Bombay High Court

NIKHIL HASMUKH MALKANversusSTANDARD CHARTERED INVESTMENT AND LOANS (INDIA) LTD

Decided: 9 September 2026
Disposal: DISMISSED

Holding

The High Court upheld the arbitrator’s award, holding that the contract required maintenance of a 50 % LTV and that the bank was entitled to sell the pledged securities upon breach, with the notice given being sufficient.

Summary

The petitioners, who had taken a Rs 10 crore term loan from Standard Chartered Investment and Loans (India) Ltd secured by 1,85,000 Reliance Industries shares, alleged that the bank illegally sold 65,000 pledged shares on 19 March 2020 without the two‑day notice required under their loan agreement. The bank argued that the loan‑to‑value (LTV) ratio of 50 % (or 2 times cover) had been breached and that multiple top‑up notices had been issued, giving the borrowers sufficient opportunity to remedy the shortfall. The arbitrator held that the contract required maintenance of the 50 % LTV and that the bank was entitled to sell the securities upon failure to cure the breach, rejecting the claim of a 65 % margin‑erosion trigger. The High Court examined whether the arbitrator’s interpretation of the agreement and the adequacy of notice were perverse or contrary to law. Finding that the arbitrator correctly applied the contractual terms, the court held that there was no ground for interference under Section 34 of the Arbitration Act. Consequently, the petition challenging the award was dismissed.

Issues considered

Whether the sale of 65,000 pledged shares by the bank was illegal under the loan agreement.
Whether the contract required a 65 % margin‑erosion trigger or a 50 % LTV breach for sale.
Whether the bank gave adequate notice as required by Clause 7 and Clause 20 of the agreement.
Whether the arbitrator’s award is perverse or patently illegal under Section 34 of the Arbitration Act.
Whether the evidence of oral assurances and emails can override the written contract terms.

Legislation cited

Arbitration and Conciliation Act, 1996 — s. 34
Companies Act, 1956
Indian Contract Act, 1872 — s. 176
SEBI (Depositories and Participants) Regulations, 1996 — s. 58

Subjects

Arbitration
Section 34
Loan-to-Value
Margin erosion
Pledged securities
Notice requirement
Contract interpretation
Perverse award
Top‑up notice

Judgment

ARBP 276-24 (J).doc

IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION

ARBITRATION PETITION NO. 276 OF 2024

1. Nikhil Hasmukh Malkan ]
]
2. Usha Hasmukh Malkan ]
]
3. Hasmukh N. Malkan ]
]
All adults of Mumbai, Indian ]
inhabitant, having their address ]
at 401, Tareti Building, 4th floor, ]
29-C, Doongershi Road, ]
Walkeshwar, Malabar Hill, ]
Bombay 400006. ] ...Petitioners.
Versus

Standard Chartered Investment ]
and Loans (India) Limited, ]
a company registered under the ]
provisions of the Companies Act, 1956, ]
having its registered office at ]
6/FL Crescenzo Building, ]
Bandra Kurla Complex, ]
Bandra (E), Bombay 400051 ] ...Respondent.

——————
Mr. Shailesh Shah, Senior Advocate along with Mr. Ronish Mehta, Ms. Sonal
Awasthi and Mr. Manee Vishwakarma i/b Vinod Mistry & Co., for the Petitioners.

Mr. Rahul Dev, Ms. Avina Karnad and Mr. Pranav Shetty i/b Argus Partners for
the Respondent.
——————

Coram : Sharmila U. Deshmukh, J.
Reserved on : July 31, 2026.
Pronounced on : September 9, 2026.
[Thr. Video Conferencing]

Patil-SR (ch) 1 of 32
ARBP 276-24 (J).doc

Judgment :

1. By this petition filed under Section 34 of the Arbitration and

Conciliation Act [for short “Arbitration Act”], the Petitioner who is

original claimant impugns the award dated 26 th February 2024 rejecting

the Petitioner‘s claim against the Respondent-bank for alleged illegal

sale of pledged securities.

2. The dispute in the present case arises out of a loan-cum-pledge

agreement dated 26th November 2018. The Petitioner had availed of a

term loan of Rs.10 crore against pledge of shares of Reliance

Industries Limited (RIL). Alleging illegal sale of 65,000 pledged

securities in violation of the terms of sanction, arbitration came to be

invoked seeking following reliefs:

“a. This Hon'ble Tribunal be pleased to pass an Award
directing the Respondent to deposit 65,000 shares of
Reliance Industries Limited into the Demant Account of the
Claimants;

b. In the alternative to prayer clause (a) above, this
Hon'ble Tribunal be pleased to pass an Award directing the
Respondent to pay Rs.9,90,70,000/- to the Claimants as and
by way of reimbursement of losses and/or damages suffered
for illegal sale of 65,000 shares of the Claimants of Reliance
Industries Limited on 19th March 2020, as per the Particulars
of Claim annexed at Sr. No.20 to the Compilation of
Documents of Claimants, along with interest thereon at the
rate of 18% per annum from the date of filing the Statement
of Claim till payment;

c. This Hon'ble Tribunal be pleased to pass an Award
directing the Respondent to pay Rs.51,17,273/- to the
Claimants as and by way of reimbursement of losses and/or

Patil-SR (ch) 2 of 32
ARBP 276-24 (J).doc

damages suffered for not being able to subscribe to 4,333
shares of Reliance Industries Limited in the public rights issue
which took place in 13th May, 2020, as per the Particulars of
Claim annexed at Sr. No.21 to the Compilation of Documents
of Claimants, along with interest thereon at the rate of 18%
per annum from the date of filing of the Statement of Claim
till payment;

d. This Hon'ble Tribunal be pleased to pass an Award
directing the Respondent to pay Rs.8,72,500/- to the
Claimants as and by way of reimbursement of losses and/or
damages suffered for loss of dividend in respect of 65,000
shares of Reliance Industries Limited upto the date of filing
the Statement of Claim, as per the Particulars of Claim
annexed at Sr. No.22 to the Compilation of Documents of the
Claimants, along with interest thereon at the rate of 18% per
annum from the date of filing the Statement of Claim till
payment;

e. This Hon'ble Tribunal be pleased to order and direct
the Respondent to pay INR 10 crores as damages as well as
for causing mental & physical harassment, anxiety and agony
by the Respondent owing to their illegal act in selling the
shares of 65000 of the Claimants.”

3. The learned Sole Arbitrator came to be appointed under Section

11 of the Arbitration Act.

4. The statement of claims pleads about an assurance given by the

Respondent’s representative that the buffer margin was 65% of the

market value of shares as recorded in writing dated 5 th November, 2018

and confirmed by emails and telephonic conversation. On 6 th March,

2020, there was further pledge of 15,000 shares without any

requirement as value of pledged securities was within buffer margin

limit of 65%. It is claimed that there was surplus margin on 18 th March,

Patil-SR (ch) 3 of 32
ARBP 276-24 (J).doc

2020, when email dated 19th March, 2020 was received and 65,000

shares were sold without notice despite Clause 7 and 20 of the

agreement mandating written notice of 2 days.

5. The defence of the Respondent was that as per the terms of

sanction, the Petitioners were required to maintain Loan to Value [for

short “LTV”] ratio of 50% or 2 times (to be maintained at any time

during the facility). The loan of Rs.10 crore was against the security

facility, pursuant to which sanction letter dated 23 rd November 2018

was issued mentioning the security cover. The terms and conditions of

the facility were detailed in the Finance Against Securities Agreement

(FAS) executed between the parties. The risk disclosure agreement,

the power of attorney and demand promissory note were duly

executed by the Petitioners. The loan facility was sanctioned against

pledge of 1,85,000 shares of RIL as collateral security. In the month of

January 2020, the Respondent had unpledged 40,000 shares out of

1,85,000 shares after taking into account the margin requirement. Due

to COVID-19 pandemic, the market price of the pledged shares

drastically dropped and top-up notices were issued by the Respondent

to the Petitioner requesting to cover the margin shortfall of 50% on 2 nd

March 2020, 3rd March 2020, 4th March 2020, 5th March 2020 and 6th

March 2020. The Petitioners further pledged 15,000 shares of RIL on

6th March 2020 to cover the shortfall in margin requirement of 50% and

Patil-SR (ch) 4 of 32
ARBP 276-24 (J).doc

thus total of 1,60,000 shares were pledged with the Respondent. The

market fell post 6th March 2020, and further top-up notices were issued

by the Respondent on 11th March 2020, 12th March 2020, 13th March

2020, 16th March 2020, 17th March 2020, 18th March 2020 and 19th March

2020 regarding the shortfall with a request to cover up the margin

shortfall within a period of 7 days from the date of receipt of top-up

notices or written intimation, whichever was earlier, failing which the

Respondent will be constrained to sell the security to cover the

shortfall. As there was default, the Respondent sold 65,000 pledged

shares on 19th March 2020, to cover up the shortfall in loan account.

6. The learned Arbitrator framed the following issues:

"i. Whether the Claimants are entitled to an award in an
amount of Rs.9,90,70,000/- towards loss/ damage on sale of
65,000 shares of Reliance Industries Ltd by the Respondent?
ii. Whether the Claimants proves the sale of 65,000
shares of Reliance Industries Ltd. by the Respondent was
illegal in any manner whatsoever?
iii. Whether the Claimants proves they suffered loss or
damage in an amount of Rs.51,17,273/- on account of inability
to participate in the rights issue of Reliance Industries Ltd.
when the principle shares i.e. 65,000 shares were illegally
sold?
iv. Whether the Claimants are entitle to reimbursement
of loss or damage amounting to Rs.8,72,500/- due to failure to
receive dividend on 65,000 shares of Reliance Industries Ltd.?
ν. Whether the Claimants are entitle to an award in an
amount of Rs.10 crores towards damages for mental and
physical harassment and anxiety and agony?
vi. Whether the Respondent proves that the Claimants
have breached the finance against Security Agreement dated
26 November 2018?

Patil-SR (ch) 5 of 32
ARBP 276-24 (J).doc

vii. Whether the Claimants were required to maintain a
Loan to Value ("LTV") ratio of 50% or 2 times loan value (at
any time during the facility) as per the provisions of the
Sanction Letter, Finance Against Securities Agreement and
other loan documents?
viii. If the Claimants are entitled to any of the reliefs for
damages, then whether they are entitled to interest and at
what rate and from what date?
ix. What award?
x. What order as to costs?"

7. An additional issue was framed as under:

“Whether the claimants prove the due execution and
terms/contents of the document at sr. No.1 of the claimants'
compilation as also the telephonic conversations and
transcripts at sr. No.2 and 12?”

8. The learned Arbitrator interpreted the terms of the contract as

an arrangement in which the security cover was to be twice the amount

sanctioned and in the present case would be Rs 20 crores for Rs 10

crore loan. It noted that the dispute arose about the interpretation of

top-up mechanism read with the security cover, where the case of the

Petitioners is that there should be 30% margin erosion before any

notice is issued and the Respondent’s case is of top-up as soon as the

cover goes below 2 times. The learned Arbitrator considered various

clauses of the deeds executed between the parties to hold that the

margin erosion of 52.2% to 64%, enabled the Respondent to issue the

top-up notice and on failure of the Petitioners to make payment or

provide security, proceeded to sell the security. It held that in view of

Patil-SR (ch) 6 of 32
ARBP 276-24 (J).doc

the issuance of top-up notices, further sale notice was not required. It

declined to accept that the alleged understanding, based on telephonic

conversation and an email, which was not addressed to the Respondent

but by a person who did not depose to the same, as an arrangement of

sell down scenario at 65% erosion leading to the rejection of claim.

9. Mr Shah, learned Senior Advocate appearing for the Petitioner

would submit that as per the agreement, the loan to value ratio was to

be 50% and if the LTV ratio crossed 65%, then, the Respondent was

entitled to sell the pledged shares after giving 2 days prior notice /

intimation to the Petitioner. He submits that the issuance of notices to

pledge additional shares in end of February substantiates the

arrangement, and additional shares were pledged by the Petitioner on

6th March 2020. He submits that from 9th March 2020, the share prices

started declining and on 11th March 2020, the Respondent again issued

notices to the Petitioner. He submits that on 19 th March 2020, the LTV

ratio crossed 65% and the Respondent sold 65,000 shares at 3.02 p.m.

and gave notice to the Petitioner on the same day at 7.26 p.m. giving 7

days time, i.e., after the shares were sold. He submits that the sanction

letter dated 23rd November, 2018 is to be read with Clause (7) and

Clause (20) of the agreement, which has been construed as parties to

mean that only upon margin erosion of 65% and above, the

Respondent was entitled to sell the shares and not merely on margin

Patil-SR (ch) 7 of 32
ARBP 276-24 (J).doc

deficiency crossing 50%. He would further point out that the

Respondent’s witness has admitted in his affidavit of evidence that if

the value of securities falls below the 50% security cover, the

Respondent has to give notice for rectification of the shortfall in the

margin. He would further point out that in answer to Question Nos.30

and 37, the Respondent’s witness has reiterated that the sell-down

scenario was 65%. He would further submit that the conduct of

Respondent in not selling the shares till LTV crosses 65%, also shows

that it could not have been sold on mere crossing of 50%. He points

out that the writing dated 5th November 2018 by the ex-employee of

Respondent, who was in charge of the subject agreement also states

that in event of value of security breaching 65%, the Respondent will

issue a notice giving time for providing additional security or making

the payment of shortfall amount to the bank, which is also borne out

from the audio recording.

10. He would submit that the claim of Respondent is that as per

their internal policy, no notice was required once the LTV crosses 65%

is contrary to Clauses (7) and (20) of the agreement dated 26 th

November 2018, which speaks about 2 days prior written intimation.

He submits that Section 176 of the Indian Contract Act, 1872 also

requires a prior reasonable notice. He submits that it is not the

pleaded case of the Respondent that no notice was required once the

Patil-SR (ch) 8 of 32
ARBP 276-24 (J).doc

LTV crosses 65% and if that be so, there was no need for the

Respondent to give notice to the Petitioners on 19th March 2020 post

sale of pledged shares. He submits that assuming without admitting

that notices sent before the event of default are valid notice, the sale

of shares was done before the expiry of 7 working days as the period

of 7 days expired on 20th March 2020. He would submit that it is not

the Respondent’s case that they had sold without giving notice to the

Petitioners and therefore the provision in the risk disclosure statement

is irrelevant.

11. He has taken this Court in detail through the findings of the

learned Arbitrator to contend that the award is perverse as the learned

Arbitrator has ignored the sanction letter and the margin erosion ratio

set out in the sanction letter and also vital oral evidence of the

Respondent’s witnesses admitting that the sell-down scenario is 65%

erosion. He submits that the learned Arbitrator has ignored the

conduct of Respondent of selling shares only after LTV crosses 65%. He

submits that the learned Arbitrator has failed to consider the core

issue as to whether the sell-down scenario was 50% or 65% and

proceeded to discuss the method of calculation about which there was

no dispute. He submits that the learned Arbitrator has ignored that

the statement contained in the email dated 5 th November 2018 was

corroborated by the Respondent’s witness. He submits that finding of

Patil-SR (ch) 9 of 32
ARBP 276-24 (J).doc

the learned Arbitrator on the audio recording overlooks the fact that

the conversation corroborated the sell-down scenario at 65%. He

would submit that the conversation did not vary the terms of the

contract as the sanction letter which is also part of the contract puts

the margin erosion at 65% for sale of pledged shares.

12. He submits that the learned Arbitrator has ignored that the top-

up notices were prior to 19th March 2020, when it had not crossed 65%

and the notice of sale has to be given after the default takes place, that

is in this case on 19th March 2020 when it crossed 65% and not prior

thereto. He submits that award is contrary to the terms of the

agreement dated 26th November 2018 and sanction letter dated 23 rd

November 2018, which provides for margin erosion at the rate of 65%.

He submits that finding of the learned Arbitrator is patently illegal as it

holds that margin erosion is at 50%, which is contrary to the terms of

the contract. He submits that the award is in contravention of the

fundamental policy of the Indian law and in violation of the principles

of natural justice in view of Section 176 of the Indian Contract Act,

1882. In support he relies upon the following decisions:

PTC India Financial Services Ltd v. Venkateshwarlu Kari1

The Official Assignee v. Madholal Sindhu2

1 (2022) 9 SCC 704.
2 [1948] Indian Law Reports Bom 1.

Patil-SR (ch) 10 of 32
ARBP 276-24 (J).doc

13. Per contra Mr. Dev learned counsel appearing for the

Respondent submits that the sanction letter enjoined the Petitioners

to maintain security cover of 50% during the subsistence of the loan

facility and in event of fall of security cover below 2 times of

outstanding amount, the Petitioners were required to top-up the

facility to maintain 50% margin. He would point out Clause 7, 20(1) and

20(2) of the loan agreement to contend that in the event the shortfall

is not rectified within 2 days of notice, the Respondent was entitled to

sell or realise part of the security as it deems fit. He would further

point out that the risk disclosure document signed by the Petitioners

permitted the Respondent to sell the security even without notice to

maintain security cover.

14. He submits that on 28th February 2020, the value of pledged

securities admittedly breached 50% LTV, triggering the top-up

mechanism. He submits that from 2nd March 2020, top-up notices were

addressed to the Petitioners intimating them to rectify the margin

shortfall within 7 working days from the receipt of notice or from the

first intimation failing which the Respondent would be constrained to

sell the shares, which intimation continued till 6 th March 2020. He

submits that additional 15,000 shares of Reliance Industries Limited

were pledged and despite thereof on 9th March 2020, the security cover

continued to be below 50% LTV for which continuously top-up notices

Patil-SR (ch) 11 of 32
ARBP 276-24 (J).doc

were sent. He submits that on 19th March 2020, the shortfall went

below 65% LTV, and the Respondent was compelled to sell 65,000

pledged shares to address the shortfall in the security cover and to

regularize the loan account of the Petitioner. He submits that prior to

selling of securities, the Respondent intimated the Petitioner about

the imminent sale on the same day and there was no protest till 4 th

June 2020. He submits that reliance on the top-up mechanism in the

sanction letter is misplaced as there is no contractual provision which

makes reference to the value of security falling to 65% LTV, as a trigger

event. He would submit that in any event, reference to 30% margin

erosion is not applicable where the borrower has pledged equity or

equity mutual funds as security for loan. He would further point out

that the Petitioner’s witness was unable indicate any contractual clause

as regards the sell-down scenario of 65% LTV. He submits that the sale

of pledged securities was undertaken in accordance with the contracts

executed between the parties and RBI Circulars.

15. He submits that writing dated 5th November 2018 is not an

official document and has not been proved to have been executed by

the ex-employee of Respondent as also the telephonic recording

remained unproven. He submits that the learned Arbitrator has taken

into consideration the terms of the contract and has interpreted the

same which is possible view deserving no interference. In support he

Patil-SR (ch) 12 of 32
ARBP 276-24 (J).doc

relies upon the following decisions:

K. L. Enterprises LLP v. Bajaj Finance Ltd3

Parsa Kente Collieries Ltd. v. Rajashtan Rajya Vidyut Utpadan Nigam
Ltd4

Dyna Technologies Pvt Ltd. v. Crompton Greaves Ltd5

DMRC Ltd v. Delhi Airport Metro Express (P) Ltd6

16. I have perused the documents produced on record. I have also

perused the impugned award passed by the learned Sole Arbitrator.

17. There is no dispute about the sanction of term loan of Rs.10

crore by the Respondent to the Petitioners against the pledge of

securities, which in the present case was 1,85,000 shares of RIL. It is

also not in debate that the fall of LTV ratio below 50% or 2 times

security cover triggers the event for issuance of notice for rectification

of shortfall in the margin.

18. The dispute is about the extent of margin erosion which entitles

the Respondent to sell the pledged securities and the notice required

to be given after the default takes place i.e. stipulated margin erosion.

Though admitting that the margin cover is required to be 50%, the

contention of Mr. Shah is that the sell down scenario for the pledged

shares occurs upon margin erosion is 65% and after giving 2 days prior

written intimation, the pledged securities can be sold.
3 2020 SCC OnLine Del 2797.
4 (2019) 7 SCC 236.
5 (2019) 20 SCC 1.
6 (2024) 6 SCC 357.

Patil-SR (ch) 13 of 32
ARBP 276-24 (J).doc

19. The pleaded case of the Petitioners, in so far as claim of default

being margin erosion of 65% is concerned, is premised on the

assurance given by the Respondent’s representative, emails and

telephonic conversations. During the hearing, the case of the

Petitioners has been improved to interpret the top up mechanism in

the sanction letter as the arrangement of sell down scenario being 65%

margin erosion. Mr. Shah has laid great emphasis on the Top Up

mechanism set out in the sanction letter, which reads thus:

“Top-Up Mechanism : Below 2x cover for Equity & Equity Mutual fund, for

others 30% margin Erosion.”

According to Mr. Shah the reference to 30% margin erosion constitutes

the sell down scenario with prior notice of two days.

20. The sanction letter sets out the terms of sanction and the

security cover is mentioned as “50% / 2 times (to be maintained at any

time during the facility) and the Top-up mechanism as “Below 2x cover

for equity and equity mutual fund, for others 30% margin erosion”. The

loan-cum-pledge agreement executed between the parties details the

terms and conditions on which the loan facility has been advanced to

the Petitioners. Clause (7) of the loan-cum-pledge agreement details

the arrangement in case of fall in the value of security and reads as

under:

Patil-SR (ch) 14 of 32
ARBP 276-24 (J).doc

“7. FALL IN THE VALUE OF THE SECURITY
7.1 If at any time the value of the Securities falls so as to
create a deficiency in the Margin requirement specified by SCILL
from time to time or there is a withdrawal in excess of the loan
facility, the Borrower/the Pledgor shall within two (2) Business
Days of notice from SCILL, deposit with SCILL additional
Securities in the form of cash or such other form of Securities
which may be acceptable to SCILL. The Borrower shall be
responsible for checking from time to time all such Margin
deficiency, irrespective of whether SCILL the Borrower of the
same or not.
7.2 It the Borrower and or the Pledgor fail to deposit the
additional security as required in clause 7.1 above, SCILL, may at
its discretion sell, dispose of or realise all or part of the
securities then held by SCILL, whether on the Exchange or as an
off market trades or otherwise as SCILL may deem fit, without
being liable for any loss or damages or diminution in value.
7.3 The Borrower and or the Pledgor shall not raise any
objection in respect of such disposal of the Securities by SCILL
and/or the adequacy of consideration realised therefrom.
7.4 In the event that the sums realized upon such sale of
Securities are not sufficient to make good the deficiency in the
Margin requirement or the excess overdrawn in respect of the
Facility, the Borrower/Obligor shall immediately pay SCILL, the
sum required to make good such shortfall.
7.5 Notwithstanding that no Event of Default has
occurred, SCILL at its sole discretion will also have the option to
sell redeem/transfer any portion of any of the Securities and
apply the amount realised towards repayment and liquidation of
part of the Facility Balance/Loan Balance, so as to maintain the
Margin.”

21. Clause (20) of the agreement deals with the events of default

and consequences and reads as under:

“EVENTS OF DEFAULT AND CONSEQUENCES:

20.1 Upon the occurrence of any of the following events
(the "Events of Default"):

Patil-SR (ch) 15 of 32
ARBP 276-24 (J).doc

(a) any representation, warranty or declaration provided by the
Borrower in terms of this Agreement and in relation to the
Facility is or becomes false, misleading or otherwise incorrect;

(b) the Borrower fails to observe or comply with any of the
terms and conditions of this Agreement or any other document
entered into with SCILL, under/in relation to the Facility:

(d) the Borrower commits any act of bankruptcy, insolvency,
suspends payment to any of its creditors, or if any petition of
bankruptcy or winding up is filed by or against the Borrower
which petition is not withdrawn within 30 days of being
admitted;

(e) a receiver is appointed over the whole or any part of the
property of the Borrower;

(f) the Borrower ceases or threatens to cease carrying on its
business;

(g) any order of attachment, distress, execution or other
similar process is enforced against the Borrower and/or upon
any security provided to SCILL. in relation to the Facility:

(h) any litigation, arbitration, investigative, regulatory or
administrative proceeding/action is current, pending or
threatened against the Borrower or any other event occurs,
which SCILL, determines in its absolute discretion has (or
might, if adversely determined, have) a material adverse effect
on:

(i) the condition (financial or otherwise), assets,
operations, prospects or business of the Borrower; or

(ii) the ability of the Borrower to comply with its
obligations under this Agreement and/or any other
document in relation to the Facility; or

(iii) the validity, legality or enforceability of, or the rights
or remedies of SCILL under this Agreement and/or any other
document in relation to the Facility; or

(iv) the validity, legality or enforceability of the security or
on the priority or ranking of the security;

Patil-SR (ch) 16 of 32
ARBP 276-24 (J).doc

(i) to the extent that Security has been provided by any person
other than the Borrower, any of the events set out in Clauses
19.1(a) to 19.1(o) above occur in relation to such third party;

(j) If there is any deterioration or impairment of any securities
or any part thereof or any decline or depreciation in the value
thereof (whether actual or reasonably anticipated), which
causes the securities or any part thereof, in the Judgment of
SCILL to become unsatisfactory as to character or value;

(k) the Securities (if any) created ceases to enure to the benefit
of SCILL:

(l) all or any part of the Facility is not utilised for the Purpose:

(m) if it is certified by a firm of accountants appointed by SCILL
(which BCILL, is entitled and hereby authorised to so appoint at
any time) that the labilities of the Borrower exceed the
Borrower's assets or that the Borrower is carrying on a
business at a loss:

(n) there is a default, Event of Default or other similar
condition or event (however described), or a potential Event of
Default which with the lapse of time or giving of notice , may
become an Event of Default, under one or more agreements or
instruments entered between (i) SCILL and the Borrower; or (ii)
SCILL and any of the Obligor's affiliates/associated
company(ies); or (iii) the Borrower and any of its lenders; or (v)
the Borrower's affiliates/associated company(ies) with any of
their lenders.

(o) If a cross default as below occurs:

(i) any Debt of the Obligor is not paid when due or
within any originally applicable grace period;

(ii) any Event of Default or a potential Event of Default
(however described) which with the lapse of lime or
giving of notice may become an Event of Defaults occurs
under any contract or document relating to any Debt:

(iii) any commitment for any Debt of the Obligor is
cancelled or suspended by a creditor as a result of an
Event of Default (however described):

(iv) any creditor of the Obligor becomes entitled to

Patil-SR (ch) 17 of 32
ARBP 276-24 (J).doc

declare any Debt due and payable prior to its specified
maturity as a result of an Event of Default (however
described): or

(v) any encumbrance over any assets of the Obliger to
secure any other Debt becomes enforceable.

20.2 If an Event of Default occurs or is outstanding,
SCILL, may at any time with immediate effect by a notice in
writing to the Borrower:

(i) cancel the Facility, whereupon no further utilisation
may be made of the Facility; and/or

(ii) declare the outstanding amounts/all monies
outstanding (whether or not then otherwise due) under
the Facility as being immediately due and payable or
otherwise payable on demand; and/or

(iii) accelerate the repayment of the Facility, and/or.

(iv) self dispose off or realise all or any of the Securities
held by SCILL, whether on the Exchanges or as off
market trades or otherwise as SCILL may deem fit, after
giving the Borrower, notice of not less than 2 (two)
days. Such disposal can be done on such terms and for
such price that SCILL, deems at and apply the net
proceeds towards the satisfaction of the LOAN Balance
including charges, expenses etc. and the Obligor shall
not raise any objection in respect of such disposal of
the Securities by SCILL and/or the adequacy of
consideration realized therefrom. In the event that the
sums realized upon such sale of Securities are not
sufficient to make good the payment due to SCILL. the
Borrower shall immediately pay SCILL the sum required
to make good such shortfall; and/or

(v) commence legal proceedings to recover such sum,
the Borrower will further pay SCILL, all advances,
charges, cost, expenses, including all legal fees incurred
or paid by SCILL in exercising any right, power or
remedy conferred by this Agreement, (and/ or in the
enforcement thereof) and all such amounts shall
become a part of the indebtedness secured hereunder
and shall be paid to SCILL by the Borrower Immediately
and without demand; and/or

Patil-SR (ch) 18 of 32
ARBP 276-24 (J).doc

(vi)SCILL, has the right to enforce the Security and/or
Additional Security pertaining to the Facility, including
but not limited to the substitution of the Borrower/
sale of the Securities.”

22. The Risk Disclosure Statement signed by the parties provides for

margin call and reads as under:

Margin Call
Using the example of Mutual Fund and Equity Shares as
Security over the tenor of Facility, its market value may
fluctuate and fall below your original investment value of INR
200000. In this case SCILL has the right to require that you
either top-up the Securities or to sell off part of Securities
already pledged to SCILL and apply the proceeds from the sale
as described below.

SCILL may first contact you (either verbally or in writing) to
request that you top-up the Securities. If you fail to comply
with the top-up request, the Securities that you pledge to
SCILL may be liquidated. However if the market value of your
Securities falls below what we consider to be adequate
Security Margin which we may determine and vary from time
to time at our discretion, SCILL will liquidate the Securities
pledged immediately without any prior notice to you.

Upon Liquidation the proceeds will be used to settle the
outstanding loan plus Interest and any other administrative
charges. The remaining monies if any will be refunded to you.
In the event that SCILL Liquidate your Securities and the
proceeds are still insufficient to settle the outstanding loans
plus interest and any other administrative charges, you should
be liable to SCILL for the shortfall.”

23. The sanction letter, the agreement and the risk disclosure

statement cover the entire arrangement between the parties based on

which the loan facility was advanced to the Petitioners. The documents

undoubtedly disclose that at all times, the LTV was to be maintained at

Patil-SR (ch) 19 of 32
ARBP 276-24 (J).doc

50%. Clause 7.2 of the agreement specifically entitles the Respondent

to liquidate the securities upon failure to maintain margin requirement

despite written notice of 2 days. Clause 7.5 of the agreement provides

that even if no default occurs, the Respondent at it sole discretion is

entitled to sell any portion of the securities and apply the amount

realised towards repayment and liquidation of part of the loan balance

so as to maintain the margin. The Top Up mechanism, as the expression

suggests, in the sanction letter is to top up the security cover in event

it falls below 2 x cover.

24. Clause 20(1)(j) provides that if there is any decline or

depreciation in the value of security, the same constitutes an event of

default. Clause 20(2) provides that in event of default, the Respondent

may at any time by a notice in writing to the borrower, sell, dispose of

or realise any of the securities held by the Respondent after giving the

borrower a notice of not less than 2 days. The agreement between the

parties enjoined the Respondent to give notice of 2 days for deposit of

additional securities or for alienation. The risk disclosure document on

margin call provides that the Respondent may first contact the

borrower to top-up the security and in case of failure to comply with

the top-up request, the security pledged with the Respondent may be

liquidated.

Patil-SR (ch) 20 of 32
ARBP 276-24 (J).doc

25. It is the margin requirement of 2 x cover which is sacrosanct and

was required to be maintained as such at all times, permitting the

Respondent to sell the securities even if there is no event of default in

order to maintain the margin. The contention of Mr. Shah that the

margin requirement is 50%, however, sell down scenario is 65% breach,

is contrary to the terms of the agreement. There is no contractual

clause demonstrating sell down scenario at 65% margin erosion. The

submissions are canvassed by Mr. Shah on the basis of the sanction

letter, writing of 5th September, 2018, emails, telephonic conversations

and cross examination of Respondent’s witness.

26. Though not their pleaded case, even if reliance is placed on the

sanction letter, the same cannot be read in isolation and has to be read

in consonance with the agreement and the risk disclosure statement to

ascertain the agreement between the parties. The sell down scenario

of 65% as contended by Mr. Shah does not stand to reason in view of

the undisputed position that the security cover was required to be

maintained at 50%/ 2 times at any time during the facility and in event

of non rectification of deficiency entitled the Respondent to alienate

the security.

27. The Learned Arbitrator noted the submissions of the Petitioners

of alleged understanding contained in the writing of 5 th September,

2018 executed by the ex-employee of Respondent representing that

Patil-SR (ch) 21 of 32
ARBP 276-24 (J).doc

upon value of security falling below 65%, notice will be given to give

additional security or make payment of shortfall amount. The Learned

Arbitrator held that the understanding is not part of the contractual

documents. It held in paragraph 66 that notices were issued by

Respondent and duly received by the Petitioners to which there was no

protest. It observed that if there was an understanding that nothing

was to be done till breach of 65%, then normal reaction would be to

protest in some form. It held that it is not open to vary the contractual

documents arrived at between the parties and read in another

understanding based on telephone conversations and emails.

28. Even ignoring the specific clauses in the loan agreement for the

moment, in event the submission of Petitioners is accepted that the

sell down scenario is 65% margin erosion, the requirement of

rectification of margin shortfall upon security cover falling below 50%

would have no sequiter. The borrower can very well ignore the fall in

security cover below 50% and wait till 65% margin erosion rendering

the condition of maintaining the security cover at 50% at all times

redundant. The documents executed between the parties clearly

spells out that the non compliance of margin shortfall below 50%

entitles the Respondent to sell with 2 days notice.

29. The top up notices issued by the Respondent, which are

admitted, called upon the Petitioners to rectify the margin shortfall

Patil-SR (ch) 22 of 32
ARBP 276-24 (J).doc

failing which there would be sale of pledged securities. There was no

protest by the Petitioners claiming that the sell down scenario occurs

only upon 65% margin erosion and in fact the Petitioners pledged

additional securities on 6th March, 2020 when the security cover fell

below 50%.

30. The learned Arbitrator has formulated the correct proposition in

paragraph 37 as under:

“The issue which arises and where the dispute arises is
about the interpretation of top-up mechanism read with
the security cover, when the Claimant says that there has
to be 30% margin erosion before any notice should be
issued and the Respondent states that it is entitled to
top-up as soon as the cover goes below 2 times.”

31. The Learned Arbitrator reasoned that Clause 7.1 and 7.2 provides

that the Respondent is entitled to sell if there is margin deficiency and

the borrower fails to deposit additional security as required by Clause

7.1. The Learned Arbitrator proceeded to consider as to what

constitutes margin in terms of the sanction letter, definition clause of

margin, Annexure 1 of the loan agreement to hold that LTV of 50 is not

disputed and is in line with RBI norms and not in dispute. It further

considered the events of default under Clause 20 which entitles the

Respondent to sell and that the risk disclosure statement provided for

securities to be maintained in such a manner that there is adequate

margin and it is open for Respondent to liquidate the securities

Patil-SR (ch) 23 of 32
ARBP 276-24 (J).doc

immediately without prior notice, even though the same has not been

done in present case.

32. The Learned Arbitrator interpreted the documents executed

between the parties to hold in paragraph 47 that the arrangement was

that in event of deficiency in value of securities as compared to

outstanding loan, the option was to make up the deficiency, which did

not happen in present case. It noted in paragraph 52 that it is not the

case that there is no shortfall or the calculation of shortfall is

erroneous. It held in paragraph 53 as under:

“53. I have also considered the statement of defence and
paragraphs 20 to 23, thereof where they have explained the top up
notices along with the erosion in the portfolio value and shortfall
amounts versus the outstanding balance all of which show that there
was clearly a margin erosion as was understood by the agreement
between the parties, and the definition of the margin calculation
under the agreement itself, requiring the Claimants to make up a
shortfall, which was ultimately not done, resulting in the sale of the
securities, which is in dispute in the present matter. Again, these
calculations of the outstanding balance, shortfall amount, portfolio
value are not disputed or controverted by the claimants or shown to
be incorrect calculations or stated as erosions which are not in line
with the agreement. In fact, the arguments of the Claimants were
contrary to the plain terms of the agreement, which provided that if
there was a margin erosion, as per the definition already extracted
herein above that enabled the Respondent to call upon the Claimants
to provide additional security or make payment of the shortfall which
has time and again been intimated to the Claimants and we have seen
one instance where the claimant in fact provided additional security.
At the contemporaneous time there is not a single letter or email
where the Claimant has responded saying that this shortfall/top up
notices are incorrect in their calculation or not in accordance with the
agreement between the parties. In view of the same. I cannot find
that the Respondent is at fault.”

Patil-SR (ch) 24 of 32
ARBP 276-24 (J).doc

33. The Learned Arbitrator by an interpretative process has arrived

at a finding of what constitutes the margin requirement to be

maintained by the Petitioners. The finding of margin erosion is

premised on consideration of the top up notices and the shortfall

amounts, which were not disputed or controverted as not being in line

with the agreement. In paragraph 58, the Learned Arbitrator has

rendered a specific finding that as the method and calculation of LTV

and calculations in the top up notices has not been shown to be

erroneous, upon the Petitioners failure to pledge further shares, the

Respondent was justified in selling as it had done. The Learned

Arbitrator has thereby negated the case of the Petitioners of sell down

scenario being at 65% margin erosion.

34. The findings in the impugned Award would indicate that the

Learned Arbitrator was conscious of the case put up by the Petitioners

as regards the sell down scenario of 65%. After assessing the material

on record, it upholds the LTV ratio of 50 and entitlement of

Respondent to sell upon failure of Petitioners to pledge further shares

despite notice. The Learned Arbitrator has assessed the evidence on

record in paragraph 48 as under:

“48. What is provided in terms of maintaining a margin and the
LTV has been explained by RW-1 in answer to question 37 of his
cross examination where he explains with an explanation about
margin shortfall calculation. The manner in which the Margin
calculation has been explained by the Respondents witness has
not been disputed and it is in accordance with the formula for

Patil-SR (ch) 25 of 32
ARBP 276-24 (J).doc

“Margin” under the agreement between the parties already set
out here in above. I have also considered the answers to Q 30 to 41
of RW-1 in cross examination which proves the method adopted
by the Respondent and the calculations are not disproved by the
cross examination.”

35. The contention of Mr. Shah is that vital oral evidence in cross-

examination of Respondent’s witness has been ignored. The cross-

examination shows that Question No 32 to 34 were in respect of email

dated 11th September, 2020. The response to Question No 41 and 43

also speaks of intraday breach of 65%. Pertinently, the deposition of

Respondent’s witness in Paragraph 12 of affidavit of evidence deposes

about discretionary intraday shortfall margin, beyond which securities

may be liquidated without notice. It is this intraday shortfall margin of

65%, which is discretionary policy, being deposed by the witness and

not that the contractual arrangement between the parties fixed the

65% margin erosion as sell-down scenario. The Learned Arbitrator has

not ignored the evidence but has assessed the evidence to come to a

finding in paragraph 66 that the email of 11 th September, 2020 is post

discussion proposal and that the reference to 65% is to state that there

will be an immediate requirement of funding in case the LTV intra day

is 65% as opposed to the norm of giving customer a 7 day notice

referred to in the previous bullet point.

Patil-SR (ch) 26 of 32
ARBP 276-24 (J).doc

36. The Learned Arbitrator has arrived at finding of fact that

paragraph 20 and 22 of SOD shows margin erosion of 52% to 64%

which includes the outstanding balance, shortfall amount and portfolio

value as on 18th March, 2020. There is no finding of fact that the sale

took place on breach of 65% margin erosion. It is well settled that the

Arbitrator is the master of quantity and quality of evidence. It is not

open for this Court to re-assess the evidence and substitute its view for

that of the Learned Arbitrator. The Learned Arbitrator has assessed

the evidence to hold that as per the terms of the contract, the

Respondent was justified in selling upon breach of LTV of 50% and no

perversity is demonstrated.

37. The shortfall amount notified to the Petitioners by the top up

notices is summarised in the following tabular statement for ease of

reference :

Date of Notice Shortfall amount
28th February, 2020 4,370,957.28
2nd March,2020 190,653,250
3rd March,2020 2,718,169.53
4th March, 2020 3,011,351.04
5th March, 2020 5,066,282.55
9th March,2020 11,172,383.59
11th March,2020 8,014,246.61
12th March,2020 15,371,178.12
13th March,2020 11,900,109.63
16th March,2020 19,178,904.16
17th March,2020 19,783.835.67
18th March,2020 22,940,767.18

Patil-SR (ch) 27 of 32
ARBP 276-24 (J).doc

38. The Learned Arbitrator has noted the above notices issued by

the Respondent calling upon the Petitioners to pledge additional

securities or pay the amount mentioned as shortfall within 7 days. The

Learned Arbitrator noted that there was no cross examination on these

notices and that these notices have remained unanswered. The margin

shortfall is therefore an admitted position as well as the Petitioner’s

failure to rectify the margin shortfall. Upon failure, Clause 7.2 of the

agreement comes into play entitling the Respondent to sell the shares

to maintain the margin.

39. The Learned Arbitrator has considered the terms of the contract

to hold in paragraph 55 that the terms of agreement do not provide for

further sale notice and the top up notices clearly put the Petitioners to

notice that there would a sale. The contractual arrangement between

the parties as contained in Clause 7 and 20 of the agreement mandated

the Respondent to give notice of two working days to regulate the

shortfall, failing which the Respondent would be entitled to sell the

securities. The contract does not speak of any further notice to be

given apart from the top up notices. As the findings of the Learned

Arbitrator are based on interpretation of the terms of the contract,

the error, if any, is an error within jurisdiction incapable of being

corrected in Section 34 jurisdiction.

Patil-SR (ch) 28 of 32
ARBP 276-24 (J).doc

40. All the top up notices called upon the Petitioners to pledge

additional shares failing which the shares would be sold. The Learned

Arbitrator has noted that the contents of the notice dated 18 th March,

2020 shows that the security cover was reduced by almost 4.5 crores,

which was not the first of the notices. It further noted that under

Clause 7.5, there could be sale even without an event of default to

maintain margin requirement. The risk disclosure statement entitled

the Respondent to liquidate the securities immediately without prior

notice. In the present case, the notice was given to the Petitioners to

rectify the shortfall deficiencies within seven days. The notice time of 7

days, though not mandated as per the contract, cannot be held against

the Respondent to contend that after 11 th March, 2020 notice, the

period of 7 days would expire on 19th March, 2020 and sale could be

conducted only on 20th March, 2020. The contractual requirement was

of two days’ notice.

41. The submission of absence of notice for sale of pledged shares

and reliance on Section 176 of Contract Act is premised on the

contention of the sell down scenario being 65% breach, which occurred

on 19th March, 2020. As the contention of sell down scenario of 65%

breach stands negated, the several top up notices calling upon the

Petitioners to maintain the security cover failing which the shares

would be sold constitutes sufficient notice. There was thus sufficient

Patil-SR (ch) 29 of 32
ARBP 276-24 (J).doc

notice to the Petitioners about the decline in the security cover. In

view of the top up notices issued by the Respondent, the Learned

Arbitrator has rightly negated the contention of the Petitioners that

there was no adequate notice of sale. Pertinently, the Delhi High Court

in the case of K.L. Enterprises LLP and Others (supra) was considering

an application under Section 9 of the Arbitration and Conciliation Act,

1996 to restrain the Respondent therein, which was a finance company,

from selling the pledged shares. The terms of the contract were

somewhat similar to the present case. The Learned Single Judge

considered the provisions of Section 176 of Indian Contract Act and

Regulation 58 of SEBI (Depositories and Participants) Regulations,

1996 to hold that there is no requirement for prior notice for

invocation of a pledge by the pledgee.

42. The conclusion of Learned Arbitrator about adequate notice

being given finds support in the interpretation of terms of the

contract, that the margin requirement to be maintained was 2 times of

the loan amount and upon failure to rectify the shortfall, the

Respondent was entitled to sell the security to maintain margin

requirement.

43. In DMRC Ltd vs Delhi Airport Metro Express (P) Ltd (supra), it

was held that the ground of patent illegality is available, if the decision

of arbitrator is so irrational that no reasonable person would have

Patil-SR (ch) 30 of 32
ARBP 276-24 (J).doc

arrived at it or the construction of contract is such that no fair or

reasonable person would take or that the view of the arbitrator is not

even a possible view. A finding based on on evidence or an award which

ignores vital evidence in arriving at its decision would be perverse and

liable to be set aside on the ground of patent illegality.

44. The Petitioner’s case of perversity is on the ground of ignorance

of vital document and oral evidence that the fall of security cover

below 50% would trigger the rectification notice and sell down

scenario occurs when the LTV goes below 65%. The Learned Arbitrator

has interpreted the sanction letter, the clauses in the agreement and

the risk disclosure statement to arrive at a finding that failure to cure

the breach of margin requirement of 2 times security cover justified

the sale by the Respondent. The view taken by the Learned Arbitrator

is a possible view and is a view which appeals to this Court. The

sanction letter cannot be read in isolation and when read with the

agreement and risk disclosure statement, the inescapable conclusion is

that the agreement between the parties was that upon failure of the

Petitioners to rectify the margin shortfall upon notice, the Respondent

was entitled to sell the shares to maintain the margin. The Top Up

mechanism cannot be read to mean that the mention of 30% margin

erosion triggered the sell down scenario. The Learned Arbitrator has

the jurisdiction to interpret a contract having regard to terms and

Patil-SR (ch) 31 of 32
ARBP 276-24 (J).doc

conditions of the contract and if the view is possible view, no

interference is warranted.

45. The contravention of fundamental policy of Indian Law is

premised on Section 176 of Contract Act. The issuance of top up

notices intimating the Petitioners about the margin shortfall and

calling upon the Petitioners to rectify the shortfall failing which the

shares would be sold to maintain the margin is not disputed. The

occurrence of margin shortfall is not disputed. The Learned Arbitrator

has considered the several top up notices as sufficient notice, which

cannot be faulted with. The reliance on Section 176 of Contract Act has

its basis in the Petitioner’s case that the sell down scenario takes place

only on breach of 65% margin cover, which case has been negated.

46. In light of the discussion above, no grounds for interference

under Section 34 of Arbitration Act is made out. Resultantly, the

Petition fails and stands dismissed. Interim Applications, if any, do not

survive for consideration and stands disposed of.

[Sharmila U. Deshmukh, J.]

Patil-SR (ch) 32 of 32

Continue reading with your account

Checking your session…

Lawyer court records for this case

Associated through the court’s case reference.