World Crest Advisors Llp vs Catalyst Tursteeship Ltd. And 8 ...
2022 Latest Caselaw 5545 Bom

         rrpillai
                                               IN THE HIGH COURT OF JUDICATURE AT BOMBAY

                                                   ORDINARY ORIGINAL CIVIL JURISDICTION

                                             INTERIM APPLICATION (L) NO. 17730 OF 2022

                                                                    IN

                                                COMMERCIAL SUIT (L) NO. 29569 OF 2021


                        World Crest Advisors LLP.                         ...     Applicant/Plaintiff
                                         vs.
                        Catalyst Trusteeship Ltd. & 8 Ors.                ...    Respondents/Defendants


                        Mr. Navroz Seervai, Senior Advocate a/w. Ms. Gulnar Mistry, Ms. Shreni
                        Shetty, Ms. Krusha Maheshwari, Ms. Swati Chandan and Ms. Kashish Bijlani i/
                        b. ANB Legal for the Plaintiff/ Applicant in IAL/17730/2022 .


                        Mr. J. P. Sen, Senior Advocate a/w. Ms. Gathi Prakash, Ms. Nidhi Asher, Ms.
                        Arushi Poddar and Ms. Priyanka Desai i/b, Cyril Amarchand Mangaldas for
                        Defendant no. 1.


                        Mr. Venkatesh Dhond, Senior Advocate a/s. Mr. Shyam Kapadia, Ms. Gathi
                        Prakash, Ms. Nidhi Asher, Ms. Arushi Poddar and Ms. Priyanka Desai i/b. Cyril
                        Amarchand Mangaldas for Defendant no.2.


                        Mr. Aspi Chinoy a/w. Mr. Rugved More, Ms. Tanya Mehta and Ms. Vaibhavi
                        Bhalerao for defendant no. 3.

                                                                     CORAM : A. K. MENON, J.

DATED : 17th JUNE, 2022

Digitally signed by RAJESHWARI RAJESHWARI RAMESH RAMESH PILLAI PILLAI Date:

2022.06.17 16:57:55 +0530

902---ial-17730-2022-comsl-29569-2021.odt P.C. :

1. Moved for ad-interim relief. The plaintiff seeks an injunction

restraining defendant nos. 1 and 2 and their servants and agents from

participating in an Extraordinary General Meeting ("EGM") of the defendant

no.3 ("Company") scheduled on 24 th June, 2022 and from exercising any

right including voting rights in respect of the suit shares. The application is

moved pursuant to notice dated 25 th May, 2022 issued by the Company to

consider reappointment of its Managing Director for the period 1 st April,

2022 to 31st March, 2025. The applicants also seek permission to exercise

voting rights in respect of the suit shares at the said EGM and restrain

defendant nos. 1 and 2 and their servants and agents or nominees from

interfering or seeking participation in the management of the affairs of the

Company.

2. The application as canvassed before me is on the basis that defendant

nos. 1 and 2 have no right to vote at the said EGM. Defendant no. 1

("Catalyst") is Security Trustee and defendant no. 2 - a banking company.

Defendant nos. 4 to 9 are the borrowers of term loan(s) from defendant no. 2-

bank. According to the plaintiff and as canvassed by Mr. Seervai the plaintiff

has facilitated the pledge of suit shares as Security with Catalyst purportedly

on the basis of assurances and representations made by defendant nos. 4 to 9

and two other companies Pan (India) Infraprojects Private Limited and RPW

Project Private Limited and also defendant no. 2 bank that the shares would

902---ial-17730-2022-comsl-29569-2021.odt at all times continue to be the absolute property of the plaintiff unless the

same are sold pursuant to default.

3. The Applicant admits that on an earlier occasion, an application IA(L)

No. 29574 of 2022 ("IAL 29574") was made for similar reliefs on 23 rd

December, 2021. No relief was granted. The bank then moved an application

before this Court being Interim Application (L) No. 376 of 2022 ("IA 376")

seeking an order directing defendant no. 3 - company to declare results of

the 33rd Annual General Meeting held on 30 th December, 2021 consequent

upon failure of the plaintiff to obtain relief on 23 rd December, 2021. When IA

376 was taken up for hearing learned counsel for the applicant on

instructions made a statement that the Applicant had also filed Interim

Application(L)No. 4788 of 2022 ("IAL 4788") claiming change in

circumstances and once again seeking inter alia restraint against selling or

acting upon the suit shares and exercising voting rights in respect of the suit

shares and seeking certain disclosures of a complaint filed with the Economic

Offences Wing on 24th September, 2021 which was allegedly suppressed.

Faced with IA 376 the Applicant then contended that they intended to seek

review of the order dated 23 rd December, 2021 and did not press IAL 4788.

The Review Petition was filed and is pending.

4. Reliefs now being sought in the present Interim Application are

essentially the same as those in IAL 29574. Mr. Seervai submitted that there

902---ial-17730-2022-comsl-29569-2021.odt are changed circumstances which justify the present interim application. He

submitted that the cause of action still survives and defendant no. 1 is in

violation of that Security Trustee Agreement. The plaintiff is fully entitled to

redeem the shares pledged. The justification in moving this application

canvassed before me is that notwithstanding the pendency of the Review

Petition, the present Interim Application may be heard and ad-interim relief

granted in view of the fact that the Supreme Court has in a recent judgment

in the case of PTC India Financial Services Ltd vs. Venkateshwarlu Kari and

Anr.1 while considering the provisions of the Depositories Act, 1996 read

with Securities and Exchange Board of India (Depositories and Participants)

Regulations 1996 has authoritatively settled to law relating to a pledgee's

right qua the pawned goods viz. shares held in a Depository and the effect of

Regulation 58(8) enabling a "beneficial owner" to enforce the right to sell

shares and thereafter effect a sale in accordance with Section 176 and 177 of

the Indian Contract Act, 1872.

5. There is a dispute raised today at the hearing of this application

whereat the defendant bank has sought to oppose the application on the

ground that they are nominees of defendant no. 1. The bank claims it is

entitled to exercise voting rights and that they have been exercising voting

rights in the past hence the balance of convenience does not favour the

applicant. It is also contended by Mr. Dhond that a sum of Rs.5270 crores is

payable and overdue from the borrowers and the applicant is part of the

1 2022 SCC Online SC 608

902---ial-17730-2022-comsl-29569-2021.odt group controlling the borrowers. Mr. Dhond seeks to oppose the application

on the ground that this is one more attempt to stall the bank's participation at

the ensuing meeting having failed to obtain an order on 23 rd December,

2021 in IAL 29574, despite having withdrawn IAL 4778 and seeking a

Review of the order dated 23 rd December, 2021.

6. Mr.Seervai submits that in April 2022 the plaint was amended, the

deed of pledge which had not been disclosed earlier has since been

introduced by way of amendment in the plaint. Mr.Seervai submitted that

having amended the plaint and in view of the Supreme Court's decision in

PTC India Financial Services Ltd (Supra)the applicants case stands fortified.

He has taken me through the judgment in detail and submits that the

defendant bank has no right whatsoever to vote. He submits that the bank is

an illegal transferee of the shares and Catalyst has illegally parted with the

security. Mr.Seervai submits the law having been settled the reliefs sought be

granted.

7. Mr Dhond submits the attempt is now to stall the meeting that has

been called. Mr. Dhond invited my attention to the provisions of the deed of

pledge at Exhibit C to the plaint and contended that as a nominee of Catalyst

he is entitled to exercise voting rights. He has relied upon Clause no 5 which

sets out pledgee rights prior to default including voting rights under clause

5(b). Mr. Dhond submits that this is a contractual provision arrived at prior

to any default whereas Section 176 of the Contract Act provides for

902---ial-17730-2022-comsl-29569-2021.odt consequences upon default and nothing in the judgment would prevent

exercise of voting rights by the bank which he claims as a nominee of

Catalyst.

8. There is a serious dispute as to whether the bank is a nominee or

transferee of the shares. On behalf of the applicants Mr. Seervai vehemently

submits that there is no nomination but there is an illegal transfer since the

twin pledge deeds provide for Catalyst to act as proxy for the applicant. There

is no documentation establishing such nomination and he has contended that

the bank was not a pledgee, it never was a pledgee. That it is not even a

party to the pledge deeds. He has taken me through the judgment of the

Supreme Court and invites me to hold that on a fair reading of the judgment

it is clear that the applicant is entitled to relief. That the law is now settled

and there is no occasion for the bank to claim that it can exercise voting

rights in the facts of the case.

9. Mr. Chinoy appearing for the company has sought to clarify that

Regulation 58(8) effectively contemplates creation of a pledge and the

manner in which the pledgee can act by first becoming a Beneficial Owner

prior to exercising rights under Section 176 of the Contract Act.

10. Mr. Dhond has contended that this is one more attempt at securing

relief. He has invited my attention to the fact that prior to filing this suit

reliefs were sought in a suit filed by defendant nos. 4 to 9 the borrowers

902---ial-17730-2022-comsl-29569-2021.odt forming part of the same group seeking a declaration that the invocation of

the pledge deeds were non-est in the District court in Saket, Delhi. The suit

came to be withdrawn after the bank filed application under Order VII Rule

11 for rejection of the plaint. Thereafter the applicants / borrower had

approached the bank for settlement which did not fructify. The bank had

already voted in the past at earlier meetings and on several occasions

meetings called were postponed.

11. In the meantime further proceedings were initiated at the instance of

certain group companies/individuals connected with the applicant including

by filing a criminal complaint against the bank's officers which came to be

stayed by the Supreme Court. That this IA is yet another attempt at

preventing the bonafide exercise of rights. He has drawn my attention to

other proceedings filed by certain other shareholders before the NCLT,

Mumbai unsuccessfully. The bank then filed proceedings before DRT, New

Delhi under the SARFAESI Act to enforce mortgage, but the mortgagor

sought a restraint on enforcing rights of the suit shares. An order was passed

on that request which was later stayed by the Delhi High Court. In addition

several other attempts have been made to stall the banks efforts of recovery.

Faced with this Mr. Seervai contended that none of those proceedings were

filed by the Applicants. The applicants do not deny that the borrower and

others who had initiated other proceedings were all connected /affiliated in

some manner.

902---ial-17730-2022-comsl-29569-2021.odt

12. According to Mr. Dhond there is a valid pledge which includes voting

rights in terms of the agreement between the parties. It is thereafter that this

Suit and Interim applications were filed in this Court.

13. I have heard submissions at length. IAL 4778 effectively sought the

same relief being sought today. That interim application was scheduled to be

heard by this court but was withdrawn only to pursue a Review Petition in

view of certain additional facts that had come to the knowledge of the

applicant. The plaint was amended and the Review Petition is pending. There

was a controversy whether the Review Petition was moved at all, but today it

is pointed out that the Review Petition has been listed on board. There is no

reason why the plaintiff/applicant has not moved that court since the issue is

sought to be reopened on the basis of additional disclosures and fact thus

their application could have been made in the Review.

14. However, despite pendency of the Review Petition, the attempt of the

applicant is now to once again seek relief which was part of IAL 4778 which

was withdrawn. In my view no case is made out for ad-interim relief on the

basis of the arguments advanced before me. The Review Petition continues to

be pending. Contentious issues have been raised as to the legal capacity of

the bank since the applicant has contended that the bank is not a nominee but

an alleged transferee. The applicant has not made out a prima facie case

nor is the balance of convenience favouring grant of relief. No irreparable

902---ial-17730-2022-comsl-29569-2021.odt harm is likely to be caused to the plaintiff/applicant. There is no occasion to

once again consider grant of relief which was part of IAL 4778 which was

consciously withdrawn to pursue the Review Petition which is still being

pursued. Accordingly I pass the following order :

         (i)      Ad-interim relief is refused.

         (ii)     Reply, if any to be filed within four weeks.

         (iii)    Rejoinder, if any to be filed within two weeks thereafter.

         (iv)     List per CIS.



                                                                   (A.K. MENON, J.)





902---ial-17730-2022-comsl-29569-2021.odt