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IN THE HIGH COURT OF DELHI AT NEW DELHI
AMIT BANSAL, J.
Amit Jain – Plaintiff
Versus
Canara Bank and Others – Defendants
C.S. (COMM) No. 667 of 2022, I.A. No. 16541 of 2022
Decided On : 10-11-2022
Pledge - Invocation of Pledged Shares - Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) - [Section 13(2) of SARFAESI Act] - The court discussed the invocation of pledged shares and the notice requirements under Section 176 of the Indian Contracts Act, 1872. The court also referred to the judgment of the Supreme Court in PTC India Financial Services Limited vs. Venkateswarlu Kari and Another, 2022 SCC Online SC 608, which reiterated the requirement of reasonable notice for sale of pledged goods. The court emphasized that the notice should make the pawnor aware of the intention to sell the pledged goods. The court also highlighted the provisions of the Depositories Act and the impact on the rights of redemption against third parties. The court ultimately vacated the interim order and allowed the defendant bank's application under Order XXXIX Rule 4 of the CPC.
Fact of the Case:
The plaintiff, a promoter and managing director of a company, pledged shares and assigned LIC policies to the defendant bank for a cash credit facility. The defendant bank declared the facility as a non-performing asset and invoked the pledge, leading to a dispute. The plaintiff filed a suit seeking injunctions against the defendant bank from selling the pledged shares and surrendering the LIC policies.
Finding of the Court:
The court found that the plaintiff failed to establish a prima facie case and vacated the interim order. The court also noted the plaintiff's dishonest attempt to obtain an ex-parte order and burdened the plaintiff with costs. The court emphasized the defendant bank's entitlement to invoke the pledge and the sufficiency of the notice given for the sale of pledged shares.
Issues: The issues revolved around the validity of the invocation of pledged shares, sufficiency of notice for sale of pledged shares, and the plaintiff's conduct in obtaining an ex-parte order.
Ratio Decidendi: The court emphasized the requirement of reasonable notice for the sale of pledged goods, as reiterated in the judgment of the Supreme Court. The court also highlighted the impact of the Depositories Act on the rights of redemption against third parties. The court found that the plaintiff's conduct warranted the vacation of the interim order.
Final Decision: The interim order was vacated, and the defendant bank's application under Order XXXIX Rule 4 of the CPC was allowed. The plaintiff was burdened with costs of Rs. 1,00,000 to be paid to the defendant bank.
JUDGMENT :
AMIT BANSAL, J.
I.A. No. 15745/2022 (O-XXXIX R-1 & 2 of CPC) and I.A. No. 16168/2022 (of the defendant no. 1 u/O-XXXIX R-4 of CPC)
1. Brief facts relevant for deciding the present applications are set out below:
1.2 The defendant bank extended a cash credit facility to the defendant no. 2 company, for which the plaintiff pledged 30% promoters’ holding in the defendant no. 2 company with the defendant bank, and also assigned LIC policies bearing No. 115836269 and 115836270 in the name of the plaintiff to the defendant bank. A share pledge agreement dated 7th July, 2021 was executed by the plaintiff in favour of the defendant bank pledging 19,79,549 equity shares of the defendant no. 2 company with the defendant bank.
1.3 Business of the defendant no. 2 company was hit during COVID-19 Pandemic and meetings were held with the defendant bank for restructuring of the cash credit facility. The cash credit facility of the defendant no. 2 company was declared as a non-performing asset (NPA) by the defendant bank on 18th October, 2021, and on 20th October, 2021, the defendant bank sent a loan recall notice to the plaintiff and the defendant no. 2 company.
1.4 On 27th October, 2021, a notice under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) was sent by the defendant bank to the defendant no. 2 company and the plaintiff. On 19th January, 2022, the defendant bank issued another notice under Section 13(2) of the SARFAESI Act. Further, the defendant bank sent another notice on 3rd September, 2022 to the plaintiff expressing its intention to surrender the two LIC policies assigned in favour of defendant bank to recover the outstanding amount under the cash credit facility.
1.5 On 6th September, 2022, the defendant bank invoked the pledge in respect of the 19,79,549 shares i.e. 30% promoters’ shares in the defendant no. 2 company and hence, the aforesaid shares were transferred from the demat account of the plaintiff to the demat account of the defendant bank.
1.6 Writ petition, being W.P. (C) 13448/2022, was filed on behalf of the plaintiff before this Court against invocation of the pledged shares of the defendant no. 2 company by the defendant bank.
1.7 On 15th September, 2022, the defendant bank sent a 7 days’ notice to the plaintiff for sale of the pledged shares.
2. Hence, the present suit was filed seeking the following reliefs:
(ii) Pass a decree a Permanent and mandatory Injunction restraining the Defendant No. 1 Bank from surrendering the LIC policies 115836269 and 115836270 which have been assigned in favour of the Defendant No. 1 Bank by the Plaintiff.
(iii) Pass a decree of declaration thereby declaring that the Notice of Sale dated 15.09.2022 issued by the Defendant No. 1 without letter of invocation is bad in law.
(iv) Pass a decree of declaration thereby declaring that the Notice dated 03.09.2022 issued by the Defendant No. 1 for surrender LIC policies 115836269 and 115836270 without letter of invocation is bad in law.
(v) Pass a decree of permanent injunction against the Defendant No. 1, by itself or through its servants, agents, representatives, assignees and/or officers, from invoking the Share Pledge Agreement dated 07.07.2021.
3. On 23rd September, 2022, summons were issued in the present suit and an ex-parte ad-interim order was passed by this Court restraining the defendant bank from selling the pledged shares or surrendering the aforesaid LIC policies assigned by the plaintiff in favour of the defendant bank.
4. The defendant bank filed I.A.16168/2022 under Order XXXIX Rule 4 of the Code of Civil Procedure, 1908 (CPC) see
The judgment emphasizes the requirement of reasonable notice for the sale of pledged goods and highlights the impact of the Depositories Act on the rights of redemption against third parties.
24. Point of Law : One notice in contradistinction to giving a shorter period in another notice for shares of the same company that are pledged with the defendant does not stand to reason and is acco....
A pledgee has the unfettered right to invoke the pledge and sell pledged shares upon default, governed by the Indian Contract Act, regardless of prevailing economic conditions.
Sale of pledged shares by creditor during CIRP moratorium violates Section 14 despite possession transfer on invocation; ownership remains with debtor. Sold listed shares unrestorable; debt reduces b....
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