High Court: Where absolute discretion lies in law, Court cannot substitute it with its own. [Read Judgment]

On 3^rd July 2020, The High Court of Delhi disposed of the three petitions as of similar nature, with the common order in the case of khoobsurat infra Pvt ltd., direct media distribution ventures Pvt ltd, and cyquator media services Pvt ltd v. IDBI trusteeship services ltd and anr,. IDBI trusteeship services ltd and anr, and IDBI trusteeship services ltd and anr comprising of Justice V. Kameswar Rao held that where absolute discretion lies in law, the court cannot substitute it with its own.

One of the questions before the court relates to the rights of a pledgee to sell. The respondents argued that the petitioner cannot compel or restrain the respondents from exercising its power of sale of the pledged shares in order to discharge any debt.

The petitioners argued that the precedence referred may not be appliable to an emergency pandemic situation like the present one, where the market forces have been upended on fear and panic selling on account of COVID-19, more so by relying upon the order of the Bombay High Court in the case of Ruler Fairprice Wholesale Ltd. which has been upheld by the Supreme Court.”

Court findings and Judgment

The High Court of Delhi stated that they are required to act in good faith which can only be seen on the following parameters:

1. The sale of pledged shares is honestly and properly done.
2. The sale proceeds are applied to the debt.
3.  As held by the Bombay High Court in National Security Clearing Corporation Ltd. that pledger right is only in case the sale is not properly exercised, to get damages.

High Court of Delhi, further stated that the “when absolute discretion lies in law and under the subject contracts with pawnee to sell the shares when it likes and as it likes, surely, this Court cannot substitute that discretion with its own discretion. In other words, the exercise of discretion by the respondent is jot justiciable. Further, the Court would not like to exercise such a discretion when it does not have the expertise and necessary wherewithal as that of the respondent”

Lastly, it was held:

“Even the reliance placed by Mr. Tripathi on the Judgment of the Supreme Court in the case of UOI v. D.M. Revri & Co. that the Courts must view the prevailing circumstances, while interpreting contracts, shall not be applicable to the facts of this case, firstly, the terms of the contract have not been disputed by Mr. Salve and Mr. Tripathi, so the interpretation, is a non-issue. Secondly, when the regulator has not issued any circulars, to meet the eventuality of COVID-19, surely this Court, cannot read into the contracts, a clause akin to force majeure, for postponing the obligations under the contracts.”

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