9911796707
TMI Blog2016 (6) TMI 1380X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany failed to make payment to the counter parties, the Petitioner had to pay the said counter parties out of its income-cum-profit and earnings, for and on behalf of the Respondent Company, and therefore, the Petitioner is entitled to recover the same from the Respondent Company. 2. The brief facts in the present controversy are as follows:- (a) The Petitioner is a wholly owned subsidiary of the National Stock Exchange of India Limited ("NSE"). The Petitioner offers clearing and settlement services to any person/organization including any trading member of the NSE or any other recognized stock exchange, subject to the provisions of the Petitioner's Bye-laws, Rules and Regulations. The Respondent Company was enrolled as a trading member of the NSE in the Futures and Options ("F & O") segment (in addition to other segments). As a condition precedent to being a trading member on the NSE in the F & O segment, the Respondent Company executed a Trading Membership Undertaking dated 17th January, 2003. Similarly, being a Trading Member in the F & O segment of the NSE, the Respondent Company was required to clear and settle the deals executed by the Respondent Company either ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st July, 2013 (Exhibit-I). The contentions raised in the said letter were basically two. They were:- (a) that the Petitioner had issued a Circular dated 20th December, 2012 which unilaterally and suddenly removed/reduced certain securities from the permissible list of collaterals to maintain the requsite margins for the F & O segment with effect from 1st January, 2013 which had far reaching consequences; and (b) that a meeting was held on 14th March, 2013 between the representatives of the Petitioner and the Respondent Company wherein the Petitioner conveyed to the Respondent Company that since the Respondent Company had not brought in additional margins in the form of cash, the Petitioner would immediately, offload all pledged securities lying with them to meet the pay-in obligations pertaining to March and June contracts expiry. This would have entailed sale of several securities including Twenty Lakh (20,00,000) shares of a company called "Gitanjali Gems Limited" (hereinafter referred to as "Gitanjali"). Despite this, the Petitioner sold only 2,97,731 shares of Gitanjali between 19th March, 2013 and 22nd March, 2013. The Petitioner ought to have sold all the 20,00,000 shares of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9th March, 2013 to 22nd March, 2013 sold 2,97,731 shares of Gitanjali. As 23rd March, 2013 and 24th March, 2013 were Saturday and Sunday respectively, no further sale of Gitanjali shares took place. Thereafter on 25th March, 2013 the Petitioner received a letter dated 23rd March, 2013 from the EOW. By this letter, the EOW requested the Petitioner to withhold the shares of Gitanjali till further orders in view of the fact that the said shares were the subject matter of an investigation pursuant to the criminal complaints filed by SARVIN and TRUSHA. Subsequently, on 27th April, 2013 the Petitioners received an order passed by the EOW under Section 102 of the Code of Criminal Procedure, 1973 ("CrPC"). By the said order, the Petitioner was directed to freeze all the shares of Gitanjali pledged with the Petitioner by the Respondent Company. It would be important to note that this order of the EOW was challenged by the Petitioner before this Court by filing Criminal Application No.483 of 2013 under Section 482 of the CrPC. This challenge was ultimately negated by this Court by its order and judgment dated 22nd August, 2013. Being aggrieved thereby, the Petitioner preferred an appeal to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered by the Respondent Company on account of the actions of the Petitioner. Even so, on perusal of the particulars of the claim in the said Suit, it is clear that the Respondent Company has admitted its liability to the Petitioner in the sum of Rs. 90.90 Crores and has sought set off of the said amount against their claim for damages. 3. In this factual backdrop, Mr. Tulzapurkar, the learned Senior Counsel appearing on behalf of the Petitioner, submitted that the dues of the Petitioner at least to the extent of Rs. 90.90 Crores have been duly admitted by the Respondent Company. He submitted that it is not in dispute that since the Respondent Company did not honour the trades that matured / expired in June 2013 with the counter parties, the Petitioner was required to make payment to them. He submitted that it is not in dispute that therefore this payment has to be made by the Respondent company to the Petitioner. It is in this light that the dues of the Petitioner have been duly admitted by the Respondent Company to the Petitioner. Mr. Tulzapurkar, brought to my attention the particulars of claim in the suit filed by the Respondent Company [Suit (L) No.939 of 2013] wherein an amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kar relied upon the following two judgments: (a) ICICI Bank Ltd v/s Sundaram Multi Pap Ltd.1 (paragraphs 5 and 8) (2010) 153 Comp Cas 424 (Bom). (b) Union of India v/s Raman Iron Foundry (1974) 2 SCC 231). 6. For all the aforesaid reasons, the learned Senior Counsel submitted that there is no bonafide dispute raised by the Respondent Company in relation to the admitted dues of the Petitioner, and therefore, this Company Petition be admitted and further directions be given for advertisement etc. 7. On the other hand, Mr. Andhyarujina, the learned counsel appearing on behalf of the Respondent Company submitted that several triable issues arise in the present case. He submitted that this being the case, the Company Petition cannot be entertained and the Petitioner ought to be relegated to file a Civil Suit for recovery of its dues. Mr. Andhyarujina submitted that their claim for damages as more particularly set out in their Suit (L) No.939 of 2013 is a legitimate claim which has every chance of succeeding when the Suit goes to trial. It would therefore be highly unfair at this stage to seek orders of winding up of the Respondent Company when that Suit is still pending. 8. To el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Gitanjali. By not doing this, the Petitioner was guilty of not only negligence but also conducted the sale improperly which has given rise to a legitimate claim in damages. 10. Mr. Andhyarujina fairly submitted that the Respondent Company (as a pledgor) could not compel the Petitioner (as a pledgee) to exercise the power of sale as a means of discharging or satisfying Petitioner's debt. The only rights the Respondent Company had were, (i) in case the Petitioner exercised the power of sale, to insist that it should be honestly and properly done and the sale proceeds applied to the debt; (ii) in case the Petitioner did not exercise the power of sale, to redeem the pledge on payment of the debt or such part of it that remained unpaid; and (iii) in case the sale was improperly done, to get damages caused thereby. He, however submitted that looking to the fact that the Petitioner itself had conveyed to the Respondent Company that it was going to sell all the shares of Gitanjali and thereafter sold only 2,97,731 shares, itself goes to demonstrate that the sale of Gitanjali shares was conducted improperly which has given rise to the claim in damages and which is the subject matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said Suit is absolutely frivolous, this Court at this stage cannot discard the same. In support of the proposition, that in a winding up Petition a claim for damages can be legitimately set up as a defense, he relied upon the judgment of the Court of Appeal in England in the case of Re Portman Provincial Cinemas Ltd. 1999 (1) WLR 157, Mr. Andhyarujina submitted that before I reject the claim of the Respondent Company made in the said Suit and which is a claim for damages, I have to prima facie examine whether the said claim is one which is sustainable, and in fact he invited me to do so. In this regard, he has taken me through the averments in the plaint in Suit (L) No. 939 of 2013. According to Mr. Andhyarujina, the plaint raises several triable issues which this Court will be required to go into at the trial of the Suit after evidence is led by both parties. He therefore submitted that the claim of the Respondent Company against the Petitioner cannot be disregarded or discarded at this stage itself and hold that the Respondent Company did not have a bonafide defense to the Company Petition. For all these reasons, Mr.Andhyarujina submitted that the Company Petition be dismiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.90 Crores is admittedly due and payable by the Respondent Company to the Petitioner as can be seen not only from the letter dated 31st July, 2013 (Exhibit "J" page 55 of the paper book) but also from the particulars of claim set out in Suit (L) No.939 of 2013. Even before me, Mr. Andhyarujina, learned counsel appearing on behalf of the Respondent Company, very fairly conceded that this amount of Rs. 90.90 Crores is due and payable by the Respondent Company to the Petitioner. He however submitted that against the admitted claim of the Petitioner, the Respondent Company has a cross claim of approximately Rs. 152.57 Crores which is the subject matter of Suit (L) No.939 of 2013. It was his submission that the claim made in the said suit, albeit for damages, is a substantial claim, and therefore, would be a good defense to the Company Petition. 15. On a bare perusal of the proceedings in Suit (L) No.939 of 2013 it is clear that the claim therein is in damages. In a nutshell, this claim mainly arises due to the fact that according to the Respondent Company, even though the Petitioner had informed the Respondent Company that they would sell all 20,00,000 shares of Gitanjali, which were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of the failure of the Petitioner to sell all 20,00,000 shares of Gitanjali between the period 19th March, 2013 to 27th April, 2013 (the date on which freezing order was passed by the EOW). What is pertinent to note here is that, these shares of Gitanjali were pledged with the Petitioner to meet the margin requirements as per the Circulars issued by the Petitioner from time to time in that regard. Since there was a margin short fall, the Petitioner in a meeting held on 14th March, 2013 informed the Respondent Company that they would proceed to sell the shares of Gitanjai pledged with them. In contrast to this, the claim made in the present Petition is with reference to the trades that expired / matured in June 2013. The fact that the claim in the Petition is with reference to the trades that expired / matured in June 2013, is undisputed. In fact, the admission of liability by the Respondent Company is also with reference to these very same trades. 18. Section 176 of the Contract Act, 1872 deals with the rights of a Pawnee where the Pawner make default. Section 176 reads as under:- "176. Pawnee's right where pawnor makes default.--If the pawnor makes default in payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2013 to 27th April, 2013 for recovery of the debt that became due only in June 2013. Mr. Tulzapurkar, in my view, has rightly submitted that the question of maintaining margins as required by the circulars issued by the Petitioner from time to time, and the question of the Respondent Company paying its dues under the trades that expired / matured in June 2013, are totally different and operate in different fields. The requirement of margins is to safe guard the Petitioner against any risk in the event the concerned party who is maintaining the margins fails to honour its committments to the Petitioner. If the Petitioner chooses not to keep a margin or allows a shorfall in the margins, it does so at its own risk and detriment. If in law, the Petitioner, from 19th March, 2013 to 27th April, 2013, could not have sold 20,00,000 pledged shares of Gitanjali for the recovery of the debt that became due only in June 2013, then, I find, at least prima facie, that the claim made for damages against the Petitioner is not bonafide. What is important to note is that in the meeting of 14th March, 2013, the Petitioner informed the Respondent Company that it would be selling Gitanjali shares to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... off the trades that expired / matured in June 2013 but to make up the margin shortfall that had occurred by virtue of the fact that certain securities were rendered ineligible for the purposes of margin. I, therefore, find that this argument is wholly misconceived and does not carry the case of the Respondent Company any further. 23. Even otherwise, I find, that the law as far as Section 176 is concerned, is quite well settled. The law, as I understand it, is that a pledgor cannot compel a pledgee to exercise the power of sale as a means of discharge or to satisfy the debt. The pledgor's rights are only (i) in case the Pledgee exercised the power of sale, to insist that it should be honestly and properly done and the sale proceeds applied to the debt; (ii) in case the pledgee did not exercise the power of sale, then the Pledgor can redeem the pledge on payment of the debt or such part of it that has remained unpaid; and (iii) in case the sale was improperly exercised, to get damages caused thereby. This proposition of law has been laid down as far back as in the year 1930 in a decision of the Madras High Court in S. L. Ramaswamy Chetty and Another v/s M. S. A.P.L. Palaniappa C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, we need not go into this latter aspect on which doubt has been expressed. It has been categorically held in the cited decision that it is the discretion of the plaintiff-Bank to have filed the suit for recovery of the debt and retain the pledged goods as collateral security or in the alternative it could resort to selling the pledged goods after giving reasonable notice of sale to the defendants. In that case the plaintiff-Bank had in its wisdom exercised the first option of filing the suit and retaining the collateral security. 13. We are in respectful agreement with the legal proposition propounded in the aforesaid decision and thus there would be no question of judicious or arbitrary exercise of discretion by the Bank as to the time of appropriation of the amount from the collateral security to it in the form of FDRs. 14. In the Gulamhusain Lalji Sajan v. Clara D'souza, AIR 1929 Bombay 471, it was held that in cases of a pledge the creditor has two rights which are concurrent and the right to proceed against the property is not merely accessory to the right to proceed against the debtor personally and on the same lines. Reliance in the said decision was also placed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Rs. 9500/- was made on the maturity of the Fixed Deposit Receipts." 24. It is therefore clear that a pledgee has the discretion to decide whether he wants to sell the pledge security; when to sell it; and how much of it to sell. The pledgor cannot dictate terms to the pledgee on how he is to exercise his right. If this is the correct position in law, and that is how I understand it, then, I find at least prima facie that the claim for damages on account of the Petitioner failing to sell all 20,00,000 Gitanjali shares between 19th March, 2013 and 27th April, 2013, cannot succeed in law. In fact on a perusal of the Plaint filed in Suit (L) No.939 of 2013, at least to my mind, it is clear that the claim for damages is made on account of the Petitioners' failure to sell all 20,00,000 shares of Gitanjali between the period 19th March, 2013 and 27th April, 2013. It is not the case of the Respondent Company that the sale of the shares of Gitanjali by the Petitioner was conducted in breach of any agreement arrived at between the parties or was done improperly which has given rise to the claim in damages. As laid down in the judgment of the Madras High Court in the case of S. L. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Faced with this letter, Mr.Andhyarujina submitted that this letter was merely a request from the EOW asking the Petitioners not to dispose of the Gitanjali shares. This letter was not an order by the EOW restraining the Petitioners from disposing of the shares, which order was passed by the EOW only on 27th April, 2013. I am unable to agree with this submission. The EOW, like the Petitioners, is a statutory body. When the Petitioners received this letter from the EOW, which is also another statutory body and which was enquiring into the complaints made by SARVIN and TRUSHA with reference to the very same shares, the Petitioners decided to stay its hands and in my view correctly so. The fact that this was a correct decision is now further borne out by subsequent events because not only on 27th April, 2013 the EOW passed an order under Section 102 of the CrPC freezing the sale of these very same shares, but the Petitioners being aggrieved by this order, challenged the same by way of a Writ Petition in this Court which was ultimately dismissed on 22nd August, 2013. Being aggrieved by the said order, the Petitioners preferred an SLP to the Supreme Court in which an interim order was pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owards liquid assets till the end of the month. It is not in dispute that these circulars issued by SEBI are binding on the Petitioner as well as the Respondent Company and they are obliged to follow the same. 28. Accordingly, as part of the prudent system of Risk Management, vide circular dated 13th December, 2011, the Petitioner notified the prudential norms relating to acceptance of securities as collateral towards margin requirements. All the members of the Petitioner were notified (including the Respondent Company) that there shall be market wide limits across all segments and member specific limits for each segment. It was stated in this circular that a list of approved securities for the month would be announced and the date of implementation would be intimated subsequently. Further the criteria for member specific limits were expressly provided in the said circular dated 13th December, 2011. In fact the Respondent Company vide its email dated 12th September, 2012 addressed to the Petitioner noted its understanding of the circular dated 13th December, 2011 and the effect of its implementation. Thereafter, several other circulars dated 18th June, 2012; 20th July, 2012; 22nd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o time. In not one of these letters has the contention been raised by the Respondent Company that by issuance of the circular dated 20th December, 2012, and which according to the Respondent Company was "sudden", has caused any loss to the Respondent Company. As can be seen from the said letters, the Respondent Company in fact acted in furtherance of the said circular and also understood it to be binding on the Respondent Company. 31. Lastly, Mr Andhyarujina submitted that even if I am inclined to admit this Petition, I should not order advertisement of the same. He submitted that in view of the fact that the Respondent Company has huge trade receivables from their clients, the advertisement of the admission of the Company Petition would cause grave prejudice to the Respondent Company. 32. I am unable to accept this submission for the simple reason that the purpose of advertisement of the Petition is to put on notice the public at large that a winding up petition had been entertained by the Court against the Respondent Company and if anybody has a claim against them, they can join in the winding up. It also puts the public at large to notice to be careful in their dealings with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of uncertainty had made them pause, they held that the appeal was liable to be dismissed. Mr Andhyarujina heavily relied upon these observations (Lord Hannan's) and contended that the threshold to see whether his claim in damages would succeed or otherwise is extremely low. He submitted that in the case of Re Portman Provincial Cinemas Ltd. (1999 (1) WLR 157) even though the oral agreement pleaded was vague, the majority was of the view that there can be a chance that the Company could succeed in setting up a claim in damages against the petitioning creditors and, therefore, dismissed the appeal. He submitted that the same test ought to be applied in the present case also. 34. I am unable to agree with the submission of Mr Andhyarujina for more than one reason. Firstly, the majority view in Re Portman Provincial Cinemas Ltd. (1999 (1) WLR 157) is not binding on me and has only persuasive value. Secondly, as mentioned earlier, the law laid down in India by the decision of the Supreme Court in the case of M/s Madhusudan Gordhandas and Co. (1971) 3 SCC 632) is that the defence in the Company Petition (i) has to be in good faith and one of substance; (ii) that it is likely to su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uantified. In the case on hand process of quantification has commenced only during the hearing of the case. (emphasis supplied) 35. In this view of the matter, I am unable to accept the submissions of Mr. Andhyarujina in this behalf. 36. After having examined the defenses of the Respondent Company, I prima facie find that the same are not bona fide. Applying the test laid down in the case of M/s Madhusudan Gordhandas and Co. (1971) 3 SCC 632), prima facie I find that the defences raised by the Respondent Company are neither one of the substance, likely to succeed in a point of law and nor has the Respondent Company adduced prima facie proof of the facts on which the defense is made. In these circumstances, the following order is passed. (i) The Company Petition is admitted and made returnable on 8th August, 2016; (ii) Learned counsel appearing on behalf of the Respondent Company waives service of the notice under Rule 28 of the Companies (Court) Rules, 1959; (iii) The Company Petition shall be advertised in two local newspapers viz. (i) "Free Press Journal" (in English) and (ii) "Navshakti" (in Marathi) as also in (iii) "Maharashtra Government Gazette". Any delay in publi ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
