TaxTMI 
TaxTMI 
2019 (2) TMI 1965
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....tituting approximately 9% of the listed capital of Reliance Power Limited (RPL) and approximately 2% of Reliance Communications Limited (RCOM) created in favour of defendant no. 5 (the debenture trustee) by plaintiff no. 1 and plaintiff no. 2. Plaintiffs are both promoter companies of RPL a listed company of the Reliance ADAG group of companies alongwith other entities. Similarly RCOM is also a part of Reliance ADAG group of companies. 2. On 14th August 2017, it is stated in the plaint, plaintiff no. 1 had entered into a Term Sheet with defendant no. 3 for a proposed issue of redeemable non-convertible debentures by plaintiff no. 1 to defendant nos. 1 and 2 and its subsidiaries, affiliates, assignees and other co-investors. These debentures were to have an interest coupon of 10% p.a. payable on half yearly basis. The debentures were to be redeemable after a period of five years and were to be secured by a pledge of shares held by plaintiff no. 1 and other promoter group companies. 3. Pursuant to the Term Sheet, on 6th October 2017, plaintiff no. 1 issued two series of debentures, i.e., Series A and Series B for an aggregate amount of Rs. 300 Crores (Series A of Rs. 150 Cro....
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....ng to or purchasing the Debentures and to secure the repayment of the Debt, the Company agrees and shall procure that the following Security Interests shall be created in favour of the Trustee for the benefit of the Secured Parties: (a) a first ranking and exclusive pledge by the Security Providers pursuant to the RPL Share Pledge Agreement; (b) a first ranking and exclusive pledge by the Security Providers pursuant to the RCOM Share Pledge Agreement; and (c) signed post-dated cheques (in relation to the Interest payments) and the signed undated cheques (in relation to the principal redemption payment and the Assured IRR payments) issued by the Company as security in relation to the payment of Debt along with the letter in the form provided in Schedule 11 (Letter for Cheques). 11. EVENTS OF DEFAULT Each of the events or circumstances set out in the following sub-clauses of this Clause 11 (other than Clauses 11.27 (Consequences of Event of Default), 11.28 (Trustee to be Indemnified) and 11.29 (Fees and Expenses)) is an Event of Default. 11.19 Downgrade in credit rating of RPL The credit rating of RPL granted by ICRA Limited is downgraded below BBB. 11.23 Pled....
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.... or CRILC; (vi) disclose or publish the name of the Company and the other Security Providers, the Company and the other Security Providers' directors, as willful defaulter in such manner and through such medium as the Trustee in its absolute discretion may think fit and also inform other lenders about such default by the Company and the other Security Providers, the Company and the other Security Providers' directors; (vii) appoint and remove from time to time Nominee Director and/or Observer; (viii) take such other action, or exercise such rights, as the Trustee may deed fit, under Transaction Documents or Applicable Law." 4. Clause 3.1 (c) of the Schedule 7 of the Debenture Trust Deed reads as under: 3.1 (c) In the event that at any time there is a fall in the Closing Price (as adjusted for any relevant corporate actions, including but not limited to stock splits, bonus issues and mergers, but excluding dividend declarations) of either of the RPL shares or the RCOM shares by 30% (Thirty Percent) or more from the respective Closing Price of the RPL shares or the RCOM shares, as on the Deemed Date of Allotment: (i) immediately upon such event having occurr....
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....fective Date, all of its right, title, interest, benefits, claims and demands whatsoever to or in respect of the Pledged Securities upon the terms and conditions set forth in this Agreement. (b) Within 1 (one) day of the Effective Date, each Pledgor shall, at its cost and expense: (i) cause its Pledgor DP to mark and confirm the Pledge in favour of the Trustee and issue such requests including the Pledge Form; (ii) deliver a duly executed and notarized Power of Attorney to the Trustee; and (iii) sign such documents and do all such acts, deeds and things as shall be required under the Depositories Regulations and other Applicable Laws or by its Pledgor DP for the creation and perfection of the Pledge. (c) Within 1 (one) day of the Effective Date, each Pledgor shall confirm the creation of Pledge to the Trustee and deliver a copy of the (i) statement of accounts issued by its Pledgor DP and (ii) Pledge Report obtained from its Pledgor DP indicating the record and entry for the pledge in respect of the Pledged Securities pledged by it. (d) Upon receipt of the aforesaid intimation, the Trustee shall cause the Trustee DP to mark and confirm the Pledge in favour of the ....
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....lateral, the amounts realized is in excess of the amounts payable towards the full satisfaction of the Debt, then such excess amounts shall be released in favour of, or accrue to the benefit of, the Pledgors. 14. NOTICES 14.1 Unless otherwise stated, all notices, approvals, instructions and other communications for the purposes of this Agreement may be given by facsimile or by courier or by personal delivery or in electronic form or by sending the same by prepaid registered mail, addressed to the party concerned at its address or the fax numbers or e-mail address set out herein and/or any other address subsequently notified to the other Party with a period of 5 (five) days from any change thereof. For the purposes of this clause, each communication shall be deemed to be effective (a) in the case of registered mail, when delivered to the postal authority, (b) in the case of facsimile at the time when dispatched with a report confirming proper transmission, (c) in the case of personal delivery, at the time of delivery, (d) in case of courier, when delivered to the courier, and (e) in case of e-mail, at the time when it is sent." 6. It is also plaintiffs case that from 9th....
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....i Chinoy submitted, as per contract, share sale could have been initiated only by defendant no. 5, Trustee of defendant nos. 1 to 4, the debenture holders and not the debenture holders themselves. In this case, defendant nos. 1 to 4 sold the shares through their brokers on 5th February 2019 and later in the defendant no. 5 sold those shares at a lower price to defendant nos. 1 to 4. For all these reasons, the sale must be declared void by the Court and further sale should be prevented. Prayer clause (a) in the notice of motion reads as under: (a) pending the hearing and disposal of the present suit, this Hon'ble Court be pleased to pass an order of temporary injunction restraining the defendants, their employees/servants/agents or any other persons directly or indirectly acting for or on behalf of the defendants, from selling, transferring, alienating or encumbering in any manner whatsoever the unsold pledged securities pursuant to the invocation notices or otherwise. What plaintiffs are seeking is to stop defendants from exercising their rights under the contract and applicable law because according to plaintiffs, by selling the shares in one day, defendants have caus....
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....d those rights were expressly reserved, though there was no need to, in the communications addressed to plaintiffs. It was also submitted that on 1st February 2019 when the Chairman of RCOM, which is one of the flagship companies of Reliance ADAG group and its shares are also pledged, made a public announcement that he was filing for bankruptcy, in one day the share price of RPL went down by 35%. Counsel also submitted that even after selling the shares, plaintiffs still owe more than Rs. 200 Crores to defendants. It was also submitted that even assuming for the sake of argument what plaintiffs state is correct that they suffered loss, harm and damage in the sum of Rs. 274 Crores as a result of the sale/transfer of pledged shares, still it will be only a claim for damages that plaintiffs can seek and as held in Union of India V/s. Raman Iron Foundry (1974) 2 SCC 231 a claim for damages for breach of contract is not a claim for a sum presently due and payable and the claimant is not entitled to recover the amount of such claim unless the claim is proved. It was also submitted that plaintiffs have made a disclosure to the Stock Exchange on 7th February 2019 that 21.05 Crores of share....
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.... pay default interest at 2% p.a. in addition to the agreed rate of 10% p.a. interest. By the said notice, defendant no. 5 also reserved all the rights and remedies in addition to Clause 3.4 of the Debenture Trust Deed, under the transaction documents including the right to have plaintiffs redeem all the outstanding debentures in full and repay the debt, including the entire outstanding amount on the debentures alongwith payment of interest, default interest, the redemption premium etc. 14. Clause 11.23 (g) of the Debenture Trust Deed also provided for another event of default and that is, if there is a fall in the Closing Price (as adjusted for any relevant corporate actions, including but not limited to stock splits, bonus issues and merges, but excluding dividend declarations) of either of the RPL shares or the RCOM shares by 40% (Forty Percent) from the respective Closing Price of the RPL shares or the RCOM shares, as on the Deemed Date of Allotment. 15. On 9th October 2018, defendant no. 5 informed plaintiffs that there has been a fall in the closing price on 8th October 2018 of RPL shares by 40% from the deemed date of allotment of 9th October 2017, thereby triggering an....
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....be first appropriated towards default interest. On 1st November 2018, defendant no. 5 called upon plaintiffs to immediately pay the default interest at 2% p.a. compounded monthly till the date of payment. Admittedly, there is no reply even sent by plaintiffs to any of these communications, forget suggesting any course corrections. 18. According to Shri Chinoy right from August 2018 parties have been in discussion. That is neither here nor there. Shri Chinoy submitted that the ICRA downgrading has been contested by plaintiffs. There is no such averments in the plaint nor is there any document to show that there was a challenge to the downgrading by ICRA. I have to note that Shri Joshi appearing for defendant no. 2 tendered an extract of rating action issued by ICRA on 19th November 2018 for RPL in which it is stated that ICRA has moved the rating of RPL to the "ISSUER NOT CO-OPERATING" category due to non-submission of monthly "No Default Statement (NDS)". ICRA has been, it is stated, consistently following up with RPL for obtaining the monthly NDS and had also placed the ratings under review due to non submission of NDS in the month of October 2018, but still RPL's man....
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....plicable law and Section 176 says reasonable notice has to be given. Therefore, stand of plaintiffs smacks of deceit. Plaintiffs attempt is to mislead. At no point after occurrence of events of default, did plaintiffs (when according to Shri Chinoy plaintiffs were in discussion with defendants) ask for increasing the notice period. Plaintiffs don't pay default interest, don't top up the security ratio, don't even tell defendants how they are going to make good, don't even reply to letters from plaintiffs and now take a mendacious stand that notice period in the contract was not reasonable. It is not plaintiffs case that plaintiffs were coerced or forced fraudulently made to sign the contract. Plaintiffs are not illiterate or a small party. It is settled law that when a person signs a document, there is a presumption, unless there is proof of force or fraud, that he has read the document properly and understood it and only then he has affixed his signatures thereon. Otherwise no signature on a document can ever be accepted. In Grasim Industries Ltd. & Anr. V/s. Agarwal Steel (2010) 1 SCC 83 the Apex Court observed "..... In particular, businessmen, being careful peop....
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....176 makes it clear that it is the discretion of the pledgee to sell the pledged goods (shares in this case) in case the pledgor makes default and if the pledgee exercises that discretion or does not exercise that discretion, no blame can be put on the pledgee. What is required is if pledgee decides to exercise its discretion to sell, it has to give reasonable notice of sale to pledgors. In this case, defendants have given reasonable notice as observed earlier. I find support in National Securities Clearing Corporation Ltd. V/s. Prime Broking Company (India) Ltd. [Unreported judgment dated 28th June 2016 in Company Petition No. 3 of 2015] Paragraph 23 and 24 of the said judgment read as under: 23. Even otherwise, I find, that the law as far as Section 176 is concerned, is quite well settled. The law, as I understand it, is that a pledgor cannot compel a pledgee to exercise the power of sale as a means of discharge or to satisfy the debt. The pledgor's rights are only (i) in case the Pledgee exercised the power of sale, to insist that it should be honestly and properly done and the sale proceeds applied to the debt; (ii) in case the pledgee did not exercise the power of sale, ....
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.... has the right to bring a suit for recovery of the debt and retain the goods pledged as collateral security. Doubt was also expressed whether a defendant as pawnor could force the pawnee to dispose of the pledged goods without defendant clearing the debt. However, on the facts of the present case, we need not go into this latter aspect on which doubt has been expressed. It has been categorically held in the cited decision that it is the discretion of the plaintiff-Bank to have filed the suit for recovery of the debt and retain the pledged goods as collateral security or in the alternative it could resort to selling the pledged goods after giving reasonable notice of sale to the defendants. In that case the plaintiff-Bank had in its wisdom exercised the first option of filing the suit and retaining the collateral security. 13. We are in respectful agreement with the legal proposition propounded in the aforesaid decision and thus there would be no question of judicious or arbitrary exercise of discretion by the Bank as to the time of appropriation of the amount from the collateral security to it in the form of FDRs. 14. In the Gulamhusain Lalji Sajan v. Clara D'souza, AIR 1....
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....ept this contention of learned counsel as well. The fact of the said appropriation will not change the legal position that the Bank is not obliged to make appropriations month by month which is the effect of the impunged judgment. It may be noticed that Mr. Nadkarni explains that earlier appropriation of Rs. 9500/- was made on the maturity of the Fixed Deposit Receipts." 24. It is therefore clear that a pledgee has the discretion to decide whether he wants to sell the pledge security; when to sell it; and how much of it to sell. The pledgor cannot dictate terms to the pledgee on how he is to exercise his right. If this is the correct position in law, and that is how I understand it, then, I find at least prima facie that the claim for damages on account of the Petitioner failing to sell all 20,00,000 Gitanjali shares between 19th March, 2013 and 27th April, 2013, cannot succeed in law. In fact on a perusal of the Plaint filed in Suit (L) No. 939 of 2013, at least to my mind, it is clear that the claim for damages is made on account of the Petitioners' failure to sell all 20,00,000 shares of Gitanjali between the period 19th March, 2013 and 27th April, 2013. It is not the cas....
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....of the Trustee, any debenture holder or any of their respective nominees; (ii) appropriate the pledged securities in the name of the debenture holders, their nominees in lieu of any debt; and/or (iii) without any intervention of Courts, sell or otherwise dispose of any pledged securities and/or the collateral in such manner, at such times, and for such considerations as the Trustee in its commercial opinion thinks fit and at its absolute discretion it may think fit. When the contract was entered into plaintiffs found these clauses perfect, but now are finding it unacceptable. I find nothing wrong in what defendants did. 26. It has to be noted that the Debenture Trust Deed states the Trustee can, after giving a written notice of one business day to the pledgors (each pledgor acknowledges and agrees to be reasonable notice under applicable law), take any of the action as quoted and dealt with earlier. Plaintiffs while entering into the Debenture Trust Deed found one business day was reasonable notice. Two event of defaults were communicated to plaintiffs, one in August 2018 and other on 9th October 2018 and plaintiffs have taken no steps to rectify those event of defaults. Plainti....