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TMI Blog2020 (5) TMI 736X X X X Extracts X X X X X X X X Extracts X X X X ..... to be exercised by Defendant Nos. 4 and 5. However, once the pledge was invoked the voting rights in respect of the pledged securities were to be transferred and exercisable by the Plaintiff. This stipulation by itself does not amount to the sale of the pledged securities. It is nobody s case that the Plaintiff has in fact sold the pledged securities and realized the value thereof - A mere stipulation in the agreement of pledge that after the invocation of the pledge, the Pawner would exercise the rights in respect of the pledged securities does not ipso facto amount to sale of the pledged securities by the Plaintiff unto itself. The pronouncement of the Supreme Court in the case of IDBI TRUSTEESHIP SERVICES LTD. VERSUS HUBTOWN LTD. [ 2016 (11) TMI 1529 - SUPREME COURT] , especially the proposition expounded in para 17.6 that, if any part of the amount claimed by the plaintiff is admitted by the defendant to be due from him, leave to defend the suit, (even if triable issues or a substantial defence is raised), shall not be granted unless the amount so admitted to be due is deposited by the defendant in Court governs the facts of the case - conditional leave to defend the suit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce with the terms of the agreement the interest on the loan amount for the period 29th December, 2017 to 28th June, 2018 became payable on 28th June, 2018. The Defendant No. 1 committed default in payment of interest. Thereupon a demand notice came be issued on 30th July, 2018 calling upon Defendant No. 1 to pay the amount of accrued interest. In the said notice, the other events of default were also brought to the notice of Defendant No. 1. As Defendant No. 1 failed to pay the amount of interest in terms of the loan agreement, the Plaintiff was constrained to issue notice to Defendant Nos. 4 and 5 on 21st August, 2018 for invoking its rights under the Pledge Agreement. Another notice followed on 4th October, 2018 whereby the Plaintiff informed the Defendant Nos. 4 and 5 that it would exercise its rights under Clause 1.7 of the Pledge Agreement. Ultimately, vide notice dated 31st October, 2018 the Plaintiff called upon the Defendant to pay the entire outstanding amount of Rs. 32,42,20,000/-. However, the Defendants failed to pay the amount. Hence, the Plaintiff was constrained to institute suit for recovery of the aforesaid amount along with future interest. 3. The Defendant No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rely admitted. The execution of the documents including furnishing of securities by Defendant No. 2 to 4 is not put in contest. The claim of Defendant No.1 is that the amount which was received from the Plaintiff was further advanced to M/s. Vadraj Cement Ltd. In order to lend support to this defence the Defendant No. 1 has pressed into service a copy of the loan agreement dated 29th December, 2017 executed between Defendant No.1 and M/s. Vadraj Cement Ltd. whereby the said amount of Rs. 29 crores was in turn advanced by Defendant No. 1 to M/s. Vadraj Cement Ltd. However, this further transaction between Defendant No. 1 and M/s. Vadraj Cement Ltd. does not bear upon the liability of the principal borrower to the Plaintiff from whom the said loan facility was unquestionably availed. In the offer letter dated 27th December, 2017 the purpose for which the said facility was extended includes the extending of loans and advances to investee companies. Thus, the fact that Defendant No.1 had, in turn, and, in fact, on the very day, transferred the said amount of Rs. 29 Crore to M/s. Vadraj Cement Ltd. does not absolve it of the liability to repay the said loan amount. 7. Faced with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Plaintiff has sold the pledged shares and realized the amount and in the absence of such categorical material the submission based on the exercise of voting rights by the Plaintiff does not carry the matter any further. 9. As the second defence based on invocation of pledged shares and consequences thereof is of a more substantive nature, I deem it in the fitness of things to consider the same first. Indisputably the Defendant Nos. 4 and 5 have pledged 10000 shares of Defendant No. 3 Company G.C. Property Private Ltd. with the Plaintiff under the Pledge Agreement dated 26th February, 2018. There is not much controversy over the fact that the Plaintiff invoked the pledge of the equity shares of Defendant No. 3 Company by notice dated 4th October, 2018. The learned counsel for the Defendant Nos. 1 to 5 invited the attention of the Court to clause 7 of the Notice of Invocation of pledge, to bolster up the submission that, post the invocation of the pledged shares, the Plaintiff has declared its animus that the Plaintiff will exercise 100% voting rights on all matters and affairs of GCC- the Defendant No. 3. 10. Clause 7 of the notice dated 4th October, 2018 reads as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate the proceeds of the sale towards the pawner's debt, for, the sale proceeds are the pawner's monies to be so applied and the pawnee must pay to the pawner any surplus after satisfying the debt. The pawnee's right of sale is derived from an implied authority from the pawner and such a sale is. for the benefit of both the parties. He has a right of action for his debt notwithstanding possession by him of the goods pledged. But if the pawner tenders payment of the debt the pawnee has to return. the property pledged. If by his default the pawnee is unable to, return the security against payment of the debt, the pawner has a good defence to the action.(2) This being the position under the common law, it was observed in Trustees of the Property of Ellis Co. v. Dixon-Johnson(3) that if a creditor holding security sues for the debt, he is under an obligation on payment of the debt to hand. over the security, and that if, having improperly made away with the security he is unable to return it to the debtor he cannot have judgment for the debt. (emphasis supplied) 15. It was further observed that : Once the pawnee by virtue of his right under section 176 sel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of debt the Pawnee is bound to refund the said excess amount to the Pawner. He would be entitled to institute an action to recover the balance amount of debt only. 18. The crucial question which warrants consideration is whether the aforesaid proposition governs the facts of the instant case. Recourse to the relevant provision contained in the Pledge Agreement provides a legitimate answer. Clause 1.7 of the Pledge Agreement reads as under: 1.7 During the continuance of the Pledge hereby created all voting rights in respect of the Pledged Securities shall be exercisable by the Pledgors but not in any manner prejudicial to the interest of IFIN or the Security hereby created. Provided however that, in the event of enforcement of the Pledge hereby created, the voting rights in respect of Pledged Securities shall automatically stand transferred to and be exercisable by IFIN. 19. From a bare perusal of the aforesaid clause, it becomes evident that during the subsistence of the pledge the voting rights in respect of the pledged securities were to be exercised by Defendant Nos. 4 and 5. However, once the pledge was invoked the voting rights in respect of the pledged secu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orceable in law, unless it is duly stamped. Therefore, even a plain reading of Section 11(6A), when read with Section 7(2) of the 1996 Act and Section 2(h) of the Contract Act, would make it clear that an arbitration clause in an agreement would not exist when it is not enforceable by law. This is also an indicator that SMS Tea Estates (supra) has, in no manner, been touched by the amendment of Section 11(6A). 22. The learned counsel for Defendant Nos. 1 to 5 also placed reliance on the full Bench judgment of this Court in the case of Jyotsna K. Valia vs T.S. Parekh And Co. [2007 (3) BomCR 772] , wherein the connotation of the term written contract was expounded to mean an agreement enforceable by law as is provided by section 2(i) of the Indian Contract Act. 23. Dr. Saraf joined the issue by putting forth a submission that in summary suits, the defence of insufficiently stamped instruments has been consistently held by this Court to be a technical defence and not worthy of consideration for grant of leave to defend the summary suit. 24. In view of the provisions contained in section 34 of the Stamp Act, 1958 any instrument which is not adequately stamped can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a restricted sense as has been done by this Court in the case of I.L.F.S. (Supra) 27. In the case of I.L.F.S. (Supra), I had an occasion to consider the challenge based on insufficiently stamped instrument in a greater detail. After adverting to the rival submissions and various pronouncements of this Court as well as of the Supreme Court in in the cases of SMS Tea Estates Pvt. Ltd vs. Chandamari Tea Company Pvt. Ltd. [(2011) 3 CompLJ 666] and Garware Wall Ropes Ltd. (Supra), the legal position was enunciated as under : 72. In order to properly appreciate the ratio and import of thejudgment of the Supreme Court in the case of Garware (supra), of necessity, it is imperative to consider the controversy which arose in SMS Tea (supra) and the law laid down therein. In the case of SMS Tea (supra) the dispute arose out of termination of long term lease in respect of Tea Estate. The Lease Deed therein contained an arbitration clause. When the lessee invoked the arbitration, in the petition under Section 11 of the Arbitration and Conciliation Act, an objection was taken that the Lease Deed was invalid and unenforceable for want of registration and not being duly stamped. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the arbitration clause is not duly stamped. 22. We may therefore sum up the procedure to be adopted where the arbitration clause is contained in a document which is not registered (but compulsorily registerable) and which is not duly stamped: 22.1. The court should, before admitting any document into evidence or acting upon such document, examine whether the instrument/document is duly stamped and whether it is an instrument which is compulsorily registerable. 22.2. If the document is found to be not duly stamped, Section 35 of the Stamp Act bars the said document being acted upon. Consequently, even the arbitration clause therein cannot be acted upon. The court should then proceed to impound the document under Section 33 of the Stamp Act and follow the procedure under Sections 35 and 38 of the Stamp Act. 22.3. If the document is found to be duly stamped, or if the deficit stamp duty and penalty is paid, either before the court or before the Collector (as contemplated in Section 35 or 40 Section of the Stamp Act), and the defect with reference to deficit stamp is cured, the court may treat the document as duly stamped. ---------------- 75. The af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of any Court , contained in Section 11(6A). 79. In paragraph 26, the Supreme Court, after adverting to the provisions of the Amendment Act, 2015, concluded that introduction of Section 11(6A), does not in any manner deal with or get over the basis of the judgment in SMS Tea (supra) and the said judgment continues to apply even after the amendment of Section 11 (6A). The Supreme Court, inter alia, observed that the Supreme Court or the High Court when impounding an unstamped or insufficiently stamped document which contains an arbitration clause is only giving effect to the provisions of a mandatory enactment which, no doubt, is to protect the revenue. 80. Undoubtedly, the Supreme Court, in paragraphs 27 to 29, considered the enforceability of an agreement contained in an unstamped or insufficiently stamped instrument through the prism of the provisions contained in the Indian Contract Act and ruled that even on a plain reading of Section 11(6A) when read with Section 7(2) of the Act, 1996 and Section 2(h) of the Contract Act, makes it clear that an arbitration clause in the agreement would not exist when it is not enforceable by law. The Supreme Court further obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n paragraph 37 as under: 37. One reasonable way of harmonising the provisions contained in Section 33 and 34 of the Maharashtra Stamp Act, which is a general statute insofar as it relates to safeguarding revenue, and Section 11(13) of the 1996 Act, which applies specifically to speedy resolution of disputes by appointment of an arbitrator expeditiously, is by declaring that while proceeding with the Section 11 application, the High Court must impound the instrument which has not borne stamp duty and hand it over to the authority under the Maharashtra Stamp Act, who will then decide issues qua payment of stamp duty and penalty (if any) as expeditiously as possible, and preferably within a period of 45 days from the date on which the authority receives the instrument. As soon as stamp duty and penalty (if any) are paid on the instrument, any of the parties can bring the instrument to the notice of the High Court, which will then proceed to expeditiously hear and dispose of the Section 11 application. This will also ensure that one a Section 11 application is allowed and an arbitrator is appointed, the arbitrator can then proceed to decide the dispute within the time-frame prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the defendants. 87. Undoubtedly, Section 34 of the Act precludes the Court from even acting upon unstamped or insufficiently stamped instrument. However, the fact that the measure is indisputably for protection of the revenue as the recovery of the stamp-duty on the instrument and penalty for its non-payment, where-ever chargeable is practicable, where the Court or authority before which the instrument is tendered holds seisin of the matter, cannot be lost sight of. 88. In a summary suit, while deciding a summons for judgment, the options which the Court exercises, equip the court to ensure that the requisite stamp-duty is recovered, wherever the instrument is either unstamped or insufficiently stamped. If the Court grants an unconditional leave to defend, the Court can very well direct that the instrument be impounded and the procedure prescribed under Section 37 of the Act be resorted to. Even when the Court grants conditional leave, the Court can issue such directions. In a case, where the Court comes to the conclusion that the defendant is not entitled to leave to defend the suit and, conversely, the plaintiff is entitled to a judgment, still, the Court would be wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the principal amount of Rs. 29 Crore and interest of Rs.3,94,71,781/- at the agreed rate of 13.50% p.a. as of 10th January, 2019 : ORDER (i) Leave to defend the suit is granted to defendant Nos.1 to 5 subject to deposit of a sum of Rs.32,94,71,781/- in the Court within twelve weeks from today. (ii) In the event of deposit of the aforesaid amount, the defendant nos.1 to 5 shall file the written statement, within four weeks of the deposit. (iii) If the defendants do not deposit the aforesaid amount within said period, the suit be listed for directions after 14 weeks. (iv) The loan agreement dated 29th December, 2017, the letters of guarantee dated 29th December 2017 and the Pledge Agreement dated 26th February, 2018, stand hereby impounded. (v) The Prothonotary and Senior Master is directed to forward all the above impounded documents to the Superintendent of Stamps / Collector of Stamps, Mumbai for adjudication. Copy of the forwarding letter be sent to the Advocate for the plaintiff and the defendants. (vi) The Superintendent of Stamps / Collector of Stamps, Mumbai is directed to adjudicate the stamp-duty and penalty, if any, within six weeks from the dat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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