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