2022 (4) TMI 1553 - HC - Indian Laws

Suit for declaration that it is the owner of the suit shares - restraint from exercising any right in respect of the pledged securities - plaintiff discovered that the consideration for the pledge of the suit shares is fraudulent and unlawful - HELD THAT - The principles which govern the amendment of pleadings are crystallized. The Court is empowered at any stage of the proceedings to allow either party to amend the pleadings in such a manner and upon such terms as may be found just. Nay all such amendments shall be allowed to be made as may be necessary for the purpose of determining the real question in controversy between the parties. The determinative factor is whether the proposed amendment is necessary for determining the real question in controversy between the parties. Undoubtedly the plaint is premised on the limited nature of the rights of pledgee i.e. either sale the pledged security and appropriate the sale proceeds or bring a suit and retain the pledged security. The plaintiff has assailed the action of defendant no. 1 in transferring the pledged shares in favour of defendant no. 2 and the exercise of rights over the pledged shares by defendant no. 2 as if the general opportunity in those shares has been transferred to defendant no. 2. The case now sought to be set up by the plaintiff is that the very transaction of creation pledge was vitiated by fraud. Support is sought to be drawn from the lodging of the complaint by defendant no. 2 in respect of the said transaction. Firstly the lodging of the complaint by defendant no. 2 does not seem to be in serious contest. Secondly the fact remains that amendment is sought at the nascent stage of the trial. Neither the element of delay nor want of due diligence has any role to play. Thus there is no likelihood of prejudice to the defendants. The defendants will have adequate opportunity to meet the case proposed to be set up by the plaintiff. Application allowed.

Summary

Issues Involved:
1. Amendment of the plaint under Order VI Rule 17 of the Code of Civil Procedure, 1908.
2. Ownership and rights over pledged shares.
3. Allegations of fraud and the enforceability of the Pledge Agreement.
4. Change in the nature of the suit due to the proposed amendment.
5. Prejudice to the defendants due to the amendment.

Issue-wise Detailed Analysis:

1. Amendment of the plaint under Order VI Rule 17 of the Code of Civil Procedure, 1908:
The plaintiff sought to amend the plaint to incorporate allegations of fraud discovered in February 2022, claiming that the financial facilities secured by the pledge of suit shares were tainted by fraud, rendering the Pledge Agreement void. The court noted that amendments at a pre-trial stage are generally allowed liberally to determine the real question in controversy, provided they do not substitute one cause of action for another or prejudice the other side.

2. Ownership and rights over pledged shares:
The plaintiff originally sought a declaration of ownership over the suit shares, which were pledged by the defendants with the Security Trustee. The plaintiff contended that the Bank (defendant no. 2) could either sell the shares and appropriate the proceeds or retain the shares as security but could not exercise voting rights or other ownership rights. The court acknowledged the plaintiff's claim that the Bank's transfer of shares to itself and subsequent actions violated Section 172 of the Indian Contract Act and the Security Trustee Agreement.

3. Allegations of fraud and the enforceability of the Pledge Agreement:
The plaintiff alleged that the consideration for the pledge was fraudulent, making the Pledge Agreement void under Section 23 of the Indian Contract Act. The court considered the plaintiff's reliance on a criminal complaint filed by the Bank with the Economic Offences Wing, which reiterated the fraudulent nature of the transaction. The court found that the plaintiff's proposed amendment to include these allegations did not change the character of the suit but rather sought to address the underlying issue of fraud.

4. Change in the nature of the suit due to the proposed amendment:
The defendants argued that the amendment would alter the nature of the suit and contradict the plaintiff's original stance of not relying on the Pledge Deeds. The court, however, determined that the two claims (limited rights of the pledgee and fraud in the transaction) were not mutually exclusive. The court emphasized that at this stage, the merits of the claim were not under scrutiny, and the plaintiff's success in proving fraud would negate the need to address the limited rights of the pledgee.

5. Prejudice to the defendants due to the amendment:
The defendants contended that the plaintiff's awareness of the fraudulent transaction before February 2022 undermined the credibility of the amendment. The court dismissed this argument, noting that the amendment was sought at an early stage of the trial, and the defendants would have ample opportunity to respond. The court found no significant delay or lack of due diligence on the plaintiff's part, and thus, no prejudice to the defendants.

Conclusion:
The court allowed the plaintiff's application for amendment, emphasizing the necessity of determining the real question in controversy and ensuring justice. The plaintiff was directed to carry out the necessary amendments within two weeks and serve the amended plaint on the defendants. The interim application was disposed of with no costs.