, it-
(a) shall have power to supervise the carrying  out  of  the  compromise  or
arrangement; and
(b) may, at the time of making such order or at any  time  thereafter,  give
such directions in regard to any matter or make such  modifications  in  the
compromise or arrangement as  it  may  consider  necessary  for  the  proper
working of the compromise or arrangement.

(2) If the Court aforesaid is satisfied that  a  compromise  or  arrangement
sanctioned under  Section  391  cannot  be  worked  satisfactorily  with  or
without  modifications,  it  may,  either  on  its  own  motion  or  on  the
application of any person interested in the affairs of the company, make  an
order winding up the company, and such an order shall be  deemed  to  be  an
order made under Section 433 of this Act.

(3) The provisions of this section shall, so far as may be, also apply to  a
company in respect of which an order has been made before  the  commencement
of this Act under Section 153 of  the  Indian  Companies  Act,  1913  (7  of
1913), sanctioning a compromise or an arrangement."

In the said context, the  Court  posed  the  question  whether  it  has  the
jurisdiction of an appellate authority to  minutely  scrutinize  the  scheme
and to arrive at an independent conclusion  whether  the  scheme  should  be
permitted to go through  or  not  and  whether  the  majority  creditors  or
members, through  their  respective  class,  have  approved  the  scheme  as
required under sub-Section (2) of Section 391.  It observed that the  nature
of compromise or arrangement between the company and the creditors  and  the
members has to be kept in view, for it  is  the  commercial  wisdom  of  the
parties to the  scheme  who  have  taken  an  informed  decision  about  the
usefulness and propriety of the scheme by supporting  it  by  the  requisite
majority vote.  Therefore, the Court does not act as a Court of  Appeal  and
sit in judgment over the informed view  of  the  parties  concerned  to  the
compromise as the same would be in the realm  of  corporate  and  commercial
wisdom of the parties concerned  and  further  the  Court  has  neither  the
expertise nor the jurisdiction  to  dig  deep  into  the  commercial  wisdom
exercised by the creditors and the members of the company who have  ratified
the scheme by the requisite majority.  The Court  eventually  held  that  it
has the supervisory jurisdiction which  is  also  in  consonance   with  the
language employed under Section 392 of the Act.  In that context, the  Court
referred to the observations found in the oft-quoted passage in  Buckley  on
the Companies Act, 14th Edn.  It is as follows:
"In exercising its power of sanction the court  will  see,  first  that  the
provisions of the statute have been complied with, second,  that  the  class
was fairly represented by those  who  attended  the  meeting  and  that  the
statutory majority are acting bona fide and are not  coercing  the  minority
in order to promote interest  adverse  to  those  of  the  class  whom  they
purport to represent, and thirdly,  that  the  arrangement  is  such  as  an
intelligent and honest man, a member of the class concerned  and  acting  in
respect of his interest, might reasonably approve.

The court does not sit merely to see that the majority are acting bona  fide
and thereupon to register the decision of  the  meeting,  but  at  the  same
time, the court will be slow to differ from the meeting, unless  either  the
class has not been properly consulted, or the  meeting  has  not  considered
the matter with a view to the interest of the class which  it  is  empowered
to bind, or some blot is found in the scheme."

The Court also referred to the decision in Alabama, New Orleans,  Texas  and
Pacific Junction Rly. Co. Re[12]  to cull out the principle relating to  the
power and jurisdiction  of  the  Company  Court  which  is  called  upon  to
sanction the scheme of arrangements or compromise between  the  company  and
its creditors or shareholders.  The observations of Lindley, L.J. as  quoted
in the said authority read as under:
"What the court has to do is to see, first of all, that  the  provisions  of
that statute have been complied with; and, secondly, that the  minority  has
been acting bona fide. The court also  has  to  see  that  the  minority  is
[pic]not being  overridden  by  a  majority  having  interests  of  its  own
clashing with those of the minority whom they seek to coerce.  Further  than
that, the court has to look at the scheme and see whether it is  one  as  to
which persons acting honestly, and viewing the scheme laid  before  them  in
the  interests  of  those  whom  they  represent,  take  a  view  which  can
reasonably be taken by businessmen. The court must look at the  scheme,  and
see whether the Act has been complied with, whether the majority are  acting
bona fide, and whether they are coercing the minority in  order  to  promote
interests adverse to those of the class whom they purport to represent;  and
then see whether the scheme is a reasonable one  or  whether  there  is  any
reasonable objection to  it,  or  such  an  objection  to  it  as  that  any
reasonable man might say that he could not approve it."

The observations of Fry, L.J. were also reproduced.  A  reference  was  made
to the  decision  in  Anglo-Continental  Supply  Co.  Ltd.  Re[13]  and  the
judgment by a three-Judge Bench  in  Employees'  Union  V.  Hindustan  Lever
Ltd.[14] and eventually, the following principles were culled out:
"In view of the aforesaid settled legal position, therefore, the  scope  and
ambit of the jurisdiction of the Company Court has  clearly  got  earmarked.
The following broad contours of such jurisdiction have emerged:

1.    The sanctioning court  has  to  see  to  it  that  all  the  requisite
statutory procedure for supporting such a scheme has been complied with  and
that the requisite meetings as contemplated by Section 391(1)(a)  have  been
held.

2.    That the scheme put up for sanction of the Court is backed up  by  the
requisite majority vote as required by Section 391 sub-section (2).

3.    That the meetings concerned of the creditors or members or  any  class
of them had the relevant material to enable the voters to arrive at  [pic]an
informed decision for approving the scheme in question.  That  the  majority
decision of the concerned class of voters is just and fair to the  class  as
a whole so as to legitimately bind  even  the  dissenting  members  of  that
class.

4.    That all necessary material indicated by Section 393(1)(a)  is  placed
before the voters at the meetings concerned as contemplated by  Section  391
sub-section (1).

5.    That all the requisite material contemplated by the  proviso  of  sub-
section (2) of Section 391 of the Act is placed  before  the  Court  by  the
applicant concerned seeking sanction for such a scheme and  the  Court  gets
satisfied about the same.

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.

7.    That the Company Court has also to  satisfy  itself  that  members  or
class of members or creditors or class of creditors, as  the  case  may  be,
were acting bona fide and in good faith and were not coercing  the  minority
in order to promote any interest adverse to that of  the  latter  comprising
the same class whom they purported to represent.

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.

9.    Once the aforesaid  broad  parameters  about  the  requirements  of  a
scheme for getting sanction of the Court are found to  have  been  met,  the
Court  will  have  no  further  jurisdiction  to  sit  in  appeal  over  the
commercial wisdom of the majority of the class of  persons  who  with  their
open eyes have given their approval to the scheme even if  in  the  view  of
the Court there would be a better scheme for the company and its members  or
creditors for whom  the  scheme  is  framed.  The  Court  cannot  refuse  to
sanction such a scheme on that ground as it would otherwise  amount  to  the
Court exercising appellate jurisdiction over  the  scheme  rather  than  its
supervisory jurisdiction.

The aforesaid parameters of the scope and ambit of the jurisdiction  of  the
Company Court which is called upon to sanction a scheme  of  compromise  and
arrangement  are  not  exhaustive  but  only  broadly  illustrative  of  the
contours of the Court's jurisdiction."

In this context, we may usefully refer  to  Palmer's  Treatise  on  `Company
Law, 25th edition, wherein delineating with the concept  of  class,  it  has
been stated thus:-
"What constitutes a class:

The court does not itself consider at this point what classes  of  creditors
or members should be made parties to the scheme. This is for the company  to
decide, in  accordance  with  what  the  scheme  purports  to  achieve.  The
application for an order for meetings is a preliminary step,  the  applicant
taking the risk that the classes which are fixed by the  judge,  usually  on
the applicant's request, are sufficient for  the  ultimate  purpose  of  the
section, the risk being that if in the result, and we  emphasize  the  words
'in  the  result',  they  reveal  inadequacies,  the  scheme  will  not   be
approved'. If, e.g., rights of ordinary shareholders are to be altered,  but
those  of  preference  shares  are  not  touched,  a  meeting  of   ordinary
shareholders will be necessary but not of preference shareholders. If  there
are different groups within a class the interests  of  which  are  different
from the rest of the class, or which are to  be  treated  differently  under
the scheme, such groups must be treated as separate class  for  the  purpose
of the scheme. Moreover, when the  company  has  decided  what  classes  are
necessary parties to the scheme, it may happen that one class  will  consist
of a small number of persons who will all be willing  to  be  bound  by  the
scheme. In that case it is not the  practice  to  hold  a  meeting  of  that
class, but to make the class a  party  to  the  scheme  and  to  obtain  the
consent of all its members to be bound. It is,  however,  necessary  for  at
least one class meeting to be held in order to give the  court  jurisdiction
under the section."

      In this regard, reference to a passage from Sovereign  Life  Assurance
Co. Ltd. v. Dodd[15], as stated by Bowen, L.J., would be apt.  It  reads  as
follows:
"it seems plain that we must give such a meaning to "Class" as will  prevent
the section being so worked as to result in confiscation and injustice,  and
that it  must  be  confined  to  those  persons  whose  rights  are  not  so
dissimilar as to make it impossible for them  to  consult  together  with  a
view to their common interest."

The purpose of the classification of creditors has its significance.  It  is
with this object that when a class has to be restricted, the  principle  has
to be founded on homogeneity and commonality of interest.  It is to be  seen
that dissimilar classes  with  conflicting  interest  are  not  put  in  one
compartment to avoid any kind  of  injustice.   For  example,  an  unsecured
creditor who has filed a suit and obtained  a  decree  would  not  become  a
secured creditor.  He has to be put in the same  class  as  other  unsecured
creditors (See Halsbury's Laws of India, 2007, Vol. 27).
The aforesaid being the position relating to the status of a class, at  this
juncture,  it  is  necessary  to  appreciate  the  basic  facts  which   are
determinative in the case  at  hand.   As  the  exposition  of  facts  would
uncurtain, the appellant company had extended a short-term loan facility  of
Rs.150 million to the respondent company on 4.7.2001;  that  the  respondent
company had executed a deed of hypothecation  in  favour  of  the  appellant
hypothecating by way of an exclusive charge of the monies and  right,  title
and interest relating to amounts, both present and future to be received  or
payable by M/s. Hewlett Packard Ltd.; that the respondent had filed Forms  8
and 13 and the charge by way of hypothecation was duly registered  with  the
Registrar of Companies; that the  appellant  had  initiated  an  arbitration
proceeding which eventually resulted in the  consent  award  dated  1.7.2004
whereby the arbitral tribunal directed a sum of Rs.48,683,710/-  as  due  on
30.06.2004 along with interest  @  20%  p.a.  on  the  principal  amount  of
Rs.36,360,000/- from 01.07.2004 till realization; that the award  stipulated
due discharge of  the  liability  on  payment  of  Rs.36,360,000/-  in  four
instalments for the purpose of which post-dated cheques  were  issued;  that
there was a postulate that in case of default of payment of any  instalment,
the entire amount may become due and payable  and  the  appellant  would  be
entitled in law to execute the award for recovery of the entire due  without
prejudice  to  and  in  addition  to  entitlement  to   institute   criminal
proceedings under  the  Negotiable  Instruments  Act;  that  the  respondent
failed  to  pay  the  first  instalment  of  Rs.17,500,000/-  on  or  before
30.09.2004; that  on  30.09.2004  the  respondent  filed  a  petition  under
Sections 391-394 of the Act for sanction of the scheme; that  the  appellant
initially filed objections to the scheme in the form of a counter  affidavit
on 25.11.2004 on merits and thereafter at a subsequent  stage  on  20.1.2005
filed an additional affidavit stating, inter alia, that it was an  unsecured
creditor; that an affidavit was filed  in  oppugnation  asserting  that  the
appellant was a secured creditor, regard  being  had  to  the  hypothecation
deed and the  registration  having  been  effected  with  the  Registrar  of
Companies; that meeting of the secured creditors and guarantors was held  on
6.4.2005  and  a  Chairperson  was  appointed;  that  the  said  order   was
challenged by IndusInd Bank Ltd., WTI Bank Ltd. and Bank of  Rajasthan  Ltd.
in appeals but the same were dismissed by the Division Bench on  17.06.2005;
that the appellant preferred an appeal which was dismissed by  the  judgment
on 17.1.2006, which is impugned herein;  that  the  scheme  which  has  been
amended was put to vote and was duly approved by  the  three-fourth  of  the
secured creditors present and voting in value terms; and that the Court  has
approved and accepted the modified Scheme.
We have, hereinabove, referred to the fact that the Scheme was  amended  and
approved in the meetings held by the secured creditors.   For  the  sake  of
completeness, we think it appropriate to reproduce how the  learned  Company
Judge had approved the Scheme.
"(i)  The scheme of arrangement as amended by  amendments  approved  at  the
meeting of the secured creditors on April 16, 2005,  being  Annexure  D1  to
the Company Petition No. 13/2004 is sanctioned so  as  to  be  binding  with
effect from 31.03.2003, on the petitioner company and  all  of  its  secured
creditors and preference shareholders, including any  secured  creditor  and
preference  shareholders  that  may  have  obtained  any  decree,  order  or
direction from any court  tribunal  or  any  other  authority,  without  any
further  act  or  deed  by  the  petitioner  company,  in  respect  of   the
outstanding debt of the petitioner company as of March 31, 2003 to  all  its
secured creditors and preference shareholders, which amount shall be as  has
been determined on the basis of the figures agreed and accepted between  the
petitioner company and each of the secured creditors at the meeting  of  the
secured creditors convened and held on April 16, 2005, and hence the  figure
as was specified in the application filed by the  petitioner  Company  under
section 391 (1) of the Companies Act stands/ modified accordingly.

(ii)  The petitioner Company shall within 30 days after the date of  sealing
of this order cause  a  certified  copy  thereof  to  be  delivered  to  the
Registrar of Companies, Kerala of registration.

(iii) On the coming into effect by the Scheme of Arrangement being filed  by
the petitioner Company with the Registrar  of  Companies,  Kerala  and  with
effect from 31.03.2003, the outstanding debt of the petitioner company  owed
to all secured creditors and Preference Shareholders as of 31.03.2003  shall
be restructured on the terms and conditions and in the manner  provided  for
in the Scheme of Arrangement as annexed in Annexure D1 to the petition.

(iv)  The total outstanding  debt  of  the  petitioner  company  to  all  is
Secured Creditors and  Preference  Shareholders  as  of  31.03.2003  of  the
petitioner Company shall be restructured under  the  scheme  of  arrangement
and all rights and liabilities relating to such outstanding debt to  secured
Creditors and Preference Shareholders as of 31.03.2003 shall  stand  created
under the Scheme of Arrangement.  In addition, the  petitioner  company  and
the Secured Creditors and  Preference  Shareholders  shall  enter  into  any
documentation that may be required,  only  to  give  formal  effect  to  the
restricting and for the modification of the  security  contemplated  by  the
Scheme of Arrangement, and to govern  the  prospective/ongoing  relationship
between the petitioner Company and  its  Secured  Creditors  and  Preference
Shareholders (including covenants of the petitioner company, supervision  of
the management of the petitioner Company, Event of  Default  etc).  However,
upon the Scheme of Arrangement coming into effect, in  the  absence  of  the
formal  documentation  referred  to  above,  the  rights   obligations   and
privileges  of  the  petitioner  Company  and  the  Secured  Creditors   and
Preference Shareholders shall be governed by the provisions  of  the  Scheme
of Arrangement as detailed in Annexure D1 to the petition.

(v)    Any  legal  or  other  proceedings  pending  against  the  petitioner
Company, in India or abroad, relating to any of  the  outstanding  debt,  of
the petitioner company to  Secured  Creditors  and  Preference  Shareholders
shall, on the effectiveness of the Scheme of Arrangement, be terminated  and
the rights, obligations and liabilities of the parties shall be governed  by
the terms of the Scheme of Arrangement.

That  the  parties  to  the  compromise  of  arrangement  or  other  persons
interested shall be at liberty to apply to this  court  for  any  directions
that may be necessary  in  regard  to  the  working  of  the  Compromise  or
arrangement and that  the  said  company  do  file  with  the  Registrar  of
Companies a certified copy of this order within 14 days from the date.

Keeping in view the factual backdrop, we have to  appreciate  the  principal
contentions.  The seminal contention of the appellant is that  it  does  not
fall into  the  class  of  secured  creditors,  for  it  had  initiated  the
arbitration proceeding and an award has been passed on consent  which  is  a
simple money decree and, therefore,  the  deed  of  hypothecation,  even  if
assumed to be executed at one point of  time,  has  become  irrelevant.   To
elaborate, the status of the appellant had changed from a  secured  creditor
to that of an unsecured creditor.  On this foundation,  a  stance  has  been
taken that the principles of Order II, Rule 2, C.P.C.  would  be  applicable
as the appellant would be debarred to issue on the basis of  the  charge  of
hypothecation.  Emphasis has been laid on the factum that there having  been
a change of status,  the  appellant  company  cannot  be  clubbed  with  the
secured creditors as a class and even if it is kept in  homogenous  category
of secured creditors, it should still fall under a  separate  class,  regard
being had to the fact it has obtained an award from the  arbitral  tribunal.
In this context, it is to be seen that whether  the  arbitration  award  has
the effect of obliterating or nullifying the status  of  the  appellant  and
making him an unsecured creditor as a consequence of which it would  not  be
able to sue on the basis of a charge created in its favour.
What is contended by Mr. Divan, learned senior counsel for the appellant  is
that any further lis would be hit by principles enshrined  under  Order  II,
Rule 2 as well as by resjudicata.  It is urged by him that the claim of  the
appellant company having been heard and  decided  in  a  formal  proceeding,
i.e. the arbitration, it is binding  and,  therefore,  the  principle  under
Order II, Rule 2 would come into play.  For the  said  proposition,  he  has
drawn inspiration from Deva Ram (supra).  The  Court,  after  analyzing  the
Order II, Rule 2 CPC, observed thus:
"A bare perusal of the above provisions would indicate that if  a  plaintiff
is entitled to several reliefs against the defendant in respect of the  same
cause of action, he cannot split up the claim so as to omit one part of  the
claim and sue for the other. If  the  cause  of  action  is  the  same,  the
plaintiff has to place all his claims before the court in one suit as  Order
II Rule 2 is based on the cardinal principle that the defendant  should  not
be vexed twice for the same cause."

In that context,  reference  was  made  to  Palaniappa  Chettiar  v.  Alagan
Chettiar[16].  The Court also observed that the Rule requires the  unity  of
all claims based on the same cause of action in one suit  but  it  does  not
contemplate  unity  of  separate  causes  of  action.   If,  therefore,  the
subsequent suit is based on a different cause of action, the rule  will  not
operate as a bar.  For the said purpose, reliance was placed  on  Arjun  Lal
Gupta V. Mriganka Mohan  Sur[17],  State  of  Madhya  Pradesh  V.  State  of
Maharashtra[18], and Kewal Singh V. Mt. Lajwanti[19].
In this regard, immense emphasis has  been  placed  by  Mr.  Divan,  learned
senior counsel, on the authority in Official Liquidator,  Chemmeens  Exports
(P) Ltd. (supra), especially paragraphs 13, 15 and  18.   Paras  15  and  18
which have been pressed  into  service  with  immense  inspiration  read  as
follows:
"The aforementioned preliminary decree was passed by the Court  even  though
the Official Liquidator raised the plea in the written  statement  that  the
charge created on the Company's property was void under Section 125  of  the
Act. But it may be that the plea was not argued  at  the  hearing.  However,
what is clear from the material on record is that no appeal  was  [pic]filed
against the said preliminary decree  by  the  Official  Liquidator  and  the
preliminary decree has attained finality.

                         xxxx        xxxx       xxxx

In Suryakant Natvarlal Surati v. Kamani Bros. Ltd.[20] the  Company  created
a charge under a mortgage in  favour  of  the  trustees  of  the  Employees'
Gratuity Fund. The creditors, by a  preliminary  decree  of  3-12-1977  were
entitled to receive the amount secured on the property of the  [pic]Company;
the Court fixed 8-12-1988 as the date for redemption  and  ordered  that  in
default of payment of the sum due by that date, the property was to be  sold
by public auction. On an application made  on  16-2-1978,  the  Company  was
ordered to be wound up by an order dated 3-8-1979. As default in payment  of
the decreed amount was committed, the mortgagees applied for  leave  of  the
Court  under  Section  446  to  execute  the  decree  against  the  Official
Liquidator by  application  dated  10-7-1981.  Three  contributories  sought
injunction against taking any further action on the ground that  the  charge
created by  the  Company  was  not  registered  under  Section  125  of  the
Companies  Act,  therefore,  the  mortgagees  should  be  treated  only   as
unsecured creditors. Their application was dismissed  by  a  learned  Single
Judge. On appeal, speaking for the Division Bench of the Bombay  High  Court
Justice Bharucha (as he then was) laid down, inter alia, the principle  that
the question of applicability of Section 125 had to be decided on the  terms
of the decree - whether the unregistered charge  created  by  the  mortgagor
was kept alive or extinguished or replaced by an order of  sale  created  by
the decree; if upon a construction of the decree, the Court found  that  the
unregistered charge was kept alive, the  provisions  of  Section  125  would
apply and if, on the other hand, the decree  extinguished  the  unregistered
charge, the section would not apply. We are  in  respectful  agreement  with
that principle. We hold that a judgment-creditor will be entitled to  relief
from the Company Court accordingly."

Relying on the said passages, it is urged  that  when  the  award  has  been
passed on consent and  has  the  status  of  a  decree  that  makes  him  an
unsecured creditor, for it has attained finalilty.  To appreciate  the  said
submission, the quoted passages are to be  appositely  appreciated.   As  is
evident, this Court has concurred with the  view  expressed  by  the  Bombay
High Court in Suryakant Natvarlal Surati (supra).   The  Division  Bench  of
the Bombay High Court had opined  that  the  question  of  applicability  of
Section 125 of the Act has to be decided  on  the  terms  of  the  decree  -
whether the unregistered charge created by the mortgagor was kept  alive  or
extinguished or replaced by an order of sale created by the decree; if  upon
a construction of the decree, the Court found that the  unregistered  charge
was kept alive, the provisions of Section 125 would apply  and  if,  on  the
other hand, the decree extinguished the  unregistered  charge,  the  Section
would not apply.  To elucidate, it  would  depend  upon  the  terms  of  the
decree.  In the case at hand, the learned Arbitrator has passed an award  on
consent.  It is trite that it has the  status  of  a  decree  but  there  is
nothing expressed in the award that the decree has extinguished the  charge.
 It was not extinguished because the award does  not  say  so.   To  have  a
complete picture, we think it necessary to reproduce  the  relevant  portion
of the operative part of the award:
"I.   Award on admission in the sum of Rs.48,683,710/- (due as on  June  30,
2004) in favour of the  Claimants  against  the  Respondents  together  with
further interest @ 20% p.a. on the principal  sum  of  Rs.36,360,000/-  from
1st July, 2004 till payment and/or realization.

II.   The aforesaid Award against the Respondents shall be marked  as  fully
satisfied in the even of the Respondents making payment to the Claimants  of
the sum of Rs.36,360,000/- in the following installments:-

Rs.17,500,000/- on or before 30th Septemebr, 2004

Rs.6,287,000/- on or before 15th April, 2017

Rs.6,287,000/- on or before 15th April, 2018

Rs.6,287,000/- on or before 15th April, 2019

III.   Simultaneously  with  the  signing  of  these  Consent   Terms,   the
Respondents have handed over to the  Claimants  one  post  dated  cheque  in
favour of the Claimants for Rs.17,500,000/- and  3  post  dated  cheques  in
favour of the Claimants for Rs.6,287,000/- each falling due on the  date  of
the respective instalments.

IV.   The Respondents hereby agree and undertake that the Respondents  shall
make payment of the said sum of Rs.36,360,000/- to the Claimants as per  the
Schedule set out in Clause 2 above and shall honour the post  dated  cheques
on  their  respective  due  dates.   This  undertaking  is  given   by   the
Respondents  after  satisfying  themselves  that  they  have  the  financial
ability to make the said payment on the respective due dates.

V.    In the event of the Respondents committing default in payment  of  any
of the installments including the last installment on the due date  for  any
reason whatsoever, the entire dues together with  interest  as  provided  on
Clause I hereinabove and outstanding due and payable by the  Respondents  to
the Claimants as on that date shall become forthwith due and payable by  the
Respondents to  the  Claimants  and  the  Claimants  shall  be  entitled  to
forthwith execute the Award against the Respondents and recover  the  entire
dues.  In that even, any installments/s paid under Clause 2  will  be  first
appropriated towards the interest payable under Clause I  without  prejudice
and in addition thereto, the Claimants shall also be entitled  to  institute
criminal legal proceedings against the Respondents  including  for  dishonor
of cheque/s under the provisions of the Negotiable Instruments  Act,  1881."


In view of the aforesaid conclusions, in the award, we have no scintilla  of
doubt that the decision in Official Liquidator, Chemmeens Exports  (P)  Ltd.
(supra) is distinguishable.
In this backdrop, we are to analyse whether the deed of hypothecation  would
continue in spite of the arbitration award.  Mr.  Divan  submitted  that  it
would not survive because of the provisions contained in Order  II,  Rule  2
of the CPC.  We have already referred to the decree  and  distinguished  the
decision in Official Liquidator, Chemmeens  Exports  (P)  Ltd  (supra).   In
this context, reference to Order XXXIV Rule 14 and 15 of the  CPC  would  be
apposite.  They read as follows:
14.   Suit for sale necessary for bringing mortgaged property to sale -  (1)
Where a mortgagee has  obtained  a  decree  for  the  payment  of  money  in
satisfaction of a  claim  arising  under  the  mortgage,  he  shall  not  be
entitled  to  bring  the  mortgaged  property  to  sale  otherwise  than  by
instituting a suit for sale in enforcement  of  the  mortgage,  and  he  may
institute such suit notwithstanding anything contained in Order II, rule 2.

(2)   Nothing in sub-rule (1) shall apply to any territories  to  which  the
Transfer of Property Act, 1882(4 of 1882), has not been extended.

15.   Mortgages by the deposit of title-deeds and  charges  -  (1)  All  the
provisions contained in this Order which apply to a simple  mortgage  shall,
so far as may be, apply to a mortgage by deposit of title-deeds  within  the
meaning of section 58, and to a charge within the meaning of section 100  of
the Transfer of Property Act, 1882 (4 of 1882).

(2)   Where a decree orders payment of money and  charges  it  on  immovable
property on default of payment, the amount may be realized by sale  of  that
property in execution of that decree.

The said provisions came to be interpreted in S. Nazeer Ahmed V. State  Bank
of Mysore and Others[21].  Referring to the said provisions, the Court  held
the suit for enforcement of  mortgage  could  be  filed  even  when  in  the
earlier civil proceedings, the plaintiff had omitted to sue on the basis  of
equitable mortgage and in such cases, principle of constructive  resjudicata
or Order II, Rule 2 would not apply.  The two-Judge Bench  has  opined  that
in such cases a suit for enforcement of the mortgage would lie  under  Order
XXXIV notwithstanding that in the earlier suit the plaintiff had  not  asked
for enforcement of the mortgage.  As the factual matrix  in  the  said  case
would unfurl, the Bank had advanced  a  loan  by  hypothecating  a  bus  and
further by equitable mortgaging two items of immovable properties.   It  had
at first filed a suit for recovery of money and sought  to  proceed  against
the hypothecated bus which could not be traced and recovered.  In  the  said
suit, the Bank had not prayed for a decree under Order XXXIV  on  the  basis
of mortgage.  There was an attempt to enforce the mortgaged property in  the
execution proceeding but the same was rejected as no decree of mortgage  has
been passed.  Thereafter,  the  Bank,  the  respondent  therein,  instituted
another suit for enforcement of equitable mortgage.   The  second  suit  was
held to be maintainable, regard being had to the language employed in  Rules
14 and 15 of Order XXXIV, holding, inter alia,  that  said  Rules  had  been
enacted  to  protect  the  mortgagor,  etc.  and,  therefore,  the  plea  of
constructive resjudicata relying upon Order II,  Rule  2  of  the  Code  was
erroneous.  The two-Judge Bench held that for Order II,  Rule  2  to  apply,
the cause of action in the two suits  should  be  similar  and  the  bar  of
constructive resjudicata, as was held, was not  applicable.   Analysing  the
facts, the Court held:
"That apart, the cause of action for recovery of money based  on  a  medium-
term loan transaction simpliciter or in enforcement of the hypothecation  of
the bus available in the present case, is a cause of action  different  from
the cause of action  arising  out  of  an  equitable  mortgage,  though  the
ultimate relief that the plaintiff Bank is entitled to is  the  recovery  of
the term loan that was granted to the appellant. On the scope  of  Order  II
Rule  2,  the  Privy  Council  in  Payana  Reena  Saminathan  v.  Pana  Lana
Palaniappa[22] has held that Order II Rule 2  is  directed  to  securing  an
exhaustion of the relief in respect of a cause of  action  and  not  to  the
inclusion in one and the same action of different  causes  of  action,  even
though they [pic]may arise from the same transactions. In Mohd. Khalil  Khan
v. Mahbub Ali Mian[23], the  Privy  Council  has  summarised  the  principle
thus: (IA pp. 143-44)

"The principles laid down in the  cases  thus  far  discussed  may  be  thus
summarised:

(1) The correct test in cases falling under Order II  Rule  2,  is  'whether
the claim in the new suit  is,  in  fact,  founded  on  a  cause  of  action
distinct from that which was the foundation for the former suit'.  (Moonshee
Buzloor Ruheem v. Shumsoonnissa Begum[24])

(2) The cause of action means every fact which will  be  necessary  for  the
plaintiff to prove, if traversed, in order  to  support  his  right  to  the
judgment. (Read v. Brown[25])

(3) If the evidence to support the two claims is different, then the  causes
of action are also different. (Brunsden v. Humphrey[26])

(4) The causes of action in the two suits may be considered to be  the  same
if in substance they are identical. (Brunsden v. Humphrey)
(5) The cause of action has no relation whatever to the defence that may  be
set up by the defendant, nor does it depend on the character of  the  relief
prayed for by the  plaintiff.  It  refers  'to  the  media  upon  which  the
plaintiff asks the Court to arrive at a conclusion in  his  favour'.  (Chand
Kour v. Partab Singh[27]) This observation was made  by  Lord  Watson  in  a
case under Section 43 of the Act of 1882 (corresponding  to  Order  II  Rule
2), where plaintiff made various claims in the same suit."

A Constitution Bench of this Court has  explained  the  scope  of  the  plea
based on Order II Rule 2 of the Code in Gurbux Singh v. Bhooralal1. It  will
be useful to quote from the headnote of that  decision:  (SCR  Headnote  pp.
831-32)

"Held: (i) A plea under Order II Rule 2 of the Code based on  the  existence
of a former pleading cannot be entertained when the  pleading  on  which  it
rests has not been produced. It is for this reason that  a  plea  of  a  bar
under Order II Rule 2 of the Code can be established only if  the  defendant
files in evidence the pleadings in the previous suit and thereby  proves  to
the court the identity of the cause of action in the  two  suits.  In  other
words a plea under Order II Rule 2 of the Code cannot be made out except  on
proof of the plaint in the previous suit the filing  of  which  is  said  to
create the bar. Without placing before the court the plaint in  which  those
facts were alleged, the defendant cannot invite the court  to  speculate  or
infer by a process of deduction what those facts might be with reference  to
the reliefs which were then claimed. On the facts of this [pic]case  it  has
to be held that the plea of a bar under Order II Rule 2 of the  Code  should
not have been entertained at all by the trial court  because  the  pleadings
in Civil Suit No. 28 of 1950 were not filed by the appellant in  support  of
this plea.

(ii) In order that a plea of a bar under Order II  Rule  2(3)  of  the  Code
should succeed the defendant who raises the plea must make out (i) that  the
second suit was in respect of the same cause of action as that on which  the
previous suit was based; (ii) that in respect of that cause  of  action  the
plaintiff was entitled to more  than  one  relief;  (iii)  that  being  thus
entitled to more than one relief the plaintiff, without leave obtained  from
the Court omitted to sue for the relief for which the second suit  had  been
filed."

It is not necessary to  multiply  authorities  except  to  notice  that  the
decisions in Sidramappa v. Rajashetty[28], Deva Ram v. Ishwar Chand[29]  and
State of Maharashtra v. National Construction Co.[30]  have  reiterated  and
re-emphasised this principle."

Applying the said test to the present case, it can be stated with  certitude
that there is no shadow of doubt that  the  consent  award  in  an  arbitral
proceeding would not bar a suit for enforcement of the charge for  the  same
reasons and it would not be hit by Order II, Rule 2 CPC.  We are  absolutely
conscious that the present case does not relate to  a  charge  as  engrafted
under Section 100 of the Transfer of Property Act, or simply  for  equitable
mortgage.  In the present case, the charge is by hypothecation  and  relates
to movable property.  Needless to say, provisions of  Rules  14  and  15  of
Order XXXIV would not be directly  applicable  but  the  principle  inherent
under the said Rules, as enunciated  would  be  applicable.   In  fact,  the
ratio laid down in S. Nazeer Ahmed  (supra),  as  we  understand,  makes  it
equally applicable to different causes of action.  The said principle  would
apply, if we accept that the cause of action is distinct.
The next aspect we shall advert to  is  the  applicability  of  doctrine  of
resjudicata.  In Deva Ram (supra), the Court while  dealing  with  the  said
doctrine has opined thus:
"Section 11 contains the rule of conclusiveness of  the  judgment  which  is
based partly on the  maxim  of  Roman  Jurisprudence  "Interest  reipublicae
[pic]ut sit finis litium" (it concerns the State that there  be  an  end  to
law suits) and partly on the maxim "Nemo debet bis vexari pro una  at  eadem
causa" (no man should be vexed twice over for the same cause).  The  section
does not affect the jurisdiction of the court but operates as a bar  to  the
trial of the suit or issue, if the matter  in  the  suit  was  directly  and
substantially in issue (and finally decided) in the  previous  suit  between
the same parties litigating under the same title in a  court,  competent  to
try the subsequent suit in which such issue has been raised."

Mr. Divan, learned senior counsel has also drawn our  attention  to  Harbans
Singh (supra) wherein it has been held that when no appeal was preferred  by
the Union of India, while  accepting  the  award  in  favour  of  the  first
respondent therein, it had attained  finality  and  thus  the  principle  of
resjudicata  was   applicable.    Reliance   has   also   been   placed   on
Ranganayakamma (supra).
The said plea has been advanced  on  the  foundation  that  the  controversy
between the parties having been finally put to rest by the  arbitral  award,
the respondent would not have dragged the appellant to the  said  proceeding
as that would vex him twice.  The issue before the Company Court  was  quite
different than that was before the Arbitral Tribunal.  True it  is,  it  has
the status of a  decree  which  is  executable,  as  a  decree  having  gone
unchallenged, but the lis of framing a Scheme under the Act is of  different
character.  It could not  have  been  directly  or  substantially  in  issue
before the learned Arbitrator.  That apart, we have already held the  status
of the appellant as a secured creditor has not changed.  Therefore,  in  our
considered opinion, the plea of resjudicata which has been canvassed by  the
learned senior counsel for the appellant does not commend acceptance and  we
so hold.
Mr. Divan, learned senior counsel has drawn our attention to Section  63  of
the Contract Act.   To buttress the applicability of the said provision,  he
has commended us to the decision in Firm Chunna Mal Ram Nath  (supra).   The
relevant portion reads as under:
"The  contentions  raised  on  these  sections   were   as   follows.    The
respondents, relying on Sections 39 and 63, said  that  the  appellants  had
put and end to the agreement and had expressly dispensed them from  delivery
at all.  The appellants contended that Section 63 applied only  where  there
was an agreement to dispense or a contract, supported  by  consideration  to
do so, and  that  in  any  case  it  could  only  operate,  when  the  party
dispensing had performed  his  part  of  the  contract  and  only  something
remained to be performed on the other  side,  unless  dispensed  with  Abaji
Sitaram Modok v. Trimbak Municipality 28 B.  66;  5  Bom.  L.R.  689.   They
further said that, if they had been wrong in refusing in advance  to  accept
bales, this repudiation had not  been  accepted  by  the  respondents,  and,
therefore, the contract remained alive and ought  to  have  been  performed.
It is evident that the alleged dispensation under Section 63 is by itself  a
complete answer, unless the absence of contract or consideration  is  fatal,
for the appellants again and again dispensed with  the  performance  by  the
respondents of their promise to deliver the goods contracted  for  and  they
cannot recover damages for the breach of a promise touching the  performance
of a thing they wholly dispense with.

In Abaji Sitaram Modok v. Trimbak Municipality[31],  Chief  Justice  Jenkins
deals with Section 63, and holds that the promise mentioned in  Section  63,
can, only do the acts he is by that section empowered to do, if there be  an
agreement (as defined by 2(e)) amongst the parties to that effect.  At  page
72 of the report of  this  case  the  learned  Judge  is  reported  to  have
expressed himself thus:-

Therefore we hold that assuming there was a legal  resolution  and  that  it
was communicated as alleged, still inasmuch as a dispensation  or  remission
under Section 63 requires an agreement or contract, the  resolution  was  of
no legal effect since the provisions of s.30 of Bombay Act II of  1884  have
not been observed.

With this their Lordships are unable to agree The language  of  the  section
does not refer to any such agreement and ought not to  be  enlarged  by  any
implication of English doctrines.  On  this  they  agree  with  the  learned
Judges of the High Court."

He has also drawn inspiration from Jagad Bandu Chatterjee  (supra),  wherein
after referring to the observations of Lord Russell of Killowen in  Dawson's
Bank Limited V. Nippon Menkwa Kabushiki Kaisha[32] and the well  known  work
of Sir William P. Anson "Principles of the English Law  of  Contract",  22nd
Edn., the Court opined thus:
"In India the  general  principle  with  regard  to  waiver  of  contractual
obligation is to be found in Section 63 of the Indian  Contract  Act.  Under
that section it is open to a promisee to dispense with or remit,  wholly  or
in part, the performance of the  promise  made  to  him  or  he  can  accept
instead of it any satisfaction which he thinks fit.  Under  the  Indian  law
neither consideration nor an agreement  would  be  necessary  to  constitute
waiver. This Court has already laid down in Waman Shriniwas Kini v.  Ratilal
Bhagwandas & Co.[33] that  waiver  is  the  abandonment  of  a  right  which
normally everybody is at liberty to waive. "A waiver is  nothing  unless  it
amounts to a release. It signifies nothing more than  an  intention  not  to
insist upon [pic]the right".....

The stress on the aforesaid decisions by the learned senior  counsel  is  to
highlight that the respondent have waived  the  hypothecation  by  accepting
the arbitration award.  The  said  submission  has  its  own  fallacy.   The
arbitral award was  passed  on  consent  and  from  the  same  it  would  be
inappropriate to deduce that the  hypothecation  stood  annulled.   In  this
context, we may fruitfully refer to Sections 176 and  177  of  the  Contract
Act, 1872, which pertain to the rights of pawnee  on  default  made  by  the
pawnor.  The said provisions read as under:
176. Pawnee's right where pawnor makes  default.  -   If  the  pawnor  makes
default in payment of the debt, or performance; at the  stipulated  time  or
the promise, in respect of which the goods  were  pledged,  the  pawnee  may
bring a suit against the pawnor upon the debt or  promise,  and  retain  the
goods pledged as a collateral security; or he may sell  the  thing  pledged,
on giving the pawnor reasonable notice of the sale.

If the proceeds of such sale are less than the amount due in respect of  the
debt or promise, the pawnor is still liable to  pay  the  balance.   If  the
proceeds of the sale are greater than the amount so due,  the  pawnee  shall
pay over the surplus to the pawnor.

177.  Defaulting pawnor's right to redeem - If a time is stipulated for  the
payment of the debt, or performance of the promise, for which the pledge  is
made, and the pawnor makes default in payment of the debt or performance  of
the promise at the stipulated time, he may redeem the goods pledged  at  any
subsequent time before the actual sale of them, but he must, in  that  case,
pay, in addition, any expenses which have arisen from his default."

The aforesaid  two  provisions  when  read  in  a  conjoint  manner  clearly
establish that a pledge does not get extinguished and,  in  fact,  continues
even when the pawnee has sued and recovered  a  part  of  the  debt  without
enforcement of the pledge or the security.  As per  Section  176,  when  the
pawnor makes default in making the payment, the  pawnee  may  bring  a  suit
upon the debt or promise and retain the  good(s)  pledged  as  a  collateral
security.  A pawnee has  both  collateral  and  concurrent  rights  and  can
institute a suit for the purpose of realization of the said debt or  promise
while retaining the goods as a collateral security.  Section 176 also  makes
it clear that it is the discretion of the pawnee and it gives an  option  to
him and merely because pawnee has filed a suit for recovery, that would  not
affect or destroy the charge or the right of the  pawnee  in  respect  of  a
pledged goods or the collateral security.  Thus, it is within the domain  of
discretion of pawnee to file a suit for recovery of a debt  and  yet  retain
the collateral security or pledged goods.  It would not bar  or  prohibit  a
pawnee from  subsequently  selling  the  pledged  goods  or  the  collateral
security.  It is pertinent to  mention  here  that  there  is  a  difference
between a hypothecation and  a  pledge.   In  the  case  of  a  pledge,  the
security is in possession of the pledge, but in the case  of  hypothecation,
the possession remains with the  owner  i.e.  the  pawnor.   Though  such  a
distinction  exists,  yet  it  is   an   accepted   legal   principle   that
hypothecation is treated as a sub-species of pledge and  virtually  has  the
same legal effect.  In this context, reference  to  a  passage  from  Lallan
Prasad V. Rahmat Ali and another[34], would be seemly.
"17. There is no difference between the common law of England  and  the  law
with regard to pledge as codified in sections 172  to  176 of  the  Contract
Act. Under section 172 a pledge is a bailment of the goods as  security  for
payment of a debt  or  performance  of  a  promise.  Section 173 entitles  a
pawnee to retain the goods pledged as security for payment  of  a  debt  and
under  section 175 he  is  entitled  to  receive   from   the   pawner   any
extraordinary expenses he incurs for the preservation of the  goods  pledged
with him. Section 176 deals with the rights of a pawnee  and  provides  that
in case of default by the pawner the pawnee has (1) the right  to  sue  upon
the debt and to retain the goods as collateral security and (2) to sell  the
goods after reasonable notice of the intended sale to the pawner.  Once  the
pawnee by virtue of his right under section 176 sells the  goods  the  right
of the pawner to redeem them is of course  extinguished.  But  as  aforesaid
the pawnee is bound to apply the sale proceeds towards satisfaction  of  the
debt and pay the surplus, if any, to the pawner. So long,  however,  as  the
sale does not take place the pawner is  entitled  to  redeem  the  goods  on
payment of the debt. It follows therefore that where a pawnee files  a  suit
for recovery of debt, though he is entitled to retain the goods he is  bound
to return them on payment of the debt. The right to sue on the debt  assumes
that he is in a position to redeliver the goods on payment of the  debt  and
therefore if he has put himself in a  position  where  he  is  not  able  to
redeliver the goods he cannot obtain a decree. If  it  were  otherwise,  the
result would be that he would recover the debt and  also  retain  the  goods
pledged and the pawner in such a case would be placed in  a  position  where
he incurs a greater liability than he bargained for under  the  contract  of
pledge. The pawnee therefore can sue  on  the  debt  retaining  the  pledged
goods as collateral security. If the debt is ordered to be paid  he  has  to
return the goods or if the goods are sold with or without the assistance  of
the court appropriate the sale proceeds towards the debt. But if he sues  on
the debt denying the pledge, and it is found that he  was  given  possession
of the goods pledged and had retained the same, the pawner has the right  to
redeem the goods so pledged by payment of the debt. If the pawnee is not  in
a position to redeliver the goods he cannot have both  the  payment  of  the
debt and also the goods. Where the value of the  pledged  property  is  less
than the debt and in a suit for recovery of debt by the pledgee, the  pledge
denies the pledge or is otherwise not in a position to  return  the  pledged
goods he has to give credit  for  the  value  of  the  goods  and  would  be
entitled then to recover only the balance".

More than eight decades back, the Bombay High  Court  in  Gulamhusain  Lalji
Sajan V. Clara D'Souza[35], while dealing with the applicability of  Section
176 of the Contract Act to a case of hypothecation, had opined thus:
"Under S.176, Contract Act, the pledge has a right to bring a  suit  against
the pledgor upon the debt or promise, and retain  the  goods  pledged  as  a
collateral security; or he may sell the thing pledged in giving the  pledgor
reasonable notice of the sale.

It is clear under the law applicable to cases of a pledge that the  creditor
has two rights which are concurrent, and the right to  proceed  against  the
property pledged is not merely accessory to the  right  to  proceed  against
the debtor personally.  For the pledge may have a right to sue for  sale  of
the property even in the absence of a right to sue for a personal decree.

The same principles would apply to the case of  hypothecation  or  mortgages
of moveable property."

Be it noted, in the said case reliance  was  placed  on  Nim  Chad  Babu  v.
Jagabandhu Ghose[36] and Mahalinga Nadar v. Ganapathi Subbien[37].
We will be failing in our duty if we do not advert to  the  issue  that  the
appellant shall remain as a secured creditor, for it was registered as  such
under the Registrar of Companies.  The formalities for creating  the  charge
having duly followed, the Division Bench has referred to the Form No. 8  and
13 and  also  adverted  to  the  power  of  Registrar  to  make  entries  of
satisfaction and release, as provided under Sections  138  and  139  of  the
Act.  It has also expressed the view that in the absence of any  proceeding,
the status of the company as a secured creditor continues.
After registration of the deed of hypothecation, if a  condition  subsequent
is not satisfied, that would be in a different  realm  altogether.   In  any
case, the finding has been recorded that the respondent  was  not  at  fault
and, in any case, that would not change the status of  the  appellant  as  a
secured creditor.
In view of the aforesaid analysis, we are of  the  considered  opinion  that
the appellant cannot be treated as an  unsecured  creditor  and  it  is  not
permissible for him to put forth a stand that it would not be bound  by  the
Scheme that has been approved by the learned Company Judge.
The aforesaid conclusion of ours leads to the inevitable  dismissal  of  the
appeal, which we direct.  However, in the factum and  circumstances  of  the
case, there shall be no order as to costs.

                                             .............................J.
                                                              [Anil R. Dave]


                                               ...........................J.
                 [Dipak Misra ]
New Delhi;
January 09, 2015

-----------------------
[1]     AIR 1996 SC 378
[2]     AIR 1990 SC 53
[3]    AIR 1928 PC 99
[4]    (1969) 3 SCC 445
[5]    (1998) 5 SCC 401
[6]    (2008) 15 SC 673
[7]    (2013) 1 SCC 462
[8]    (1976) 3  SCC 528
[9]     (2009) 2 SCC 526
[10]   (1998) 5 SCC 401
[11]    (1997) 1 SCC 579
[12]    (1891) 1 Ch 213
[13]    (1922) 2 Ch 723
[14]     (1995) Supp (1) SCC 499
[15]    1892 (2) Q.B. 573 CA
[16]    AIR 1922 PC 228
[17]    AIR 1975 SC 207
[18]    AIR 1977 SC 1466
[19]    AIR 1980 SC 161
[20]    (1985) 58 Comp Cas 121 (Bom)
[21]    (2007) 11 SCC 75
[22]   (1913-14) 41 IA 142
[23]   (1947-48) 75 IA 121
[24]   (1867) 11 MIA 551
[25]   (1888) 22 QBD 128
[26]   (1884) 14 QBD 141
[27]   (1887-88) 15 IA 156 : ILR 16 Cal 98 (PC)
[28]   (1970) 1 SCC 186
[29]   (1995) 6 SCC 733
[30]   (1996) 1 SCC 735
[31]    5 Bom. L.R. 689
[32]    62 IA 100, 108
[33]    (1959) Supp 2 SCR 217, 226
[34]    AIR 1967 SC 1322
[35]    AIR 1929 Bom. 471
[36]    [1894] 22 Ca. 21
[37]    [1902] 27 Mad. 528

-----------------------
59

rule of reservation of the Scheduled Castes (SC) and Scheduled Tribes (ST) in the promotion in the officer grade/scale in the appellant Banks.= CIVIL APPEAL NO. 209 OF 2015 (arising out of Special Leave Petition (Civil) No. 4385 of 2010) |CHAIRMAN & MANAGING DIRECTOR |.....APPELLANT(S) | |CENTRAL BANK OF INDIA & ORS. | | | VERSUS | | |CENTRAL BANK OF INDIA SC/ST | | |EMPLOYEES WELFARE ASSOCIATION & ORS. |.....RESPONDENT(S)

                                                                  REPORTABLE

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                 CIVIL APPEAL NO.    209            OF 2015
      (arising out of Special Leave Petition (Civil) No. 4385 of 2010)


|CHAIRMAN & MANAGING DIRECTOR                     |.....APPELLANT(S)      |
|CENTRAL BANK OF INDIA & ORS.                     |                       |
|   VERSUS                                        |                       |
|CENTRAL BANK OF INDIA SC/ST                      |                       |
|EMPLOYEES WELFARE ASSOCIATION & ORS.             |.....RESPONDENT(S)     |

                                   W I T H
                  CONTEMPT PETITION (CIVIL) NO. 320 OF 2010
                                     IN
               SPECIAL LEVE PETITION (CIVIL) NO. 5046 OF 2010

                                   W I T H
                   CIVIL APPEAL NO.    210        OF 2015
      (arising out of Special Leave Petition (Civil) No. 4483 of 2010)

                                   W I T H
                   CIVIL APPEAL NO.   211         OF 2015
      (arising out of Special Leave Petition (Civil) No. 5046 of 2010)

                                   W I T H
                   CIVIL APPEAL NO.  212          OF 2015
      (arising out of Special Leave Petition (Civil) No. 6002 of 2010)

                                    A N D
                   CIVIL APPEAL NO.  213          OF 2015
      (arising out of Special Leave Petition (Civil) No. 6125 of 2010)
                               J U D G M E N T


A.K. SIKRI, J.
                 Leave granted.  Impleadment and  intervention  applications
are allowed.

The issue which arises for consideration in  these  appeals  lies  within  a
narrow campus and is crisp one, though at the same time  it  is  of  seminal
importance for the parties before us. It relates to the rule of  reservation
of the Scheduled Castes (SC) and Scheduled Tribes (ST) in the  promotion  in
the officer grade/scale in the appellant Banks. There  is  no  dispute  that
the appellant Banks, which are statutory/public sector banks, are  following
the  applicable  guidelines  of  the  Central   Government   pertaining   to
reservation of SC and ST employees insofar as their promotion from  clerical
grade to officer grade is concerned. The question to be answered  is  as  to
whether there  is  any  reservation  in  the  promotions  from  one  officer
grade/scale to  another  grade/scale,  when  such  promotions  are  made  on
selection  basis.  As  per  the  appellant  Banks,  there  is  no  rule   of
reservation for promotion in the  Class  A  (Class-I)  to  the  posts/scales
having basic salary of more than ?5,700/- and in the relevant  instructions,
issued in the form of Office Memoranda, only a  concession  is  provided  in
the manner officers belonging to SC/ST category are  to  be  considered  for
promotion. To put it otherwise, the position taken  by  the  Banks  is  that
there is no rule of reservation for promotions and the candidature of  these
officers belonging to these categories for promotion is to be considered  on
the basis of relaxed standards. The respondents, who  are  SC/ST  Employees'
Unions of the appellant Banks or individuals belonging to  such  categories,
dispute the aforesaid stand taken by  the  Banks.  According  to  them,  the
circular issued by the Central Government  expressly  provides  for  such  a
reservation.

It is interesting to note that for taking their  respective  positions  both
the  parties  rely  upon  O.M.  dated  13-08-1997  issued  by  the   Central
Government (which, of course, is to  be  read  along  with  other  connected
office memoranda). Thus, outcome of these  appeals  would  depend  upon  the
interpretation that is to be accorded to the said  Office  Memorandum  dated
13-08-1997. As the Banks are in appeal against the judgment  of  High  Court
of Judicature at Madras  rendered  on  09-12-2009  whereby  number  of  writ
appeals were disposed of, it can clearly be discerned that insofar  as  High
Court is concerned its interpretation to the aforesaid circular has gone  in
favour of the SC/ST employees.

Before we revert to the fulcrum of the issue and give  our  answer  thereto,
we deem it apposite  to recapitulate in brief  the  historical  facts  which
have led to the present lis.

As already noted above, the appellant Banks, which are statutory  Banks  and
Public Sector Undertakings, have been following the  reservation  policy  of
the Government of India as issued by the Government from time to  time.  For
doing so,  the  Promotion  Policy  of  each  of  such  bank  makes  specific
provision in this behalf. It is also  a  matter  of  common  knowledge  that
Ministry of Finance, Government of India is the nodal ministry  for  framing
policy  on  reservations  for  financial  institutions/banks.  To  given  an
example, Regulation 1.1 of the promotion policy for  officers  of  UCO  Bank
makes such a provision in the following manner:
"The Promotion policy for officers in the Bank  has  been  designed  in  the
context of the guidelines issued by the Government from time to  time  under
the Officers Service Regulations."


            It will also be relevant to quote  hereunder  Regulation  22  of
the  aforesaid  promotion  policy.  This  Regulation  makes  the   following
reading:
"22.  Concession/Relaxations etc  for  SC/ST,  Physically  Handicapped,  Ex-
servicemen and Other categories of officers;


22.1  The guidelines/ directives/ administrative instructions issued by  the
Government of India  from  time  to  time  regarding  relaxation/concession/
reservation etc. for SC/ST, physically handicapped, Ex-serviceman  and  such
other special categories of  officers  in  the  matter  of  scale  to  scale
promotions within the Officers' Grade shall be deemed to be a  part  of  the
policy and given effect to accordingly."

It is an accepted position that identical  promotion  policy  is  framed  by
each of these appellant Banks.

As per the aforesaid promotion policy, incorporating the reservation  policy
framed by the Central Government  in  respect  of  candidates  belonging  to
SC/ST category, the banks are according 15%  reservation  for  SC  and  7.5%
reservation  for  ST  candidates.  It  is  done  at  the  initial  level  of
recruitment  and  also  for  promotion  in  the  clerical  cadre.   Such   a
reservation is also provided  for  promotion  from  clerical  grade  to  the
lowest rank in  the  officers  grade  which  is  commonly  known  as  Junior
Management Grade Scale-I (Scale-I). However,  when  it  comes  to  promotion
from Scale-I to the next scale, which is known as  Middle  Management  Grade
Scale-II (Scale-II), the Banks have not been making any  reservations  while
carrying out these promotions. As per the Banks, it  is  because  of  Office
Memorandum No. 38012/6/83-East(SCT) dated 01-11-1990 issued by the  Ministry
of Personnel, Public Grievance and Pensions  (Department  of  Personnel  and
Training), Government of India clearly stating that there is no  reservation
within Group 'A' posts.

The matter regarding reservations in promotions was  considered  by  a  nine
Judge Bench of this Court in Indra Sawhney v. Union of India[1],  which  was
a judgment rendered on 15-11-1992. The  Court  specifically  held  that  the
reservation under Article 16(4) of the Constitution of India is confined  to
initial appointment and cannot extend  to  reservation  in  the  matters  of
promotion. In order to nullify the effect of the aforesaid dicta, there  was
an amendment to Article 16 by Constitution (Seventy-Seventh  Amendment)  Act
with effect from 17-06-1995. Vide this amendment, after Clause 4, Clause  4A
was inserted in Article 16 of the Constitution, which  was  couched  in  the
following language:
4A.   Nothing in this article  shall  prevent  the  State  from  making  any
provision for reservation in matters of promotion to any  class  or  classes
of posts in the services under the State in favour of the  Scheduled  Castes
and the Scheduled Tribes which,  in  the  opinion  of  the  State,  are  not
adequately represented in the services under the state."

      Clause (4) of Article 16 is worded as follows:
"4.   Nothing in this article  shall  prevent  the  State  from  making  any
provision for the reservation of appointments or  posts  in  favour  of  any
backward class of citizens which, in  the  opinion  of  the  State,  is  not
adequately represented in the services under the State.

            The constitutional position on the insertion  of  Clause  4A  is
that the State is now empowered to make provision for reservation in  matter
of promotions as well, in favour of SC and ST wherever the State is  of  the
opinion that SCs and STs are  not  adequately  represented  in  the  service
under the State. Nevertheless,  it  is  only  an  enabling  provision  which
empowers the State to make any provision  for  reservation  for  SC  and  ST
candidates in the matter of promotion as well.

In  order  to  complete  the  historical  narration  of  facts,  it  becomes
necessary to mention that after the  aforesaid  amendment,  a  question  had
arisen as to whether a person in SC or ST  category,  who  gets  accelerated
promotion because of reservation would also get consequential  seniority  in
the higher post if he  gets  that  promotion  earlier  than  his  senior  in
general category.  The Court answered this question in the case of Union  of
India and Others etc. v. Virpal Singh Chauhan  and  Others[2]  holding  that
such an employee belonging to SC/ST category  on  promotion  would  not  get
consequential seniority and his seniority will  be  governed  by  the  panel
position. This led to another  Constitution  amendment  and  the  Parliament
enacted Constitution (Eighty-Fifth Amendment) Act, 2001  whereby  Clause  4A
of Article 16 was amended. The amended Clause 4A reads as under:
"4A.  Nothing in this article  shall  prevent  the  State  from  making  any
provision  for  reservation  in  matters  of  promotion  with  consequential
seniority to any class or classes of posts in the services under  the  State
in favour of the Scheduled Castes and the Scheduled  Tribes  which,  in  the
opinion of the State, are not adequately represented in the  services  under
the State."


The constitutional position, as it stands now,  in  view  of  the  aforesaid
amendment, is that such SC/ST candidates who get the benefit of  accelerated
promotion are provided consequential  seniority  as  well.  This  amendment,
thus, nullifies the effect of the judgment of this  Court  in  Virpal  Singh
Chauhan (supra). Another significant aspect which is to  be  noted  is  that
this amendment was made retrospectively from 17.06.1995, i.e.  the  date  of
coming into force the original Clause 4A of Article 16.

Constitutional validity of Clause 4A of Article 16  as  well  as  Clause  4B
which  was  also  amended  vide  Eighty-Fifth  Constitution  Amendment,  was
challenged before this Court and this challenge was repelled in the case  of
M.  Nagaraj  and  others  v.  Union  of  India  and  Others[3].  The   Court
specifically held  that  these  provisions  flow  from  Article  16(4)  and,
therefore do not alter the structure of Article 16(4). Further, they do  not
obliterate any of the constitutional requirement, namely, ceiling  limit  of
50% (quantitative limitation), the  concept  of  creamy  layer  (qualitative
exclusion), the sub-classification  between  OBCs,  on  the  one  hand,  and
SCs/STs on the other hand, as held in Indra Sawhney (supra). The  Court,  at
the same time, made it clear that the ceiling limit of 50%, the  concept  of
creamy layer and the compelling reasons,  namely,  backwardness,  inadequacy
of  representation   and   overall   administrative   efficiency   are   the
constitutional requirements without  which  the  structure  of  equality  of
opportunity in Article 16 would collapse.

After the amendment in Article 16 of the  Constitution,  with  incorporation
of Clause 4A therein, the  Government  of  India  issued  Office  Memorandum
dated 13-08-1997  as  the  interpretation  of  this  O.M.  is  the  bone  of
contention.  As  the  outcome  of  these  appeals  largely  depends  on  the
interpretation of this Memorandum, we feel apposite to  reproduce  the  said
O.M. dated 13-08-1997 in toto:
                      "No. 36012/18/95-Esst(Res.) Pt:II
                             GOVERNMENT OF INDIA
Ministry of Personnel Public, Grievances and Pensions, Department of
Personnel and Training

                                                      North Block, New Delhi
                                                 Dated the 13th August, 1997

                              OFFICE MEMORANDUM

              SUBJECT: RESERVATION FOR THE SCs/STs IN PROMOTION
             The  undersigned  is  directed  to  invite  attention  to  this
Department's OM No.  36012/37/93-Esst.  (SCT)  dated  19.8.1993   clarifying
that the Supreme Court had,  in  the  Indira  Sawhney  case,  permitted  the
reservation for the Scheduled Castes and Scheduled Tribes, in promotion,  to
continue for a period of five years from 16.11.1992.

2.    Consequent to the Judgment in Indira Sawhney's case  the  Constitution
was amended by the Constitution (Seventy seventh Amendment)  Act,  1995  and
Article 16(4A) was incorporated in the Constitution.  This  article  enables
the State to provide for reservation in matters of promotion, in  favour  of
the Scheduled Castes and the Scheduled Tribes, which in the opinion  of  the
State are not adequately represented in the Services under the State.

3.    In pursuance of Article 16(4A), it has been decided  to  continue  the
Reservation in promotion as at present, for the  Scheduled  Castes  and  the
Scheduled Tribes in the services/posts under the Central  Government  beyond
15.11.1997 till such time as the representation of each  of  the  above  two
categories in each cadre reaches the prescribed percentages  of  reservation
whereafter, the reservation in promotion  shall  continue  to  maintain  the
representation  to  the  extent  of  the  prescribed  percentages  for   the
respective categories.

4.    All  Ministries/Department  are  requested  to  urgently  bring  these
instructions to the notice of  all  their  attached/subordinate  offices  as
also the Public Sector Undertakings and Statutory Bodies etc.
                                                                        Sd/-
                                                              (Y.G. PARANDE)
                                                     Director (Reservation)"
Impugned Judgment
The respondents Associations representing SC  and  ST  employees  had  filed
writ petitions in the High Court of  Madras  submitting  that  in  spite  of
there being a clear policy  of  reservation  even  for  promotion  from  one
category of officer to the higher category of officers, the appellant  Banks
had not been making any provision for such reservations while  carrying  out
the promotions. Mandamus was sought seeking directions against the  Bank  to
specify such reservation to SC/ST officers as per the promotion  policy  for
officers. The learned Single Judge of the  High  Court  dismissed  the  writ
petitions holding that Article 16(4A) was only an enabling  provision  which
permits the State to make provisions for reservation insofar  as  promotions
are concerned. However, in the instant case, no such provision was made.  No
material was produced by the writ petitioners which  could  demonstrate  any
such specific provision for promotion.

The writ petitioners challenged said order by  filing  writ  appeals  before
the Division Bench. The Division Bench has taken a contrary view. A  perusal
of the judgment of the Division Bench would spell out that it  has  gone  by
the spirit behind Articles 15 and 16 of the Constitution which  are  in  the
nature of affirmative actions that can be taken by the  State  in  providing
reservations for the socially and educationally  backward  people  and  that
includes SC and ST classes.  It  has  pointed  out  that  Article  16(4)  is
specifically designed to give a due share in the State power  to  those  who
have remained out of it mainly on  account  of  their  social,  educational,
economic backwardness as reservation affords  such  classes  of  citizens  a
golden opportunity to serve the  nation  and  thus  gain  security,  status,
comparative affluence and influence in decision making process. It was  with
this spirit  in  mind   Clause  4A  was  inserted  introducing  an  enabling
provision for providing reservation in the matter of promotion as well.  The
High Court thereafter took note of the statistics that was placed on  record
to show the strength of SC/ST officers in  various  grades/scales/cadres  in
respect of UCO Bank as well as Central Bank of India and  found  that  there
was hardly any  representation  in  the  higher  scales,  what  to  talk  of
adequate representation. The figures given in respect  of  Central  Bank  of
India are noted in para 22 of the impugned judgment, stating as under:
"22. ......A consolidated statement for the promotions from  the  year  1997
to 2008 in MMG:III-IV:, SMG: IV-V; SMG V-VI; TMG VI-TMG VII would  depict  a
bleak picture regarding the entire aspect since  least  or  no  presentation
for SC/ST could be seen glaringly. As per these calculations for  the  total
promotions of 20 posts, only one SC candidate  got  promotion  in  the  year
2007 and for a total promotions of 171, within these  categories  only  nine
SC candidates got promotion. In promotions effected for the years  1997  and
2002, respectively for 19 posts  and  six  posts,  no  SC/ST  candidate  was
offered promotion. In the year 1999, for a total number of 126  posts,  only
one SC candidate was given promotion. Likewise, for a whopping 308  numbered
of promotions in the  year  2006  a  meager  36  candidates  of  SC/ST  were
promoted."

      The Court also noticed almost identical feature  in  UCO  Bank  giving
the following details :
"23.  .......As  per the scale wise representation of SC/ST officers  as  on
31.3.2008 in the UCO Bank, in Scale IV posts there is a short fall of 50  SC
officers and 31 ST officers in Scale V posts, there is a short  fall  of  10
SC officers and 7 ST officers; in Scale VI, there is a short fall  of  5  SC
officers and 2 ST officers and in Scale VII posts, there is a short fall  of
3 SC officers and one ST officer."

Office Memorandum dated 13-08-1997  has  been  read  in  the  light  of  the
aforesaid constitutional spirit as  well  as  inadequate  representation  of
SC/ST category officers in the Banks holding that the mandate  of  the  said
O.M. was to provide for reservation.

While holding so, the High Court also repelled the contention of  the  Banks
predicated on Article 335 of the Constitution on the basis of which  it  was
contended that introduction  of  rule  of  reservation  in  promotion  would
reduce the efficiency of administration of  Banks.  The  Court  specifically
took note of Constitution Eighty-Second Amendment which was  made  effective
from 08-09-2000 and provides that nothing in this Article shall  prevent  in
making any provision in favour of the members of the  Scheduled  Castes  and
Scheduled Tribes for relaxation in qualifying marks in  any  examination  or
lowering  the  standards  of  evaluation,  for  reservation  in  matters  of
promotion to any class or classes of services or posts  in  connection  with
the affairs of the Union or of a State. In the opinion of  the  High  Court,
when Constitution has given such extra protection to  the  under  privileged
communities so  as  to  enjoy  equal  opportunities  as  guaranteed  by  the
Constitution, the Banks are  not  justified  in  sleeping  over  the  matter
providing reservations in promotions for a decade with no  good  reasons  to
offer.

The position taken by both the parties remains the same before us  as  well.
According to the Banks, vide O.M. dated 13-08-1997 "it has been  decided  to
continue the reservation in promotion  as  at  present,  for  the  Scheduled
Castes and the Scheduled Tribes in the  services/posts...........".  It  is,
thus, argued that this O.M. did not make any reservation in  the  matter  of
promotion but whatever was existing earlier has been  continued.  M/s.  C.S.
Vaidyanathan and Raju Ramachandran, learned  Senior  Advocates,  who  argued
for these Banks laid strong emphasis on the aforesaid language  employed  in
the O.M. and  submitted  that  only  existing  position  continued  and  the
position which was existing was that there was  no  specific  provision  for
reservation. The only provision which existed was  judging  the  candidature
of SC/ST candidates for promotion in Class A (Class I) service drawing  more
than basic salary of ?5,700/-, to apply relaxed standards. It was  submitted
that such a provision existed in O.M. dated 01-11-1990. It was pointed  that
in para 2 of this O.M. a mention was made about the concession which was  to
be given to the officers belonging to these categories and in para 3 it  was
amply clarified that there is no  reservation  in  promotion  by  selection.
Paras 2and 3 of O.M. dated  01-11-1990 read as under:

"2.   Though in the OM cited above it has been  clearly  mentioned  that  in
promotion by selection within Class I (now Group A) to posts which carry  an
ultimate salary of Rs. 2000/- per month or less (since revised to Rs. 5700/-
) the Scheduled Castes and Scheduled Tribes will be given concession  namely
"those scheduled Castes and Scheduled Tribes who are senior  enough  in  the
zone of consideration for promotion  so  as  to  be  within  the  number  of
vacancies for which select list has to be drawn up,  would  be  included  in
that list provided they are not  considered  unfit  for  promotion",  doubts
have been expressed in certain quarters as to whether the  concession  given
herein above is a reservation or a concession.

3.    It is hereby clarified that in promotion by selection within  group  A
posts which carry an  ultimate  salary  of  Rs.  5700/-  p.m.  there  is  no
reservation."


It was argued that a  conjoint  reading  of  the  aforesaid  two  circulars,
namely, O.M.  dated  01-11-1990  and  13-08-1997  would  manifest  that  the
provision was made for concession and  not  reservation  in  the  matter  of
promotion. Reliance  was  placed  on  two  judgments  of  this  Court  where
distinction between concession and reservation is explained lucidly:
      (i)   National Federation of S.B.I. and Others v. Union of  India  and
Others[4]
"15. In 1987, the Government of India  issued  the  7th  Edn.  of  the  said
Brochure in which para 9.2, corresponding to the one quoted above, reads  as
follows:

MHA OM No. 1/9/69. Estt.(SCT) dated 26-3-70 and Deptt. of Personnel & AR  OM
No. 1/10/74-Estt.(SCT) dated 23-12-1974

"9.2 Promotion by selection method.-  (a)  Promotions  by  selection  within
Group A (Class-I).

In promotions by selection to posts within Group A (Class I) which carry  an
ultimate salary of Rs 2000 per month, or less, (Rs 2250 per  month  or  less
in the revised scale) there is no reservation, but the Scheduled Castes  and
Scheduled  Tribes  officers,  who  are  senior  enough  in   the   zone   of
consideration for promotion so as to be within the number of  vacancies  for
which the select list has been drawn up, would  be  included  in  that  list
provided they are not considered unfit for promotion. Their position in  the
select list would,  however,  be  the  same  as  assigned  to  them  by  the
Departmental Promotion Committee on the basis of their  record  of  service.
They would not be given for  this  purpose,  one  grading  higher  than  the
grading otherwise assignable to  them  on  the  basis  of  their  record  of
service.

In order to improve the chances of Scheduled  Castes  and  Scheduled  Tribes
officers for selection to the higher categories of posts in Group  A  (Class
I).

(i)  Scheduled  Castes/Scheduled  Tribes  officers  in  Group  A  (Class  I)
Services/Posts should be provided with more opportunities for  institutional
training and for attending  seminars/symposia/conferences.  Advantage  would
also be taken of the  training  facilities  available  at  the  Lal  Bahadur
Shastri National  Academy  of  Administration,  Mussoorie,  National  Police
Academy, Hyderabad, Indian Institute of Public  Administration,  New  Delhi,
the Administrative Staff College, Hyderabad etc. and
(ii) It would be  the  special  responsibility  of  the  immediate  superior
officers of the Scheduled Castes/Scheduled Tribes officers  in  Class  I  to
give advice and guidance to the latter  to  improve  the  quality  of  their
work."

                                      xx   xx    xx

19. We are unable to agree with the learned counsel. It is admitted  on  all
hands that so far as promotions within Class I are concerned  -  with  which
alone the Memorandum dated 26-3-1970 deals - there  are  no  orders  of  the
Government of India applying the  rule  of  reservation.  We  have  referred
hereinbefore to the  earlier  Memorandum  dated  11-7-1968  (which  in  turn
refers  to  a  yet  earlier  Memorandum  dated  8-11-1963).  Those   earlier
Memorandums provide for reservation in Classes II, III and IV  but  not  for
promotion to Class I and not at any rate to promotions within Class  I.  Nor
does the Memorandum dated 26-3-1970 provide for such reservation.  The  idea
is self-evident. While the rule of reservation is  made  applicable  to  the
lower categories, viz., Classes II, III and IV (to the extent  specified  in
the said Memorandums), no such reservation  was  thought  advisable  in  the
matter of promotions within Class I. Instead of  reservation,  a  concession
was provided, the concession explained hereinabove. It is  this  fact  which
has been reiterated, affirmed and clarified in  the  subsequent  letters  of
the Finance Ministry. It is thus clear that the letters of the  Ministry  of
Finance dated [pic]30-5-1981 and the subsequent ones do not amend or  modify
the Office Memorandum dated 26-3-1970  but  merely  explain  it.  They  make
explicit what is implicit in it. So is the rendering of para 9.2 in the  7th
Edn. in the Brochure. What all they say is  that  the  rule  of  reservation
does not apply to promotions within Class I (i.e., promotions to be made  on
the basis of selection to posts which carry an ultimate salary  of  Rs  2250
per month or less in the revised scale) but a concession in terms of para  2
of the Memorandum dated 26-3-1970 is provided in  that  behalf.  It  cannot,
therefore, be said that either the letters of the  Ministry  of  Finance  or
the rendering of para 9.2 in the 7th Edn. of the  Brochure  is  inconsistent
with the Memorandum dated 26-3-1970 or that they are contrary to the  orders
of the Government.

                                      xx   xx    xx

31. For the above reasons, we hold  that  in  the  matter  of  promotion  by
selection to posts within Class I which carry an ultimate salary of Rs  2250
in the revised scale of pay per month or less, there is  no  reservation  in
favour of Scheduled Castes/Scheduled Tribes but they  are  entitled  to  the
concession contained in para 2 of  the  Office  Memorandum  dated  26-3-1970
issued by the Ministry  of  Home  Affairs.  The  concession  is  that  those
Scheduled Castes/Scheduled Tribes officers who  are  senior  enough  in  the
zone of consideration for promotion  so  as  to  be  within  the  number  of
vacancies for which the select list has to be drawn up will be  included  in
the select list provided they are not considered unfit for promotion.  (This
rule has been [pic]explained in the  body  of  the  judgment  by  giving  an
illustration, which it is not necessary to repeat  here.)  The  position  of
such candidates included in the select list would, however, be the  same  as
is assigned to them by the Departmental Promotion Committee on the basis  of
their record of service. The said candidates would not be entitled, for  the
purpose  of  the  said  selection,  one  grading  higher  than  the  grading
otherwise assignable to them on the basis of their record of  service.  This
is also the purport of para 9 of the  Brochure  insofar  as  it  deals  with
promotions within Class I."


      (ii)  Pragjyotish Gaonlia Bank  (Now  known  as  Assam  Gramin  Vikash
Bank) and Another v. Brijlal Dass[5]

"24. Having carefully considered the  submissions  made  on  behalf  of  the
respective parties, we  are  inclined  to  agree  with  Mr  Mehta  that  the
provision relating to reservation posts extracted hereinabove, contained  in
the Circular dated 10-6-1997, has been wrongly interpreted by  the  Division
Bench of the  High  Court.  The  said  condition  is  in  the  nature  of  a
concession as was contemplated in the Circular dated  9-11-1994,  issued  by
NABARD in order to give an opportunity to a  Scheduled  Caste  or  Scheduled
Tribe candidate to be automatically appointed, if he came within the  number
of vacancies [pic]available. It was a concession to enable such a  candidate
to avoid the process of selection,  which  all  the  other  candidates  were
required to undergo.

25. The said provision has been very elaborately explained by a  three-Judge
Bench of this Court in National Federation of SBI v. Union of India;  (1995)
3 SCC 532 . As has  been  explained  in  the  said  judgment,  the  zone  of
consideration is  the  list  of  selected  candidates  chosen  in  order  of
seniority to be considered for the  purpose  of  filling  up  the  available
vacancies and merely by coming within the zone of consideration a  Scheduled
Caste or Scheduled Tribe  candidate  would  not  be  entitled  to  automatic
selection. The concession relating to reservation does not mean that any  of
the vacant posts were required to be kept reserved for such Scheduled  Caste
or Scheduled Tribe candidate. It is only when such a candidate  came  within
the number of vacancies that  such  a  concession  would  be  applicable  to
him/her for appointment without going through the selection process.


Learned counsel appearing  for  respondents,  including  Dr.  Krishan  Singh
Chauhan, Mr. E.C. Vidya Sagar, Mr. A. Subba Rao, Mr.Satyajit  A.  Desai  and
Mr. C.K. Chandrasekhar, Advocates, placed strong  reliance  on  the  reasons
given by the High Court in support of its verdict  projecting  dismal  state
of affairs virtually  no  representation  of  the  SC/ST  employees  in  the
officers category, particularly, scale IV and above.

It was also argued by these respondents that after the impugned judgment  of
the Division Bench allowing writ appeals of  these  respondents,  on  14-01-
2010 and 01-02-2010, the Union Government had  directed  the  implementation
of  the  impugned  High  Court  judgment.  The  Bank  has  filed  the   SLP,
thereafter. Their present stand that there will be no reservation  but  only
concession by considering officers who are senior enough to  be  within  the
zone and are not declared unfit, is misleading. In fact, a Bill  was  passed
in both the Houses of the Parliament by the  previous  Government  to  grant
reservations  in  promotions  at  all  levels,  (i.e.  117th  Constitutional
Amendment), which had lapsed subsequently. It  was  argued  that  the  Union
Government cannot take a different stand now.

The claim of the Banks that grant of reservation in promotion  from  Scale-I
level onwards would affect efficiency, was also refuted by  contending  that
the officers belonging to SC/ST have been promoted  only  on  the  basis  of
their own merit/performance.  It was submitted that  the  State  cannot  act
contrary to Constitutional provisions. It was submitted  that  the  decision
dated 10-03-1995 in National Federation of S.B.I. (supra) and relied by  the
Banks related to pre-77th Amendment, which came to be passed on  17-06-1995.
 As per them, the decision in M. Nagaraj (supra) answers the  issues  raised
by the Banks.  Pointed reference was  made  to  the  117th  Amendment  Bill,
which was taken judicial notice of  in  Himachal  Pradesh  Scheduled  Tribes
Employees  Federation  and  another  v.  Himachal  Pradesh   Samanaya   Varg
Karamchari Kalayan Mahasangh and others[6].  Attention was  drawn  to  paras
32 to 34 of the said judgment, which are as under:
"32. Here, we would like to allude to the words of Lord Denning,  in  Rondel
v. Worsley (1967) 1 QB 443 about the conduct expected of an advocate:

"... As an advocate he is a minister of justice equally with the Judge.  ...
I say 'all he honourably can' because his duty is not only  to  his  client.
He has a duty to the court which is paramount. It is a  mistake  to  suppose
that he is the mouthpiece of his client to say what he wants:  or  his  tool
to do what he directs. He is none of these things. He owes allegiance  to  a
higher cause. It is the cause of truth and justice. He must not  consciously
misstate the facts. He must not knowingly conceal the  truth.  He  must  not
unjustly make a charge of fraud, that is, without evidence  to  support  it.
He must produce all the relevant authorities, even those  that  are  against
him. He must see  that  his  client  discloses,  if  ordered,  the  relevant
documents, even those that are fatal to his  case.  He  must  disregard  the
most specific instructions of his client, if they conflicts  with  his  duty
to the court. The code which requires a barrister to do all this  is  not  a
code of law. It is the code of honour." (QB p. 502)

                                                         (emphasis supplied)

[pic]In our  opinion,  the  aforesaid  dicta  of  Lord  Denning  is  an  apt
exposition of the very high standard  of  moral,  ethical  and  professional
conduct expected to be maintained by the members  of  legal  profession.  We
expect no less of an advocate/counsel in this country.

33. Here, in this case, on 26-4-2010 a statement was made on behalf  of  the
State of H.P. that "the State intends to collect more  details  with  regard
to representation of the SCs/STs and to pass  appropriate  orders  within  a
reasonable time i.e. approximately within three months after collecting  the
necessary details and datas". Having  very  deftly  avoided  a  decision  on
merits in SLP (C) No. 30143 of 2009, the State has totally  failed  to  live
up to the solemn statement made to this Court. It has hedged and hemmed  and
prevaricated from 26-4-2010 till date. In spite of the requisite data  being
available, the policy of reservation already adopted by the  State  has  not
been implemented. We, therefore, do  not  agree  with  Dr  Dhavan  that  the
applicants are seeking a mandamus to adopt a  policy  in  reservation.  From
the above narration, it is evident that the applicants  want  the  State  to
implement its own decisions. The prayer is:

"Direct the respondent/State Government to decide  the  case  in  time-bound
manner on the basis of data already available/submitted to the Cabinet  Sub-
Committee on 25-4-2011 within a period of one month and;
Further direct stay on all promotions pending decision taken in this case."

34. The final excuse offered by the State for  not  granting  the  aforesaid
relief  is  that  the  State  now  awaits  the  finalisation  of  the  117th
Constitution Amendment. We decline to accept the  reasons  put  forward  for
not honouring the statement solemnly made to this Court on  26-4-2010.  This
Court has been more than considerate to the requests made by the  State  for
extension of time. This last excuse about awaiting the finalisation  of  the
proposed Hundred-seventeenth  Constitutional  Amendment  is  the  proverbial
last straw on the camel's  back.  As  stated  earlier,  the  proposed  117th
Constitutional Amendment would not adversely affect the merits of  the  clam
(sic)  of  the  petitioner  for  grant  of  promotion   with   consequential
seniority. By the aforesaid proposed  Amendment,  the  existing  Article  16
clause (4-A) is to be substituted by the following clause (4-A)-

"16.   (4-A)   Notwithstanding   anything   contained   elsewhere   in   the
Constitution, the Scheduled Castes and the Scheduled Tribes  notified  under
Article 341 and Article 342, respectively, shall be deemed  to  be  backward
and nothing in this article or in Article 335 shall prevent the  State  from
making  any  provision  for  reservation  in  matters  of  promotions,  with
consequential seniority, to any class or classes of posts  in  the  services
under the State in favour of the Scheduled Castes and the  Scheduled  Tribes
to the extent of the percentage of reservation  provided  to  the  Scheduled
Castes and the Scheduled Tribes in the services of the State."

Much reliance was also placed on a recent decision  of  this  Court  in  the
case Rohtas Bhankhar and Others v. Union of India  and  Another[7],  on  the
basis of which it was contended that the reliance of the Banks in that  case
on O.M. dated 22.07.1997 was totally misplaced  as,  inasmuch  as,  in  this
case the said O.M. is held to be bad in law as per the discussion  contained
in the following  paragraphs:
"9. We are in respectful agreement with the decision in  UT,  Chandigarh  v.
Kuldeep Singh, (1997) 9 SCC 199  and approve the same. Ordinarily, we  would
have sent the matter to the regular Bench for disposal of  the  matters  but
having regard to the nature of controversy and the  fact  that  the  Central
Administrative Tribunal, Delhi (for short "the Tribunal")  has  followed  S.
Vinod Kumar v. Union of India, (1996) 6 SCC 580 which is not  good  law  and
resultantly the 1997 OM is also illegal, in  our  view,  the  agony  of  the
appellants need not be prolonged as they are entitled to the reliefs.

10. Consequently, the civil appeals are allowed. The impugned order  is  set
aside. The 1997 OM is declared illegal.  The  respondents  are  directed  to
modify the results in the Section Officers/ Stenographers (Grade B/Grade  I)
Limited  Departmental  Competitive  Examination,  1996  by   providing   for
reservation and extend all consequential reliefs to the appellants,  if  not
granted so far. No costs."


Before discussing the main issue involved, it would be  in  the  fitness  of
things to iron out some of the  creases  surrounding  the  main  issue.   In
fact, this exercise would facilitate understanding the precise tenor of  the
issue that needs to be addressed and answered.

In the first instance, we make it clear that there is no dispute  about  the
constitutional position envisaged in Articles 15 and 16,  insofar  as  these
provisions empower the State to take affirmative action in favour  of  SC/ST
category persons by making reservations for them in the  employment  in  the
Union or the State (or for that matter, public sector/authorities which  are
treated as State under  Article  12  of  the  Constitution).   The  laudable
objective underlying these provisions is also  to  be  kept  in  mind  while
undertaking  any  exercise  pertaining  to  the  issues  touching  upon  the
reservation of such SC/ST employees.  Further, such a  reservation  can  not
only be made at the entry  level  but  is  permissible  in  the  matters  of
promotions as wells.  At the same time, it is also to be borne in mind  that
Clauses 4 and 4A of Article 16 of the Constitution  are  only  the  enabling
provisions which permit the State  to  make  provision  for  reservation  of
these category of persons.  Insofar as making of provisions for  reservation
in matters of promotion to any class or classes of post is  concerned,  such
a provision can be made in favour of SC/ST category  employees  if,  in  the
opinion of the State, they are not adequately represented in services  under
the State.  Thus, no doubt, power lies with the State to make  a  provision,
but, at the same time, courts cannot issue any  mandamus  to  the  State  to
necessarily make such a provision.  It is for the State to act, in  a  given
situation, and to take such an  affirmative  action.   Of  course,  whenever
there exists such a provision for reservation in the matters of  recruitment
or the promotion, it would bestow an enforceable right in favour of  persons
belonging to SC/ST category and on failure on the part of any  authority  to
reserve the posts, while making selections/promotions, the beneficiaries  of
these provisions can approach the Court to get their rights enforced.   What
is to be highlighted is that existence of provision for reservation  in  the
matter of selection or promotion, as the case may be, is the  sine  qua  non
for seeking mandamus as it is only when such a  provision  is  made  by  the
State,  a  right  shall  accrue  in  favour  of  SC/ST  candidates  and  not
otherwise.

It is  not  in  dispute  that  the  rule  of  reservation  is  followed  for
promotions from clerical grade to the lowest  rank  in  the  officer  grade.
The question,  however,  is  as  to  whether  there  is  any  provision  for
reservation when promotion from a particular rank in the  officer  grade  is
to be made to the next rank in the  said  grade,  namely,  from  Scale-I  to
Scale-II, Scale-II to Scale-III and so on.

While considering this question, we have to keep in  mind  that  reservation
policy of the Central Government is applicable to the appellant  Banks.   It
is the common case of both the parties.  In fact, as  already  noted  above,
there is a specific provision to  this  effect  in  the  promotion  policies
framed by the appellant Banks.

Next thing which is to be kept in mind is  the  two  office  memoranda,  one
dated 1.11.1990 and the other dated 13.8.1997, which are referred to by  the
counsel for the parties.  We  have  already  reproduced  the  aforesaid  two
office  memoranda.   Insofar  as,  Office  Memorandum  dated  1.11.1990   is
concerned, a bare reading of this provision would reflect the following  two
aspects:
(a)   In promotion by selection within Class-I  (Group-A)  post,  the  SC/ST
candidates are to be given 'concession'.
(b)   This concession is available to those SC/ST employees who  are  senior
enough in the zone of consideration for promotion so as  to  be  within  the
number of vacancies for which select list has to be drawn up.
            Thus, first requirement is that such SC/ST candidates  who  come
within the zone of consideration for  promotion  are  senior  enough  to  be
within the number of vacancies.  Once they come within  the  aforesaid  zone
of consideration, they have to be included in the list,  provided  they  are
not considered unfit for promotion.  It clearly follows from the above  that
once they come under the zone of consideration for promotion  so  as  to  be
within the number of vacancies for which select list has  to  be  drawn  up,
for such SC/ST employees the only embargo to deprive them  of  promotion  is
when they are found unfit for promotion.   For  other  officers  in  general
category, depending upon the rule of promotion, there may be  much  stricter
criteria based on comparative merit or selection by  merit,  etc.   However,
in case of such senior enough SC/ST candidates, the criteria appears  to  be
seniority, subject to fitness.
      (c)   This  OM  specifically  clears  the  doubt  that  the  aforesaid
provision is only a concession  and  not  reservation  in  favour  of  SC/ST
candidates, inasmuch as  para  3  of  the  OM  states  that  "It  is  hereby
clarified that in promotion by selection within Group-A  post,  which  carry
ultimate salary of ? 5,700/- per month, there is  no  reservation".   It  is
clear from the above that insofar as Office Memorandum  dated  1.11.1990  is
concerned, there was no provision for reservation made in  favour  of  SC/ST
candidates in promotion  by  selection  within  Group-A  posts  carrying  an
ultimate salary of ?5,700 per month.

No doubt, this Office Memorandum was issued in the year 1990, that  is  much
before amendment in Article 16 of the Constitution, which  was  carried  out
in the year 1995 by inserting Clause 4A. However,  as  already  pointed  out
above, Clause 4A is an enabling provision which empowers the State  to  make
reservations in the matter of promotions as  well  as  in  favour  of  SC/ST
employees. There was no such provision  till  1.11.1990  in  the  matter  of
promotion by selection within Group-A post which carry  an  ultimate  salary
of ?5,700/- per month.

Having understood this, we come to Office Memoradum dated 13.8.1997 to  find
out as to whether this Memorandum makes any provision  for  reservations  in
the matter of promotion in favour of SC/ST employees, inasmuch as  no  other
Office Memorandum or Circular or Rule, etc. is produced on record  for  this
purpose.

We have already noted above that a nine Judge Bench decision of  this  Court
in Indra Sawhney (supra) held that Clause 4 of Article  16  does  not  cover
the cases  of  promotion,  meaning  thereby,  as  per  the  said  clause  no
reservation in favour of SC/ST  persons  in  the  matter  of  promotions  is
permissible.  It is to  nullify  the  effect  of  this  dicta  in  the  said
judgment that Clause  4A  was  inserted  in  Article  16  by  Constitution's
Seventy-Seventh Amendment with effect from 17-06-1995.  However, it is  also
a matter of record that in Indra Sawhney's  case  (supra),  this  Court  had
also clarified that reservation for SC/STs in promotion would  continue  for
a period of five years from 16-11-1992.  What it meant was that if there  is
a  provision  of   reservation   made   in   the   matter   of   promotions,
notwithstanding the dicta in the said case that such a  reservation  is  not
permissible, those provisions were allowed to continue for a period of  five
years from  16-11-1992.   Thereafter,  before  the  expiry  of  five  years,
constitutional provision was incorporated  in  the  form  of  Clause  4A  by
making provision for reservation  in  the  matter  of  promotions  as  well.
These facts are taken note of in first two paras of Office Memorandum  dated
13-08-1997.  Thereafter, in the 3rd para  of  the  said  Memorandum,  it  is
provided:
"3.  In pursuance of Article 16(4A), it has been  decided  to  continue  the
Reservation in promotion as at present, for the  Scheduled  Castes  and  the
Scheduled Tribes in the services/posts under the Central  Government  beyond
15.11.1997 till such time as the representation of each  of  the  above  two
categories in each cadre reaches the prescribed percentages  of  reservation
whereafter, the reservation in promotion  shall  continue  to  maintain  the
representation  to  the  extent  of  the  prescribed  percentages  for   the
respective categories."


What is decided is to continue  the  reservation  in  promotion,  which  was
prevalent at that time, for the SC/ST employees, which was  to  continue  in
terms of the judgment of this Court in Indra  Sawhney  (supra)  till  15-11-
1997, even beyond 15-11-1997, till such time as the representation  of  each
of  the  above  two  categories  in  each  cadre  reaches   the   prescribed
percentages of reservation whereof.  It is, thus, crystal clear from a  bare
reading of this para that the existing provision relating to reservation  in
promotion was allowed to continue beyond 15-11-1997.  Thus, this  Memorandum
did not make any new provision for reservation in  promotion  in  favour  of
SC/ST employees.

We have already noticed above that in matters of  promotion  within  Group-A
posts, which carry an ultimate salary of ?5,700/- per month,  there  was  no
provision for any reservation.  On a conjoint reading of  these  two  Office
Memorandums, in the absence of any other provision or Rule  evidencing  such
a reservation in the matter of promotions, it cannot be said that there  was
reservation in promotion within Group-A posts upto the  ultimate  salary  of
?5,700/- per month.  The High Court in the impugned  judgment  has  gone  by
the lofty ideals enshrined in Articles 15 and  16  of  the  Constitution  as
well as the fact that in these Banks there is no adequate representation  of
SC/ST category of officers in Group-IV and above.  That may be so.   It  can
only provide justification for making a provision of this nature.   However,
in the absence of such a provision, same cannot be  read  by  overstretching
the language of Office Memorandum dated 13-08-1997.  It is for the State  to
take stock of the ground realities and take a decision as to whether  it  is
necessary to make provision for reservation in promotions to  the  aforesaid
post as well.

Having said so, one other aspect which has to be  necessarily  addressed  to
at this stage calls for our attention.  This aspect, which we are  going  to
point out now, has been totally glossed over by the learned Single Judge  as
well as the Division Bench of the High Court in their respective judgments.

It  is  provided  in  Office  Memorandum  dated  01-11-1970,  and  we   have
repeatedly stated above, that  there  is  no  reservation  in  promotion  by
selection within only those Group-A posts which carry an ultimate salary  of
?5,700/- per month.  In such cases, it is only concession that applies.   We
have accepted the contention of the appellant Banks in this behalf,  as  per
the discussion contained hereinabove.  Significantly, what follows  is  that
reservation is provided in promotion by  selection  qua  those  posts  which
carry an ultimate salary of less than ?5,700/- per month (pre-revised).

The Department of Public Enterprises had issued an Office  Memorandum  dated
08-11-2004 as to the salary limit of ?5,700/- mentioned for the purposes  of
reservation as ?18,300/- (5th Central Pay Commission) and  in  the  case  of
Public Sector Undertakings who are following Industrial  Dearness  Allowance
(IDA) pattern, the monetary ceiling was  fixed  as  ?20,800/-  (from  01-01-
1996, i.e. 5th Central Pay Commission).  The said pay  ceiling  is  achieved
in the appellant Banks  only  when  an  officer  reaches  Scale-VII.   As  a
fortiorari, the policy of no reservation  in  the  matter  of  promotion  is
applicable only from Scale-VII and above.  It,  therefore,  clearly  follows
that insofar as promotion from Scale-I to Scale-II, Scale-II  to  Scale-III,
Scale-III  to  Scale-IV,  Scale-IV  to  Scale-V,  Scale-V  to  Scale-VI  are
concerned, reservation is to be provided.  The appellant  Banks,  therefore,
cannot take umbrage under the aforesaid Memorandum and deny  reservation  in
favour of SC/ST employees while carrying out promotions upto to Scale-VI.


Upshot of the aforesaid discussion would be to allow these  appeals  partly.
While setting aside the impugned judgment of the High Court  to  the  extent
it holds that Office Memorandum  dated  13-08-1997  makes  a  provision  for
reservation, it is clarified that at  present  there  is  no  provision  for
reservation in promotion by selection only in respect of those  posts  which
carry an ultimate salary of ?5,700/- per month (revised to ?18,300/- by  5th
Central Pay Commission and ?20,800/- per month in respect  of  those  Public
Sector Undertakings following  IDA  pattern).   Qua  appellant  Banks,  that
would be in respect  of  Scale-VII  and  above.   Therefore,  to  carry  out
promotions from Scale-I upwards upto Scale-VI, reservation in  promotion  in
favour of SC/ST employees has to be given.  It  would  have  the  effect  of
allowing the writ petitions filed  by  the  respondents/unions  partly  with
directions to the appellant Banks to make provision for  reservations  while
carrying out promotions from Scale-I to to Scale-II and upward  upto  Scale-
VI.

In view of the above, Contempt Petition (Civil) No. 320 of 2010 is  disposed
of with directions to the appellant Banks to carry  out  the  promotions  by
adopting the procedure mentioned in this judgment.


In the peculiar facts of this case, we leave the parties to bear  their  own
costs.

                             .............................................J.
                                                            (J. CHELAMESWAR)



                             .............................................J.
                                                                (A.K. SIKRI)

NEW DELHI;
JANUARY 09, 2015.




























-----------------------
[1]   (1992) Supp 3 SCC 217
[2]   (1995) 6 SCC 684
[3]   (2006) 8 SCC 212
[4]   (1995) 3 SCC 532
[5]   (2009) 3 SCC 323
[6]   (2013) 10 SCC 308
[7]   (2014) 8 SCC 872