2015 (3) TMI 1371 - HC - Indian Laws

Court affirms loan agreement, dismisses alternative claim, grants money decree for pledged shares.

The court affirmed the existence of an agreement between the parties, confirming the plaintiff's loan to the defendant against pledged shares. The ... Suit for recovery of money lent and advanced against pledge of shares - security of shares pledged by the defendant with the plaintiff - agreement between the plaintiff and the defendant or not - Did the plaintiff lend and advance any amount pursuant to such agreement? - agreement between the parties or not - HELD THAT:- The nature of transactions between the parties is not disputed. The parties agree that the plaintiff had agreed to grant and did in fact grant a loan of ₹ 1,10,00,000/-to the defendant against the pledge of Himachal Futuristic Company Limited (HFCL) shares. The defendant had pledged the HFCL shares belonging to it with the plaintiff. However, the defendant had transferred the HFCL shares to the plaintiff by transferring such shares to the dematerialized account maintained by the plaintiff - The parties differ as to the rate of interest payable by the defendant to the plaintiff and as to whether or not the payment of ₹ 1,68,000/- made on April 20, 2001 by the defendant to the plaintiff was on account of full and final settlement of the claim of the plaintiff against the defendant or whether the same was payment on account of interest for the period up to March 31, 2001 as contended by the plaintiff. Both the witness in evidence stated that the plaintiff used to lend and advance sums the defendant against pledge of shares and payment of interest. The rate of interest is however disputed. The plaintiff claims varying rates while the defendant contends that the rate of interest was agreed to be 18% per annum - the issue has to be answered by holding that there was an agreement between the parties. Existence of money lend and advance exists or not - HELD THAT:- The defendant in its written statement as well as in evidence through its witness admits that the receipt of the sum of ₹ 1,10,00,000/- from the plaintiff as loan. The defendant however claims to have repaid the same - has to be answered by holding that the plaintiff did lend and advance of ₹ 1,10,00,000/- to the defendant pursuant to such agreement - Thus, it can be safely concluded that there exists agreement between the parties. Service of notice - Did the defendant receive the notice dated 14th January, 2002? - HELD THAT:- Exhibit ‘J’ was sought to be served on the defendant both at his residential address as well as at his office address by Speed Post with the acknowledgement due card. The plaintiff has established that the letter being Exhibit ‘J’ was duly despatched by Speed Post to the correct address of the defendant at his residential and office addresses. The defendant did not claim Exhibit ‘J’ at its residential address and the envelope addressed to the office address was not received by the defendant as its office had remained closed. The facts established allows a finding of deemed service of the notice dated January 14, 2002 on the defendant - Issue answered in the affirmative and against the defendant. Was the plaintiff entitled to sell the shares pledged by the defendant to the plaintiff as security for the loan rendered by the plaintiff to the defendant of a sum of ₹ 1,10,00,000/-? - HELD THAT:- In the present case, the shares pledged were sold in the stock market within the parameters of the quoted prices for the shares prevailing on the date of the sale. The defendant has not questioned the sale of the shares per se. The defendant questions the date of the sale of the shares. Such question has no substance in the facts of this suit as the sale was undertaken after notice to the defendant - issue is answered in the affirmative and in favour of the plaintiff. Did the plaintiff receive the letters dated 7th February, 2001 and 20th April, 2001? - HELD THAT:- The witness of the defendant claims himself to be the accountant of the defendant. Such witness claims that Mr. Govind Kedia has told the defendant that Exhibits ‘6’ and ‘7’ were handed over by Mr. Govind Kedia to the plaintiff. The defendant claims that Mr. Govind Kedia to be the agent of the plaintiff. No documentary evidence has been placed on record by the parties to establish that Mr. Govind Kedia was the agent of the plaintiff. The witness for the defendant in its oral testimony says that Mr. Govind Kedia has acted as an agent of the plaintiff. Mr. Govind Kedia has not been called as a witness. The whereabouts of Mr. Govind Kedia is not known to the witness of the defendant. The evidence of the witness of the defendant is hearsay and cannot be relied upon - The defendant has therefore failed to establish that the plaintiff had received the letters dated February 7, 2001 and April 20, 2001 being Exhibits ‘7’ and ‘6’ respectively - issue answered in the negative and in favour of the plaintiff. Is the plaintiff entitled to decree as claimed in the plaint? - HELD THAT:- The loan for the sum of ₹ 1,10,00,000/- is admitted. The value of the sale of pledged shares is ₹ 8,55,400/-. The defendant is, therefore, entitled to the adjustment of the value of the pledged shares with the principal amount outstanding. Therefore, the principal amount outstanding is ₹ 1,01,44,600/-. The defendant has paid interest upto March 31, 2001. The nature of transactions between the parties is commercial. The nationalized banks charge interest at rates not less than 12 per cent per annum in respect of commercial transactions. In such circumstances, the plaintiff is entitled to interest at the rate of 12 per cent per annum on and from April 1, 2001 until realization on the sum of ₹ 1,01,44,600/-. The plaintiff is, therefore, entitled to a decree for ₹ 1,01,44,600/- together with interest at the rate of 12 per cent per annum on such sum on and from April 1, 2001 until realization. Other reliefs? - HELD THAT:- The plaintiff has paid a Court-fees of ₹ 10,000/-. The plaintiff will therefore be entitled to a decree of ₹ 20,000/- as assessed costs from the defendant. Application disposed off. Issues Involved:1. Existence of an agreement between the plaintiff and the defendant.2. Existence of an agreement as alleged by the defendant.3. Receipt of notice dated January 14, 2002, by the defendant.4. Entitlement of the plaintiff to sell the pledged shares.5. Entitlement of the plaintiff to the decree claimed.6. Receipt of letters dated February 7, 2001, and April 20, 2001, by the plaintiff.7. Other reliefs entitled to the plaintiff.Detailed Analysis:Issue 1: Existence of Agreement Between Plaintiff and DefendantThe plaintiff contended that it lent Rs. 1,10,00,000 to the defendant against the pledge of shares. The defendant admitted the loan but claimed to have repaid it. Evidence showed that the plaintiff advanced the sum between June 2000 and January 2001, and the defendant pledged shares as security. The defendant paid interest up to March 31, 2001. The plaintiff's ledger (Exhibit 'O') was used to substantiate the transactions. The court held that there was an agreement between the parties as stated in the plaintiff's paragraphs 1, 2, and 3. Thus, issue 1(a) was affirmed, and issue 1(b) was confirmed that the plaintiff lent the amount pursuant to such agreement.Issue 2: Existence of Agreement as Alleged by DefendantThe defendant's contention of an alternative agreement was dismissed. The court found no evidence supporting the defendant's claim of a different agreement. Issue 2 was answered in the negative and against the defendant.Issue 3: Receipt of Notice Dated January 14, 2002The plaintiff issued a demand letter on January 14, 2002, which the defendant claimed not to have received. The court found that the notice (Exhibit 'J') was sent via Speed Post to both the residential and office addresses of the defendant. The residential address envelope was marked 'not claimed,' and the office address envelopes were returned with endorsements indicating the office was closed. The court deemed the service of notice as valid, thus answering issue 3 in the affirmative and against the defendant.Issue 4: Plaintiff's Entitlement to Sell Pledged SharesThe plaintiff argued that under Sections 172 to 177 of the Contract Act, 1872, it was entitled to sell the pledged shares. The defendant contended that the plaintiff failed to mitigate damages under Section 73 of the Contract Act, 1872. The court referenced multiple cases (Sankaranarayana Iyer Saraswathy Amal, Racmann Auto (P) Ltd., Smt. Neela Ashok Naik & Anr.) affirming the pledgee's right to sell the pledged shares. The court found no evidence of improper sale or failure to mitigate damages. The shares were sold at market prices after reasonable notice. Thus, issue 4 was answered in the affirmative and in favor of the plaintiff.Issue 5 and 6: Entitlement to Decree and Receipt of LettersThe plaintiff sought a money decree after adjusting the sale proceeds of Rs. 8,55,400 from the principal amount of Rs. 1,10,00,000, leaving Rs. 1,01,44,600. The defendant presented letters dated February 7, 2001, and April 20, 2001, claiming they instructed the plaintiff to sell the shares. The court found no credible evidence that these letters were received by the plaintiff. The defendant failed to prove the letters' delivery, and the court dismissed the defendant's claim. Thus, the plaintiff was entitled to the decree for the outstanding amount with interest at 12% per annum from April 1, 2001, until realization. Issues 5 and 6 were answered in favor of the plaintiff.Issue 7: Other ReliefsThe plaintiff paid a court fee of Rs. 10,000 and was entitled to assessed costs of Rs. 20,000 from the defendant. The court decreed C.S. No. 113 of 2002 accordingly and directed the department to draw up and complete the decree expeditiously.