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TMI Blog2022 (11) TMI 1518X X X X Extracts X X X X X X X X Extracts X X X X ..... informed the filing of the present suit to the writ court as well as the counsel appearing on behalf of the defendant bank before the writ court. The Supreme Court in its recent judgment in PTC India [ 2022 (5) TMI 813 - SUPREME COURT ] has reiterated that under Section 176 of the Indian Contracts Act, 1872, a reasonable notice is required to be given by the pawnee to the pawnor of sale of the pledged goods, even though no period for the notice has been prescribed. The object of the said notice is to make the pawnor aware of the pawnee's intent to sell the pawn and give him an opportunity to exercise his statutory right of redemption available to a pawnor under Section 177 of the Indian Contracts Act, 1872. It was further observed that whether the period of notice was reasonable or not would depend on the facts and circumstances of the case. In the present case, the pledge in respect of 19,79,549 shares was invoked by the defendant bank on 6th September, 2022, and the plaintiff was duly informed of the same by way of a text message dated 6th September, 2022 received from NSDL, a screenshot of which is filed at page no.112 of the plaintiff's documents. Subsequently, a notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber, 2021, and on 20th October, 2021, the defendant bank sent a loan recall notice to the plaintiff and the defendant no.2 company. 1.4 On 27th October, 2021, a notice under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) was sent by the defendant bank to the defendant no.2 company and the plaintiff. On 19th January, 2022, the defendant bank issued another notice under Section 13(2) of the SARFAESI Act. Further, the defendant bank sent another notice on 3rd September, 2022 to the plaintiff expressing its intention to surrender the two LIC policies assigned in favour of defendant bank to recover the outstanding amount under the cash credit facility. 1.5 On 6th September, 2022, the defendant bank invoked the pledge in respect of the 19,79,549 shares i.e. 30% promoters' shares in the defendant no.2 company and hence, the aforesaid shares were transferred from the demat account of the plaintiff to the demat account of the defendant bank. 1.6 Writ petition, being W.P.(C) 13448/2022, was filed on behalf of the plaintiff before this Court against invocation of the pledged shares of the defendant n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiff in terms of Section 176 of the Indian Contracts Act, 1872, for sale of the pledged shares. III. Two LIC policies were not assigned by the plaintiff in favour of the defendant bank, only a lien was created. Reliance is placed on the Sanction letter dated 13th October, 2020 and the Schedule thereto. 6. Counsel for the defendant has made the following submissions: I. The plaintiff has wrongly averred in the plaint that the defendant bank was seeking to sell 48,08,237 shares of the defendant no.2 company. Only 19,79,549 shares were pledged by the plaintiff with the defendant bank and therefore, the defendant bank could not sell any further shares. II. The allegations of forgery made in the plaint are completely baseless. The share pledge agreement along with the aforesaid Schedules was executed by the plaintiff on 7th July, 2021 and the same was duly signed by the plaintiff in his own right and as an authorized signatory of the defendant no.2 company. III. No notice was required to be given by the defendant bank to the plaintiff for invocation of the pledged shares. Reliance in this regard is placed on the judgment of the Supreme Court in PTC India Financial Services Limited v. Ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order passed by this Court on 23rd September, 2022 is liable to be vacated on the said ground alone. 10. The defendant bank along with the application filed under Order XXXIX Rule 4 of the CPC has placed on record the share pledge agreement dated 7th July, 2021. The Schedule I to the said agreement mentions the date of the agreement as 7th July, 2021, and Schedule II of the said agreement clearly mentions that 19,79,549 shares of the defendant no.2 company have been pledged by the plaintiff with the defendant bank. The said schedule bears the signatures of plaintiff in his own right and as an authorized signatory of the defendant no.2 company. 11. It is the plaintiff's own case that 19,79,549 shares of the defendant no.2 company have been pledged by the plaintiff with the defendant bank. Therefore, I do not find any merit in the submission of the plaintiff that the defendant bank has forged the aforesaid pledge agreement, so as to increase the number of pledged shares from 19,79,549 to 48,08,237. 12. Next, it has been contended on behalf of the plaintiff that the defendant bank has failed to give reasonable notice to the plaintiff for the sale of the pledged shares, as require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considerations. Open market operations would be affected. To this extent, therefore, we do hold that the dictum in Madholal Sindhu (supra) and Nabha Investment (supra), that the pawnor has a right to redemption against third parties when the pawnee does not give reasonable notice under Section 176 of the Contract Act, would not apply to listed dematerialised securities which are sold by the pawnee in accordance with the provisions of the Depositories Act, by-laws and rules. In fact, the stipulations in Section 12 of the Depositories Act and Regulation 58 of the 1996 Regulations have in built provisions in terms of which the pawnor and the pawnee are informed about the change of status with the pawnee making a request and being accorded a status of the 'beneficial owner'. The pawnee cannot make the sale of dematerialised securities without being registered as a 'beneficial owner', which is a step that a pawnee must take before he proceeds to sell the pledged dematerialised securities. ... 93. Our attention was also drawn to a Single Judge Bench judgment of the Delhi High Court in Tendril Financial Services Pvt. Ltd. v. Namedi Leasing Finance Ltd., which supports the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id securities. 16. In the present case, the pledge in respect of 19,79,549 shares was invoked by the defendant bank on 6th September, 2022, and the plaintiff was duly informed of the same by way of a text message dated 6th September, 2022 received from NSDL, a screenshot of which is filed at page no.112 of the plaintiff's documents. Subsequently, a notice was issued by the defendant bank on 15th September, 2022 calling upon the plaintiff to clear the outstanding liabilities within seven days, failing which the defendant bank shall sell the pledged shares. Counsel for the plaintiff contends that the aforesaid notice does not amount to reasonable notice as envisaged under Section 176 of the Indian Contracts Act, 1872. 17. As observed by the Supreme Court in PTC India (supra), whether the period of notice was reasonable or not would depend upon the facts and circumstances of the case. It was further observed that requirement of notice under Section 176 of the Indian Contracts Act, 1872 is to make the pawnor aware of the intention of the pawnee to sell. In the present case, the intent of the defendant bank to sell the pledged shares was made clear to the plaintiff when the pledged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s taking steps towards the settlement in respect of the aforesaid LIC policies and the pledged shares, and the matter was adjourned to 1st November, 2022. However, it appears that no such steps were taken by the plaintiff and even on 1st November, 2022, the plaintiff was not in a position to clear the outstanding dues of the defendant bank. Counsel for the plaintiff submitted that the plaintiff could not clear the outstanding dues on account of insolvency proceedings having been initiated against the plaintiff before the National Company Law Tribunal (NCLT). The effect of insolvency proceedings being initiated against the plaintiff cannot come to the rescue of the plaintiff, as the present suit has been filed by the plaintiff, whereas the interim moratorium under Section 96 of the Insolvency and Bankruptcy Code, 2016 (IBC) would be in respect of the suits/legal proceedings filed against the plaintiff. 21. In view of the above discussion, the plaintiff has failed to establish a prima facie case in his favour. The balance of convenience is in favour of the defendant bank. Accordingly, the interim order dated 23rd September, 2022 passed by this Court is vacated. Resultantly, I.A. 1574 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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