Case Title: DLF Limited v. PNB Housing Finance Limited & Ors.
Date of Decision: September 18, 2023
Coram: Hon’ble Mr. Justice Manoj Kumar Ohri
Introduction
This judgment concerns two petitions filed under Section 9 of the Arbitration and Conciliation Act, 1996 (A&C Act) by DLF Limited (DLF) and Chinsha Property Private Limited (Chinsha), both shareholders in Joyous Housing Ltd. (JHL). The petitioners seek interim protection in relation to the invocation of pledged shares by Punjab National Bank Housing Finance Limited (PNB) and the subsequent sale of these shares.
Factual Background
DLF, Chinsha, and Hubtown are shareholders in JHL, holding 37.5%, 37.5%, and 25% shares, respectively. The dispute arises from a construction finance loan facility availed by JHL from PNB for a slum development project. The loan was secured by a mortgage and the entire shareholding of the three shareholders was pledged as additional security. Petitioners challenge the invocation of the pledge by PNB.
Legal Issues
The key legal issues include the validity of the pledge invocation, the assignment of the debt, the sale of pledged shares, and whether the petitioners were denied their right of redemption under Section 177 of the Contract Act.
Contentions
- Petitioners argued that the sale of pledged shares was rushed and that they had offered to pay to redeem the shares, but their offer was not responded to by PNB.
- PNB asserted that the sale was conducted in accordance with RBI guidelines and that the petitioners could not acquire the pledged shares themselves.
- Omkara, the assignee of the debt, defended the sale and denied collusion with PNB.
- Hubtown alleged collusion between PNB and DLF.
Observation of the Court
The court noted that the sale process appears to have been rushed, and the petitioners’ offer to redeem the shares was not responded to by PNB. The court also emphasized the importance of the pawnor’s right of redemption under Section 177 of the Contract Act. It questioned the process of assignment and sale and expressed doubt about whether the sale was conducted in a transparent and fair manner.
Decision of the Court
The court granted interim relief by directing Omkara to disclose the identity of the transferees of the pledged shares to the petitioners. It also ordered that further transfers of the pledged shares be suspended and not recognized by JHL.
The court suggested that the sale of pledged shares may have been premature. It emphasized that the final decision on these issues will be made by the arbitral tribunal. The court advised the parties to cooperate with the arbitral tribunal and concludes that the present proceedings are not the appropriate forum to decide the complex issues raised in this case.
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Written by – Ananya Chaudhary
