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2022 Supreme(Del) 2061
IN THE HIGH COURT OF DELHI
Rekha Palli, J.
UV Assest Reconstruction Company Ltd. - Appellant
Versus
Union of India - Respondent
W.P.(C) 15395 of 2022
Decided On : 06-12-2022
The main legal point established in the judgment is that an asset reconstruction company, as the new pledgee of pledged shares acquired under the SARFAESI Act, has the absolute right to deal with the shares, and this right should be recognized by all third parties, including statutory authorities.
Headnote:
SARFAESI Act - Asset Reconstruction - Section 5 of SARFAESI Act - Summary of Acts and Sections: SARFAESI Act, 2002, Section 3, Section 5(2) and (3) - The judgment discusses the acquisition of rights or interest in financial assets by an asset reconstruction company under Section 5 of the SARFAESI Act. It emphasizes that the buyer of these assets, in accordance with the provisions of the SARFAESI Act, would be treated as the lender for all purposes. The court highlights the petitioner's right to deal with the pledged shares as absolute, and the necessity for recognition by all third parties, including statutory authorities like respondent no.2. The judgment also addresses the refusal of respondent no.2 to incorporate changes in the ownership of the pledged shares, emphasizing that the respondent no.2 cannot deny the petitioner's request based on the absence of specific procedures in the Depositories Act, 1996 or the SEBI (Depositories and Participant) Regulations, 2018. It further dismisses the objection raised by one of the pledgors, stating that they cannot object to the substitution of the petitioner's name as the petitioner has purchased the shares through Debt Assignment Agreements.
Fact of the Case:
The petitioner, an asset reconstruction company, acquired pledged shares of M/s Burnpur Cement Ltd. (BCL) from the State Bank of India (SBI) through a Debt Assignment Agreement. The petitioner approached the respondent no.2, a National Depository, for substitution of its name as the new pledgee in place of SBI. The respondent no.2 initially processed the request but later rejected it, citing objections from one of the pledgers, Mr. Ashok Gutgutia.
Finding of the Court:
The court found that the petitioner, as the new pledgee, has the absolute right to deal with the pledged shares and that this right should be recognized by all third parties, including statutory authorities like respondent no.2. The court dismissed the objections raised by the respondent no.2 and one of the pledgors, directing respondent no.2 to carry out the necessary substitution of the petitioner's name as a pledgee in its record.
Issues: The issues revolved around the petitioner's entitlement to be treated as a lender in relation to the pledged shares of BCL, the refusal of respondent no.2 to incorporate the petitioner's name as a pledgee, and the objections raised by one of the pledgers.
Ratio Decidendi: The court's decision was based on the interpretation of Section 5(2) and (3) of the SARFAESI Act, emphasizing the petitioner's rights as the new pledgee and the necessity for recognition by third parties. The court also highlighted that the absence of specific procedures in the Depositories Act, 1996 or the SEBI (Depositories and Participant) Regulations, 2018 does not justify the refusal of the petitioner's request.
Final Decision: The petition was allowed, and the respondent no.2 was directed to carry out the necessary substitution of the petitioner's name as a pledgee in its record within three weeks.
JUDGMENT
Rekha Palli, J. (ORAL)
1. The petitioner, an asset reconstruction company registered under Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), has approached this Court being aggrieved by the refusal of the respondent no.2 to substitute its name as the new pledgee in place of the original pledgee, the State Bank of India (SBI) in respect of the pledged shares of M/s Burnpur Cement Ltd. (BCL), which now stands assigned to the petitioner.
2. At the outset, I may be noted that BCL, which had availed various term loans from the SBI consortium, with the SBI being the `lead banker' (SBI Consortium), and therefore, a `Restructuring Package' was sanctioned in March 2015, the terms whereof were set out in a Master Restructuring Agreement (MRA) dated 30.03.2015. In accordance with the terms of this MRA, 2,17,99,826 equity shares were pledged by the BCL with the SBI by way of a Pledge Agreement of the same date.
3. In Clause 5 of the Pledge Agreement, it was specifically agreed between the parties that in the event of non-payment of Facilities together with interest, additional interest, liquidated damages and other amounts, or any portion thereof, by the pledgors to the lenders, the SBI would be entitled to be registered as beneficial owners of the pledged shares, with a right to sell/cause to be sold the pledged shares. As the BCL did not repay the term loans in accordance with the MRA in time, its account was declared by the SBI as a Non Performing Asset (NPA), and the same with all underlying securities, both moveable and immoveable, was acquired by the petitioner. Consequently, a Debt Assignment Agreement was entered into between the SBI, as the Assignor, and the petitioner, as the Assignee, which was in accordance with Section 5 of the SARFAESI Act, registered on 26.06.2019. It may be noted that the petitioner entered into similar Debt Assignment Agreements with the other members of the SBI Consortium, i.e., with the Central Bank of India on 29.03.2019, and with the Punjab National Bank on 04.08.2022.
4. It is the petitioner's case that, as a consequence of execution of the Debt Assignment Agreement dated 17.05.2019, it became the new pledgee in place of the SBI, and in terms of Section 5(3) of the SARFAESI Act had also taken over the role of SBI as its `successor in interest' qua the management of BCL. The petitioner, therefore, approached the respondent no.2, which is the National Depository established under the National Securities Depositories Limited (NSDL), for substitution of its name in the record maintained by respondent no.2 in respect of the pledged shares of the BCL.
5. In response to the petitioner's request, the respondent no.2 directed the petitioner to submit an indemnity bond, and also submit the requisite forms, after getting them signed by the original pledgee, SBI. In compliance with the directions of respondent no.2, the petitioner duly forwarded the indemnity bond, and the requisite documents required from the SBI. The respondent no.2, vide its email dated 08.09.2022, then informed the petitioner that though, the process for facilitating the change of pledgee through the pledgor depository participants was likely to be completed soon, it was required to deposit certain depository system charges. However, after the petitioner deposited these charges on 16.09.2022, the respondent no.2 took a sudden u-turn, and vide its email dated 04.10.2022, informed the petitioner that its request could not be accepted. The petitioner was also informed that objections against the substitution had also been received in respect of 2 of the 17 pledged accounts, from one of the pledgers, namely Mr.Ashok Gutgutia. Aggrieved with this rejection, the petitioner has approached this Court..
6. Learned senior counsel for the petitioner submits that, even though, the petitioner is not pressing its allegations regarding the manner of function
