National Consumer Disputes Redressal
Smt. Deepali Sharma vs Federal Bank Ltd. & Ors. on 5 October, 2015
NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION NEW DELHI CONSUMER CASE NO. 150 OF 2002 1. SMT. DEEPALI SHARMA KM - 62 KAVI NAGAR GHAZIABAD U.P. ...........Complainant(s) Versus 1. FEDERAL BANK LTD. & ORS. CONNAUGHT CIRCUS NEW DELHI - 110001. 2. - - ...........Opp.Party(s)
BEFORE: HON'BLE MR. JUSTICE J.M. MALIK, PRESIDING MEMBER HON'BLE DR. S.M. KANTIKAR, MEMBER
For the Complainant : Mr. Rakesh Mohan Sharma, Auth. Representative For the Opp.Party : Mr. P.I. Jose, Advocate
Opposite Party No.3 - Deleted from the array of parties
vide order dated 05.12.2002.
Dated : 05 Oct 2015 ORDER
JUSTICE J. M. MALIK, PRESIDING MEMBER
1.Federal Bank of India Ltd., the Opposite Party No.1, sanctioned OD limit in the sum of Rs.20,00,000/- in favour of Smt. Deepali Sharma, the complainant, against the pledge of shares. The Market value of the shares on the date of Pledge, i.e., 09.03.2000, was Rs.20,59,300/- as per Drawing Power's pledge charge Statement, as under, which is marked as Annexure A :
ABB Ltd 175 x 240 Rs. 42,000/-
BSES Ltd.
300 x 278 Rs. 83,000/- L & T Ltd. 250 x 302 Rs. 75,000/- MOSERBAER 1200 X 494 Rs. 5,92,800/- MTNL Ltd. 50 x 342 Rs. 17,100/- RELIANCE PETRO 700 x 56 Rs. 39,200/- ROLTA 1500 x 769 Rs.11,53,500/- RPG Cables 400 x 57 Rs. 22,800/- VIDEOCON Inter. 500 x 66 Rs. 33,000/- Total Rs. 20,59,300/-
However, the complainant received only a part of the limit amounting to Rs.11,22,000/-.
2. It was agreed that the complainant will receive rights to replace either full or part of the securities, make payment and get release of any such securities and / or dispose of the part or full securities through M/s. Abhipra Capital Ltd., OP3, since deleted, the authorized broker of OP1, as per the normal trade practice. In March, 2000, the complainant asked for release of those shares whose prices were very high and to accept other economy shares as security in lieu thereof. However, the request sent by her was rejected. The complainant had sent a letter dated 17.05.2000 which was duly acknowledged by OP1 on 19.05.2000. Copy of the said letter has been placed on record as Annexure B. Subsequently, the market value of the said securities started coming down and on the advice and warnings of OP1, communicated to complainant vide various notices dated 02.05.2000, 05.06.2000, 13.06.2000, 05.07.2000, 21.08.2000, 04.01.2001 and 18.01.2001, marked as Annexure C (Colly) in due adherence to OP1's advice for regularizing the OD. The complainant further pledged shares with OP1, on the following different dates, in all, aggregating to Rs. 9.28 lakhs as per D.P.'s statement of charges and daily quotation list of Delhi Stock Exchange, as under :-
The following securities were pledged on 21.06.2000 :-
ACC 15 x 116 Rs. 1,740/-
ESSEL PACKAGING 39 x 343 Rs. 13,377/-
INFOSYS LTD.
2 x 8475 Rs. 16,950/- K G DENIM 900 x 4 Rs. 3,600/- KOTAK MAHINDRA 800 x 82 Rs. 65,600/- RELIANCE PETRO 500 x 55 Rs. 27,500/- ROLTA 50 x 371 Rs. 18,550/- SUN PHARMA 50 x 615 Rs. 30,750/- TELCO 50 x 130 Rs. 6,500/- WELWIN IND. 500 x 67 Rs. 33,500/- TOTAL (A) Rs. 2,18,067/- The following securities were pledged on 13.09.2000 :- DSQ SOFTWARE 15 x 705 Rs. 10,575/- INFOSYS LTD. 3 x 8692 Rs. 26,076/- PENTA MEDIA 50 x 498 Rs. 24,900/- PENTA SOFT 200 X 280 Rs. 56,000/- RELIANCE CAPITAL 300 x 119 Rs. 35,700/- H.P.C.L. 50 x 124 Rs. 6,200/- ZEE TELEFILM 10 x 514 Rs. 5,140/- Total (B) Rs. 1,64,591/- The following securities were pledged on 19.01.2001 :- HINDUSTAN LEVER 1000 x 201 Rs. 2,01,000/- SOUTHERN INFOSYS 15000x 23 Rs. 3,45,000/- Total (C ) Rs. 5,46,000/- Total (A + B + C) = Rs. 9,28,586/-.
3. The complainant pledged in all, total securities, worth around Rs.30.00 lakhs. Thereafter, the complainant sent three letters dated 28.05.2000, 20.09.2000 and 22.02.2001, marked as Annexure E (Colly), to sell off the shares, worth Rs.9,27,272.14. Vide letter dated 22.02.2002, the complainant asked the OP to sell other shares as well.
4. The complainant came to know from OP3 that ABB and Hind Lever Ltd. shares were transferred from her account and the rest of the shares were not. It also transpired that complainant was not given the total credit of sale proceedings of all these shares. It was contended that OP 1 did not give the credit of the following shares :-
MOSE BEAR LED (Transferred from her account on 21.09.2000) 1200 x 407 Rs. 4,88,400/-
Total (A ) Rs. 4,88,400/- RELIANCE PETRO 1200 x 64 Rs. 76,800/- SUN PHARMA 50 x 580 Rs. 29,000/- L & T 250 x 275 Rs. 68,750/- HIND PETRO CHEM
(Not transferred from her account despite the acknowledged receipt of advice for transfer and sale) 50 x 177 Rs. 8,850/-
Total (B) Rs. 1,83,400/-
Total (A+B) Rs. 6,71,800/-
5. The complainant asked the OP1 to sell shares of ABB, Hindustan Lever, Reliance Petro, Sun Pharma, L & T and Hind Petro Chemicals vide the above said letters dated 22.02.2001. The complainant was satisfied of having squared off almost all amount of complainant's OD amount by disposing of shares worth Rs.11,10,672.14. The complainant was, however, shocked to receive letter dated 09.04.2001 from OP1 requiring her to deposit either Rs.3,75,000/- or more shares to regularize the account. The complainant reacted and lodged protest on telephone. The OP did not respond. The complainant sent the following legal notice, dated 30.07.2001 to OP1, marked as Annexure G :-
Remittance to the account of complainant the sale proceeds of all the shares on the date of sale/transfer/ request from her at the then market price, i.e., over Rs.11.00 lakhs; Release of the shares pledged with the OP1 mentioned in notice, which were not requested for sale besides the shares mentioned above in Para No.15; Reversal of the interest amount wrongly debited despite the sale/instructions for sale; The difference of market rate on 01.03.2001 with the current rate for non-release of shares on that date".
6. In response to the said notice, the OP 1 sent its reply and repudiated the claim. However, the OP1 admitted that vide letter dated 20.09.2000, the OP1 sent the request of the complainant to M/s. Abhipra Capital Ltd to sell 1200 shares of Moserbear and reference to the letter dated 22.02.2001 was made. It is stated in the reply of OPs 1 & 2 that it appears that complainant herself informed OP3 that she wanted to sell only 650 shares of Hindustan Lever Ltd. and 175 shares of ABB which, according to the complainant is totally false. She did not give any directions to OP3 directly. Copy of the reply has been placed on record as Annexure H. The market price of the shares as on 01.03.2001 and the market price per share on the date of notice, i.e., 30.07.2001 was computed as follows in the notice :-
MTNL LTD.50
1600/- (151-119) 01.03.2001 ROLTA 1550 144150/- (138-45) 01.03.2001 RPG CABLES 400
-NIL-
01.03.2001 VIDEOCON INTER 500 10,000/- (42-22) 01.03.2001 ACC 15 795/- (190-137) 01.03.2001 ESSEL PACKAGING 39 4953/- (283-156) 01.03.2001 INFOSYS LTD.5
11,583/-(5682-3365) 01.03.2001 K G DENIM 900 NIL-
01.03.2001 TELCO 50 1600/- (106-74) 01.03.2001 WELWIN IND.
500NIL -
01.03.2001 PENTA MEDIA 250 26500/- (162-56) 01.03.2001 DSQ SOFTWARE 15 4965/- (361-30) 01.03.2001 RELIANCE CAP.
30015000/- (94-44) 01.03.2001 ZEE TELEFILM 10 870/- (162-75) 01.03.2001 SOUTHERN INFO.
15000 NIL -
Not Trading Total Rs. 2,22,018/-
7. It is contended that the complainant is entitled for the following amounts as compensation, for the loss suffered by her due to deficiency in service and negligence on the part of OP Nos. 1 & 2 :
i) Loss on account of not crediting the sale proceeds of shares on the date of transfer from account and interest thereon @ 18% p.a., till the filing of the complaint (interest 01.10.2000 to 31.03.2002, computed quarterly).
Rs. 4,88,400/-
Rs. 1,47,473/-
ii) Loss on account of not crediting the sale proceeds of shares on the date of sale/transfer/request and interest thereon @ 18% p.a., till the filing of the complaint (interest 01.03.2001 to 31.03.2002, computed quarterly) Rs. 1,83,400/-
Rs. 38,567/-
iii) Loss on account of not releasing different shares illegally retained by the Ops with interest thereon @ 18% p.a., till the filing of the complaint (interest 01.03.2001 to 31.03.2002, computed quarterly).
Rs. 2,22,018/-
Rs. 46,790/-
iv) Loss of business on account of illegally restraining the complainant from using her O.D. limit Rs. 20,00,000/-
v) Loss on account of harassment and mental agony suffered by the complainant Rs.10,00,000/-
TOTAL Rs. 41,26,249/-
The complainant also claimed interest @ 18% p.a. DEFENCE :
8. The OPs 1 & 2 have listed the following defences in their written version. The complaint does not disclose any cause of action, therefore, the complaint is not maintainable. The complainant has neither impleaded the Bank nor Connaught Circus Branch of the OPs. There was no agreement between the complainant and the OPs 1 & 2 and, therefore, the complaint against them is not maintainable. This is an indisputable fact that a Suit bearing No. 11/2002 was filed by the Bank for recovery of Rs.3,57,733.15 in the year 2001. The said suit was decreed vide order dated 27.03.2008. That case went up to Hon'ble Supreme Court and the Hon'ble Apex Court vide its order dated 21.07.0214, held that "In the meantime, pendency of these appeals shall not stand in the way of the National Consumer Disputes Redressal Commission in deciding the OP Nos. 150 & 151 of 2002. It is requested that the Original Petitions may be decided expeditiously, preferably, within six months, uninfluenced by whatever stated in the orders impugned in this Special Leave Petition".
9. Complainant represented to the Bank that the market value of the pledged shares as on 08.03.2000 was Rs.14,33,862/-. The market value of the shares on 09.03.2000 as given in para No.3 of the complaint is not admitted. Over-draft facilities were provided to the complainant and had pledged some shares. It is submitted that though the market value of the shares pledged by the complainant was less than the required amount, yet, the complainant was granted the over-draft facility. As per the agreement, the complainant was required to keep 25% margin and, as such, the complainant had availed Rs.11,22,496/- out of the sanctioned limit of Rs.20,00,000/-.
10. The complainant was never given any clarification by the OPs 1 & 2 that she would have a right to replace the securities. Clause 14 of the said agreement, which deals with the security of pledge, runs as follows :-
"14. The Bank shall at its absolute discretion may permit the borrower(s) to release part of the securities and such partial release of securities and accepting of additional securities, invocation of pledge of partial securities, etc., will not, in any way, affect the holding of the remaining securities by the Bank and the rights and liabilities created in terms of these presents".
There is no trade practice providing for replacement of securities. Clause 18 of the said agreement is reproduced here, as under:-
"18. The borrower(s) agree that in the event of any default on his/her/their part, in discharging its obligation hereunder or payment of dues, or on becoming the account irregular, or on violation of any of the terms and conditions of this agreement, or at any point of time during the currency of loan/credit facilities at the discretion of the bank, the bank shall be entitled to invoke the pledge as provided under SEBI (Depository and Participants) Regulations 1996 and exercise any right as a pledgee as per the provisions of Indian Contract Act and thereby sell, transfer in its own name as beneficial owner or otherwise dispose of the said securities or such part as the bank may desire and appropriate the sale proceeds first in the payment of the cost, secondly, towards repayment of the balance amount due with interest.
Emphasis supplied".
Further, Clause 8 of the Regulation 58 of SEBI (Depository & Participants) Regulations, 1996 reads, as follows :-
"Subject to the provisions of the pledged document, the pledgee may invoke the pledge and on such invocation, the depository shall register the pledgee as beneficial owner of such securities and amend its records accordingly".
It is explained that the Bank, from time to time, informed the complainant about the fall in market prices of the shares which she had pledged. The Bank asked the complainant to either deposit the amount mentioned in the said letters or to pledge additional shares by way of securities. It is admitted that the complainant sent letters dated 20.09.2000 and 22.02.2001. In pursuance of the said instructions, the Bank had written to M/s. Abhipra Capital Ltd., i.e., OP3 for the sale of 650 shares of Hindustan Lever Ltd., and 175 shares of ABB and that is why OP3 had sold only those shares. Vide letter dated 28.05.2000, the complainant had instructed the Bank to sell 300 shares of BSES Ltd. The Bank instructed OP3 to sell those shares. The shares were sold on 02.06.2000 and a sum of Rs.85,272/- was credited in the account of the complainant on 23.06.2000.
11. Firstly, the complainant, vide letter dated 20.09.2000 requested the OP to sell 1200 shares, but subsequently she instructed the OP3 to refrain from selling the said shares. Firstly, the complainant vide letter dated 22.02.2001, directed OP3 to sell 1000 shares to Hindustan Lever Ltd and 175 shares of ABB Ltd. Subsequently, the complainant directed the OP3 to sell only 650 shares of Hindustan Lever Ltd. and 175 shares of ABB were sold for an amount of Rs.1,96,719/- which was credited to the account of the complainant on 15.03.2001. On 25.01.2001 about 350 shares of Hindustan Lever Ltd., were sold and an amount of Rs.70,322/- which was credited to the account of complainant on 01.02.2001. It is contended that on request of the complainant vide letter dated 22.02.2001, the Bank had instructed to sell the shares of six companies. However, the complainant contacted the OP3 and instructed it to sell the shares of Hindustan Lever Ltd. and ABB only.
12. On 25.06.2001, the Bank informed the complainant to pledge further securities in order to keep her OD account within limits, however, instead of doing the same, the complainant sent legal notice dated 30.07.2001 to which a reply was sent by the Bank. Subsequently, the Bank sold 1200 shares of Reliance Petro, 50 shares of Sun Pharma, 250 shares of L&T and 50 shares of Hindustan Petro Chemicals on 01.08.2001. An amount of Rs.2,96,040/- was credited into the account of the complainant on 22.08.2001. Further, an amount of Rs. 3,03,249/- was credited to the complainant's account on 27.08.2001. Thereafter, remaining shares were also sold and the said proceeds were credited to the account of the complainant. It is contended that the complainant still owes a sum of Rs.3,75,000/- which was conveyed to her vide Bank letter dated 09.04.2001. Again, the sale of security is always at the choice of the pawnee and not of the pawner. The complainant should have approached OP3 for sale of her shares. It is contended that in view of the volatile market position of the shares, the complainant may have suffered some losses which may have caused some tension.
SUBMISSIONS AND FINDINGS :
13. The first submission made by the counsel for the OPs was that they swung into action immediately, after receipt of the letter dated 20.09.2000 from Smt. Deepali Sharma. The said letter dated 20.09.2000, addressed to the Bank, runs as follows :-
"Dear Sir, Re : O.D. A/ No. 253.
Kindly issue instructions through the bearer of this letter for sale of following shares pledged with your Bank for aforesaid loan. The shares to be sold as per my advice through your Banker - Moser Bear India Ltd. - 1200 Equity shares".
14. The Bank, on the same day, i.e. on 20.09.2000 accepted the request and in turn wrote to its Broker, M/s. Abhipra Capitals Ltd., OP3, for sale of shares and to send the cheque, which runs as follows:
"Dear Sirs, Reg. Request for sale of shares Smt. Deepali Sharma I.D. No.10381902.
As requested by party, we hereby request and authorize you to sell the following shares :
Moser Baer India Ltd. 1200.
Please arrange to send us the cheque for credit of OD A/c No. 253 in the name of Mrs. Deepali This letter was written on 20.09.2000 itself.
15. The Bank also invoked the said shares from the account of the complainant vide Pledge hypothecation form of M/s. Abhipra Capital Ltd., on 20.09.2000, as per clause 18 of the said agreement and transferred the same as a beneficial owner, in its own name. Despite this, the Bank did not give correct value of the shares as required in the above said clause and other related clauses, i.e., Clause 18 and Regulation 58(8) of SEBI (Depository and Participants) 1996, Section 41(3) of the Companies Act, 1956 and RBI Circular dated 08.11.1997. It also appears that after invocation of shares on 20.09.2000, the Bank, as a beneficial owner, enjoyed all corporate benefits, including dividend declared by M/s.Moser Baer Ltd., without giving any credit to the account of the complainant. This is an admitted fact that immediately, after invocation, there was substantial fall in the share prices and Banks officials, in connivance with its Broker, repurchased all the shares to make unaccounted gains.
16. The case of the OPs is that the complainant had directly instructed the Bank's Broker, OP3, to refrain from selling the said shares. Vide order dated 10.12.2003, this Commission directed the OPs to file an affidavit by the Broker, OP3, to this effect. However, the OPs filed its own affidavit. Affidavit of Broker, OP, is of infinite importance. The same was withheld for the reasons best known to the OPs. Had it been placed on record, it would have gone a long way to elicit the clear picture. In absence of that affidavit, this Commission is left with no other way, but to presume that the contention raised by the OPs was not true. However, there is no evidence, worth the name, that copy of letter dated 20.09.2000 sent to Broker was also sent to the complainant or its copy was given to the bearer of the letter. The signatures of the bearer of the letter, in token of the receipt of its copy was neither obtained nor produced before this Commission. The complainant was not aware that instructions have been given to OP3.
17. M/s. Abhipra Capital Ltd., addressed the OP Bank, vide letter dated 03.01.2001, as under :-
"Sh. K.K. Narayanan The Federal Bank Ltd.
Connaught Circus New Delhi - 110 001 Sub : Release of difference amount on a/c of sale of 800 shares of Kotak Mahindra Finance of Ms. Deepali Sharma, invoked and sold by the Bank.OD A/C No. 253
Sir, Please find enclosed herewith a cheque No.289395 dt.. 3/1/02 of Rs.12,976.35 on a/c of above sale.
An advance payment of Rs.46,000/- has already been paid to you on 30.12.2K.
We are enclosing herewith a cheque No.092070 dt. Of Rs.46,161/- on a/c of issuing a pay order in favour of Deepali Sharma OP - 253 payable at Delhi.
Kindly do the necessary transfer entries and credit the difference amount on a/c of sale proceeds in the OD-253.
Please acknowledge the receipt".
Further, the OP-Bank wrote letter dated 04.01.2001 to the complainant, as under :-
"Madam, Reg:OD A/c No. 253 for Rs. 20 lakhs in your name.
This has reference to our earlier letters regarding your above loan account requesting to regularize the DP and also for servicing the interest applied for the two quarters of June & September, 2000. It is noted that you have not remitted the amount to service the interest in spite of repeated requests over telephone and despite your promise on 28.12.2000 to remit latest by 29.12.2000. As such, in terms of notice given earlier, we arranged to sell 800 shares of Kotak Mahindra Fin. Eq. on 30.12.2000. An amount of Rs.46,000/- received as advance was credited to your account on 30.12.2000 thereby servicing the interest applied in the account on 30.06.2000. Today we received the cheque for the balance amount of Rs.12,976.35 which shall be credited to your account through clearing. The copy of the sale confirmation report is enclosed herewith. The matter has been conveyed to Sh. Rakesh Mohan Sharma over telephone today.
Your account position is as shown below :-
Limit : Rs. 20,00,000/-. Present DP : Rs. 6,91,000/- Balance : Rs. 11,07,887.26
The Balance in the account is short by Rs.5,55,768.00 for maintaining the stipulated DP. Hence, we request you once again to remit Rs.4,16,887/- or pledge shares value Rs.5,55768/- more towards the account to regularize the DP. However, we may sell the shares at any time we find the price 'OD', without waiting for action from your end in terms of our notice dated 23.10.2000.
Please co-operate".
In reply to letter dated 04.01.2001, the complainant asked the OP-Bank to pledge her shares, vide letter dated 12.01.2001, which is reproduced here, as under :-
"Reg : A/c No. 253.
Dear Sir, Please refer to your letter dated 04.01.2001 received by me today. As desired, I am enclosing herewith the pledge slip for pledging the shares as follows. .............. (illegible)
1) Hindustan Lever Ltd. - 1000 @ 204 - 2,04,000/-
2) Southern Info Ltd. -15000 @ 23 - 3,45,000/-
-------------------------
Total - 5,49,000/-
-------------------------
Hope you will find the same in order. In future, kindly give at least 20 days' notice for such things".
18. There is no evidence that OP3 contacted the complainant after the receipt of the letter sent by the complainant. It is well known that the prices of shares change each and every hour. The delay can cause havoc with the finances of its holders. As per advice given by the complainant, the same should have been sold immediately, within a day or two. The silence on the part of the Federal Bank and its promoter OP3 is pernicious. They have taken the complainant for a ride. In case the rates were coming down, the Bank should have apprised of the then situation to the complainant and should have sold the shares, within no time, i.e., immediately. Consequently, the deficiency on the part of the OPs stand proved.
19. Again, letter dated 22.02.2001 written by the complainant to the Bank, is crucial. The said letter runs, as follows :-
"Ref. OD A/c No. 253Kindly issue instruction through the bearer of this letter for ... (illegible) of following shares pledged with your Bank for aforesaid loan:
i) Hindustan Lever Ltd. 1000 ii) Reliance Petro 1200 iii) Hindustan Petro 50 iv) Sun Pharma 50 v) ABB 175 vi) L & T 250
The above said shares shall be sold by me through Abhipra Capital and the proceed would be credited to our O.D. account with you".
20. Further, the value of shares was Rs.4,77,050/- as per the chart given by the complainant, which runs, as under :-
Company's Name No. of shares Price as on 22.02.2001 Value (in Rs.) ABB 175 318 55,650 HLL 1000 238 2,38,000 Reliance petro 1200 64 76,800 Sun Pharma 50 580 29,000 L & T 250 275 68,750 HPCL 50 177 8,850 TOTAL 4,77,050
21. The Bank agreed to do so vide letter dated 22.02.2001. The Chief Manager, vide the above said letter, invoked the above said shares in his favour and transferred the shares in Bank's account. It was further stated that after the invocation of the shares in bank's account, it arranged to sell the shares. Copy of the invocation slip has been placed on record. According to the complainant, her case fully stands fortified in view of the authority reported in Vimal Chandra Grover Vs. Bank of India, 5 SCC 122. It appears that the Bank sold the shares which suited the Chief Manager. OP3 sold 650 shares of Hindustan Lever Ltd., and 175 shares of ABB. It also appears that the Bank sent another invocation Slip bearing No.6636 for only Hindustan Lever Ltd., and ABB Shares, copy of invocation Slip No. 6636 has been placed on record. The Bank's affidavit does not appear to be cent percent true and the Bank opposed the fiduciary position. No explanation is forth-coming why all the shares were not sold. It is contended that the complainant has placed reliance on Clause 18, as already quoted above. It was argued that the word 'transfer' in the said clause of the agreement, viz., transfer of shares in Bank's name, does not mean to sell all the said shares. In case the 'transfer' was to mean 'sale', then there was no need to use said expression of 'transfer'. It is contended that as different words vis., 'sale' and 'transfer' have been used in the same clause in relation to the same subject matter, it is presumed that those words would have not been used in the same sense, AIR 1956 SC 35, 1999 (9) SCC 700 and JT 2003 SC 114. Again, as per RBI's instructions, the Bank used to get the pledged shares transferred in its own name. The said instructions read, as under :-
"As per Reserve Bank of India directives when advances of limit of above of Rs.Three lakhs are sanctioned, the shares should be transferred in the Bank's name and the Bank will have voting rights thereof. However, prior approval of Reserve Bank of India is required to exercise voting right. In the case of advances to share brokers for a period not exceeding nine months the above condition is not applicable".
It was further contended that the revised RBI instructions run, as follows:-
".... The Securities pledged by the borrowers get blocked in favour of the lending Bank. In the case of default by the borrower, the Bank may invoke the pledge. Subject to the provisions of pledged document and on such invocation, the depository will register the name of the Bank as beneficial owner of such securities. In view of the above position, it has been decided for securities which are held in dematerialise for under the depository system, the requirement that the shares/debentures should be transferred in Bank's name be withdrawn. Banks are therefore free to take their own decision in regard to transfer of securities in their name. The shares pledged with the Bank under the depository mode will, however, continue to be included for the purpose of determining the limit prescribed in Section 19(2) of the Banking Regulation Act, 1949".
22. It is further contended that the discretion has been left with the Bank. Again, on 30.12.2000, the OP sold 800 shares of Kotak Mahindra Finance Ltd. It is contended that the said sale was made in order to regularize the DP for saving of the interest for quarters ending 30.06.2000 and 20.09.2000. The same should have been sold with the consent of the complainant.
23. All these arguments have left no impression upon us. No due discretion has been left with the Bank. The Bank is supposed to exercise the discretion judiciously. It cannot exercise discretion in an arrogant, despotic, highhandedness manner. The purpose of law is to prevent the strong, always having their way.
24. It is clear that as per Clause 14, cited above, the OP did not raise any objection to the transfer of those pledges. No communication was sent, though, by virtue of Clause 14, the complainant is not allowed to transfer the securities. This plea, set up now, is an afterthought. This is nothing, but, a ruse to see that the complainant does not get any relief from this Commission. The OP should have, at the very outset, refused to deny the same. Although, the SEBI has not given a crystal clear report, yet, whatever is available in the record, it clearly goes to show that they have pointed out more flaws in the procedure adopted by the OP. The OP Bank has committed irregularities. It cannot turn back to put up tinkering defences.
25. It is clear that the Bank did not act in accordance with Clause 18 of the agreement of the pledge or exercised its powers as beneficial owner for which the complainant cannot be held liable. It is thus clear that the OPs have taken a number of objections merely for the sake of cavil. It also shows the conduct and the character of the persons concerned. They have violated the law, being an authority. The construction of contract entered into between the parties assumes importance. It is a settled law that court should refrain from any interpretation, which would result in injustice and absurdity, AIR 1963 SC 25. The question to be considered is, not what was intended, but what has been said. We cannot amend or substitute anything in the contract, as per law laid down in Surat Mal Ram Niwas Oil Mills (P) Ltd., Vs. United India Insurance Co. Ltd. & Anr., (2010) 10 SCC 567, General Assurance Society Ltd. Vs. Chandmull Jain, 1966 ACJ 267 (SC), (1) United India Insurance Co. Ltd. Vs. Harchand Rai Chandan Lal, (2004) 8 SCC 644.
26. Moreover, the Bank cannot raise this objection due to principles of estoppel. The Bank agreed to do so. The objection was never raised at the nick of time. See the Law laid down in Vimal Chandra Grover Vs. Bank of India, 5 SCC 122, M/s. Dhani Ram and Sons Vs. Frontier Bank Ltd., AIR 1962 Pb 321. Thus, the deficiency on the part of the OPs stand established.
27.The next submission made by the OPs is that the complainant, as a Pledger, has no right to instruct the Bank to sell shares and the Bank, was under no obligation to accede to the request and in this connection, he has cited three authorities reported in S.L. Ramaswamy Chetty & Anr. Vs. M.S.APL Palanippa Chettiar, AIR 1930 (Madras) 364, Bank of Maharashtra Vs. M. S. Racmann Auto (Pvt.), Ltd., AIR 1991 (Del) 278 China & South Sea Bank Vs. Tan 1989 (3) All ER 839. It is also pointed out that the said judgments were noted by the Hon'ble Supreme Court in Vimal Chandra Grover Vs. Bank of India, 2000 (5) SCC 122 but the Hon'ble Supreme Court did not over-rule the said judgments.
28. It was further argued that the complainant has placed reliance on the agreement entered into between the Pledger and Pledgee under which the Pledgee had undertaken to sell the shares. However, there is neither any provision of a contract, particularly Section 177 nor agreement executed between the parties confirmed any such right, confirmation in the complaint. The instructions contained in the letter dated 20.09.2000 were neither legal nor valid. The learned counsel for OP further submitted that no permission was sought from the SEBI.
29. It may also be mentioned here that some queries were put to SEBI in the connected case, i.e. OP 151/2002, titled Sh. Rakesh Mohan Sharma Vs. The Chief Manager, Federal Bank Ltd. & Anr., which are also relevant to this controversy and the same are reproduced here, as under :-
" Query No.1 :
What was the manner in which the transactions relating to transfer of shares relating to HFCL and Infosys, belonging to complainant and pledged with the Federal Bank got transferred showing the balance in the D-Mat account of the complainant as Zero (Page 21)?.
Comments :
Section 12 of the Depositories Act, 1996 and Reg. 58 of SEBI (Depositories and Participants) Regulations, 1996 (hereinafter referred to as 'SEBI Regulations) deal with recording of Pledge, etc., in respect of securities which are held in depository in demat/electronic form. Further, the bye-laws and business rules of Depositors also deal with the same. As per Reg. 58(8) of the SEBI Regulations, the Pledgee may invoke the pledge subject to the provisions of the pledge document. Thus, the invocation of the pledge would have to be in terms of the pledge document and the Contract Act. The Depository merely registers the pledgee as Beneficiary Owner (BO) after the invocation. In the given statement (i.e., page No.21), it appears that pledgee has invoked the pledge and Depository would have transferred the shares from pledger's account to pledgee's account. Further, it is also to be noted that obligation is cast on the depository participant (DP) by regulation 58(9) to inform the pledger about the invocation. Further, DP has the obligation to send the transaction statements to the BOs every month (before the year 2003, it was fortnightly requirement), in case of any transactions in respect of securities. In case there are no transactions, DP has to send a quarterly statement to the BO.
The complainant has stated that he became aware of the invocation of the pledge only on receipt of the de-mat statement dated 25.06.2001 from his DP. This seems to be unlikely in the normal course since the DP is specifically required to inform the pledger-complainant about invocation of the pledge and since the DP was also required to send many periodical statements between 21.09.2000 to 25.06.2001, to Sh. Rakesh Mohan Sharma, the complainant as specified above.
Query No.4:
If in the statement (Page 21), the balance is shown as Zero, then what does the word transfer mean: does it mean 'sale' or mere 'transfer' in favour of the Bank, as alleged in the case. If they were not sold and only transfer in favour of the Opposite party, Federal Bank, then, what are the guidelines of SEBI with regard to the wording to be used in such cases?. Whether it will be deemed to be the 'sale' or 'transfer'.
Comments :
In the Depositor's books, Pledgee becomes the BO after the invocation of Pledge. It is opined that for all practical purposes, pledgee gets title to the shares in question ( subject to the terms of the pledge agreement)/ provisions of Contract Act.
Query No.6 :
Whether consideration in terms of the payment took place or not, and the guidelines of SEBI on such issues. Considering the D-Mat record and the letter written by the complainant, what ty0pe of transaction took place between the parties in the present case.
Comments:
There are no guidelines issued by SEBI in this regard. The paper books (five volumes) containing the case record are being returned herewith. The submissions made by both the parties before the undersigned are also being forwarded in original for the Hon'ble Commission's consideration. The operational module of NSDL, the depository herein are also downloaded from internet and enclosed herewith to assist the Hon'ble Commission".
30. Moreover, Clause 8 of the Regulation 58 of SEBI (Depository & Participants) Regulations, 1996, already quoted above and other provisions of law read in conjunction with clause 18, quoted above, the Bank was fully empowered to invoke the shares as per the SEBI Regulations. Again, the Bank, on its own, exercised the right of invocation vide invocation Slip No.5910 dated 20.09.2000 and transferred all the pledged shares in its own name. Thus, it had become the beneficial owner of the invoked shares and was entitled to be registered as such, qua, the such security, by the Depository, by virtue of Regulation 58(8) of SEBI Regulations as well as the Agreement. For the reasons cited above, this argument, too, has to be eschewed out of consideration.
31. Now, we come to the quantum of compensation. In the written submissions, the complainant has further modified her prayers, and demanded more amount, which is reproduced, as under :-
"a) The credit of Rs.4.88 lacs being the value of 1200 Moser Baer on 20.09.2000.
b) The market value as on date of 800 Kotak Mahindra Shares along with all accrued benefits (dividend & bonus shares) since 30.12.2000, as sold by OP on its own.
c) The credit of Rs.1.84 lacs being the value of shares not invoked despite the advice on 22.02.2001 as in III above.
d) Sum of Rs.8.06 lacs being the market value of shares as on 22.02.2001 left pledged with the OP along with the interest @ 18% p.a.
e) Sum of Rs. 20 lacs being the loss incurred by the complainant in March, 2000 when the OP refused the delivery of shares along with interest @ 18% p.a.
f) Sum of Rs.30 lacs being the business loss and mental agony suffered by complainant, on account of OPs deficiency in service resulting in distress sale of assets by the complainant and facing continual uncalled for litigation".
The case of the complainant is thicket of contradictions. Her prayer, at the time of filing of the petition is different from the statements made during the first written statement and the second written submissions, as already quoted above. She is trying to enhance the quantum of her claim, from time to time.
32. It must be borne in mind that that the facts are stubborn things. The 'but and ben' stand set up by the complainant rather goes to weaken her case. We place reliance on the relief/prayer made in the complaint which was filed originally, on 24.04.2002. Others are after-thoughts and not of pristine origin.
33. Consequently, we direct the OPs to pay to the complainant a sum of Rs.2,22,018/- with interest @ 13% p.a., from the date of filing of this complaint, i.e., 24.02.2002, till realisation/adjustment. The complainant is also awarded compensation and costs of the litigation in the sum of Rs.1,00,000/-. The said amounts be paid, by the OPs 1 & 2, within 45 days from the date of receipt of copy of this order, otherwise, the same will carry interest @ 13% p.a, after the expiry of said 45 days, till realisation. The Bank will be entitled to adjust this amount with the arrears pending, if any, against the complainant.
......................J J.M. MALIK PRESIDING MEMBER ...................... DR. S.M. KANTIKAR MEMBER