Cheerful Trade and Realty Developers Pvt Ltd v. DBS Bank India Limited

2.1. Thus on and from 26.10.2021, there was an embargo on Defendant No. 1 from selling / transferring of the shares pledged with Defendant No. 1 in demat form. On these Applications having been heard finally on 18.05.2022, Defendant No. 1’s statement was recorded on that date that until the decision in the present Interim Applications, Defendant No. 1 would not sell the pledged shares.

3. To adjudicate the controversy and lis between the parties and before I advert to the submissions made by the learned Advocates, such of the relevant facts necessary for adjudication based on pleadings at this stage are outlined hereinunder:-

3.1. Commercial Suit No. 156 of 2022 is filed by Plaintiffs (Plaintiff Nos. 1 and 2) against the Defendants, seeking relief against Defendant No. 1 only. Dispute between relate parties to pledge of shares. Plaintiffs are alleged pledgors and Defendant No. 1 is the pledgee. Defendant Nos. 2 and 3 are the borrowers of Defendant NO. 1. Suit is filed on 08.09.2021 on receiving notice dated 16.06.2021 issued by Defendant No. 1 to the Plaintiffs intimating that they had 4 of 32 pledged certain shares in favour of Defendant No. 1 to secure facilities granted to Defendant Nos. 2 and 3, and since Defendant Nos. 2 and 3 failed to honour their commitments, their accounts became NPA. Hence, Defendant No.1 intended to sell the pledged shares to recover its dues. Plaintiffs replied to the notice vide letter dated 12.07.2021 followed by reminder dated 03.08.2021, inter alia, informing Defendant No. 1 that neither the shares were validly pledged nor the Plaintiffs owed any amount to Defendant No. 1 and even if, any security was created on behalf of Defendant Nos. 2 and 3, it was only for a limited duration which had ended since long and therefore, the pledged shares were required to be returned back to the Plaintiffs. Defendant Nos. 1's Advocate vide reply dated 17.08.2021 denied the contention of the Plaintiffs. Being aggrieved, Plaintiffs filed the suit on 08.09.2021 along with Interim Application (L) No. 21398 seeking interim reliefs. Plaintiffs sought the following reliefs in the Commercial Suit Plaint:-

(i) this Hon’ble Court be pleased to grant an order and decree of permanent injunction restraining Defendant No. 1 from selling or disposing of the shares allegedly pledged with Defendant No. 1 in DEMAT form by the Plaintiffs, described in the schedule hereto as Exhibit-I, by any means whatsoever;

(ii) this Hon’ble Court further be pleased to declare that no valid pledge is created between the Plaintiffs and Defendant No. 1 and the transaction between the parties is without consideration;

(iii) this Hon’ble Court be pleased to grant an order and decree directing Defendant No. 1 to return the shares described in the schedule hereto as Exhibit-I, held by them in DEMAT form belonging to the Plaintiffs, forthwith;

(iv) in the alternative to the above, this Hon’ble Court be pleased to

5 of 32 grant a declaration that if such shares described in the schedule hereto as Exhibit-I, in DEMAT form are sold or disposed of by Defendant No. 1 by any means whatsoever, the Defendant No. 1 shall be liable to pay the Plaintiffs the amount accrued by such sale, or the value of the shares at the time of disposing them of, along with 18% interest from the date of demand to the actualization of the same.”

4. In Interim Application (L) No. 21398 of 2021, Plaintiffs prayed for the following reliefs:- (a) Pending the hearing and final disposal of the Commercial suit herein above, this Hon’ble Court be pleased to grant an order of temporary injunction restraining Defendant No. 1 from selling, transferring, alienating and / or disposing of the shares allegedly pledged with Defendant No. 1 in DEMAT form by the Applicants, described in the schedule at Exhibit I to the Plaint, by any means whatsoever;

(ii) In addition to prayer clause (a), this Hon’ble Court be pleased to direct Defendant No. 1 to deposit proceeds received from sale of such pledged shares (if any) with the Plaintiffs;

(iii) That, this Hon’ble Court be pleased to direct Defendant No. 1 to render accounts in respect of any dividends / bonus shares received by Defendant No. 1 respect of aforesaid shares.

4.1. It is seen that one of the principal prayer in the suit seeks a declaration to the effect that no valid pledge is created between the parties and the transactions are without consideration. Plaintiffs also seek permanent injunction, return of shares / sale proceeds of shares which are already sold alongwith complete disclosure.

4.2. On 26.10.2021, ad-interim relief in terms of prayer clause (a) in the Interim Application was granted by this Court. Affidavit in reply dated 02.12.2021 is filed by Defendant No. 1 in Interim Application (L) No. 21398 of 2021. Rejoinder dated 04.01.2022 is 6 of 32 filed by Plaintiffs thereto followed by further affidavit dated 17.05.2022 filed by Defendant No. 1.

5. On 26.04.2022, Plaintiffs filed another Interim Application

(L) No. 13622 of 2022 seeking the following reliefs:- “(a) Pending the hearing and final disposal of the Commercial Suit hereinabove, this Hon’ble Court be pleased to direct the Defendants to disclose the quantum of shares sold by Defendant No. 1 belonging to the Applicants alongwith price at which the same were sold, from the date of passing ad-interim order i.e. from 26.10.2021 till date; (b) In addition to prayer clause (a), this Hon’ble Court be pleased to direct Defendant No. 1 to deposit proceeds received for sale of such pledged shares with the Plaintiffs;

(c) Pending the hearing and final disposal of the Commercial Suit hereinabove, this Hon’ble Court be pleased to grant an order of temporary injunction restraining Defendant No. 1 from selling, transferring, alienating and / or disposing of the shares allegedly pledged with Defendant No. 1 in DEMAT form by the Applicants, described in the schedule at Exhibit I to the Plaint,by any means whatsoever.”

5.1. By the fresh Interim Application, Plaintiffs sought complete disclosure.

5.2. According to Plaintiffs, sometime in the year 2008, Defendant Nos. 2 and 3 availed recurring credit facilities from Lakshmi Vilas Bank Ltd. Which was subsequently merged with (acquired) the Defendant No. 1. Reference shall be made as “Defendant No. 1” for convenience. According to information received by Plaintiff No. 1, credit facilities were sanctioned on the condition that a certain percentage of the credit facilities should be covered by the shares of M/s. Shree Global Tradefin Limited. On 01.08.2008, Plaintiff No. 1 7 of 32 addressed a letter to Defendant No. 1 communicating its intent to pledge 2,25,000 shares (11,25,000 shares as on date after subdivision) of M/s. Shree Global Tradefin Limited. According to Plaintiffs in pursuant thereof in the years 2008, 2009, 2011 and 2012, Plaintiffs executed numerous other pledges / hypothecation forms in favour of Defendant No. 1, however, no other document or instrument were executed between the parties. According to Plaintiffs, they did not receive any lawful or valid consideration from Defendant No. 1 in exchange for executing the pledges / hypothecation forms between 2008 and 2013 and therefore there existed no valid relationship between the Plaintiffs and Defendant No. 1 whereby rights and / or obligations could be claimed by Defendant No. 1. Plaintiffs have annexed 9 pledge / hypothecation forms to the suit plaint contending that no pledge agreements / transaction documents / mortgage documents were entered into and executed between parties thereafter. Further No stamp duty on any instrument / agreement / pledge forms governing the alleged pledge of shares was paid by either party in pursuance of the pledges and hence, in the absence of any valid and lawful consideration to the Plaintiffs, it could not be construed that there was creation of a valid and subsisting pledge in favour of Defendant No. 1. 8 of 32

5.3. It is contended by Plaintiffs that the pledge of shares is in fact invalid and void ab initio. It is contended that Plaintiffs cannot be said to be guarantors on behalf of Defendant Nos. 2 and 3, the borrowers in the present case without there being a “guarantee deed” executed between the Plaintiffs on the one hand and the Defendant Nos. 1 to 3 on the other hand resulting in a legal relationship between the parties. Hence, Plaintiffs would contend that Defendant No. 1 has no right to claim any amount or sell the shares pledged with Defendant No. 1 for recovery of dues of Defendant Nos. 2 and 3. It is further contended that even if it is assumed that the pledge of shares created was valid and subsisting between 2008 and 2013, the same cannot be said to be in force any more as the “closure date” provided on each of the pledge / hypothecation form has in fact lapsed more than eight years ago.

5.4. Plaintiffs would contend that in the notice received by the Plaintiffs on 16.06.2021 for the first time, it was mentioned therein that the date of declaration of the accounts of the borrowers (Defendant Nos. 2 and 3) as NPAs is 31.03.2018 and therefore in that view of the matter under the law of limitation, since more that 3 years have lapsed from the date of such declaration of the borrowers’ accounts as NPAs, Defendant No. 1 is barred from raising any claim against the said borrowers and consequently could not / cannot sell 9 of 32 shares pledged by the Plaintiffs to recover the outstanding dues of Defendant Nos. 2 and 3 considering that the Suit is instituted on 08.09.2021. On these limited facts supported by the corresponding documents, suit plaint is filed, inter alia, stating that the total shares allegedly pledged with Defendant No. 1 by way of the pledges / hypothecation forms annexed to the plaint are 12,00,000 shares (60,00, 000 shares as on date after subdivision on 22.12.2016) and another 3,00,000 shares (15,00,000 shares as on date after subdivision on 22.12.2016) of M/s. Shree Global Tradefin Limited. It is vehemently contended by Plaintiffs that the closure dates on all the pledges / hypothecation forms governing the alleged pledge of shares range from 13.03.2011 to 31.01.2013 and this needs to be considered by this Court as a strong circumstance for passing interim relief especially when the Defendant No.1 now desires to sell the shares in the year 2021 and frustrate the principal relief of the Plaintiffs.

5.5. Defendant No. 1 has vehemently resisted the Interim Application and has placed on record its version of facts in its affidavit in reply dated 02.12.2021. Defendant No. 1 would contend that Plaintiffs have approached the Court by suppressing material facts and documents executed by Defendant Nos. 2 and 3 with the predecessorin-title of the Defendant No. 1 i.e. the erstwhile Lakshmi Vilas Bank Ltd in the year 2017. Defendant No. 1 would contend that the 10 of 32 documents on the strength of which Plaintiffs have approached Court neither form part of the security documents Lakshmi Vilas Bank Ltd. stood merged with the Defendant No. 1 as per notification issued by the Ministry of Finance (Banking Notification dated 25.11.2020). Defendant No. 1 would contend that reliance of Plaintiffs on the closure dates mentioned in the documents Exh. “H-1” to “H-9” to the plaint has been transacted only between the Plaintiffs and their DP Cell and Defendant No. 1 has no concern with the said closure dates and the same does not relate to the pledge of securities created by the Plaintiffs.

5.6. Defendant No. 1 would contend that Defendant No. 2 availed aggregate facility of Rs. 77 crores whereas Defendant No. 3 availed aggregate facility of Rs. 57 crores from the said erstwhile Lakshmi Vilas Bank Ltd and to secure the enhanced / adhoc / one time ILC / FLC loan limit granted to Defendant Nos. 2 and 3, two separate supplemental agreements of pledge of stock, shares / debentures and other securities held in demat form dated 27.06.2017 and 07.08.2017 were subsequently executed by the Plaintiffs along with other security holders in the year 2017. The supplemental agreements are appended as Exh. “C” and “D” to the affidavit-in-reply by Defendant No. 1. It is contended that Plaintiffs and Defendant Nos. 2 and 3 are signatories to the two supplemental agreements and therefore, Plaintiffs are 11 of 32 estopped from disputing the transaction of pledge of shares and in that view of the matter, Defendant No. 1 is entitled to enforce the pledged security for realization of its secured debt. It is contended by Defendant No.1 that the facilities granted to Defendant Nos. 2 and 3 by the said erstwhile Lakshmi Vilas Bank Ltd was initially secured by pledge of shareholding of Defendant No. 3 by executing agreement of pledge of stock / shares / debentures and other securities held in demat form dated 11.02.2010 in the Company and subsequently thereafter by pledge of shares by entering into the two supplemental agreements dated 27.06.2017 and 07.08.2017. The agreement dated 11.02.2010 is appended as Exh. “B” to the affidavit-in-reply of Defendant No. 1.

5.7. Defendant would draw my attention to clause Nos. 4, 5, 16 and 17 of the supplemental agreement dated 07.08.2017 and argue that Defendant No. 1 has already commenced the exercise of selling the pledged shares and as on 26.10.2021 sold 16 lac shares and recovered a sum of Rs. 43,58,060.77 and further 59 lac pledged shares have remained to be sold. In so far as the contention of Plaintiffs with respect to the closure dates on the pledged forms ranging between 30.03.2011 to 31.03.2013 is concerned, it is contended by Defendant No. 1 that much pursuant thereto, parties executed the two separate supplemental agreements of pledge dated 12 of 32 27.06.2017 and 07.08.2017 whereby Plaintiffs extended the pledge of its shareholdings by way of extension of pledge for securing repayment of sanction / enhancement / adhoc / one time ILC / FLC Loan / limit / credit facility sanctioned in favour of Defendant Nos. 2 and 3 and in that view of the matter, the pledge created by the Plaintiffs in the year 2008 is a continuing security notwithstanding the payments made by Defendant Nos. 2 and 3 in the interregnum. Defendant No. 1 would also argue that if it is the Plaintiffs’ case that the pledge of shares was created for a limited period of time and the closure dates on the pledge forms had lapsed way back in 2013, the very fact that the Plaintiffs have till date not sought return of its pledged shares clearly raised a question on the conduct of the Plaintiffs leading to infer that the said pledged shares were indeed secured with the Defendant No. 1 towards repayment of the credit facilities sanctioned in favour of Defendant Nos. 2 and 3.

5.8. Defendant No. 1 has in paragraph No. 20 to 26 of its affidavit-in-reply spelt out the entire details of borrowings by Defendant Nos. 2 and 3 and execution of various security documents by the parties and more specifically Plaintiff No. 1 having pledged 60 lac shares of Plaintiff No. 1 and Plaintiff No. 2 having pledged 15 lac shares of Plaintiff No. 2 in M/s. Shree Global Tradefin Ltd in the year

2008. It is contended that Defendant Nos. 2 and 3's account were 13 of 32 declared as NPAs and recalled vide statutory notices dated 25.07.2018 and 13.08.2018 respectively. Defendant No. 1 thereafter filed Original Application against Defendant No. 2 for recovery of outstanding dues in the sum of Rs. 89,83,50,692.22 with further interest thereon in the Debts Recovery Tribunal, I Mumbai being Original Application NO. 607 of 2018. Simultaneously, Original Application No. 606 of 2018 was filed against Defendant No. 3 for recovery of outstanding amounts in the sum of Rs. 66,54,24,625.89 along with further interest. Hence, it is contended that adequate steps have been taken by Defendant NO. 1 against the principal borrowers within limitation and therefore the present action of Defendant No. 1 is not barred by limitation or bad in law as alleged by the Plaintiffs.

6. In view of the above rival contentions / facts pleaded by the parties, the learned Advocates appearing for the parties have made the following submissions for due consideration of the Court.

7. Mr. Agarwal, learned Advocate appearing for Plaintiffs has made the following submissions:-

(i) That it is the specific case of the Plaintiffs that they are neither borrowers not guarantors and / or mortgagors to the loan advanced by Defendant No. 1 to Defendant Nos. 2 and 3. That pledge of shares was offered for a limited time period without any 14 of 32 consideration and without executing any guarantee deed or other documents. That Defendant No. 1 therefore has no right to sell or claim any amount from the Plaintiffs owing to lack of any legal relationship or transaction with any of the Defendants;

(ii) That thereafter, Defendant No. 1 in its reply dated

02.12.2021 have come out with a defense that (a) Plaintiff has suppressed two Agreements viz: supplemental agreements dated 27.06.2017 and 07.08.2017 and that Plaintiffs have extended the pledge of its shareholding by executing supplemental agreements dated 27.06.2017 and 07.08.2017 thereby making the pledge of shares as a continuing security. That vide rejoinder dated 04.01.2022 to the Defendant No. 1’s Reply, Plaintiffs have after taking inspection of the documents averred that Mr. Viresh Sohoni and Mr. Subhash Singh have filed their respective affidavits after they were informed about their forged signatures on the two supplemental agreements dated 27.06.2017 and 07.08.2017 on behalf of the Plaintiffs. That the two agreements dated 27.06.2017 and 07.08.2017 in fact bear forged signatures of Mr. Viresh Sohoni and 15 of 32 Mr. Subhash Singh who are shown to be the authorized signatory of the Plaintiff Nos.[1] and 2. That Mr. Viresh Sohoni resigned from the Directorship of Plaintiff No. 1 on 30.07.2012 while Mr. Subhash Singh resigned from Plaintiff No. 2 on 10.01.2011. That Form No.32 was filed with the Ministry of Corporate Affairs at the contemporaneous point of time to notify the above change. That Mr. Subhash Singh was not even in the country at the time of the alleged execution of the supplemental agreement as is clear from perusal of his passport;

(iii) That the two agreements contain factual inaccuracies since prior to 27.06.2017 i.e. date of agreement, the shares were sub divided from Rs.5/- to Rs.1/- and consequently though total number of shares stated at Serial Nos. 6, 10, 11 and 17 are settled to be 15,00,000 number of shares, they ought to have been 75,00,000 number of Shares due to such sub- division. That signature of the Borrower (Subhkaran & Sons) is taken on each page though not a party to the agreement dated 27.06.2017. That the alleged agreements annexed by Defendant No. 1 have not been attested by 16 of 32 any witnesses. That the alleged agreements relied upon by Defendant No. 1 have not been notarized;

(iv) That even otherwise from Exh. “H-1” to “H-9”, it is clear that the Pledge created by the Plaintiffs were with the closure dates mentioned therein between the year 2011 to 2013, which have since long expired. Subsequent to that, the pledge certainly does not survive. Extension of such Pledge is vide forged agreements dated 27.06.2017 and 07.08.2017 which are annexed to the reply and Defendant No. 1 cannot take advantage thereof;

(v) That Defendant No. 1 is relying upon bogus documents to establish validity of sale of shares belonging to the Plaintiffs. Defendant No. 1 filed further affidavit on the day of arguments however even in such further affidavit, Defendant No. 1 has neither dealt with the issues raised by the Plaintiffs vide its Rejoinder nor have brought any document on record to establish any legal relationship between the Plaintiffs and Defendant No.1;

(vi) That as per Section 23 of the Indian Contract Act, any agreement without consideration, unless in writing and 17 of 32 registered, is void. In the present case, Defendant NO. 1 is seeking to enforce a pledge without any valid agreement between the pledgor and pledgee and no consideration has flown from Defendant No. 1 to Plaintiffs in any form or manner whatsoever. On this rule of law, the Defendant No. 1 ought to be prevented from sale of any of the shares belonging to the Plaintiffs and further, the monies recovered from shares already sold need to be deposited in this Court since the sale is prima facie illegal;

(vii) That even otherwise, as per Section 176 of the Contract

Act, Pawnee will not get a right to sell the shares until and unless Pawnor has committed a default in honouring its commitment. In the present case, Defendant No. 1 has nowhere pointed out what is the obligation of the Plaintiffs which they have not performed or defaulted upon. Unless default of Pawnor is established, Pawnee (Defendant No. 1) will not get a right to sell the shares pledged and consequently, the sale is bad and Defendant No. 1 deserves to be injuncted from further sale and needs to be directed to deposit the amount realized from sale before this Court. 18 of 32

(viii) That admittedly, account of Defendant Nos. 2 and 3 became NPA on 31.03.2018 whereas invocation of pledge was vide notice dated 16.06.2021 i.e. beyond three years. Thus, for this reason also, invocation of pledge by Defendant No. 1 is bad in law.

8. Mr. Kapadia, learned Advocate for the Defendant No. 1 has resisted both the interim Applications vehemently and made the following submissions:-

(i) That the crux of the Plaintiffs’ case is that the pledge / hypothecation forms filed by Plaintiffs themselves with Infrastructure Leasing & Financial Services Ltd. (“IL & FS”) as the depository participant contained a “closure date”. It is the Plaintiffs’ case that this closure date was the date on which the pledge came to an end. According to the Plaintiffs, the closure dates for the respective forms were 31.03.2011, 31.03.2012 and 31.03.2013. It is therefore the Plaintiffs’ case that, at the very latest, the pledges came to an end on 31.03.2013. On this basis, the Plaintiffs as pledgeors contend that they are entitled to the pawned goods and not Defendant No.1; That another submission made is that the claim of Defendant No.1 is barred by limitation 19 of 32 and, in any event, was the subject matter of an Original Application filed against Defendant Nos. 2 and 3 before the Debt Recovery Tribunal. On this ground as well, Plaintiffs contend that the enforcement of the pledge is invalid; That another submission made is that the pledgors are not the borrowers / guarantors of the lending done by Defendant No.1. It is therefore contended that the pledge is without consideration.

(ii) However submission regarding the pledge being without consideration is belied by the terms of the Pledge Agreement itself. It is for this reason that the Plaintiffs have suppressed the Pledge Agreement and approached this Court only on the basis of the pledge / hypothecation forms. The Pledge Agreement expressly records that the pledge has been created in consideration for Defendant No.1 providing to the borrower an enhancement of Rs. 7,00,00,000/- as credit. To contend that the pledge was given for no consideration therefore cannot be acceptable. It is not that, in every case, the pledgor must itself receive some consideration for creation of the pledge. A pledgor may, in consideration for the pledgee doing an act 20 of 32 benefiting a third party, agree to pawn its property to the pledgee. That the Plaintiffs’ submissions in this regard are therefore flawed even on an elementary understanding of the law.

(iii) That Plaintiffs have intentionally suppressed the Pledge

Agreement and produced only the pledge forms in the Plaint. That this is done with an intention to mislead the Court by suggesting that there was no bilateral agreement between the pledgor and pledgee and that the evidence of pledge was only the forms filed by the Plaintiffs with their depository participant. The fact that there exists a Pledge Agreement and that it is kept away from the Court is by and of itself sufficient to deny interim relief since the Plaintiffs have categorically denied that no Pledge Agreements were entered into between the Plaintiffs and Defendant No.1.

(iv) That submission regarding limitation is equally untenable. That the pledge was invoked on 16.06.2021. Upon invocation of a pledge, a pledgee under Sections 176 and 177 of the Contract Act, has the option to either retain the pawn and sue for the amounts due; or sell the goods and adjust the proceeds 21 of 32 against the amounts due. In the second case, if the amounts received from the sale of pledged goods are less than the total claim, the pledgee is entitled to sue for the balance amount. In the event that the amounts received are in excess of the amounts due, the pledgee is required to return the excess amount to the pledgor. Secondly, the Plaintiffs’ reliance on the pledge / hypothecation forms is misplaced on account of these forms being unilateral procedural compliances which were to be undertaken by the Plaintiffs to its depository participant. To suggest that the closure dates mentioned in the said forms operate against Defendant No.1 tantamounts to permitting a party to take advantage of its own mistake / wrong. The Plaintiffs are bound by their obligations under the Pledge Agreement to ensure that the pledged shares remain as continuing security towards repayment of the debt. They are obliged to take all steps, including procedural filings with their depository participant, to ensure that the pledge remains legal, valid and binding. It appears that, since the filings were renewed at the end of the financial year, the Plaintiffs were obliged by their depository participant to file appropriate forms 22 of 32 updating the closure date. Assuming this is so, the Plaintiffs can’t, on one hand, fail to make the necessary filings as part of their unilateral obligations and, on the other hand, seek to benefit from the filings not been made and claim discharge of the pledge;

(v) That contention regarding closure dates is also belied by the fact that if, according to the Plaintiffs, if the pledge came to an end on 31.03.2013, then there is not a shred of evidence showing what steps Plaintiffs took to remove the pledge noting with respect to the subject shares in the record of its depository participant. To accept the Plaintiffs’ case, one would have to believe that although the Plaintiffs’ assets were discharged from the pledge from 01.04.2013 onwards, the Plaintiffs did not find it necessary to remove the publicly accessible noting of pledge with their depository participant for a period of more than 8 years, until Defendant No.1 invoked the pledge on 16.06.2021 and transferred the subject shares in its own name on 20.09.2021. This conduct undermines the Plaintiffs’ case completely; 23 of 32

(vi) That finally when the pledge is invoked by Defendant

No.1, Plaintiffs depository participant has duly honoured the same and transferred the subject shares into the demat account of Defendant No.1. Defendant No.1 is obviously not privy to what forms have or have not been filed by the Plaintiffs with their depository participant; whether in the process the indication of a closure date implied that the pledge would stand extinguished on that date; or whether the closure date was updated or not. However when Defendant No.1 sought to invoke its pledge, the Plaintiffs’ depository participant acted on the enforcement request and transferred the said shares to the Defendant No.1. This, once again, undermines the Plaintiffs case in its entirety. If the unilateral insertion of the closure dates as being 31.03.2013 meant that the pledge stood extinguished on that date and that there was no extension of the closure dates, there would be no reason for the Plaintiffs’ depository participant to act on the invocation of the pledge by Defendant No.1 more than 8 years later. The fact that it did, indicates that either the insertion of the closure dates could not and would not extinguish a charge created by way of pledge 24 of 32 on those shares or that there were extensions provided to the closure dates by or on behalf of the Plaintiffs.

9. Mr. Merchant, learned Advocate for Defendant Nos. 2 and 3 would adopt the submissions made by Mr. Kapadia and in addition thereto he has made the following submissions:-

(i) That on 27.06.2017 and 07.08.2017, Plaintiffs have pledged their shareholdings in the two entities. The said supplemental Agreements are annexed as Exh. “C” & “D” to the affidavit-in-reply dated 02.12.2021 filed by Defendant No.1. Such material facts have been suppressed by the Plaintiffs while filing the present Suit in the year 2021 and hence they have not come to this Hon’ble Court with clean hands.

(ii) That the pledge is coterminous with release of security.

It survives the so called ‘closure date’ mentioned on the forms unless the pledge is revoked, which is not the case in the present Suit as it seeks a final relief of cancellation of pledge by decree.

(iii) That the two Plaintiff companies are two distinct corporate entities and the securities comprising the subject matter of the Suit are distinct pledges and also sale and are independent of one another and are 25 of 32 devoid of any commonality to justify their merger into a single cause of action and into a single Suit. That if the two Suits were filed separately, this Court would not be able to entertain them, the Plaintiffs have therefore combined disparate claims and parties have combined all of them into one single suit to bring the suit in view of the pecuniary jurisdiction of this Court of above Rs.[1] Crore. Therefore Plaintiffs are guilty of forum shopping for choosing the most favourable jurisdiction of the Court and this Court would therefore not have jurisdiction to entertain the suit in the manner in which it is filed.

(iv) That it is the case of the Plaintiffs that in the Pledge forms the closure date was only till 2013. Further, it is their case that the signatures on the Agreement dated 27.06.2017 and 07.08.2017 are forged. However in that event, Plaintiffs have not taken any action to challenge the Agreement of the Pledged Shares which clearly shows that since there was no action taken by the Plaintiffs, the Agreements dated 27.06.2017 and 07.08.2017 are executed by them only and there is a valid Pledged of Shares given by Plaintiffs to Defendant 26 of 32 No.1. That the Plaintiffs’ attempts to wriggle out of their pledge agreements are belated and a complete afterthought and clearly contrary to the risk they agreed to when these contracts were executed and the shares as valuable securities were pledged.

10. Both Mr. Kapadia and Mr. Merchant on the basis of their submissions would submit that no interim relief be granted to the Plaintiffs.

11. I have heard Mr. Agarwal, learned Advocate for Plaintiffs; Mr. Kapadia, learned Advocate for Defendant No. 1 and Mr. Merchant, learned Advocate for Defendant Nos. 2 and 3 and with their able assistance perused the pleadings in the present case. Submissions made by the Advocates has received due consideration of the Court.

12. It is seen that in Interim Application No. 21398 of 2021 filed along with the Suit plaint, Plaintiffs have sought temporary injunction restraining Defendant No. 1 from transferring / alienating / disposing of the suit shares and deposit the proceeds of the shares sold. In the subsequent Interim Application No. 13622 of 2022, Plaintiffs have sought disclosure of the quantum of shares sold additionally. Record indicates that Defendant No. 1 has already sold 16 lac shares and recovered a sum of Rs. 43.58 lac from the said sale. 27 of 32

13. Plaintiffs have argued that according to the pledge / hypothecation forms annexed to the plaint, 60 lac shares and another 15 lac shares totalling to 75 lac shares after subdivision are held by Defendant No. 1. Hence, at the outset, considering the submissions made by Defendant No. 1 which are alluded to herein above, there is no ambiguity in respect of which 16 lac shares have been sold and the remaining balance of 59 lac shares presently held by Defendant No. 1. The said count tallies with the Plaintiffs’ submission in respect of the total number of shares. In that view of the matter, the relief seeking disclosure of the quantum of shares stands complied with. Defendant No. 1 has sold 16 lac shares and has realised an amount of Rs. 43.58 lac as on 26.10.2021. Pursuant to 26.10.2021, this Court had passed ad-interim order / injunction in terms of prayer clause (a) which was continued upto 13.12.2021. Plaintiffs have sought disclosure of the rate at which the said 16 lac shares / any number of shares sold by Defendant No. 1 and on what dates the same were sold. Considering the controversy between the parties, Defendant No. 1 is directed to disclose the dates on which the 16 lac shares were sold along with the rate at which they were sold on affidavit. The said affidavit shall be filed within a period of four weeks from today alongwith all supporting documents.

14. Next it is seen that both the parties have made their 28 of 32 submissions on facts which are at variance with each other. The notable fact which stands out for consideration at this juncture is the denial of the Plaintiffs having executed the two supplemental agreements dated 27.06.2017 and 07.08.2017. In support of the Plaintiffs’ submissions, Mr. Agarwal has submitted that the signatories on behalf of the Plaintiffs on these two supplemental agreements is of persons who resigned as Directors from the Plaintiffs’ companies was back in 2011 and 2012. According to Plaintiffs, signatory to first supplemental agreement had resigned from the directorship of the Plaintiff No. 1 Company on 30.07.2012 whereas signatory to agreement dated 07.08.2017 Mr. Subhash Singh had resigned from Plaintiff No. 2 Company on 10.01.2011. Affidavits of these two employees have been filed by the Plaintiffs with regards to the above facts. Plaintiffs have submitted that statutory form No. 32 certifying the names of the Directors of the Plaintiffs’ Companies (resigned and continuing) were also filed at the then time with the Ministry of Corporate Affairs to notify the change in directorship. This is an important circumstance for consideration because the two supplemental agreements executed on 27.06.2017 and 07.08.2017 are strongly relied upon by Defendant No. 1 for seeking continuity of the transactions between the parties. Undoubtedly, at this prima facie stage without evidence having been led by the respective parties, a final verdict cannot be given by the Court. The balance shares will 29 of 32 have to be protected as denying interim relief would frustrate the Plaintiff’s case entirely. This Court will have to consider the documentary evidence placed before the Court as it appears prima facie. Defendant No. 1 has however argued that assuming for the sake of argument that the pledges were duly made in the year 2008 with their closure dates upto 2013, nothing prevented or precluded the Plaintiffs from seeking back the pledged shares pursuant to the closure dates. The conduct of the Plaintiffs in not seeking back the pledged shares after the alleged closure dates also needs to be considered by the Court. These are rival contentions which will obviously have to be decided on the edifice of evidence to be led by both the parties. It is seen that there is no denial of the fact that the principal original documents of pledge i.e. the hypothecation forms being Exh. H[1] to H[9], each one of which indicates and describes a closure date. These are the dates which range from 31.03.2011 to 31.03.2013. As noted by this Court, in the order dated 26.10.2021, it is quite curious that even after the passage of time since 2013, Plaintiffs did not seek return of its securities if the closure dates are to be adhered to. Equally if the submissions of the Plaintiffs regarding closure dates is to be accepted, then certainly the pledges cannot subsist beyond the closure dates. Defendants in their affidavit-in-reply have given one and only one explanation i.e. the execution of the two supplemental agreements alluded to herein above in the year 2017 for relying upon 30 of 32 continuity of the pledged shares. It is seen that Plaintiffs have not only denied executing the said two supplemental agreements but have stated that they are forged and fabricated documents bearing signatures of signatories who no longer were working with the Plaintiffs more than six years before the execution of the said agreements. In this view of the matter, I am inclined to continue the ad-interim order granted vide order dated 26.10.2021 and confirm the same as interim order in the present Interim Applications. I am inclined to accept the submissions made by Mr. Agarwal partly and give the following directions.

15. It is seen that Defendant No. 1 has already sold 16 lac shares worth Rs. 43.58 lac. Details of such sales as directed herein above shall be filed by Defendant No. 1 before this Court. Defendant No. 1 is directed to file an undertaking in this Court to bring back the said amount along with interest in the event if the Plaintiffs succeed in the present Suit proceedings as directed by this Court. Such undertaking shall be filed on Affidavit within a period of 4 weeks from today. In so far as the unsold 59 lac pledged shares are concerned, it is directed that there shall be an interim order of temporary injunction restraining the Defendant No. 1 from selling the said shares till the hearing and final disposal of the present suit proceedings.

16. Considering the nature, controversy and dispute, hearing of 31 of 32 Commercial Suit (L) No. 21256 of 2021 is expedited.

17. With the above directions both Interim Application (L) Nos. 21398 of 2021 and 13622 of 2022 are disposed of. of this judgment. [ MILIND N. JADHAV, J. ] Amberkar