Case Note & Summary
The suit was filed by Harinarayan G. Bajaj and others against Reliance Capital Limited and Sesa Sterlite Limited. Plaintiffs borrowed a total of Rs.10 crores in two tranches from defendant no.1 in July 1995, secured by pledge of 2,00,000 shares of Sesa Goa Ltd. (later Sesa Sterlite Ltd.). Loan agreements and pledge agreements were executed, along with promissory notes and powers of attorney authorizing defendant no.1 to sell the shares upon default. Plaintiffs defaulted on repayment of the second tranche, including principal of Rs.5 crores and interest. Defendant no.1 issued a seven-day notice under clause 14(ii) of the pledge agreement and informed plaintiffs of initiation of sale negotiations. Plaintiffs filed suit seeking declaration of an understanding for transfer of pledged securities at an agreed sum with surplus payable to them, or alternatively, redemption of the pledged securities. At trial, plaintiffs abandoned the main case and only pressed the alternative plea for redemption. The judgment text available does not include the court's analysis or final decision. The suit was heard by the Bombay High Court, reserved in October 2017 and pronounced on 5th January 2018.
Issue of Consideration
Whether plaintiffs as pledgors are entitled to redeem the pledged shares despite default, and whether the sale of shares by defendant no.1 was null and void
Law Points
- Pledge
- redemption of pledged shares
- default in loan repayment
- rights of pledgee to sell securities
- notice requirement under contract
Case Details
2018 LawText (BOM) (01) 89
Ms. Sonal, Mr. Vivek M. Sharma, Mr. J.P. Sen, Mr. Omkar Chandurkar, Ms. Bhavna Singh, Mr. Paresh Patkar, Mulla and Mulla and CBC
Harinarayan G. Bajaj, Shailesh Harinarayan Bajaj, Krishna Harinarayan Bajaj, Rahul Harinarayan Bajaj
Reliance Capital Limited, Sesa Sterlite Limited
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Nature of Litigation
Suit for declaration of understanding for transfer of pledged securities and redemption of shares
Remedy Sought
Plaintiffs sought declaration that an understanding existed for transfer of pledged shares at an agreed sum with surplus payment, alternatively redemption of pledged shares. Main case abandoned, only redemption pressed.
Filing Reason
Plaintiffs defaulted on loan of Rs.10 crores secured by pledge of shares; defendant no.1 initiated sale of shares.
Issues
Entitlement of plaintiffs to redeem pledged securities after default
Validity of sale of pledged securities by defendant no.1
Submissions/Arguments
Counsel for plaintiffs argued (incomplete)
Judgment Excerpts
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.
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...
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.
Procedural History
Suit No.2205 of 1997 filed in Bombay High Court. Heard and reserved on 10th October 2017, placed for clarification on 30th October, 9th, 16th, 23rd November 2017, and pronounced on 5th January 2018.
Acts & Sections
