Bombay High Court
Icici Securities Primary Dealership ... vs Goodwill Enterprises Limited on 22 May, 2020
Equivalent citations: AIRONLINE 2020 BOM 689
Author: N. J. Jamadar
Bench: N.J. Jamadar
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
COMMERCIAL SUIT NO. 8 OF 1998
ICICI Securities Primary Dealership Ltd.
a company incorporated under the
Companies Act, 1956, and having its
registered office at ICICI Centre, H.T. Parekh Marg,
Churchgate, Mumbai 400 020, India. .. Plaintiff
Versus
1. Goodwill Enterprise Limited
9th Shivalaya Building, Haji Bapu Road,
Malad (East), Mumbai - 400 097.
2. Omprakash Parasrampuria
Residing at S-80, Panchsheel Park,
New Delhi.
3. Om Trading & Investment Ltd.
A Company incorporated under
the Companies Act, 1956 and
having its Registered Office
at 1178, Kucha Mahajani,
Chandni Chowk, Delhi 100 006.
4. Parasrampuria Credit and
Investment Co. Ltd.,
A Company registered under
The companies Act, 1956 and
Having its Registered Office
at Mittal Tower, 'A' Wing,
1st floor, Nariman Point,
Mrs.S.K. Talekar, PS
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Mumbai 400 021.
5. A 1 Century Trades Ltd.
Having registered office at Mittal Tower,
"A" Wing, 1st floor, Nariman Point,
Mumbai - 400 021. .... Defendants
Mr.Nimay Dave a/w. Mr. Vijayendra Purohit i/b M/s.M.K. Ambalal & Co.
for plaintiff.
Mr.Sumit Rai a/w. Deepa Bisht i/b Tushar Goradia for defendant No.5.
CORAM : N.J. JAMADAR, J
RESERVED FOR ORDERS ON : 13th February 2020
PRONOUNCED ON : 22nd May 2020
JUDGMENT :
1. This commercial division suit is instituted to recover an aggregate sum of Rs.4,41,44,269.64 along with further interest on the principal sum of Rs.3.50 crores.
2. The material averments in the plaint can be summarized as under :
(A) The plaintiff is a company registered under the Companies Act, 1956. The plaintiff carries on business, inter-alia, of providing loans and/or finance. The first defendant is also a company registered under the Companies Act, 1956. The first defendant had approached the plaintiff and Mrs.S.K. Talekar, PS ::: Uploaded on - 22/05/2020 ::: Downloaded on - 23/05/2020 05:42:40 ::: 3/38 COMS-8-1998-J.doc sought extension of loan facility. The plaintiff, upon perusal of the proposal submitted by the first defendant, dated 17 th August 1994, agreed to extend loan facility to the first defendant. In consideration of the plaintiff's agreeing to advance the first defendant the sum of Rs.3.50 crores, the first defendant executed a number of instruments including a Rupee Loan Agreement dated 9th August 1994. Under the terms of the said agreement, the said loan was to be repaid in one instalment after twelve months of the initial disbursement. It was to carry interest at the rate of 20% per annum. The loan was to be secured by a pledge of the securities of a company known as Parsurampuria Synthetics Limited. The defendant No. 1 had also executed a demand promissory note in favour of the plaintiff on 19th August 1994.
(B) In addition to the instruments executed and securities furnished by defendant No.1 ('the principal borrower'), the defendant No.2 executed a deed of personal guarantee on 19th August 1994. The defendant No.2 thus personally guaranteed the due repayment by the principal borrower of the said loan of Rs.3.50 crores and all costs, charges and interest accrued thereon. The defendant Nos. 2 to 5 also executed in favour of the plaintiff a letter of lien and irrevocable power of attorney. Under the said letters of Mrs.S.K. Talekar, PS ::: Uploaded on - 22/05/2020 ::: Downloaded on - 23/05/2020 05:42:40 ::: 4/38 COMS-8-1998-J.doc lien, the defendant Nos. 2 to 5 duly pledged in favour of the plaintiff the shares standing in their respective names in a company known as Parsurampuria Synthetics Limited. Vide the irrevocable power of attorneys, the defendant Nos.2 to 5 duly constituted, nominated and appointed the plaintiff as their attorneys to purchase, sale, endorse, transfer and assign all or any of the said shares pledged with the plaintiff; contract for and purchase and accept and sign, transfer forms in the name of the defendants for the sale/purchase of the said shares and to do all acts in respect thereof generally.
(C) Pursuant to and in consideration of the execution of the aforesaid instruments and furnishing of the securities, the plaintiff disbursed the loan amount of Rs.3.50 crores to the principal borrower on 26th August 1994.
Under the terms of the agreement, the loan became due for repayment on 25th August 1995. The principal borrower sought extension of one year for repayment ascribing certain financial difficulties. However, the plaintiff did not accede to the request of the principal borrower to extend the period of repayment. The loan thus became due and repayable on 25th August 1995. However, the plaintiff did not take any precipitative action. Instead the defendants were apprised of the liability of the principal borrower to repay Mrs.S.K. Talekar, PS ::: Uploaded on - 22/05/2020 ::: Downloaded on - 23/05/2020 05:42:40 ::: 5/38 COMS-8-1998-J.doc the loan amount and also the fact that the value of the security furnished by the defendants by way of pledge of the shares had fallen considerably and the defendants were called upon to furnish additional security in the form of shares to be pledged with the plaintiff. The defendants paid no heed to the proposal of the plaintiff. Thus, the plaintiff was constrained to address a notice of recall of the loan dated 20th August 1997. There was no response even to the notice of recall. A faint attempt was however made to dispute the receipt of notice dated 20th August 1997. By way of abundant caution, the plaintiff addressed another notice on 21st July 1998 pointing out the event of default and called upon the defendants to repay the loan amount along with the interest accrued thereon in accordance with the terms of the agreement. The defendants did not respond to the second notice as well. Hence, the plaintiff was constrained to institute the suit for recovery of the loan amount along with interest, costs and charges as indicated above. The defendant Nos.1 to 4 did not appear despite the service of the writ of summons. Thus, this Court passed a decree against defendant Nos.1 to 4 under Rule 89 of the Bombay High Court (Original Side) Rules.
Mrs.S.K. Talekar, PS
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3. The defendant No.5 appeared and contested the claim by filing written statement. The substance of the resistance put-forth by the defendant No.5 can be stated in brief as under :-
At the outset, the defendant No.5 contends that the suit is barred by law of limitation. The alleged loan was advanced under purported agreement dated 19th August 1994. The institution of the suit on 24th August 1998 was thus stated to be beyond the period of limitation. The defendant No.5 has also questioned the territorial jurisdiction of this Court to entertain, try and decide the suit as the instruments namely, the Rupee Loan Agreement, the Pledge Agreement and the Agreement of Lien were executed at Delhi. The defendant No.5 asserts that no cause of action has arisen within the territorial limits of the jurisdiction of this Court and, therefore, this Court cannot entertain the suit. On the aspect of the liability of defendant No.5, the latter has taken a bold defence that the defendant No.5 is not liable to pay any amount much less the amount as claimed in the suit. Neither the defendant is a borrower nor guarantor. There is no instrument which records that the defendant No.5 had incurred the liability to repay the loan amount in the event of default on the part of the principal borrower to discharge the liability. The defendant No.5 has Mrs.S.K. Talekar, PS ::: Uploaded on - 22/05/2020 ::: Downloaded on - 23/05/2020 05:42:40 ::: 7/38 COMS-8-1998-J.doc denied the execution of various instruments by co-defendants. As regards the execution of the Letter of Lien dated 19th August 1994, the defendant No.5 concedes that the defendant No.5 had executed the said Letter of Lien and the power of attorney. However, the defendant No.5 asserts that the said instruments do not indicate that the defendant No.5 had acknowledged the liability to pay money in the event of default on the part of the principal borrower. No liability to pay the due amount is cast on defendant No.5. Alternatively, the defendant No.5 contends that the Letter of Lien is not legally enforceable as it is an inchoate document with several blanks. On these, amongst other grounds, the defendant No.5 has prayed that the suit be dismissed with costs.
4. In the backdrop of the aforesaid rival pleadings, issues were settled on 3rd December 2018. I have recorded my findings against each of them for the reasons to follow :
Issues Findings
1. Whether the claim of the Plaintiff in : In the negative the above Suit is barred by the law of limitation?
2. Whether this Hon'ble Court has : In the affirmative Mrs.S.K. Talekar, PS ::: Uploaded on - 22/05/2020 ::: Downloaded on - 23/05/2020 05:42:40 ::: 8/38 COMS-8-1998-J.doc territorial jurisdiction to try and entertain the above Suit?
3. Whether the Plaintiff proves that the : In the affirmative to the 5thDefendant is liable to pay an amount of extent of right to sell the Rs. 4,41,44,269.64/- as per the Particulars of pledged shares and realise Claim? the sale proceeds
4. Whether the 5th Defendant proves : In the negative that the Letter of Lien is not enforceable against the 5th Defendant, as alleged by the 5th Defendant in paragraph 14 of its Written Statement?
5. What relief and what order?" : Suit stands partly decreed.
REASONS
9. As indicated above, the contest subsists between the plaintiff and defendant No.5 for all intent and purpose as the suit has been decreed against defendant Nos. 1 to 4 as an undefended suit.
10. To begin with uncontroverted facts. Though in the written statement, the defendant No.5 has made an endeavour to feign ignorance about the execution of the documents to evidence the loan transaction and disbursement of the amount by the plaintiff to defendant No.1, yet, in view of a clear and categorical admission in the written statement that the defendant No. 5 had executed the Letter of Lien on 19 th August 1994 Mrs.S.K. Talekar, PS ::: Uploaded on - 22/05/2020 ::: Downloaded on - 23/05/2020 05:42:40 ::: 9/38 COMS-8-1998-J.doc incorporating certain terms and conditions the factum of the extension of the loan facility by the plaintiff to defendant No.1 can hardly be put in contest. In the Letter of Lien itself, it has been clearly recorded that the Letter of Lien is executed in consideration of the plaintiff advancing defendant No.1 the loan upto Rs. 3.50 crores. In addition, there are documents of unimpeachable probative value which record that the plaintiff did disburse the loan amount of Rs.3.50 crores to the defendant No.1 on 25th August 1994. Thus, the jural relationship between the plaintiff and defendant No.1 as lender and borrower can be said to have been established beyond the pale of controversy. At the hub of the matter, is the extent of the liability of defendant No.5 which emanates from the execution of the Letter of Lien dated 19th August 1994. Is the defendant No.5 liable to the same extent, as defendant Nos. 1 to 4 against whom the decree was passed on 11th December 2018?
11. In order to substantiate the averments in the plaint, the plaintiff has examined Prachiti D. Lalingkar (PW-1), its Company Secretary. The plaintiff has tendered a number of documents including the Rupee Loan Agreement, (Exh.A), Demand Promissory Note, (Exh.B) and Deed of Mrs.S.K. Talekar, PS ::: Uploaded on - 22/05/2020 ::: Downloaded on - 23/05/2020 05:42:40 ::: 10/38 COMS-8-1998-J.doc Pledge, (Exh.C), all executed on 19th August 1994 by defendant No.1, Deed of Guarantee dated 19th August 1994 (Exh.D) executed by defendant No.2, Letters of Lien dated 11th August 1994 (Exh. E to Exh.I) executed by defendant Nos.1 to 5 respectively, whereby and whereunder the defendants pledged the shares with the plaintiff and irrevocable powers of attorneys (Exh.J to Exh.N) executed by defendant Nos.1 to 5, respectively, authorising the plaintiff to deal with the pledged shares. The defendant No.5 has not led any evidence in its defence. At the conclusion of the evidence, I have heard Shri Nimay Dave, the learned counsel for the plaintiff and Shri Sumit Rai, the learned counsel for defendant No.5, at some length.
Issue No.2
11. The defendant No.5 has questioned the jurisdiction of this Court to entertain, try and adjudicate the suit as none of the documents referred to above have been executed at Mumbai. All these documents including the Rupee Loan Agreement (Exh.A) and the Letter of Lien (Exh I), executed by the defendant No.5 were executed at Delhi. Thus, according to the learned counsel for the defendants, no part of the cause of action arose within the territorial limits of the jurisdiction of this Court.
Mrs.S.K. Talekar, PS
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12. The learned counsel for the plaintiff joined the issue by canvassing a submission that under the terms of the Rupee Loan Agreement, and the demand promissory note executed by defendant No.1, the latter had agreed to repay the loan amount at Mumbai as well. Thus, the endeavour of the defendant No.5 to question the jurisdiction of this Court is unsustainable. To lend support to this submission, the learned counsel for the plaintiff invited the attention of the Court to Clause 5 of the Rupee Loan Agreement (Exh.A). It reads as under:
"5 All monies payable by the Borrower to the Lender shall be paid to the Lender at such office(s) as may be specified by them by telegraphic, telex or mail transfer to the account of such office(s) or by cheque or bank draft drawn in favour of the Lender on a scheduled bank at Bombay or such other place or to such other account as the Lender may notify to the Borrower and shall be so paid as to enable the Lender to realise, at part, the amount on or before the relative date.............."
13. Attention was also invited to the demand promissory note wherein the defendant No.1 had promised to pay at "New Delhi/Bombay" the loan amount of Rs.3.50 crores with interest at the rate of 20% per annum with quarterly rest.
Mrs.S.K. Talekar, PS
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14. Bare reading of the clause 5 of the Rupee Loan Agreement indicates that the defendant No.1 had agreed and undertaken to repay the loan amount to the plaintiff at such offices as may be specified by the plaintiff or by cheque or bank draft drawn in favour of the plaintiff on a Scheduled Bank at Bombay or such other place as may be indicated by the lender. The borrower has thus explicitly agreed to repay the loan amount at Bombay. The demand promissory note (Exh.B) also indicates that the defendant No.1 had promised to pay the loan amount with interest accrued thereon, on demand, at New Delhi/Bombay.
13. The learned counsel for the defendant No.5 attempted to wriggle out of the situation by advancing a submission that the aforesaid clause 5 does not advance the cause of the plaintiff as the place of the repayment of the loan amount can be said to have been left open and it cannot be said that Bombay was the only place at which the loan amount was to be repaid. I find it rather difficult to accede to this submission. It is trite law that in relation to a contract the cause of action can arise at a place where the contract was executed or the place where the contract was to be performed or a place where in performance of the contract any money to which the Mrs.S.K. Talekar, PS ::: Uploaded on - 22/05/2020 ::: Downloaded on - 23/05/2020 05:42:40 ::: 13/38 COMS-8-1998-J.doc suit relates was expressly or impliedly payable. In the case at hand, the borrower had undertaken to repay the loan amount at Mumbai as well by executing a specific covenant to that effect in the loan agreement and also by executing a demand promissory note. There is evidence to indicate that the demand to repay the loan amount along with interest was lastly made on 21st July 1998 at Mumbai. In the aforesaid factual backdrop, it would be rather hazardous to draw an inference that no part of the cause of action arose within the territorial limits of the jurisdiction of this Court.
14. The learned counsel for the plaintiff further urged that even this Court will have jurisdiction to entertain the instant suit as the case would fall within the ambit of clause (a) of section 20 of the Code since the defendants actually and voluntarily reside or carry on business within the jurisdiction of this Court. To draw support to this submission, the learned counsel for the plaintiff banked upon the notices dated 20th August 1997 (Exh.T) and 21st July 1998 (Exh.U) which indicate that notices were sent to at the address of the defendant No.1 at Bhuleshwar, Bombay. The notice dated 21st July 1998 (Exh.U) was also addressed to the group companies including Parsurampuria Credit and Investment Limited, the defendant No.4 at its office at Nariman Point, Mumbai. In this context, the Mrs.S.K. Talekar, PS ::: Uploaded on - 22/05/2020 ::: Downloaded on - 23/05/2020 05:42:40 ::: 14/38 COMS-8-1998-J.doc averments in para No. 21 of the plaint about the defendant Nos. 1, 4 and 5 carrying on business within the jurisdiction of this Court have gone untraversed. There is a bare denial about the same in the written statement.
15. Moreover, under clause 12 of the Letters Patent, the High Court in exercise of its ordinary original jurisdiction will have power to receive, try and determine (1) suits for land or other immovable property if such property is situated within the local limits of original jurisdiction of the High Court; or (2) all other cases (a) if the cause of action has arisen wholly within the local limits of the ordinary original jurisdiction of the High Court; (b) if prior leave of the Court has been obtained and the cause of action has arisen in part within the local limits of the ordinary original jurisdiction of the High Court; or (c) if the defendant dwells or carries on business or personally works for gain within such limits.
16. In this view of the matter, I am impelled to hold that this Court has jurisdiction to entertain, try and adjudicate the instant suit as a part of Mrs.S.K. Talekar, PS ::: Uploaded on - 22/05/2020 ::: Downloaded on - 23/05/2020 05:42:40 ::: 15/38 COMS-8-1998-J.doc cause of action arose within the territorial limits of the jurisdiction of this Court and the defendants are also carrying on business within the local limits of the jurisdiction of this Court. Thus, issue No. 2 is required to be answered in the affirmative.
Issue No.1 :
17. The learned counsel for the defendant No.5 urged with tenacity that the instant suit is hopelessly barred by law of limitation. The loan was purportedly advanced on 24th August 1994. The institution of the suit on 24th August 1998, according to the learned counsel for the defendant No.5, is clearly beyond the stipulated period of limitation. Amplifying the submission, the learned counsel for defendant No.5 would urge that since the loan was advanced under the Rupee Loan Agreement (Exh.A), executed on 19th August 1994, Article 21 of the first schedule of Limitation Act, 1963 would come into play. Thus, the period of limitation for money lent under an agreement that it shall be payable on demand is three years from the date loan is made. The learned counsel for the defendant No.5 further urged that even if the case of the plaintiff is construed rather generously and it is assumed that the suit is one for recovery of interest along with the principal amount, the interest under the terms of the loan agreement Mrs.S.K. Talekar, PS ::: Uploaded on - 22/05/2020 ::: Downloaded on - 23/05/2020 05:42:40 ::: 16/38 COMS-8-1998-J.doc was to be paid quarterly and, thus in that event also, under Article 25 of the schedule, the suit ought to have been instituted within three years from the date the interest became due.
18. The learned counsel for the plaintiff, per contra, stoutly submitted that the defence of limitation is wholly misconceived. Placing reliance upon clause 2 of the loan agreement, which stipulated the period of repayment, the learned counsel for the plaintiff submitted that the loan became due and payable only after twelve months from the date of initial disbursement. Moreover, there is a clear and categorical admission on the part of the defendant No. 1 in the form of the communication dated 17th August 1995 (Exh.O) whereby the defendant No.1 sought extension of time for repayment. In the said communication, the defendant No. 1 conceded in clear and unequivocal terms that the loan would fall due for repayment on 25th August 1995.
19. Clause 2(a) of the Rupee Loan Agreement reads as under :
"2(a) The loan shall be repaid by the Borrower in one instalment 12 months from the date of initial disbursement."
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20. The aforesaid clause provides that the loan was to be repaid by the defendant No.1 in one instalment twelve months from the date of initial disbursement. The claim of the plaintiff that the plaintiff had disbursed the loan amount on 26th August 1994 finds unequivocal support in the communication dated 17th August 1995 (Exh.O) addressed by the defendant No.1 to the plaintiff seeking extension of the period of repayment. The said communication records two facts. One, the loan was disbursed to the defendant No.1 on 26th August 1994 for a period of twelve months. Two, the said loan falls due for repayment on 25th August 1995. In the face of the aforesaid material on record, two inferences became rather inescapable. One, the parties had agreed the time at which the loan was to be repaid, i.e., twelve months after the first disbursement. Two, there was no controversy between the parties before the institution of the suit about the disbursement of the loan amount and it becoming due and payable on 25 th August 1995.
Mrs.S.K. Talekar, PS
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21. In this view of the matter, I am not persuaded to agree with the submission on behalf of the defendant No.5 that the instant suit would be covered by the provisions of Article 21 of the Limitation Act for the sole reason that the loan was advanced under an agreement. Under the very same agreement, the parties had provided the time at which the money would be repaid. The loan was expressly and explicitly made not repayable within the period of twelve months from the date of disbursement. It cannot be said that the loan became due and payable within the said period of twelve months. Where the agreement provides for repayment of the loan amount at a future date, it would be impermissible to draw an inference that the loan is payable immediately on the disbursement. In such a situation, the limitation would start on expiry of the time specified for repayment. Such a suit would be properly governed by the provisions contained in Article 113 of the first schedule of the Limitation Act.
22. As the loan became due and payable on 25 th August 1995, the institution of the suit on 24th August 1998 was thus within the statutory period of limitation. I am thus persuaded to answer issue No.1 in the negative.
Mrs.S.K. Talekar, PS
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Issue Nos. 3 and 4 :
23. It was urged on behalf of the plaintiff that the liability of the defendant No.5 is coextensive with defendant Nos.1 to 4. The defendant No.5 having indisputably pledged shares to secure the loan advanced by the plaintiff to defendant No.1 is equally liable to discharge the liability of defendant No.1. According to the learned counsel for the plaintiff, the pledgee has right in law to initiate action for recovery of the debt against the pledger without invoking the pledge. The right of the pawner to sue upon the debt and retain the goods as collateral security is independent and distinct from the right of the pawner to sell the good after reasonable notice of the intended sale to the pawner. Thus the defendant No.5 cannot be absolved from the liability once the pledge of the securities is admitted, urged the learned counsel for the plaintiff.
24. In contrast to this, the learned counsel for the defendant No.5 mounted a three-pronged challenge to the claim of the plaintiff. Firstly, the Letter of Lien (Exh.I) only records the fact that the shares were pledged by way of security by a third party. The defendant No.5 is Mrs.S.K. Talekar, PS ::: Uploaded on - 22/05/2020 ::: Downloaded on - 23/05/2020 05:42:40 ::: 20/38 COMS-8-1998-J.doc indubitably neither a borrower nor a guarantor. Secondly, the Letter of Lien nowhere records an obligation on the part of the defendant No.5 to discharge the liability of the borrower in the event of default in repayment of the loan amount and interest accrued thereon. Thus, the foundation of the claim of the plaintiff that the Letter of Lien in itself acknowledges the liability of defendant No.5 to discharge the debt is untenable. Thirdly, the said Letter of Lien (Exh.I) is an inchoate instrument. In clause 4 of the said Letter of Lien (Exh.I), there are blank spaces. The resultant situation which thus obtains is that the liability of the defendant No.5 to make up the security at a particular value is not specified. The Letter of Lien being in the nature of a standard form contract, if there is any defect or ambiguity, it must be construed against the plaintiff-financial institution, urged the learned counsel for defendant No.5. Lastly, in any event, the recourse open to the plaintiff is to invoke the pledge and sell the pledged shares and realise the value thereof, as provided in clause 7 of the Letter of Lien (Exh.I). In sum and substance, the learned counsel for the defendant No.5 would urge that at best the plaintiff has the right to sell the shares and beyond that the Letter of Lien (Exh.I) does not create any Mrs.S.K. Talekar, PS ::: Uploaded on - 22/05/2020 ::: Downloaded on - 23/05/2020 05:42:40 ::: 21/38 COMS-8-1998-J.doc obligation upon the defendant No.5 to discharge the liability of defendant No.1.
25. Evidently, the fate of the claim of the plaintiff hinges upon a true construction of the Letter of Lien (Exh.I). To retain emphasis and appreciate the controversy in a proper perspective, it may be apposite to reproduce the relevant clauses of the Letter of Lien (Exh.I). It reads as under :
LETTER OF LIEN RELATING TO THE PLEDGE OF SHARES TO SECURE ADVICES BY THIRD PARTY In consideration of ICICI Securities & Finance Company Limited (hereinafter called "The Lender") advancing or having advance to Snow White Intra Limited (hereinafter called "the borrowers") by way of loan upto Rs.3,50,00,000 (Rupees Three Hundred Fifty lacs only). I/We have deposited with the Lender with intent to pledge the same to the Lender the Shares particulars of which are set out at the foot thereof, and I/we agree the Lender shall hold as pledged and charged to the Lender the said Shares and also any other Shares, which shall at any time hereafter deposited by me/us or any of us with the Lender as hereinafter mentioned I/We agree that the terms of the said pledge and the rights which shall accrue to the Lender in respect of the Shares now or hereafter deposited with the Lender as aforesaid are :-
(1) The said Shares are pledged TO SECURE as a continuing security the payment on demand of the amount now or at any Mrs.S.K. Talekar, PS ::: Uploaded on - 22/05/2020 ::: Downloaded on - 23/05/2020 05:42:40 ::: 22/38 COMS-8-1998-J.doc time hereafter owing by borrower to the Lender in respect of the said advances and interest thereon a hereinafter mentioned.
.....
(3) All moneys secured by the said pledge are payable by the borrower to the Lender on demand, and the Lender shall be under no obligation to continue to grant any advance except as it thinks fit.
(4) The present market value of the Shares now pledged to the Lender, namely, those the particulars of which are set out at the foot hereof, is Rs............................. and so long as any balance remains outstanding in the said account. I/We hereby agree to deposit from time to time with the Lender other Shares of sufficient market value to maintain the total value of the Shares for the time being pledged to the Lender at a sum not being less than ......................... Per cent in excess of the balance for the time being owing on the said account or to reduce such balance by a cash payment to such an amount as will maintain the same margin of security."
.....
(6) The charge created by the said pledge shall extend to and include all shares accruing or offered to me/us at any time by way of bonus distribution on capitalisation or of redemption or conversion in respect of any of the Shares for the time being comprised in the said pledge, and I/We shall take all requisite steps and sign and give all requisite authorities to secure and delivery direct to the Lender of the certificates or scrip for all such Shares or, should such direct delivery not be secured, I/we immediately on receipt of any such certificate or scrip by me/us or my/our agents deposit the same or cause the same to be deposited with the Lender. Upon such delivery or deposit the relative Shares shall be deemed to have been deposited with the Lender by way of pledge so as to form part of the security evidenced by this Letter of Lien and shall in all respects be governed by the terms hereof. In like manner the charge hereby created shall extend to and include and I/we shall secure or Mrs.S.K. Talekar, PS ::: Uploaded on - 22/05/2020 ::: Downloaded on - 23/05/2020 05:42:40 ::: 23/38 COMS-8-1998-J.doc effect the payment or delivery to the Lender of all moneys and/or property accruing effect the payment or delivery to the Lender of all moneys and/or property accruing or offered in respect of any of the Shares hereby charged by way of bonus or on redemption, repayment of capital or distribution in liquidation, and the Lender may apply such moneys in reduction of an d hold any such property as security for my/our indebtedness to the Lender as aforesaid. In the clause and elsewhere in this Letter of Lien the word "Shares" includes stock.
(7) In the event of the borrower failing to pay on demand any moneys payment whereof is secured by the said p ledged or of my/our failing to maintain a margin of security as stipulated above, then, unless I/we on the request of the Lender forthwith discharge the full amount of the borrowers' indebtedness as aforesaid, the Lender in its absolute discretion may on giving reasonable notice to me/us sell all or any of the Shares pledged and the Lender or any other person authorized by the Lender may without being liable for any loss or damage sustained thereby at any time on or after the expiry of such notice of sale, sell all or any of the said Shares on any terms and in any manner the Lender may think fit and apply the net proceeds of sale in or towards payment of the balance due to the Lender on the said account ; and I/we will sign all such documents and furnish all such information and do all such acts and things as may be required by the Lender for enabling or facilitating any such sale; and I/we will accept the Lender's account as sufficient evidence of the amount produced by such sale and or the amount of any costs, charges and expenses thereof.
(8) The said pledge being a continuing security will not be affected or released by any fluctuation of the said account or by the said account at any time being brought to credit, at any Shares so pledged will be released from such pledge only on the return thereof to me/us and provided such return is not a return for a limited purpose, and I/we shall be entitled to have so returned to me/us any of the shares so pledged which may not have been sold upon the whole of the Borrowers' indebtedness to the Lender on the said account having been fully discharged and Mrs.S.K. Talekar, PS ::: Uploaded on - 22/05/2020 ::: Downloaded on - 23/05/2020 05:42:40 ::: 24/38 COMS-8-1998-J.doc the said account formally closed, and upon such discharge and closing of the said account any surplus of the net proceeds of sale shall be paid to me/us as I/we shall direct."
26. The learned counsel for the plaintiff took the Court through the aforesaid clauses of the Letter of Lien (Exh.I) to draw home the point that the nature of the transaction cannot be lost sight off. The Letter of Lien (Exh.I), according to the learned counsel for the plaintiff, records in no uncertain terms that the shares held by defendant No.5 were pledged in consideration of the plaintiff extending the loan upto Rs.3.50 crores to the defendant No.1-borrower. Moreover, it is clearly stipulated that the shares are pledged to secure as a continuing security the payment on demand of the amount owed by the borrower to the lender. These two aspects unmistakably indicate that the transaction was one of pledge simplicitor though the title of the instrument is of Letter of Lien, urged the learned counsel for the plaintiff. The action which the plaintiff was to take in the event of default, provided in para no. 7 of the Letter of Lien, extracted above, is not decisive. It only expressly records the right which the pledgee otherwise has under the law to invoke the pledge, sell the shares and appropriate the sale proceeds in discharge of the liability. The said Mrs.S.K. Talekar, PS ::: Uploaded on - 22/05/2020 ::: Downloaded on - 23/05/2020 05:42:40 ::: 25/38 COMS-8-1998-J.doc clause does not take away the right of the plaintiff to proceed against defendant No.5 for recovery of the original debt, submitted the learned counsel for the plaintiff.
27. In opposition to this, the learned counsel for the defendant No.5 laid stress on the fact that the obligation to discharge the liability of defendant No.1 is conspicuously absent in the Letter of Lien. A recital to the effect that the defendant No.5 undertakes to discharge the debt is singularly absent in the entire instrument (Exh.1), urged the learned counsel for the defendant No.5. Laying emphasis on the blank spaces in clause 4 of the Letter of Lien (Exh.I), it was urged that in accordance with the contra proferentem rule, the document would be required to be read against the plaintiff.
28. Before adverting to deal with the aforesaid rival submissions, it may be advantageous to note the legal connotation of the term "pledge" and "lien". It becomes imperative to appreciate the distinction between these two concepts as the instrument in question is titled as a Letter of Mrs.S.K. Talekar, PS ::: Uploaded on - 22/05/2020 ::: Downloaded on - 23/05/2020 05:42:40 ::: 26/38 COMS-8-1998-J.doc Lien, whereas the recitals proceed as if it is a pledge of the securities to secure a debt. It is trite that the nomenclature of the instrument is of no salience. The instrument ought to be read as a whole to appreciate the real nature of the relationship which the parties intended to contract for themselves.
29. A profitable reference in this context can be made to the judgment of the Supreme Court in the case of Lallan Prasad Vs. Rahmat Ali and Anr.1. In this case, the Supreme Court traced the concept of pledge under Common Law and the statutory recognition to the same under the provisions of the Indian Contract Act. The observations of the Supreme Court in para Nos. 16 and 17 are instructive. They are thus extracted as under :
"16 Under the Common Law a pawn or a pledge is a bailment of personal property as a security for some debt or engagement. A pawner is one who being liable to an engagement gives to the person to whom he is liable a thing to be held as security for payment of his debt or the fulfilment of his liability. The two ingredients of a pawn or a pledge are : (I ) that it is essential to the contract of pawn that the property pledged should be actually or constructively delivered to the pawnee and (2) a pawnee has only a special property in, the pledge but the general property therein remains in the pawner and wholly 1 AIR 1967 SCC 1322 Mrs.S.K. Talekar, PS ::: Uploaded on - 22/05/2020 ::: Downloaded on - 23/05/2020 05:42:40 ::: 27/38 COMS-8-1998-J.doc reverts to him on discharge of the debt. A pawn therefore is a security, where, by contract a deposit of goods is made as security for a debt. The right to property vests in the pledgee only so far as is necessary to secure the debt. In this sense a pawn or pledge is an intermediate between a simple lien and a mortgage which wholly passes the property in the thing conveyed. (See Halliday v. Holygate.(1) A contract to pawn a chattel even though, money is advanced on the faith of it is not sufficient in itself to pass. special property in the chattel to the pawnee. Delivery of the chattel pawned is a necessary element in the making of a pawn. But delivery and advance need not be simultaneous and a pledge may be perfected by delivery after the advance is made. Satisfaction of the debt or engagement extinguishes the pawn and the pawnee on such, satisfaction is bound to redeliver the property. The pawner has an absolute right to redeem the property pledged upon tender of the amount advanced but that right would be lost if the pawnee has in the meantime lawfully sold the property pledged. A contract of pawn thus carries with it an implication that the security is available to satisfy the debt and under this implication the pawnee has the power of sale on default in payment where time is fixed for payment and where there is no such stipulated time on demand for payment and on notice of his intention to sell after default.
The pawner however has a right to redeem the property pledged until the sale. If the pawnee, sells, he must appropriate the proceeds of the sale towards the pawner's debt, for, the sale proceeds are the pawner's monies to be so applied and the pawnee must pay to the pawner any surplus after satisfying the debt. The pawnee's right of sale is derived from an implied authority from the pawner and such a sale is. for the benefit of both the parties. He has a right of action for his debt notwithstanding possession by him of the goods pledged. But if the pawner tenders payment of the debt the pawnee has to return. the property pledged. If by his default the pawnee is unable to, return the security against payment of the debt, the pawner has a good defence to the action.(2) This being the position under the common law, it was observed in Trustees of the Property of Ellis & Co. v. Dixon-Johnson(3) that if a creditor holding security sues for the debt, he is under an obligation on payment of the debt to hand. over the security, and that if, Mrs.S.K. Talekar, PS ::: Uploaded on - 22/05/2020 ::: Downloaded on - 23/05/2020 05:42:40 ::: 28/38 COMS-8-1998-J.doc having improperly made away with the security he is unable to return it to the debtor he cannot have judgment for the debt. 17 There is no difference between the common law of England) and the law with regard to pledge as codified in sections 172 to 176 of the Contract Act. Under section 172 a pledge is a bailment of' the goods as security for payment of a debt or performance of a, promise. Section 173 entitles a pawnee to retain the goods pledged as security for payment of a debt and under section 175 he is entitled to receive from the pawner any extraordinary expenses he incurs. (1) [1868] L.R. 3 Ex. 299. (2) Halsbury's Laws of England, 3rd ed. Vol. 29 page 221. (3) [1925] A.C. 489 for the preservation of the goods pledged with him. Section 176 ,deals with the rights of a pawnee and provides that in case of default by the pawner the pawnee has (1) the right to sue upon the debt and to retain the goods as collateral security and (2) to sell the goods after reasonable notice of the intended sale to the pawner. Once the pawnee by virtue of his right under section 176 sells the goods the right of the pawner to redeem them is of course extinguished. But .as aforesaid the pawnee is bound to apply the sale proceeds towards ,satisfaction of the debt and pay the surplus, if any, to the pawner. 'So long, however, as the sale does not take place the pawner is entitled to redeem the goods on payment of the debt. It follows therefore that where a pawnee files a suit for recovery of debt, though he is entitled to retain the goods he is bound to return them on payment of the debt. ................."
30. The Supreme Court illuminatingly postulated the concept of 'lien' in 2 the case of Triveni Shankar Saxena Vs. State of U.P. & Ors. as follows:
"17. We shall now examine what the word 'lien' means. The word 'lien' originally means "binding" from the Latin ligamen. Its lexical meaning is "right to retain". The word 'lien' is now variously described and 2 1992(Suppl.(1) SCC 524 Mrs.S.K. Talekar, PS ::: Uploaded on - 22/05/2020 ::: Downloaded on - 23/05/2020 05:42:40 ::: 29/38 COMS-8-1998-J.doc used under different context such as 'contractual lien', 'equitable lien', 'specific lien', 'general lien', 'partners lien', etc. etc. in Halsbury's Laws of England, Fourth Edition, Volume 28 at page 221, para 502 it is stated :
In its primary or legal sense "lien" means a right at common law in one man to retain that which is rightfully and continuously in his possession belonging to another until the present and accrued claims are satisfied."3
31. In K. Saradambal Vs. Jagannatham K. Brothers the Madras High Court held:
"It would be sufficient only to refer to the following observation in Halsbury's Laws of England, third edition, volume 24, at page 143:
"A legal lien differs from a mortgage and a pledge in being an unassignable personal right which subsists only so long as possession of the goods subsists. A mortgage is an assignable right in the property charged and does not depend on possession. A pawn or pledge gives a special assignable interest in the property to the pawnee. A lien is, however, included in the definition of mortgage in the Law of Property Act, 1925. There an equitable mortgage is created by deposit of title deeds, the mortgagee has a legal lien on the deeds deposited."
This leads us to the question as to what right is available to the applicant-company, as the holder of lien. That again takes us to the question as to what is meant by "lien". The word "lien" is defined in the Law Lexicon by Ramanatha Iyer as:
3 (1972) 42 Companies Case 359 Mrs.S.K. Talekar, PS ::: Uploaded on - 22/05/2020 ::: Downloaded on - 23/05/2020 05:42:41 ::: 30/38 COMS-8-1998-J.doc "A lien may be defined to be a charge on property for the payment of a debt or duty, and for which it may be sold in discharge of the lien.........A lien, in a limited and technical sense, signifies the right by which a person in possession of personal property holds and retains it against the owner in satisfaction of a demand due to the party retaining it; but in its more extensive meaning and common acceptation it is understood and used to denote a legal claim or charge on property, either real or personal, as security for the payment of some debt or obligation; it is not strictly a right in or right to the thing itself but more properly constitutes a charge or security thereon."
The word "lien" is defined in Stroud's Judicial Dictionary, third edition, at page 1644, as: "A lien- (without effecting a transference of the property in a thing) -
is the right to retain possession of a thing until a claim be satisfied; and it is either particular or general".
33. In the backdrop of the aforesaid exposition of the legal position, reverting to the facts of the case, on a careful analysis of the Letter of Lien (Exh.I), the following inferences can be legitimately drawn :
First, the Letter of Lien was executed by defendant No.5 in the capacity of a third party. It is nobody's case that the defendant No.5 is either a borrower or a guarantor. Secondly, the pledge of shares was to Mrs.S.K. Talekar, PS ::: Uploaded on - 22/05/2020 ::: Downloaded on - 23/05/2020 05:42:41 ::: 31/38 COMS-8-1998-J.doc secure as a continuing security for the payment of debt by the borrower- defendant No.1. Clause 3 of the Letter of Lien in terms records that all money secured by the said pledge are payable by the borrower to the lender on demand. In contrast, there is no stipulation to the effect that the pledger undertakes to discharge the liability of the borrower. Thirdly, clause 6 of the Letter of Lien, which professes to extend the charge created by the said pledge on the shares which may be accrued or offered to the defendant No.5 subsequently also does not record the fact that the defendant No.5 obligates himself to discharge the liability of defendant No.1. Clause 7, on which equal reliance was placed by the rival parties to drive home their case, simply records that in the event of default by the borrower, or failure of the pledger to maintain a margin of security, as stipulated, the lender would be entitled to sell all or any of the shares post notice, unless the defendant No.5 on the request of the plaintiff forthwith discharges the full amount of the borrower's indebtedness as aforesaid. The clause 7 gives a contractual mandate to the right of the pledgee to invoke the pledge and sell the shares.
Mrs.S.K. Talekar, PS
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36. At this juncture, the manner in which the plaintiff has sought to invoke the liability of defendant No.5 assumes critical significance. In the plaint (para No.2), the plaintiff has approached the Court with a case that the defendant No.5 has pledged shares with the plaintiff as a collateral security for the advance made by the plaintiff to the first defendant.
Though the plaintiff claims to have addressed the communications dated 6 th May 1996 (Exh.P) and 4th June 1996 (Exh.Q), to arrange for additional security on the premise that the value of the shares of Parsurampuria Synthetics Limited pledged by the defendant No.5 with the plaintiff has fallen considerably, yet there is not an iota of evidence to indicate that the plaintiff had ever called upon the defendant No.5 to discharge the liability of defendant No.1, namely, repay the loan amount along with accrued interest on the ground that the defendant No.1 has failed to discharge the same. This omission cannot be said to be immaterial or inconsequential.
37. There are concomitant factors which throw light on the nature of the transaction between the plaintiff and defendant No.5 on the one hand and the plaintiff and defendant No.1-the borrower, on the other hand. The contrast becomes explicitly clear if the stipulations in the Deed of Pledge Mrs.S.K. Talekar, PS ::: Uploaded on - 22/05/2020 ::: Downloaded on - 23/05/2020 05:42:41 ::: 33/38 COMS-8-1998-J.doc executed by defendant No.1 in favour of the plaintiff are compared and contrasted with the stipulations in the Letter of Lien. Clause 1 of the Deed of Pledge (Exh.C) reads as under :
"1. SWIL hereby unconditionally and irrevocably agree to pay without and demur or protest forthwith on demand or on presentation of the Notes at the office of the Lender the Loan of Rs. 350 lacs along with interest thereon as provided in the DPNs and the said documents."
"(g) The said pledge shall be a continuing security co-extensive and co-existent with the liability under the said Documents and the obligations of the Company herein shall remain valid and enforceable under security hereby constituted shall be available until full discharge by the SWIL of the said liability."
38. It is imperative to note that both the aforesaid clauses are conspicuous by their absence in the Letter of Lien. The Letter of Lien does not record that the pledge shall be a continuing security coextensive and coexisting with the liability of the borrower.
39. Even the consequences which would emanate after the invocation of pledge and sale of the shares have been distinctly provided for. In Clause Mrs.S.K. Talekar, PS ::: Uploaded on - 22/05/2020 ::: Downloaded on - 23/05/2020 05:42:41 ::: 34/38 COMS-8-1998-J.doc
(e) of the Deed of Pledge (Exh.C) which corresponds with Clause 7 of the Letter of Lien (Exh.I), the following portion is added :
"..........and if the net proceeds are insufficient to discharge the full amount of the said liability, the company will immediately pay to the Bank the balance left outstanding."
The absence of this stipulation in Clause 7 of the Letter of Lien speaks for itself. In the Deed of Pledge, the liability of defendant No.1 as a pledger was made coextensive and coexistent with the liability under the agreement. Even after invocation of pledge, the defendant No.1 continued to be liable to make up the short-fall in the event the sale proceeds fell short of the liability. That is not the case qua defendant No.5 under the Letter of Lien.
39. The conspectus of aforesaid consideration is that the parties, by entering into the agreement in the nature of Letter of Lien, agreed to peculiar terms and conditions. The Letter of Lien was undoubtedly executed in consideration of the plaintiff extending the loan facility to defendant No.1, but the liability of the pledger was consciously not made coextensive with the liability of the principal debtor.
Mrs.S.K. Talekar, PS
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40. The fact that there are blank spaces in the Letter of Lien (in clause
4) as regards the value of the security to be provided for by the defendant No.5 to the plaintiff further erodes the claim of the plaintiff. Even under the caption, particulars of the shares, appended to the foot of the said Letter of Lien, no particulars of the shares pledged are furnished. The omission to specify the liability of the defendant No.5 to provide the value of the security impairs the claim of the plaintiff as it cannot be assumed that the defendant No.5 had agreed to provide a security of a specified value. However, I am not persuaded to accede to the submission on behalf of the defendant No.5 that Clause 4 of the Letter of Lien, which contains blank spaces, renders the instrument unenforceable. If the shares are pledged under the said instrument, the jural relationship of pledger and pledgee comes into force. The failure to specify the threshold of the security to be provided by the pledger does not detract materially from the said jural relationship.
41. The submission on behalf of the defendant No.5 that in the event there is any ambiguity or defect in the instrument, it has to be construed against the plaintiff, however, carries some conviction. It was for the Mrs.S.K. Talekar, PS ::: Uploaded on - 22/05/2020 ::: Downloaded on - 23/05/2020 05:42:41 ::: 36/38 COMS-8-1998-J.doc plaintiff to specifically provide either in the Letter of Lien or establish by leading evidence to show that the defendant No.5 had incurred the obligation to discharge the debt of defendant No.1. The tenor of the Letter of Lien (Exh.I) is such that it is compatible with an inference that the liability of the defendant No.5 was restricted to the value of the pledged securities. If compared and contrasted with the Deed of Pledge executed by defendant No.1 in favour of the plaintiff, the said inference appears preponderantly probable.
42. The reliance placed by the learned counsel for the defendant No.5 on the judgment of the Supreme Court in the case of Central Bank of India Vs. Virrudhu Nagar Steel Rolling Mills Limited & Ors.4 wherein the contra proferentum rules was adverted to, appears to be well founded. In the said case, the question which arose for consideration was, whether under the letter of guarantee dated 30th August 1974, the respondent Nos. 2 to 4 therein had guaranteed the repayment of the debts under old transactions. The Supreme Court observed that the letter of guarantee could easily have recorded the liabilities outstanding against respondent-
4 (2015) 16 SCC 207
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company on 30-8-1974 with an affirmation from respondent Nos. 2 to 4 that they were guaranting these outstandings. Woefully, for the appellant bank, there is no such acknowledgment or assumption of liability in the subject guarantee. In this backdrop, it was observed that it is the appellant bank which drafted the guarantee deed, and in case of doubt, the document would be read against it. This is the contra proferentem rule, which brooks no contradiction.
43. The upshot of the aforesaid consideration is that though the Letter of Lien is not unenforceable on account of the blank spaces therein, as contended by the defendant No.5, yet the liability of defendant No.5 is restricted to the pledged securities only. Conversely, the plaintiff cannot enforce the liability qua defendant No.5 as a co-existent and coextensive liability with that of the defendant No.1-the principal borrower. The plaintiff's right under Letter of Lien is, thus, restricted to the invocation of the pledge and sale of the pledged securities, as provided in Clause 7 of the Letter of Lien (Exh.I). Issue No.3 is, thus, answered in the affirmative to the extent of right to sell the pledged shares and realise the sale Mrs.S.K. Talekar, PS ::: Uploaded on - 22/05/2020 ::: Downloaded on - 23/05/2020 05:42:41 ::: 38/38 COMS-8-1998-J.doc proceeds and appropriate the amount towards the liability of defendant No.1, and issue No. 4 is answered in the negative.
44. For the foregoing reasons and findings on issue Nos. 1 to 4, the suit deserves to be partly decreed. Hence, the following order :
O R D E R i. The suit stands partly decreed.
ii. The plaintiff is entitled to sell the shares pledged by defendant No.5 under the Letter of Lien (Exh.I) and appropriate the sale proceeds towards satisfaction of the decree passed by this Court on 11th December 2018. iii. Rest of the claim of the plaintiff stands dismissed. iv. The defendant No. 5 do pay proportionate costs to the plaintiff.
v. Decree be drawn expeditiously.
( N. J. JAMADAR, J. )
Mrs.S.K. Talekar, PS
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