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2018 (7) TMI 2271 - NATIONAL COMPANY LAW TRIBUNAL HYDERABADInvocation of the pledged shares by PFS - compliance of Section 176 of the Contract Act or not - whether invocation of the shares pledged gives legal title to the goods pledged to the pawnee i.e. PPS or the title to the pledged shares still with the pawnor i.e. MHPL? - validity of action of the RP in not including PFS and MHPL in the CoCs by recognising them as financial creditors - HELD THAT:- It is clear that there is no sale of pledged shares but PFS (pawnee) has invoked the pledged shares and the name of PFS is recorded in the register members of NEVPL in the place of MHPL. In fact, there is no controversy regarding invocation of the pledged shares. Such right is given to the Pledgee under the Deed of Pledge - In view of Clause 2.3(B) of the Pledge Deed, PPS is entitled to vote in all the meetings and entitled for dividends etc., paid by NEVPL. Manner of creating pledge or hypothecation - HELD THAT:- Regulation 58(8) of the Regulation gives right to the Pledgee to invoke the pledge subject to the provisions of the pledge document - In the case on hand, in view of the provisions of the pledged document and in view of the regulation 58(8) Pledgee is entitled to invoke the pledge. Regulation 58(8) further says that on invocation of the pledge, the depository shall register the Pledgee as beneficial owner of shares and amend its records accordingly. No doubt, Section 176 of the Contract Act gives pawnee, right to sell the pledged shares after giving reasonable notice to the pawnor. Section 176 of the Contract Act gives only two rights to the pawnee, namely, to file a suit upon the debt and retain the goods pledged as collateral security or pawnee may sell the goods pledged. A reading of Regulation 58(11) says that no transfer of security in respect of which a notice or entry of a pledge or hypothecation is in force shall be effected by a participant without the concurrence of the Pledgee - the argument of the learned senior counsel for PFS that the invocation of the pledged shares is only with a view to prevent the Pledgor from dealing with the shares as superfluous in view of Regulation 58(11). No doubt, Sec. 176 of the Contract Act recognises the right of the pawnor to redeem the pledged shares before sale to third party but here, in the case on hand, the pledged shares were got transferred to the pawnee himself and he became the beneficial owner of the pledged shares - It is not known to the MHPL/pawnor when the Pledgee (PPS) is going to sell the shares after giving notice to the pawnor i.e. MHPL. Coming to MHPL, when the PFS has got a right to sell the shares and realise certain amount to that extent MHPL being guarantor to corporate debtor is entitled to recover the same from the corporate debtor and therefore to that extent MHPL would become financial creditor. Further in case of MHPL intends to redeem the pledged shares, MHPL has to clear the amount payable to PPS by the corporate debtor or pay atleast the fair value of the pledged shares as on the date of the invocation i.e. 16.01.2018 to the PPS. In that view of the matter also MHPL can be treated as financial creditor of the corporate debtor to the extent of the fair value of the shares pledged as on the date of invocation i.e. 16.01.2018 - the concept of related party is only necessary for the purpose of deciding the voting rights of the MHPL in accordance with the provisions of the IB Code. The Resolution Professional is directed to appoint an independent valuer to assess the fair market value of the pledged shares as on 16.01.2018 and depending upon the said valuation report and keeping the findings of this Authority in mind decide to what extent PPS and MHPL are the financial creditors in respect of the corporate debtor - application disposed.
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