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TMI Blog2023 (9) TMI 363X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, the Applicant/Plaintiff has sought an injunction restraining Defendant No. 2-Yes Bank Limited (for short 'Yes Bank') and Defendant No. 10-J.C. Flowers Asset Reconstruction Private Limited (for short "JCF") from exercising rights including voting rights in respect of the suit shares. Further injunction is sought restraining the Yes Bank Limited and JCF from transferring, alienating, creating any third party rights in respect of the suit shares. Consequential relief is sought by way of injunction restraining the Defendant/Respondent Nos. 1 and 2 and the Defendant/Respondent No. 10 - JCF from interfering and/or seeking to participate in the management and affairs of the Defendant/Respondent No. 3 by claiming rights under the suit shares. 2. The Plaintiff is a holder of 9,52,100/- (0.05%) shares of Defendant No. 3-Dish TV India Limited ("Dish TV") and Pledgor of 44,00,54,852 shares of Dish TV. The Plaintiff is admittedly a part of the Promoter Group of Dish TV i.e. Jawahar Lal Goel Group. 3. Defendant No. 1-Catalyst Trusteeship Limited (for short "Catalyst") is a Pledgee and security trustee for the beneficial interest of Yes Bank Limited. Defendant No. 2-Yes Bank Limited was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hts in or rights to control or direct the affairs of Dish TV) and interest in the Suit Shares to the Pledgee [Clause 2.1(b)]; (ii) during the currency of the Pledge Deeds and even prior to any default, the Plaintiff was required to vote on the Suit Shares in a manner that is not prejudicial to the interest/ rights of the Pledgee and/or Yes Bank (the Lender) and/or not inconsistent with the Transaction Documents [Clauses 10.3(d) & 5(b)]; (iii) upon default, the Pledgee is entitled to exercise voting rights in relation to the Suit Shares to the exclusion of the Plaintiff [Clause 7.1 (g)]; (iv) upon default, the Pledgee is entitled to enforce the security interest and take possession of or dispose of all or any part of the Suit Shares in any manner permitted by Law upon such terms as the Pledgee determines and to cause all or any part of the Suit Shares to be transferred into its name or its nominees [Clause 7.1(a) and (c)]; (v) the Pledgee, under its powers of realization upon enforcement of security, is entitled to transfer or cause any of the Suit Shares to be transferred to and registered in the name of any of the Pledgee's successors, assigns or transferees. [Clause 4.1(b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as collateral security in terms of Section 176 of the Indian Contract Act, 1872. Notices of sale were issued to the Borrowers under the said provision. Catalyst stated that there was a default on the part of the Borrowers and payment of the entire overdue sum was sought within one day of the date of the said Notice. It was further stated by Catalyst that failing payment, the suit shares would either be sold or taken into Yes Bank's own depository account without further notice. 10. The Plaintiff addressed a letter dated 24th July, 2019 to Catalyst inter alia acknowledging and admitting the creation of pledge of over 44,00,54,852 shares of Dish TV i.e. the suit shares in favour of Yes Bank. 11. The then CEO and Managing Director of Yes Bank, Mr. Rana Kapoor was arrested by the Enforcement Directorate on 8th March 2020 on allegations of large-scale fraud by the top management of Yes Bank. The top management of Yes Bank was subsequently changed. 12. On 13th March 2020, Yes Bank was reconstructed under a Central Government Mandated Scheme. The Scheme had been necessitated on account of Yes Bank's significant exposure to Non-Performing Assets ("NPAs"). At or around this time, the E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Willful Defaulters under the RBI's Master Circular on Willful Defaulters ("SCN"). 18. Pursuant to the said SCN's issued by the Yes Bank, the Borrowers filed Suits before the Saket District Court, New Delhi for quashing of the SCN's. The Borrowers relied upon the Subhash Chandra's criminal complaint dated 22nd June 2021 and FIR dated 12th September 2021. By an exparte ad-interim order dated 13th October 2020, the Saket Court restrained Yes Bank from selling 44,53,48,990 shares of Dish TV. The order operated for over nine months, until the Saket Court proceedings were withdrawn on 3rd August 2021 with the Borrowers seeking liberty to file proceedings before the appropriate forum. 19. On 26th April 2021, a One Time Settlement ("OTS") proposal was furnished to Yes Bank by the Essel Group, inter alia acknowledging the legitimacy of the loans and the Pledge Deeds. It is stated therein that the funds have been utilized for the actual purpose for which the loan was sanctioned and there is no diversion of funds. The said OTS was thereafter, rejected by Yes Bank vide letter dated 14th June 2021. Thereafter, the Essel Group had in response dated 15th June 2021, once again called upon Yes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter dated 21st April 2022 addressed to Yes Bank informed Yes Bank that the Preliminary Enquiry No. 203 of 2021 dated 3rd August 2021 was closed. 26. On 5th November 2021, the Crime Branch, Gautam Buddh Nagar, issued Notices under Section 102 of the Code of Criminal Procedure, 1973 ("CrPC"), to Yes Bank and National Securities Depository Limited (NSDL), in furtherance of the Subhash Chandra Complaint and ensuing FIR. Pursuant to the Section 102 Notices, Yes Bank was restrained from dealing in or exercising its rights over 44,53,48,900 equity shares of Dish TV till the completion of the investigation on the Subhash Chandra Complaint or further orders. 27. Yes Bank had thereafter, adopted proceedings i.e. Company Petition No. 411 of 2021 filed on 22nd November 2021, referred to as an Oppression & Mismanagement Petition, against Dish TV, its Board of Directors and its Promoter/Promoter Group shareholders, including the Plaintiff, before NCLT, Mumbai. Yes Bank has referred to the EOW complaint in the Company Petition. 28. Yes Bank had also challenged the Section 102 Notices before the Allahabad High Court in writ proceedings being Criminal Miscellaneous Writ Petition No. 11135 of 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and the action by the Defendants under such pledges are all void, illegal and vitiated by and fraud for Yes Bank to restore the suit shares in favour of the Plaintiff. Further amended prayer was sought for damages against Catalyst and Yes Bank. Therefore, further amendment was sought and allowed by order dated 17th January 2023 passed in Interim Application No. 1512 of 2022. The Plaintiff by the further amendment had added prayers including for Yes Bank and JCF to restore the suit shares in favour of the Plaintiff and claim for Damages against JCF, apart from Catalyst and Yes Bank. 32. The present Interim Application filed on 16th December, 2021 was heard for ad-interim relief by this Court on 23rd December 2021. This Court was not inclined to grant any ad-interim relief and upon request made by the learned Senior Counsel for the Plaintiff, this Court directed that the results / outcome of the AGM to be held on 30th December 2021 will abide by the decision in the Interim Application. The learned Senior Counsel for the Plaintiff accordingly stated that the Plaintiff is not challenging the rejection of ad-interim reliefs, by filing any appeal and hence the Court need not given any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edge and the objective of the loan transaction was illegal, fraudulent and therefore void ab initio under Section 23 of the Indian Contract Act, 1872, which the Plaintiff learnt in February 2022 from the EOW complaint, correspondence was addressed on 16th February 2022 by the Plaintiff to Yes Bank to produce the annexures to the EOW Complaint and in particular, Annexure 11. 36. The Plaintiff filed Interim Application (L) No. 4788 of 2022, wherein the Plaintiff sought relief restraining Yes Bank from transferring and/or selling, acting upon, using and/or exercising any rights in respect of the suit shares. Further relief was sought restraining Catalyst and Yes Bank from exercising any rights including voting rights in respect of the suit shares and/or interfering and/or seeking to participate in the management of Dish TV. The Plaintiff's Interim Application was disposed of on the very same day of its filing i.e. on 17th February 2022 as infructuous upon the statement made by the learned Senior Counsel for the Plaintiff that review of the order dated 23rd December 2021 is sought and that he does not desire to press Interim Application (L) No. 4788 of 2022 at this stage. 37. The Pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that the Plaintiff be allowed to exercise its voting rights in respect of the suit shares at the said EGM. 43. The Division Bench of this Court by judgment dated 23rd June 2022, after examining the decision of the Supreme Court in PTC India. (supra) dismissed Commercial Appeal (L) No. 19252 of 2022. 44. Dish TV held its EGM on 24th June 2022 and disclosed the results on the same day. 45. The Special Leave Petition (Civil) No. 14796 of 2022 filed before the Hon'ble Supreme Court by the Plaintiff challenging the judgment dated 23rd June 2022 in Commercial Appeal (L) No. 19252 of 2022 was dismissed by the Supreme Court by an order dated 12th September 2022. The Supreme Court in the said order clarified that the observations in the impugned order of this Court are confined to the issue as to whether the Single Judge was justified in declining to exercise the discretion in an application for the grant of ad-interim relief. 46. On 26th September 2022, Dish TV held its 34th AGM and dislosed the results on the same day. 47. Assignment Agreement was executed between Yes Bank and JCF on 16th December 2022 as per Section 5 of the Securitisation and Reconstruction of Financial Assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... managing Dish TV through the illegal exercise of voting rights at the company's general meetings. Yes Bank has also asserted rights as a minority shareholder by filing proceedings before the National Company Law Tribunal ("NCLT") under Sections 241 and 242 of the Companies Act, 2013. i.e. operation and mismanagement and under Section 98 of the Companies Act, 2013, invoking the jurisdiction of the NCLT to call an Extra Ordinary General Meeting ("EOGM") of Dish TV. Yes Bank has purporting to act in the capacity of a shareholder of Dish TV, issued notice under Section 160 of the Companies Act, 2013 for appointment of Directors. These actions belie the protestations of both Yes Bank and JCF that they are mere Pledgees enforcing their right only in that capacity. 54. Mr. Seervai has submitted that contrary to the statutory law and judicial pronouncements which hold that a Pledgee has only a "special interest" in the pledged goods, Yes Bank has repeatedly sought to exercise rights of ownership, including voting rights in respect of the shares. 55. Mr. Seervai has submitted that prior to addressing the issue with regard to the Pledgee having only a "special interest" in the pledged goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the EOW Complaint because it did not think that it was material to the present case, has only to be stated to be rejected as an argument of desperation to cover up the active suppression of the EOW Complaint. 59. Mr. Seervai has submitted that the EOW Complaint encloses various Annexures that contain detailed findings for individual Borrowers and also, in particular, Annexure 11, being "Detailed Analysis of Submissions made by the Business Team and Risk Team". He has submitted that the Plaintiff despite made efforts made to obtain Annexure 11 of the EOW complaint from Yes Bank as well as by a notice to produce, finally a copy of the Annexure 11 was tendered during oral arguments in rejoinder. He has submitted that Annexure 11, reveals that while Tranche I of the loan amounts were disbursed in 2016-2017, further disbursements were approved on 29th December 2016 with an additional amount of Rs. 2,510 Crores being disbursed thereafter with full knowledge of the true nature of the transaction and its real purpose. He has submitted that from Clause 1.3.2., which is 'Disbursement of Funds' in Annexure 11, it is mentioned that in December 2016 and January 2017, Rs. 1,700 Crore were disb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that under Sections 23 of the Contract Act, it provides that the consideration or object of an agreement is lawful unless it is, amongst other things, forbidden by law, defeats the provisions of any law or is fraudulent. Under Section 24, if the consideration for one or more objects is unlawful, the agreement is void. He has submitted that in the present case, the loan transaction is void, being for an unlawful object and consideration (namely the circumvention of applicable law on evergreening and the commission of offences under criminal laws). 64. Mr. Seervai has submitted that the consideration for the Pledge Deed is the loans extended by Yes Bank to the Borrowers. In view of the fact that the loan transaction being for an unlawful object and consideration and routed in a manner that constitutes a criminal offence under penal statutes, is ex facie vitiated by fraud, the secondary or collateral transaction, being the pledge of shares, is also vitiated by fraud and void ab initio. 65. Mr. Seervai has placed reliance upon the English case of Lazarus Estates Ltd. Vs. Beasley 1956 1 QB 702. The Court of Appeal had considered a case arising out of justification of increase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quently, the Plaintiff is entitled to restitution of the shares from Yes Bank and its successor-in-interest, JCF. These shares are required to be protected by an interim injunction from further transfers or sales pending the hearing and final disposal of the Suit. 69. Mr. Seervai has submitted that where a document is void ab initio (and not voidable), arguments as to prior knowledge or waiver or election are irrelevant, and are arguments of desperation. The Agreement is treated as a matter of law as though it never existed, being void ab initio, i.e. at the inception. In the present case, the Plaintiff never had knowledge of the EOW Complaint beforehand and hence, the question of election does not arise. 70. Mr. Seervai has thereafter, addressed the issue of the nature of a pledge and rights/interest of a Pledgee. He has submitted that assuming arguendo that the Pledge Deeds are valid and enforceable, the law of pledge (both under statutory provisions and case law) does not contemplate the rights sought to be exercised by Yes Bank and JCF, namely the entire gamut of ownership rights including voting rights in the case of dematerialized shares. 71. Mr. Seervai has submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mains at all times (i.e. throughout the period of the pledge) with the Pledgor. 75. Mr. Seervai has relied upon decision of the Supreme Court in Lallan Prasad Vs. Rahmat Ali & Anr. 1967 2 SCR 233, paras 16 to 17, wherein the Supreme Court has held that a Pawnee has only a special property in the pledge but the general property therein remains in the Pawnor and wholly reverts to him on discharge of the debt. The right to property vests in the Pledgee only so far as is necessary to secure the debt. In this sense a pawn or pledge is an intermediate between a simple lien and a mortgage which wholly passes the property in the thing conveyed. 76. Mr. Seervai has also relied upon Balkrishna Gupta Vs. Swadeshi Polytex Ltd 1985 2 SCC 167, para 33. wherein the Supreme Court had referenced an earlier decision viz. Bank of Bihar Vs. State of Bihar 1972 3 SCC 196. The Supreme Court found that in Bank of Bihar (supra), it was held that a Pawnee had a special property which was not of ordinary nature on the goods pledged and so long as his claim was not satisfied no other creditor of the Pawnor had any right to take away the goods or its price. Beyond this no other right was recognized in a Paw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia with the erstwhile Regulation 58 of the 1996 Regulations) which provides a mechanism for effectuating a pledge, including the requirement that upon invocation the depository shall register the Pledgee as the beneficial owner of such securities and amend its records accordingly. He has submitted that under the Depositories Act and DP Regulations, a Pledgee cannot transfer the pledged shares held in dematerialized form without being reflected as the "beneficial owner" in the records of the depository. 80. Mr. Seervai has submitted that when a pledge is invoked, the Pledgee is transposed as the "beneficial owner" for the limited and sole purpose of effectuating a prospective sale upon the invocation of the pledge. Neither the Depositories Act nor the DP Regulations envisage or contemplate the exercise of proprietary rights by a Pledgee upon invocation of a pledge, since the recording as "owner" is only for the purpose of effecting the sale. Furthermore, the provisions of the Depositories Act are not contrary to or in derogation of the law that applies to pledge transactions under Sections 172 to 180 of the Contract Act. 81. Mr. Seervai has thereafter, dealt extensively with the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a pledge and a mortgage relied upon PTC India (supra). The Supreme Court in PTC India (supra) relied upon the distinction between mortgage and pledge enunciated in Halsbury's Laws of England, which is that the mortgage conveys the whole legal interest in the chattels; whereas the pledge or pawn conveys only a special property, leaving the general property in the Pledgor or Pawnor; the Pledgee or Pawnee never has the absolute ownership of the goods but has a special property in them coupled with a power of selling and transferring them to a purchaser on default. 83. The Supreme Court in PTC India (supra) has held that unlike a Pledgee, a mortgagee acquires general rights in the thing mortgaged subject to the right of redemption of the mortgagor. 84. Mr. Seervai has submitted that the Supreme Court in PTC India (Supra) has held that the Pledgee has merely a special interest in the pledged goods and never-at any time-holds an absolute interest in the property pledged. 85. Mr. Seervai has submitted that the arguments urged by Yes Bank/JCF to the contrary obliterate the distinction between a pledge and a mortgage, treating the two as virtually interchangeable, but nevertheless seeki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Pledge deeds are no more than an afterthought. 91. Mr. Seervai has submitted that under Clause 2.1.2 of the Assignment Agreement dated 16th December 2022 executed between the Yes Bank and JCF, the assignee, viz. JCF has a right to enforce such security interests, pledges and to exercise all other rights in relation to such security interests, pledges under the Applicable Laws. Under Clause 2.1.3, the assignor, namely, Yes Bank is required to execute all documents as may be necessary for the purpose of perfecting the assignee's interest and therefore, such a document is essential for any assignment of the pledge as none of the clauses contemplate a direct transfer of the pledged shares. No assignment as contemplated under Clause 2.1.3 has been executed between JCF and Yes Bank. 92. Mr. Seervai has submitted that the Pledge Deeds have not themselves been transferred or assigned in favour of JCF by Yes Bank. The "Pledgee" under the Pledge Deeds continues to be Catalyst and Yes Bank has claimed to exercise rights under the Pledge Deeds as a Constituted Attorney/Proxy of the Plaintiff or a nominee of Catalyst in conjunction with being recorded as a beneficial owner. He has submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o exercise voting rights over the shares. In so doing, JCF, which is an Asset Reconstruction Company ("ARC"), is violating the provisions of Sections 9 and 10B of the SARFAESI Act, which provides that an ARC can take measures for the management of the business of a borrower only for the purposes of asset reconstruction. Dish TV, the company, whose shares have been pledged, is not even a "borrower" under the expanded definition in Section 2(f) of the SARFAESI Act. Mr. Seervai has submitted that while an acquisition of financial assets under Section 5(1)(b) may be permissible, the automatic transfer of shares in favour of the acquirer (viz. JCF) is impermissible in the case of a pledge. 97. Mr. Seervai has submitted that there is no case made out by Yes Bank/JCF in their arguments in Sur-Rejoinder that there are difficulties in the sale of the shares pledged. These excuses urged for the first time in Sur-Rejoinder should not deter this Court from granting the reliefs prayed for by Plaintiff. It is well settled that a party cannot take advantage of its own wrong. This is precisely what Yes Bank and JCF seek to do. He has submitted that acceding to these submissions would amount to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 'special property' excludes the notion of general property, which is the badge of ownership; (ii) the Pledgee holds possession only for the purpose of securing himself for the advance made; and (iii) the Pledgee cannot use the goods as his own. 100. Mr. Andhyarujina has submitted that in regard to the meaning of "special property" or "special interest" in the pledged goods, it is the right to property in the pledged goods only so far as is necessary to secure the debt advanced. In this context he has relied upon the decision of the Supreme Court in Maharashtra State Cooperative Bank Limited (supra) at Paragraphs 49 and 54 as well as the decision of the Supreme Court in Lallan Prasad (supra) at paragraph 16. He has submitted that it is the right that exists so that a Pledgee can compel the payment of the debt due. In this context he has relied upon the decision of the Supreme Court in Bank of Bihar (supra) at Paragraph 5. He has submitted that it is the right of possession of pledged goods as security and in case of default, the right to bring a Suit against the Pledgor as well as to sell the goods after giving reasonable notice of sale. In this regard he has relied upon the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y passes the property in the thing conveyed". 105. Mr. Andhyarujina has submitted that the rights of a Pledgee does not include the right to enjoyment of property but only the right of possession and this has been held in the case of Md. Sultan (supra) and Shatzadi Begum Saheba (Supra). It is further held by the Andhra Pradesh High Court in Shatzadi Begum Saheba (supra) at paragraph 23 and 29 that where the Pledgees were allowed to inter alia exercise rights of a shareholder, vote on shares, lodge shares with the company, the rights were more than what could vest in a Pledgee and the transaction could not be a pledge but was, in fact, a mortgage. 106. Mr. Andhyarujina has submitted that in PTC India (supra) the Supreme Court has held that that the right to enjoyment is a right arising from ownership and not from a pledge [Paragraph 29 of PTC India (supra)]. 107. Mr. Andhyarujina has submitted that in the decision of the Supreme Court in PTC India (supra) it has been held that the sale of pledged goods by the Pledgee to itself is not conceived [(Paragraph 64 of PTC India (supra)] and does not constitute an 'actual sale' under Section 176 of the Contract Act and amounts to convers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edged namely clause 2.1 (b) of the Pledge Deed, the same is ineffective as it is contrary to and inconsistent with the very concept of the 'special property' in the goods pledged and to the settled law that voting is a privilege incidental to ownership of shares. He has accordingly submitted that the Pledgee with limited rights being 'special property' would not be entitled to vote on the shares. 112. Mr. Andhyarujina has submitted that a security over shares with the right to vote/enjoyment is not a pledge but a mortgage of movables. In this context, he has relied upon Shatzadi (supra) and Md. Suptan (supra) wherein it is held that there is no enjoyment of goods in the case of a pledge. He has submitted that a Pledgee has only limited rights or 'special property' in law, on default, the Pledgee can only either bring a suit or sell with notice. As such, the Pledgee is not entitled to vote on shares or act as an owner of the shares. 113. Mr. Andhyarujina has submitted that the controversy in the present case has arisen from the fact that the pledged goods in question are dematerialized shares and the arguments that have been sought to be created by Yes Bank on the basis of Deposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also relied upon Paragraph 86 of PTC India (supra) which held that "do not see any disharmony between these provisions and Section 176 and 177 of the Contract Act. They can be read harmoniously without nullifying or altering their effect, subject to the exception in case of sale of listed securities to third parties...They apply independently without hindering and obstructing their application as the field and subject-matter of Sections 176 and 177 of the Contract Act differ from the subject-matter and the object of Sections 7, 10 and 12 of the Depositories Act and sub-regulation (8) of Regulation 58 of the 1996 Regulations." 117. Mr. Andhyarujina has submitted that the registration of the Pledgee as a "beneficial owner" does not make the Pledgee "the beneficial owner" in the true meaning of the term as generally under the Depositories Act and Depositories Regulations, but only accords it such status for the sale of the dematerialized shares and for procedural compliances. This is evident from the fact that the right to redemption of a Pledgor continues even after the Pledgee has been registered and acquired status as "beneficial owner" and only ceases on actual sale to a third p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n no change to the law of pledges. 124. Mr. Andhyarujina has thereafter referred to the definition of "beneficial owner" under Section 2(1) of the Depositories Act, wherein it defines "beneficial owner" as "a person whose name is recorded as such with a depository". He has submitted that Section 2(1) is prefaced with the important words "(1) In this Act, unless the context otherwise requires". In this case, the context does require for the term "beneficial owner" to be read differently for pledges. 125. Mr. Andhyarujina has referred to the decision of the Supreme Court in K.V. Muthu Vs. Angamuthu Ammal (1997) 2 SCC 53, wherein it has been held that the phrase "unless context otherwise requires" must be applied and given effect to where the definition or expression is preceded by the words "unless the context otherwise requires". He has submitted that the phrase "unless context otherwise requires" must be applied, in the present case where the context of pledge is concerned. Any other reading would not only render the entire law of pledges otiose and be contrary to the decision of the Supreme Court in PTC India (supra) which has held that there is no change to the law of pledges, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot contract out of Section 176 of the Contract Act and on default of payment of debt, there were only two (2) options namely to bring the Suit or sell the pledged shares after giving reasonable notice. 131. Mr. Andhayarujina has submitted that shares could not have been assigned by Yes Bank to J.C. Flowers and J.C. Flowers have no rights in the shares. 132. Mr. Andhayarujina has submitted that even given the transfer to Yes Bank is illegal for the reasons set out above, the assignment to J.C. Flowers also fails and J.C. Flowers would have no rights in respect of the Suit shares. Mr. Andhayarujina has submitted that the provisions Viz. Sections 5(2), 5(2A), and 5(3) of the SARFAESI Act, which was relied upon on behalf of J.C. Flowers are not applicable. Section 5(2) of the SARFEASI Act only applies in cases, where the bank or financial institution is a lender in relation to any financial assets acquired under sub-section (1) by the asset reconstruction company. In the present case, Yes Bank is not a lender in relation to the financial asset, namely, the pledged shares of Defendant No. 3 and is not even a lender to the Pledgee i.e. the Plaintiff in relation to the pledged share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppearing for Defendant No. 2 and Defendant No. 10 viz. Yes Bank and J.C. Flowers has referred to the provisions under the Contract Act which concerns Pledgees. He has submitted that from Section 172 of the Contract Act, it is clear that a Pledge is nothing but a form of bailment. Thus, the provisions constituting setting out the law of bailment viz. Sections 148 to 171, 180 and 181 of the Contract Act would apply to Pledges. He has submitted that since admittedly Section 148 of the Contract Act applies to Pledges and Section 149 to 171 and 180 to 181 of the Contract Act apply to bailments as defined under Section 148 of the Contract Act. It follows that the said provisions also apply to Pledges. Bailment itself contemplates contractual conditions of use and possession of bailed goods which may be prescribed in the contract of bailment. He has submitted that the Pledge Deeds that are the subject matter of the present Interim Application is nothing but contracts of bailment setting out the conditions of use and possession of the Suit Shares i.e. the bailed goods. 137. Mr. Khambata has relied upon the decision of Supreme Court in PTC India (supra). The Supreme Court while discussing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of PTC India (supra) the Supreme Court has held that the law of pledge must reflect "flexibility" in the "milieu of a transitional and commercial environment wherein significant changes have occurred across the capital market." 141. Mr. Khambata has also relied upon the decision of this Court in Madholal Sindhu (Supra), wherein it has been held that "The scheme of the Indian Contract Act is that it is competent to parties to incorporate into any contract any incident which is not contrary to or inconsistent with any provision contained in the Act." 142. Mr. Khambata has submitted that under common law as can be seen from Chitty on Contracts - Law of Contracts, The Common Law Library, 34th Edition, Volume II., "(T)he right of the Pledgee to use the thing pledged will depend upon the agreed terms of the pledge". 143. Mr. Khambata has submitted that nothing under Section 172-179 of the Contract Act prohibits parties to a pledge from contractually agreeing upon additional terms and conditions, so long as they are not in derogation of mandatory provisions of the Contract Act. 144. Mr. Khambata has submitted that the decision of this Court in Madholal Sindhu (supra), had co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing rights over the pledged shares. PTC India does not hold that such contractual rights would "convert" the pledge into a mortgage of movables. 149. Mr. Khambata has submitted that the Plaintiff has relied upon the decision of the Calcutta High Court in Mahamaya Debi (supra) to contend that only right available to a mortgagee is the right of foreclosure. He has submitted that this contention is misconceived in view of the decision viz. Arjun Prasad and Ors. Vs. Central Bank of India Ltd. (1891) SCC OnLine PC 11, wherein the Patna Court has held that even a mortgagee has a right of sale. Further, the Madras High Court in L&T Finance Ltd. Vs. J.K.S. Constructions Pvt. Ltd. 2014 SCC OnLine Mad 302 has expressed doubt as to the ratio and correctness of Mahamaya Debi (Supra). 150. Mr. Khambata has dealt with the contention of the Plaintiff and Dish TV's case that a pledge by operation of law creates a species of "special property" or "special interest" in the pledged goods in favour of the Pledgee; whereas the "general property" or "general interest" in the pledged goods (which includes rights of enjoyment of the pledged goods) continues to vest in the Pledgor by virtue of its owners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court, while determining the rights of a Pledgee, referred to the Pledgee's "special property" and the Pledgor's general property rights in the pledged goods and held that satisfaction of a debt extinguishes a pledge/pawn and that upon such satisfaction the Pledgee is bound to redeliver the pledged property. He has submitted that in Lallan Prasad (supra) there is reference of Halliday Vs. Holgate [L.R.] 3 Exch. 299 which elucidates what special property would mean for a bailee with respect to bailed goods i.e. a Pledgee has the whole present interest in the pledged property until the debt is paid off. 154. Mr. Khamabata has submitted that the express terms of the contract of pledge will prevail and if there are no express terms, the Pledgee may hold or even assign the pledged goods until the debt is discharged. In this context, he has relied upon Donald Vs. Suckling (1866) LR 1 QB 585 at Pages 604, 608 and 613. He has submitted that the Pledgee has a right to protect the pledged goods and its interests therein during the subsistence of the pledge. 155. Mr. Khamabata has submitted that the extent of the "special property" of a Pledgee will depend not only on the provisions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be registered as the 'beneficial owner' of the dematerialized shares in the records of the depository. 160. Mr. Khamaba has referred to the relevant provisions of the Companies Act, 2013, the Depositories Act and Depositories Regulations on beneficial owner / member. He has submitted that under the 1996 Regulations, upon invocation of the pledge, the depository "shall register the Pledgee as beneficial owner". In the decision of PTC India (supra), the Supreme Court held that "No person, including the Pawnee, can transfer the pawn held in dematerialised form without being registered as a 'beneficial owner". This is a "mandatory" stipulation which does not seek to curtail or restrict, but on the other hand respects party autonomy and freedom to decide the terms of the pledge. He has made specific reference to the Paragraph 70 and 79 of PTC India (supra) in this context. 161. Mr. Khambata has submitted that the Depositories Act provides for only two categories of owners viz. 'registered owner' who has necessarily to be a depository and a 'beneficial owner' in whom all the rights vest. He has relied upon the decision of the Supreme Court in PTC India (supra) at Paragraph 69, wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hts and benefits, including voting rights in relation to shares. He has relied upon Section 106(1) & (2) of the Companies Act as well as Swadeshi Polytex (supra) at Paragraphs 29 and 36 in this context. 165. Mr. Khambata has submitted that the definitions of 'beneficial owner' and 'member' under Section 2(1)(a) of the Depositories Act and Section 2(55) of the Companies Act is caveated by the words "unless the context otherwise requires". These definitions must be read down in the context of the said common law principle to mean a 'Pledgee-beneficial owner' who cannot have the full rights of a 'member'. He has submitted that Dish T.V. has not demonstrated that the context of the definition of "member" in Section 2(55)(iii) of the Companies Act, 2013 or of "beneficial owner" in Section 2(1)(a) of the Depositories Act does not require adopting a meaning other than as the definitions and provisions of these Acts expressly provide. He has submitted that the words which are not defined in the Companies Act shall have the meanings assigned to them in the Depositories Act (Sections 2(95) the Companies Act). Thus, a 'beneficial owner' is not defined under the Companies Act and therefore it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n enforcement of security, the Plaintiff has authorised the Pledgee to transfer or cause any of the Security Assets to be transferred to and registered in the name of any of its successors, assigns or transferees. He has relied upon Clause 4.1(b) of the Pledge Deeds in this context. He has submitted that upon default, the Pledgee is entitled to enforce the security interest and take possession of or dispose of all or any part of the Suit Shares in any manner permitted by law upon such terms as the Pledgee determines and to cause all or any part of the Suit Shares to be transferred into its name or its nominees as has been provided for in Clause 7.1 (a) and (c) of the Pledge Deeds. Further, the Plaintiff has undertaken not to stop or attempt to stop any transfer of Suit Shares in the name of the Pledgee or its nominee as this is provided for in Clause 10.3(b) of the Pledge Deeds. The Pledgee has been appointed as the Plaintiff's attorney inter alia to do all acts in relation to any of the Security Assets. The Pledgee has been empowered to delegate the powers conferred on it by the Pledge Deed (including the Power of Attorney) to any Person. This is provided for in Clause 12 of the P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He has also referred to Section 5(1), Section 5(2) and Section 5(3) of the SARFAESI Act which inter alia provides for acquisition of financial assets by an Assets Reconstruction Company (ARC) by way of an Agreement with the bank for transfer of financial assets. In that event the buyer of these assets viz. ARC would be treated as the lender for all purposes. He has submitted that there can be no doubt that the ARC is the new Pledgee of these shares and its right to deal with these pledged shares is absolute. Therefore, the ARC is required to be recognised as Pledgee by all third parties, including statutory authorities. He has relied upon the decision of Delhi High Court in UV Asset Reconstruction Company Ltd. Vs. Union of India & Ors. (supra) at Paragraph 9 in this context. 172. Mr. Khambata has submitted that the contention of the Counsel for the Plaintiff that the Pledgee cannot claim that it is a member under the Companies Act and can hold the Suit Shares forever without selling them, is misconceived. It is well settled that the Pledgee cannot be compelled by the pawner to sell the pledged goods. Power to sell is conferred on the Pawnee for "his benefit" and it is his "sole di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement is unlawful (for inter alia being fraudulent), the agreement is void. Section 24 further adds that if any part of a single consideration for one or more objects, or any part of several considerations for a single object, is unlawful, the agreement is void. 175. Mr. Khambata has submitted that the Plaintiff's case of fraud is based on the Complaint dated 24th September, 2021 filed by Yes Bank with the Economic Offences Wing, Mumbai (EOW). The Plaintiff has claimed that the complaint was "recently discovered" by the Plaintiff and it confirms and reiterates the contents of the criminal Complaint dated 22nd June 2020 filed by Mr. Subhash Chandra. The Plaintiff has placed reliance on Lazarus Estates Ltd. (supra) to submit that fraud unravels all and "vitiates judgments, contracts and all transactions" and that nothing that has been obtained by fraud can be permitted to stand. Mr. Khambata has submitted that the Plaintiff's reliance on Lazarus is entirely misplaced as in the case Lazarus, a landlord had obtained a decree from a County Court on the basis of a false and fraudulent declaration pertaining to repairs in a rent increase form. An appeal against the decree was allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity for the loans advanced by Yes Bank. 179. Mr. Khambata has submitted that it is a settled position under English Law and Indian Law that a transaction is void in the case of a fraudulent misrepresentation as to the character of the document and in the case of a fraudulent misrepresentation as to the contents of the document, the transaction is merely voidable and continues to be valid until it is avoided. He has relied upon the authorities which have considered this position which are as under : (i) The House of Lords in Saunders (executrix of the estate of Rose Maud Gallie, deceased) Vs. Anglia Building Society [1970] 3 WLR 1078 (ii) Ningawwa Vs. Byrappa Shiddappa Hireknrabar & Ors. ("Ningawwa") (1968) 2 SCR 797 (iii) Mohan Vishnu Satardekar Vs. LIC 2023 SCC OnLine Bom 423 (iv) Ramesh Mali v M/s Samrat Associates & Ors. Jt dt 18.07.2022 passed by this Court in IA (L) No. 2566 of 2022 in S(L) 29721/2021 (v) Dularia Devi v. Janardan Singh & Ors. 1990 (Supp.) SCC 216 180. Mr. Khambata has submitted that in order to establish that the pledge is void, the Plaintiff would have to meet the narrow test of fraud as to character which it does not meet. It is not the Plaintif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were ultimately withdrawn by the Borrowers with liberty to file fresh Suits. However, no such fresh suits have been filed. 183. Mr. Khambata has submitted that the Oppression & Mismanagement Petition, being Company Petition No. 411 of 2021 filed by Yes Bank before the NCLT, Mumbai demonstrates that the Subhash Chandra Complaint and the alleged fraud was within the knowledge of the Plaintiff as early as on 20th November 2021. The Plaintiff is Respondent No. 15 in the Oppression & Mismanagement Petition and has admittedly been served a copy of the Oppression & Mismanagement Petition. The Oppression & Mismanagement Petition contains a detailed recounting of the Subhash Chandra Complaint and the FIR registered in the matter and annexes both the Subhash Chandra Complaint and the FIR dated 12th September, 2020. The Oppression & Mismanagement Petition also makes a reference to the EOW Complaint and the proceedings filed by the Borrowers before the Saket District Court. 184. Mr. Khambata has submitted that despite having prior knowledge of the alleged fraud, the Plaintiff did not and has not till date addressed a letter or any communication seeking to avoid the pledge transactions and/or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Contract Act deals with contracts that would be rendered void due to unlawful consideration and/or object. In the present case, nothing about the granting of the Loans which are the "stated consideration" under the Pledge Deeds is illegal / unlawful since the Loans were advanced by Yes Bank and accepted by the Borrowers. He has submitted that the Plaintiff is alleging illegality in use of the Loan amounts, which does not render the Loans themselves illegal and/or unlawful. He has submitted that even if the allegations contained in Subhash Chandra compliant to the effect that the Borrowers were induced to take the Loans are accepted arguendo (whilst being denied), fraud/illegality as contemplated under Section 23 is not made out. 188. Mr. Khambata has referred to the decision of the Supreme Court in Gurmukh Singh v. Amar Singh (1991) 3 SCC 791 wherein Supreme Court explained that a contract for the commission of a fraud (upon a third party or for a purpose prohibited in law) would be fraudulent in its object or consideration. He has submitted that it is not the Plaintiff's case that the Pledge Deeds were entered into as a fraud upon someone. The consideration for the Pledge De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvance of prudent lending norms, including in relation to evergreening, would not render the loan transactions void. 191. Mr. Khambata has submitted that the Plaintiff's case of alleged fraud and that Yes Bank advanced huge Loans worth INR 5,270 Crores to the Borrowers - Essel Group so that a sum of INR 1,500 Crores (approx.) could be utilised by the Videocon Group to repay its outstanding dues to Yes Bank is an incredible argument. He has submitted that this does not make any commercial sense as no bank would advance upwards of INR 5,000 Crores to evergreen outstanding dues worth INR 1,400 Crores. This theory offers no explanation for the remaining INR 4000 Crores (approx.) amount which was clearly used by the Borrowers for extraneous purposes. 192. Mr. Khambata has submitted that Sections 64 and 65 of the Contract Act provide for restitution in case of voidable/void contracts. Section 64 provides that the party rescinding a voidable contract shall restore the benefit it received thereunder to the person from whom it was received. Section 65 provides that when an agreement is discovered to be void, or when a contract becomes void, the person receiving advantage under such agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Thus, the Plaintiff cannot claim to be an innocent third party. The Plaintiff had knowledge of the alleged fraud even prior to the filing of the present Suit. Further, there is interconnection between the Essel Group and the Jawahar Lal Goel Group. 195. Mr. Khambata has submitted that the Plaintiff cannot conflate two separate types of fraud and substitute one for the other. It is settled law that the fraud must prove as pleaded in its Plaint that a charge of fraud must be substantially proved as laid and when one kind of fraud is charged another kind of fraud cannot be substituted in its place. He has relied upon decision of the Proviso Counsel in Abdool Hoosein Zenail Abadin Vs. Charles Agnew Turner 1887 SCC OnLine PC 10 and the Supreme Court in Bijendra Nath Srivastava Vs. Mayank Srivastava (1994) 6 SCC 117 in this context. 196. Mr. Khambata has submitted that the Plaintiff has not produced any evidence in support of its case of fraud. The Plaintiff has only relied upon the complaints filed before investigation authorities, affidavits filed by investigating authorities and/or letters issued by such authorities to establish its case on fraud. The Affidavit dated 10th January, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... override the provisions of any contract to the contrary. This Court has in that context held as under:- "Therefore, the question is whether the terms of Section 176 of the Indian Contract Act are mandatory and override the provisions of any contract to the contrary. The scheme of the Indian Contract Act is that it is competent to parties to incorporate into any contract any incident which is not contrary to or inconsistent with any provision contained in the Act. But they can only override a specific provision contained in the Act provided the particular Section dealing with that provision contains a saving clause in respect of special contracts to the contrary. If one looks at the various sections of the Indian Contract Act, one finds that some of them specifically mention "in the absence of a contract to the contrary." There is no such saving clause in S. 176, and in my opinion its provisions are mandatory, and it is not open to parties to contract themselves out of those provisions." 202. The said decision has to be read in light of the facts of that case. There, the pledge documents sought to confer rights on the Pledgee to sell the Pledged shares without giving reasonable n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edge Deeds in the present case which confer voting rights on the Pledgee beyond what is specified and expressly provided for under Section 176 of the Contract Act cannot be voided as it is permissible for the parties to incorporate into the Pledge Deeds any incident which is not contrary to or inconsistent with the said provisions governing Pledges in the Contract Act. 206. There have been submissions made by the Plaintiff and / or Dish TV on the distinction between Pledge and mortgage of movables and contending that the right of enjoyment of pledged goods such as right to vote is inconsistent with the pledge but consistent with a mortgage of movables. In my view decision of the Andhra Pradesh High Court in Shatzadi Begum (Supra) relied upon by the Plaintiffs in this context is inapplicable to the present case as the Court in that case had not considered the law of bailment of goods. In my prima face view a pledge is a form of bailment and this is apparent from Section 172 of the Contract Act. The Supreme Court in PTC India (Supra) holds that pledges are nothing but a "subset of bailment" and Section 148 to 171 and 180 and 181 of the Contract Act will apply to a pledge. Further, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e mandatory provisions of the Contract Act. 210. The authorities relied upon by the Yes Bank / JCF which include the judgments of this Court in IL and FS Limited (supra), Sarvopari Investments Pvt. Ltd. (supra) and Bambino Finance Pvt. Ltd. (supra) have all considered contracts conferring special rights on the Pledgee, including the right to vote and in none of these cases was there a finding to the effect that additional rights conferring on the Pledgee were contrary to the Contract Act. Further, in PTC India (Supra), the Supreme Court has noted the concept of "Special Property" in a Pledgee and despite which has held that the contract of pledge can contain any terms governing the pledge. This has been held in paragraph 28 of the said decision. In the case before the Supreme Court the additional terms included voting rights. 211. The decision of the Supreme Court in Lallan Prasad (Supra) has been relied upon by the Plaintiff and Dish TV to contend that a pledge is an intermediate between a simple lien and a mortgage. This decision is required to be read in light of the facts of that case. The issue for determination was whether the Pledgee can sue to recover the underlying debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstrued as decoupling the right to vote from the share. The decision relied upon by the Plaintiff viz. Swadeshi Polytex (Supra) in support of its contention that the Pledgor Company in that case was permitted to exercise the voting rights with respect to the pledged shares is inapplicable to the facts of the present case. In that case unlike the present cases, the Pledgee had neither invoked the pledged shares nor was the Pledgee registered as a member of the company in its Register of Members. In my view, the said decision confirms that only the holder of the shares whose name is entered in the Register of the Company has a right to vote at the meetings of the Company. 215. In the present case, it would be necessary to consider the position post enactment of the Depositories Act, 1996 and the 1996 Depositories Regulations. In my view, both are required to be read harmoniously with the provisions relating to contract of pledge under the Contract Act. In the present case, the Pledgee was registered as "beneficiary owner" of the dematerialized Suit shares in the record of the depository. Regulation 58 (8) of the 1996 Depositories Regulations, which is para materia with Regulation 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccorded the status of beneficial owner for the Pledgee to exercise his right to sell the pledged dematerialized securities. In my prima facie view, this does not limit the status and right of the beneficial owner and / or in any manner dilute or restrict such status. 220. Having perused the relevant provisions of the Depositories Act, it is clear that the Depositories Act does not contemplate different kinds of beneficiary owners. There is no limitation on the Pledgee's rights as beneficial owner and / or limitation as to the Pledgee having right to sell but having no other right. Thus, the contention on behalf of the Plaintiff and / or Dish TV to the effect that the only rights which the Pledgee has upon being transposed as beneficial owner, under the Depositories Act and the Depository Regulations is only for effecting the sale and does not contemplate the exercise of voting rights by the Pledgee upon invocation of the pledge does not merit acceptance. 221. A Company is duty bound in law to recognize only a beneficial owner / member whose name appears on the register of members as having all rights and benefits including voting rights in relation to the shares. I do not find an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred to and registered in the name of any of its successors, assigns or transferees as provided in Clause 4.1(b) of the Deeds of Pledge. It has been further provided under Clause 7.1(a) and (c) of the Deeds of Pledge that the Pledgee is entitled to enforce the security interest and take possession and dispose of all or any part of the suit shares in any manner permitted by law upon such terms as the Pledgee determines and to cause all or any part of the Suit Shares to be transferred into its name or its nominees. The Plaintiff has under Clause 10.3 (b) of the Deeds of Pledge undertaken not to stop or attempt to stop any transfer of Suit shares in the name of the Pledgee or its nominee. Further, the Powers of Attorney dated 1st May, 2019 and 6th May, 2019 allow the Pledgee to delegate the powers conferred on the Pledgee under the Power of Attorney to any other person as can be seen from the Clause 18 of the Powers of Attorney. The transfer of shares by the Pledgee to its own name are permitted under law. These transfers are not considered to be a sale as can be seen form the decision of PTC India (Supra) at paragraph 95 and 105. This has also been recognized in Bank of Bihar (Supra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nless otherwise expressly provided by this Act" and since Section 31(b) of the SARFAESI Act excludes the application of the Act to a contract for pledge, Section 5(3) of the SARFAESI Act is not applicable to Pledge Deeds cannot be accepted. If this interpretation of the Plaintiff is to be accepted, in my prima facie view this would render Section 5(1) and 5(2) read with definition of financial asset in Section 2(l) otiose in respect of Pledges. Thus, this interpretation of the Plaintiff cannot be considered to be a possible interpretation. 228. The other provision namely Section 5(2A) which the Plaintiff has relied upon to contend that this is only provision which JCF could, if at all have placed reliance upon, is inapplicable in the present case as the Borrowers have not purchased the Suit shares from the loan funds as contemplated thereunder. However, it is not necessary to consider that provision having held that the transfer to JCF is permissible under the aforementioned provisions viz. Section 5 read with Section 2(l) of the SARFAESI Act. 229. Thus, in my prima facie view, the Suit shares stand transferred to JCF and that this is pursuant to the Assignment Agreement which pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are vitiated by fraud. It is the contention of the Plaintiff that the alleged fraud was recently discovered by the Plaintiff i.e. from the complaint dated 24th September, 2021 filed by Yes Bank with the Economic Offences Wing, Mumbai ("EOW"). The Plaintiff has maintained that the EOW complaint confirms and reiterates the contents of the criminal complaint dated 22nd June, 2020 filed by Mr. Subhash Chandra. The Plaintiff contends that as per the EOW Complaint, Yes Bank has admitted that the loan transaction was not for the purpose stated in the loan document but was to be utilized for paying the outstanding debt owed to Yes Bank by the Videocon group. Further, upon reading of both the complaints, the Plaintiff claims that the ostensible purpose of the loans advanced by Yes Bank was only a front for the real purpose viz. reducing Yes Bank's exposure in the Videocon account and to circumvent applicable regulations of the Reserve Bank of India. 233. I have perused the material on record including the aforementioned two complaints. In my prima facie view, the Plaintiff had prior knowledge of the alleged fraud i.e. prior to the filing of the present Suit but despite which the Plaintif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s misconceived. This is upon considering the fraud alleged viz. loan advances by Yes Bank being unlawfully used for collateral purposes i.e. greening of loans by Yes Bank. At the highest the fraud alleged would be one which falls under Section 17 and 19 of the Contract Act. Thus, the alleged fraud being voidable, it was necessary for the Plaintiff to have avoided the pledge deeds in the event the Plaintiff's case of fraud is accepted. It is well settled that in the event a defrauded party has elected to affirm the Pledge Deeds, it is not open to the Plaintiff to resile from such election. The decisions relied upon on behalf of the Yes Bank viz. Clough v. London and North Western Railway Company (supra), Kunja Lal Bhuiya v. Haralal Bhuiya (supra) and Mumbai International Airport Pvt. Ltd. v. Golden Chariot (supra) are apposite. 236. The reliance placed by the Plaintiff on Lazarus Estates Ltd. (supra) is misconceived. In that case although it has been held that fraud unravels all and vitiates judgments, contracts and all transactions, this has been held in the facts of that case. There a landlord had obtained a decree from a County Court on the basis of a false and fraudulent declar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by fraud and is unlawful. Section 23 of the Contract Act deals with contracts that would be rendered void due to unlawful consideration and / or object. This provision is not attracted in the present case where there is nothing about the granting of loans (the stated consideration under the Pledge Deeds) being illegal / unlawful consideration since the loans were advanced by Yes Bank and accepted by the Borrowers. The Plaintiff has alleged illegality in respect of the use of the loans amount, which does not render the loans themselves illegal and / or unlawful. Prima facie, I do not find that a case of fraud as contemplated under Section 23 is made out. 239. The Supreme Court in Gurmukh Singh (supra) has explained that a contract for commission of a fraud upon a third party or purpose prohibited in law would be fraudulent in its object or consideration. It is not the Plaintiff's case that the Pledge Deeds were entered into as a fraud upon someone. The fact that the consideration for the Pledge Deeds viz. the loans advanced to the Borrowers (the Essel Group) were mis-utilised by the Essel Group will not render the object or consideration of the Pledge Deeds fraudulent. At the hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is discovered to be void or when the contract becomes void. It is insufficient for the Plaintiff to seek return of the Suit shares from Yes Bank / JCF on the ground that it is entitled to avoid the Pledge Deeds and / or the Pledge Deeds are required to be declared void. They must also return the benefit received under the loan transactions and the Pledge Deeds to Yes Bank / JCF. I prima facie do not find any merit in the contention of the Plaintiff that the Plaintiff has received no benefit from the loan transaction and Pledge Deeds and that it is Yes Bank and proposed Borrowers having received the benefit under the Pledge Deeds are required to restore the Suit shares to the Plaintiff. The Pledge Deeds itself provide that the consideration for the Pledgor under the Pledge Deeds is the advancement of the loan to the Borrowers. The Borrowers having received and utilized the loans, it cannot be said that the Plaintiff has not received any benefit from the loan transaction and Pledge Deed. Further, the Plaintiff has not clarified why the Suit shares were Pledged by them in the first place if no consideration / benefit was received by the Plaintiff under the Pledge Deeds. I do not fin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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