Tendril Financial Services Pvt. Ltd. & Ors. v. Namedi Leasing & Finance Ltd. & Ors.

8. On 12th July, 2016, finding that inspite of issues framed as far back as on 3rd May, 2012, no affidavit by way of examination in chief had been filed by the plaintiffs till then, the suit was dismissed for non-prosecution and the interim order in force, vacated.

9. The plaintiffs preferred RFA(OS) No.66/2016 against order dated 12th July, 2016 and which was allowed vide judgment dated 21st September, 2016 and suit along with all pending applications, restored.

10. The senior counsel for the plaintiffs, the counsel for defendants no.1 to 4 and the senior counsel for the defendant no.7 Morgan were heard on (a) IA No.13721/2006 of the plaintiffs under Order XXXIX Rules 1 and 2, (b) IA No.14158/2006 of defendant no.7 Morgan and

(c) IA No.291/2007 of the defendants no.1 to 4, both under Order

XXXIX Rule 4 of the CPC, on 18th November, 2016, 22nd November, 2016, 14th December, 2016, 28th April, 2017 and 9th May, 2017 and orders reserved with liberty to the counsels to also submit in bullet points their respective contentions.

11. The counsels during the hearing, also submitted Convenience Volumes to save the time in rummaging through the voluminous records.

12. During the hearing, i) it was informed that defendant no.8 Blue Coast had approached Securities and Exchange Board of India (SEBI) with a complaint with respect to the sale of 15,00,000 shares aforesaid and of violation of the Takeover Code; ii) that SEBI held in favour of defendant no.8 Blue Coast but the Securities Appellate Tribunal (SAT) in appeal, reversed the order of SEBI and the appeal preferred to the Supreme Court by defendant no.8 Blue Coast had been dismissed; iii) the senior counsel for the plaintiffs agreed that in the event of any inconsistency qua the mechanism provided of sale of shares by the defendant no.7 Morgan in the pledged documents and in the Memorandum of Settlement in terms whereof Arbitral Award was published, the Memorandum of Settlement shall prevail; iv) the senior counsel for the plaintiffs was asked to explain whether the Civil Court can go into the questions which had already been decided by a specialized adjudicatory body i.e. SAT; v) the counsels were asked to address on whether challenge to sale of shares pursuant to a debt, which has been subject matter of execution proceedings, can be made by way of an independent suit or the said questions should have to be raised only in the execution proceedings; (vi) it was informed that defendant no.7 Morgan invoked the pledge on 28th April, 2003 and in pursuance to which invocation, the aforesaid 15,00,000 shares were transferred from the Demat Account of the plaintiff to the Demat Account of the defendant no.7 Morgan; however on Memorandum of Settlement incorporated in the Arbitral Award being executed and further time being granted to defendant no.8 Blue Coast and defendant no.9 Morepen to repay the dues of defendant no.7 Morgan, the shares were transferred back from the Demat Account of defendant no.7 Morgan to the Demat Account of the plaintiffs; that the defendant no.7 Morgan again invoked the pledge on 6th / 9th December, 2003 and the said 15,00,000 shares were again, from 15th December, 2003 onwards, transferred from the Demat Account of the plaintiffs to the Demat Account of defendant no.7 Morgan; that the shares were actually sold by defendant no.7 Morgan to defendants no.1 to 4 from 16th December, 2003 till 25th March, 2004, through the Stock Exchange; vii) it was informed that Execution Petition No.13/2004 had since been disposed of as satisfied but at the time of disposal of the Execution Petition, the question whether the sale of shares is valid or not was left open to be adjudicated in this suit; viii) it was the contention of the senior counsel for the plaintiffs that the Pledge Agreement contemplated two stages – one of invocation of pledge but which did not divest the plaintiffs of title in the shares and the second, of actual sale of shares only on happening whereof the plaintiffs were to stand divested of the title to shares; ix) it was enquired from the senior counsel for the plaintiffs as to what difference it made, whether the plaintiffs were divested of the title in the shares on 6th / 9th December, 2003 or on 25th March, 2004 inasmuch as unless the plaintiffs had redeemed the pledge within the meaning of Section 177 of the Contract Act till then, the sale would still be valid; x) the senior counsel for the plaintiffs contended that no notice of sale in accordance with Section 176 of the Contract Act was given and the sale of shares was thus bad; xi) it was the contention of the senior counsel for the plaintiffs that till 25th March, 2004, a sum of approximately Rs.37.[5] lacs out of over Rs.[6] crores due had been repaid; and, xii) it was the contention of the senior counsel for the plaintiffs that the plaintiffs learnt of the sale only in the year 2005; till then, the defendant no.7 Morgan, in the execution proceedings, by obtaining injunction against defendant no.8 Blue Coast enhancing its share capital, kept the plaintiffs under the belief that the shares were still held by the defendant no.7 Morgan inasmuch as if the shares had been transferred, there would have been no need to obtain such protection.

13. Before proceeding further, the following may be noticed:

(viii) Notwithstanding what is stated above, if so permitted by the Bye-laws and Regulations of the concerned depository, the Lender may sell, realize and / or dispose-off the dematerialised Pledged Securities or any of them without having the same first transferred or registered in the name of the Lender.

10. That you shall have Irrevocable right to sell, dispose off or realize the said securities on such terms and for such price as you may think fit and shall apply the net proceed towards satisfaction of the total outstanding against the borrower. If the net sum realized by such a sale should be insufficient to cover the full amount due in respect of the said ICD facility together with interest, over due interest and other charges and expenses as per your claim. We agree to pay you forthwith a delivery of the said amount and any balance due to you on the footing thereof. If the net sum realized by such a sale shall be in excess of the amount due in respect of the said ICD Facility, the excess will be made over by you to us forthwith.‖ (emphasis added)

27th May, 2003 incorporated in the Arbitral Award and to which attention was drawn by the counsels during the hearing, are as under: “4. RIGHTS OF LENDER IN CASE OF DEFAULTS

(i) On the occurrence of any of the event of default, without prejudice to any other remedy which the Lender may have, the pledge will become enforceable forthwith which includes the right of sale of shares pledged.

(iii) It is also specifically agreed that in the event the number of unpaid instalments (whole or in part) become three, then there shall be an acceleration and the entire DEBT DUE AND PAYABLE as mentioned in Annexure ―A‖ shall become due and payable forthwith without requirement of any notice and further without prejudice to the executability of the Award in terms hereof.

6. GUARANTEE AND PLEDGE

(ii) The Pledgers Guarantee due repayment by Borrower /

Guarantors / Surety of the DEBT DUE AND PAYABLE and by way of security have pledged all their rights, title and interest in and to the shares in favour of the Lender. The details of the Pledgers and the security pledged and the number of shares pledged are enumerated hereinbelow:- Name of the Pledger Security Name Type of Security No. of shares Pledged Tendril Financial Services Pvt. Ltd. Blue Coast Hotels & Resorts Ltd. Equity Share 3,17,000 Niketan Traders Pvt. Ltd. Equity Share 3,10,000 Ebony Traders Pvt. Ltd. Equity Share 22,000 Becker Traders Pvt. Ltd. Equity Share 2,92,000 Cross Trading Pvt. Ltd. Equity Share 2,89,000 Petunia Financial Services Pvt. Ltd. Equity Share 2,70,000 Total 15,00,000

7. FURTHER ASSURANCES

(i) It is understood and agreed by and between the parties that since the share market remains highly volatile and the prices of the scrips keep on fluctuating quite a lot, which factum is known to all the parties of this Settlement. The Borrower, Guarantors and Surety and Pledgers fully agree and undertake that they shall not raise any objection on the said decision of the Lender and shall accept the statement containing the share sale transactions carried out by the Lender in relation thereto; without any protest or objection.

(ii) It is also agreed by the Borrower and Pledgers that in case they failed to make the payment in terms of this Memorandum of Settlement or the price of equity shares pledged falls below the price mentioned in para 3(iii) above, the Lender shall be at liberty to sell / dispose off the whole or the part of the said shares at its sole discretion as it may deem fit at any point of time at the price available in the market for which the Borrower / Pledgers shall have no objection whatsoever. The proceeds on account of the sale of said shares will be credited accordingly to the Borrower‘s account and adjusted against the overdue amount.

(iii) In case of default the Lender shall have absolute right, title and interest to appropriate the security and sell the security at fetchable market price. However, the Lender undertakes that prior to the default he will keep the security as pledge and will not create any third party right. We, the Pledgers undertake, agree and abide by the terms and conditions of this Memorandum of Settlement and have signed hereof in token of our acceptance of the terms contained in the Memorandum of Settlement hereinabove. We the Pledgers also agree and confirm that this Memorandum of Settlement shall not affect the rights of the Lender under the Letters of Pledge and Irrevocable Power of Attorney(s) dated 07.02.2003 or affect the validity of the said Letters of Pledge and Irrevocable Power of Attorney(s).‖ (emphasis added)

177. Defaulting pawnor’s right to redeem. – If a time is stipulated for the payment of the debt, or performance of the promise, for which the pledge is made, and the pawnor makes default in payment of the debt or performance of the promise at the stipulated time, he may redeem the goods pledged at any subsequent time before the actual sale of them, but he must, in that case, pay, in addition, any expenses which have arisen from his default‖

14. The senior counsel for the plaintiffs informed / argued (a) that the defendant no.9 Morepen is the promoter of defendant no.8 Blue Coast; (b) that 15,00,000 shares were pledged to secure the borrowings of defendant no.8 Blue Coast and defendant no.9 Morepen from defendant no.7 Morgan; (c) that in terms of the Memorandum of Settlement, three arbitral awards with respect to three inter-corporate deposits were made; (d) that Execution Petitions No.6/2004 and 13/2004 were filed by defendant no.7 Morgan for recovery of dues from defendant no.9 Morepen and Execution Petition No.18/2004 was filed by defendant no.7 Morgan for recovery of dues from defendant no.8 Blue Coast; (e) that the defendant no.7 Morgan claimed to be entitled to Rs.18 crores and sold the 15,00,000 shares to defendants no.1 to 4 for Rs.1.57 crores; (f) that Execution Petitions No.18/2004 and 6/2004 have been disposed of as satisfied; (g) that in the said Execution Petitions, no credit of the amounts realized by the defendant no.7 Morgan from sale of the 15,00,000 shares was given; (h) that the legal question for adjudication is whether the plaintiffs lose right and title in the shares merely on invocation of the pledge or on sale of the shares; if it is held that the plaintiffs lose right / title on invocation of the pledge, no challenge to the sale can be made; (i) that it is however the contention of the plaintiffs that on mere invocation of pledge, the plaintiffs as pledgors did not lose right or title in the shares; this is evident from the shares at the time of first invocation though having been transferred from the Demat Account of the plaintiffs to the Demat Account of defendant no.7 Morgan, having been returned to the Demat Account of the plaintiffs on Memorandum of Statement incorporated in the Arbitral Award being drawn up; (j) that the defendant no.7 Morgan relies upon a notice dated 6th September, 2003 and which is disputed by the plaintiffs and the said question is a subject matter of evidence; (k) that till the filing of the Execution Petition on 9th January, 2004, the defendant no.7 Morgan was treating the pledge to be continuing; this is clear from the amounts realized from sale if any of the shares being not mentioned in the Execution Petition and application for restraining the defendant no.8 from enhancing the share capital being filed; and, (l) that the proceedings before the SEBI were concerned with the aspect of Takeover Code and not with the aspect of pledge.

15. Per contra, the senior counsel for the defendant no.7 Morgan informed / argued (a) that since the shares were not in physical form but in fungible form, the provisions of the Contract Act relating to pledge are not relevant and the provisions of the Depositories Act, 1996 apply thereto; (b) that Regulation 58 of the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996 is as under: “Manner of creating pledge or hypothecation. 58(1) If a beneficial owner intends to create a pledge on a security owned by him, he shall make an application to the depository through the participant who has his account in respect of such securities. (2) The participant after satisfaction that the securities are available for pledge shall make a note in its records of the notice of pledge and forward the application to the depository. (3) The depository after confirmation from the pledgee that the securities are available for pledge with the pledgor shall within fifteen days of the receipt of the application create and record the pledge and send an intimation of the same to the participants of the pledgor and the pledgees. (4) On receipt of the intimation under sub-regulation (3) the participants of both the pledgor and the pledgee shall inform the pledgor and the pledgee respectively of the entry of creation of the pledge. (5) If the depository does not create the pledge, it shall send along with the reasons an intimation to the participants of the pledgor and the pledgee. (6) The entry of pledge made under sub-regulation (3) may be cancelled by the depository if the pledgor or the pledgee makes an application to the depository through its participant: Provided that no entry of pledge shall be cancelled by the depository with the prior concurrence of the pledgee. (7) The depository on the cancellation of the entry of pledge shall inform the participant of the pledgor. (8) Subject to the provisions of the plegde document, the pledgee may invoke the pledge and on such invocation, the depository shall register the pledgee as beneficial owner of such securities and amend its records accordingly. (9) After amending its records under sub-regulation (8) the depository shall immediately inform the participants of the pledgor and pledgee of the change who in turn shall make the necessary changes in their records and inform the pledgor and pledgee respectively. (10)(a) If a beneficial owner intends to create a hypothecation on a security owned by him he may do so in accordance with the provisions of sub-regulations (1) to (9). (b) The provisions of sub–regulations (1) to (9) shall mutatis mutandis apply in such cases of hypothecation: Provided that the depository before registering the hypothecate as a beneficial owner shall obtain the prior concurrence of the hypothecator. (11) No transfer of security in respect of which a notice or entry of pledge or hypothecation is in force shall be effected by a participant without the concurrence of the pledgee or the hypothecate, as the case may be.”;

(c) that under the aforesaid Regulation, the beneficial ownership in the shares changes on invocation and it is only the adjustment which takes place on sale; (d) that the plaintiffs in the plaint have not disputed that the defendant no.7 Morgan sold the shares through the market; (e) that at the time of sale, Execution Petition No.13/2004 was already pending and due adjustment has been given therein of the price received on sale of shares; (f) that it was a term of the loan that till the loan is re-paid, the defendant no.8 Blue Coast will not change its shareholding; that the defendant no.7 Morgan, by seeking an order in the execution to the said effect was merely enforcing the said term and applying for and obtaining the said injunction order does not indicate that the shares continued to be pledged; (g) that the price fetched by the shares was low compared to the earlier prevailing price, owing to a large number of shares having come in the market; (h) that in fact, the said sale was effected after obtaining permission of SEBI because the said shares were under the 5% Circuit Breaker limit; (i) that the repayment of the loan by the defendant no.8 Blue Coast and defendant no. 9 Morepen started much later; (j) that on the complaint of the plaintiffs of the offence of breach of trust, an FIR was also registered but which has been quashed and the challenge thereto before the Supreme Court has been dismissed; (k) that therefore there is no question of breach of trust now; (l) that the order of SAT is final; (m) that this case now only concerns the applicability of Section 176 of the Contract Act; (n) that Section 23E of the Depositories Act as under: “23E. Civil Court not to have jurisdiction. No Civil Court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Securities Appellate Tribunal is empowered by or under this Act to determine and no injunction can be granted by any court or other authority in respect of any action taken or to be taken. In pursuance of any power conferred by or under this Act.‖ bars the jurisdiction of the Civil Court; (o) that Section 15Y of the Securities and Exchange Board of India Act, 1992 as under: ―15Y. Civil Court not to have jurisdiction. – No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which an Adjudicating officer appointed under this Act or a Securities Appellate Tribunal constituted under this Act is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act.‖ also bar the jurisdiction of the Civil Court; and, (p) that the plaintiffs in the present case are admittedly investment companies of the borrowers viz. defendant no.8 Blue Coast and defendant no.9 Morepen, of the defendant no.7 Morgan.

16. The counsel for the defendants no.1 to 4 informed/argued, (a) that the defendants no.1 to 4 purchased the shares from the market; (b) that the defendant no.8 Blue Coast, while disclosing its shareholding pattern as on 1st January, 2004, disclosed the shares held by the defendant no.5 who sold the same to the defendant no.1 on 9th July, 2004 and the shares held by defendant no.2; (c) the defendant no.8 Blue Coast thus had knowledge as on that date, of the sale of the pledged shares and the plaintiffs who are acting in concert with defendant no.8 Blue Coast thus also had knowledge; (d) that public announcement dated 27th February, 2004 was made by defendant no.8 Blue Coast of defendant no.7 Morgan having become beneficial owner of the shares in accordance with Regulation 58 supra; (e) that defendant no.6 bought 4.58% of the shares from the market and sold the same to the defendant no.1 on 9th July, 2004; (f) that defendant no.5 sold the shares acquired by it from the market to the defendants no.1 to 3 on 16th July, 2004; (g) that in such transactions through depositories, it is not known who is buying and who is selling; (h) that defendants no.1 to 4 are bona fide purchasers of the said shares; (i) that the plea of the plaintiffs, of the defendants no.1 to 4 having acted in concert with defendants no.5 to 7 has already been rejected by quashing of the FIR for the offence of breach of trust and the ex parte order is liable to be vacated on the said ground alone; (j) that the defendants no.1 to 4 are not concerned with Section 176 of the Contract Act;(k) that all the aforesaid dates of transfer of shares have been accepted as correct in the order of the SAT; and, (l) that the SAT in its order has also returned a finding of purchase of shares by the defendants no.1 to 4 through the market mechanism and that when trades are executed through market mechanism, there can never be prior meeting of minds between buyer and seller; if there has to be prior meeting of minds, the trades have to be manipulative and cannot be through market mechanism and which was not the allegation before it; it was further recorded in the said order that the trading system of Stock Exchange is anonymous and does not permit the buyer to know who the seller is and vice-versa.

17. The senior counsel for the plaintiffs, in rejoinder referred to Section 28 of the Depositories Act as under: “28. Application of other laws not barred The provisions of this Act shall be in addition to, and not in derogation of, any other law for the time being in force relating to the holding and transfer of securities. to contend that the same is in addition to the provisions of the Contract Act and thus the jurisdiction of the Civil Court is not barred and notice under Section 176 of the Contract Act would still be required. It was further contended that the notice claimed to have been given has been given to defendant no.9 Morepen and not to the plaintiffs as pledgors. It is further informed that the plaintiffs filed a petition under Section 570 of the Companies Act, but had subsequently withdrawn the same. It was yet further argued that the balance of convenience is in favour of the plaintiffs, particularly as the trial is underway.

18. The counsel for the plaintiffs along with his written submissions has filed copies of following judgments though all of them were not cited at the time of hearing:

(i) Neikram Dobay Vs. Bank of Bengal 1891 LR 60;

(ii) Ramdeyal Prasad Vs. Sayed Hasan AIR (31) 1944 Patna

135;

(iii) The Official Assignee Vs. Madholal Sindhu (1946) 48

(iv) Nabha Investment Pvt. Ltd. Vs. Harmishan Dass

(v) Hulas Kunwar Vs. Allahabad Bank Ltd. AIR 1958 Cal

644;

(vi) Balkrishan Gupta Vs. Swadeshi Polytex Ltd. (1985) 2

(vii) Order dated 14th August, 2008 in FAO(OS) No.350/2008 titled Namedi Leasing & Finance Company Ltd. Vs. Tendril Financial Services Pvt. Ltd.;

(viii) Hamza Haji Vs. State of Kerala (2006) 7 SCC 416;

(ix) Poysha Power Generation Pvt. Ltd. Vs. Doctor Morepen

(x) Dalpat Kumar Vs. Prahlad Singh (1992) 1 SCC 719;

(xi) Bina Murlidhar Hemdev Vs. Kanhaiyalal Lokram

(xii) Anand Prasad Agarwalla Vs. Tarkeshwar Prasad

(xiii) Hindustan Petroleum Corpn. Ltd. Vs. Sriman Narayan

(xiv) Maharwal Khewaji Trust (Regd.), Faridkot Vs. Baldev

19. The counsel for the defendant no.7 Morgan along with his synopsis of submissions has filed following judgments though at the time of hearing only first two judgments were cited:

(i) JRY Investments Pvt. Ltd. Vs. Deccan Leafine Services

(ii) Pushpanjali Tie Up Pvt. Ltd. Vs. Renudevi Choudhary

(iii) Maharashtra State Cooperative Bank Ltd. Vs. Assistant

(iv) Infrastructure Leasing & Financial Services Ltd. Vs.

B.P.L. Ltd. 2015 (1) SCALE 186;

(v) Bharat Bank Ltd. Vs. Bodh Raj AIR 1956 P&H 155;

(vi) Sankaranarayana Iyer Saraswathy Amal Vs. The

(vii) Cooverji Umersey Vs. Mawji Vaghji AIR 1937 Bombay

(viii) S.L. Ramaswamy Chetty Vs. M.S.A.P.L. Palaniappa

20. The counsel for the defendants no.1 to 4 has also filed synopsis of his submissions.

21. I have considered the controversy and for the reasons following, am of the view that the plaintiffs are not entitled to the continuation of the ad interim order which has remained in force for the last 12 years:

Limited supra is found to have, held i) that the shares in dematerialized form cannot be pledged in accordance with the provisions of the Contract Act which requires delivery of the goods pledged; ii) it is obvious from the provisions of the Contract Act, that for a valid pledge, there must be a delivery of goods i.e. a physical possession of the goods; it would however be impossible to hold that such goods in a dematerialized form are capable of delivery i.e. by handing over de facto possession; since goods are invisible and intangible, it would be impossible and in any case difficult to fix the fact of time and place of delivery; dematerialized shares cannot be delivered physically nor can physical possession of such dematerialized shares be handed over; iii) provisions have been enacted in the Depositories Act for the purpose of recording accurately the transfers and pledges of shares including those in a dematerialized form; iv) the transactions in such shares are directly governed by the Depositories Act which contemplates the existence of a depository; the shares are held by the depository in the name of the beneficial owner of the shares; the depository is entitled to act as a registered owner for the purpose of effecting transfer of ownership of security on behalf of a beneficial owner vide Section 10 of the Depositories Act which begins with a non-obstante clause and therefore ownership and transfer of shares governed by the Act must be in accordance with the provisions of the Depositories Act; v) Section 12 of the Depositories Act provides for pledge or hypothecation of the security and Section 20 thereof renders anyone who acts in contravention of the Act or any regulations or bye-laws, punishable with imprisonment; vi) SEBI in exercise of the powers under Section 25 of the Depositories Act has made the Regulations aforesaid which require the depository to maintain records of all approvals, notices, entries and cancellation of pledge; vii) the Depositories Act and the Regulations aforesaid contain a whole and self-contained procedure for the creation of pledges; viii) in any case, since it is not possible to physically deliver demated shares and therefore pledge them in accordance with the Contract Act, it must be held that a pledge of such shares can only be validly created in accordance with the provisions of the Depositories Act; ix) though in the facts of the case, pledge was not created by the plaintiff in the suit and the title in the shares was conveyed to the defendant no.1 in the suit but even if it were to be assumed that the plaintiff did not convey title in the shares to defendant no.1, still, it could not be said that the other defendants who purchased the shares from the defendant no.1 would not get any title in the share; and, x) the shares stood in the name of defendant no.1 as beneficial owner and the circumstances of the shares standing in the name of defendant No.1 as beneficial owner of the shares in the records of the depository participant was clearly attributable to the plaintiff and the plaintiff was estopped from asserting its title against bona fide purchasers for value without notice of any defect in the title.

High Court of Bombay in JRY Investments Private Limited supra and in Pushpanjali Tie Up Pvt. Ltd. supra and respectfully concur with the same and am for the same reasons unable to find the plaintiffs entitled to any interim relief as they have enjoyed for the last 12 years.

Act is in derogation of Regulation 58 supra. While Section 176 entitles the pledgee/pawnee to, on default by the pledgor/pawnor, sell the thing pledged, ―on giving the pawnor reasonable notice of the sale‖, Regulation 58(8) entitles the pledgee to, ―subject to the provisions of the pledge document‖, ―invoke the pledge‖ and mandates the depository to ―on such invocation‖ i.e. by the pledgee, ―register the pledgee as beneficial owner of such securities‖ i.e. the securities pledged and further mandates the depository to ―amend its records accordingly‖. There is no place for a prior notice under Section 176, in the scheme of Regulation 58(8). On the contrary, Regulation 58(9) requires the depository to, after so amending its records under Regulation 58(8), inform the participants of the pledgor and the pledgee of the same and mandates the said participants to inform the pledgor and the pledgee. Thus, (a) while Section 176 provides for a notice to pledgor prior to effecting sale, Regulation 58 provides for notice post invocation and on which invocation beneficial ownership of pledged shares changes from that of the pledgor to that of the pledgee and which is equivalent to sale under Section 176. To hold that a prior notice under Section 176 of Contract Act is also required in the case of pledge of dematerialised shares would interfere with transparency and certainty in the securities market, rendering fatal blow to the Depositories Act and Regulations and the object of enactment thereof.

(2000) 5 SCC 122, did not accept the defence of Sections 172 – 177 of the Contract Act in the context of a claim under the Consumer Protection Act, 1986 and further reasoned that the Bank as pledgee in that case having agreed to the request of pledgor for sale of pledged shares, could not take the plea of being entitled under Section 176 of the Contract Act to retain the pledged shares and sue for recovery of its dues.

I. There is another aspect. Provision of notice under Section 176, even if were to be held to be required to be given, is for the benefit of the pledgor and has no element of public law or public interest. A provision, even in law, for personal benefit, if not in public interest, can always be waived by that person. The plaintiffs, in the Letters of Pledge and in the Arbitral Award, are found to have waived such notice.

Sons Vs. The Frontier Bank Ltd. ILR [XV-(1)] 1961 Punj 79. It was held, relying on Neikram Dobay supra, that the sale of the pledged things by the pledgee to itself, though unauthorised, cannot be said to be void. Finding it to be not the pledgor‘s case that the value credited to its account is below the market value, it was held that no interim injunction could be granted. Similarly in the present case there is no whisper of the prevalent price on date of sale or of damage if any caused to plaintiffs.

22. Resultantly, IA No.13721/2006 of the plaintiffs under Order XXXIX Rules 1 and 2 is dismissed and IA No.14158/2006 of defendant no.7 Morgan and IA No.291/2007 of the defendants no.1 to 4, both under Order XXXIX Rule 4 of the CPC, are allowed. Resultantly, the ad interim order dated 11th December, 2006 is vacated. CS (OS) No.2281/2006, CCP(O) No.57/2007 & IA No.1922/2007 (of the plaintiffs under Order XI Rules 12&14 CPC)

23. Though I am of the opinion that in view of the aforesaid, the suit itself is liable to be dismissed but since the counsels have not been heard on the said aspect, it is deemed appropriate to hear the parties concerned.

24. List for the said purpose on 21st May, 2018. Recording of evidence to go on in the meanwhile.

RAJIV SAHAI ENDLAW, J. APRIL 3, 2018 ‗gsr‘..