2022 (11) TMI 1518 - HC - Indian Laws

Validity of the share pledge agreement and the number of shares pledged - Permanent and mandatory Injunction restraining the Defendant No. 1 Bank from selling the pledged 30% of promoters' shares - 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 - Order XXXIX Rule 4 of the Code of Civil Procedure, 1908. HELD THAT - It is pertinent to note that the present suit was listed before this Court on the same date and none appeared on behalf of the defendant bank, since the defendant bank was not aware of the plaintiff filing the present suit. A perusal of the proof of service filed with the plaint shows that the service was effected by way of an email addressed to [email protected] . It appears to be the email of one of the advocates of the firm representing the defendant bank in the writ petition filed by the plaintiff. However, the plaintiff ought to have informed the filing of the present suit to the writ court as well as the counsel appearing on behalf of the defendant bank before the writ court. The Supreme Court in its recent judgment in PTC India 2022 (5) TMI 813 - SUPREME COURT has reiterated that under Section 176 of the Indian Contracts Act, 1872, a reasonable notice is required to be given by the pawnee to the pawnor of sale of the pledged goods, even though no period for the notice has been prescribed. The object of the said notice is to make the pawnor aware of the pawnee's intent to sell the pawn and give him an opportunity to exercise his statutory right of redemption available to a pawnor under Section 177 of the Indian Contracts Act, 1872. It was further observed that whether the period of notice was reasonable or not would depend on the facts and circumstances of the case. In the present case, the pledge in respect of 19,79,549 shares was invoked by the defendant bank on 6th September, 2022, and the plaintiff was duly informed of the same by way of a text message dated 6th September, 2022 received from NSDL, a screenshot of which is filed at page no.112 of the plaintiff's documents. Subsequently, a notice was issued by the defendant bank on 15th September, 2022 calling upon the plaintiff to clear the outstanding liabilities within seven days, failing which the defendant bank shall sell the pledged shares. Counsel for the plaintiff contends that the aforesaid notice does not amount to reasonable notice as envisaged under Section 176 of the Indian Contracts Act, 1872. The ex parte injunction order against sale of the pledged shares was passed by this Court on 23rd September, 2022. Thereafter, the matter was listed before the Court on 28th September, 2022, 12th October, 2022, 20th October, 2022 and 1st November, 2022. The submission of the counsel for the plaintiff is noted in the order dated 20th October, 2022 that the plaintiff is taking steps towards the settlement in respect of the aforesaid LIC policies and the pledged shares, and the matter was adjourned to 1st November, 2022. The plaintiff has failed to establish a prima facie case in his favour. The balance of convenience is in favour of the defendant bank - List before Joint Registrar for further proceedings on 11th January, 2023.

Summary

Issues Involved:
1. Validity of the share pledge agreement and the number of shares pledged.
2. Whether sufficient notice was given by the defendant bank for the sale of pledged shares under Section 176 of the Indian Contracts Act, 1872.
3. Whether the LIC policies were assigned or merely had a lien created.
4. The plaintiff's conduct in obtaining an ex parte interim order.

Detailed Analysis:

1. Validity of the Share Pledge Agreement and the Number of Shares Pledged:
The plaintiff alleged that the schedules to the share pledge agreement were kept blank at the time of signing and later filled in by the defendant bank with incorrect information. However, the court found that the share pledge agreement dated 7th July 2021, clearly mentioned 19,79,549 shares of the defendant no.2 company pledged by the plaintiff, and this was duly signed by the plaintiff. The court did not find merit in the plaintiff's claim of forgery by the defendant bank to increase the number of pledged shares from 19,79,549 to 48,08,237.

2. Whether Sufficient Notice Was Given by the Defendant Bank for the Sale of Pledged Shares under Section 176 of the Indian Contracts Act, 1872:
The plaintiff contended that the defendant bank failed to provide reasonable notice for the sale of the pledged shares. The court acknowledged the requirement under Section 176 of the Indian Contracts Act, 1872, for a pawnee to give reasonable notice to the pawnor before selling the pledged goods. The Supreme Court's judgment in PTC India Financial Services Limited v. Venkateswarlu Kari and Anr. was cited, emphasizing that the notice should make the pawnor aware of the pawnee's intent to sell. The court found that the defendant bank's notice dated 15th September 2022, along with the intimation of invocation on 6th September 2022, constituted reasonable notice under Section 176.

3. Whether the LIC Policies Were Assigned or Merely Had a Lien Created:
The plaintiff argued that the two LIC policies were not assigned but only had a lien created. The court found that the LIC policies were indeed assigned to the defendant bank, as evidenced by the notices dated 3rd September 2022 and 12th September 2022. The court noted that the LIC policies were part of the notice issued under Section 13(2) of the SARFAESI Act and could not be the subject matter of the present suit due to Section 34 of the SARFAESI Act.

4. The Plaintiff's Conduct in Obtaining an Ex Parte Interim Order:
The court noted that the plaintiff filed the present suit and obtained an ex parte interim order without informing the writ court or the defendant bank's counsel about the suit. This was deemed a dishonest attempt to obtain an ex parte order behind the defendant bank's back. Consequently, the interim order dated 23rd September 2022 was vacated, and the plaintiff was burdened with costs of Rs. 1,00,000 to be paid to the defendant bank.

Conclusion:
The court concluded that the plaintiff failed to establish a prima facie case. The balance of convenience favored the defendant bank. The interim order dated 23rd September 2022 was vacated, and the plaintiff was ordered to pay costs of Rs. 1,00,000 to the defendant bank. The case was listed for further proceedings before the Joint Registrar on 11th January 2023.