LAW FOR ALL

SALE OF PLEDGED SECURITES WITH OUT NOTICE UNDER SEC.176 OF CONTRACT ACT NOT VALID AND LIABLE TO PAY COMPENSATION = M/s.Green Gardens Private Limited entered into Facility Agreement dated 26.06.2008 with M/s.Indiabulls Housing Finance Limited to avail loan of Rs.240 Crores. The loan was secured by pledge of shares equivalent to 200% of the loan amount. M/s.Indiabulls Housing Finance Limited disbursed the loan of Rs.227.5 Crores against sanctioned loan of Rs.240 Crores. 3. Mrs.A.Indira Anand and Mrs.K.Bharathi executed Pledge Agreement in favour of M/s.Indiabulls Housing Finance Limited to pledge their shares as security for the loan advanced to M/s.Green Gardens Pvt. Ltd. Mr.A.Ravishankar Prasad and Mr.A.Manohar Prasad gave personal guarantee to secure the loan. Along with the Pledge Agreement, Mrs.A.Indira Anand and Mrs.K.Bharathi also executed irrevocable power of attorney in favour of M/s.Indiabulls Housing Finance Limited. Taking note of pledge creation forms executed by Mrs.A.Indira Anand and Mrs.K.Bharathi, M/s.Indiabulls Securities Limited recorded pledge of share in their record. 4. 11.07.2008, Mrs.Gemini Arts Pvt. Ltd., and M/s.Gemini Foundation Pvt. Ltd., also became co-borrowers along with M/s.Green Gardens Pvt. Ltd. On 30.09.2008, M/s.Indiabulls Housing Finance Limited issued a recall notice to the borrowers as well as to Mrs.A.Indira Anand and Mrs.K.Bharathi. 5. In response to the notice, M/s.Green Gardens Pvt. Ltd., repaid a sum of Rs.5,00,00,000/- (Rupees Five Crores only). However, on 12.11.2008, notice was issued to the borrowers informing that the cheques issued for Rs.2 Crores and Rs.3 Crores were returned unpaid. M/s.Indiabulls Housing Finance Limited invoked the pledge on 12.11.2008 and accordingly, pledged shares were transferred to the account of M/s.Indiabulls Housing Finance Limited in terms of Regulation 58(8) of SEBI Regulations, 1996. 6. On 18.11.2008, margin call notice was issued and on 02.12.2008, M/s.Indiabulls Securities Ltd., sold a part of the shares pledged on instruction of M/s.Indiabulls Housing Finance Limited. Being aggrieved by the action of M/s.Indiabulls Housing Finance Limited in invoking the pledge and sale of shares by M/s.Indisbulls Securities Ltd., Mrs.A.Indira Anand filed C.S.No.1172 of 2008 in this Court.= On a plain reading of Section 176 of the Contract Act, it is clear that before exercising the power of sale the pawner should give to the pledger reasonable notice of the sale (of the pledged thing) Section 176 is mandatory and even if there is a term in the contract of pledge to waive notice, still, the pledge is not relieved of his obligation to give notice before the sale of pledged articles."= Section 176 of the Contract Act provides that if the pawner makes a default in payment of the debt in respect of which the goods were pledged, the pawner may bring a suit against the pawner upon the debt, or he may sell the thing pledged on giving the pawner reasonable notice or the same. The contention that notice of the contemplated sale to the pawner should be inferred from his letter dated 13-8-1948, cannot hold water inasmuch as the said letter does not disclose that a reasonable notice had been given by the pawnee to the pawner to sell the securities. A notice of the character contemplated by Section 176 cannot be implied. Such notice has to be clear and specific in language indicating the intention of the pawnee to dispose of the security. No such intention was disclosed by the Bank in any letter to the respondent.- I am, therefore, clearly of the opinion that the sale of the securities by the appellant Bank without reasonable notice to the respondent was bad and was not binding on hint. What is contemplated by Section 176 is not merely a notice but a 'reasonable' notice, meaning thereby a notice of intended sale of the security by the creditor within a certain date so as to afford an opportunity to the debtor to pay up the amount within the time mentioned in the notice. No such notice was ever given by the appellant to the respondent. There can thus he no escape from the conclusion that the sale of the securities by the appellant was against law and not binding on the respondent. The conclusion reached by the lower appellate court was, therefore, legally sound."=the arbitral award can be set aside if it is contrary to (a) fundamental policy of Indian Law, (b) the interests of India; or (c) justice or morality. A narrower meaning to the expression 'public policy' was given therein by confining judicial review of the arbitral award only on the aforementioned three grounds