Pledge's Validity Beyond 'Closure Date' a Triable Issue, Status Quo Must Be Maintained: Bombay High Court Upholds Injunction - 2025-08-28

Bombay High Court Upholds Injunction on Sale of Pledged Shares, Citing 'Triable Issues' and Need to Maintain Status Quo

Mumbai: The Bombay High Court has dismissed an appeal filed by Ashok Investors Trust Limited, upholding a temporary injunction that prevents the sale of shares pledged as security for loans amounting to over Rs. 221 crores. A division bench of Chief Justice Alok Aradhe and Justice Sandeep V. Marne ruled that the dispute over whether the pledge expired on the "closure date" mentioned in the pledge forms constitutes a serious triable issue, justifying the continuation of an injunction that has been in place for nearly four years.

Background of the Dispute

The case originates from credit facilities extended by Lakshmi Vilas Bank (later merged with DBS Bank) to Superways Enterprises Pvt. Ltd. and Shubhkaran & Sons. Crosslink Food & Farms Pvt. Ltd. and Lloyds Realty Developers Ltd. (the Plaintiffs) pledged their shares in a company named Shree Global Tradefin Ltd. (SGTL) as security for these loans.

The central conflict arose when the borrowers defaulted, and DBS Bank initiated the process to sell the pledged shares in 2021. The plaintiffs filed a suit, arguing that the pledges, created between 2008 and 2012, had automatically expired on the "closure dates" (e.g., 31 March 2013) specified in the pledge forms, and therefore, the bank had no right to sell the shares. During the litigation, DBS Bank assigned its rights to the pledge to Ashok Investors Trust Limited (the Appellant).

A City Civil Court granted a temporary injunction in favour of the plaintiffs, which Ashok Investors Trust challenged before the High Court.

Arguments from Both Sides

Appellant's Contentions (Ashok Investors Trust): -

Senior Advocate Mr. Zal Andhyarujina, representing the appellant, argued that a pledge, by its nature, continues until the underlying debt is fully repaid. -

He contended that the "closure date" in a pledge form is merely a procedural deadline for the depository participant to confirm the pledge creation and does not signify the pledge's expiry. -

The appellant asserted that the plaintiffs' suit was barred by limitation and that even if the shares were sold, the plaintiffs' interests could be protected by a monetary decree, thus causing no irreparable harm.

Respondents' Arguments (The Pledgers): -

Senior Advocate Mr. Dinesh Purandare, appearing for the plaintiffs, submitted that a pledge is a form of contract and can be limited by a specific tenure, as was done via the closure dates. -

He pointed to the NSDL Handbook, which describes the closure date as "indicative of the duration of pledge/hypothecation." -

The plaintiffs also raised serious allegations that "Supplemental Agreements" from 2017, which the bank had used to claim the pledge was extended, were forged and fabricated.

Court's Reasoning: A Matter for Trial

The High Court bench declined to give a definitive ruling on the legal effect of the "closure date," deeming it and the genuineness of the Supplemental Agreements as "serious triable issues" that require evidence and a full trial.

The Court observed, "there appears to be a serious dispute amongst the parties about the exact purport why closure date is specified in the pledge form... In our view, this is a triable issue which needs to be resolved after leading of evidence."

The bench noted that the original lender, DBS Bank, had relied on the allegedly forged Supplemental Agreements to argue for the continuation of the pledge. This, the Court reasoned, gave a prima-facie impression that the bank itself believed the agreements were necessary to extend the pledge, indirectly suggesting the original pledge might have otherwise ended on the closure dates.

While acknowledging that a "triable issue" does not automatically equate to a "prima-facie case," the Court found that the City Civil Court's decision to grant the injunction was not arbitrary, capricious, or perverse.

Balance of Convenience and Status Quo

A crucial factor in the High Court's decision was the maintenance of the status quo. The Court highlighted that a restraint order on the sale of shares has been continuously in effect since October 26, 2021.

"We therefore lean towards the direction of maintenance of status-quo which is prevailing for the last 4 long years, especially after noticing that Defendant No.4 has failed to make out any case for disturbing such status-quo at this point of time."

The Court also pointed out that Ashok Investors Trust had acquired the pledge rights in April 2023, well after the initial injunction was granted, and had therefore taken a "calculated risk."

On the issue of irreparable loss, the bench agreed with the trial court that monetizing the shares would permanently prejudice the plaintiffs, who, as promoters, may be interested in retaining their shareholding rather than receiving monetary compensation.

Final Decision

The High Court dismissed the appeal, ensuring the temporary injunction remains in force until the final disposal of the suit. While upholding the injunction, the bench clarified that its decision was based on maintaining the long-standing status quo and not on a definitive finding on the merits of the case. The Court has requested the City Civil Court to accord priority to the early disposal of the commercial suit, which was filed in 2021.