9911796707
TMI Blog2019 (2) TMI 1965X X X X Extracts X X X X X X X X Extracts X X X X ..... found one business day was reasonable notice. Two event of defaults were communicated to plaintiffs, one in August 2018 and other on 9th October 2018 and plaintiffs have taken no steps to rectify those event of defaults. Plaintiffs have not even paid the 2% additional interest which plaintiffs were supposed to pay on RPL shares being downgraded by ICRA. Plaintiffs did not even take any steps to maintain the security cover ratio. Therefore, it does not lie in the mouth of plaintiffs to find any fault with defendants. The defendants have done nothing contrary to the provisions of the contract and applicable law. Events of default happened in August 2018 and October 2018. ICRA has also observed that RPL is non co-operative. Admittedly, the penal interest has not been paid by plaintiffs and they have not restored the security cover ratio. In the light of this, defendants cannot be stopped from exercising their rights under the contract and applicable law - The balance of convenience also lies in favour of defendants, particularly, in view of the fact that the Chairman of RCOM, which is one of the flagship company and who is also Chairman of the Reliance ADAG group of companies has m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re to have an interest coupon of 10% p.a. payable on half yearly basis. The debentures were to be redeemable after a period of five years and were to be secured by a pledge of shares held by plaintiff no. 1 and other promoter group companies. 3. Pursuant to the Term Sheet, on 6th October 2017, plaintiff no. 1 issued two series of debentures, i.e., Series A and Series B for an aggregate amount of ₹ 300 Crores (Series A of ₹ 150 Crores and Series B of ₹ 150 Crores) to defendant nos. 1 and 2 further to which the allotment of the said debentures took place on 9th October 2017. Some of these debentures have subsequently been transferred by defendant nos. 1 and 2 to defendant nos. 3 and 4 and defendant nos. 1 to 4 hold these debentures on the date of filing the present suit. The said debentures were secured by a pledge of shares constituting approximately 9% of the listed capital of RPL and approximately 2% of RCOM. The pledge has been created by plaintiff no. 1 and plaintiff no. 2 in favour of defendant no. 5, the debenture trustee. The transaction documentation relating to the issuance of the debentures included two Debenture Trust Deeds dated 6th October 2017, fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orm provided in Schedule 11 (Letter for Cheques). 11. EVENTS OF DEFAULT Each of the events or circumstances set out in the following sub-clauses of this Clause 11 (other than Clauses 11.27 (Consequences of Event of Default), 11.28 (Trustee to be Indemnified) and 11.29 (Fees and Expenses)) is an Event of Default. 11.19 Downgrade in credit rating of RPL The credit rating of RPL granted by ICRA Limited is downgraded below BBB. 11.23 Pledged Securities (g) If there is a fall in the Closing Price (as adjusted for any relevant corporate actions, including but not limited to stock splits, bonus issues and mergers, but excluding dividend declarations) of either of the RPL Shares or the RCOM Shares, by 40% (Forty Percent) from the respective Closing Price of the RPL Shares or the RCOM Shares, as on the Deemed Date of Allotment. Provided that no event specified in Clauses 11.23(a) to (i) above shall be considered an Event of Default, if forthwith upon the occurrence of such event in relation to the RCOM Shares or RCOM, as the case may be, the Company immediately creates or procures the creation of a first ranking exclusive pledge in favour of the Trustee (for the benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he event that at any time there is a fall in the Closing Price (as adjusted for any relevant corporate actions, including but not limited to stock splits, bonus issues and mergers, but excluding dividend declarations) of either of the RPL shares or the RCOM shares by 30% (Thirty Percent) or more from the respective Closing Price of the RPL shares or the RCOM shares, as on the Deemed Date of Allotment: (i) immediately upon such event having occurred, the Company, the Trustee and the Debenture Holders shall confer on the Security Interest to be provided in addition to the RPL Pledged Shares and the RCOM Pledged Shares, as applicable; and (ii) additional Security Interest shall be created in favour of the Trustee (for the benefit of the Secured Parties) and to the satisfaction of the Trustee, within such time as may be agreed between the Company and the Trustee and in any event prior to a fall in the Closing Price (as adjusted for any relevant corporate actions, including but not limited to stock splits, bonus issues and mergers, but excluding dividend declarations) of either of the RPL shares or the RCOM shares, as applicable, by 40% (Forty Percent) from the respective Closing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Effective Date, each Pledgor shall confirm the creation of Pledge to the Trustee and deliver a copy of the (i) statement of accounts issued by its Pledgor DP and (ii) Pledge Report obtained from its Pledgor DP indicating the record and entry for the pledge in respect of the Pledged Securities pledged by it. (d) Upon receipt of the aforesaid intimation, the Trustee shall cause the Trustee DP to mark and confirm the Pledge in favour of the Trustee and issue such requests and sign such documents and do all such acts, deeds and things as shall be required under the Depositories Regulations and other Applicable Laws or by the Trustee DP for the creation and perfection of the Pledge. 7. ENFORCEMENT OF THE PLEDGE 7.1 Enforcement and sale Upon the occurrence of an Event of Default and the issuance of a notice in relation thereto Trustee to the Issuer and to each Pledgor, the Trustee shall be entitled to enforce the Pledge and exercise all rights, powers and remedies vested in it (whether under this Agreement or by law) for such enforcement, including, without limitation, the right to: (a) receive all amounts payable in respect of the Pledged Securities and/or the Col ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , each communication shall be deemed to be effective (a) in the case of registered mail, when delivered to the postal authority, (b) in the case of facsimile at the time when dispatched with a report confirming proper transmission, (c) in the case of personal delivery, at the time of delivery, (d) in case of courier, when delivered to the courier, and (e) in case of e-mail, at the time when it is sent. 6. It is also plaintiffs case that from 9th October 2017 till the date of filing the present suit, plaintiff no. 1 has regularly serviced both series of debentures by paying interest thereon in a timely manner. Plaintiff no. 1 has not defaulted on its obligations in this regard. That from 9th October 2017 till the date of filing the present suit, plaintiffs have from time to time pledged additional shares held by them in RCOM and RPL or as the case may be obtained release of some of the pledged shares under the Share Pledge Agreements, as a result of which as on 4th February 2019 the total number of shares pledged by plaintiffs in favour of defendant no. 5 are as follows:- (a) Shares of RPL: 21, 09, 67, 570 (b) Shares of RCOM: 5, 31, 30, 313 7. The reason why plaintiffs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yees/servants/agents or any other persons directly or indirectly acting for or on behalf of the defendants, from selling, transferring, alienating or encumbering in any manner whatsoever the unsold pledged securities pursuant to the invocation notices or otherwise. What plaintiffs are seeking is to stop defendants from exercising their rights under the contract and applicable law because according to plaintiffs, by selling the shares in one day, defendants have caused loss to plaintiffs in the sum in excess of ₹ 274 Crores. 10. Shri Dwarkadas's case was defendants were well within its rights to sell the pledged shares. It was also submitted that in August 2018 price of RPL shares had plummeted and as per their contract, plaintiffs were to pay an additional interest of 2% p.a. on the debentures, but plaintiffs did not pay. Shri Dwarkadas also stated that plaintiffs were to also give further security as the value of pledged shares had gone down by 40% which again plaintiffs failed to give, despite being called upon repeatedly. It was also submitted that on 1st February 2019 RCOM had filed for bankruptcy but plaintiffs never bothered to communicate with defendants and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer of pledged shares, still it will be only a claim for damages that plaintiffs can seek and as held in Union of India V/s. Raman Iron Foundry (1974) 2 SCC 231 a claim for damages for breach of contract is not a claim for a sum presently due and payable and the claimant is not entitled to recover the amount of such claim unless the claim is proved. It was also submitted that plaintiffs have made a disclosure to the Stock Exchange on 7th February 2019 that 21.05 Crores of shares of RPL for an aggregate amount of ₹ 263.77 Crores has been sold by 7 parties of which only 4 were defendant nos. 1 to 4. Counsel submitted that defendant nos. 1 to 4 had sold only about 5.97 Crores of shares and therefore, the balance of approximately over 15 Crores of shares of RPL have been sold by the three other parties. Counsel submitted that this also would indicate that plaintiffs' allegation that it was defendants who caused a flutter and crash in the market and hammered the price of RPL down is incorrect. A copy of the communication from plaintiffs to Stock Exchanges and RPL was also tendered across the bar and copy given to plaintiffs. This communication was not disputed. 12. Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to stock splits, bonus issues and merges, but excluding dividend declarations) of either of the RPL shares or the RCOM shares by 40% (Forty Percent) from the respective Closing Price of the RPL shares or the RCOM shares, as on the Deemed Date of Allotment. 15. On 9th October 2018, defendant no. 5 informed plaintiffs that there has been a fall in the closing price on 8th October 2018 of RPL shares by 40% from the deemed date of allotment of 9th October 2017, thereby triggering an event of default as per clause 11.23(g) of the Debenture Trust Deed. Under clause 11.27 of the Debenture Trust Deed, upon occurrence of an event of default, the Trustee may, in its discretion or upon request in writing of the Debenture Holders of an amount representing not less than 66.66% in value of the nominal amount of the Debentures for the time being outstanding, by a notice in writing to the company, (i) require the company to mandatorily redeem the debentures and repay the principal amount on the debentures, alongwith accrued but unpaid interest, redemption premium, etc., (ii) enforce any security towards repayment of the debt or inter alia, (iii) take such other actions, or exercise such righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for defendant no. 2 tendered an extract of rating action issued by ICRA on 19th November 2018 for RPL in which it is stated that ICRA has moved the rating of RPL to the ISSUER NOT CO-OPERATING category due to non-submission of monthly No Default Statement (NDS) . ICRA has been, it is stated, consistently following up with RPL for obtaining the monthly NDS and had also placed the ratings under review due to non submission of NDS in the month of October 2018, but still RPL's management has remained non-co-operative. ICRA advised the lenders, investors and other market participants to exercise appropriate caution while using ICRA's rating as ICRA was unable to validate whether RPL has been able to meet its debt servicing obligations in a timely manner. This I was told was a public document and available in ICRA's website. 19. Shri Chinoy admitted that the default interest of 2% has not been paid by plaintiffs. Shri Chinoy also admitted that plaintiffs have not restored the security cover ratio to the required security cover ratio despite being informed as far back as on 9th October 2018 that there is a fall in the closing price of the pledge shares by 40%. At the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract. Plaintiffs are not illiterate or a small party. It is settled law that when a person signs a document, there is a presumption, unless there is proof of force or fraud, that he has read the document properly and understood it and only then he has affixed his signatures thereon. Otherwise no signature on a document can ever be accepted. In Grasim Industries Ltd. Anr. V/s. Agarwal Steel (2010) 1 SCC 83 the Apex Court observed ..... In particular, businessmen, being careful people (since their money is involved) would have ordinarily read and understood a document before signing it. Hence the presumption would be even stronger in their case . There is no allegation of force or fraud in this case. Hence it is difficult to accept the contention of plaintiffs. Plaintiffs are part of Reliance ADAG Group and have access to expert legal team. 22. The pledged security are shares in flagship companies of Reliance ADAG Group and traded freely in the stock market. Stock market, it is common knowledge, is a place where prices can vary from minute to minute on a trading day. A small incident can trigger a market to collapse and it is unpredictable and speculative. It is for this reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under: 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 Chettiar. This decision of the Madras High Court has been referred to by the Supreme Court with approval in the case of Vimal Chandra Grover v/s Bank of India. In fact, a Division Bench of this Court in the case of State Bank of India v/s Neela A. Naik and another has also taken the same view. Paragraphs 12 to 16 of the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. 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 a Full Bench decision of the Madras and Calcutta High Courts. The same principles were held to be applicable to the cases of hypothecation or mortgage of movable property. Section 176 has been held to be mandatory in the Division Bench decision of this Court in Official Assignee, Bombay v. Madholal Sindhu (AIR 1947 Bom 217). 15. In view of aforesaid legal position, we are unable to accept t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erstand 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. Ramaswamy Chetty and Another 4 and which has got approval of the Supreme Court in the case of Vimal Chandra Grover, the claim for damages can be brought by the pledgor against the pledgee only in the event that the pledgee sells the pledged goods and the same are sold improperly. In the facts of the present case the Respondent Company alleges that the Petitioner (who was the ple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... states the Trustee can, after giving a written notice of one business day to the pledgors (each pledgor acknowledges and agrees to be reasonable notice under applicable law), take any of the action as quoted and dealt with earlier. Plaintiffs while entering into the Debenture Trust Deed found one business day was reasonable notice. Two event of defaults were communicated to plaintiffs, one in August 2018 and other on 9th October 2018 and plaintiffs have taken no steps to rectify those event of defaults. Plaintiffs have not even paid the 2% additional interest which plaintiffs were supposed to pay on RPL shares being downgraded by ICRA. Plaintiffs did not even take any steps to maintain the security cover ratio. Therefore, it does not lie in the mouth of plaintiffs to find any fault with defendants. Even today I asked Shri Chinoy repeatedly as to how plaintiffs proposed to secure defendants. Shri Chinoy submitted that because of defendants actions, plaintiffs have suffered a loss of ₹ 274 Crores which will be more than the amount owed to defendant nos. 1 to 4 and therefore, the question of plaintiffs making any payment to defendants does not arise. 27. Even for a moment if ..... X X X X Extracts X X X X X X X X Extracts X X X X
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