Introduction

At the time of executing a commercial contract, Parties often rely on the security provided by the counter-party in the form of a guarantee, pledge or indemnity. It is common-place in modern day transactions and commercial contracts for parties to offer the shares held by them as a security for the underlying debt or for securing the performance of a promise under a contract.

On 12 May 2022, the Supreme Court of India had, in its judgement in PTC India Financial Services Limited Venkateswarlu Kari and Another [1] (“Judgement”) examined the interplay of the Depositories Act, 1996 (“Depositories Act”) and the Securities and Exchange Board of India (Depositories and Participants) Regulations 1996 (“Depositories Regulations”)[2] with the provisions under the Indian Contract Act, 1872 (“ICA”) in relation to the rights of a pawnee to invoke the pledge of shares and manner in which such rights ought to be exercised. In its Judgement, the Hon’ble Supreme Court extensively examined the previous jurisprudence on the rights and obligations of the pawnee and pawnor inter se under the Indian Contract Act, 1872[3] and the manner in which the parties may exercise their rights vis-à-vis one another. The Hon’ble Supreme Court concluded that the rights granted under the ICA to a pledgee or pledgor were in no manner abrogated or altered by the Depositories Act or the Depositories Regulation in cases where a party had pledged its shares to secure a debt or performance of a promise under a contract.

The Judgement of the Supreme Court would inevitably have an impact on the existing agreements involving pledge of shares as well negotiations of pledge deeds which would be executed into the future with banks, financial institutions and operational creditors. The present article summarises the reasoning of the Supreme Court and also analyses the import of Judgement of the Apex Court on the agreements and commercial arrangements entered into by the parties which involve pledging shares as security for payment of debts.

The analysis of the Supreme Court’s Judgement is divided into three sections. The first section summarises the pre-existing law relating to pledge of shares under the ICA, the Depositories Act and Depositories Regulations. The second section addresses the reasoning adopted by the Supreme Court in the Judgement in relation to the interplay of the provisions of the ICA with the provisions of the Depositories Act and Depositories Regulation. The final section analyses the reasoning in the Judgement identifies the take-aways for parties which have or are intending to enter into commercial arrangements involving pledging of shares. Before analysing the reasoning proffered in the Judgement by the Hon’ble Supreme Court, it would be apposite to set out the factual matrix before the Court in relation to which the Supreme Court made its observations.

Factual Background

The lis arose as a result of an appeal from an order of the National Company Law Appellate Tribunal (“NCLAT”). The Appellant, PTC India Financial Services Limited (“PIFSL”) was a company incorporated under the Companies Act, 2013. It was registered with the Reserve Bank of India as a non-banking financial company and was engaged in the business of investing in power and energy sector projects.[4]

PIFSL entered into a bridge loan agreement (“BLA”) for advancing a loan of ₹125 crore to NSL Nagapatnam Power and Infratech Limited (“NNPIL”). Since, the BLA required the loan to be secured, NNPIL’s holding company, Mandava Holdings Private Limited (“MHPL”) executed a pledge deed inter alia pledging 26% of the shares of another entity namely, NSL Energy Ventures Private Limited (“NEVPL”). NEVPL was also a subsidiary of MHPL.[5]

Subsequently, NNPIL filed an application under Section 10 (“Section 10 Application”) of the Insolvency and Bankruptcy Code, 2016 (“IBC”) seeking initiation of corporate insolvency resolution process “CIRP”). The application was admitted and the National Company Law Tribunal (“NCLT”) appointed an interim resolution professional (“IRP”). Simultaneously, PIFCL also filed an application under Section 7 of the IBC (“Section 7 Application”) for initiating CIRP. The NCLT allowed PIFSL to withdraw its Section 7 Application and submit a claim before the IRP appointed pursuant to the Section 10 Application.[6]

Thereafter, PIFSL issued a notice informing MHPL of the default by NNIPL under the BLA and also informing MHPL of its intention to invoke the pledge and reserving its right to sell the pledged shares. PIFSL also wrote to the depository participant for the shares and acting on PIFSL’s request, the depository participant accorded it the status of ‘beneficial owner’ of the shares.[7]

Before the NCLT, MHPL claimed that since PIFSL had been conferred with the status of the beneficial owner, it had no right over the shares and had stepped into the shoes of PIFSL as a financial creditor. MHPL further claimed that the value of the shares of NEVPL was not offset against the amount of debt and that PIFSL was still claiming the entire sum due under the BLA.

The NCLT accepted the argument advanced on behalf of PIFSL and held that MHPL was a financial creditor to the extent of the value of the shares. The NCLT also proceeded to direct the IRP to appoint a valuer to assess the fair market value of the shares.[8]

PIFSL approached the NCLAT by way of an appeal against the order of the NCLT. However, the appeal was dismissed and the NCLAT held that even though PIFSL had not transferred the shares, it had exercised its rights as the shares stood transferred to PIFSL. Accordingly, the NCLAT held that PIFSL could realise its debt by selling the shares and was precluded from relying on Section 176 of the ICA to reclaim its debt. Aggrieved by the order of the NCLAT, PIFSL approached the Hon’ble Supreme Court.

Section I: Law relating to pledge under the ICA

The fundamental question before the Supreme Court was whether the rights available to a pawnee under Section 176 of the ICA continued to remain available in relation to shares held in a dematerialized form subject to the provisions of the Depositories Act and the Depositories Regulations. However, before addressing the interplay between the provisions of the ICA with the Depositories Act and the Depositories Regulation, the Apex Court examined the existing jurisprudence and identified the rights available to a pawnee in a contract for pledge.

Generally, a pledge is “the delivery of the goods by the pawnor to the pawnee by way of security upon a contract that they shall when the debt is paid, or the promise is performed, be returned or otherwise disposed of according to the direction of the pawnor.[9] The law relating to pledge under the ICA is merely a codification of the English common law on the subject.[10] The Supreme Court, in its Judgement, while affirming the dictum of the Andhra Pradesh High Court[11] held that for a contract of pledge to exist, the following conditions must be fulfilled:

• Bailment of good as defined in Section 148 of the ICA
• Bailment must be by way of security.
• The security must be for payment of debt or performance of promise.

The Supreme Court, has in its Judgement, also drawn a distinction between a pledge from a mortgage. The Court noted that as opposed to a mortgage which involved a transfer of right by way of security, a pledge is limited to bailment of the goods. In other words, while a general right in the thing is transferred in a mortgage, only the right to possession of the goods is transferred under a pledge. The precise nature of the transaction can be determined based on the intention of the parties. As such the bailee[12] would not become the owner but would have the right to possession of the goods.[13] In case of pledge of shares, the pawnor would continue to remain the member of the company.[14] In case of a pledge the delivery of possession under a pledge may be actual or constructive.[15]

Nature of the rights of a pawnee under the ICA

The Supreme Court held that under a pledge the pawnee has a special property in the goods pledged which is higher than a mere right to detain the goods and lesser than general property rights.[16] The property vests in the bailee/pawnee only to the limited extent of securing the debt. [17]Under the ICA, the pawnee has the right to retain the goods for covering the payment of the debt as well as the interest on the debt and the expenses incurred for maintenance of the goods bailed.[18]

Pawnee’s right in the event of a default

Even though the ICA does not stipulate any format for executing a contract for pledge, the parties to a pledge cannot agree upon any covenant which is contrary to the provisions of the ICA.[19] In case of a default by the pawnor, the pawnee has the following remedies[20]:

• Right to sue upon the debt and retain the goods.
• Sell the goods after giving reasonable notice to the pawnor.

The Court confirmed that both these rights are concurrent rights which the pawnee may choose to exercise. The Court clarified that merely because a suit has been initiated upon the debt, the pawnee would not loose the right to retain the pledged goods.[21] However, the pawnee’s right to sell the pledged goods would arise only after a default by the pawnor in paying the debt. Sale of the pledged goods before the occurrence of the default would amount to conversion.[22] The pawnee’s right to sell the pledged goods would continue even after the institution of the suit.[23]

The pawnee would, in addition to the right to sue also have the right to sell the pledged goods to recover the debt. In this respect the Supreme Court affirmed the pawnee’s right to sell not only the goods pledged but also any accretions or additions to the pledged goods during the subsistence of the pledge. For instance, if a cow is pledged which gives birth to a calf during the subsistence of the pledge, the pawnee would have the right to sell the cow and the calf to recover its debt.[24] In case of shares, the accretions make take the form of dividends distributed by the company, bonuses or right shares.[25]

Pawnee’s obligation to give notice to the pawnor

The Supreme Court, after extensively reviewing earlier judgements, held that Section 176 of the ICA casts a duty upon the pawnee to provide a notice to the pawnor of its intention to sell the pledged goods. The Supreme Court stated that the duty to provide such a notice was mandatory and as such could not be contracted out of especially in view of the fact that the section does not include any savings clause protecting the right of the parties to enter into a contract whereby the pawnor would waive the right to such a notice.

The Court also took note of the provisions of Section 177 of the ICA which states that the pawnor would have the right to redeem the goods till the actual sale of the goods takes place. The Court explained that a notice to the pawnor in terms of Section 176 of the ICA is necessary to enable the pawnor to exercise his right under Section 177 of the ICA[26] of redeeming the pledged goods after discharging the debt. A notice from the pawnee would enable the pawnor to exercise such right to redeem the pledged goods before their sale by the pawnee.[27]

In addition to the above, the pawnor would have the right to institute a suit for seeking redemption of the property pledged if the same were sold to a third party without proper notice from the pawnee under Section 176 of the ICA. The sale of the property to a third party without notice by the pawnee would be void and would amount to conversion. In such a situation, the pawnor may approach the court, treating the sale as never having taken place.[28]

Sale of goods by the pawnee to himself

Finally, the Court emphasised that if the pawnee sought to transfer the pledged goods to himself, he same shall amount to conversion and the pawnor’s right to redeem the pledge goods expired only after the pledged goods are sold to a third party. The Court held that the pledge would not come to end merely because the pawnee took over the goods himself by crediting the amount towards the pawnor’s account. The sale of the pledged goods to itself by the pawnee was void and therefore could not come in the way of the pawnor exercising its right under Section 177 of the ICA to redeem the goods.[29]

Section II: Reasons proffered by the Supreme Court

The Court, after taking note of the provisions and the pre-existing body of law relating to pledge under the ICA, proceeded to examine whether any of the provisions of the ICA was contrary to the provisions relating to pledge under the Depositories Act or the Depositories Regulations. The Court noted that the Depositories Act was introduced to ensure paperless trading of the shares and to introduce a fresh methodology of trading of securities in dematerialised form.[30]

Under the scheme of the Depositories Act, all securities are held in a “fungible form.”[31] Securities are stored in a dematerialized form in the computers of the “depository”. The depository acts as the registered owner of the security while the person who surrenders the physical shares of the company is recorded as the beneficial owner of the share. The beneficial owner of the share would be entitled to exercise all the benefits and liabilities associated with the share such as voting rights.[32] The Depository was bound to maintain a register with the names of all the beneficial owners of the shares.[33] In case of a transfer, the beneficial owner would intimate the depository of the said transfer and the depository would upon such intimation record the name of the transferee as the beneficial owner.[34]

The Court, taking note of Section 12 of the Depositories Act[35] which permits pledge and hypothecation of shares held by a depository held that even though the Depositories Act does not define pledge and accepts the meaning of the term as used in commercial sense. The Court held that Section 12 of the Depositories act was “not ex facie inconsistent with” the provisions of the ICA and the rights available under common law for the pawnee and pawnor. In fact, the Court noted, Section 12 concedes the right of the shareholder to pledge the shares with prior intimation to the depository. The process of intimating the depository participant according to the Court introduces transparency in the process as the pledge would be registered with the depository participant.[36]

The beneficial owner’s right to create a pledge on the shares is further recognised in Regulation 58 of the Depositories Regulations. Regulation 58 of the Depositories Regulation sets out the procedure for creation as well as cancellation of the pledge along with the obligations of the depository participant with respect to creation and cancellation of the pledge. Regulation 58(8) [37] mandates that the depository participant would register the name of the pawnee as the beneficial owner of the shares upon invocation of the pledge. [38]

The Court noted that even though the Depositories Regulation did not limit the pawnee’s right to sell the shares, it was necessary for the pawnee to be recognised as the beneficial owner in order to be able to exercise the right to sell the shares in the event of the default. The Court further noted that Regulation 58(8) starts with the phrase, “subject to the provisions of the pledge document” which means that the parties would have the freedom to decide the terms of the pledge including the events which would constitute a default by the pawnor which in turn would entitle the pawnee to invoke the pledge. While the terms of the pledge deed would determine the rights and obligations of the pawnee and pawnor inter se, they can by no means override the substantive provisions relating to pledge under the ICA.[39]

The Court further noted that under the scheme of the Depositories Act and Depositories Rules, the pledgor cannot transfer the shares which have been pledged. Further, in order to be able to exercise its right to sell the pledged shares, the pawnee inevitably has to be registered as the beneficial owner since it is only the beneficial owner who can transfer of the shares to a third party.[40]

The Court found that the Depositories Act and Depositories Regulation do not alter or change the law set out under the ICA with respect to pledges. Since the act of selling of the shares to itself by the pawnee would not be recognised under the ICA and would amount to conversion, the registration of the name of the pawnee as the beneficial owner cannot be treated as the pawnee exercising its right to sell the pledged securities. The Court held that the consequent registration of the pawnee as the beneficial owner by the depository cannot be termed as the actual sale of the shares. The Supreme Court held that the provisions of the Depositories Act and Depositories Regulations are capable of being construed harmoniously and the expression actual sale used under Section 177 of the ICA refers to sale of the shares to a third party in accordance with the procedure laid down under the Depositories Act and Depositories Regulation.[41]

The Court supplemented its reasoning in this respect by relying on Section 28[42] of the Depositories Act which states that the provisions of the Depositories Act were in addition to and not in derogation of the provisions of any other act. Therefore, the provisions relating to pledge cannot be construed as conflict with any provision of the ICA and the provisions of the Depositories Act can be construed harmoniously with the ICA.[43] The Court found that there is no conflict between Section 176 of the ICA and Regulations 58(8) and (9) of the Depositories Regulations since the pawnee does not receive any money from the registration as the beneficial owner which can be adjusted against the debt. As such the pawnor’s right of redemption under Section 177 would be preserved even after the registration of the pawnee as the beneficial owner.[44]

The Court however accepted that the pawnor’s right to redeem the shares from third parties on the ground that proper notice under Section 176 of the ICA was not provided would severely undermine the scheme of the Depositories Act and the Depositories Regulation. Therefore, the right of the pawnor to redeem the pledged property in case of the pawnee failing to give proper notice would not be available in case of dematerialised shares.[45]

In view of the above, the Court set aside the orders of the NCLT and NCLAT and held that the conferring of the status of beneficial ownership on PIFSL would not amount to sale of the shares. The registration of PIFSL merely enabled it to transfer the shares to realise its debt and the pledge deed cannot be said to be discharged as a result of such registration. The options available to PIFSL under Section 176 of the ICA continued to remain even after the registration of PIFSL as a beneficial owner and would continue to remain until the shares are transferred to a third party.[46]

Section III:  Analysis of the judgement of the Supreme Court

The Supreme Court has rightly held that the conferring the pawnee with the status of a “beneficial owner” would not amount to a sale resulting in a discharge of a pledge especially since such registration was a necessary pre-requisite for the pawnee to transfer the shares. If the mere conferment of the status of a “beneficial owner” upon the pawnee were treated as a transfer, not only would the rights available to a pawnee under Sections 176 and 177 be reduced to a nullity, it would also produce an absurd situation where the pledge would been deemed to discharged even before the pawnee could realise its debt. For instance, in a case where the shares are subject of an attachment by order of a court or an investigative agency, the shares could not be transferred by the pawnee, the pledge would be deemed to be discharged even though the pawnee would be prevented from transferring the shares to recover its dues.

The interpretation supplied by the NCLT and NCLAT, if accepted, would have inequitable and commercial unjust results especially since shares of a company are susceptible to change in value owing to efflux of time. The value of the shares may increase or decrease between the date on which the pledge is created and the date on which the pledge is invoked. Therefore, treating the pledge to be discharged before the actual sale of the shares would inevitably have an absurd and commercially unfair consequences since the pawnee, despite being accorded the status of a beneficial owner, may not be able to sell the shares or recover its dues completely from the sale of the shares.[47]

The observations of the Supreme Court in respect of the interplay between the Depositories Regulation and the provisions of the ICA appear to be accurate even if viewed from another perspective. The Depositories Regulations state that they have been made by the Securities and Exchange Board of India (“SEBI”) in exercise of its powers under Section 25 of the Depositories Act and Section 30 of the Securities and Exchange Board of India Act, 1992.[48] Section 25(2)(d) of the Depositories Act grants SEBI the power to frame regulations regarding the manner of creating a pledge or hypothecation in respect of security owned by a beneficial owner under sub-section (1) of Section 12 of the Depositories Act. The phraseology of Section 25(2)(d) of the Depositories Act makes it clear that SEBI was only granted the power to regulate the manner in which shares would be pledged and not determine the substantive rights between the pawnor and pawnee. The Depositories Regulation being a subordinate legislation must conform exactly to the power granted.[49] Even though Section 25(1) of the Depositories Act grants SEBI the power to frame regulations to carry out the purposes of the Depositories Act, the power cannot be exercised to create substantive rights or obligations which are not contemplated or have no foundation in the main act itself.[50]

Since, the Depositories Act does not contemplate any restrictions on the substantive rights provided under the Indian Contract Act, 1872, there could not have been any overlap between the sphere of operation of the Depositories Act and Depositories Regulation with the rights under the ICA.[51] The provisions of the ICA regulate the substantive rights and obligations while the Depositories Act together with Depositories Regulation governs the manner in which these rights are enforced.

Finally, it must be borne in mind that the creation of pledges of shares would no longer be governed by the Depositories Regulation since it stands repealed by the 2018 Depositories Regulations.[52] Regulation 79 of the 2018 Depositories Regulations, however, lays down the process for creation of a pledge on shares which is identical to the process laid down by Regulation 58 of the Depositories Regulations which formed the basis of the reasoning of the Hon’ble Supreme Court in its Judgement. In any event, the 2018 Depositories Regulation being a subordinate legislation cannot curtail rights recognised under the Depositories Act or impose restrictions which are contrary or alien to the scheme of the Depositories Act. Therefore, reasoning of the Hon’ble Supreme Court proffered in the Judgement would apply with equal force even to pledges created under the 2018 Depositories Regulations.

Conclusion and Key take aways

The key take-aways from the judgement for parties which have or are intending to enter into any commercial contracts or arrangements involving the pledging of shares are summarised below:

• The rights of a pawnee under Section 176 of the ICA in a pledge of shares would remain intact even after the conferment of the status of beneficial owner. No provision of the Depositories Act or Depositories Regulations can be construed as taking away the right of the pawnee available under Section 176 of the ICA.
• The right to recover the debt subsists till the shares are transferred to a third party following which the amount of consideration received would be set-off against the amount payable by the pawnor to the pawnee. Before the actual sale of the shares, the mere conferment of the status of “beneficial owner” would not preclude the pawnee from bringing an action to recover the entire debt payable by the pawnor.
• The pawnor can insist upon a reduction/discharge of the underlying debt only after the shares have been transferred to a third party by the pawnee. The mere ability of the pawnee to do so would be insufficient for claiming that the value of the pledged shares must be off set against the debt payable by pawnor to the pawnee.
• Similarly, in case the consideration received from the actual sale of the shares to a third party are higher than the debt due from the pawnor, the pawnee would not have the right to retain the difference amount and would have to pass on any surplus from the sale to the pawnor. The pawnee cannot be permitted to make a windfall gain from a sale of the shares for a higher value than the debt. It must be borne in mind that the right to property vests in the pawnee only to the limited extent of securing the debt.[53]

The manner in which the covenants relating to a pledge of shares are recognized and enforced by courts in an event of default by the counter party would inevitably be of importance to banks, financial institutions, asset reconstruction companies and non-banking financial companies as well as operational creditors such as suppliers since the security offered through the pledge would be a determinant in deciding whether to enter into the underlying contract. The Judgement of the Supreme Court offers valuable and much needed insight regarding the legal position with respect to creating a pledge over shares and would provide certainty to parties entering into pledge deeds as to how the rights and obligations memorialised in the pledge deeds/contracts would be recognised and enforced by courts.

Footnotes:

[1] 2022 SCC OnLine SC 608.

[2] The Depositories Regulations have been repealed with effect from 3 October 2018 after the introduction of the  Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018 (“2018 Depositories Regulation”). Regulation 98(1) states of the 2018 Depositories Regulation reads as follows:

98. (1) On and from the commencement of these regulations, the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996, shall stand repealed

[3] Sections 172- 179, Indian Contract Act, 1872.

[4] Judgement at ¶ 3.

[5] Judgement at ¶ 4.

[6] Judgement at ¶¶ 5-6 and 10.

[7] Judgement at ¶¶ 7-8.

[8] Judgement at ¶ 15.

[9] Pollock and Mulla, The Indian Contract Act, 1872, 16^th Edition, 2022, Lexis Nexis at p. 1215 (“Pollock and Mulla”).

[10] Lallan Prasad v. Rahmat Ali, (1967) 2 SCR 233 at ¶ 17; Bank of Bihar v. State of Bihar, (1972) 2 SCC 196 at ¶ 5.

[11] Judgement at ¶27 referring to Md. Sultan v. Firm of Rampratap Kannayalal Hyderabad, by its partners, AIR 1964 AP 201. Pollock and Mulla at p. 1215.

[12] Section 148 of the ICA defines bailee as “The person to whom they are delivered.

[13] Judgement at ¶¶ 30-31 and 34; Bank of Bihar v. State of Bihar, (1972) 2 SCC 196 at ¶ 5.

[14] Balkrishan Gupta v. Swadeshi Polytex Ltd., (1985) 2 SCC 167 at ¶ 33.

[15] Judgement at ¶¶ 32 and 35 relying on Maharashtra State Cooperative Bank Limited v. Assistant Provident Fund (2009) 10 SCC 123 at ¶¶ 49-54 and Morvi Merchantile Bank Ltd. v. Union of India, AIR 1965 SC 1954 at ¶¶ 20 and 21; Lallan Prasad v. Rahmat Ali, (1967) 2 SCR 233 at ¶ 16. Pollock and Mulla at p. 1217.

[16] Judgement at ¶¶34-35

[17] Judgement at ¶32.

[18] Section 173 of the ICA.

[19] Judgement at ¶ 28. Section 176 of the ICA states:

176. Pawnee’s right where pawnor makes default.—If the pawnor makes default in payment of the debt, or performance, at the stipulated time of the promise, in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledge as a collateral security; or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale.

If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor.

[20] Judgment at ¶ 33.

[21] Judgement at ¶41; Pollock and Mulla at p. 1231.

[22] Judgement at ¶¶ 43 and 46.

[23] Judgement at ¶41 affirming the dicta of the Calcutta High Court in Haridas Mundra v. National Grindlay’s Bank Ltd. AIR 1963 Cal 132

[24] Judgement at ¶ 36 relying on Standard Chartered Bank v. Custodian, (2000) 6 SCC 427.

[25] Judgement at ¶ 37 relying on M.R. Dhawan v. Madan Mohan AIR 1969 Del 313; Seth Motilal Hirabhai v. Bal Mani, 1924 SCCOnline PC 81

[26] Section 177 of the ICA reads as follows:

177. Defaulting pawner’s right to redeem — If a time is stipulated for the payment of the debt, of performance of the promise, for which the pledge is made, and the pawnor makes default in payment of the debt or performance of the promise at the stipulated time, he may redeem the goods pledged at any subsequent time before the actual sale of them; but he must, in that case, pay, in addition, any expenses which have arisen from his default.

[27] Judgement at ¶ 58-62 relying on The Cooperative Hindustan Bank Ltd. v. Surendranath De, 1931 SCCOnline Cal 224 and Official Assignee of Bombay v. Madholal Sindhu, ILR 1948 Bom 1.

[28] Official Assignee of Bombay v. Madholal Sindhu, ILR 1948 Bom 1 at pg. 42-43; Pollock and Mulla at p. 1238.

[29] Judgement at ¶¶63-66. The Court overruled the judgement of the Punjab and Haryana High Court in Dhani Ram and Sons v. Frontier Bank, AIR 1962 Punj 321 wherein the Court had held that a sale of the shares pledged by the bank to itself was not void and the pawnee was the lawful owner of the goods.

[30] Judgement at ¶ 68.

[31] Section 9(1) of the Depositories Act.

[32] Judgement at ¶ 69; Section 10(1) of the Depositories Act.

[33] Section 11 of the Depositories Act.

[34] Judgement at ¶ 69-70; Section 7 of the Depositories Act.

[35] Section 12 of the Depositories Act reads as follows:

12.Pledge or hypothecation of securities held in a depository.

(1) Subject to such regulations and bye-laws, as may be made in this behalf, a beneficial owner may with the previous approval of the depository create a pledge or hypothecation in respect of a security owned by him through a depository.

(2) Every beneficial owner shall give intimation of such pledge or hypothecation to the depository and such depository shall thereupon make entries in its records accordingly.

(3) Any entry in the records of a depository under sub-section (2) shall be evidence of a pledge or hypothecation.

[36] Judgement at ¶ 76.

[37] Regulations 58(8) and (9) of the Depositories Regulation read as follows:

(8) Subject to the provisions of the pledge document, the pledgee may invoke the pledge and on such invocation, the depository shall register the pledgee as beneficial owner of such securities and amend its records accordingly.

(9) After amending its records under sub-regulation (8) the depository shall immediately inform the participants of the pledgor and pledgee of the change who in turn shall make the necessary changes in their

records and inform the pledgor and pledgee respectively.

[38] Judgement at ¶¶ 77-78.

[39] Judgement at ¶¶ 79-80.

[40] Judgement at ¶81.

[41] Judgement at ¶ 82.

[42] Section 28 of the Depositories Act reads as follows:

28.Application of other laws not barred.

The provisions of this Act shall be in addition to, and not in derogation of, any other law for the time being in force relating to the holding and transfer of securities.

[43] Judgement at ¶¶ 82 and 89.

[44] Judgement at ¶¶83-84 and 95.

[45] Judgement at ¶ 86

[46] Judgement at ¶¶ 98-105.

[47] Concerns regarding obstacles and hurdles which the pawnee may face post invocation of the pledge are taken account of by the Supreme Court in its Judgement at ¶95.

[48] Preamble to the Depositories Regulations; further the Hon’ble Supreme Court has in Judgement at ¶ 76 noted  that the Depositories Regulation have been framed under the powers under Section 25(2)(d) of the Depositories Act.

[49] Global Energy Ltd. v. Central Electricity Regulatory Commission, (2009) 15 SCC 570 at paragraphs 55 and 56; Supreme Court Employees’ Welfare Assn. v. Union of India (1989) 4 SCC 187 at paragraph 62.

[50] Global Energy Ltd. v. Central Electricity Regulatory Commission, (2009) 15 SCC 570 at paragraphs 25 and 26.

[51] Judgement at ¶¶ 67 and 86.

[52] Regulation 98(1) states of the 2018 Depositories Regulation reads as follows:

98. (1) On and from the commencement of these regulations, the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996, shall stand repealed

[53] Lallan Prasad v. Rahmat Ali, (1967) 2 SCR 233 at ¶¶ 16-17. Judgement at ¶29.