Bombay High Court
Harinarayan G. Bajaj & Ors vs Reliance Capital Ltd & Anr on 5 January, 2018
Bench: K.R. Sriram
1/54 S-2205-1997.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
SUIT NO.2205 OF 1997
1. Harinarayan G. Bajaj )
Share and Stock Consultant having his office at 406, )
Commerce House, 140, Nagindas Master Road, Fort, )
Mumbai - 400 023 )
2. Shailesh Harinarayan Bajaj )
Share and Stock Broker having his office at 406, )
Commerce House, 140, Nagindas Master Road, Fort, )
Mumbai - 400 023 )
3. Krishna Harinarayan Bajaj )
having her office at 406, Commerce House, 140, )
Nagindas Master Road, Fort, Mumbai - 400 023 )
)
4. Rahul Harinarayan Bajaj )
Share and Stock Analyst having his office at 406, )
Commerce House, 140, Nagindas Master Road, Fort, )
Mumbai - 400 023 ) Plaintiffs
Versus
1. Reliance Capital Limited, a company incorporated )
under the Companies Act, 1956 and having their )
corporate office at Mittal Chambers, 228, Nariman Point, )
Mumbai - 400 021 )
2. Ms. Sesa Sterlite Limited, a company incorporated )
under the Companies Act, 1956 and having their )
registrered office at Sesa Ghor, 20, EDC Complex, Patto, )
Panjim, Goa - 403 001. ) Defendants
----
Ms. Sonal a/w. Mr. Vivek M. Sharma for plaintiffs.
Mr. J.P. Sen, senior Advocate a/w. Mr. Omkar Chandurkar, Ms. Bhavna
Singh and Mr. Paresh Patkar i/b. Mulla and Mulla and CBC for defendant
no.1.
----
CORAM : K.R.SHRIRAM, J.
RESERVED ON : 10th OCTOBER, 2017
PLACED FOR
CLARIFICATION ON : 30th OCTOBER, 2017,
9th/16th/23rd NOVEMBER, 2017
PRONOUNCED ON : 5th JANUARY, 2018
Gauri Gaekwad
::: Uploaded on - 06/01/2018 ::: Downloaded on - 07/01/2018 02:00:18 :::
2/54 S-2205-1997.doc
JUDGMENT:
1 This suit was filed for a declaration that plaintiffs as pledgors
and defendant no.1 as pledgee had reached an understanding for transfer
of the pledged securities (shares of defendant no.2) in favour of defendant
no.1 at an agreed sum and for payment over to plaintiffs, on accounts being
taken, of the amount lying in excess after satisfaction of the outstanding
dues. In the alternative, plaintiffs also sought reliefs in the nature of
redemption of the pledged securities (shares of defendant no.2) on the
basis that the sale thereof by defendant no.1 was null and void. Plaintiffs,
however, abandoned their main case in its entirety and pressed only their
alternative plea for redemption. No relief is sought against defendant no.2.
2 In or around July 1995, plaintiff no.1 approached defendant
no.1 seeking a loan in a sum of Rs.5,00,00,000/- (Rupees Five Crores
Only). The loan, admittedly, was sanctioned by defendant no.1 vide its
letter dated 11th July, 19951, repayable in 8 months, i.e., on 12th March,
1996. Material terms are as set out hereinbelow:
"1. Facility
Principal Amount: Rs.500 lakhs (Rs. Five Hundred lakhs only)
Nature of Facility: Loan against shares
Rate of Interest: Calculated at monthly/rests payable in arrears
Period: 8 months
Date of Maturity: 12th March, 1996
1. Exh. P-1
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Collateral Security: Pledge of following shares:
Name of scrip No.
Sesa Goa Ltd. 200000
Margin: 30%
Rate of Interest: 24%
2. General Conditions Precedent
The availment of the Facility will be subject tour receiving, in a form
and substance satisfactory to us, of:
a).....
e) Agreement of Pledge in form and substance satisfactory to us duly
executed
f) pledge of collateral security at our office/custodial (if specified)
g) Demand Promissory Note for Rs.5,00,00,000.
h) post-dated cheques for principal and interest payments
i)....
4. Covenants
b) 1. Notwithstanding what is stated hereinabove, we shall, at any
time and from time to time, be entitled to notify you and thereafter
charge interest at such notified rate and this letter shall be construed
as if such revised rates were mentioned herein.
2. In case of default either in the payment of interest, additional
interest, the repayment of the principal amounts as and when due and
payable or reimbursement of all costs, charges and expenses when
demanded, you shall pay additional interest at rate of 2% above the
interest rate for the Facility, on the overdue interest, principal
amount, costs, charges or expenses and/or from the respective due
dates for payment and/or repayment.
3. ...
4. No failure to exercise or delay in exercising any of our rights
hereunder or under any other documents will act as a waiver of that
or any other right nor shall any single or partial exercise preclude any
future exercise of that right."
3 Pursuant to the sanction letter, plaintiffs entered into an
Agreement of Pledge dated 12th July, 19952 to secure the said advance of
Rs.5 Crores. Under this Agreement, plaintiffs pledged, in favour of
defendant no.1, 2,00,000 shares of defendant no.2, Sesa Goa Ltd. (later
2. Exh. P-2
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name was changed to Sesa Sterlite Ltd.). Plaintiff no.1 also executed in
favour of defendant no.1 a demand promissory note dated 12 th July 19953
for the said sum of Rs.5 Crores and a Power of Attorney of the same date, 4
whereby defendant no.1 was authorized to sell the pledged securities, as
deemed fit. The clauses (which had few blanks) in the Agreement of
Pledge, that are relevant for the present, are set out hereinbelow:
"4. In default of payment of any one/two installments of interest as
stated above RCL shall be entitled to demand payment of the entire
amount then outstanding in respect of the said debt as if the period
for repayments has expired and shall also be entitled, on failure to
pay the interest on due dates, to debit the overdue interest on the
Borrower's Loan and capitalize the amount of such interest and
charge interest thereon by way of compound interest as if such
amount was an additional loan granted by RCL to the Borrower
carrying interest at the same rate in addition to charging
compensatory interest at the rate of ____% p.a. from the date of
default to the date of actual payment of such defaulted amount. The
Borrower further agrees that RCL shall be entitled to change rates
and/or periodicity of interest and compensatory interest etc.
mentioned in clause 2 hereinabove and this clause at any time by
giving ___ days notice to the Borrower and/or notifying in a local
newspaper and shall thereafter be entitled to charge interest at the
changed rate as if the same was provided for in this agreement.
5. (a) For the consideration aforesaid the Borrower has hereby
pledged and delivered the shares and securities in marketable lot
described in the Second Schedule hereto and the shares and securities
that maybe hereafter delivered to RCL pursuant this agreement
whether for the purpose of forming Additional Security for any sum
already lent and advanced or by way of substitution for and in lieu of
any shares and securities which may have been delivered or may be
delivered to RCL under this Agreement or otherwise howsoever
(hereinafter called the said Securities) shall to be deemed to have been
pledged as security to RCL for the due repayment by the Borrower to
RCL of any moneys due to RCL from time to time. The expression "the
moneys due to RCL" in this and subsequent clauses of this Agreement
shall be taken to include the principal moneys from time to time due
and also all interest thereon calculated from day to day at the rates
hereinabove mentioned and the amounts of all costs, charges and
expenses which RCL may have paid or incurred in any way in
connection with the said security or the sale or disposal thereof.
3. Exh.P-6
4. Exh.P-7
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10. The Borrower hereby authorizes RCL during the continuance of
the pledge to lodge for transfer or transfer in the name of RCL or their
nominee the said Securities or any of them.
11. That this Agreement is to operate as security for the moneys from
time to time due to RCL as also for the ultimate balance to become
due on the said Loan Account and the said account is not to be
considered exhausted by reason of the said Account being brought to
credit at any time or from time to time as long as the facility is not
terminated.
14. (i) The occurrence of the following shall be treated as default on
the part of the Borrower in addition to the defaults enumerated
hereinabove earlier.
(a) Any principal amount or interest or additional interest or fees,
costs, charges or expenses being unpaid for a period more than 15
days from the due date for payment/repayment/reimbursement
thereof.
(b)...
(c)Your committing any breach or default in the performance or
observance of any term or condition or covenants or provision of this
letter and/or of any other security or documents or undertakings
executed by you or on your behalf from time to time.
(d)....
14. (ii) On the happening of an event of default, RCL shall be entitled,
after giving 7 (seven)days written notice to the Borrower(s), to sell or
otherwise dispose of the Securities or any of them in such manner and
at such price as RCL shall think most appropriate, without being
liable for any loss or dimunition in value thereby sustained, and apply
the net proceeds of such sale (after deducting all costs, charges and
expenses incurred in such sale or disposal), in or towards satisfaction
of the moneys due to RCL in the loan account of the Borrower and in
case there is a surplus, to pay over the surplus to the Borrower or as
the Borrower may direct.
15. All other terms and conditions forming part of Letter of Sanction
dated ___________ not specifically included in this Agreement shall
have effects as if the same are part of this Agreement."
The Power of Attorney dated 12th July 1995, expressly
empowered defendant no.1 to deal with the said securities pledged and
provided, inter alia, :
"b) I have pledged the said securities with M/s. Reliance Capital Ltd.
having its corporate office at Mittal Chambers, Ground Floor, 228,
Nariman Point, Bombay 400 021, as collateral security with an
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authority to M/s. Reliance Capital Ltd. to sell, transfer and/or dispose
of the said securities as they deem fit.
c) .....
1. To sell and transfer the said securities to any party/person and
receive the sale consideration in respect of the said securities and
apply the same against liquidation of the loan sanctioned and paid to
me."
Plaintiff no.1 also, under cover of a letter dated 12 th July,
19955, forwarded to defendant no.1 cheques for monthly interest @ 24%
p.a. as well as for the principal sum of Rs.5 Crores.
4 Thereafter, plaintiffs sought an additional advance of
Rs.5 Crores on the same terms and conditions save and except as to the
tenure of the loan. While no new sanction letter was issued by defendant
no.1 in respect of this advance, admittedly this second amount of
Rs.5 Crores was also advanced on the same terms and conditions as
stipulated in Exh.P-1, sanction letter dated 11th July, 1995. The second loan
was disbursed on 17th July, 1995 and was repayable on 17 th January, 1996,
i.e., in 6 months. Plaintiff no.1 and defendant no.1 entered into identical
set of documents in respect of the second tranche of Rs.5 Crores including,
inter alia, an Agreement of Pledge dated 12th July, 19956, a Promissory Note
dated 13th July, 19957 and a Power of Attorney dated 13 th July, 19958.
Plaintiff no.1 also, under cover of a letter dated 19 th July, 19959, forwarded
as in the case of the first tranche of Rs.5 Crores, post-dated cheques
5. Exh.P-5
6. Exh.P-8
7. Exh.P-12
8. Exh.P-133
9. Exh.P-11
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towards monthly interest @ 24% p.a. as well as towards repayment of the
principal.
5 Out of the second tranche of Rs.5 Crores, a sum of
Rs.1.3 Crores was disbursed directly to plaintiff no.1 while a sum of
Rs.3.70 Crores was paid on behalf of plaintiffs to Reliance Share and Stock
Broking Ltd10. While the post-dated cheques for interest were initially
honoured from time to time, plaintiffs committed a default in respect of the
last installment of Rs. 10,19,178/- payable by way of interest on the second
tranche of Rs.5 Crores as well as the principal sum of Rs.5 Crores which fell
due for payment on 17th January, 1996. By its letter dated 9th February,
199611, plaintiff no.1 sought an extension of one month's time to repay the
said amount. By its reply dated 23 rd February, 199612, defendant no.1
recorded that the cheques for Rs.5 Crores and Rs.10,19,178/- would be
re-deposited on 27th February, 1996. The letter also made an express
reference to clause 14 (ii) of the Agreement of pledge and observed:
"You are requested to kindly treat this as a seven days notice to make
the payment of amounts owed by you to RCL and which have fallen
due for payment. In the event of a default we shall proceed to sell or
otherwise dispose of the securities to recover our dues. You will be
liable for all costs and consequences thereof."
6 By a further letter dated 7th March, 199613, defendant no.1
recorded that despite repeated assurances, defendant no.1 was yet to
10. Exh.P-14
11. Exh.P-16
12. Exh.P-17
13. Exh.P-18
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receive any monies from plaintiffs. By this letter, defendant no.1 expressly
informed plaintiffs that they had "initiated negotiations for sale of shares of
Sesa Goa Ltd. pledged by you as security for loan of Rs.10 Crores given to
you". Plaintiffs were thus expressly put on notice that defendant no.1
intended to sell the shares pledged in its favour to secure the entire sum of
Rs.10 Crores which was then outstanding alongwith unpaid interest,
though counsel for plaintiffs argued that this letter was restricted to second
loan/tranche because it stated "proceeds of sale shall be appropriated
towards recovery of Rs.5 Crores which is overdue" and on that date only
second loan was due. It should, however, be noted that the letter says -
"Re:-Loan of Rs.10 Crores given to you" and first loan was in any ways falling
due for repayment on 12th March, 1996.
7 Meanwhile, the post-dated cheque furnished by plaintiff no.1
for repayment of the first tranche of Rs.5 Crores was dishonoured. By its
letter dated 21st March, 199614, defendant no.1 recorded this default and
called upon plaintiff no.1 to forthwith repay the said sum of Rs.5 Crores
alongwith overdue interest thereon @ 36% p.a. (though interest payable
was only 24% p.a.) for the period for which the amount remained
outstanding.
8 By their reply dated 29th March, 199615, plaintiffs sought
extension of time to pay the amounts that had fallen due along with
14. Exh.P-19
15. Exh.P-20
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interest. Plaintiffs, in this letter, however, did not question the rate of
interest of 36% per annum demanded by defendant no.1. This, defendant
no.1 says entitles defendant no.1 to claim interest at 36% p.a. on the
amounts outstanding because clause 4(b)(1) of Exh.P-1 permits them to
charge interest at such notified rate and the sanction letter shall be
construed as if such revised rates were mentioned therein. I am afraid,
defendant no.1 is not correct, because Exh.P-14 cannot be called a
notification by defendant no.1 as contemplated in clause 4 (b)(1) of
Exh.P-1 for entitlement to interest at 36% p.a. It can be only construed as a
demand notice as required under section 138 of the Negotiable Instruments
Act. I must hasten to add, I am not making any observation as to whether
the said letter meets with the requirements of Section 138 of the Negotiable
Instruments Act.
9 By a further letter dated 7th May, 199616, plaintiffs referred to
the outstanding loan of Rs.7,50,00,000/- and forwarded post dated
cheques of Rs.1,50,00,000/ each by which they proposed to make payment
of the principal amount. Plaintiffs also assured defendant no.1 that the
interest amount would be paid before 30 th June, 1996 after calculating the
same. One of the cheques for Rs.1.5 crores furnished by this letter dated
7th May, 1996 was subsequently replaced by 3 cheques of Rs.50 lakhs
each17.
16. Exh.P-21
17. Exh.P-22
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10 By a letter dated 29th May, 199618 plaintiffs recorded that two
cheques of Rs.50 lakhs each had been honored by them towards principal
and interest. They sought extension of time till 4 th June, 1996 for
repayment of the remaining Rs.50 lakhs which was to fall due on 30 th May,
1996. By this letter, plaintiffs also requested defendant no.1 to release a
portion of the pledged securities in the light of the payments already made.
Defendant no.1 accordingly released 21,000 shares and 6640 shares on
31st May, 1996 and 5th June, 1996, respectively, because of the payment
already made. This was in addition to 1,02,640 shares earlier released by
defendant no.1 to plaintiffs.
11 By a letter dated 6th June, 199619 plaintiffs recorded payment
of a sum of Rs.1,50,00,000/- and sought time to pay the balance amount
including interest. This was followed by a letter dated 12 th August, 199620
from plaintiffs to defendant no.1 where plaintiffs referred to their failure to
make timely repayment of the total loan of Rs.10 crores availed by them.
By the said letter, plaintiffs sought details of the shares already sold by
defendant no.1 and requested not to press for any sale of the remaining
shares lying in their custody "to adjust against the remaining amount due
to you either in the NSE or BSE." Plaintiff no.1 claimed that he was "in the
process of placing this equity myself and your offer if floated would
jeopardize my negotiations." This according to defendant no.1 was more
18. Exh.P-23
19. Exh.P-24
20. Exh.P-26
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than apparent that plaintiffs themselves treated the two tranches of Rs.5
crores each as constituting a single loan of Rs.10 crores, part of which was
outstanding along with overdue interest and that plaintiffs were fully aware
that defendant no.1 intended to sell the pledged securities to recover the
amounts due.
12 Meanwhile, defendant no.1 during the subsistence of the
pledge, lodged the share certificates and share transfer forms with Sesa
Sterlite Ltd. (Defendant No.2) for transfer of the shares in the name of
defendant no.1. This was as a step in aid to a future enforcement of the
pledge and the sale of the pledged securities.
13 By their letter dated 30th August, 199621 defendant no.2 - Sesa
Sterlite Ltd. informed plaintiffs of the lodgment by defendant no.1 of the
pledged securities for transfer in its name. By a letter dated 13 th September,
199622 addressed to defendant no.2 - Sesa Sterlite Ltd., plaintiff no.2 called
upon defendant no.2 not to transfer the said shares in the name of
defendant no.1. He did so on the ground that defendant no.1 had agreed
not to transfer the shares without the consent of plaintiff no.1 and that
such consent had not been obtained. The letter also claimed that the
amount payable by plaintiff no.1 had not become due and payable. This
does appear to be inconsistent not only with the terms of the agreement
between the parties but also with the admitted position that plaintiffs were
21. Exh.P-27
22. Exh.P-28
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by that date clearly in default of their payment obligations.
14 It is the case of defendant no.1 that subsequently, plaintiffs
agreed to withdraw their objection to the transfer of the pledged securities
in the name of defendant no.1 and the enforcement thereafter by
defendant no.1 of the pledge to recover the outstanding dues. In that
context, by a letter dated 24th September, 199623 addressed to defendant
no.2 - Sesa Sterlite Ltd., plaintiff no.2 withdrew his objection to the transfer
of the shares in the name of defendant no.1. By a subsequent letter of
8th October, 199624 addressed to Bank of India, plaintiffs also issued stop
payment instructions in respect of the 4 cheques of Rs.1.5 crores each
earlier lodged by them with defendant no.1.
It is clear from plaintiffs conduct that they were perfectly
aware at this stage that defendant no.1 intended to sell the pledged
securities and were at peace with it. In any event, plaintiffs did not express
any desire at this stage to redeem the pledged securities by tendering the
amounts due. It is also significant that at this time plaintiffs did not assert
the existence of any arrangement whereby the transfer of the shares in the
name of defendant no.1 were to be treated as a sale at any price.
15 This assertion was made for the first time by a letter dated
30th December, 199625 where plaintiffs set up an alleged understanding
23. Exh.P-29
24. Exh.P-30
25. Exh.P-31
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with one Mr. Sadashiv Rao of defendant no.1 that the shares would be
appropriated at the rate of Rs.310/- per share on 8 th August, 1996 and that
accounts would be drawn up on that basis.
The said letter also referred to an earlier letter dated
8th October, 1996 stated to have been addressed by plaintiffs to defendant
no.1, which both sides have not produced. The letter thus proceeded on the
basis that the 1,59,936 equity shares of Sesa Sterlite Ltd. had been
appropriated by defendant no.1 to itself at a cost of Rs.310/- per share and
that defendant no.1 was liable to render accounts on that basis and to pay
over to plaintiffs the balance remaining along with interest at the rate of
24% per annum. In other words, the letter constituted an assertion that the
pledge had come to an end and that defendant no.1 was now the owner of
the shares.
16 By its letter dated 3rd January, 199726 addressed to plaintiff
no.1, defendant no.1 recorded the sale, at a net rate of Rs.255/- per share,
of 50,000 of the pledged securities for an aggregate sum of
Rs.1,27,50,000/-. By their Advocates' reply dated 15 th January, 199727
plaintiffs reiterated the contents of Exh.P-31, their earlier letter dated
30th December, 1996 and then observed:
"In view of what is aforesaid my client fails to understand as to after
having appropriated the shares of Sesa Goa Ltd. @ Rs. 310/- per
share, why are you now intimating my client about the sale of the
said shares. My client submits that it is totally within your discretion
26. Exh.P-32
27. Exh.P-33
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as to when and what rate to sell the shares. As far as my client is
concerned, my client is entitled to receive the statement of accounts
and balance surplus funds lying in your hands after adjusting loan
amounts with interest thereon.
My client is further, as stated earlier, entitled to return of documents
lying with you. In view of what is aforesaid my client submits that you
are free to take decision as to when, how and at what rate to sell the
shares which already belong to you. You are also requested to comply
with the requisitions made through my letter dated 30th December,
1996."
17 M/s. Kanga & Co. acting on behalf of defendant no.1 initially
addressed a holding letter to the plaintiffs' Advocate recording that they
were seeking detailed instructions and would reply shortly 28. M/s. Kanga &
Co. appear to have, subsequently, addressed a letter dated 7 th February
1997 which has not been produced by both sides and hence is not clear
what the contents were. Plaintiff no.1, however, states that a reply was in
fact received in paragraph 24 of his witness statement 29 where he asserts
"Vide the said letter, 1st defendant Company reneged from the oral agreement
reached between me and Mr. Sadashiv Rao on behalf of 1 st defendant
Company with regard to the appropriation of the 1,61,486 pledged shares of
2nd defendant Company by 1st defendant Company at the rate of Rs.310 per
share."
18 Meanwhile, defendant no.1 continued to inform plaintiffs from
time to time of the sale of the pledged securities including the rate at which
the sales were being effected. On each of these letters, plaintiff no.1
28. Exh.P-34
29. Pg.172
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endorsed the legend "accepted under protest"30.
19 By their Advocates' letter dated 13th February, 199731, in reply
to M/s. Kanga & Co.'s letter dated 7th February, 1997 (which has not been
produced), plaintiffs reiterated the arrangement that they claimed to have
reached with Mr. Sadashiv Rao of defendant no.1. In that context, the
plaintiffs asserted:-
" xxxxxxxx
4. With reference to paragraph 4 of your letter, your clients have
overlooked my clients contention that your clients were free to decide
as to when your clients would sell the shares as your clients had
appropriated the shares lying with them on August 8, 1996 @
Rs. 310/- per share and had already lodged the shares with the
company for transfer. My client submits that since your clients had
become legal owners of the shares, they were free to decide as to when
to dispose off the shares belonging to themselves.
xxxxxxxx
6. With reference to paragraph 6 of your letter, my client submits that
all the transactions of shares upto June 19, 1996 were, undertaken
with the knowledge and consent of my client. Infact, my client has
already stated through my earlier correspondence that about one lakh
shares have been disposed off by your clients between the rates of
Rs. 430/- to Rs. 350/- per share. However, my client does not admit
any transaction undertaken by your clients thereafter i.e. August 8,
1996 since your clients had appropriated the said shares lying with
them on August 8, 1996 as already made clear in my letter dated
December 30,1996. In view of the same my client denies the rest of
your allegations and contentions in the paragraph under reply. As far
as my client is concerned both, the loan accounts as set out by you
stand fully settled and in fact my client has to recover substantial
excess amounts lying with your clients alongwith interest thereon as
demanded earlier. Without prejudice to what is stated hereinabove my
client denies that your clients have sold about 1,59,936 shares
initially and put your clients to strict proof thereof.
7. With reference to paragraph 7 of your letter my client denies that
full statement of accounts were given to my client from time to time
and puts your clients to strict proof thereof. My client denies the
correctness of the statement of account (Statement "A"). My client
further denies the correctness of Statement "B". My client submits that
30. Exh.P-35
31. Exh.P-36
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your clients have sought to appropriate monies in an arbitrary
manner to which my client had never agreed. My client had
specifically instructed your clients to appropriate the amounts of sale
of shares prior to August 8, 1996 towards the principal amount of
loans. Therefore my client denies the correctness of Statement "B".
8. With reference to paragraph 8 of your letter, since my client has
denied the correctness of the Statement "B" of your clients, there is no
question of any amount outstanding in either loan account 1 and/or
loan account 2. In view of the same there is no question of my client
paying the said amounts of Rs. 155.71 lakhs or any part thereof to
your clients. As far as selling of the shares is concerned since your
clients had become the owner of the shares lying with them from
August 8, 1996 it will be at their own risk of capital.
xxxxxxxx"
By this letter, plaintiffs called upon defendant no.1 to furnish
accounts on the basis set out by them, namely, the appropriation of the
pledged securities by defendant no.1 at the rate of Rs.310/- per share and
the payment over to plaintiffs of the alleged surplus amounts along with
interest at the rate of 24% per annum. In other words, plaintiffs continued
to stand by and to seek enforcement of the alleged arrangement with
Mr. Sadashiv Rao. It should be noted that plaintiffs, at no stage, sought to
redeem the pledged securities by tendering the amount due.
20 Defendant no.1, meanwhile continued to sell the pledged
securities and to inform plaintiffs of each instance of sale 32. It is in this
context that plaintiffs filed the above suit.
21 The plaint primarily proceeded on the alleged oral
arrangement between plaintiffs and Mr. Sadashiv Rao, the alleged
32. Exh.P-37 to P-39
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appropriation of the pledged securities at the rate of Rs.310/- per share and
the alleged obligation of defendant no.1 to render accounts on that footing
and to pay over the alleged surplus.
22 Prayers (a)33 and (e)34 of the suit were relatable to this primary
case set up by plaintiffs. Prayer (a) was for a declaration that the entire
loan of Rs.10 crores together with interest thereon stood repaid on or about
8th August, 1996 to the 1st defendant while prayer (e) was for payment over
to plaintiff no.1 of an amount of Rs.1,35,82,049/- alleged to be due on
accounts being drawn on the basis that the shares had been appropriated at
the rate of Rs.310/- per share. The plaint also included an alternative plea
which was framed thus:
"22. Without prejudice to what is aforesaid, the plaintiffs state that
since 1st defendants by their letter dated 29th April, 1997 refuted that
they had appropriated the shares lying with them on 8th August,
1996 @ 310/- per share and that they were not bound and liable to
pay to the plaintiff no.1 any surplus balance amount at all, on their
own showing defendants no.1 had no title to the said 1,61,486
shares lying with them as pledged shares, pledged by plaintiff no.1.
The plaintiffs say that thus defendant no.1 had no marketable title
and were not entitled to sell the said shares in the market. The
plaintiffs say that plaintiffs are ready and willing to pay the entire
amount of loan together with interest thereon upon defendant no.1
returning the said very shares as set out in Exhibit "A" hereto. The
plaintiffs say that defendant no.1 thus have no title in the said shares
and the said shares must be returned to plaintiffs. Plaintiffs say that
1st defendants have purported to sell the said shares as alleged in
their letter. Thus the 1st defendants did not have any right for sale of
the said shares any part thereof. The purported sale of the said shares
is wrongful. Plaintiffs are entitled to a declaration to the aforesaid
effect. Plaintiffs state that 1st defendants and/or 2nd defendants are
33. Prayer (a) reads: That it be declared that the entire loan of Rs.10,00,00,000/- together with interest thereon stood
repaid on or about 8th august, 1996 to the Defendants;
34. Prayer (e) reads: that in the alternative to prayer(d) the 1st Defendants be directed to pay to plaintiff no.1 an amount
of Rs.1,35,82,049/- together with interest @24% p.a. of Rs.28,66,743/- upto the date of filing of this suit and further
interest as this Hon'ble Court so decide till the realisation as per particulars of claim annexed and marked as Exhibit "EE"
to the Plaint.
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liable to disclose to the plaintiffs the names of persons or transferees
to whom the shares mentioned in the list (being Exhibit "A" hereto)
have been purportedly sold as plaintiffs intend to join them as
necessary parties to the suit. Plaintiffs are entitled to the said shares
and are entitled to an order for return of the said shares. Defendant
no.1 should be directed to procure the same from the market, if they
have sold and transfer the said shares. The plaintiffs are entitled to an
order and decree accordingly."
The remaining prayers in the plaint relate to this alternative
case.
23 Defendant no.1 filed written statement disputing both the
main and the alternative plea. Defendant no.1 contended, inter alia, that
there was no oral arrangement as alleged and that in any event
Mr. Sadashiv Rao was not authorized to enter into any such alleged
arrangement and that on accounts being taken, a sum of Rs.5,61,413.50/-
and 36 shares which were as yet unsold were liable to be handed over to
plaintiffs. The said amount of Rs.5,61,413.30/- was deposited by defendant
no.1 with the Prothonotary and Senior Master of this Hon'ble Court and the
36 unsold shares have been handed over to plaintiffs.
24 On the pleadings filed by the parties, the following issues were
framed :-
"1. Do the plaintiffs prove that the agreement averred in paragraph
14 of the Plaint was arrived at between the defendant no.1 and
plaintiff no.1?
2. Do the plaintiffs prove that on 8thAugust 1996 both the loans
stood repaid?
3. Whether the plaintiffs proves that 400 shares of 2nd Defendant
were admittedly pledged with 1 st Defendant and remained pledged as
on 8th August 1996?
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4. Do the plaintiffs prove that the sale of 1,61,486/- shares of the
Defendant No.2 by the defendant no.1 was unlawful?
5. Does defendant no.1 prove that Mr. Sadashiv Rao did not have the
power, right or authority to enter into the agreement mentioned in
paragraph 14 of the Plaint?
6. Does defendant no.1 prove that the transfer of 1,61,486/- shares of
the Defendant No.2 Company to defendant no.1 was not by way of
sale but was only to facilitate sale of the said shares in exercise of its
right as pledgee?
7. Does defendant no.1 prove that it was entitled to sell the
1,61,486/- shares of the Defendant No.2 in its capacity as pledge as
alleged in paragraph 13 of the Written Statement?
8. Does defendant no.1 prove that 1,61,486/- shares of the Defendant
No.2 were sold by defendant no.1 after due notice to the plaintiff
no.1?
9. Does the defendant no.1 prove that only a sum of Rs.5,61,413.50
stood to the credit of the loan account of plaintiff no.1 as per Exhibit
"1" to the Written Statement?
10. What order?"
25 Issue nos.1, 2, 5, and 6 relate to the main plea set up by
plaintiffs while issue nos.4, 7 and 8 relate to the alternative plea. Issue
nos.3 and 9, which concerns the number of shares that were pledged by the
plaintiffs with defendant no.1, is relatable to both pleas.
26 Plaintiff no.1 was the only witness on behalf of plaintiffs and
defendant no.1 led evidence only of one Mr. Madan Mohan Chaturvedi, the
Chief Manager of defendant no.1.
27 Plaintiffs abandoned their main plea and fell back on their
alternative one, i.e., redemption. In paragraphs 35 and 36 of the affidavit
in examination in chief, PW-1 has stated :
"35. I further say that I have never received any notice from the
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1st defendant Company before it embarked on its purported exercise of
selling the 1,61,450 shares of the 2nd defendant Company that formed
part of the aggregate 2,00,400 shares that had been totally pledged
by me with the 1st defendant Company as security for the aforesaid
"first loan" of Rs. 5 crores. I say that no notice was ever issued by the
1st defendant Company to me before undertaking the sale of the said
1,61,450 shares. I thus say that since the 1 st defendant Company has
reneged on its agreement of appropriation of the said 1,61,486 shares
of the 2nd defendant Company at the rate of Rs.310/- per share and
has further claimed that Mr. Sadashiv Rao had no authority on behalf
of the 1st defendant Company to enter into such an agreement, I am
ready and willing to repay the balance principal amount of
approximately Rs.2,97,50,000/- which stood outstanding as of
19th June, 1996 or any such other amount which is ordered to be paid
by me to the 1st defendant Company by this Honorable Court with due
interest thereon at the rate of 24% p.a. till the date of filing of the
present Suit, on the 1st defendant Company being simultaneously
ordered to deliver the said 1,61,450 shares of the 2 nd defendant
Company with the due benefits accrued thereon since 1997 and with
the dividend amounts declared on the same along with interest on the
said dividend amounts payable by the 1st defendant Company to me at
the rate 24% p.a. in terms of prayer clauses (b), (c), (d), (d1), (d2)
and (d3) of the present suit.
36. In view of the aforesaid I say thus pray that the present suit may be
decreed by this Honorable Court in favor of the plaintiffs in terms of prayer
clauses (b), (c), (d), (d1), (d2), and (d3) with the levy of appropriate
costs on the 1st defendant Company."
Therefore, though various submissions were made to prove the
main case of plaintiffs that defendant no.1 had agreed appropriation of
1,61,486 shares of defendant no.2 company at the rate of Rs.310/- per
share, plaintiffs having abandoned their main plea including prayer for
accounts, I do not consider it necessary to deal with all those arguments.
Therefore, I am not dealing with issue nos.1,2,5 and 6.
28 ISSUE NO.3 :
Plaintiffs had initially filed a suit on the footing that 3,87,000
equity shares of defendant no.2 were pledged by plaintiffs with defendant
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no.1 to secure the aforementioned advance of Rs.10 crores. Subsequently,
by way of an amendment effected on 1 st October, 2014 plaintiffs revised
this figure of 3,87,000 shares to 3,87,400 shares. At the same time,
plaintiffs also amended the plaint to incorporate the following averments:
"10. ..... RIDER "F"
In the first week of July, 1996, the Defendant No.1 had called for
additional security and accordingly, the Plaintiff No.1 handed over
400shares of the Defendant No.2 company under the cover of his
letter dated 8th July, 1996 as pledge. The Plaintiffs crave leave to refer
to and rely upon the letter dated 8 th July, 1996 addressed by Plaintiff
No.1 to the Defendant No.1 enclosing the aforesaid shares when
produced. ......"
It is the position of defendant no.1 that only 3,87,000 shares
were pledged by plaintiffs with defendant no.1 and that all but 36 of those
shares have been sold by defendant no.1 in exercise of its rights as a
pledgee.
29 In respect of the disputed 400 shares, plaintiff no.1 had the
following to say in paragraph 15 of his witness statement:
"I say that due to the fluctuation in the market price of 2 nd defendant
Company, I, as per the request of 1 st defendant Company in the first
week of July, 1996 pledged a further 400 shares of 2nd defendant
company with 1st defendant Company vide my letter dated 8 th July,
1996."
Plaintiffs have not produced any letter by which defendant
no.1 called upon plaintiffs to furnish the additional security as alleged. It is
the case of plaintiffs that in the first week of July 1996, defendant no.1 had
called for additional security and accordingly plaintiff no.1 had handed
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over 400 shares of defendant no.2 under the cover of its letter dated
8th July, 1996 [Exh.P-25] as additional security. Thus, as on 8th August, 1996
a total of 1,61,486 shares remained pledged with defendant no.1.
30 Mr. Madan Mohan Chaturvedi (DW-1) has, in his affidavit in
lieu of examination in chief, explained the circumstances in which the letter
dated 8th July, 1996 was addressed by plaintiffs forwarding the 400 shares,
distinctive numbers of which are mentioned therein. The relevant portion
of paragraph 16 of DW-1's affidavit reads as under :
"16. ......On 6th July 1996, a lot of 24,424 shares of 2 nd defendant
were released by 1st defendant in favour of the 1st plaintiff. In respect of
the transaction dated 6th July, 1996, 1st defendant ought to have
released only 24,024 shares instead of releasing 24,424 shares. The
said 24,424 were in non-marketable lot and could not be segregated
and due to this difficulty 1 st defendant had to release the full 24,424
shares instead of releasing 24,024 shares. In view of this, 1 st plaintiff
by his letter dated 8th July, 1996 forwarded by way of pledge 400
shares of 2nd defendant to 1st defendant. In all, a total no. of 1,27,064
shares were redeemed and returned by 1 st defendant towards certain
payments which were made by 1 st plaintiff. I was actively involved in
these transaction."
31 Defendant no.1 has received dividend on 1,61,386 shares from
defendant no.2 and has given credit thereof to plaintiff no.1 on
21st January, 1997 in its books of accounts [Exh.D-10]. The fact that
defendant no.1 has given credit in respect of dividend on 1,61,386 shares
to plaintiff no.1 in its books, shows that it certainly had more than
1,61,086 shares pledged by plaintiff no.1 with it as on the date of book
closure of defendant no.2. Hence, the defence of replacement of 400 shares
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is contrary to defendant no.1's own records and pleadings. In my view, the
400 equity shares have been handed over by plaintiffs to defendant no.1 as
additional security.
32 ISSUE NOS.4,7, 8 and 9 :
It is plaintiffs' case :
(a) that two loans of Rs.5 crores each were advanced by
defendant no.1 to plaintiffs. The first loan was for a tenure of 8 months
maturing on 12th March 1996 while the second loan was for a tenure of
6 months, maturing on 17th January 1996;
(b) that 200,000 shares of Sesa Sterlite Limited were pledged
by plaintiffs with defendant no.1 to secure the first loan and 1,87,000
shares of defendant no.2 - Sesa Sterlite Limited were offered as a security
for the second;
(c) that plaintiffs have fully repaid the second loan and that
amounts remained outstanding only on the first;
(d) that the notice dated 23rd February, 1996 issued by
defendant no.1 for sale of pledged securities was in view of plaintiffs being
in default of the second loan at the time and that in any event the said
notice had been waived on account of defendant no.1 having extended
time for payment by plaintiffs of their outstanding dues;
(e) that 98,850 shares of defendant no.2 - Sesa Sterlite Limited
were sold by defendant no.1 with the consent of plaintiffs while 1,61,450
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shares were not;
(f) that the sale of the said 1,61,450 shares which were
without notice to plaintiffs was illegal and as a result null and void as
against plaintiffs;
(g) that plaintiffs are consequently entitled to redeem the
pledged securities including all accruals thereupon such as bonus issues
and dividend upon tendering the amount due from plaintiffs to defendant
no.1 on the date of institution of the suit.
33 It is the case of defendant no.1:
(a) that while two amounts of Rs.5 crores each were advanced
by defendant no.1 to plaintiffs, they were treated as a single loan for all
practical purposes by both parties. It is an admitted position that except for
the date on which the two tranches were repayable, the two amounts were
advanced on the same terms and conditions as reflected in the sanction
letter dated 11th July, 1995. Defendant no.1 has maintained a single ledger
account in respect of the composite loan of Rs.10 crores;
(b) that under the terms of the Pledge Agreement security
offered in respect of one advance would enure to the benefit also of any
other. Further, it was also evident from the Pledge Agreement that a default
in respect of one loan or facility would constitute a default of all others as
well;
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(c) that plaintiffs, as evident from their own correspondence,
defaulted in repayment of both the tranches;
(d) that mere forbearance by the pledgee does not constitute a
waiver of a notice for sale of the pledged assets. In any event, the
correspondence exchanged between the parties makes it manifest that
plaintiffs were fully aware that defendant no.1 intended to enforce their
rights as pledgees by sale of the entire pledged securities;
(e) that plaintiffs were also aware contemporaneously of the
sale from time to time, by defendant no.1 of the pledged securities and did
not object to the same. On the contrary, plaintiffs consistently maintained,
on the basis of the alleged oral agreement struck with Mr. Rao, that
defendant no.1 had become owners of the shares and plaintiffs were
unconcerned with how the shares were dealt with by defendant no.1;
(f) that plaintiffs at no point in time objected to the sale of the
shares by defendant no.1, on the ground that notice had not been given of
such sale or otherwise;
(g) that plaintiffs at no point in time sought to redeem the
pledged securities by tendering the outstanding amount. Even in the plaint,
plaintiffs' plea for redemption was in the alternative. Their main plea
proceeded on the basis that the pledge had come to an end and that
defendant no.1 had become owners of the shares on 8 th August, 1996. It is
only at the stage of oral evidence that plaintiffs for the first time
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abandoned their principal plea and fell back on their alternative one;
(h) that the two pleas raised by plaintiffs in the plaint are
mutually destructive and, in any event, the alternative plea which plaintiffs
have chosen to press is entirely unsupported by the evidence on record;
34 While it is true that two amounts of Rs.5 crores were
separately advanced by defendant no.1 to plaintiffs, in my view, after both
amounts fell due, they were, for all practical purposes, treated as a single
composite loan. This is evident, inter alia, from plaintiffs' own letters dated
7th May, 1996,35 6th June, 1996,36 12th August, 1996,37 13th September,
199638 and 30th December, 1996.39 In fact, the correspondence addressed on
behalf of plaintiffs by their Advocate also proceeds on the basis that an
aggregate 3,87,000 shares of Sesa Goa Limited had been pledged against
an aggregate loan of Rs.10 crores.40 It is in any event an admitted position
that the two advances of Rs.5 crores each are governed by the same terms
and conditions as reflected in the sanction letter dated 11 th July, 1995.41
The plea that the two amounts were distinct and that accounts were
required to be maintained in respect of each separately is merely a belated
afterthought inconsistent with the Plaintiffs' own position in their
correspondence. In fact, this contention that accounts were required to be
35. Exh.P-21
36. Exh.P-24
37. Exh.P-26
38. Exh.P-28
39. Exh.P-31
40. Exh.P-31
41. Exh.P-1
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maintained separately in respect of the two advances is not even reflected
in the Plaint. In any event, to the extent that the terms and conditions on
which the said two amounts were advanced were identical, the
maintenance of a single ledger in respect of the whole amount made no
difference in practical terms.
35 The distinction sought to be drawn between the pledged
securities offered by plaintiffs for the first advance of Rs.5 crores and the
second advance of Rs.5 crores is also not meaningful. This is in view of the
fact that the Pledge Agreement (Exh.P2/P8) in clause 5 (a) thereof, makes
it clear that shares pledged to secure one facility would be deemed to have
been pledged as security for any monies due to defendant no.1 from time
to time. Further, the Pledge Agreement (Exh.P2/P8) also makes it clear, in
clause 14 (1)(c) thereof, that any breach of the terms of one facility would
constitute a breach of others. Thus, it is clear that the entire 3,87,000
equity shares of defendant no.2 - Sesa Sterlite Limited, pledged by plaintiffs
would operate as a security in respect of the entire amount outstanding
including interest.
36 Plaintiffs' counsel contended that they had fully repaid the
second loan and that amounts remained outstanding only in respect of the
first. This case is entirely unsupported by the material on record and in
particular the correspondence exchanged between the parties. The letters
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dated 29th March, 1996,42 7th May, 1996,43 6th June, 199644 and 12th August,
199645 not only treat the two advances as a composite one, but also
concede that both loans were outstanding. It is only on sale of the pledged
securities that the amounts advanced to plaintiffs and the interest due
thereupon were fully recovered. Whether defendant no.1 was justified in
selling all those shares that they sold is a point which has been dealt with
later. Plaintiffs have argued that the second loan was fully repaid on the
basis that defendant no.1 ought to have appropriated the payments made
by plaintiffs towards the second loan which fell due first. In this behalf,
plaintiffs also relied on Section 59 and 60 of the Indian Contract Act which
are reproduced herein:
"59. Application of payment where debt to the discharged is
indicated: -
Where a debtors, owing several distinct debts to one person, makes a
payment to him, either with express intimation, or under
circumstances implying that the payment is to be applied to the
discharge of some particular debt, the payment, if accepted, must be
applied accordingly".
"60. Application of payment where debt to be discharged is not
indicated. -
Where the debtor has omitted to intimate and there are no other
circumstances indicating to which debt the payment is to be applied,
the creditor may apply it at his discretion to any lawful debt actually
due and payable to him from the debtor, whether its recovery is or is
not barred by the law in force for the time being as to the limitation
of suits".
42. Exh.P-20 pg.232
43. Exh.P-21 pg.233
44. Exh.P-24 pg.236
45. Exh.P-26 pg.238
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The reliance placed by plaintiffs on these Sections is misplaced.
Apart from the initial post dated cheques issued for monthly interest and
repayment of the principal amount of the two tranches, plaintiffs made no
appropriation of the payments made by them. As such, defendant no.1 was
entitled to make such appropriation as it chose. Defendant no.1
appropriated the amount towards the earliest liability in point of time. It
has tendered in evidence (but never provided earlier to plaintiffs though
asked for) a ledger account prepared on that basis. Even if no appropriation
had been made, even under Section 60, the payments would stand
appropriated towards the earliest dues rather than the dues that may have
become payable first. In any event, in the light of plaintiffs' repeated
acknowledgments that both loans were in default, the issue is not relevant.
37 Ms. Sonal, counsel for plaintiffs contended that defendant no.1
issued only one notice dated 23 rd February, 199646 for sale of the pledged
securities, that this notice pertained only to 1,87,000 shares pledged as
security for the second loan and that defendant no.1 having granted
extension to repay one loan, had waived its right to sell the pledged
securities. It was further contended that no further notice having been
issued by defendant no.1, the sale of the pledged securities was illegal.
According to defendant no.1, this entire argument is
misconceived as this case is not reflected in the pleadings. According to
46. Exh.P-17
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Mr. Sen, plaintiffs have not contended that the notice dated 23 rd February,
1996 was the only notice or that it was only in respect of 1,87,000 shares
or that it was waived by defendant no.1 or that the subsequent sale of the
pledged securities by defendant no.1 was vitiated by want of notice. In the
absence of this case having been pleaded, plaintiffs were not entitled to
lead any evidence in respect thereof or to urge the same in the course of
their oral arguments. This is particularly so, according to Mr. Sen, in view
of the fact that a case of waiver or of illegality for want of notice is required
to be specifically pleaded so that defendants have full notice of plaintiffs'
case.
38 It was also plaintiffs' case that :
(i) a notice under Section 176 of the Act is mandatory, as held
by a Division Bench of Calcutta High Court in Hulas Kunwar V/s.
Allahabad Bank Ltd47 and in Official Assignee V/s. Madholal Sindhu48.
Counsel Ms. Sonal submitted that it has not been reversed by the Federal
Court on this point of law and therefore it is still good law.
(ii) Clause 14 (ii) of the Pledge Agreement requires a seven
days "written notice" to be given to plaintiff no.1 for repayment before
defendant no.1 can sell or otherwise dispose of the pledged securities.
(iii) Clause 16 of the Pledge Agreement lays down the
procedure for giving a notice under the Pledge Agreement as follows:
47. AIR 1958 Cal. 644
48. AIR 1947 Bombay 217
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"16. Any notice, demand or communication to be served or given by a
party to the other party may be served or given by telex or fax or by
leaving the same at or posting the same by post under Certificate of
Posting addressed to the Borrower at its place of business, residence or
office and every such demand or notice shall be deemed to be received
as the case may be at the time at which it is left or at the time at
which it should have been delivered in the ordinary course of post."
(iv) The argument of counsel for defendant no.1 that tender of
hard cash is a precondition to filing a suit for redemption and in the
absence of such tender, the suit is bad, is incorrect.
(v) Plaintiff had filed the present suit after defendant no.1
started selling the balance pledged shares on and from 2 nd January, 1997
and informed plaintiff no.1 about the same by its letters starting from
3rd January, 1997 [Exh.P-32] and in paragraph 22 at page 13 of the plaint,
plaintiffs have stated that they are ready and willing to pay the entire
amount of loan together with interest thereon upon defendant no.1
returning the pledged shares. In prayer clause (c), plaintiffs have prayed
that the original Share Certificates of the pledged shares be ordered to be
returned to plaintiffs by defendant no.1 against receipt of a sum of
Rs.2,61,43,159/- or such other sum as this Hon'ble Court may deem fit and
proper. In prayer clause (d), plaintiffs have in the alternative to prayer
clause (c) prayed that defendant no.1 be ordered and decreed to make
available to plaintiffs 1,61,486 shares by procuring the same from the
market against receipt of a sum of Rs. 2,61,43,159/- or such other sum as
this Hon'ble Court may deem fit and proper.
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Thus, according to plaintiffs they have tendered the balance
loan amount in the plaint and if this Court comes to a conclusion that the
sale of 1,61,450 shares by defendant No.1 was invalid, the Court would
direct defendant no.1 to give to plaintiffs 1,61,450 shares which have now,
due to bonus and share split, converted into 64,58,000 shares along with
the accrued benefits with due interest thereon against the payment of the
balance loan amount which according to plaintiffs is Rs.3,70,76,195/- (till
the date of the filing of the present suit) and in the alternative, the Court
would direct defendant no.1 to pay to plaintiffs the value of 1,61,450
shares which have converted into 64,58,000 shares as on date of the
judgment, as per the ratio laid down in Dhian Singh V. Union of India49
along with the accrued benefits with due interest thereon after deducting
the balance loan amount payable by plaintiff no.1 to defendant no.1. A
chart showing the conversion of 1,61,450 shares into 64,58,000 shares and
the details of the dividend that has accrued on them was also submitted by
plaintiffs.
(vi) If defendant no.1 was ready and willing to perform its part
of the contract, namely, return the shares against receipt of the balance
loan amount, it could have stated so in its written statement or additional
written statement. However, defendant no.1 has not stated so and has
justified sale of the pledged shares by it and accordingly issues have been
49. AIR 1958 SC 274
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framed by this Hon'ble Court. It is not the case of defendant no.1 in its
written statement or additional written statement that it was ready to
return the balance pledged shares and that the suit is bad for non tender of
hard cash.
(vii) The pledge was brought to an end by plaintiffs when they
filed the present suit for redemption and expressed their willingness to
repay the balance loan amount and to redeem the pledged shares. Section
177 of the Indian Contract Act which is reproduced hereunder further
elaborates such a situation.
Section 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.
Section 177 has been explained by this Honorable Court in
Official Assignee V/s Madholal Sindhu (supra) wherein it has been held that
"The actual sale referred to in S. 177 must be a sale in conformity with the
provisions of S. 176 which gives the pledgee the right to sell; and if the sale
is not in conformity with those provisions, then the equity of redemption in
the pledger is not extinguished."
Therefore, plaintiffs herein are well within their rights to
redeem their pledged shares even as of today by tendering the requisite
amounts to defendant no.1 on defendant no.1 reciprocally agreeing to
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return the equivalent number of 1,61,450 of defendant no.2 along with the
due benefits accrued thereon the same as per the provisions of Section 163
of the Act.
(viii) The question which will arise for determination by this
Court is whether plaintiffs would be required to pay interest only till the
date of the filing of the present suit or till the date of tender of the loan
amount in hard cash to defendant no.1, i.e., till the date of judgment. The
said question has been answered by this Court in State Bank of India v.
Manglabai G. Deshmukh50 in paragraph 13 and 14 as under:
"13.......The plaintiffs had shown their readiness and willingness to
repay the loan amount but since beginning the Bank insisted for
submission of "Letters of Administration" by the plaintiffs which was
in fact, not necessary, particularly when the Bank had transferred
another loan account of the deceased in the name of the plaintiffs. Mr.
Chandurkar further submitted that it had become clear to the
plaintiffs that even if they repay the loan amount, the Bank would not
return gold ornaments unless they produce "Letters of
Administration". In such circumstances no prudent man would repay
the loan when there was no possibility of returning the gold
ornaments. Mr. Chandurkar submitted that insistence of the bank for
"Letters of Administration" was not proper and legal since beginning
and in such circumstances the plaintiffs not be blamed for not making
actual payment of the loan amount. In this respect Mr. Chandurkar
placed reliance on the following cases:
4 Lallan Prasad v Rahmat Ali, AIR 1967 SC 1322, wherein it is held
as under (para17) :
"if the pawnee is not in a position to deliver the goods he cannot have
both the payment of the debt and also the goods."
5 Smt. Artibala Mohanty v. State Bank of India, AIR 1991 Orissa
260, in which it is held as under :
"Where the Bank as the pawnee was not in a position to deliver back
the goods on account of the seizure made by the police. The Bank as
the pawnee having refused to perform its obligation of redelivering the
goods on debts being satisfied cannot claim any interest from the date
50. Air 2005 BOMBAY 221
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on which the petitioner wanted release of the goods pledged by
satisfying the debt."
14. It may be seen that the circumstances of the case show that there
was reasonable apprehension in the minds of the plaintiffs that even if
they were to pay whole of the loan with interest gold ornaments
would not be returned to them in such circumstances they were
justified in not making actual payment of loan amount. The appellate
Court was justified in holding that the liability of the plaintiffs to pay
interest would stop after August, 1982. I find no illegality in the
conclusion drawn by the appellate Court."
(ix) Without prejudice and in the alternative, it was submitted
by plaintiffs that in the context of the facts of the present suit, no tender of
any amount is warranted from plaintiffs to defendant no.1 since the shares
of defendant no.2 pledged in the present case have benefits accrued on the
same which amount to much more than what is due from plaintiffs to
defendant no.1, even assuming without admitting that interest has to be
paid by plaintiffs to defendant no.1 till the date of actual redemption.
(x) Plaintiffs were not obliged to deposit the balance loan
amount in Court to enable defendant no.1 to purchase equivalent number
of shares and give them to plaintiffs. It was open for defendant no.1 to
purchase equivalent number of shares from the market and to deposit the
same in Court and seek the balance amount of loan from plaintiffs, which
plaintiffs have in any event offered to pay in the suit. Plaintiffs' counsel also
relied upon Section 51 of the Contract Act dealing with performance of
reciprocal promises and the judgment in Official Assignee vs. Madholal
Sindhu (supra) to submit that actual tender of hard cash is not required in
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a redemption suit when the sale is invalid. Ms. Sonal submitted this
judgment though has been reversed in Appeal by the Federal Court in
Madholal Sindhu v. The Official Assignee (supra) on facts, the law laid down
with respect to the mandatory nature of a notice under Section 176 of the
Act and that tender of hard cash is not required to be made in a suit for
redemption filed upon an invalid sale of the pledged goods has not been
disturbed by the Federal Court. Ms. Sonal also relied upon S.L.
Ramaswamy Chetty vs. M.S.A.P.L. Palaniappa Chettiar51.
39 The counsel for plaintiffs also attempted to distinguish
judgments relied upon by Mr. Sen, counsel for defendant no.1, but I was
not convinced.
40 Counsel for plaintiffs also submitted that the instant case is a
claim made by a pledger for redemption in detinue upon invalid sale of the
pledged goods by the pledgee. As the pledgee in the instant case has sold
the pledged goods and disabled itself from returning them even if actual
payment was tendered by the pledger, the pledger is not required to make
actual payment. It was further submitted that the nature of the pledged
goods does not make any difference to the principle that in case of a suit
filed for redemption and detinue in the event of an invalid sale, tender of
hard cash is not required to be made by the pledger. The law does not
recognize any difference between a pledge of shares which are listed on
51. AIR 1930 Madras 364
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bourses and a pledge of gold ornaments nor does the law put any greater
burden on a pledgor of easily available and replaceable goods like shares of
listed companies, than on a pledger of gold ornaments or paintings. Any
distinction drawn between easily available and replaceable goods and non-
replaceable goods would put a higher burden on the pledger of the former,
would be arbitrary.
41 Per contra, counsel for defendant no.1 submitted plaintiff's
case that they are entitled to redeem the pledged securities including all
accruals thereupon such as bonus shares issued and dividend paid out
merely by tendering the amount due from plaintiffs to defendant no.1 on
the date of institution of the suit is patently erroneous. According to
Mr. Sen, it is settled law that a pledgor must, as a pre-condition for
instituting a suit for redemption, deposit the amount outstanding to the
pledgee.52 The only exception is where an honest tender of the amount due
is made by the pledgor prior to the institution of the suit and such tender is
rejected without cause by the pledgee or where the pledgee has rendered
himself incapable by supervening circumstances from returning the pledged
goods.53 In the present case, plaintiffs did not make any tender or offer of
the outstanding amounts to defendant no.1 prior to the institution of the
suit. In fact, plaintiff no.1 admits as much in the course of his cross
52. The Official Assignee of Bombay v. Madholal Sindhu &Ors., ILR 1948 Bom 1; Sir Raja Kakarlapudi Venkata Sudarsana
Sundara Narasayyamma Garu (died)& Ors. v. Andhra Bank Ltd., AIR 1960 AP 273
53. The judgments relied upon by Plaintiffs, namely S.L. Ramaswamy Chetty & Anr. v. M.S.A.P.L. Palaniappa Chettiar, AIR
1930 Mad 364; Aratibala Mohanty v. State Bank of India, AIR 1991 Ori 260 and State Bank of India v. Mangalabai
Deshmukh, AIR 2005 Bom 221 according to Mr. Sen deal with this limited exception, which has no application to the facts
of the present case.
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examination. Even the plaint, apart from the fact that no amounts were
deposited by plaintiffs, did not even constitute a real offer to pay insofar as
the principal plea on which the action was brought was that the pledge had
come to an end and that defendant no.1 had become the owner of the
shares. The mere statement that plaintiffs were "ready and willing" to pay
the amounts due did not constitute a valid tender or even an offer in law.
As such, even if we assume that the sale of the pledged
securities by defendant no.1 was illegal and that plaintiffs were entitled to
redeem the pledged securities, they can do so only against payment of the
entire amount outstanding to defendant No.1 as if the disputed sale did not
occur and the sale proceeds were not appropriated towards plaintiffs' debt.
The Judgments relied upon by plaintiffs on the issue of
redemption are also wholly irrelevant. The position as reflected in The
Official Assignee of Bombay v. Madholal Sindhu & Ors.54 is that in the
event a sale of the pledged securities is null and void, the pledgor would be
entitled to redeem the pledged securities. However, this is not such a case.
The Judgments relied upon by plaintiffs, viz., S.L. Ramaswamy Chetty and
Anr. (Supra) and State Bank of India vs. Smt. Mangalabai G. Deshmukh
(Supra) regarding payment of the outstanding amount being a pre-
condition for the exercise of a right of redemption are equally of no
assistance insofar as those are cases where an honest tender was in fact
54. ILR 1948 Bom 1
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made in an attempt to redeem the pledged securities.
The reliance on the proposition in Aratibala Mohanty (Supra)
that interest would cease to run in the event a pledgee renders himself
incapable of returning the pledged securities is also inapposite. In the
present case, shares being fungible securities, no question can possibly arise
of the pledgee being unable to "return" the security. In the event a valid
tender is made of the outstanding amount, the pledgee would merely have
to purchase the shares from the market and return it to the pledgor. In the
present case, no occasion arose to do so because no tender was in fact
made of the outstanding amount by plaintiffs. On the contrary, plaintiffs
repeatedly reiterated that they had no interest in the pledged securities,
defendant no.1 had become the owner of the shares and was free to deal
with them as it pleased without even informing plaintiffs (Exh.P-33).
Plaintiffs have claimed on the basis of the Judgment of the
Hon'ble Supreme Court in Dhian Singh Sobha Singh & Anr. v. Union of India
(Supra) that the present suit was an action in detinue as distinct from an
action in conversion. However, it is manifest from the Judgment itself that
the ingredients for an action in detinue are not met in the present case. The
Hon'ble Supreme Court holds: "The action of detinue is based upon wrongful
detention of the plaintiff's chattel by the defendant, evidenced by a refusal to
deliver it upon demand and the redress claimed is not damages for the wrong
but the return of the chattel or its value". In the present case, there was no
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refusal by defendant no.1 to deliver the pledged securities on demand, viz.,
by a tender of the outstanding amounts. As such, there was no wrongful
detention by defendant no.1 of the pledged securities. On the contrary, it
was plaintiffs' case prior to and in the suit itself, that the shares belonged to
defendants. As such, plaintiffs' purported action in wrongful detention must
necessarily fail.
42 In my view, plaintiffs' case is belied by the record. The notice
dated 23rd February, 1996 does not confine itself to the 1,87,000 shares
pledged by plaintiffs in respect of the second tranche of Rs.5 crores. As
noted earlier, the pledge agreement provides that securities offered in
respect of one facility enured to the benefit of all. Further plaintiffs' case
that the letter dated 23rd February, 1996 was the only letter by which notice
was given of defendant no.1's intention to sell the pledged securities is
incorrect. The subsequent letter dated 7 th March, 199655 issued by
defendant no.1 makes it manifest that they intend to sell all of the shares
pledged by plaintiffs as security for the entire loan of Rs. 10 crores. This
also constituted adequate notice for the purpose of Section 176 of the
Indian Contract Act, 1872. Even otherwise, plaintiffs' knowledge that
defendant no.1 intended to enforce the pledge by sale of the securities is
also amply clear from the letter dated 12 th August 199656 where they
requested defendant no.1, as a matter of indulgence, not to proceed with
55. Exh.P-18
56. Exh.P-26
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the sale of the pledged securities. This was followed by defendant no.1,
during the continuance of the pledge, lodging the shares along with the
share transfer forms with defendant no.2 - Sesa Sterlite Limited for transfer
in its name as a step in aid of enforcing the pledge. Plaintiffs could not but
have known that this was done by defendant no.1 with an intention to
enforce the pledge by sale of the securities. It is for this reason that
plaintiffs also attempted to prevent the transfer by defendant no.2 - Sesa
Sterlite Limited, of the pledged securities in the name of defendant no.1. 57
Subsequently, in circumstances about which there is a dispute between the
parties, plaintiffs withdrew their objection for transfer of the shares in the
name of defendant no.1. That dispute notwithstanding, it is clear that
plaintiffs knew at the time that defendant no.1 proposed to deal with the
shares.
43 At no point in time did plaintiffs object to such sale or contend
that the sale was illegal or invalid on account of want of notice. On the
contrary, plaintiffs repeatedly asserted that defendant no.1 had become the
owner of the shares and was free to deal with the shares as it pleased.
Having taken this contention till the filing of the suit and in the suit itself
and having actively affirmed the freedom of defendant no.1 to sell the
shares, plaintiffs cannot be heard to contend that they have not received
notice of such sale or that the sale is invalid on that alleged account.
57. Exh.P-28
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44 The law is well settled that no notice under Section 176 is even
necessary where the pledgor was consulted or acquiesced in the sale. 58 It is
also a settled position that Section 176 only requires notice of the intention
to sell and not notice of the particulars of the intended sale. 59 The pledgee
is free to choose his own time to exercise the power of sale and is in
particular not bound to sell within a "reasonable time". 60 In the present
case, defendant no.1 has not only made manifest its intention to sell the
pledged securities but has promptly communicated to plaintiffs the
particulars of each sale. Even otherwise, apart from the fact that defendant
no.1 had in fact given notice of its intention to enforce the pledge, plaintiffs
were perfectly well aware of defendant no.1's intention to sell the pledged
securities. As such, the requirements in law for a valid sale of the pledged
securities by defendant no.1 are fully met and the contention of plaintiffs
that the sale is null and void as against them has to be rejected.
45 Plaintiffs case for redemption is premised on the alleged
illegality of the sale of the pledged securities by defendant no.1. As set out
herein, the enforcement of the pledge by defendant no.1 is in fact perfectly
valid and not vitiated by any alleged lack of notice. As such, the question of
plaintiffs being entitled to redeem the pledged securities does not arise.
58. See Madholal Sindhu of Bombay v. Official Assignee of Bombay, AIR 1950 FC 21
59. Sankaranarayana iyer Saraswathy Amal v. The Kottayam Bank Ltd., AIR 1950 Travancore-Cochin 66, (FB) and Hulas
Kunwar v. Allahabad Bank Ltd., AIR 1958 Cal 644, 649
60. See Madholal Sindhu of Bombay v. Official Assignee of Bombay, AIR 1950 FC 21; Sankaranarayana iyer Saraswathy
Amal v. The Kottayam Bank Ltd., AIR 1950 Travancore-Cochin 66
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46 It should be noted that at no point, before filing of the plaint,
has plaintiff even communicated to defendant no.1 of its intention to
redeem 1,61,486 shares or offer to repay any amount against redemption
of pledged shares.
In the course of his cross examination, PW-1 vacillated on the
issue of whether defendant no.1 had become an owner of the shares on
8th August, 1996 or were merely exercising their rights as pledgees
thereafter61. The answers, displays an inability to choose decisively between
the principal case in the plaint which has been abandoned and the
alternative plea. PW-1 also was unable to make out a case that plaintiffs
had offered the balance amount in return for the pledged shares which
defendant no.1 was not ready to give up. PW-1 was unable to indicate
where in the correspondence or in the pleadings plaintiffs have set up any
case that the sale of the pledged shares were invalid on the ground that no
notice had been given to plaintiffs62.
47 The argument regarding waiver of right to sell pledged
securities by defendant no.1 is also devoid of merit. The sanction letter
dated 11th July, 1995 (Exh.P-1), at clause 4(b) (4) expressly provided that
"No failure to exercise or delay in exercising any of our rights hereunder or
under any other documents will act as a waiver of that or any other right nor
shall any single or partial exercise preclude any future exercise of that right."
61. Answers to question nos.29 to 37
62. Answers to question nos.38 to 40
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As such, no argument of waiver, merely on the ground of forbearance or
extension of time, is available to plaintiffs. Plaintiffs have in support of
their case of waiver relied on the judgments of the Hon'ble Calcutta High
Court in Hulas Kunwar v. Allahabad Bank Ltd. (Supra) and the judgment in
Pigot v. Kubley63. Neither of the judgments are of assistance to plaintiffs'
case. The Judgment in Hulas Kunwar (Supra) involved a premature
enforcement of the pledge by the sale of the pledged securities prior to
expiry of an extension of time granted by the pledgee. That is not the case
here. Pigot v Kubley (Supra) was a case where the parties were found to
have substituted a new agreement under which the time for payment, and
consequently the power of sale, was indefinitely extended. No such
agreement is pleaded in the present case. The disputed sales occurred at a
time when plaintiffs were admittedly in default and had consciously not
objected to the transfer of the pledged shares in the name of defendant
no.1, being fully aware that defendant intended to deal with them. The
facts support no case of waiver by defendant no.1 of any notice or of any
right to enforce the pledge.
48 In view of this conclusion, I do not see any need to go into
other elaborate arguments made by the opposing counsel.
49 It was also argued on behalf of defendant no.1 that while the
main relief in the suit is for a declaration that both the loans stood repaid
63. C.B. (N.S.) 701
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on or about 8th August, 1996 on the basis of the appropriation of the
balance shares by Defendant No.1 at the rate of Rs. 310/- per share and for
refund of excess amount, the alternative relief for a declaration that the
sale of the balance shares was invalid and for redemption are mutually
destructive and cannot be sought together in a suit. Ofcourse, plaintiffs'
counsel disagreed.
Since plaintiffs have given up its main plea, I do not wish to
spend time on this argument of defendant no.1.
50 It is the case of defendant no.1 in its written statement that
only an amount of Rs.5,61,413.50 stands to the credit of the loan account
of the first plaintiff in its books. Issue no.9 has been framed in this regard.
51 Defendant no.1 has relied upon the accounts of plaintiff no.1
maintained by it in its books to show that a sum of Rs.5,61,413.50 stands
to the credit of the loan account of plaintiff no.1 64. Defendant no.1 has
levied interest at the rate of 36% on the overdue amount from 4 th June,
1996 with retrospective effect from 12th March, 1996 to 19th May, 1996.
Thereafter, defendant no.1 has levied interest at the rate of 36% on the
outstanding amounts from 20th May, 1996 till 25th February, 1997. As
observed earlier, defendant no.1 could not have levied interest at the rate
of 36% on the amounts outstanding for any period.
64. Exh.D-10
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52 The sanction letter dated 11th June, 1995 [Exh.P-1] which
contains the terms and conditions for both the loans, provided for the rate
of interest to be at 24%. Clause 4(b)(1) thereof, provides that defendant
no.1 would be entitled to notify plaintiff no.1 of the change in interest rate
and thereafter be entitled to charge interest at such notified rate. Clause
4(b)(1) is as under:
"4(b)(1) Notwithstanding what is stated hereinabove, we shall, at
any time and from time to time, be entitled to notify you and
thereafter charge interest at such notified rate and this letter shall be
construed as if such revised rates were mentioned therein."
This clause deals with change in the rate of interest before any
default made by plaintiff no.1 while clause 4(b)(2) of the sanction letter
deals with additional interest at the rate of 2% above the interest rate for
the facility that could be levied by defendant no.1 post default.
The aforesaid clause of the sanction letter read with clause 16
of the Pledge Agreement reproduced earlier, makes it clear that any
notification to change the rate of interest during the continuance of the
facility had to be made in writing by defendant no.1.
53 Defendant no.1 claims to be entitled to levy interest at the rate
of 36% on the basis of its letter dated 21st March, 1996 [Exh.P-19], which is
a notice issued by it under the provisions of Section 138 of the Negotiable
Instruments Act, after default in repayment of the first loan. DW-1 during
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his cross examination gave evasive replies in answer to questions on
increase of rate of interest from 24% p.a. to 36% p.a. I would add, from the
answers, DW-1 has not denied that no other notice to increase the rate of
interest to 36% was sent by defendant no.1 before or after Exh.P-19 65.
54 The notice dated 21st March, 1996 [Exh.P-19] is not a notice
under clause 14(b)(1) of the sanction letter and therefore, the levy of
interest at 36% by defendant no.1 is unjustified and wrongful.
55 Under clause 4(b)(2) of the sanction letter [Exh.P-1],
defendant no.1 was entitled to levy additional interest @ 2% in the
following words:
"4(b)(2) In case of default either in the payment of interest,
additional interest, the repayment of the principal amounts as and
when due and payable or reimbursement of all costs, charges and
expenses when demanded, you shall pay additional interest at the rate
of 2% above the interest rate for the Facility, on the overdue interest,
principal amount, costs, charges or expenses and/or from the
respective due dates for payment and/or repayment."
It is an admitted position that defendant no.1 has not levied
the aforesaid additional interest at the rate of 2%. DW-1 in paragraph 21 of
his affidavit in lieu of examination in chief has also stated that the
outstanding loan amount in plaintiff's loan account as on 7 th May, 1996 was
Rs.7,57,88,547/-. This amount has been derived by defendant no.1 by
levying an interest at the rate of 24% p.a. and without monthly rests and
65. Q/A 73 to Q/A 80
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not at 26% p.a. [Exh.P-10].
56 The sanction letter dated 11th July, 1995 [Exh.P-1] provides
that the rate of interest would be calculated at monthly rests payable in
arrears. The Demand Promissory Notes dated 12 th July, 1995 [Exh.P-6] and
13th July, 1995 [Exh.P-12] do not provide for any such rests. The last
postdated cheques given by plaintiff no.1 towards interest of both the loans
was dishonoured upon presentation [cheque at Sr. No.8 of Exh.P-5 and
cheque at Sr. No.6 of Exh.P-11]. Yet, defendant no.1 did not levy interest at
monthly rests or additional interest thereafter.
57 Mr. Sen, counsel for defendant no.1 argued that interest was to
be calculated at monthly rests which was payable in arrears and therefore
would have been levied only after plaintiff no.1 had defaulted in making
payment of any installment towards interest or the principle amount and
not before.
Interest at monthly rests or any other rests was not demanded
by defendant no.1 in its letters dated 23 rd February, 1996 [Exh.P-17],
7th March, 1996 [Exh.P-18] and 21 st March, 1996 [Exh.P-19]. Even in the
Statement of Account maintained by defendant no.1 [Exh.D-10], interest
has not been levied at monthly rests or any additional interest charged.
Defendant no.1 had never levied interest at monthly rests or otherwise
additional interest and hence is not entitled to.
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58 Therefore, sale of any pledged share in excess of what was
only required to be sold to recover the amount due, would be illegal. The
counsels agree that the last of the pledged shares that was sold by
defendant no.1 and the sale proceeds appropriated was on 4 th March 1997.
As the Court was unable to find the correct figures, the matter
was placed for directions on 30 th October 2017 and the counsels were
requested to provide a statement arrived at by consensus as to what would
be the amount payable on the basis of interest calculated at 24% per
annum simple interest, how many pledged shares were sold beyond the
number that was required to be sold to recover that amount less 36 shares
returned by defendant no.1 to plaintiff no.1 pursuant to order dated
22nd July 1997, what would be the number after excess share sold were
split and bonus shares issued by defendant no.2-company (accretions) and
the dividend that would have been paid on those shares (unpaid dividend)
after 4th March 1997. The matter was placed again for directions on
9th November 2017, 16th November 2017 and on 23 rd November 2017. The
counsels were unable to arrive at a consensus. Finally different statements
were given by both the parties. I would proceed on the basis of statement
given by defendant no.1 and also proceed on the basis of calculations of
defendant no.1. Defendant no.1 gave the working of shares and accretions
as under :-
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Statement of accounts of the simple interest calculated at 24% per
annum
As per Plaintiffs' calculations As per Defendant no.1's calculations
Statement Simple 24% Statement Simple 24%
of interest of interest
Accounts Amount 76,27,649 Accounts Amount 75,30,289
on the on the
Payable Payable
basis of basis of
24% p.a. No. of 29,113 @ 24% No. of 28,742
Shares p.a. Shares
No. of 1164520 No. of 1149680
Shares Shares
after after
accretions accretions
Value 3493,56,000 Value 3449,04,000
Dividend 588,37,373 Dividend 580,87,582
4081,93,373 4029,91,582
59 Mr. Sen, of course, submitted that these figures are irrelevant
because at the most, even assuming the Court comes to a conclusion that
simple interest at 24% p.a. only was recoverable and defendant no.1 was
wrong in selling more shares than required, plaintiffs will be only entitled
to the value that defendant no.1 received from its sale. I am not in
agreement with Shri Sen. Mr. Sen also submitted that in any case that was
not the prayer in the plaint.
60 Plaintiffs consistent stand has been defendant no.1 had to
render accounts and to pay over the alleged surplus. Rendering of accounts
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will squarely apply to both the primary case of plaintiffs and the alternative
plea.
Moreover, issue no.9 reads as under :
(9) Does the defendant no.1 prove that only a sum of Rs.5,61,413.50
stood to the credit of the loan account of plaintiff no.1 as per Exhibit
"1" to the Written Statement?
61 This situation, that more shares were sold than required,
would not have arisen but for the decision of defendant no.1 to unilaterally
chose to calculate interest @ 36% per annum and appropriate to itself the
sale proceeds. Defendant no.1 was not even providing plaintiffs with
detailed break-up of the calculations despite repeatedly being called upon
to produce. As could be seen from the evidence, plaintiffs were repeatedly
asking defendant no.1 to provide the break-up. If only defendant no.1 had
been honest in its calculations and provided timely statements, this
situation would not have arisen. It is true that it was plaintiff no.1 who had
approached defendant no.1 for financial assistance and plaintiff no.1 had
defaulted in its payment but at the same time, defendant no.1 could not
arrogate itself to the position that without any basis, and because they had
possession of the pledged shares, and the value of the shares were much
more than the amount repayable by plaintiffs, go on selling the shares
when there was no need.
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62 The effect of this is defendant no.1 had wrongfully detained
the shares after the entire amount calculated at 24% p.a. interest had been
recovered. The extra shares that defendant no.1 sold by calculating at 36%
p.a. interest or its value had to be returned.
63 It is well settled that the relief sought by parties should not be
refused on technical and pedantic grounds. Once the substantive prayers
and the cause for justice is borne out in the pleadings, then the Court
would be fully within its jurisdiction to mould the reliefs and any
technicality would not obstruct the course of justice.
With respect to moulding reliefs in the interest of justice,
powers of the Court are wide. Keeping in mind the rights and obligations of
the parties to the suit and the issues involved, the Court can undoubtedly
take note of changed circumstances and suitably mould the relief to be
granted to the party concerned in order to mete out justice in the case. As
far as possible the anxiety and endeavour of the Court should be to remedy
an injustice when it is brought to its notice rather than deny relief to an
aggrieved party on purely technical and narrow procedural grounds.
A Full Bench of the Supreme Court of India in Pasupuleti
Venkateswarlu v. Motor and General Traders66 has elaborated on this
principle in the context of eviction proceedings. Speaking for the bench,
Krishna Iyer J., in his inimitable way said :
66. (1975) 1 SCC 770
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"...........First about the jurisdiction and propriety vis a vis
circumstances which come into being subsequent to the
commencement of the proceedings. It is basic to our processual
jurisprudence that the right to relief must be judged to exist as on the
date a suitor institutes the legal proceeding. Equally clear is the
principle that procedure is the handmaid and not the mistress of the
judicial process. If a fact, arising after the lis has come to court and
has a fundamental impact on the right to relief for the manner of
moulding it, is brought diligently to the notice of the tribunal, it
cannot blink at it or be blind to events which stultify or render inept
the decretal remedy. Equity justifies bending the rules of procedure,
where no specific provision or fairplay is violated, with a view to
promote substantial justice subject, of course, to the absence of other
disentitling factors or just circumstances. Nor can we contemplate any
limitation on this power to take note of updated facts to confine it to
the trial Court. If the litigation pends, the power exists, absent other
special circumstances repelling resort to that course in law or justice.
Rulings on this point are legion, even as situations for applications of
this equitable rule are myriad. We affirm the proposition that for
making the right or remedy claimed by the party just and meaningful
as also legally and factually in accord with the current realities, the
court can, and in many cases must, take cautious cognisance of events
and developments subsequent to the institution of the proceeding
provided the rules of fairness to both sides are scrupulously
obeyed..........."
64 In the circumstances, I am inclined to reject the submissions of
Mr. Sen and hold that plaintiffs are entitled to the shares with accretions
and unearned dividend but the entitlement will be based on the statement
of defendant no.1 and defendants' calculations.
65 In my view, therefore, plaintiffs shall be entitled to a decree as
under against defendant no.1 :-
(a) Deliver within four weeks 11,49,680 fully paid equity
shares, in view of sub-division and bonus issue of shares of
defendant no.2-company, which defendant no.1 may
purchase from the market and deliver to plaintiffs;
(b) In the alternative to clause (a), and in any event after
four weeks, pay the amount equivalent to value of
11,49,680 fully paid equity shares as on the date of this
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decree or payment/realisation, whichever is higher.
(c) Pay a sum of Rs.5,80,87,582/- towards unearned
dividend for the shares plaintiffs would have become
entitled to with accretions based on 28,742 excess shares
that defendant no.1 sold illegally less Rs.5,61,413.30
already paid pursuant to order dated 22nd July, 1997.
(d) Interest on all amounts be paid at 24% p.a. from the
date hereof until payment/realisation.
66 The issues are answered accordingly and suit stands decreed
accordingly.
67 No order as to costs.
(K.R. SHRIRAM, J.)
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