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IA GA No. 1 of 2020
Old GA No. 1186 of 2020
In
CS 85 of 2020
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
COMMERCIAL DIVISION
IL AND FS INFRASTRUCTURE DEBT FUND AND ANR.
V.
WILLIAMSON MAGOR AND COMPANY LTD. AND ORS.
For the Petitioner : Mr. Ratnako Banerjee, Sr. Advocate
Mr. Rishad Medora, Advocate
Mr. Ramya Hariharan, Advocate
Mr. Soumava Mukherjee, Advocate
For the Defendant Nos. : Mr. Jishnu Chowdhury, Advocate
1 to 6 Mr. Rishav Banerjee, Advocate
Mr. Srinjoy Bhattacharya, Advocate
For the Defendant No. 7 : Mr. S.K. Kapur, Sr. Advocate
Mr. Ranjan Bachawat, Sr. Advocate
Mr. R. Bhattacharya, Advocate
Mr. Sayantan Bose, Advocate
Ms. Madhurima Das, Advocate
Hearing concluded on : February 5, 2021
Judgment on : February 23, 2021
DEBANGSU BASAK, J. :-
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In a suit for declaration and injunction, the plaintiffs have sought interim order of injunction in respect of specified shares of certain legal entities on which the plaintiffs claim pledge.
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2. Learned Senior advocate appearing for the plaintiffs has submitted that, the plaintiff No. 1 is a mutual fund scheme established in accordance with the Securities and Exchange Board of India (Mutual Fund) Regulations, 1996 and is a trust registered under the provisions of the Indian Trust Act, 1882. He has submitted that, the plaintiff No. 2 is an asset management company. He has drawn the attention of the court to the transactions that the plaintiffs had with the defendant Nos. 1 to 4. He has submitted that, that the defendant Nos. 1 to 4 comprise the Williamson Magor Group. He has submitted that, the defendant Nos. 5 and 6 are the promoters and directors of the defendant Nos. 1 to 4. The defendant Nos. 1 to 4 had obtain credit facilities from the plaintiffs and as security for the repayment of such credit facilities. The defendant Nos. 1 to 4 had inter alia agreed to pledge specified shares of specified legal entities in favour of the plaintiffs. He has referred to the various documents that the parties had executed. He has submitted that, the defendant Nos. 1 to 4 had enjoyed sums in excess of Rupees one hundred crores from the plaintiffs. The defendant Nos. 1 to 4 had failed to adhere to the terms and conditions of the contract between the parties. The defendants had failed to pledge the agreed shares in favour of the plaintiffs. Consequently, the plaintiffs have sought for a declaration that, the shares of the specified legal entities held by the 3 defendant numbers 1 to 4 stand pledged in favour of the plaintiffs and for consequential reliefs with regard to those shares.
3. Learned Senior advocate appearing for the plaintiffs has submitted that, in response to the notices for creation of security issued by the plaintiffs, the defendant Nos. 1 to 4 have given evasive replies. He has submitted that, the shares in question are required to be protected. He has referred to the order refusing to pass an interim injunction as prayed for in the suit. He has submitted that, on appeal, the Appeal Court had granted an order of injunction on October 8, 2020. He has submitted that, such order of injunction should be continued till the disposal of the suit.
4. Learned Senior advocate appearing for the plaintiffs has submitted that, the deed of assignment on which the plaintiffs are relying on is adequately stamped. He has referred to the gazette notification prescribing the stamp duty required for a deed of assignment. He has submitted that a deed of assignment does not require registration in the sense that, it is not compulsorily registrable. He has relied upon All India Reporter 1967 Supreme Court 401 (Commissioner of Income 4 Tax, West Bengal, Calcutta v. Juggilal Kamlapat) in support of his contentions.
5. Learned Senior advocate appearing for the defendant No. 7 has submitted that, the defendant Nos. 1 to 4 enjoyed credit facilities from the defendant No. 7. On failure of the defendant Nos. 1 to 4 in making payment of such credit facilities, arbitration proceedings had ensued between the defendant Nos. 1 to 4 and the defendant No. 7. He has submitted that, there exist awards in favour of the defendant Nos. 7. He has submitted that, the Hon'ble Supreme Court in the arbitration proceedings had granted an order of status quo. According to him, the shares in question stand charged in favour of the defendant No. 7 and that, such charge has been registered. He has referred to the documents that the plaintiffs have relied upon as against the defendant Nos. 1 to 4 and submitted that, the so-called letters of undertakings are undated. According to him, as against crystallised rights of the defendant No. 7 against the other defendants, the claims of the plaintiffs are yet to be adjudicated upon. According to him, no order of injunction should be granted in favour of the plaintiffs.
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6. Learned advocate appearing for the defendant numbers 1 to 6 has submitted that, the plaintiffs have no right over the shares in respect of which, the plaintiffs are claiming pledge. He has submitted that, the defendant Nos. 1 to 6 had never created any pledge or executed any documents in favour of the plaintiffs. They had never agreed to pledge any shares in favour of the plaintiffs. He has referred to the assignment agreement and submitted that, the same is to be treated as a mortgage. According to him, the assignment agreement has taken care of movebles as well as immovable properties. Since immovable properties have been included in the deed of assignment, the same has to be treated as a deed of mortgage. According to him, the deed of assignment has not been appropriately stamped. Moreover, the deed of assignment has to be registered. In support of his contentions, he has relied upon ILR 34 Mad 965 (Elumalai Chetty v. P. Balakrishne Mudaliar), I L R 51 All 494 (Bank of Upper India, Limited (In Liquidation) v. Fanny Skinner and Ors.) and 2017 (1) WBLR 688 (Darothi Mukherjee v. Ajoy Kumar Ghosh).
7. The plaintiff No. 1 has claimed itself to be a Mutual Fund Scheme established in accordance with the Securities and Exchange Board of India (Mutual Fund) Regulation, 1996 and a trust registered under the 6 provisions of The Indian Trusts Act, 1882. The plaintiff No. 2 has claimed itself to be an Asset Management Company and managing the mutual fund scheme of the plaintiff No. 1.
8. The plaintiffs have claimed that the defendant Nos. 1 to 4 form a part of the Magor group and that, the defendant Nos. 5 and 6 are the promoters and the directors of the defendant Nos. 1 to 4. The plaintiffs have claimed that prior to February, 2017, the Magor Group entered into negotiations with IL & FS Financial Services Ltd. (IFIN) for obtaining long term loan facilities of up to Rs. 175/- crores. Pursuant to such negotiations, the defendant No. 1 and IFIN had entered into a Loan Agreement dated March 29, 2017. They had also entered into a Supplemental Agreement on the same date. As security for such loan facility, the Magor Group had created pledge of specified shares and mortgage of specified properties. The defendant No. 5 had issued a letter of guarantee. The defendant Nos. 5 and 6 had executed an undertaking dated March 29, 2017. The defendant No. 1 had agreed to provide a security access to the shares of the defendant Nos. 2 and 3. The defendant No. 1 had executed an undertaking in favour of IFIN whereby it undertook to deposit shares of the defendant No. 3 held by the defendant No. 1 in a designated dematerialized account to be opened by 7 the defendant No. 1 with IL & FS Security Services Ltd. (ISSL) for the benefit of IFIN till the repayment of all outstanding dues under the loan facility agreement. According to the plaintiffs, the defendant No. 1 had opened such dematerialized account and deposited the specified shares therein. The defendant No. 1 had also executed an irrevocable special power of attorney in favour of the IFIN to operate such dematerialized account.
9. IFIN and the defendant No. 1 and its other companies subsequently had agreed that IFIN would subscribe compulsorily to nonconvertible debentures of McNally Bharat Engineers Co. Ltd. which is a part of the Magor Group and that security access would be extended for this second facility. On March 27, 2018 the defendant No. 1 had created an exclusive pledge in favour of IFIN on over 13 lakh shares of the defendant No. 3. On May 9, 2018 the defendant No. 1 had pledged a further 8 lakh shares of the defendant No. 3 in order to secure the second facility. In order to secure the two credit facilities, the defendant No. 1 had executed an undated undertaking in favour of IFIN. Pursuant to and in terms of such undertaking the defendant No. 1 had deposited 43,19,043 shares of the defendant No. 4 in the existing demat account. According to the plaintiffs, 16,02,618 shares of the defendant No. 3 had 8 already been kept in such dematerialized account. The defendant No. 1 had also executed an irrevocable special power of attorney in favour of IFIN to operate such demat account. The defendant No. 2 had executed an undertaking in favour of IFIN by which it undertook to pledge 16,63,289 shares of the defendant No. 3 in the same dematerialized account. The defendant No. 2 had opened a demat account in the name of McLoed Russel India Ltd. and deposited the pledged shares therein. It has also executed a special power of attorney in favour of IFIN. The defendant Nos. 1 and 2 had handed over to IFIN signed Pledge/Hypothecation forms in order to enable IFIN to create a pledge over the concerned shares.
10. According to the plaintiffs, on August 27, 2018, IFIN had entered into an amendment agreement to the loan facility with the defendant No. 1 whereby, the parties agreed to convert whole or any part of the loan facility into non-convertible debentures of the defendant No. 1. According to the plaintiffs on or about September 10, 2018 a sum of Rs. 100 crores was outstanding in respect of the loan facility. Within such outstanding amount, IFIN had assigned a sum of Rs. 99,50,00,000/- in favour of the plaintiff No.1 by a deed of assignment. Subsequently, IFIN and the plaintiff No. 1 had exercised their option to convert their 9 outstanding facility into non-convertible debentures by a letter dated September 28, 2018. The parties had entered into a debenture trust deed. The parties had also agreed that, the undertakings executed under the loan agreement dated March 29, 2017, stand applicable to the non- convertible debentures, mutatis mutandis in favour of the entity holding the securities.
11. The defendant Nos. 1 to 4 had executed a letter dated October 17, 2018 whereby, they acknowledged that the security access was to be shared proportionately by IFIN and the plaintiff No. 1. On February, 12, 2019, IFIN issued a letter to the defendant No. 1, defendant Nos. 2, 5 and other legal entities to convert and/or ensure conversion of the security access of the shares pledged. The defendant No. 1 had created pledge over specified shares on March 25, 2019 and March 27, 2019.
12. The defendant Nos. 1 to 6 having defaulted in repayment of the facilities, and an event of default happening, a notice dated May 26, 2019 had been issued calling upon the defendant No. 1 to cure the defects. A further notice had been issued on May 24, 2019. A recall notice dated June 10, 2019 had been issued. According to the plaintiffs, the defendant Nos. 1 to 6 having failed to create security and/or pledge 10 or execute the pledge deed or formalise the pledge the plaintiffs had filed the instant suit. The plaintiffs have also referred to various proceedings taking place between the parties. The plaintiffs have referred to the proceedings before the Arbitral Tribunal in respect of an arbitration between the defendant No. 7 and defendant No. 1. According to the plaintiffs, there is no impediment in the defendant Nos. 1 to 6 creating the pledges as agreed to be created in respect of the specified shares in favour of the plaintiffs.
13. As has been noted above, the plaintiffs have prayed for a order of injunction in respect of the shares that the defendant Nos. 1 to 6 had agreed to create in favour of the plaintiffs. This prayer of the plaintiffs has been opposed by the defendant Nos. 1 to 6 on one part and the defendant Nos. 7 on the other.
14. The defendant Nos. 1 to 6 have contended that, the deed of assignment that the plaintiffs are relying upon is actually a deed of mortgage and therefore, is compulsorily registrable under the Section 54 of the Transfer of Property Act, 1882. Further and in any event, the deed of assignment is not sufficiently stamped.
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15. The Division Bench of the Allahabad High Court in Bank of Upper India Limited (in liquidation)(supra), has held that, the interest of a simple mortgage is immovable property as defined by the General Clauses Act, 1897 and within the meaning of the provisions of the Transfer of Property Act 1882. The transfer of such interest can only be effected by means of a registered instrument as required by Section 54 of the Act of 1882. In the facts of the present case, the plaintiffs have not claimed any rights emanating out of any mortgage of an immovable property.
16. The Division Bench of the Madras High Court in Elumalai Chetty (supra) has held that the endorsee for value of a negotiable instrument, the amount of which had been secured by a mortgage of title deeds cannot claim to enforce the mortgage in the absence of a registered instrument conveying the mortgage right to him. It has dissented from the view taken by Perumal Ammal v. Perumal Naicker & Anr. reported at 1921 ILR 44 MAD 1976.
17. The Supreme Court in Juggilal Kamalapat (Supra) has noticed Perumal Ammal (supra) and approved of such view. In the facts of the 12 case before the Hon'ble Supreme Court, a deed of relinquishment has been considered. It has held that the deed of relinquishment could at best be held to be invalid in so far as it affected the immovable properties including the assets of the firm. However, to the extent that it purported to transfer the movable assets to the firm, the document would remain valid. It has held that the deed could clearly be divided into two separate parts, one relating to immovable properties and the other to the movable assets. It has further held that, the part of the deed dealing with movable assets cannot be held to be invalid for want of registration.
18. In the facts of the present case, the deed of assignment which the plaintiffs have relied upon deals with both assignment rights in respect of movable assets as well as the immovable properties. The plaintiffs have relied upon the deed assignment for the purpose of claiming pledge in respect of the shares. The plaintiffs have not claimed any right in respect of the immovable properties in the suit. The deed of assignment relied upon by the plaintiffs can be separated into two parts as has been noticed in Jugilal Kamlapat (supra).
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19. The Division Bench of the Calcutta High Court in Darothi Mukherjee (supra) has considered an appeal directed against an order of refusal to pass an ad interim order of injunction in a suit for specific performance of a contract. In the facts of that case, the Division Bench had found that, the agreement that the plaintiff had sought to rely upon was on a stamp paper of Rs. 10/- and that, the same was not registered. In the facts of that case the Division Bench had found that, the Trial Court did not commit any illegality by refusing to pass an ad interim order of injunction in such suit. It had, however, directed the Trial Court to dispose the injunction petition without being influenced by the observations made by it.
20. Transfer of property is governed by the provisions of the Transfer of Properties Act, 1882. Section 8 of the Act of 1882 has dealt with the operation of transfer. It has provided that unless a different intension is expressed or necessarily implied a transfer of property passes forthwith to the transferee all the interest which the transferor is then capable of passing in the property and in the legal incidents thereof. Section 54 of the Act of 1882 has defined a sale. It has specified that, in the case a transfer of intangible immovable property of a value in excess of Rupees One Hundred or in the case of a reversioner or other intangible thing the 14 same has to be made only by a registered instrument. The ratio as has been laid down in Jugilal Kamlapat (supra) and Bank of Upper India Limited (in Liquidation)(supra) is that, where, a deed concerns both movable and immovable properties and the movable and immovable properties comprised in such deed are separable, then, when such deed is pressed as an evidence in a suit relating to the movables comprised in such deed, the court may look into the same without such deed being considered as a deed for transfer of an immovable property attracting the provisions of Section 54 of the Act of 1882. In other words, in any legal proceedings, where, a party relies upon a deed for the purpose of establishing the right, title and interest in respect of movable property, although such deed may deal with immovable properties also, when the movable and immovable properties comprised in the deed are separable, then such deed can be taken as evidence for the purpose of deciding the right, title and interest in respect of the movable properties. In such a situation the deed will not attract the rigours of Section 54 of the Act of 1882. In the facts of the present case, the plaintiffs have relied upon a deed of assignment for the purpose of establishing their rights in respect of movable properties namely shares. The deed of assignment so far as to the extent of the movable properties are concerned will not attract the provisions of Section 54 of the Act of 1882. In such context, the deed 15 assignment has to be considered as a deed governing the movables and not a deed of mortgage of immovable properties.
21. The defendants Nos. 1 to 6 have also raised the issue of insufficiency of stamp with regard to the deed of assignment. According to the defendants Nos. 1 to 6 the concerned deed of assignment is to be treated as a deed of mortgage and therefore, the same stamp duty as that of a conveyance has to be paid by the plaintiffs. The deed of assignment as has been relied upon by the plaintiffs has not been stamped as a conveyance, the same should be impounded prior to the Court admitting it in evidence.
22. The deed in question so far as the instant proceedings are concerned, has been held to be a deed of assignment. Therefore, the deed of assignment being in respect of movables the stamp duty payable therefore has to be on the basis of a deed of assignment for movables. The plaintiffs have relied upon a notification dated January 12, 2006 published in the Delhi Gazette stating that, the maximum stamp duty is Rs. 1 lakh. The deed of assignment that the plaintiff has relied upon bears a stamp duty of Rs. 1 lakh. Therefore, the deed of assignment cannot be said to be insufficiently stamped.
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23. In such circumstances, the plaintiffs having made out a prima facie case and the balance of convenience being in favour of the plaintiffs it would be appropriate to pass an order of injunction restraining the defendant Nos. 1 to 6 not to create any third party rights in respect of shares over which the plaintiffs have claimed a right of pledge, without obtaining prior leave of the Court.
24. The defendant No. 7 has expressed the anxiety that any order of injunction passed in the present suit is likely to affect the right of the defendant No. 7 to proceed in respect of shares over which the defendant No. 7 claims rights and interests. The defendant No. 7 has not placed any material on record to establish that the plaintiffs are parties to the arbitration proceedings between the defendant No. 7 and the defendant No. 1 and other companies. This court cannot be called upon to interfere in the arbitration proceedings between the defendant No. 7 and the defendant No. 1 and other legal entities. Therefore, it is clarified that this order will not affect the right of the defendant No. 7 to pursue its remedies as against the defendant No. 1 and other legal entities in the pending arbitration or otherwise. This order will also not prevent the plaintiffs from making claims in respect of the shares over which the 17 plaintiffs have claimed pledged before the appropriate forum, in accordance with law.
25. It is clarified that the findings in respect of pledge as claimed by the plaintiffs are prima facie for the purpose of considering grant of order of injunction.
26. IA GA No. 1186 of 2020 in CS No. 85 of 2020 is disposed of accordingly.
[DEBANGSU BASAK, J.]