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TMI Blog2022 (6) TMI 1188X X X X Extracts X X X X X X X X Extracts X X X X ..... the debt, the pledgee has the right (but not an obligation) to sue on the date and to continue retention of the pledged goods as a collateral security and also the right to sell the goods but after reasonable notice of the proposed sale to the pledgor. Once sold, the pledgor s right of redemption is extinguished and forever lost. Until the sale actually occurs, the pledgor is entitled to his right of redemption, again on payment of debt. What happens when a pledgee brings suit for recovery of the debt? Although the pledgee is entitled to retain the goods, he must return them on payment of the debt (and expenses). The Supreme Court in PTC INDIA FINANCIAL SERVICES LIMITED VERSUS VENKATESWARLU KARI AND ANOTHER [ 2022 (5) TMI 813 - SUPREME COURT] also reaffirmed that a pledgee has only special property in the pledge but the general property remains with the pledgor. It is said to be a right in the pledged goods higher than the mere right of detention but less than the general property right. This is explained: the pledgee has a right to transfer the general property rights in the pledged items, i.e., to pass title, so long as the pledge is not redeemed. This is also said to be a condit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forms. If there was a power of such transfer, Mr Khambata argues, and it was effected surely it could not be suggested that the transferee would be rendered such an emasculated member of the company. Appeal dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... hnuma Ibrahim Khan. (2013) 9 SCC 221. That was a case where a Division Bench of this Court granted interim relief in an appeal against an order of the learned Single Judge. In paragraph 20, the Supreme Court said: 20. In a situation where the learned trial court on a consideration of the respective cases of the parties and the documents laid before it was of the view that the entitlement of the plaintiffs to an order of interim mandatory injunction was in serious doubt, the appellate court could not have interfered with the exercise of discretion by the learned trial Judge unless such exercise was found to be palpably incorrect or untenable. The reasons that weighed with the learned trial Judge, as already noticed, according to us, do not indicate that the view taken is not a possible view. The appellate court, therefore, should not have substituted its views in the matter merely on the ground that in its opinion the facts of the case call for a different conclusion. Such an exercise is not the correct parameter for exercise of jurisdiction while hearing an appeal against a discretionary order. While we must not be understood to have said that the appellate court was wrong in its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis added) 7. We have noted this at the forefront for two reasons. First, we believe the principle enunciated in these two cases constrains to a considerable extent, although perhaps not entirely, the extent of our ability to interfere with an impugned order such as this one. Should we find that the impugned order is a plausible view, one that is not arbitrary, capricious or, in the legal understanding of the term, 'perverse', then in appeal we should not - indeed cannot - interfere. In those circumstances, we cannot substitute an alternative view or order for that of the learned Single Judge. The second aspect affects the Plaintiff in appeal before us, represented by Mr Seervai. Before the learned Single Judge, he would undoubtedly have had to show that all three well-established ingredients or components for ad-interim relief were met: a strong prima facie case, that the balance of convenience favours the Plaintiff, and demonstrating irretrievable prejudice if relief was denied. Once that discretion was exercised at the ad-interim stage by the learned single Judge, in appeal, the burden on Mr Seervai is much heavier following the Wander v Antox principle. For Mr Seervai must no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity trustee and a pledgee of World Crest's shares in Dish TV. Respondent/Defendants No. 2 is YES Bank Limited ("YBL"), a banking company. Respondents/Defendants Nos. 4 to 9 are borrowers from YBL. Defendants Nos. 4 to 9 and two other companies, Pan India Infraprojects Pvt Ltd and RPW Projects Pvt Ltd took financial facilities from YBL. Defendants Nos. 4 to 9 and these two companies were and continue to be indebted to YBL. The indebtedness of these parties to YBL between November 2015 and April 2018 was in the amount of approximately Rs. 5270 crores. 10. YBL advanced a loan to Defendants Nos.4 to 9 (and the two other entities; "the Borrowers"). party D. The repayment of this loan was secured by a pledge of shares held by World Crest in Dish TV. These shares are all in what is called demat form. There are no physical shares. The shares are lodged with one of the depositories, viz., National Securities Depositories Ltd ("NSDL") or the Central Securities Depositories Ltd ("CSDL"). The pledge in question is created in favour of a security trustee, Catalyst. YBL is not a party to the pledge document, although it fits the definition of a 'lender' in the pledge document. The document or c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of anyone in regard to those shares; or (ii) exercise any rights emanating from those shares, such as voting at a general meeting of Dish TV. 12. They go further: they say that any such full-blooded transfer of all rights of 'general property' by Catalyst to itself (and certainly to YBL) is a sale-to-self, forbidden by the Contract Act. They also say that it is not permissible for World Crest itself as the pledgor shareholder and Catalyst as the pledgee to enter into a contract giving Catalyst, in its capacity as a pledgee, such full proprietary, ownership, dispositive and general property rights in the pledged shares. 13. Mr Khambata for YBL would have it that this formulation is incorrect and has never been the position in law. Once Catalyst, as the pledgee, is shown as the beneficial owner of the shares, it exercises all rights as a shareholder of Dish TV. Indeed, once this change happens, only Catalyst can exercise those rights. There is no concept of a 'beneficial owner with restricted rights' for the purposes of the Companies Act, 2013 or any other law relating to shares and shareholdings. It the other way around: none except the beneficial owner can exercise those rights. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Assets was the indebtedness of the Essel Group, then in the amount of Rs. 7698 crores of which Rs. 6789 crores were apparently classified as NPAs. The Defendants Nos. 4 to 9, World Crest and the two other debtor companies are said to be under the control of the Essel Group. Since there were continuing defaults by YBL's borrowers and there continued to be non-repayment of over due amounts, Catalyst transferred the pledged shares of Dish TV to its own name. It informed Dish TV and World Crest of this.[4] Then on 2nd June 2020, YBL informed the RBI of this share transfer.[5] 17. There then followed certain proceedings before the Saket District Court in Delhi at the instance of Defendants Nos. 4 to 9. These Defendants assailed show-cause notices issued by YBL to declare some of the borrowers as wilful defaulters under the relevant RBI Master Circular. The borrowers also sought a declaration that the invocation of the pledge was bad in law. This was the first attempt by the borrowers to stall the pledge. Ultimately, these proceedings were withdrawn after the long gap of nine months on 3rd August 2021, during which a restraint operated against YBL. 18. We pass over certain intermed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecember 2021 World Crest wrote to Dish TV[6]. This may have some consequence to the discussion that follows. World Crest agreed that the 44,00,54,852 pledged shares of Dish TV "are presently held by YBL in its custody as security package for certain loans granted to Essel Corporate Resources Private Limited until the said shares are sold or appropriated by YBL." However, World Crest said that although the physical custody of the shares was with YBL, World Crest was entitled to voting rights in respect of these shares since they continued to be part of the security package. World Crest asked Dish TV to "facilitate the exercising of voting to World Crest in respect of the said shares in the upcoming Annual General Meeting scheduled to be held on 30th December 2021". 23. As we shall immediately see, this is really the heart of the dispute, for World Crest claims that notwithstanding the invocation of the pledge; notwithstanding the transfer by Catalyst of the pledged shares to its own name; and even assuming that this was permissible, notwithstanding the second transfer by Catalyst to YBL, only World Crest could exercise general property dominion over and in respect of those sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eclaration sought is important and prayer (b) needs to be quoted: "(b) this Hon'ble Court be pleased to declare that the exercise of the rights other than for sale by the Defendant No. 1 pursuant to invocation of the pledge as pledgee as violative of the security Trustee Agreement and law and therefore void." The third prayer is for a declaration that the transfer by Catalyst to YBL is illegal and contrary to the security trustee agreements. The fourth prayer is for a direction to Catalyst and YBL to take steps to ensure that World Crest is formally entered as the beneficial owner. Then a direction is sought to Dish TV to recognize World Crest as a shareholder. Next comes a prayer for a declaration that Dish TV's recognition of YBL as the "registered holder/owner" of the shares is bad in law. Thus, what World Crest contends in these original prayers is that as a pledgee of the Dish TV shares, although Catalyst would transfer the shares to its name, it could do so only for the purposes of safeguarding or securing those shares for implementation of its rights as a pledgee and for no other purpose. As Mr Seervai and Mr Chinoy urge today, even if there is a transfer to Catalyst as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms.[9] World Crest agreed that no reasons were necessary. 29. In December 2021, there were operation and management proceedings before the NCLT, proceedings before the DRT in Jaipur, a Writ Petition before the Delhi High Court and another Writ Petition before this Court. In the Writ Petition No. 25881 of 2021 before this Court, a restraint was again sought (at the instance of an entity of the Essel Group) against YBL from exercising voting rights in respect of the pledged shares. On 30th December 2021, Dish TV held its 33rd Annual General Meeting. Dish TV did not disclose or implement the result of that meeting. Instead, it filed an Interim Application No. 121 of 2022 (the Dish TV's Interim Application) inter alia seeking that it be permitted not to disclose the outcome of the Annual General Meeting on the ground that this might 'adversely affect' the hearing of World Crest's main Interim Application. YBL replied to this Interim Application. It is still pending though it may well be infructuous by now. 30. On 17th February 2022, World Crest filed an Interim Application (L) No. 4788 of 2022. In this, it again sought a restraint against YBL from transferring, selling, acting up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 23rd December, 2021. He states he has filed Interim Application (L) No. 4788 of 2022 in the above suit in which he seeks adinterim relief but that Interim Application is not on board today. Notwithstanding his concession recorded in the order dated 23rd December, 2021 he submits on further instructions that he now intends to seek a review of the order dated 23rd December, 2021 and in view of that decision he does not desire to press Interim Application (L) No. 4788 of 2022 at this stage. In my view since Mr. Seervai's clients intend to file a Review Petition this fresh Interim Application cannot survive and accordingly, I pass the following order: (i) Interim Application(L) No. 4788 of 2022 is taken on board and disposed as infructuous without prejudice to the Applicant's right, if any, to seek review of order dated 23rd December, 2021. (ii) List on 24th February, 2022." (Emphasis added) 32. A few days later, on 22nd February 2022, World Crest did in fact file a Review Petition (L) No. 5303 of 2022 in its main Interim Application seeking a review of the 23rd December 2021 order (the one that said that the 30th December 2021 Annual General Meeting would be subject to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that notwithstanding the pendency of the Review Petition relating to the 23rd December 2021 order in World Crest's main Interim Application, the Supreme Court decision in PTC India authoritatively settled the law regarding pledges and the rights of the pledgor and pledgee (or pawnor and pawnee) under Sections 176 and 177 of the Indian Contract Act 1872. Evidently, it was being urged that the PTC India decision was the pivotal change in the circumstances. YBL argued that it was entitled to voting rights, that it was a nominee of the Catalyst, that it had voted in the past and hence the balance of convenience did not favour World Crest. Mr Dhond then appearing for YBL pointed out the amount that was due and said this was yet another attempt to prevent the YBL's participation at the ensuing meeting. The submission on behalf of the Catalyst then and now before us was that YBL had no right whatsoever to vote. The transfer by Catalyst to YBL was illegal. Catalyst had unlawfully parted with custody of the pledged security. There appears to be some error in the wording of paragraph 7 because the reference there is to Clause 5 of the Pledge Deed. That clause, as we shall see when we examin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter the decision of the Supreme Court in PTC India, YBL can exercise voting rights at tomorrow's Annual General Meeting?[12] (b) Do certain clauses of the pledge deed, namely Clauses 2.1, 5, 7.1(c) and 7.1(g) permit YBL even as a pledgee or a nominee to exercise voting rights? We understand this second submission to be placed in a form arguendo, that is to say, that even assuming that a transfer to YBL by Catalyst was possible, YBL could not exercise voting rights. 42. We put a question to Mr Seervai at the forefront after he formulated these two submissions. We asked whether in Appeal before us World Crest challenged Catalyst's transfer of the pledged shares to itself? Mr Seervai's response was to say that the transfer to Catalyst was not per se challenged by World Crest but, in his submission, that transfer allowed Catalyst only to hold the shares until they were sold to a third party or until Catalyst filed a recovery suit. He clarified this to mean that under no circumstances on account of the transfer could Catalyst become the true or full "owner" of the shares such that it exercise dominion over them. It could not exercise plenary rights such as voting or further transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y" or "Secured Cover". We set out these definitions below: "Initial Pledged Securities" shall have the meaning ascribed to it in Schedule III hereof; "Pledge" means the grant of a security interest in, and the pledge of, the Security Assets provided for in Clause 2.1 hereof; "Securities" shall mean to include the initial Pledged Securities and the Additional Securities and shall include the securities as stated in Section 2(b) of the Securities Contracts (Regulation) Act, 1956 and shall include any renewals, substitutions, sub-division, consolidation and proceeds thereof including without limitation all rights and accretions in connection therewith or accruing thereto and proceeds arising therefrom for the time being and from time to time, any distributions received/ to be received and moneys, including but not limited to interests, dividends, income and revenue therefrom" "Security Asset" means any or all of: (a) the Pledgor's DP Accounts; (b) the Securities; (c) instruments, records, forms, confirmations, consents, approvals, agreements, writings, powers of attorney, deeds and documents relating to the Pledgor's DP Accounts and the Securities together with all rights ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eon to secure the due payment, repayment or reimbursement, as the case may be, of the Secured Obligations. OR (a) having on or before the execution of these presents delivered to the Pledgee, as and by way of pledge, the certificate/ documents of title together with duly executed transfer deeds in respect of the Initial Pledged Securities as are represented by certificates or other documents of title; (b) as an owner of the Securities, pledges all of its rights (including voting rights in or rights to control or direct the affairs of the Company),title and interest in and to the Securities, and all certificates and other instruments representing the Securities, to the Pledgee with such rankings as detailed in Schedule III hereto; (c) pledges, assigns, transfers, hypothecates and charges to the Pledgee, as a continuing security interest, all of its benefits, allotments, powers, authorities, claims and demands whatsoever in, to under or in respect of the Securities and any indemnity, warranty or guarantee payable by reason of loss to or otherwise with respect to any of the Securities; (d) pledges and agrees to charge to the Pledgee with such rankings as detailed in Schedule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contract that World Crest entered into with Catalyst. This is the 'bargain that it struck'. 47. Then we turn to Clause 5.[16] This is important because it deals with World Crest's rights qua pledgor at or during a particular period of time, that is to say before the occurrence of an event of default. Before an event of default occurred,[17] Catalyst would not, it was agreed, seek to "transfer" any part of the pledged shares. World Crest was entitled to receive all dividends, distribution and financial benefits etc; and also to exercise voting and other rights attached to the pledged shares in a manner consistent with the transaction documents. Therefore, this clause clearly spells out who could act on the pledged shares before an Event of Default. 48. The mirror image, as it were, of Clause 5 is to be found in Clause 7, the contentious clause. Clauses 7 and 7.1 (we are not concerned with the rest) read thus: "7. EVENTS OF DEFAULT AND ENFORCEMENT OF SECURITY 7.1 Enforcement of Security If any Event of Default occurs and is continuing, the Pledgee shall be entitled to enforce the security created pursuant to this Deed and to exercise immediately or as and when it may deem f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der or any matter at any meeting of the members of the Company. The Pledgor shall also arrange for forwarding copies of the notices of the meetings to the Pledgee as and when such notices are issued to the shareholders including, inter alia, in the manner provided in the Companies Act, 1956 (as amended and/or replaced with the new Companies Act, 2013) and by providing the Company, the address of the Pledgee and depositing with the Company amounts sufficient to defray the expenses of providing the notices by registered post with acknowledgement due. The Pledgor shall execute and deliver to the Pledgee all proxies and such other instruments as the Pledgee may require for exercising such voting (including but not limited to e-voting) and other rights as are granted by this Deed and/or available under any applicable Law/regulation. (h) exercise all rights under the applicable Law including the right envisaged under section 176 of the Indian Contract Act, 1872 as amended from time to time. (j) execute and do all such acts, deeds and things as the Pledgee may consider being necessary or appropriate for or in connection with any of the above purpose." (Emphasis added) 49. On the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tself (and which it could do only for the purposes mentioned above) clauses 7.1(c) of the Pledge Deed was exhausted. Catalyst has no further right, such as to a successive transfer. He points out that in Schedule III, the pledgee is said to be Catalyst and that is said to include its successors, transferees and assignee but not nominees. (e) There is no power in the Pledge Deed itself, i.e., even in the contract in question, given to Catalyst to effect any kind of a second-stage downstream transfer to anyone, whether YBL or anyone else. (f) The moment Catalyst transferred the suit pledged shares to YBL, it amounted to a sale-to-self and, therefore, conversion. This is forbidden. In other words, without actually formally putting the pledged shares to sale, by the device of a mere transfer, Catalyst sought to constitute YBL as a full-spectrum owner of the pledged shares. This, in his submission, it could not do. (g) Thus, in his formulation, YBL is a totally illegal transferee of the pledged shares. It has no rights under the Pledge Deed. (h) Finally, this entire action of Catalyst and YBL in purporting to vest YBL with the complete envelope of ownership rights in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ledged property. Of course, the proceeds of the sale must be appropriated to the debt and, it is now too well settled to admit of dispute that in the circumstances set out in both Madholal Sindhu and PTC India Limited, reasonable notice is necessary before a sale, but this is not an aspect that has been canvased before us. 55. At this stage, we must reproduce Sections 176 and 177 of the Contract Act. Section 176. Pawnee's right where pawnor makes default. If the pawnor makes default in payment of the debt, or performance, at the stipulated time of the promise, in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledge as a collateral security; or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale. If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor. Section 177. Defaulting pawnor's right to redeem. If a time is stipulated for the payment of the debt, of pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncurring opinion, referring to Section 176, held that when the pawnor makes a default in the payment of the debt, the pawnee may sell the pawned goods on giving the pawnor reasonable notice of sale. He agreed that the requirement of giving the pawnor reasonable notice of sale is mandatory and it is not open to the parties to contract themselves out of this section. Section 176 of the Contract Act, unlike some of the sections of the Contract Act, does not specifically provide that the contractual terms can override the provision by using the expression "in the absence of the contract to the contrary" or "subject to special contract to the contrary". The notice, that is to be given for the intended sale by the pawnee, is a special protection that the statute has given to the pawnor, and the parties cannot agree that the pawnee may sell the pledged goods without notice to the pledgor. Dwelling on the aspect of the pawnor's right of redemption under Section 177, the judge held that the right remains till the 'actual sale' of the pledged goods. The expression 'actual sale' in Section 177 must be a sale in conformity with the provisions of Section 176 which gives the pledgee the right t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court approved the proposition that the terms of Section 176 are mandatory. Parties could not, for instance, contract to waive reasonable notice of sale. The pledgee is never relieved of his obligation to give reasonable notice before the sale. To our minds, the reason for this is selfevident and it is a necessary concomitant of the pledgor's right of redemption. It provides him a sort of terminus-a-quo: the pledgee says effectively that he proposes to sell and thus tells the pledgor that redemption must happen by tendering the amount of debt prior to that sale. That this notice must be reasonable is clear. The Supreme Court, therefore, said that where the Contract Act says a particular term or provision is binding, that is the mandate of the statute. It must be followed by the parties. Neither party can contract out of it. Otherwise, the legislative imperative would be violated by merely incorporating a term of waiver and this would deprive the weaker party of the benefit of the legal protection. It is a rule of public policy, for the requirement of reasonable notice is to protect and benefit the public. Yet there is a difference between a statutory provision meant for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court then proceeded to consider Regulation 58. This is in the context of Depositories Act 1996. To understand this, the Supreme Court provides some historical perspective as well. The regulation is necessary because of the changes in the manner in which stock or equity or shares in companies are now held. In earlier days, shares were issued in physical form as share certificates. Transfers were effected by physical forms with particulars and physical signatures. With the advent of digitization, these physical shares were "dematerialised". They were rendered into a 'demat' form. This presented difficulties of its own and it is for this reason that there came to be established two central depositories, NSDL and CSDL. This introduced the concept of what is called the 'registered owner' - a perhaps infelicitous terms because it may have all kinds of unintended implications and suggestions. The registered owner is of necessity the depository i.e. NSDL or CSDL. All that this signals is that the demat shares in question are lodged with that particular depository. The depository itself is not the 'owner' in law, strictly speaking, of those demat shares. Then there is a Depository Particip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any provision of the Contract Act. The stipulation that the pledgee may invoke the pledge and get itself recorded as the 'beneficial owner' is mandatory: no pledge document could stipulate to the contrary, i.e. the agreement could not provide that the pawnee could not invoke the pledge, or that the depository could not or was prohibited from recording the pledgee as a beneficial owner. Consequently, the Supreme Court interpreted Regulation 58(8) to have a very limited objective and purpose. A pledgee must record itself as a 'beneficial owner' - and this is important - before he proceeds to sell the pledged security. No such sale by a pledgee in exercise of his Section 176 rights is possible without the pledgee being first noted as a 'beneficial owner'. As the Supreme Court put it: "to reiterate, this requirement of sub regulation (8) to Regulation (58) does not circumscribe or limit the contractual rights and obligations agreed upon between the parties on the agreed terms including the pawnee's right to sale the pawned goods". 66. In the same paragraph, the Supreme Court also said that the terms of the contract between pledgor and pledgee are not permitted to override the Contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be inconsistent with the provisions of existing law including regulations unless the law permits the parties to do so. 69. It is therefore Mr Seervai's submission that even viewed more narrowly, or more accurately, viewed from any perspective, YBL cannot acquire any rights in respect of the pledged shares. To reiterate: it is not a pledgee; it is not a party to pledge the document; it is not a nominee; and Catalyst has a restricted right to transfer to itself and to get its name recorded as beneficial owner in its capacity as a pledgee but no further dispositive rights whatsoever. Once, therefore, Catalyst became the beneficial owner it could only sell to a third party. In other words, the moment Catalyst exercised its rights under Regulations 58(8), and which right is to facilitate a sale of the pledged shares, Catalyst made an election in its capacity as a pledgee and took one of the two steps required to give effect to its rights as a pledgee, namely recording itself as a beneficial owner. What would then remain is the question of notice of proposed sale by Catalyst to a third party. Until that sale actually took place, World Crest had the right of redemption. 70. At th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 71. Mr Seervai argues that in the first emphasized portion above, Clause 6.1 of the pledge deed, have applied for transfer of the pledged shares in its name. Consequently, all the rights in the pledged shares, including but not limited to the right of attending general body meetings, voting rights, and rights to receive dividends and other distributions, now vests with them as per Clause 2.3(A)(ii)(b)96 of the pledge deed. The Supreme Court was merely recording the submission being made before it, not return a finding. Mr Khambata would have it exactly otherwise. We do not need to say anything on this. It is enough to note that the Supreme Court did not return a finding that the transfer of these voting rights, etc., was contrary to law, i.e. contrary to the Contract Act, the Depositories Act or Regulation 58(8). We do not think we can read such a finding into PTC India. 72. Mr Chinoy for Dish TV addressed us on a correct reading of the law. His submission was that neither under the pledge document nor in law could Catalyst as the pledgee act as the whole owner with full-envelope dispositive rights over the pledged securities. Regulation 58 introduces a concept of 'invocation', n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed security, both Catalyst and YBL are clear that the shares continue to constitute security. All that World Crest needs to do if it is so very agitated about voting rights is to redeem the pledge that it so solemnly made. Neither Catalyst nor YBL have claimed that they have put the pledged securities to sale. They do not claim that they have sold these to themselves. Any sale would necessarily require a reasonable notice of sale.[19] But when Mr Seervai and Mr Chinoy say that the transfer as a beneficial owner has to be restricted to a future sale to third parties, and until then the beneficial owner can do absolutely nothing, this leads to an unviable and thoroughly inequitable situation. The PTC India decision does not interpret Regulation 58(8) as being restrictive. It is only a necessary step to facilitate the sale - without it being operated, i.e. without the pledgee being first recorded as the beneficial owner in the depository's records, the next step of a sale to a third party (after reasonable notice) is not possible. A mere transfer by the pledgee to itself is not inconsistent with Sections 176 and 177. The pledgor's rights are intact until the sale. But, in the meantime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed rights as a beneficial owner. We find it difficult to accept this proposition especially when we look at it like this: that those rights that Catalyst or Catalyst's transferee or nominee YBL is now exercising can all be brought to an end in none stroke - by World Crest by exercising its right of redemption. This it refuses to do. 79. Second, we are being asked to presume that the conferment of voting rights in Clause 2.1(b) amounts or equates to 'the general property' in the shares, and the contract or pledge document could not so provide. We are shown no clear interdiction, but are being asked to read it into PTC India and the law relating to pledges. Clause 2.1 says that it preserves all rights under Section 176. Therefore, the parties knew exactly what they were about when they entered into the contract. PTC India restates long-standing law on pledges; it does not re-write it. PTC India's focus was, in fact, Regulation 58(8), and whether this created any new rights or obligations, and, specifically, whether it changed the law under Sections 176 and 177. The Supreme Court held that it did not. Therefore, the law on pledges is, even after PTC India, exactly as it stood before; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, pledges all of its rights (including voting rights in or rights to control or direct the affairs of the Company),title and interest in and to the Securities, and all certificates and other instruments representing the Securities, to the Pledgee with such rankings as detailed in Schedule III hereto; 83. We are not shown anything to indicate, even prima facie, that World Crest could not have validly made this bargain. We are asked, instead, as if this is an 'overwhelming prima facie case', to hold that this clause must be written out of the contract altogether. In other words, we are asked to hold - prima facie - that World Crest is not bound by the terms of the bargain it struck. That is merely asking for the impossible. Catalyst cannot be compelled to sell. World Crest will not redeem. In the meantime Catalyst can do nothing. This, we are asked to believe, is an equitable approach that the learned Single Judge should have been mindful of at World Crest's instance. 84. In our view, on the equitable considerations, apart from the lakh of a prima facie case, and on the questions of balance of convenience and irretrievable prejudice, World Crest has made out no case whatsoever. 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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