Full Text
HIGH COURT OF DELHI
Date of Decision: 13th July, 2020
CYQUATOR MEDIA SERVICES PVT. LTD. ..... Appellant
Through: Mr. Saket Sikri, Mr. Vijay Aggarwal, Mr. Tarun Singla, Mr. Mudit Jain, Mr. Naman Joshi, Mr. Ayush Jindal, Mr. Shailesh Pandey, Mr. Vikalp Mudgal, Mr. Ajay Kullar, Advocates
Through: Mr. Neeraj Kishan Kaul & Dr. Birendra Saraf, Senior Counsels with Mr. Vikram Trivedi, Mr. Jai Sanklecha, Mr. Sunil Tilokchandani, Mr. Nagarkatti Kartik, Mr. Sachin Chandarana, Mr. Ramchandra Madan & Mr. Deepak Joshi, Advocates for respondent No. 1
Mr. Jagdeep Sharma, Advocate for respondent No. 2
KHOOBSURAT INFRA PVT. LTD. ..... Appellant 2020:DHC:2277-DB
FAO (OS) (COMM) Nos. 75/2020, 76/2020, 77/2020
Through: Mr. Saket Sikri, Mr. Vijay Aggarwal, Mr. Tarun Singla, Mr. Mudit Jain, Mr. Naman Joshi, Mr. Ayush Jindal, Mr. Shailesh Pandey, Mr. Vikalp Mudgal, Mr. Ajay Kullar, Advocates
Through: Mr. Neeraj Kishan Kaul & Dr. Birendra Saraf, Senior Counsels with Mr. Vikram Trivedi, Mr. Jai Sanklecha, Mr. Sunil Tilokchandani, Mr. Nagarkatti Kartik, Mr. Sachin Chandarana, Mr. Ramchandra Madan & Mr. Deepak Joshi, Advocates for respondent No. 1
Mr. Jagdeep Sharma, Advocate for respondent No. 2
AND
DIRECT MEDIA DISTRIBUTION VENTURES PVT. LTD. ..... Appellant
Through: Mr. Saket Sikri, Mr. Vijay Aggarwal, Mr. Tarun Singla, Mr. Mudit Jain, Mr. Naman Joshi, Mr. Ayush Jindal, Mr. Shailesh Pandey, Mr. Vikalp Mudgal, Mr. Ajay Kullar, Advocates
2020:DHC:2277-DB FAO (OS) (COMM) Nos. 75/2020, 76/2020, 77/2020
Through: Mr. Neeraj Kishan Kaul & Dr. Birendra Saraf, Senior Counsels with Mr. Vikram Trivedi, Mr. Jai Sanklecha, Mr. Sunil Tilokchandani, Mr. Nagarkatti Kartik, Mr. Sachin Chandarana, Mr. Ramchandra Madan & Mr. Deepak Joshi, Advocates for respondent No. 1
Mr. Jagdeep Sharma, Advocate for respondent No. 2
HON'BLE MS. JUSTICE ASHA MENON [VIA VIDEO CONFERENCING]
ASHA MENON, J. C.M. No.14523/2020 (Exemption from filing duly affirmed affidavits along with the accompanying appeal and undertaking to pay court fees upon reopening of the Hon’ble court) & C.M. No.14524/2020, (Exemption from filing certified, fair and legible copies of documents) in FAO (OS) (COMM)
76/2020.
C.M. No.14526/2020 (Exemption from filing duly affirmed affidavits along with the accompanying appeal and undertaking to pay court fees upon reopening of the Hon’ble court) & C.M. No.14527/2020 (Exemption from filing certified, fair and legible copies of documents) in FAO (OS) (COMM)
77/2020 2020:DHC:2277-DB FAO (OS) (COMM) Nos. 75/2020, 76/2020, 77/2020
JUDGMENT
1. Allowed, subject to just exceptions and as per the extant rules.
2. The applications are disposed of. FAO (OS) (COMM) 75/2020, C.M. Appln. No. 14173/2020 (for ad-interim stay & directions) FAO (OS) (COMM) 76/2020, C.M. Appln. No.14522/2020 (for ad-interim stay &directions) and, FAO (OS) (COMM) 77/2020, C.M.Appln. No.14525/2020 (for ad-interim stay & directions)
1. This appeal has been preferred under Section 37 of the Arbitration & Conciliation Act, 1996 (‘A&C Act’) read with Section 13 of the Commercial Courts Act, 2015 against the common judgment of the learned Single Judge dated 03.07.2020 disposing of three petitions filed by the appellants under Section 9 of the A&C Act being (i) OMP(I)(COMM) 135/2020, (ii) OMP(I)(COMM) 136/2020 & (iii) OMP(I)(COMM) 137/2020, seeking interim relief pending arbitration. By the impugned judgment the learned Single Judge declined the relief claimed of a restraint on the respondent No. 1 herein exercising its rights under the Pledge Agreements and Corporate Guarantee Agreements, executed by the appellants in favour of the respondent No. 1.
2. The facts as relevant for the disposal of the present appeals are that the respondent No.2/Essel Infraprojects Ltd. (EIL) issued Non-Convertible Debentures (‘NCD’) on 25.02.2015, aggregating the principal amount of Rs.425,00,00,000/-, which was subscribed by certain identified debenture holders for whose benefit 2020:DHC:2277-DB FAO (OS) (COMM) Nos. 75/2020, 76/2020, 77/2020 respondent No.1/IDBI Trusteeship Services Ltd. (IDBI TSL) executed a Debenture Trust Deed (‘DTD’) dated 22.05.2015. These debentures were redeemable by 22nd May, 2020.
3. The issuer company being respondent No.2/EIL was obligated to pay to the debenture holders the principal amount, the redemption premium and default interest (if any) once the debentures were redeemed alongwith certain other costs and expenses. In order to ensure that the obligations were met at the time of redemption, certain securities were incorporated in the DTD (Clause ‘C’) (Annexure H in FAO (OS) 75 & 77/2020 and Annexure G in FAO (OS) 76/2020). Thus, a first and exclusive pledge was created by the appellant/ Cyquator Media Services Pvt. Ltd. (Pledgor No.1) (for short Cyquator) in favour of respondent No.1/IDBI TSL over fully paid-up equity shares of ZEE Entertainment Enterprises Limited (ZEEL) held by it. Similarly, an exclusive pledge was created by the appellant/Direct Media Distribution Venture Pvt. Ltd. (Pledgor No.2) (Direct Media) again in favour of respondent No.1/IDBI TSL, over fully paid-up equity shares of Dish TV India Ltd. (Dish) held by it and Khubsoorat Infra Private Limited also executed a similar pledge over shares held by it. Further, an irrevocable and unconditional, joint and several, Corporate Guarantee was executed by the Pledgors No.1 and 2.
4. For easy reference the various documents filed as Annexures to the separate appeals are listed below: FAO (OS)(COMM) 75/2020 76/2020 77/2020 DTD Annexure H 22.05.2015 Annexure G Annexure H Share Pledge Agreement Annexure I Annexure F 01.02.2019 Annexure I Deed of Guarantee Annexure J - Annexure J Pledge Invocation Notice 12.06.2020 Corporate Guarantee Notice Annexure G - Annexure G
5. The DTD laid down what constituted the Events of Default in Clause 7 including that the respondent No.2/EIL failed to pay on the due date the amount payable under the Transaction Documents or failed to pledge additional ZEEL shares or provide such top-ups within the stipulated time. The consequences were also incorporated in Clause 8 of the DTD. Thus, in the event of a default occurring as defined in the DTD the respondent No.1/IDBI TSL could amongst other things, accelerate the redemption of the Debentures of NCD and declare that all or part of the Debentures together with Redemption Premium and all other amounts accrued or outstanding become immediately due and payable and also invoke the guarantee in terms of the Corporate Guarantee and invoke the pledge on the Pledged Shares in terms of the Pledge Agreements.
6. When respondent No.2/EIL being the issuer company failed to redeem the Debentures when they became due on 22nd May, 2020, respondent No.1/IDBI TSL issued notices of invocation dated 12.06.2020 on the Share Pledge Agreement (1) and (2) dated 22nd May, 2015 executed by appellant/Cyquator and appellant/Direct Media, respectively and on the Share Pledge Agreement (3) dated 01st February, 2019 executed by appellant/Khoobsurat, whereby in terms of the DTD it called upon the appellants to pay a sum of Rs.616,09,48,616/-, as the outstanding amount as on 5th June, 2020 alongwith default interest and to pay the said sum within one business day from the receipt of the said notices, failing which it threatened to initiate appropriate action for enforcement of the pledged securities under the various Pledge Agreements. By a separate notice dated 12th June, 2020, it also invoked the Deed of Guarantee dated 22nd May, 2015, executed by appellant/Cyquator and appellant/Direct Media.
7. Immediately thereafter, the appellants approached the court under section 9 of the A&C Act, seeking restraint on the respondent No.1/IDBI TSL from acting on the Pledge Invocation Notices as also on the Corporate Guarantee Notice. The learned Single Judge considered the various submissions made before it by the appellants, summarised in para 73 of the judgment as reproduced below: “i. The petitioners are not joining issue with respondent No.1 in so far as rights of pawnee or its entitlement under the subject contracts. ii. In the unprecedented times because of COVID- 19, the stock markets are not only operating at historically lower points but they are extremely volatile. iii. The financial institutions like the respondent No.1 and debenture holders owe a duty to act fairly and in good faith. iv. RBI and SEBI vide their Circulars have made relaxations qua defaults during lockdown and RBI has infused Rs.50,000 Crores of liquidity for exclusive use of mutual funds. v. The petitioners be granted some time for the market conditions to recover to achieve optimal recovery for the debenture holders / petitioners. vi. The previous stake sales conducted by the petitioners through private placements during 2019 shows that it was able to sell the shares of ZEEL for around Rs.400 whereas the market price at that time was Rs.360/-. vii. The case of the petitioners is covered by the order passed by Bombay High Court in Ruler Fairprice Wholesale Ltd. (supra), which order has been upheld by the Supreme Court. viii. Invocation of pledge of DTIL shares without prior approval of Ministry of Information and Broadcasting is illegal and void.”
8. The learned Single Judge observed that from the submissions made, it was clear that the present appellants had not challenged the rights of respondent No.1/IDBI TSL as a pawnee which are available to it under Section 176 of the Indian Contract Act, 1872. While accepting the contentions that respondent No.1/IDBI TSL had a duty to act fairly and in good faith, the learned Single Judge defined the parameters that constituted good faith as follows in para 77: “i. The sale of pledged shares is honestly and properly done. ii. The sale proceeds are applied to debt iii. As held by the Bombay High Court in National Security Clearing Corporation Ltd. (Supra) that pledger right is only in case the sale is not properly exercised, to get damages.”
9. At the same time, the learned Single Judge concluded that when the law granted absolute discretion to the pawnee to sell the shares when it liked to do so, the Court could not substitute it with its own discretion.
10. Dealing with the submissions made with reference to the prevailing circumstances of Covid-19, the learned Single Judge held that as the Regulatory Authorities viz. RBI and SEBI had not issued circulars to restrict the right of pledgees of shares, therefore, the Court could not read in to the contract, a clause akin to force majeure, for postponing the obligations under the contracts and as the Debentures had already reached maturity on May 22nd, 2020, the obligations and liabilities of the appellants as pledgors and guarantors had already come into play and they were not entitled to any relief. Accordingly, the petitions under Section 9 of the A&C Act, were dismissed.
11. Before this Court, Mr. Saket Sikri and Mr. Vijay Aggarwal the learned counsel for the appellants have conceded that the powers of the pawnee or pledgee under Section 176 of the Indian Contract Act, 1872, were not being challenged. However, it was emphasized that the grievances of the appellants were that the learned Single Judge had not considered the extraordinary situation prevailing due to the pandemic and had failed to factor in the consequent difficulties of liquidity that companies were facing and which hardship the RBI had addressed by issuing moratorium for repayment of loans and also by releasing Rs.50,000 Crores of liquidity for utilization by mutual funds and issuance of guidelines by SEBI, precisely to protect the interest of investors. The learned counsel submitted that the appellants were only interested in maximizing gains and had to this end carried out sale of stake twice in 2019. It was submitted that as a result of Stake Sale I, the Debenture holders received a sum of Rs.120,36,00,000/- thus redeeming in full Debentures having in principal value of Rs.74 crores, which is admitted by the respondent No.1/IDBI TSL. It is the grievance of the appellants that in Stake Sale II, despite a request to respondent No.1/IDBI TSL to tender 43,47,500 shares of ZEEL for sale at the rate of Rs.304 per share it did not do so. Mr. Sikri, submitted that thereafter no doubt, the share price had fallen but as was evident from the Chart annexed to the written submissions filed as Annexure T, presently, the trend was upward. In these circumstances, according to the learned counsel a grant of six weeks time to the appellants to work out a private stake sale was not unreasonable. Relying on several judgments namely, Shivashakti Sugars Lrd. V. Shree Renuka Suhar Ltd. & Ors. (2017) 7 SCC 729; UBS AG London Branch v. Rural Enterprise Whoelsale Limited & Ors. [S.L.P. (Civil) Diary No.10943/2020]; Mardia Chemicla Limited & Ors. v. Union of India & Ors. (2004) 4 SCC 311; National Securities Clearing Corporation Ltd. v. Prime Broking Company (India) Ltd. 2016 SCC Online Bom 4501; Rural Fairprice Wholesale Ltd. & Anr.
V. IDBI Trusteeship Services Ltd. & Ors. 2020 SCC Online Bom 518, the learned counsel submitted that the courts were required to factor in economic conditions while deciding matters relating to financial transactions and that in the present case, the acute economic stress caused by an unprecedented shock due to the Covid 19 pandemic must be taken into consideration to allow the appellants sometime to work out a beneficial plan for meeting their financial obligations.
12. It was further submitted by the learned counsel that even as per the Fund Manager of the respondent No. 1/IDBI TSL, Franklin Templeton the value of the shares pledged to it was Rs.92 crores (Annexure P) and therefore, the appellants were willing to give an undertaking to the Court that even if the value of the shares of ZEEL and DISH fell further, they would assure to the respondent No. 1/IDBI TSL a payment of Rs.110 crores within the period of six weeks i.e. by mid of August, 2020. Thus, it was prayed that protection against invocation of the Share Pledge Agreements be granted to the appellants till mid August 2020 at least.
13. It was also argued that the learned Single Judge had erroneously observed that the decision of the Bombay High Court in Rural Fairprice Wholesale Ltd. and Anr. v. IDBI Trusteeship Services Ltd. and Ors., 2020 SCCOnline Bom 518 (Annexure L) and as upheld by the Supreme Court (Annexure M) was distinguishable on facts, as the terms of agreement of pledge of shares were the same in the case before the Bombay High Court as also in the present case and the Bombay High Court had granted ad-interim protection, so that the respondent No. 1/IDBI TSL, who was a party in that case too, did not dispose of the pledged shares when the market value was low. Mr. Sikri, learned counsel referring to the chart annexed to the written submissions (Annexure T) submitted that there was an upward movement in the value of shares of ZEEL and DISH and that if the respondent No. 1/IDBI TSL rushed to dispose of the pledged shares it would greatly prejudice the appellants as they were entitled to maximize gains so that their debt liability is reduced.
14. It is also pointed out that the learned Single Judge erred in not considering the fact as far as the appellant/Direct Media were concerned, they were also governed by the terms of license which prohibited them from changing the equity shares holding without permission from the Government.
15. It is on these counts that the learned counsel for the appellants argued that the conclusions drawn by the learned Single Judge were untenable. Repeatedly, learned counsel emphasized that what was sought was just a further time of six weeks, which would enable the appellants to make proper arrangements so that a more profitable deal could be struck or in the alternative, the appellants could make the assured payment of Rs.110 crores for which the Directors were willing to give an undertaking to this Court. A further suggestion was made by Shri Vijay Aggarwal that along with the Directors undertaking, and since the tentative valuation of the shares was Rs.92 crores, in order to bridge the gap to cover Rs.110 crores, in addition to the said undertaking, the Directors of another company with no external debt was willing to give an Undertaking/Corporate Guarantee as it had a net worth of Rs.20 crores.
16. Per contra, Shri Neeraj Kishan Kaul, learned senior counsel for the respondent No.1 submitted that the scope of interference under Section 37 of the A&C Act was limited. Further, when the right of the pawnee under Section 176 of the Indian Contract Act, 1872, was not being questioned, the appellants have not been able to justify the relief claimed for extension of time. Morevover, it was submitted that there was no error in the judgement of the learned Single Judge in not following the orders of the Bombay High Court, as in the present case the date of redemption of the Debentures had already elapsed and further in that case the loan was fully secured, whereas the security in the present case were the shares itself. Further, Mr. Kaul, the learned senior counsel relied on the decisions rendered in Infrastructure Leasing & Financial Services Limited vs. BPL Ltd., (2015) 3 SCC 363; Bank of Maharashtra vs. M/S. Racmann Auto (P) Ltd., AIR 1991 Del. 278; Rani Leasing & Finance Ltd. Vs. Sanjay Khemani, 2015 SCCOnline Cal. 450; Reliance Project Ventures & Management Pvt. Ltd. & Anr. Vs. ECL Finance Limited & Others, 2019 SCCOnline Bom. 6781, to submit that the pawnee had an absolute discretion whether and when to dispose of the pledged goods and further whether to retain them as collateral in the event of filing a suit for recovery against the pawnor/pledgor.
17. Mr. Birendra Saraf, learned counsel for the respondent No.1/IDBI TSL in FAO (OS)(COMM) 77/2020 also submitted that the learned Single Judge had rightly rejected the argument of the appellants that any change in the share holding pattern had to be first approved by the Government. In short, it was submitted that the appellants were seeking something from the Court which was not permissible either under law or under contract and that no equities were available to the appellants. Thus, it was prayed that the appeals be dismissed.
18. As rightly submitted by Mr. Kaul, learned senior counsel, the scope of interference by the court while exercising its jurisdiction in an appeal under Section 37 of the A&C Act, is extremely limited. As observed by a coordinate Bench of this court of which one of us (Asha Menon, J.) was a member, in FAO (OS) (Comm) No. 213/2019, titled as M/s. Chopra Marketing Pvt. Ltd. vs. M/s. Drishticon Properties Pvt. Ltd. & Anr, decided on 31.10.2019: