Bombay High Court
Shamirth Infra Private Limited vs Mayuresh on 9 June, 2025
Author: N.J.Jamadar
Bench: N. J. Jamadar
2025:BHC-OS:8423
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
SANTOSH
SUBHASH INTERIM APPLICATION (L) NO.14838 OF 2024
KULKARNI IN
Digitally signed by
SANTOSH SUBHASH
KULKARNI
COMM. SUIT NO.45 OF 2024
Date: 2025.06.09
17:14:33 +0530
Shamirth Infra Pvt. Ltd. and Ors. ... Applicants
In the matter between
Shamirth Infra Pvt. Ltd. and Ors, ... Plaintiffs
versus
Mayuresh and Ors. ... Defendants
WITH
INTERIM APPLICATION (L) NO.400 OF 2024
IN
COMM. SUIT NO.45 OF 2024
Shamirth Infra Pvt. Ltd. and Ors. ... Applicants
In the matter between
Shamirth Infra Pvt. Ltd. and Ors, ... Plaintiffs
versus
Mayuresh and Ors. ... Defendants
Mr. D. D. Madon, Senior Advocate with Ms. Sachi Lodha, Mr.
Gaurav Mehta, Mr. Aditya Miskita, Mr. Bhanu Chopra, Ms.
Shamina Taly, Mr. Aziz Mohd. Ms. Sehyr Taly i/by S.
Mahomedbhai and Co., for Plaintiffs.
Mr. Ashish Kamat, Senior Advocate with Mr. Akshay Puranik, Mr.
Amey Miraskar, Mr. Harsh Moorjani with Mr. Madhur Arora i/by
Khaitan and Co., for Defendant Nos.1 and 2.
Mr. Naushad Engineer, Senior Advocate with Mr. Yohaan
Limathwalla, Mr. Ashok Dhanuka, Ms. Dispy Sequeira i/by
Pragnya Legal, for Defendant No.3.
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CORAM : N. J. JAMADAR, J.
RESERVED ON : 14 OCTOBER 2025
PRONOUNCED ON : 9 JUNE 2025
JUDGMENT :
1. The Plaintiffs have taken out these Interim Applications for
diverse interim reliefs in a suit instituted, inter alia, for
declarations that the Loan Agreements executed by the Plaintiffs
are illegal and void as the Plaintiffs were made to agree to illegal,
extortionate, onerous and usurious terms by deceitful and
malafide acts and omissions on the part of the Defendants, the
sale of the pledged shares is illegal, void and non-est in the eye of
law and the Plaintiffs are entitled to redeem the pledged shares.
2. The background facts necessary for determination of these
applications can be summarized as under :
2.1 Shamirth Infra Pvt. Ltd. (SIPL) is a Private Limited Company.
Plaintiff Nos.2 to 5 are the promoters and share holders of SPIL.
Plaintiff Nos.2 to 5 together have 100% shareholding in SIPL. SIPL
is, inter alia, engaged in the business of real estate development
and has been currently undertaking development of a commercial
building ‘Parth IT Park’ on a plot No.86A situated at Sector 15,
CBD Belapur, Navi Mumbai.
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2.2 M/s. Mayuresh – Defendant No.1, is a registered Partnership
Firm. M/s. Mayuresh (D1) is also engaged, inter alia, in the
business of real estate development. Welvan Securities Pvt. Ltd.
(D2) is a Private Limited Company. Welvan (D2) is also engaged in
the business of real estate development. Welvan (D2) is a sister
concern of Mayuresh. Both have common promoter group
comprising of, inter alia, Mr. Shreegopal Barasia.
2.3 Vistra (ITCL) India Limited (D3) is a Public Limited Company.
Vistra (D3) is engaged in the business, inter alia, of providing
corporate trusteeship services and has been acting as a security
trustee for Mayuresh (D1) in relation to its transactions with the
Plaintiffs.
2.4 CIDCO is the owner of Plot No.86A. Under a Tripartite
Agreement dated 2 June 2004, Welvan (D2) acquired the leasehold
rights in the said plot. Shreegopal Barasia, Promoter of Welvan
(D2), desired to resell the plot. At the representation of Barasia,
Plaintiff Nos.2 and 3, who had considerable experience and
expertise in the development of real estate, agreed to take over the
said plot. On 20 January 2005 Plaintiff Nos.2 and 3 were inducted
as the directors of Welvan (D2).
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2.5 The Plaintiffs claimed, Welvan (D2) induced Plaintiff Nos.2
and 3 to invest a sum of Rs.13,89,90,635/- in the said project with
a specific understanding that the project would eventually be
handed over to the Plaintiffs.
2.6 The Plaintiffs claim, despite assurances, it was only around
the year 2019-20, Welvan (D2) agreed to handover the said project
to the Plaintiffs subject to series of extortionate and onerous
conditions, which were forced upon the Plaintiffs with a threat that
unless Plaintiffs agree to such conditions, Welvan (D2) would back
out of the deal. Plaintiff Nos.2 to 5, thus, incorporated SIPL as the
special purpose vehicle to take over the said project. Plaintiff Nos.2
and 3 resigned as the directors of the Board of Welvan (D2).
2.7 On 13 October 2020, an Agreement for Sale came to be
executed by and between Welvan (D2) and SIPL, whereby Welvan
(D2) agreed to sell/ assign and SIPL agreed to acquire the said plot
for a total consideration of Rs.23,03,00,000/-. After adjusting the
amounts towards the investment and expenses incurred by the
Plaintiffs and deductions, it was agreed that the balance sale
consideration of Rs.8,50,89,365/- would be paid by SIPL to Welvan
(D2) on or before 17 October 2020, failing which SIPL was to pay
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interest thereon @ 24% compounded quarterly.
2.8 The Plaintiffs aver, to finance the balance consideration and
development of the project, Welvan (D2) coerced the Plaintiffs to
avail the finance from M/s. Mayuresh (D1) at excessive interest
and on onerous terms. On account of the circumstances in which
the Plaintiffs found themselves, the Plaintiffs were coerced to agree
to the onerous terms and exorbitant rate of interest. On 26
November 2020, the Plaintiffs claim, an Agreement was executed
between SIPL and Welvan (D2), whereby Welvan (D2) agreed to
earmark an area about 14,706 sq.ft., which would not be alienated
or sold by SIPL till the alleged disputes between SPIL and Welvan
(D2) were resolved. A Tripartite Agreement was also executed
between CIDCO, SIPL and Welvan (D2) transferring the leasehold
rights in favour of SIPL.
2.9 The Plaintiffs claim, they were compelled to execute the
alleged Agreement dated 20 February 2021, whereunder M/s.
Mayuresh (D1) agreed to extend loan of Rs.4 Crores to SIPL on
extraneous and onerous terms. Under the Amended and Restated
Loan Agreement dated 29 July 2021, the limit of loan was
extended to Rs.26 Crores. The Plaintiffs alleged, the draft of the
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loan agreements were never shared with the Plaintiffs before their
execution. Nor the Plaintiffs were provided copies of the
agreements after their execution. The terms of these loan
agreements are, ex-facie, one-sided, onerous and extraneous.
Apart from the usurious interest rate of 24% p.a. charged by
Welvan (D2) and 36% p.a. charged by M/s. Mayuresh (D1), the
Plaintiffs were made to secure the credit facility by providing
several valuable securities, such as hypothecation of the
receivables from the said project and the Plaintiff Nos.2 to 5’s
shareholding in SIPL.
2.10 As a part of the alleged deceitful design, the Plaintiffs
alleged, SIPL was made to enter into Security Trustee Agreement
dated 29 July 2021, whereby Vistra (D3) was appointed as a
Security Trustee for the securities created/to be created under the
Restated Loan Agreement. The Restated Loan Agreement
contemplated execution of various documents i.e. Agreements for
creation of pledge of shares, hypothecation of receivables, opening
of escrow accounts etc. (Transaction Documents).
2.11 Pursuant thereto, on 5 February 2022, Plaintiff Nos.2 to 5
executed Share Pledge Agreement in favour of the Security Trustee
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to pledge their respective shareholdings in SIPL.
2.12 The Plaintiffs alleged various acts of omission and
commission on the part of the Defendants with a view to usurp the
assets and control of SIPL. On the one hand, SIPL and the project
suffered on account of the default on the part of M/s. Mayuresh
Group. On the other hand, M/s. Mayuresh (D1) continued to levy
and demand interest and default interest under the 2020
Agreement for Sale and the Restated Loan Agreement. M/s.
Mayuresh (D1) forced the Plaintiffs to draw amounts under the
Loan Agreements in order to make payment of interest and default
interest alleged to be due.
2.13 The Plaintiffs claim, on 16 May 2023, M/s. Creative Homes,
a registered Partnership firm, filed a complaint with Economic
Offences Wing (EOW) against Mr. Shreegopal Barasia. To give a
counter blast, M/s. Mayuresh (D1), Welvan (D2) and Vistra (D3), in
collusion and connivance with each other, threatened to invoke the
security provided for the loans. Exorbitant demands were made by
Mayuresh (D1) and Vistra (D3).
2.14 As a part of the malafide design, on 31 August 2023, Vistra
(D3) addressed a purported default notice (first default notice).
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On 4 October 2023, Vistra (D3) falsely claimed that the alleged
Event of Default had occurred and notified SIPL that Vistra (D3)
was invoking the Pledge created in relation to the pledged shares.
Default notices have been assailed by the Plaintiffs on a number of
grounds, including that the said notices were in breach of the
Pledge Agreements, the provisions contained in Section 176 of the
Indian Contract Act, 1872 and were actuated by malafide.
2.15 The Plaintiffs alleged, initially Vistra (D3) offered to sale the
pledged shares to an undisclosed third party for a consideration of
Rs.35 Crores. It was later informed that the said third party
withdrew its offer and Vistra (D3) decided to sell the pledged
shares to Mayuresh (D1) for a consideration of Rs.15 Crores only.
The said action of Vistra (D3) was in breach of its fiduciary and
statutory obligations. Vide Email dated 5 October 2023, Vistra (D3)
informed Plaintiff Nos.3 and 4 that the pledged shares have been
allegedly transferred to Mayuresh (D1) for a consideration of Rs.15
Crores only.
2.16 It is the case of the Plaintiffs that the purported sell of the
pledged shares by Vistra (D3) to Mayuresh (D1) is not an ‘actual
sale’ in the eye of law. It, in fact, amounts to conversion of the
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pledged property. Such conversion of the pledged property is
legally impermissible. Moreover, Mayuresh (D1) has claimed set-off
qua the purchase price. Such set off is also impermissible in law.
2.17 The Agreement for Pledge never covered payment of the
balance consideration under the Agreement for Sale dated 13
October 2020, Mayuresh (D1) has purported to include the alleged
outstanding under the said Agreement for Sale towards Welvan
(D2) to claim set-off. Since the Agreement for Pledge never covered
the alleged liability under the Agreement for Sale, the pledged
shares could not have been sold, much less, set off claimed in
respect thereof. The Notice of Sale was also legally infirm. It gave
less than 24 hours time to the Plaintiffs to redeem the pledge in
breach of the stipulations in the agreements to provide at least 2
days notice. Even two days period notice was not reasonable. The
Sale Notice dated 5 September 2023 was never served on Plaintiff
Nos.2 to 5. Nor it quantified the alleged outstanding amount. The
purported sale of the pledged shares was also bad in law as the
Plaintiffs vide letter dated 5 October 2023 offered to pay the entire
outstanding amount.
2.18 Invocation of pledge was illegal and in breach of the terms of
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the Pledge Agreement. There were no events of default on the part
of the Plaintiffs. If at all there were any events of default, the
Defendants had waived the same. The purported sale was bad in
law as the shares were sold for a partly sum of Rs.15 Crores,
though a month prior thereto, they were offered to be sold for a
price of Rs.35 Crores. According to the Plaintiffs, the cumulative
value of the pledged shares was in the range of Rs.173 Crores.
The sale of the shares for a partly sum of Rs.15 Crores was but a
fraud on the Plaintiffs. The purported transfer of the pledged
shares to Mayuresh (D1), the real pledgee, does not constitute
actual sale. The Plaintiffs, thus, asserted the right of redemption
of Plaintiff Nos.2 to 5 continued to subsist.
2.19 The Plaintiffs have, thus, instituted a suit for declaration
that the sale of the pledged shares is illegal, void ab-initio, invalid
and non-est and Plaintiff Nos.2 to 5 have a valid and subsisting
right to redeem the pledged shares upon payment of the amounts
due to M/s.Mayuresh (D1) under the lawful terms of the Restated
Loan Agreement. Interest charged by Defendant No.1 under the
Restated Loan Agreement is usurious and excessive. The
Transaction Documents are unlawful and void and a host of
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consequential reliefs.
First Interim Application:
3. The Plaintiffs initially filed Interim Application (L) No.400 of
2024 seeking interim reliefs asserting, inter alia, that the project in
question is likely to generate the net revenue of over Rs.315 Crores.
The Plaintiffs have made substantial progress in the project. The
Plaintiffs have incurred huge costs of over Rs.32 Crores for the said
development. By taking undue advantage of the situation, the
Defendants were trying to oust the Plaintiffs from the said project
on the strength of miss-appropriation of the pledged shares. The
Defendants have illegally withheld their consent for transfer of
monies to the vendors etc., from the escrow accounts set up under
the Escrow Agreement. The Plaintiffs, therefore, prayed for interim
relief in the nature of an order to cancel the purported sale of the
pledged shares, restore status quo prior to 5 October 2023, permit
Plaintiff Nos.2 to 5 to exercise their right of redemption and direct
Defendant Nos.1 to 3 to return the pledged shares and prohibitory
and mandatory consequential reliefs.
Second Interim Application:
4. The Plaintiffs have taken out another Interim Application
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being IA(L) No.14838 of 2024 asserting, inter alia, that since
September 2023, on account of withholding of NOC’s by Defendant
Nos.1 to 3, the Plaintiffs had not been able to sell any units in the
said project. The Plaintiffs have been put to serious financial
squeeze. Without prejudice to all the contentions raised by the
Plaintiffs, including the challenge to the legality and validity of the
Transaction Documents, the Plaintiffs have received a sanction
letter from the another entity to advance Rs.39 Crores to the
Plaintiffs, and, thus, the Plaintiffs intend to pay the Defendant
No.1 the entire loan amount along with the interest @ 36% p.a.
aggregating to Rs.21,69,76,649/- and to Defendant No.2 a sum of
Rs.13,29,61,242/-, being the entire balance consideration of
Rs.8,50,89,365/- and the interest accrued thereon. Thus, the
Plaintiffs be permitted to make the aforesaid payment and it be
ordered that the said amount stands fully and finally adjusted
against all the amounts payable by the Defendant Nos.1 and 2, and
Defendant Nos.1 and 2 be, in turn, directed to confirm full and
final receipt of the due amount and issue ‘no due certificate’ to the
Plaintiffs and, consequentially, all the Transaction Documents be
treated to be cancelled and the original share certificates and the
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instruments be delivered back to the Plaintiffs.
Response of Defendant Nos.1 and 3:
5. Defendant Nos.1 and 3 resisted the applications by filing
affidavits in reply. At the outset, the very tenability of the second
Interim Application was questioned. It was contended that when
this Court declined to grant ad-interim relief in the first Interim
Application i.e. IA(L) No.400 of 2024, the Plaintiffs have filed fresh
Application for interim reliefs on the self-same grounds. The
Second Application for interim reliefs is, thus, not at all tenable.
6. Defendant Nos.1 to 3 have contended that the premise of the
interim relief in the first and second Interim Application is
irreconcilably inconsistent. In the first application, legality and
validity of the Transaction Documents was sought to be questioned
alleging, inter alia, that those instruments were the creatures of
fraud and coercion. Whereas, in the second Interim Application,
the Plaintiffs professed to act upon the Transaction Documents
and seek to pay the due amounts, albeit much lower than the
contractual obligations. Therefore, both the applications being
mutually inconsistent, do not deserve to be entertained.
7. Defendant Nos.1 and 3 contend, the grant of reliefs prayed in
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the Interim Applications would amount to granting final reliefs at
an interim stage, which is not legally permissible.
8. Defendant No.1 categorically contends that the Plaintiffs have
approached the Court with unclean hands. The Plaintiffs have
suppressed material facts which bear upon the claim of the
Plaintiffs that they were made to execute the instruments by
practicing fraud. The circumstances which led to the execution of
the Transaction Documents have been traced by Defendant No.1.
Referring to the sequence of events and the various documents,
executed by the Plaintiffs, Defendant No.1 contends, the falsity and
incredulity of the claim of the Plaintiffs that they were unaware of
the contents of the documents is clearly borne out. The Plaintiffs
have categorically acknowledged the liability to pay balance
consideration of Rs.8,50,89,365/- under the Agreement for Sale
along with interest, repetitively. The Transaction Documents
executed by the Plaintiffs were backed by the resolutions passed by
the Board of Directors of SIPL. This factor squarely dents the
claim of the Plaintiffs that they were made to execute the
documents under coercion or duress.
9. On the aspect of the pledge of shares of SIPL, Defendant No.1
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makes reference to the terms of the Share Pledge Agreement and
Pledge Power of Attorney executed in favour of Vistra (D3). There
is no infirmity in either invocation of the pledge or the sale notice
or sale of the pledged shares by Vistra (D3). The Plaintiffs had not
only acknowledged the liability to pay the outstanding loan
amount and balance consideration along with accrued interest,
but also acted upon the Transaction Documents by depositing
interest at the agreed terms. It is, therefore, not open for the
Plaintiffs to assail the legality and validity of the Transaction
Documents. A reference is made to the correspondence addressed
on behalf of the Plaintiffs purportedly acknowledging the liability,
default on the part of the Plaintiffs in discharge of the liability, as
agreed, and the failure on the part of the Plaintiffs to discharge the
liability even after the Plaintiffs were put to notice.
10. Emphasis was laid on the fact that on 5 October 2023, the
Plaintiffs clearly acknowledged their liability to pay the outstanding
amount under the Loan Agreements and other Transaction
Documents. Therefore, belated attempt to question the legality
and validity of the transaction and the invocation of the pledge, is
devoid of substance.
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11. It was denied that Vistra (D3) had acted at the behest of
Mayuresh (D1). Vistra (D3) was an independent entity, who had
discharged its obligations under the Security Trusteeship
Agreement. Upon the occurrence of the events of default, the
Plaintiffs lost their right attached to the pledged shares. Thus, the
Plaintiffs cannot without discharging the loan secured by the
pledge question the action of the security trustee. It was also
denied that the sale of pledge shares by Vistra (D3) to Mayuresh
(D1) amounts to conversion. Until and unless the entire
outstanding amount is repaid by the Plaintiffs to the Defendant
No.1, the Plaintiffs cannot redeem the pledged shares.
12. In response to Interim Application (L) No.14838 of 2024, in
addition to the aforesaid grounds of resistance, Defendant No.1, at
the outset, assailed the tenability of the Application. Reliefs
claimed in the instant application are akin to final reliefs sought in
the plaint. At this stage, the Court would not be justified in
delving into the exact amount due and payable by the Plaintiffs to
Defendant No.1. That would warrant adjudication after the
appraisal of evidence. The Plaintiffs, thus, cannot be permitted to
wriggle out of the liability by offering to pay the sum, which is far
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less than the amount due and payable in accordance with the
terms of the contract between the parties. It was, inter alia,
contended that the Plaintiffs were liable to pay the agreed amount
of Rs.31,11,90,595/- to Defendant No.1 towards the balance loan
amount. Likewise, the Plaintiffs were liable to pay
Rs.14,09,63,709/- to Defendant No.1 towards the balance
consideration under the Agreement for Sale dated 13 October
2020. Unless the entire amount is paid, the Plaintiffs are not
entitled to the reliefs sought in the instant application.
13. At any rate, Defendant No.1 contends, the Plaintiffs cannot
ask for cancellation of Earmarking Agreement dated 26 November
2020. According to Defendant No.1, earmarking of 14,706 sq.ft.
constructed area in the project was not to secure the loan
advanced by Defendant No.1 to the Plaintiff No.1 or in respect of
the transaction of transfer of leasehold rights by Defendant No.2 to
Defendant No.1, but towards settlement of other disputes and
differences between the parties and their group concerns.
Therefore, even if payment of the entire outstanding consideration
amount along with interest accrued thereon was made by the
Plaintiffs to Defendant No.1, the Plaintiffs were not entitled to
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cancellation of Earmarking Agreement.
14. Vistra (D3) has filed common affidavit in reply to both the
Interim Applications. With reference to the role of Vistra (D3) in
the context of the loan agreements between Defendant No.1 and
Plaintiff No.1, Vistra (D3) contends, it was appointed as a security
trustee under the Security Trustee Agreement dated 29 July 2021.
Thereupon, Plaintiffs executed Share Pledge Agreement and Pledge
Power of Attorney in favour of Vistra (D3) and thereby pledge was
created in favour of Vistra (D3) in respect of 100% shares held by
Plaintiff Nos.2 to 5 in SIPL.
15. Vistra (D3) contends, since there was default on the part of
the Plaintiffs No.1 in making repayment of the loan, and failure to
adhere to the terms of the Loan Agreement, Vistra (D3) had
addressed various letters to the Plaintiffs. Eventually, vide first
notice of default dated 31 August 2023, Vistra (D3) documented
various events of default and called upon the Plaintiffs to remedy
the situation. In view of the default on the part of the Plaintiffs,
Vistra (D3) was constrained to invoke the pledge. Initially, one
Balaji Enzymes and Chemical Pvt. Ltd. had made a conditional
offer for a valuation of Rs.35 Crores. Eventually, the said party
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withdrew its offer as it was asked to make an unconditional offer.
On 27 September 2023, Mayuresh (D1) addressed a letter to Vistra
(D3) offering to purchase the pledged shares at the valuation of
Rs.15 Crores. The Plaintiffs were intimated about the said offer on
4 October 2023 and were called upon to redeem the pledge. It was
only after the default on the part of the Plaintiffs, Vistra (D3)
decided to transfer the pledged shares to Mayuresh (D1). It was,
thus, denied that the invocation and sale of the pledged shares
was not in accordance with law.
16. Vistra (D3) claimed to have fully complied with the terms of
the contract and the provisions of law in conducting the sale of the
pledged shares. Under the terms of the Pledge Agreement, Vistra
(D3) was not liable to find out market value of the pledged shares,
and was entitled to sell the pledged shares at the best value
available.
17. In any event, the Plaintiffs do not have any contractual right
to object to the sale of the pledged shares by Vistra (D3) on
account of the alleged financial loss. It was denied that the sale of
the pledged shares to Mayuresh (D1) amounts to illegal conversion.
18. Lastly, Vistra (D3) would contend, relief of declaration that
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the sale of pledged shares is invalid and illegal cannot be granted
at an interim stage. Even otherwise, the Plaintiffs cannot be
permitted to exercise rights in respect of the pledged shares till the
contractual obligations of the Plaintiffs are not discharged.
19. An affidavit in Rejoinder, followed by an Affidavit in Sur-
Joinder on behalf of Defendant No.1, have been filed.
Submissions:
20. In the wake of the aforesaid facts and pleadings, I have
heard Mr. Madon, the learned Senior Advocate for the Plaintiffs,
Mr. Ashish Kamat, the learned Senior Advocate for Defendant
Nos.1 and 2, and Mr. Naushad Engineer, the learned Senior
Advocate for Defendant No.3, at some length. With the assistance
of the learned Counsel for the parties, I have perused the material
on record including the documents tendered to substantiate the
rival claims.
On behalf of the Plaintiffs:
21. Mr. Madon, the learned Senior Advocate for the plaintiffs,
canvassed a multi-pronged submission to assail the legality and
validity of the “transaction documents”, in general, and the sale of
pledged shares, in particular. Firstly a strenuous effort was made
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by Mr. Madon to bolster up the stated case of the plaintiffs that the
plaintiffs were coerced to execute the transaction documents,
including the loan agreement, restated and amended loan
agreement, pledge agreement and the agreement to earmark the
constructed portion of the project in favour of Welvan (D2). The
terms of the agreements, especially the levy of interest at 36% p.a.
compounded quarterly – a plainly usurious rate of interest – and
extortionate stipulations therein, according to Mr. Madon, per se
render the agreements void and illegal.
22. Mr. Madon made a valiant attempt to substantiate the claim
that the draft copies of the agreements, which were eventually
executed, were never furnished to the plaintiffs and, even after the
execution thereof, neither those documents, nor copies thereof
were furnished to the plaintiffs. Cumulatively, the transaction
documents are void under Section 23 of the Indian Contract Act.
23. Secondly, Mr. Madon would urge Mayuresh (D1) has wrongly
appropriated the debt owed to Welvan (D2) under the agreement
for sale dated 13th October, 2020. The plaintiffs had never agreed
for such novation of the contract between the parties. Welvan (D2)
was neither a lender under either loan agreement nor a pledgee.
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The pledge agreement does not cover the liability which the
plaintiffs owed to Welvan (D2). The invocation of the pledge for the
discharge of the said liability was clearly in breach of the pledge
agreement and in teeth of Section 174 of the Indian Contract Act.
Laying emphasis on the fact that Mayuresh (D1) purportedly
transferred the balance sale consideration to Welvan (D2) on 5 th
July, 2021 by which time, restated loan agreement and the share
pledge agreement were yet to be executed, Mr. Madon would urge,
under no circumstances, the pledge could have been invoked for
the discharge of the said liability.
24. In substance, the thrust of the submission of Mr. Madon was
that the agreement for sale dated 13th October, 2020, on the one
part, and the two loan agreements, dated 20 th February, 2021 and
29th July, 2021, on the other part, constituted two distinct
transactions. Defendant Nos.1 and 3 were not entitled to merge
those two transactions and invoke the pledge. An endeavour was
made by Mr. Madon to urge that the defendants have banked upon
a forged and fabricated letter dated 26 th November, 2020,
purportedly addressed on behalf of the plaintiffs acknowledging
the enhancement in the rate of interest from 24% to 36% on the
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balance consideration payable under the agreement for sale dated
30th October, 2020 and, by including the said amount, at such
usurious and exorbitant rate of interest, defendant Nos.1 and 3
have invoked the pledge.
25. Thirdly, Mr. Madon would submit that the terms of the
pledge agreement were explicitly one sided and onerous. Vistra
(D3) was, in fact, an agent of defendant No.1. That explains the
utterly biased and unjust manner in which Vistra (D3) discharged
its duties as a security trustee. Apart from the fact that the two
days notice for sale of the pledged securities is in itself
unreasonable, according to Mr. Madon, in fact, Vistra (D3) did not
give even two days notice to the plaintiffs. The first notice dated 5 th
September, 2023 for purported sale of the pledged shares for Rs.35
Crores was abandoned. The second notice dated 4 th October, 2023
was never served on plaintiff Nos.2 and 5, the pledgors. Nor the
said sale notice dated 4th October, 2023 quantified the alleged
outstanding amount. These infirmities in the sale notice, according
to Mr. Madon, completely erode the legality and validity of the
actions of Vistra (D3) and the consequent sale.
26. Fourthly, Mr. Madon urged with a degree of vehemence that
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the purported sale of the pledged shares in favour of Mayuresh
(D1) is legally infirm, on a number of counts:
26.1 First and foremost, as Vistra (D3) is an agent of Mayuresh
(D1) the purported sale to Mayuresh (D1), the pledgee, was, in
effect, sale to self and amounted to “conversion”.
26.2 To buttress the submission that the sale of the pledged
security by the pledgee to himself does not amount to “actual sale”
of the pledged security and in such a case the right of the pledgor
to redeem the pledge is not lost, Mr. Madon placed a very strong
reliance on the judgment of the Supreme Court in the case of PTC
India Financial Services Limited vs. Venkateswarlu Kari and
another1.
26.3 Second, Mayuresh (D1) professed to set off the alleged
outstanding amount under the first transaction of agreement for
sale dated 13th October, 2020, towards the price of the pledged
shares. There was no real passing of consideration. The purported
sale in favour of Mayuresh (D1) was against all canons of the
duties of the pledgee.
26.4 Third, the sale of the pledged shares to Mayuresh (D1) was
1 (2022) 9 Supreme Court Cases 704.
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illegal as the plaintiffs vide letter dated 5 th October, 2023 hadoffered to pay due amount even before the purported fictitious sale.
Without providing a reasonable opportunity to the plaintiffs to
redeem the pledge, Vistra (D3) went on to notify the sale in favour
of Mayuresh (D1).
26.5 Fourth, Mr. Madon would urge, the purported sale of the
pledged shares was at a gross undervaluation. A month prior to
the purported sale, Vistra (D3) had received an offer of Rs.35
Crores. Even the said offer of Rs.35 Crores, was much low. The
pledged shares were valued at Rs.173 Crores. Support was sought
to be drawn from the valuation report obtained by the plaintiffs.
27. Lastly, Mr. Madon would urge as the plaintiffs have shown
the willingness to pay the due amount under the loan agreement
as well as the agreement for sale, the Court can balance the
equities by permitting the plaintiffs to redeem the pledge, even at
an interim stage. Mr. Madon made a painstaking effort to
demonstrate that a very strong prima facie case is made out by the
plaintiffs to redeem the pledge at an interim stage. To this end,
Mr. Madon placed reliance on the judgments of the Supreme Court
in the cases of Deoraj vs. State of Maharashtra and others 2 and
2 (2004) 4 Supreme Court Casees 697.
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Dorab Cawasji Warden vs. Coomisorab Wardenand others3.
On behalf of Defendant Nos.1 and 2:
28. Mr. Kamat, the learned Senior Advocate for defendant Nos.1
and 2, stoutly resisted the submissions on behalf of the plaintiffs.
At the outset, it was urged that the plaintiffs do not deserve to be
heard on the merits of the matter as the plaintiffs have approached
the Court with unclean hands. The plaintiffs have suppressed
material facts and documents and made an endeavour to obtain
an ad-interim order. When the Court declined to grant ad-interim
relief, the plaintiff filed second application for interim relief. Mr.
Kamat would urge, the second application for interim relief i.e.
IA(L)/14838/2024, is at complete variance with the case set up by
the plaintiffs in the plaint.
29. Amplifying the submissions, Mr. Kamat would urge the
plaintiffs have pleaded contradictory and self-destructive case, and
are, thus, dis-entitled from claiming any relief. The claim of the
plaintiffs in the plaint is that the transaction documents are illegal
and void. Surprisingly the second application for interim relief is
predicated on the legality and validity of those transaction
3 (1990) 2 Supreme Court Cases 117.
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documents and the plaintiffs seek performance of the very
transaction documents, which are stated to be illegal and void.
30. Assailing the case of the plaintiffs that the loan agreements
were executed sans the free will of the plaintiffs and, thus, illegal
and void, Mr. Kamat would urge, there are a number of documents
which indicate that the plaintiffs had executed those agreements
fully cognizant of the nature and import thereof and out of their
own volition. Those documents were conveniently and deliberately
suppressed by the plaintiffs.
31. Mr. Kamat would urge, the plaintiffs suppressed the fact that
in the Articles of Association of plaintiff No.1, “loan agreement” has
been defined to mean the Amended and Restated Loan Agreement
dated 29th July, 2021. The plaintiff No.1 had included the said
Amended and Restated Loan Agreement in the disclosure under
Form MGT14, filled with the Registrar of Companies. Those loan
agreements were executed after the Board of Directors of plaintiff
No.1 passed Resolutions in the meetings in which the draft
agreements were placed for consideration and approved. All these
documents were suppressed by the plaintiffs.
32. Mr. Kamat would urge the legal position is well neigh settled
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that a party who sets up a false case by suppressing material facts
and does not approach the Court with clean hands is not entitled
to be heard much less granted any relief. To lend support to this
submission, Mr. Kamat placed reliance on the judgments of the
Supreme Court in the cases of Bhaskar Laxman Jadhav and
others vs. Karmaveer Kakasaheb Wath Education Society and
others4 and S. P. Chengalvaraya Naidu (Dead) by LRs. vs.
Jagannath (Dead) by LRs. and others5
33. In order to bolster up the submission that the plaintiff is not
entitled to take inconsistent and mutually-distructive pleas, Mr.
Kamat placed reliance on the judgment of the Supreme Court in
the case of Baldev Singh and others vs. Manohar Singh and
another6 and a decision of this Court in the case of Shyamlal
Biharilal Pandey vs. Reliance Infrastructure Ltd. and others7.
34. On the merits of the assertions of the plaintiffs as regards
the transaction documents, Mr. Kamat would urge there is
material to indicate that not only the transaction documents were
executed by the plaintiffs voluntarily but also to show that the
4 (2013) 11 Supreme Court Cases 31.
5 (1994) 1 Supreme Court Cases 1.
6 (2006) 6 SCC 498.
7 2009 (2) Mh.L.J. 204.
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plaintiffs had acted upon those documents fully. Taking the Court
through the correspondence exchanged between the parties, Mr.
Kamat would submit that there are multiple acknowledgments of
liability on the part of the plaintiffs. It was only after the second
notice of sale by Vistra (D3), upon persistent default by the
plaintiffs, the plaintiffs raised false and frivolous defences.
35. Mr. Kamat further submitted that the plaintiffs are in breach
of the obligations under the loan agreements. Without obtaining
the consent of defendant No.3, the plaintiff No.1 sold three units in
the project and unlawfully appropriated the sale proceeds instead
of depositing the same in the Escrow Account. Such dishonest
conduct on the part of the plaintiffs plainly dis-entitles the
plaintiffs from seeking any equitable relief. To this end, reliance
was placed on the judgment of the Supreme Court in the case of
Gujarat Bottling Co. Ltd and others vs. Coca Cola Co., and others 8.
36. Refuting the claim of the plaintiffs that the invocation of the
pledge was infirm, Mr. Kamat would urge that if the facts of the
case are appreciated in the light of the stipulations in the pledge
agreement, an inference becomes inescapable that the Vistra (D3)
invoked the pledge after providing an efficacious opportunity to the
8 (1995) 5 Supreme Court Cases 545.
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plaintiffs to redeem the pledge. The contention that the plaintiffs
were not informed about the due amount, according to Mr. Kamat,
was a clear subterfuge. Mr. Kamat took the Court through the
record to demonstrate that not only the defendants had repetitively
indicted the amount due and payable by the plaintiffs but even the
plaintiffs had acknowledged the amount which they owed to the
defendants. In the face of the clear failure and neglect on the part
of the plaintiffs, Vistra (D3) was fully justified in invoking the
pledge, urged Mr. Kamat.
37. Mr. Kamat would urge that the thrust of the submission on
behalf of the plaintiffs that the sale of the pledged shares in favour
of Mayuresh (D1) amounts to conversion is misconceived. Vistra
(D3), the security trustee, is an independent entity, who has acted
in accordance with the terms of the transaction documents, upon
the occurrence of the events of default. The sale of the shares by
Vistra (D3) was in exercise of the powers given to Vistra (D3) under
the transaction documents. Mr. Kamat made an endeavour to
distinguish the judgment in the case of PTS India Financial
Services (supra). It was urged that in the said case the pledgee had
transferred the pledged shares in his own name. In the case at
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hand, it was Vistra (D3), who effected the sale, in the capacity of
the security trustee. Therefore the judgment in the case of PTS
India Financial Services (supra) does not govern the facts of the
case.
38. As an alternative submission, Mr. Kamat would urge that
even if the sale of the shares by defendant No.3 in favour of
defendant No.1 is held to be illegal, the plaintiffs would not be
entitled to return of the shares as the pledge would continue to
operate. Therefore, no relief can be granted in favour of the
plaintiffs, on the said count.
39. Mr. Kamat would urge, the interim reliefs can only be
granted in aid of the final reliefs. The prayers in the second
application for interim relief can by no stretch of imagination be
said to the reliefs in the aid of the final reliefs in the suit. On the
contrary, the prayers in the second interim application are
premised on a diametrically opposite case of performance of the
transaction documents. Reliance was placed on the judgments in
the cases of Maharashtra Jeevan Pradhikaran and another vs.
Lark Construction Pvt. Ltd.9 and Cotton Corporation of India
9 2005(1) Mh.L.J 953.
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Limited vs. United Industrial Bank Limited and others10.
40. Mr. Kamat would contend the prayers in the interim
application are akin to the final reliefs, which cannot be granted at
an interlocutory stage. To buttress this submission Mr. Kamat
banked upon the judgments of the Supreme Court in the cases of
Metro Marins and Another vs. Bonus Watch Co. (P) Ltd. and
others11 and State of U.P. and others vs. Ram Sukhi Devi12.
41. Lastly, it was submitted that the plaintiffs, who have
approached the Court contending that the agreements are void
under Section 23 of the Contract Act, cannot seek assistance of
the Court in the enforcement of such illegal contract. For this
purpose, Mr. Kamat placed reliance on the judgment of the
Supreme Court in the case of Narayanamma and another vs.
Govindappa and others13.
On behalf of Defendant No.3:
42. Mr. Naushad Engineer, the learned Senior Advocate for the
Vistra (D3), resisted the prayers in the application, especially the
second application, by canvassing a submission that, on first
10 (1983) 4 Supreme Court Cases 625.
11 (2004) 7 Supreme Court Cases 478.
12 (2005) 9 Supreme Court Cases 733.
13 (2019) 19 Supreme Court Cases 42.
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principles, the plaintiffs cannot be permitted to take a
summersault and seek relief under the transaction documents;
which were alleged to be illegal and void. Mr. Engineer took the
Court through the transaction documents and the correspondence
exchanged between the parties to substantiate the case that Vistra
(D3) invoked the pledge and sold the pledged shares, lawfully. It
was submitted that the notice dated 4 th September, 2023 invoking
the pledge does not suffer from any legal infirmity. The
contemporaneous correspondence indicates that the plaintiffs were
given adequate and efficacious notice as regards defaults in the
performance of their obligations under the transaction documents
and the consequences that would ensue.
43. Mr. Engineer would urge, the contention on behalf of the
plaintiffs that the plaintiffs were not apprised of the due amount is
factually incorrect and, even otherwise, Mr. Engineer would urge,
in law, it was not peremptory to specify the exact amount due
under the pledge. To buttress the submission that the exact
amount due under the pledge need not be mentioned, Mr. Engineer
placed reliance on the judgment of this Court in the case of
Harinarayan G. Bajaj Share and Stock Consultant and another vs.
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Reliance Capital Limited14 and a judgment of Nagpur High Court in
the case of Motilal s/o Babulal vs. Lakhmichand s/o Lalla Prasad
Agarwal15.
44. Mr. Engineer supplemented the submission of Mr. Kamat
that, in the facts of the case, there is no substance in the
submissions on behalf of the plaintiffs that the sale of the pledged
shares to Mayuresh (D1) amounts to conversion. Mr. Engineer
reiterated that, in any event, the alleged conversion does not
invalidate the pledge of the shares under the pledge agreement. In
that event, the pledged shares will return to the trustees. The
plaintiffs would be required to redeem the shares by paying the
entire amount due thereunder. Thus, according to Mr. Engineer,
the purported willingness shown under the second interim
application to pay part of the due amount is of no significance.
Therefore, the plaintiffs do not deserve any relief.
Submission in Rejoinder:
45. Mr. Madon joined the issue by canvassing the submissions
that there was no suppression of material facts, as alleged by the
defendants. Since the facts were known to both the parties,
14 2018 SCC OnLine Bom 42.
15 1942 SCC OnLine MP 36.
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omission by one would not constitute suppression. To buttress
these submissions, Mr. Madon placed reliance on the judgments of
the Supreme Court in the cases of Commissioner of Central
Excise, Nagpur vs. Ballarpur Industries Ltd. 16, M/s. S.J.S.
Business Enterprises (P) Ltd. vs. State of Bihar and Ors. 17 and
Government of NCT of Delhi and another vs. BSK Realtors LLP and
another18.
46. Mr. Madon forcefully submitted that there is no inconsistency
in the case set up in the plaint and the second application. The
prayers in the second interim application are essentially in
elaboration of the prayers in the first interim application. It was
further urged, there is no absolute prohibition for the plaintiffs to
take inconsistent pleas. The plaintiffs can claim alternate reliefs
on the basis of inconsistent allegations, submitted Mr. Madon. A
strong reliance was placed by Mr. Madon on the judgment of the
Supreme Court in the case of Ganesh Prasad vs. Rajeshwar Prasad
and others19.
47. Mr. Madon further submitted that the crux of the matter that
16 (2007) 8 SCC 89.
17 AIR 2004 Supreme Court 2421.
18 (2024) 7 Supreme Court Cases 370.
19 2023 SCC OnLine SC 256.
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the sale of the pledged shares by Vistra (D3), an agent, in favour of
Mayuresh (D1) amounts to self-sale and, thus, conversion, has not
at all been met by the defendants. Laying stress on the value of the
pledged shares and the purported unjustifiability of the claims of
defendant No.1, Mr. Madon would urge, the interest of the plaintiffs
deserves to be protected.
Consideration:
48. To start with uncontroverted facts. Plaintiff Nos.2 to 5 are
the promoters, and together hold 100% share holding in SIPL (P1).
Plaintiff Nos.2 to 5 are the brothers. Plaintiff No.4 is the son of
plaintiff No.2. Plaintiff No.5 is the son of plaintiff No.3. There is
not much controversy over the relations inter se defendant Nos.1
and 2. Welvan (D2) the sister concern of Mayuresh (D1). By and
large, it is not in dispute that plaintiff Nos.2 to 5, on the one part,
and defendant Nos.1 and 2, on the other part, have had other
transactions, apart from the transaction in question.
49. The aforesaid backdrop of business dealings between plaintiff
Nos.2 to 5 and defendant Nos.1 and 2 deserves to be kept in view,
to properly appreciate the controversy between the parties. It
would, therefore, be necessary to have a brief resume of the
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transactions and events that transpired, in three parts. First, the
transactions leading to the agreement for sale dated 13 th October,
2000. Second, the financial dealings between the parties resulting
in the loan agreements dated 20th February, 2021 and Amended
and Restated Loan Agreement dated 29 th July, 2021, and the share
pledge agreement. Third, the consequences that ensued upon the
alleged default on the part of the plaintiffs in the discharge of the
liabilities under those agreements.
50. With regard to the first part, incontrovertibly, Welvan (D2)
had leasehold rights in respect of plot No.86A. Though the parties
are at issue over the manner in which plaintiff Nos.2 and 3 got
involved into IT Park project, yet, it is incontrovertible that, plaintiff
Nos.2 and 3 had evinced interest to acquire the said project
alongwith leasehold rights in plot No.86A. The parties are also at
issue over the consideration for the transfer of the said leasehold
rights by Welvan (D2) in favour of the plaintiffs.
51. Prima facie, two board resolutions passed in the meetings of
plaintiff No.1 dated 1st September, 2020 and 12th October, 2020,
throw light on this aspect of the matter. The board resolution
dated 1st September, 2020 (Exhibit-A to the reply on behalf of
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defendant No.1) clearly records that Welvan (D2) had demanded
Rs.23,03,00,000/- alongwith 25% of the total constructed area of
the project as a consideration. The offer of the plaintiffs was only
Rs.23,03,00,000/-. As the negotiations were underway, it was
resolved to reserve the additional 25% total area to be constructed
in the name of Welvan (D1) and that SIPL (P1) shall demarcate the
said 25% constructed area and no third party rights would be
created in the said 25% constructed area. The resolution further
records that the balance consideration would be paid by 17 th
October, 2020 and delay in payment shall entail interest at the rate
of 24% p.a., compounded quarterly.
52. The second resolution dated 12th October, 2020 (Exhibit-B),
in terms, records that all the Directors approved and initialed the
draft copy of the agreement for sale and it was resolved to
purchase the leasehold rights of Welvan (D2), and all the Directors
had approved the MoU for the reservation of 25% total constructed
area in the project. And that the MoU be executed between Welvan
(D2) and SIPL (P1). The plaintiffs also executed declarations.
Plaintiff Nos.2 to 5, inter alia, agreed to indemnify the payments to
be made to Welvan (D2) pursuant to the agreement for sale and
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MoU (Exhibit-E to the reply).
53. It would be contextually relevant to note that on 26 th
November, 2020 an agreement to earmark the area came to be
executed and registered. Recitals 2 and 3 of the said agreement
indicate that despite the execution of the agreement for sale dated
13th October, 2020, considering the unresolved disputes/existing
issues between the plaintiffs and Welvan (D2), the plaintiffs agreed
to earmark 14706 sq.ft. (136 sq.mtrs. area) between 6 to 13 th floor
of the project and reserve the same in the joint names of the
plaintiffs and Welvan (D2) and that SIPL (P1) will not be entitled to
create any rights over the said earmarked area until the existing
disputes/issues were resolved and settled as recorded between the
parties.
54. A cumulative consideration of the events, leading to the
execution of the agreement for sale dated 13 th October, 2020 and
the area earmarking agreement dated 26th November, 2020,
especially, in the light of the board resolutions dated 1 st September,
2020 and 12th October, 2020, prima facie leads to an inference that
the agreement for sale dated 13th October, 2020 cannot be read in
isolation. The area earmarking agreement is prima facie part and
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parcel of the bargain. This gives heft to the submission on behalf
of the defendants that the obligation under the area earmarking
agreement dated 26th November, 2020 may survive even after the
discharge of the liabilities under the agreement for sale and the
loan agreements. Secondly, the sequence of events and execution
of multiple documents justifies an inference that there were
multiple transactions between the parties and the jural
relationship cannot be appraised through the prism of the lender
and borrower only.
55. This propels me to the second leg of the transactions.
Pursuant to the agreement for sale dated 13 th October, 2020, tri-
parte agreement was executed between the plaintiffs, Welvan (D2)
and CIDCO transferring the leasehold rights in favour of the
plaintiffs. On 26th November, 2020, an affidavit-cum-declaration
was signed by plaintiff No.1 and plaintiff Nos.3 to 5 that the tri-
parte agreement was subject to the terms of agreement for sale
dated 13th October, 2020 (Exhibit-D). Incontrovertibly, under the
agreement for sale dated 23rd October, 2020, the balance
consideration of Rs.8,50,89,365/- was to be paid by 17 th October,
2020 and that the delayed payment would entail interest at the
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rate of 24% p.a.
56. Though there is a serious controversy over the fact as to
whether the plaintiffs agreed to pay interest at the rate of 36% on
the said amount, vide communication dated 26 th November, 2020
(Exhibit-E), which is alleged to be forged by the plaintiffs, the fact
remains that the said balance consideration was not paid. Vide
communication dated 24th May, 2021, indisputably, the plaintiffs
acknowledged the liability to pay the balance consideration of
Rs.8,50,89,365/-. A request was made, however, not to charge
interest on the said amount on account of Covid-19 Pandemic.
Thus, the controversy is restricted to the rate at which the interest
was liable to be paid.
57. Moving to the liability towards Mayuresh (D1), indisputably,
under the loan agreement dated 20th February, 2021, Mayuresh
(D1) agreed to advance a loan of Rs.4 Crore. The Amended and
Restated Loan Agreement to provide finance to the tune of Rs.26
Crores was executed on 29th July, 2021. It would be contextually
relevant to note that on 21st July, 2021, SIPL (P1) passed a board
resolution to avail the term loan not exceeding Rs.26 Crores from
Mayuresh (D1), under the transaction documents, which were
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defined thereunder, on the security, inter alia, of the leasehold
rights of SIPL (P1) in the suit property and pledge of 100% shares
of SIPL (P1).
58. In the backdrop of the aforesaid nature of the transaction,
with a clear understanding about the relationship between
Mayuresh (D1) and Welvan (D2), especially backed by the board
resolutions passed by SIPL (D1), before the execution of each of the
instruments, the bold case of the plaintiffs that the plaintiffs were
not provided the copies of draft agreements before execution and
even after execution, deserves to be appreciated.
59. As noted above, the board resolutions inter alia record that
the directors considered and approved the draft of the instruments
to be executed and it was resolved that all the Directors would be
the executants. On first principles, prima facie, it does not appeal
to human credulity that the plaintiffs would have been coerced to
execute the instruments, without even delivering the copies of the
instruments. The circumstances of the case do not appear to be
such that the SIPL (P1), a corporate entity, found itself in such a
situation that its bargaining power was completely impaired. On
the contrary, an inference becomes sustainable that two corporate
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entities had entered into commercial transactions after weighing
the pros and cons thereof. The claim of the plaintiffs that they
were unaware of the contents of the instruments until after the
dispute arose, therefore, cannot be readily acceded to.
60. Equally untenable is the submission on behalf of the
Plaintiffs that the terms of the contract between the parties are
onerous and extortionate as interest was agreed to be charged @
36% p.a.. It was for the parties to determine as to how best to
regulate their business relations. The mere fact that the interest
was agreed to be paid at a steep rate, by itself, does not imply that
the consent was vitiated by coercion or undue influence. A host of
factors like, liquidity and stringency in money market, credit-
worthiness of the borrower, potentiality of the borrowed capital
generating revenue bear upon the determination of the rate of
interest by the parties.
61. It is trite, a commercial contract must be read and
understood in its entirety so as to attribute to it a business
meaning which was within the understanding of the contracting
parties. Since the execution of the contracts was preceded by the
Board resolutions wherein all the terms, including the rate of
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interest at which the liability was to be discharged, were
considered and approved, the submission that the rate of interest
was usurious and extortionate does not, prima facie, carry
conviction.
62. The second limb of the submission that the contracts are
otherwise unfair and unconscionable also does not advance the
cause of the Plaintiffs. In the case of Central Inland Water
Transport Corporation Ltd. and Anr. V/s. Brojo Nath Ganguly and
Anr.20, the Supreme Court enunciated that the principle that the
Courts will not enforce and will, when called upon to do so, strike
down an unfair and unreasonable contract, or an unfair and
unreasonable clause in a contract, will not apply where the
bargaining power of the contracting parties is equal or almost
equal and where both the parties are businessmen and contract is
a commercial transaction.
63. It is interesting to note that to redeem the pledge, the
Plaintiffs proposed to avail finance from Areion Financers Pvt. Ltd.
@ 24% p.a., compounded on a monthly basis, with a stipulation
for default interest @ 2% pm over and above the regular interest
rate. In effect, in the event of default, the rate of interest would
20 (1986) 3 SC 156
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catapult to 48% p.a.
64. It is in this context, the element of economy in the disclosure
of true and full facts by the plaintiffs assumes significance.
Evidently, the board resolutions, the disclosures made to the
Registrar of Companies, the reference to the restated and amended
loan agreement as the loan agreement in the Articles of
Association of SIPL (P1), were not placed on the record of the
Court. Mr. Madon attempted to salvage the position by canvassing
a submission that the aforesaid documents cannot be said to be
material from the point of view of the determination of the
controversy between the parties and, thus, it would not amount to
suppression.
65. In the case of Bhaskar Jadhav (supra), on which reliance was
placed by Mr. Kamat, the Supreme Court enunciated that it is for
the litigant to come upfront and clean with all material facts and
then, on the basis of the submissions made by the learned
Counsel, leave it to the Court to determine whether or not a
particular fact is relevant for arriving at a decision.
66. In the case at hand, the omission to disclose the aforesaid
documents assumes critical salience as an endeavor was made on
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behalf of the plaintiffs to assert that the instruments were got
executed sans free consent and, thus, vitiated. The passing of the
board resolutions preceding the execution of the instruments and
the subsequent conduct on the part of the plaintiffs in
incorporating those very instruments in the Articles of Association
and reporting the same to the Corporate Regulator materially
erodes the foundation of the plaintiffs such claim. Therefore, the
endeavour of Mr. Madon to wriggle out of the situation by
submitting that those facts and documents, which were allegedly
suppressed were not material does not merit acceptance.
Consequently, reliance by Mr. Madon on the decisions in the cases
of Ballarpur Industries (supra), SSJ Business Enterprises (supra)
and BSK Realtors (supra) does not advance the cause of the
submission on behalf of the plaintiffs.
67. This propels me to the third part of the dispute between the
parties, i.e. pledge, invocation of pledge and the sale of pledged
securities. The share pledge agreement (Exhibit-O to the plaint)
was executed on 5th February, 2022. Under clause 2.1 of the share
pledge agreement, the plaintiff Nos.2 to 5, the pledgors, agreed
and confirmed that for securing the due payment, repayment or
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reimbursement, as the case may be of the outstanding and all
amounts payable thereof in accordance with the terms of the
transaction documents, the pledgors pledged the shares. The
Amended and Restated Loan Agreement dated 29th July, 2021,
defines the “transaction documents” to include, “any other
agreement or document which the lender designates as
“transaction documents”. Under clause 6.1 of the Share Pledge
Agreement, upon the occurrence of event of default the security
trustee was entitled, at its sole discretion, to invoke the pledge on
the collateral and/or transfer or register in its name or in the name
of any other person, as it shall deem fit, all or any of the
collaterals, and sale the collateral in accordance with the clause
6.2.
68. The relevant part of clause 6.2 reads as under:
“6.2 Power of Sale
(a) At any time after the occurrence of an Event of Default and
if the Security Trustee intends to exercise its right of sale, it may
issue a Notice for Sale to the Pledgors. If, within 2 (two) days after
the date on which the Notice for Sale is issued, the Outstandings
have not been discharged in full to the Satisfaction of the Security
Trustee, the Security Trustee may, without prejudice to its other
rights under Applicable Law and under or pursuant to this Pledge
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accordance with this Clause 6.2 and appropriate its proceeds, at
the cost of the Pledgors. The Pledgors agree that such period of 2
(two) days constitutes reasonable notice for the purposes of
Section 176 of the Indian Contract Act, 1872.
(b) Any sale of Collateral made by the Security Trustee
pursuant to this Pledge Agreement may be made without the
intervention of the court and without any consent of or further
notice to any Pledgor at a public or private sale or on any
securities exchange for cash, upon credit or for future delivery or
transfer or procure registration in the name of the Security
Trustee, or any of its nominees at the cost of the Pledgors, as the
Security Trustee may in its absolute discretion deem fit. The
Collateral (or any relevant part thereof) may be sold subject to any
conditions which the Security Trustee may think fit to impose (i)
to any person (including any person connected with the Pledgors
or the Security Trustee); (ii) subject to any conditions which the
Secured Parties may think fit to impose and (iii) at any price
which the Security Trustee in its absolute discretion, considers to
be the best obtainable in the circumstances. The Security Trustee
shall not be obliged to make any sale of the Collateral if it
determines not to do so, regardless of the fact that notice of such
sale may have been given.
(c) The Security Trustee shall not be liable to the Pledgors or
any other person for any costs, losses, liabilities or expenses
relating to the sale of the Collateral or from any act, or omission
of the Security Trustee, or its officers or employees in relation to
the Collateral or in connection with any Finance Document. The
Pledgors shall not have any claim against the Security Trustee in
respect of any loss arising out of any sale pursuant to this Clause
6.2 or any postponement of such sale howsoever caused and
whether or not a better price could or might have been obtained
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Collateral by deferring or advancing the date of such sale or
otherwise howsoever.”
69. The aforesaid clauses, envisage a notice of sale to the
pledgors. The pledgors agreed that the said period of two days
constituted reasonable notice within the contemplation of Section
176 of the Indian Contract Act, 1872 and that the pledgors shall
not have any claim against the security trustee in respect of any
loss arising out of any sale in exercise of the said power.
70. The material on record indicates that the first notice of sale
was issued on 5th September, 2023 to petitioner Nos.1 to 5
recording the events of default, and apprising the plaintiffs that an
offer was received from a third party bidder to purchase the
pledged security for Rs.35 Crores. There is not much controversy
over the fact that the said sale did not materialize and, eventually,
Balaji Enzymes and Chemical Pvt. Ltd., the said bidder, withdrew
the offer on 11th September, 2023, since the conditions subject to
which the offer was made were not accepted by Vistra (D3), the
security trustee.
71. The trigger for the second notice of sale dated 4 th October,
2023 (Exhibit-UU to the plaint) was the bid received from
Mayuresh (D1) the lender to acquire 100% shares of SIPL (P1), the
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borrower, for an aggregate consideration of Rs.15 Crore. By the
said notice, a final opportunity to redeem the pledged shares by
depositing the amount not later than 6 pm on 5th October, 2023,
was given to the Plaintiffs.
72. The invocation of the pledge and the sale of pledged shares to
Mayuresh (D1) is at the heart of the controversy. The submission
on behalf of the plaintiffs that there was no effective notice as the
plaintiffs were not intimated about the exact due amount before
invoking the pledge, need not detain the Court. The
communication dated 9th June, 2023 addressed by Vistra (D3) to
the plaintiffs, specified the outstanding amount then due and
called upon the plaintiffs to timely service the future interest. The
communication dated 31st August, 2023, in terms, documented as
many as seven events of default and made known the intent of the
security trustee to invoke the pledge. The communication in
response to the aforesaid notices by Vistra (D3), by the plaintiffs,
makes the position as to the understanding of the plaintiffs with
regard to their liability absolutely clear. It was, inter alia, informed
that the plaintiffs had cleared all the dues till December, 2022 and
the plaintiffs were committed to pay all legitimate dues. Clause 16
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of the said reply, in the context of the controversy between the
parties, assumes immense significance. It reads as under:
“16. Please share the calculation of interest working on loan of
Rs.18,20,00,000/- and of Rs.8,50,89,365/- delayed charges
interest working. As apparently there seems to be mistake in
working of interest amount. Please specify on what amount at
what rate of interest and for how many days, interest amount is
worked out.”
73. The aforesaid response of the plaintiffs prima facie makes it
clear that the plaintiffs reckoned that the liability was not
restricted to the repayment of the loan under the loan agreement
to the tune of Rs.18,20,00,000/-. And the plaintiffs were also
liable to discharge the balance consideration of Rs.8,50,89,365/-
and the interest thereon. This communication, in a sense,
militates against the stated case of the plaintiffs that the first
transaction of sale of leasehold rights and the second transaction
of availing finances were completely distinct. As noted above, the
entire gamut of the circumstances is required to be appreciated in
the context of the relations between the plaintiffs and defendants
and defendants inter se.
74. In addition, the reply to the second notice of sale, dated 5 th
October, 2023 (Exhibit-UU to the plaint), makes it clear that,
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without prejudice to the stand of the plaintiffs, the plaintiffs had
decided to pay entire outstanding loan amount and in order to
calculate and understand the total outstanding loan amount due
and payable Vistra (D3) was called upon to provide SIPL (P1) the
following details.
“12. In order to calculate and understand the total outstanding
amount due and payable we request you to provide us the
following details:
(i) interest statement on the loan amount;
(ii) ledger statement of the loan amount;
(iii) appropriation of repayment towards principal and interest
done by you/Security Trustee towards the loan amount;
(iv) interest statement on the amount payable to M/s. Welvan
Securities Private Limited;
(v) appropriation of repayment towards principal and interest
done you M/s. Welvan Securities Private Limited towards the
amount due to M/s. Welvan Securities Private Limited;
(vi) statement of levy of delay/default charges, if any.”
75. The aforesaid reply on behalf of the plaintiffs again
underscores the fact that the parties acknowledged that the
balance consideration payable under the agreement for sale was
paid by Mayuresh (D1) to Welvan (D2), as is evident from the
extract of account, and the plaintiff agreed to secure even the said
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payment by way of pledge of the shares. Therefore, the
submissions on behalf of the plaintiffs that there was no adequate
notice of the due amount, and the outstanding amount under the
agreement for sale could not have been taken into account, prima
facie, do not merit acceptance.
76. Nor the submission of Mr. Madon that despite the offer to pay
the outstanding amount, the sale was effected and, therefore, it is
infirm, carries substance. The number of notices issued by Vistra
(D3) calling upon the plaintiffs to remedy the events of default and
pay the outstanding amount, coupled with the fact that the
amounts were not tendered, sustain an inference that the offer to
pay the outstanding amount was not backed by the concrete action
of payment.
77. This takes me to the pivotal issue of the legality of the sale in
favour of Mayuresh (D1). As noted above, Mayuresh (D1) evinced
interest after Balaji Enzymes and Chemical Pvt. Ltd. withdrew the
offer. Under clause 8 of the offer letter dated 27 th September, 2023
Mayuresh (D1), informed Vistra (D3) that it proposes to acquire
100% of the invoked pledged shares alongwith the project, and set
off dues aggregating to INR 15 Crore and the balance outstanding
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facility shall continue to be due and payable by the borrower to the
lender. Whether the security trustee could have accepted the said
offer and sold the pledged security to the lender, is the moot
question.
78. The challenge to the sale of the pledged security in favour of
the lender is three-fold. First, it amounts to conversion. Second,
there is no real sale as there was no parting of consideration and
the set off is impermissible. Third, the sale of the pledged security
was at gross under-valuation.
79. On the first count, Mr. Madon would urge, the legal position
is settled by the judgment of the Supreme Court in the case of PTC
Financial Services Limited (supra). In the said case, the Supreme
Court considered the question at to whether the Depositary Act,
1996 has the legal effect of overwriting the provisions relating to
the contracts and pledge under the Contract Act, 1872 and the
common law as applicable in India. After an exhaustive reference
to the decisions, which bear upon the sale of the pawn by the
pawnee to self and the divergence in the views of the High Courts
over the sale of the pawn by the pawnee to self, the Supreme Court
enunciated the law as under:
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“(v) Sale of the pledged goods by the pawnee to self
64. Dictum in the above judgments and Section 177 of the
Contract Act, which confers on the defaulting pawnor the right to
redeem the pledged goods till “actual sale”, does not support
pawnee’s sale to self. Sale to self would in terms of the judgment
in Official Assignee of Bomay v. Madholal Sindhu‘ (1946 SCC
OnLine Mad 62) is a case of conversion and not “actual sale”, and
therefore, would not affect the pawnor’s right to redemption under
Section 177 of the Contract Act. Judgment of the Calcutta High
Court in Haridas Mundra v. National & Grind-Lays Bank Ltd.
(1962 SCC OnLine Cal 184) also states this rule. Earlier, the Privy
Council in Neikram Dobay v. Bank of Bengal (1891 SCC OnLine PC
25), observed that the sale of goods by the bank as the pawnee to
itself is unauthorized but did not entitle the pawnor to have the
goods back. The pawnor would be required to pay back the debt
for which the goods were pledged as security to redeem the goods.
If the loan remains unpaid after the demand, the pawnee is
entitled to sell the goods and credit the proceeds towards the
outstanding debt. After the goods are sold to a third party, the
pledge ends. The pawnee in such cases would be liable if he fails
to credit the loan account with the proceeds on the sale of the
pawned goods. The pawnee may also be liable, subject to the
contract, for damages for converting the goods for his use.
65. Several other High Courts have similarly opined and we
agree that the Contract Act does not conceive of sale of the pawn
to self and consequently, the pawnor’s right to redemption in
terms of Section 177 of the Contract Act survives till “actual sale”.
In Ramdeyal Prasad v. Sayed Hasan, (1943 SCC OnLine Pat 50)
the Patna High Court has held that the sale by the pawnee to
himself of the securities pledged is void; it does not put an end to
the contract of the pledge to entitle the pawnor to recover the
goods without payment of the amount thereby secured, nor does it
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entitle the pawnor to damages. The pawnor is bound by the resale
duly effected by the pawnee to third persons. However, where the
pawnee has erroneously represented to the pawnor before such
resales that the securities have been sold and, therefore, no longer
available for redemption, the pawnee becomes liable for the value
as conversion.
66. A Division Bench of the Madras High Court in S.L.
Ramaswamy Chetty and Another v. M.S.A.P.L. Palaniappa
Chettiar, (1929 SCC OnLine Mad 62) relying upon the decision of
the Privy Council in Neikram Dobey v. Bank of Bengal (1891 SCC
OnLine PC 25), opined that where the pawnee has the power to
sell in default, takes over upon himself the property pledged
without the authority of the pawnor by crediting its value in the
account with him, this act, though an unauthorized conversion
would not put an end to the contract of pledge.
67. There is one solitary judgment of the single judge of the
Punjab and Haryana High Court in Dhani Ram and Sons v. The
Frontier Bank Ltd. and Another, (1961) SCC OnLine Punj 81)
which holds that the sale of the pawned goods by the pawnee to
himself is not void, and the pawnee was held to be the legal owner
of the pledged shares. This decision proceeds with the incorrect
understanding of the ratio in Neikram Dobay (supra), and thus,
we deem it appropriate to overrule this ratio in Dhani Ram and
Sons (supra).
……..
105. Regulation 58(8) entitles the pawnee to record himself as a
‘beneficial owner’ in place of the pawnor. This does not result in an
‘actual sale’. The pawnee does not receive any money from such
registration which he can adjust against the debt due. The pledge
creates special rights including the right to sell the pawn to a
third party and adjust the sale proceeds towards the debt in terms
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of Section 176 of the Contract Act. The reasoning that prior notice
under Section 176 of the Contract Act would interfere with
transparency and certainty in the securities market and render
fatal blow to the Depositories Act and the 1996 Regulations is far-
fetched as it fails to notice that the right of the pawnee is to realise
money on sale of the security. The objective of the pledge is not to
purchase the security. Purchase by self, as held above, is
conversion and does not extinguish the pledge or right of the
pawnor to redeem the pledge. Equally, it may be a disincentive for
both the pawnor and the pawnee in many cases, if we accept this
interpretation and ratio, which would inhibit them from entering
into a transaction creating a pledge. Difficulties and disputes
regarding price, valuation, right to redemption etc. could
invariably arise. There would also be difficulties in case the
dematerialised securities are not traded as in the present case.”
(emphasis supplied)
80. The Supreme Court has enunciated in clear and explicit
terms that the Contract Act does not conceive a sale of the pawn to
self and, consequently, the pawnor’s right to redeem in terms of
Section 177 of the Contract Act survives till “actual sale”. The
objective of the pledge is not to purchase the security. Purchase by
self is conversion and does not extinguish the pledge or the right of
the pawnor to redeem the pledge.
81. The endeavour of Mr. Kamat to distinguish the aforesaid
judgment on the ground that, in the instant case, there is an
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independent security trustee and, thus, it cannot be said that the
pawnee has resorted to self sale, appears attractive, at the first
blush. However, the submission would warrant a judicious
scrutiny keeping in view of the substance of the matter. Absent
the intervention of security trustee, the sale clearly falls within
the dragnet of the mischief of conversion. In the case at hand, the
concomitant circumstances cannot be lost sight of. It is not the
case that Mayuresh (D1) did compete with other bidders. In fact,
upon the non-materialization of the first bid, under a fortnight,
Mayuresh (D1) offered to purchase the pledged security for a
consideration of Rs.15 Crore, by way of set off against the dues
owed by the plaintiffs to Mayuresh (D1). In such circumstances,
the second and third count of challenge to the validity of the sale
also come to the fore. In effect, the price of pledged security, as
determined by Mayuresh (D1), itself, was set off against the debt
owed by plaintiff No.1 to Mayuresh (D1). The agency of security
trustee, in the circumstances of the case, prima facie, does not
seem to have made any qualitative difference.
82. As regards the value fetched by the sale of the pledged
security, the submission of Mr. Engineer, the learned Counsel for
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Vistra (D3) that, under the pledge agreement Vistra (D3) was not
liable to find out the market value of the pledged shares and was
entitled to sell the pledged shares at the best value available, is
required to be appreciated in the face of the contemporaneous
circumstances. Evidently, a month prior to the sale in favour of
Mayuresh (D1), an offer to purchase the pledged security for Rs.35
Crore was received. The time-lag was too short to erode the value
of the pledged security by more than half. Moreover, Vistra (D3)
prima facie does not seem to have considered whether the
consideration of Rs.15 Crore, offered by Mayuresh (D1), was
optimum and the best value available. All these issues, would
undoubtedly merit adjudication at the trial. However, the plaintiffs
have succeeded in making out a prima facie case to assail the
legality and validity of the sale in favour of Mayuresh (D1).
83. The submissions on behalf of the defendants that on account
of suppression of facts and the breach of obligations, the plaintiffs
are not entitled to any relief, in my considered view, is unworthy of
acceptance. The challenge to the sale of the pledged security by
Vistra (D3) on the three counts, noted above, stands on a
completely different footing. The taint of suppression of facts, does
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not get attracted to the factum of sale, as such, for the challenge is
essentially to the justifiability of the action of Vistra (D3), in selling
the pledged security, and Mayuresh (D1), in purchasing the
pledged security, in its character as the real pledgee. The challenge
to the sale of pledged security on the aforesaid counts is, prima
facie, sustainable despite the failure on the part of the Plaintiffs to
make out the case that the instruments were illegal and void.
84. Does the aforesaid prima facie finding entitle the Plaintiffs to
seek redemption of the pledge, at an interim stage? The Court has
to be alive to the fact that the Plaintiffs are seeking redemption by
offering to pay the amount which they consider to be due, and not
according to the terms of the instruments. There is substance in
the submission on behalf of the defendants that the plaintiffs will
have to encounter an impediment of seeking the enforcement of
the very instruments, which were stated to be illegal and void.
85. The aforesaid consideration would indicate that the claim of
the plaintiffs that the instruments in question were got executed
without their free consent are not, prima facie, borne out by the
material on record. On the contrary, there is voluminous material
to show that the plaintiffs have acknowledged the execution of the
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instruments and even acted upon them. The board resolutions
furnish the prelude to the due execution of the instrument. The
reporting and disclosures before the regulatory authorities,
constitute the sequel to the due execution of the instruments. In
addition, there are documents which evidence the payment of
interest in accordance with the terms of the contract between the
parties. The plaintiffs had deducted TDS on the said interest as
well. Moreover, the communications addressed by the plaintiffs on
31st August, 2023 and 5th October, 2023, adverted to above, in a
sense, constitute the acknowledgment of the liability.
86. In the face of the aforesaid material, at this stage, the Court
cannot delve into the rival claims as to the exact amount due and
payable, under the instruments. The question as to whether the
interest was payable on the agreed terms, whether the plaintiffs
had agreed to pay interest on the balance consideration at the
enhanced rate of 36% p.a., vide communication dated 26 th
November, 2020, whether the said letter dated 26 th November, 2020
is forged, as alleged, and the correctness of the various amounts
claimed to be due and payable by the plaintiffs to defendant No.1
as shown in the table (Exhibits-H and I appended to the affidavit-
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in-reply dated 18th June, 2024), are all matters for evidence and
trial. Therefore, at this interlocutory stage, this Court would not
be justified in entertaining the prayer to direct the defendants to
accept the amount, as computed by the plaintiffs, towards the full
and final settlement of the claim of the defendants.
87. The upshot of the aforesaid consideration is that, the
plaintiffs have succeeded in making out a prima facie case as
regards the component of legality and validity of the sale of the
pledged security by Vistra (D3) in favour of Mayuresh (D1). It is
true, even if the said sale is declared to be illegal and void, the
pledge would not come to an end. However, the interest of the
plaintiffs with regard to the pledged security deserves to be
adequately protected, during the pendency of the suit, lest further
transfer of the pledged security by Mayuresh (D1) would cause
prejudice to the plaintiffs and also lead to multiplicity of the
proceedings. Therefore, a limited interim relief in terms of prayer
clause (d) (i) of IA(L)/400/2024 deserves to be granted.
88. Hence, the following order:
:ORDER:
(A) IA(L)/14838/2024 stands rejected.
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(B) IA(L)/400/2024 stands partly allowed in terms of prayer
clause (d(i)) only in the following terms :
(i) Mayuresh (D1), its agent or any person claiming under it, is
restrained by an order of temporary injunction from
alienating, disposing of, encumbering, creating any third
party rights in or parting with possession of, the pledged
shares, till the final disposal of the suit.
(ii) Rest of the prayers in IA(L)/400/2024 stand rejected.
(iii) Costs in cause.
( N.J.JAMADAR, J. )
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