Holding

The Depositories Act and SEBI Regulation 58 operate in addition to, not in derogation of, the Contract Act; Section 176’s notice requirement is mandatory, and the pawnor’s right of redemption under Section 177 persists until an actual sale to a third party in compliance with the Act.

Summary

The appeal concerned PTC India Financial Services Ltd (PIFSL) who, after a corporate debtor defaulted, invoked a pledge over 31,80,678 dematerialised shares of NEVPL under a pledge deed and sought to enforce its rights under the Contract Act, 1872. The National Company Law Appellate Tribunal had held that the pledge created a transfer of ownership to PIFSL, precluding reliance on Sections 176 and 177 of the Contract Act. The Supreme Court examined the interplay between the Depositories Act, 1996, SEBI (Depositories and Participants) Regulations, 1996 (Regulation 58) and the Contract Act, holding that the Depositories Act regulates the creation and transfer of dematerialised securities but does not override the substantive provisions of the Contract Act. Section 176’s notice requirement is mandatory and cannot be contracted out, and the pawnor’s right of redemption under Section 177 continues until an "actual sale" to a third party in compliance with the Act. Sale of pledged securities to the pawnee himself is a conversion, not an actual sale, and does not extinguish the pawnor’s redemption right. Consequently, the appeal was allowed, setting aside the lower tribunal’s orders.

Issues considered

The Depositories Act, 1996 and SEBI Regulation 58 overwrite the pledge provisions of the Contract Act, 1872.
Whether parties can contract out of the notice requirement under Section 176 of the Contract Act.
The meaning of "actual sale" under Section 177 in the context of dematerialised securities.
Whether a pawnee can sell pledged securities to himself and the effect on the pawnor’s redemption right.
The harmonious construction of the Depositories Act and the Contract Act in relation to pledges of dematerialised securities.

Legislation cited

Companies Act, 1956s. 150, s. 151, s. 152
Depositories Act, 1996s. 10, s. 11, s. 12, s. 2(1)(a), s. 2(1)(j), s. 25, s. 28, s. 38(1)(e), s. 7
Indian Contract Act, 1872s. 148-171, s. 151, s. 152, s. 155, s. 156, s. 160, s. 161, s. 163, s. 172-179, s. 176, s. 177, s. 179, s. 63
Insolvency and Bankruptcy Code, 2016s. 10, s. 18, s. 7
Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996s. Regulation 58
Specific Relief Act, 1963s. 38(1)(e), s. 3884, s. 3885

Subjects

pledgedematerialised securitiesDepositories ActSEBI regulationsnotice requirementredemption rightactual salecontract lawsecurities lawinsolvency

Judgment

[2022] 9 S.C.R. 1063 1063

PTC INDIA FINANCIAL SERVICES LIMITED A
v.
VENKATESWARLU KARI AND ANOTHER
(Civil Appeal No. 5443 of 2019)
MAY 12, 2022 B
[M. R. SHAH AND SANJIV KHANNA, JJ.]
Contract Act, 1872 – Depositories Act, 1996 – Securities and
Exchange Board of India (Depositories and Participants)
Regulations, 1996 - Whether the Depositories Act, 1996 read with
C
the Regulation 58 of the Securities and Exchange Board of India
(Depositories and Participants) Regulations, 19961 has the legal
effect of overwriting the provisions relating to the contracts of pledge
under the Indian Contract Act, 1872 and the common law as
applicable in India – Held: The Depositories Act prescribes how
the dematerialised securities can be pledged – The provisions of D
the Depositories Act and the 1996 Regulations are not in derogation
of the Contract Act but in addition to it – In this regard, reference is
made to Section 28 of the Depositories Act – Therefore, the object
of the Depositories Act is not to rewrite the provisions of the Contract
Act but to regulate the creation and transfer of dematerialised
E
securities – Regulation 38(1)(e) requires a depository to maintain,
inter alia, records of all approvals, notices and entries, and
cancellation of pledge or hypothecation, as the case may be.
Contract Act, 1872 – ss. 148-171, 172-179 – Bailment and
Pledge – Legal Distinction – In the cases of bailment, the goods are
F
bailed for specific purpose and once the purpose is accomplished
the bailee is bound to deliver the possession of the goods back to
the bailor or to dispose off the goods as per the bailor’s direction –
Unlike bailment, in pledge there is the delivery of possession of the
goods by the pawnor to the pawnee by way of security upon the
promise of repayment of a debt or the performance of a promise, G
thereby creating an estate that vests with the pawnee – Pledge is
preceded by bailment
Words and Phrases – “Pledge”, “Mortgage” – Movable
Property – Legal Distinction – A mortgage conveys the whole legal
interest in the chattel, while a pledge conveys only a special property H
1063
1064 SUPREME COURT REPORTS [2022] 9 S.C.R.

A leaving the general property in the pledger, and the pledgee never
has absolute ownership of property – Further unlike pledgee, a
mortgagee acquires general right in the things mortgaged subject
to the right of redemption of the mortgagor – Compared to the
pledge, a pawnee has only special right in the goods pledged,
namely the right of possession as security and in case of default, he
B
can bring a suit against the pawnor as well as sell the goods after
giving a reasonable notice.
Contract Act, 1872 – Accretion of the Pawned Goods – Duty
of the the Pawnee towards such accretion – The pledge extends to
accretions and additions, and therefore, when the pawnee returns
C the pledged goods, the accretions and additions must be returned
to the pawnor – Further it also follows that the pawnee’s right to
retain and sell the pledged goods stretches to the right to retain and
sell any increase and accumulations to the pledged goods.
Contract Act, 1872 – s. 176, 177 – Pawnee’s duty to give
D notice of intended sale of pawned goods – Extent - Section 176 of
the Contract Act, unlike some of the sections of the Contract Act,
does not specifically provide that the contractual terms can override
the provision by using the expression “in the absence of the contract
to the contrary” or “subject to special contract to the contrary” –
E The notice, that is to be given for the intended sale by the pawnee,
is a special protection that the statute has given to the pawnor, and
the parties cannot agree that the pawnee may sell the pledged goods
without notice to the pledgor – Further, the mere tendering of notice
to the pawnor does not binds pawnee to put the intended sale to the
effect and he is not bound to sell even after tendering of such notice
F – If the notice is served, the pawnor may redeem the goods as per s.
177 before the ‘actual sale’ by the pawnee.
Contract Act, 1872 – s. 63, 176 – Whether Parties to Pledge
Agreement can waive the requirement of Notice As contemplated by
s. 176 – Settled Legal position – S. 63 of the Contract Act governs
G the domain of waiver and it is a general principle of law that
everyone has a right to waive the advantage of a law or rule made
solely for the benefit and protection of the individual in his private
capacity however, such a waiver cannot infringe any public right
or public policy – But the requirement of ‘notice’ u/s 176 is a
H mandatory requirement and a special protection given to the pawnor
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1065
ANOTHER

– S. 176 is not eclipsed or curtailed by the phrase “in the absence A
of the contract to the contrary” and therefore the parties cannot
contract out of Section 176 – Further the need for notice to the
pawnor of the intended sale by the pawnee is the special protection
given to the pawnor, and the parties cannot override the special
protection by agreement.
B
Contract Act, 1872 – Whether a Pawnee can Sell Goods
Pledged to ‘Himself ’ – Settled Legal Position – It is settled legal
position that a pawnee cannot sell goods to himself, and if he does
so then such transfer could not be said to be a ‘sale’ but a
‘conversion’ and hence could not interpreted as ‘sale’ in terms of s.
176. C

Interpretation of Statutes – Rules of Interpretation when two
or more than two statutes apply – To resolve a debate when two
views are evident, it is best to interpret the provision when we know
why the statute is enacted – If a statute is looked at, in the context
of its enactment, with the glasses of the statute-maker provided by D
such context, its scheme, the sections, clauses, phrases and words
may take colour and appear different than when the statute is looked
at without the glasses provided by the context and this principle
may equally apply when we examine interplay between two statutes
– Two statutes shall be read together consistently and harmoniously E
to complement each other so far as it is reasonably possible to do
so, and where such conciliation is not possible to clarify the legal
position by application of principles of interpretation applicable to
such situations.
Depositories Act, 1996 – s.2(1)(a), 2(1)(j) – Words and F
Phrases – “Registered Owner’’, ‘Beneficial Owner’ - Legislative
Intent and Purpose - The Depositories Act is enacted to lay down a
process and rules for the dematerialization of securities by
converting them into electronic data stored in the computers of ‘the
depository’ and hence by the aforesaid enactment, the legislature
sought to get away with physical security – Further the Depositories G
Act establishes the depository eco-system and introduces the concepts
of a ‘registered owner’ and ‘beneficial owner’ – The depository’
becomes the ‘registered owner’ in respect of the security, whereas
the person who surrenders the physical shares is recorded as ‘the
beneficial owner’ – Further the beneficial owner’ shall be solely H
1066 SUPREME COURT REPORTS [2022] 9 S.C.R.

A entitled to all rights, benefits, and liabilities attached to the securities
held by ‘the depository’. And therefore Power and right to transfer
ownership of a dematerialised security vests with the ‘beneficial
owner’ same as in the case of buying and selling physical securities.
Contract Act, 1872 – s. 176, 177 – Depositories Act, 1996 –
B s.12 25, 28 – Securities and Exchange Board of India (Depositories
and Participants) Regulation 1996 – Regulation 58 – Interplay of
The Statutes - In terms of sub-section (1) of Section 12, a ‘beneficial
owner’ can create a pledge or hypothecation regarding the security
owned by him through ‘the depository’, subject to prior approval
of ‘the depository’ but the aforesaid provision nowhere defines the
C term ‘pledge’ – Section 25 of the Depositories Act, the Securities
and Exchange Board of India has been vested with the power to
make Regulations to carry out the purpose of the Depositories Act
– As per s. 25(2)(d) the regulations may provide for the manner of
creating a pledge or hypothecation in respect of a security owned
D by a ‘beneficial owner’ under sub-section (1) to Section 12 of the
Depositories Act – Further as per Regulation 58 a beneficial owner
may create a pledge on security owned by him and for this purpose,
in cases of Pledge, the pawnee, to exercise the right under s. 12 r/
w Regulation 58, shall, by virtue of Regulation 58(8), get himself
recorded as ‘beneficial owner’ before he proceeds to sell the pledged
E securities – The Acts and the Regulations are not inconsistent but
are subject to harmonious construction in order to attain the
objective sought to be achieved more so when s. 28 itself provides
that “the provisions of this Act shall be in addition to and not in
derogation of any other law for the time force relating to the holding
F and transfer of securities’’ – Further Sections 176 and 177 are not
obliterated, in so far as they would equally apply to pawned
dematerialised securities as they apply to other pawned goods –
Further the requirement of pawnee to get himself registered as
‘beneficial owner’ in in terms of the Act and Regulation, is not an
actual sale and would not affect the right of the pawnor of
G redemption u/s 177 of the Contract Act more so because the pawnee
is not getting anything paid against the debt due.
Allowing the appeal, the Court
HELD: 1. The two essential ingredients of pledge are (i)
H the pawn i.e., the property pledged should be actually or
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1067
ANOTHER

constructively delivered to the pawnee and (ii) a pawnee has only A
special property in the pledge but the general property therein
remains in the pawnor and wholly reverts to him on discharge of
the debt. The right to property vests in the pawnee only as far as
is necessary to secure the debt. A pawn or pledge is an
intermediate between a simple lien and a mortgage, which wholly
B
passes the property. A pawnor has an absolute right to redeem
the pledged property upon tendering the amount advanced but
that right would be lost if the pawnee in the meantime has lawfully
sold the pledged property. If the pawnee sells, he must appropriate
the proceeds of the sale towards the pawnor’s debt, for the sale
proceeds are the pawnor’s monies to be so applied and the pawnee C
must pay the pawnor any surplus after satisfying the debt. [Para
5.1][1085-E-F]
2. The pledge extends to accretions and additions, and
therefore, when the pawnee returns the pledged goods, the
accretions and additions must be returned to the pawnor. It also D
follows that the pawnee’s right to retain and sell the pledged
goods stretches to the right to retain and sell any increase and
accumulations to the pledged goods. [Para 6.1][1088-F-G]
3. Section 176 of the Contract Act, unlike some of the
sections of the Contract Act, does not specifically provide that E
the contractual terms can override the provision by using the
expression “in the absence of the contract to the contrary” or
“subject to special contract to the contrary”. The notice, that is
to be given for the intended sale by the pawnee, is a special
protection that the statute has given to the pawnor, and the parties
cannot agree that the pawnee may sell the pledged goods without F
notice to the pledgor. Dwelling on the aspect of the pawnor’s
right of redemption under Section 177, the judge held that the
right remains till the ‘actual sale’ of the pledged goods. The
expression ‘actual sale’ in Section 177 must be a sale in conformity
with the provisions of Section 176 which gives the pledgee the G
right to sell; and if the sale is not in conformity with those
provisions, then the equity of redemption with the pledgor is not
extinguished. The sale by the pawnee to himself being void does
not put an end to the pledge, but the pawnor is bound by resale(s)

H
1068 SUPREME COURT REPORTS [2022] 9 S.C.R.

A duly effected by the pawnee to the third parties after such abortive
sales to himself. [Para 7.6][1092-F-H; 1093-A-B]
4. Where the Contract Act prescribes a particular term that
is binding, the statutory mandate must be followed by the parties.
Neither party can contract out of it. Otherwise, the legislative
B command that the statute imposes would be violated with
immunity by merely incorporating waiver as a contractual term,
depriving the frailer party of the benefit of the legal protection. A
condition prescribed to protect and benefit the public cannot be
dispensed with when it lays down a rule of public policy. Section
63 of the Contract Act governs the domain of waiver. It is a general
C principle of law that everyone has a right to waive the advantage
of a law or rule made solely for the benefit and protection of the
individual in his private capacity. However, such a waiver cannot
infringe any public right or public policy. [Para 7.9, 7.10][1095-A-
C]
D 5. The parties cannot contract out of Section 176. The need
for notice to the pawnor of the intended sale by the pawnee is the
special protection given to the pawnor, and the parties cannot
override the special protection by agreement. Further, the right
to redeem can be exercised up to the actual sale of the goods
E pledged, i.e., the sale referred to in Section 177 in conformity
with Section 176. [Para 7.11][1097-F-G]
6. Section 176 of the Contract Act requires that the pawnee
may sell the thing pledged on giving the pawnor reasonable notice
of the sale. It does not prescribe any fixed form of notice or specify
F any fixed period of notice. The object and purpose of giving notice
is to make the pawnor know about the pawnee’s intent to sell the
pawn and give him an opportunity to exercise his statutory right
of redemption, which as per Section 177 can be exercised till the
date of ‘actual sale’. Whether or not a notice was given and the
period of notice was reasonable would depend upon the facts of
G the case. In view of the above discussion, the pawnor can
communicate his willingness and desire to the pawnee that the
pledged goods may be sold. In case any such request is made, a
pawnee may well act upon the request without violating Section
176 of the Contract Act. However, a pawnee, unless he also agrees,
H
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1069
ANOTHER

cannot be compelled by the pawnor to sell the pledged goods. A
[Para 7.13][1100-B-D]
7. To resolve a debate when two views are evident, it is
best to interpret the provision when we know why the statute is
enacted. If a statute is looked at, in the context of its enactment,
with the glasses of the statute-maker provided by such context, B
its scheme, the sections, clauses, phrases and words may take
colour and appear different than when the statute is looked at
without the glasses provided by the context. This principle may
equally apply when we examine interplay between two statutes.
The provisions of the Contract Act, which is substantive and
general law relating to contracts, and the Depositories Act, which C
is a primarily a law relating securities, must be interpreted
harmoniously. This does not mean that any provision of one
enactment could nullify the provisions of the other. This end can
be best achieved by examining the objects and the subject matter
of the Depositories Act vis-a-vis the Contract Act, which will D
clarify their separable spheres of operation to avoid any conflict
or overlap between them. It means that the two statutes shall be
read together consistently and harmoniously to complement each
other so far as it is reasonably possible to do so, and where such
conciliation is not possible to clarify the legal position by
application of principles of interpretation applicable to such E
situations. [Para 9.1][1102-C-F]
8. The Depositories Act is enacted to lay down a process
and rules for the dematerialization of securities by converting
them into electronic data stored in the computers of ‘the
depository’. The Depositories Act establishes the depository eco- F
system and introduces the concepts of a ‘registered owner’ and
‘beneficial owner’. Every owner of a physical share has to enter
into an agreement with ‘the depository’ for availing its services.
The physical certificate of security is cancelled. All securities
held by ‘the depository’ are in a fungible form. ‘The depository’ G
becomes the ‘registered owner’ in respect of the security, whereas
the person who surrenders the physical shares is recorded as
‘the beneficial owner’. ‘The depository’, as the registered owner,
does not have any voting right or any other right in respect of the

H
1070 SUPREME COURT REPORTS [2022] 9 S.C.R.

A securities held by it. ‘The beneficial owner’ shall be solely entitled
to all rights, benefits, and liabilities attached to the securities
held by ‘the depository’. In terms of Section 11, every depository
is mandated to maintain a register and index of ‘beneficial owners’
in the manner provided in Sections 150, 151 and 152 of the
Companies Act, 1956. As per Section 7 69 of the Depositories
B
Act, every ‘depository’, on receipt of intimation from a participant,
is required to transfer the security in the transferee’s name.
Further, on registration of transfer of security in the transferee’s
name, the transferee is registered as the ‘beneficial owner’.[Para
9.3][1103-C-F]
C 9. Power and right to transfer ownership of a dematerialised
security vests with the ‘beneficial owner’, same as in the case of
buying and selling physical securities. The difference lies in the
delivery process in case of sale, and receipt in case of purchase,
which is affected by the depository on instructions from the
D participant. Every person recorded as the ‘beneficial owner’ to
transact and deal in securities must act through a participant who
is an agent of the depository. Section 10 70 states that
notwithstanding any other law for the time being in force, ‘the
depository’ shall be deemed as the ‘registered owner’ and is
entitled to affect the transfer of ownership of the security on behalf
E of ‘the beneficial owner’. No person, including the pawnee, can
transfer the pawn held in dematerialised form without being
registered as a ‘beneficial owner’. [Para 9.4][1104-B-D]
10. In terms of sub-section (1) of Section 12, a ‘beneficial
owner’ can create a pledge or hypothecation regarding the
F security owned by him through ‘the depository’, subject to prior
approval of ‘the depository’. Section 12 or for that matter the
Depositories Act does not define pledge or hypothecation, and
thereby accepts and adapts their meaning as known in the
commercial sense to people in the trade. This means that the
G Depositories Act recognises the principles relating to pledge
prescribed by the Contract Act and the common law. Depositories
Act states that such a pledge or hypothecation should be made in
accordance with the regulations and by-laws made under the
Depositories Act. A ‘beneficial owner’ as the pawnor is required

H
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1071
ANOTHER

to intimate such pledge or hypothecation to the depository, which A
thereupon makes entries in its records. This entry, made by ‘the
depository’, is evidence of pledge or hypothecation. [Para
9.5][1105-A-C]
11. Undoubtedly, the Depositories Act distinguishes
between the ‘registered owner’ and the ‘beneficial owner’, i.e., B
the de facto owner, but this does not in any manner contradict or
lay down a rule which is contrary to the provisions of Sections
176 and 177 of the Contract Act. These sections, given the
objective and purpose behind them, would still apply to any pledge
deed and do not get diluted or overridden by the provisions or
requirements of the Depositories Act. Section 10, a non obstante C
provision, which prevails over existing enactments by law, treats
the ‘depository’ as the ‘registered owner’ and the shareholder/
holder as a ‘beneficial owner’. It does not undermine or rewrite
the provisions of the law of pledge and mutual obligations and
rights of the pawnee and pawnor. [Para 9.8][1106-B-C] D
12. A reading of Regulation 58 would show that a ‘beneficial
owner’ is entitled to create a pledge on security owned by him.
To do so, he must apply to the ‘depository’ through the participant
who has his account in respect of the securities. Sub-regulation
(2) requires the participant to accord its satisfaction that the E
securities are available for pledge and make a note in this regard
in its records. The note is to be forwarded to the ‘depository’. In
terms of sub-regulation (3), the ‘depository’ is required to within
fifteen days create and record a pledge and send an intimation to
the participants of the pledgor/pawnor and the pledgee/pawnee.
The participants of the pawnor and pawnee are required to inform F
the pawnor and the pawnee as to the entry of creation of the
pledge. If the ‘depository’ does not create the pledge, intimation
of the reasons has to be given to the participants of the pawnor
and the pawnee. The ‘depository’ can cancel the pledge if the
pawnee applies to the depository through its participants. The G
pawnor can also apply through its participant to the ‘depository’
for cancelling the pledge. In this case, the entry can be cancelled
by the ‘depository’ with the prior concurrence of the pawnee. On
cancellation of the pledge entry, the ‘depository’ is to inform the
participant of the pawnor. [Para 9.10][1107-E-H; 1108-A]
H
1072 SUPREME COURT REPORTS [2022] 9 S.C.R.

A 13. Sub-regulation (8) to Regulation 58 uses the expression
“subject to the provisions of the pledge document” with a specific
purpose and objective. In other words, sub-regulation (8) to
Regulation 58 does not seek to curtail or restrict, but on the
other hand respects party autonomy and freedom to decide the
terms of the pledge, including the event of default that would
B
entitle the pawnee to invoke the pledge and sell the pawn. The
sub-regulation does not expressly nullify any provision of the
Contract Act. However, the stipulation that the pawnee may invoke
the pledge, and on such invocation, the pawnee is to be recorded
as the ‘beneficial owner’ of the pledged securities is mandatory.
C A pledge document cannot stipulate to the contrary, and any
contravening contractual stipulation would not be binding. The
records maintained by the ‘depository’ are to be amended on the
pawnee invoking the pledge and thereupon, the ‘depository’ shall
register the pawnee as the ‘beneficial owner’ of the securities.
Consequent to the change and in terms of sub-regulation (9) to
D
Regulation 58, the ‘depository’ is to inform the participants of
the pawnor and pawnee, with a direction that they shall make
necessary changes in their records and that the participants shall
inform the pawnor and pawnee, respectively. Thus, the non-
obstante part of sub-regulation (8) to Regulation 58 serves a
E limited objective and purpose: the pawnee must record itself as
a ‘beneficial owner’ before he proceeds to sell the pledged
securities. Without the pawnee being accorded the status of a
‘beneficial owner’, a pawnee cannot proceed to sell the pledged
dematerialized securities. A contractual term cannot overwrite
the requirement of Sections 7 and 10 of the Depositories Act,
F
which is reflected in sub-regulation (8) to Regulation 58 as pe
which the pawnee must be recorded as the ‘beneficial owner’
before the pledged dematerialized securities are sold. Section
38(1)(e) of the Depositories Act requires the ‘depository’ to
maintain, inter alia, records of all approvals, notices, entries and
G cancellations of pledge and hypothecation, as the case may be.
This mandate of sub-regulation (8) to Regulation 58 will apply
whenever the pledged/pawned goods are dematerialized
securities. [Para 9.11, 9.12][1108-B-H]
14. The expression ‘actual sale’ used in Section 177 should
H be read as ‘the sale by the pawnee to a third person made in
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1073
ANOTHER

accordance with the Depositories Act and applicable by-laws and A
rules’. It also means and requires compliance with Section 176
of the Contract Act. Mere exercise of the right by the pawnee to
record himself as the ‘beneficial owner’, which is a necessary
precondition before the pawnee can exercise his right to sell, is
not ‘actual sale’ and would not affect the rights of the pawnor of
B
redemption under Section 177 of the Contract Act. Every transfer
or sale is not ‘actual sale’ for the purpose of Section 177 of the
Contract Act. To equate ‘sale’ with ‘actual sale’ would negate the
legislative intent. [Para 10.3][1111-B-D]
Commissioner of Wealth Tax v. Mahadeo Jalan and
Mahabir Prasad Jalan and Others Etc. (1973) 3 SCC C
157 : [1973 ] 2 SCR 215; Bharat Hari Singhania and
Others v. Commissioner of Wealth Tax (Central) and
Others 1994 Supp. (3) SCC 46 : [1994] 1 SCR 1033;
Md. Sultan and Others v. Firm of Rampratap
Kannayalal, Hyderabad, by its partners AIR 1964 AP D
201; Sri Raja Kakarklhpudi Venkata Sudarsana
Sundara Narasayamma Garu (died) and others v. The
Andhra Bank Ltd. Vijayawada and others AIR 1960
AP 273; Simla Banking and Industrial Co., Ltd., Simla
(In Liquidation) v. Pritams AIR 1960 Punj 42; Arjun
Prasad and others v. Central Bank of India, Ltd. 1954 E
SCC OnLine Pat 138; Lallan Prasad v. Rahmat Ali and
Another AIR 1967 SC 1322 : [1967] 2 SCR 233; Morvi
Mercantile Bank Ltd. v. Union of India, AIR 1965 SC
1954 : [1965] 3 SCR 254; Bank of Bihar v. The State
of Bihar and Others (1972) 3 SCC 196 : [1971 Suppl. F
SCR 299; Maharashtra State Cooperative Bank Limited
v. Assistant Provident Fund Commissioner and Others
(2009) 10 SCC 123 : [2009] 15 SCR 1; Karnataka
Pawnbrokers’ Association and Others v. State of
Karnataka and Others (1998) 7 SCC 707 : [1998] 2
Suppl. SCR 461; Standard Chartered Bank and Another G
v. Custodian and Another (2000) 6 SCC 427 : [2000] 3
SCR 81; Seth Motilal Hirabhai and Ors. v. Bai Mani
1924 SCC OnLine PC 81; M.R. Dhawan v. Madan
Mohan and Others AIR 1969 Del 313; Balkrishan
H
1074 SUPREME COURT REPORTS [2022] 9 S.C.R.

A Gupta and Others v. Swadeshi Polytex Ltd. and Another
(1985) 2 SCC 167 : [1985] 2 SCR 854; F. Nanak Chand
Ramkishan Das of Hodel and Others v. Lal Chand and
Others 1958 SCC OnLine Punj 6; Bank of Maharashtra
v. M/s. Racmann Auto (P) Ltd. AIR 1991 Del 278; Rani
Leasing & Finance Ltd. v. Sanjay Khemani 2015 SCC
B
OnLine Cal 450; Hulas Kunwar v. Allahabad Bank Ltd.
AIR 1958 Cal 644; Haridas Mundra v. National and
Grind-Lays Bank Ltd. AIR 1963 Cal 132; Kunj Behari
Lal v. The Bhargava Commercial Bank, Jubbulpore AIR
1918 All 363; Vimal Chandra Grover v Bank of India
C (2000) 5 SCC 122 : [2000] 3 SCR 587; The Official
Assignee of Bombay v. Madholal Sindhu and Others
AIR 1947 Bom 217; Wilson v. Mcintosh, 1894 A.C. P.
129; Corporation of the City of Tornoto v. John Russel,
D. Jones & Smiths Reports 1908 Ac. 493; Selwyn v.
Grafit 38 Ch. D.P. 273; Griffiths v. The Earl of Dudley
D
9, Q.B.D. P. 357; Vellayan Chettiar v. Government of
the Province of Madras I.L.R. 1948 Mad. p. 214; Raja
Chetty v. Jagannadhadas Govindas 1949 II M.L.J. P.
694; Soho Square Syndicate Ltd. v Poland & Co. 1940-
1 Ch 638 at p. C43; Krishna Bahadur v. Purna Theatre
E and Others (2004) 8 SCC 229 : [2004] 3 Suppl. SCR
833; The Co-Operative Hindusthan Bank, Ltd. v.
Surendranath De 1931 SCC OnLine Cal 224; Park
Street Properties Private Limited v. Dipak Kumar Singh
and Another (2016) 9 SCC 268; Nabha Investment Pvt.
Ltd. v. Harmishan Dass Lukhmi Dass 1995 SCC
F
OnLine Del 239; Neikram Dobay v. Bank of Bengal
ILR (1892) 19 Cal 322; Ramdeyal Prasad v. Sayed
Hasan AIR 1944 Pat 135; S.L. Ramaswamy Chetty and
Another v. M.S.A.P.L. Palaniappa Chettiar 1929 SCC
OnLine Mad 62; Dhani Ram and Sons v. The Frontier
G Bank Ltd. and Another AIR 1962 P&H 321; Reserve
Bank of India v. Peerless General Finance and
Investment Co. Ltd. and Others (1987) 1 SCC 424 :
[1987] 2 SCR 1; Vasudev Ramachandra Shelat v.
Pranlal Jayanand Thakkar and Others (1974) 2 SCC
323 : [1975] 1 SCR 534; Kannambra Nayar Veetil Valia
H
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1075
ANOTHER

Ammukutti Neithiar ’s Son Kunhunni Elaya Nayar A
Avargal (Deceased) and Another v. P.N. Krishna Pattar
and Two Others AIR 1943 Mad 74; Pushpanjali Tie
Up Pvt. Ltd. v. Renudevi Choudhary and Others 2014
SCC OnLine Bom 3661; Firm Thakur Das Marakhan
Lal v. Mathura Prasad and Others AIR 1958 All. 66;
B
Donald v. Suckling (1866) L.R. 1 Q.B. 585; GTL Limited
v. IFCI Ltd. & Ors. 2011 SCC OnLine Del 3628; Liquid
Holdings Private Limited v. The Securities Exchange
Board of India (2011) SCC Online SAT 40 – referred
to.
JRY Investments Private Limited v. Deccan Leafine C
Services Ltd. and Others (2004) 121 Comp Cas 12 –
partly overruled.
Tendril Financial Services Pvt. Ltd. & Ors. v. Namedi
Leasing & Finance Ltd. and Ors. 2018 SCC OnLine
Del 8142 – disapproved. D

Hailsham Edn., (2nd Edn.), para 330, page 226 of
Volume XXIII
P3 (1953), 10th Edition, Sweet & Maxwell, page 368
Case Law Reference E
[1973] 2 SCR 215 referred to Para 2.15
[1994] 1 SCR 1033 referred to Para 2.15
[1967] 2 SCR 233 referred to Para 5.1
[1965] 3 SCR 254 referred to Para 5.1 F

[1971] Suppl. SCR 299 referred to Para 5.3
[2009] 15 SCR 1 referred to Para 5.4
[1998] 2 Suppl. SCR 461 referred to Para 5.4
G
[2000] 3 SCR 81 referred to Para 6.1
[1985] 2 SCR 854 referred to Para 7.1
[2000] 3 SCR 587 referred to Para 7.5
[2004] 3 Suppl. SCR 833 referred to Para 7.10
H
1076 SUPREME COURT REPORTS [2022] 9 S.C.R.

A (2016) 9 SCC 268 referred to Para 7.10
[1987] 2 SCR 1 referred to Para 9.1
[1975] 1 SCR 534 referred to Para 9.1
CIVIL APPELLATE JURISDICTION : Civil Appeal No.5443
B of 2019.
From the Judgment and Order dated 20.06.2019 of the National
Company Law Appellate Tribunal, New Delhi in Company Appeal (AT)
(Insolvency) No.450 of 2018.
Maninder Singh, Sr. Adv., Sidharth Sethi, Ms. Pallavi Kumar, Advs.
C for the Appellant.
Sajan Poovayya, Sr. Adv., G. Ramakrishna Prasad, Byrapaneni,
Suyodhan, Ms. Filza Moonis, K. Trinath, Pratibhanu S. K., John Mathew,
Karthik S. D., Advs. for the Respondents.
The Judgment of the Court was delivered by
D
SANJIV KHANNA, J.
The primary legal issue which arises for consideration in this appeal
is whether the Depositories Act, 1996 read with the Regulation 58 of the
Securities and Exchange Board of India (Depositories and Participants)
E Regulations, 19961 has the legal effect of overwriting the provisions
relating to the contracts of pledge under the Indian Contract Act, 1872 2
and the common law as applicable in India. To facilitate analysis, this
judgment has been divided into sections as follows:
A. Factual background of the case
F B. Relevant provisions of the Contract Act
C. Analysis of case laws under the Contract Act:
(i) What is pledge and the legal difference between
ownership, pledge and mortgage
G (ii) Pawnee has a special and not general right in
the pledged property
(iii) Accretion on pawned goods

1
For short, ‘1996 Regulations’.
2
For short, ‘Contract Act’.
H
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1077
ANOTHER [SANJIV KHANNA, J.]

(iv) Notice of sale by pawnor and his right to sale A
(v) Sale of the pledged goods by the pawnee to self
D. Effect and Purpose of the Depositories Act, 1996 and the
Securities and Exchange Board of India (Depositories and
Participants) Regulation 1996
E. Effect of the Depositories Act, 1996 and the Securities and B
Exchange Board of India (Depositories and Participants)
Regulation, 1996 on the pledge under the Contract Act, 1872
F. Four decisions
G. Analysis of facts and application of law of pledge to the
facts of this case C
H. Conclusion
A. Factual background of the case
2.1 The appellant – PTC India Financial Services Limited,3 is an
existing company under the Companies Act, 2013. It is a wholly-owned
subsidiary of PTC India Limited, which in 1999 was promoted by four D
public sector undertakings, namely, NTPC Limited, Power Finance
Corporation Limited, NHPC Limited, and Power Grid Corporation of
India Limited. PIFSL is registered with the Reserve Bank of India4 as a
Non-Banking Finance Company5and classified as an Infrastructure
Finance Company.6 The principal business of PIFSL is to invest in power E
and energy sector projects in India.
2.2 PIFSL, by way of a Bridge Loan Agreement dated 10th March
2014, had advanced a loan of Rs. 125 crores to NSL Nagapatnam Power
and Infratech Limited. 7As per Clause 3.1.1 of the Bridge Loan
Agreement, the loan is required to be secured. In accordance with sub-
clause (6) of Clause 3.1.1, on 10th March 2014 thereof, the second F
respondent, Mandava Holdings Private Limited,8 executed a Pledge Deed
in favour of PIFSL, thereby, pledging 31,80,678 shares, equivalent to
26% of the shares of NSL Energy Ventures Private Limited.9 NNPIL
and NEVPL are subsidiaries of MHPL.
3
G
Hereinafter referred to as “PIFSL”.
4
Hereinafter referred to as “RBI”.
5
Hereinafter referred to as “NBFC”.
6
Hereinafter referred to as “IFC”.
7
Hereinafter referred to as “NNPIL” or “Corporate Debtor”.
8
Hereinafter referred to as “MHPL”.
9
Hereinafter referred to as “NEVPL”. H
1078 SUPREME COURT REPORTS [2022] 9 S.C.R.

A 2.3 On17th November 2017,the Corporate Debtor filed a petition
invoking Section 10 of the Insolvency and Bankruptcy Code, 201610
before the National Company Law Tribunal, Hyderabad,11 initiating the
corporate insolvency resolution process. The petition was admitted under
Section 10(4) of the IBC on 18th January 2018. Mr. Venkateswarlu Kari,
respondent No.1, was appointed as the Interim Resolution Professional.12
B
2.4 On 28th December 2017, PIFSL issued a notice under the
Pledge Deed apprising MHPL on the default son the part of Corporate
Debtor and that if the debt due was not discharged within seven days,
PIFSL would exercise the rights in terms of the Pledge Deed.
C 2.5 On 16th January 2018, as the debt remained unpaid, PIFSL
wrote to the Depository Participant invoking its rights in terms of Clause
6.1 of the Pledge Deed. Acting on the request, the Depository Participant
has accorded PIFSL the status of ‘beneficial owner’ of 31,80,678 pledged
shares of NEVPL.

D 2.6 On 23rd January 2018,PIFSL wrote to MHPL informing that
due to continued defaults in payment on the part of the Corporate Debtor,
it had exercised the right under Clause 6.1, while reserving its right to
sell the shares under Clause 6.2 of the Pledge Deed read with Section
176 of the Contract Act.

E 2.7 On 17th January 2018, PIFSL filed an application before the
Adjudicating Authority under Section 7 of the IBC as a financial creditor
to whom Rs.167,29,23,507/- was due and payable by the Corporate
Debtor.
2.8 On 30th January 2018, the Adjudicating Authority allowed PIFSL
F to withdraw the application with liberty to file proof of financial claim
before the IRP in Form C.
2.9 On 6th February 2018, MHPL made a claim before the IRP,
inter alia, stating that PIFSL having been conferred status of ‘beneficial
owner’, MHPL no longer has any title or right over 31,80,678 shares.
Accordingly, MHPL had stepped into the shoes of PIFSL as a creditor
G
of the Corporate Debtor to the extent of the value of 31,80,678 shares of
NEVPL now owned by PIFSL.

10
For short, ‘IBC’.
11
Hereinafter referred to as “Adjudicating Authority”.
12
Hereinafter referred to as “IRP”.
H
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1079
ANOTHER [SANJIV KHANNA, J.]

2.10 Contrarily, on 10th February 2018, PIFSL submitted Form C A
with a financial claimof Rs.169,19,17,637/-, being the amount due and
payable to PIFSL by the Corporate Debtor as of 18th January 2018, the
date on which the Adjudicating Authority admitted the Section 10
application of the Corporate Debtor. The value of 31,80,678 pledged
shares was not accounted for or reduced.
B
2.11 On 19th February 2018, the IRP, by two separate emails,
informed that MHPL’s claim could not be crystalized as it was not possible
to ascertain the value of 31,80,678 shares ‘transferred’ to PIFSL.
Similarly, PIFSL’s claim cannot be crystalized due to the settlement in
whole/part of its claim and the need to arrive at the valuation at the time
of ‘transfer’ of shares to PIFSL. C

2.12 PIFSL and MHPL preferred separate applications before
the Adjudicatory Authority against the rejections of their claims.
2.13 By a common order dated 6thJuly 2018, the Adjudicating
Authority disposed of the applications filed by PIFSL and MHPL, D
accepting the MHPL’s claim by primarily relying on the Depositories
Act and Regulation 58 of the 1996 Regulations. The Adjudicating Authority
agreed with MHPL that PIFSL having exercised its right under the Pledge
Deed to‘transfer’31,80,678 pledged shares, MHPL’s shareholding in
NEVPL got reduced by 31,80,678 shares. Therefore, MHPL is a financial
creditor of the Corporate Debtor to the extent of the value of 31,80,678 E
shares. Further,16th January 2018, the date on which the pledge was
invoked by PIFSL, is the crucial date for determining the extent to which
PIFSL and MHPL are the financial creditors of the Corporate Debtor.
The IRP was directed to appoint an independent valuer to assess the
fair market value of 31,80,678 shares of NEVPL as on 16th January F
2018.
2.14 PIFSL challenged the orders before the National Company
Law Appellate Tribunal, New Delhi,13 but the appeals were dismissed
vide the impugned judgment dated 20thJune 2019. The Appellate Authority
has held that PIFSL had exercised its rights under Clause 6.1 of the G
Pledge Deed on 16th January 2018 and consequently, the pledged shares
stood transferred in the name of PIFSL. The fact that PIFSL had not
thereafter sold the shares under Clause 6.2 of the pledge deed would
not matter. As PIFSL had become the 100% owner of the pledged shares,
13
Hereinafter referred to as ‘Appellate Authority’. H
1080 SUPREME COURT REPORTS [2022] 9 S.C.R.

A it could realize its dues in whole or part by sale and transfer of the
shares according to the law. Once PIFSL has exercised right to become
the owner of the shares, PIFSL cannot take advantage of Section 176of
the Contract Act to ‘reclaim’ the debt. Section 176 of the Contract Act
cannot be taken into consideration by the IRP for collating the financial
claim of PIFSL under Section 18 of the IBC.
B
2.15 Other aspects which require to be noted are: (a) as per PIFSL,
the principal and interest amount due to them by the Corporate Debtor
as of 23rd December 2021 are Rs.3,76,13,03,389/-; (b) the shares of
NEVPL are unlisted, and there are no open market transactions, and (c)
the value of the pledged shares is disputed. On 13th August 2018, the
C IRP has submitted a valuation report of an independent valuer who has
valued the pledged shares at Rs.179 crores as of 16th January 2018.
MHPL relies on the 2013 valuation report of Axis Capital and the annual
report of MHPL for the financial year 2012-13. As per the annual report
relied on by MHPL, shares of NEVPL as of 31st March 2013 were
D valued at Rs.1229.66 crores. Accordingly, MHPL claims that the fair
value of each of the 1,22,33,378 shares of NEVPL (100% of the total
equity shares – all held by MHPL) was Rs.1,005.17p per share.
Therefore, the total value of the 31,80,678 pledged shares was equivalent
to Rs. 319 crores at the time of the creation of the pledge. On the other
hand, PIFSL claims that the actual value per share of NEVPL, as
E calculated on31st March 2016,is only Rs.58.97. Thus, the total value of
pledged shares comes to only Rs.18,75,64,582/-.14
B. Relevant provisions of the Contract Act
3.1 Chapter IX of the Contract Act deals with ‘Contracts of
F Bailment’. Sections 148 to 171 lay down the general law pertaining to
bailments, while Sections 172 to 179 delineate specific provisions
concerning pledges, which are a subset of bailments.
3.2 As per Section 151,a bailee is bound to take as much care of
the goods bailed to him as a man of ordinary prudence would, under
G similar circumstances, take of his goods of the same bulk, quality and
value as the goods bailed. Section 152 states that a bailee, in the absence
of a special contract, will not be liable for any loss, destruction, or
14
There are different recognised and established methods for valuation of unlisted
securities – See, (i)Commissioner of Wealth Tax v. Mahadeo Jalan and Mahabir Prasad
Jalan and Others Etc., (1973) 3 SCC 157; and (ii) Bharat Hari Singhania and Others v.
H Commissioner of Wealth Tax (Central) and Others, 1994 Supp. (3) SCC 46.
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1081
ANOTHER [SANJIV KHANNA, J.]

deterioration of the bailed goods if he acts in conformity with Section A
151. As per Section 153, a contract for bailment is voidable at the option
of the bailor if the bailee does any act with regard to the goods bailed,
inconsistent with the conditions of the bailment. Section 154 lays down
that the bailee shall be liable for damage arising from unauthorized use
of the bailed goods. The bailee, with the consent of the bailor, can mix
B
the goods bailed with his own goods, in which event, the bailor and the
bailee will have interest in proportion to their respective shares in the
mixture.15 However, if the bailee, without the bailor’s consent, mixes the
bailed goods with his own, and the goods can be separated or divided,
the property in the goods remain with the parties respectively.16 Further,
the bailee is bound to bear the expense of separation or division of the C
goods, as well as any damage arising from the mixture. Section 157
provides that when the goods are so mixed without the bailor’s consent
and cannot be separated, the bailor is liable to be compensated, and the
bailee is liable for the loss. Under Section 160, the bailee has to return or
deliver, as per the bailor’s directions, the goods, without demand, as
D
soon as the time for which they were bailed has expired or the purpose
for which they were bailed has been accomplished. Section 161 states
that if there is a default by the bailee and the goods are not returned,
delivered, or tendered at the proper time, the bailee is responsible to the
bailor for any loss, destruction, or deterioration of the goods from that
time. As per Section 163, in the absence of any contract to the contrary, E
the bailee is bound to deliver to the bailor, or in accordance with his
directions, any increase or profit that may accrue from the goods bailed.
3.3 Section 172 of the Contract Act is reproduced as under:
“172. ‘Pledge’, ‘pawnor’ and ‘pawnee’ defined – The bailment
of goods as security for payment of a debt or the performance of F
the promise, is called a ‘pledge’. The bailor is in this case called
the ‘pawnor’. The bailee is called ‘pawnee’”.
As per Section 172, creating a valid pledge requires delivery of
the possession of goods by the pawnor to the pawnee by way of security
upon the promise of repayment of a debt or the performance of a promise, G
thereby, creating an estate that vests with the pawnee.
3.4 Sections 176, 177 and 179 of the Contract Act read thus:
15
Section 155, Contract Act.
16
Section 156, Contract Act. H
1082 SUPREME COURT REPORTS [2022] 9 S.C.R.

A “176. Pawnee’s right where pawnor makes default.— If the
pawnor makes default in payment of the debt, or performance; at
the stipulated time or 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 pledged as a
collateral security; or he may sell the thing pledged, on giving the
B
pawnor reasonable notice of the sale.
If the proceeds of the sale are greater than the amount so due,
the pawnee shall pay over the surplus to the pawnor.”
xx xx xx
C 177. Defaulting pawnor’s right to redeem. – If a time is
stipulated for the payment of the debt, or 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
D that case, pay, in addition, any expenses which have arisen from
his default.”
xx xx xx
179. Pledge where pawnor has only limited interest.–Where
a person pledges goods in which he has only a limited interest, the
E pledge is valid to the extent of that interest.”
As per Section 176, when a pawnor makes a default in payment
of debt or performance of a promise, the pawnee may bring a suit against
the pawnor upon such debt or promise and retain the goods pledged as
collateral security, or he may sell the goods pledged upon giving the
F pawnor reasonable notice of the sale. If the pledged goods are sold, and
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 amount to
the pawnee. If the proceeds of such sale exceed the amount due, the
pawnee will be liable to pay the surplus to the pawnor.
G Section 177 gives statutory right to the pawnor, who is at default
in payment of the debt or performance of the promise, to redeem the
pledged goods at any time before ‘actual sale’ by the pawnee. However,
in such cases, the pawnor must pay in addition the expenses that have
arisen from his default.
H
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1083
ANOTHER [SANJIV KHANNA, J.]

Section 179 states that the limited interest that a pawnor has in A
the goods can be validly pledged.
Having understood the broad statutory contours of pledge, we
would now examine the relevant opinio juris on the law of pledge.
Legal jurisprudence relating to law of pledge is required to be examined
in some detail for determining the issue before us. B
C. Analysis of law of pledge and case laws relating to pledge
(i) What is pledge and the legal difference between
ownership, pledge and mortgage.
4.1 Md. Sultan and Others v. Firm of Rampratap Kannayalal, C
Hyderabad, by its partners17 observes that a contract of pledge should
satisfy the following conditions:
(i) there should be a bailment of goods as defined in Section
148 of the Contract Act, that is, delivery of goods;
(ii) the bailment must be by way of security; and D
(iii) the security must be for payment of debt or performance
of a promise.
The decisions in Md. Sultan (supra) and Sri Raja Kakarklhpudi
Venkata Sudarsana Sundara Narasayamma Garu (died) and others
v. The Andhra Bank Ltd. Vijayawada and others 18 observe that E
hypothecation and mortgage of movables, though not specifically
mentioned in the Contract Act, are valid and enforceable in India as the
Contract Act is not an exhaustive law on the subject. Such transactions
beyond the statutory framework are given effect to and interpreted by
the courts according to the principles of justice, equity, and good F
conscience.There is no standard format and incidents in a contract of
pledge can be different. A term mutually agreed by the parties is valid as
long as it is not contrary to or inconsistent with any provision of the
Contract Act. In the context of the present case, the aforesaid principles
relating to the law of pledge reflecting flexibility are important in the
milieu of a transitional and commercial environment wherein significant G
changes have occurred across the capital market with inter alia advent
of institutional investors, regulatory mechanisms, and the new insolvency
regime, albeit the fundamentals of the law of pledge, except when
17
AIR 1964 AP 201.
18
AIR 1960 AP 273. H
1084 SUPREME COURT REPORTS [2022] 9 S.C.R.

A permitted or required to be eschewed, should be applied. This is the
principle of interpretation which we have applied to answer the
conundrum.
4.2 These two decisions highlight distinction between a pledge,
which creates an estate or a right that vests with the pawnee, and a
B wider and general right of an owner; as well as mortgage or
hypothecation.19An owner has: (a) right of possession; (b) right of
enjoyment; and (c) the right of disposition. A pawnee does not have the
right of ownership, but has limited right to retain possession till debt is
paid or promise is performed. A pawnee’s right of disposition is limited
to disposition of the pledge rights only, and the right to sell after reasonable
C notice. Even when the pawnor makes default in payment of debt or
performance of the promise, the pawnor has the right to redeem the
pawn till ‘actual sale’ of the pawn by the pawnee. However, the pawnor
in addition to the debt, must pay to the pawnee expenses that have arisen
because of the default.
D 4.3 Where money is advanced by way of the loan upon the security
of goods, the transaction may take the form of a mortgage or pledge.
The difference between a pledge and a mortgage of movable property
is that while under a pledge there is only a bailment, whereas under a
mortgage there is transfer of the right of the property by way of security.
E The distinction is aptly brought out in the following passage in Halsbury’s
Laws of England: 20
“A mortgage of personal chattels is essentially different from a
pledge or pawn under which money is advanced upon the security
19
In the context of the present case, we need not examine the difference between pledge
and hypothecation. It is sufficient to note that in hypothecation possession does not
F transfer and remains with the debtor. Hypothecation has been defined as a right which
a creditor has over a thing belonging to another, and which consists in the power to
cause it to be sold in order to be paid his claims out of the proceeds. It is an act of
pledging a thing as security for a debt or demand without parting with the possession.
It follows as a consequence that although the property remains in the possession of the
debtor, it cannot be transferred to a third party without the express consent or permission
G of the creditor (See, Simla Banking and Industrial Co., Ltd., Simla (In
Liquidation)v.Pritams, AIR 1960 Punj 42). In India, Securitisation and Reconstruction
of Financial Assets and Enforcement of Security Interest Act, 2002 defines it under
Section 2(1)(n) as a charge in or upon any movable property, existing or future, created
by a borrower in favour of a secured creditor without delivery of possession of the
movable property to such creditor, as a security for financial assistance and includes
floating charge and crystallisation of such charge into fixed charge on movable property.
H 20
Hailsham Edn., (2nd Edn.), para 330, page 226 of Volume XXIII.
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1085
ANOTHER [SANJIV KHANNA, J.]

of chattels delivered into the possession of the lender, such delivery A
of possession being an essential element of the transaction. A
mortgage conveys the whole legal interest in the chattels; a pledge
or pawn conveys only a special property, leaving the general
property in the pledger or pawnor; the pledgee or pawnee never
has the absolute ownership of the goods, but has a special property
B
in them coupled with a power of selling and transferring them to a
purchaser on default of payment at the stipulated time, if any, or
at a reasonable time after demand and non-payment if no time for
payment is agreed upon.”
Therefore, unlike a pledgee, a mortgagee acquires general rights
in the things mortgaged subject to the right of redemption of a mortgagor. C
In other words, the legal estate in the goods mortgaged passes on to the
mortgagee. In comparison, a pawnee has only the special right in the
goods pledged, namely, the right of possession as security and in case of
default, he can bring a suit against the pawnor as well as sell the goods
after giving a reasonable notice.21 Whether a particular transaction is a D
mortgage of moveable property or a pledge can only be determined by
reference to the intention of the parties, and other surrounding
circumstances.22
(ii) Pawnee has a special and not general right in the
pledged property. E
5.1 This Court, in Lallan Prasad v. Rahmat Ali and Another,23
observes that under the common law, a pledge is a bailment of personal
property as security for payment of debt or engagement. The two essential
ingredients of pledge are (i) the pawn i.e., the property pledged should
be actually or constructively delivered to the pawnee 24 and (ii) a pawnee F
21
Para 20, Sri Raja Kakarklhpudi Venkata Sudarsana Sundara Narasayamma Garu
(supra)
22
Arjun Prasad and others v. Central Bank of India, Ltd., 1954 SCC OnLine Pat 138.
23
AIR 1967 SC 1322.
24
See also Morvi Mercantile Bank Ltd. v. Union of India, AIR 1965 SC 1954: “20. In
English Law a pledge arises when goods are delivered by one person called the ‘pledgor’ G
to another person called the ‘pledge’ to be held as security for the payment of a debt or
for discharge of some other obligation upon the express or implied understanding that
the subject-matter of the pledge is to be restored to the pledger as soon as the debt or
other obligation is discharged. It is essential for the creation of a pledge that there
should be a delivery of the goods comprised therein. In other words, a pledge cannot be
created except by delivery of the possession of the thing pledged, either actual or
H
1086 SUPREME COURT REPORTS [2022] 9 S.C.R.

A has only special property in the pledge but the general property therein
remains in the pawnor and wholly reverts to him on discharge of the
debt. The right to property vests in the pawnee only as far as is necessary
to secure the debt. A pawn or pledge is an intermediate between a simple
lien and a mortgage, which wholly passes the property.A pawnor has an
absolute right to redeem the pledged property upon tendering the amount
B
advanced but that right would be lost if the pawnee in the meantime has
lawfully sold the pledged property. If the pawnee sells, he must appropriate
the proceeds of the sale towards the pawnor’s debt, for the sale proceeds
are the pawnor’s monies to be so applied and the pawnee must pay the
pawnor any surplus after satisfying the debt.
C 5.2 Accordingly, the judgment refers to Section 172, which states
that a pledge is a contract for bailment of goods as security for payment
of debt or performance of promise. Section 17325 entitles the pawnee to
retain the goods pledged for the payment of the debt. Section 176,
elucidating on the rights of the pawnee, states that in case of default by
D the pawnor, the pawnee has: (a) a right to sue upon the debt and to
retain the goods as collateral security, and (b) sell the goods after
constructive. It involved a bailment. If the pledger had actual goods in his physical
possession, he could effect the pledge by actual delivery; but in other cases he could
give possession by some symbolic act, such as handing over the key of the store in
which they were. If, however, the goods were in the actual physical possession of a
E third person, who held for the bailor so that in law his possession was that of the bailor,
this pledge could be effected by a change of the character of the possession of the third
party, that is by an order to him from the pledgor to hold for the pledgee, the change
being perfected by the third party attorning to the pledgee, thus acknowledging that he
thereupon held for the latter. There was thus a change of possession and a constructive
delivery: the goods in the hands of the third party came by this process constructively
in the possession of the pledgee. But where goods were represented by documents the
F transfer of the documents did not change the possession of the goods, save for one
exception, unless the custodian (carrier, warehouseman or such) was notified of the
transfer and agreed to hold in future as bailee for the pledgee. The one exception was the
case of bills of lading, the transfer of which by the law merchant operated as a transfer
of the possession of, as well as the property in, the goods. This exception has been
explained on the ground that the goods being at sea the master could not be notified; the
G true explanation was perhaps that it was a rule of the law merchant, developed in order
to facilitate mercantile transactions, whereas the process of pledging goods on land was
regulated by the narrower rule of the common law.” The quotation reflects flexibility.
25
173. Pawnee’s right of retainer.—The pawnee may retain the goods pledged, not only
for a payment of the debt or the performance of the promise, but for the interest of the
debt, and all necessary expenses incurred by him in respect of the possession or for the
preservation of the goods pledged.
H
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1087
ANOTHER [SANJIV KHANNA, J.]

reasonable notice of the intended sale to the pawnor. Once the pawnee, A
by virtue of his right under Section 176, sells the goods, the right of the
pawnor to redeem them is extinguished. But, thereupon, the pawnee is
bound to apply the sale proceeds towards satisfaction of the debt and
pay the surplus, if any, to the pawnor. So long as the sale does not occur,
the pawnor is entitled to redeem the goods on payment of the debt. Even
B
when the pawnee files a suit for recovery of the debt, though he is
entitled to retain the goods, the pawnee must return the goods on payment.
Another significant observation in this judgment is that if the pawnee
sues on the debt denying the pledge, and it is found that he was given
possession of the goods pledged and had retained the same, the pawnor
has the right to redeem the pledged goods on payment of the debt. If the C
pawnee is not in a position to redeliver the goods, the pawnee cannot
benefit from the repayment of the debt and the goods pledged. Where
the value of the pawned goods is less than the debt and the pawnee
denies the pledge or is otherwise not in a position to return the pawned
goods, the pawnee has to give credit for the value of the goods and
D
would be entitled only to recover the balance.
5.3 In Bank of Biharv. The State of Bihar and Others,26 relying
on the distinction between the right of ownership and the right of the
pawnee under a pledge, this Court held that Section 173 of the Contract
Act provides that the pawnee may retain the goods pledged only for
payment of the debt, performance of the promise and also for interest E
on the debt, etc. The pawnee has a special property or interest in the
thing pledged while the general property therein continues in the owner.
The special interest exists in the pawnee so that the pawnee can compel
payment of the debt or sell the goods when the right to do so arises. This
special interest is distinguished from mere right of detention that the F
holder of lien possesses, since the pawnee may assign or pledge his
special property or interest in the goods. Relying on Halsbury’s Law of
England, 3rd Edition, Vol. 29, page 222, it is observed that on the bankruptcy
of the pawnor, the pawnee is a secured creditor with respect to the
things pledged before the date of receiving the order and without notice
of a prior available act of bankruptcy. G

5.4 In Maharashtra State Cooperative Bank Limited v.
Assistant Provident Fund Commissioner and Others,27 a three Judges’
26
(1972) 3 SCC 196.
27
(2009) 10 SCC 123.
H
1088 SUPREME COURT REPORTS [2022] 9 S.C.R.

A Bench of this Court agreed with the ratio in Bank of Bihar (supra) and
Lallan Prasad (supra) and proceeded to hold that in a contract of pledge,
the property pledged should be actually or constructively delivered to
the pawnee. The pawnee has only a ‘special property’ in the pledge, but
the general property remains with the pawnor. The special property right
in the pawned goods is higher than the mere right of detention of goods
B
but lesser than the general property right. This means that the pawnee
has the right to transfer the general property rights in the pawned goods
if the pledge remains unredeemed. Reference in this regard was made
to the decision of this Court in Karnataka Pawnbrokers’ Association
and Othersv. State of Karnataka and Others,28 wherein it is observed
C that the pawnee has a conditional general property interest in the pledge,
subject to the condition that he can pass on that general property if the
pledge is brought to sale in accordance with the law.
(iii) Accretion on pawned goods
6.1 In Standard Chartered Bankand Anotherv. Custodianand
D Another,29 a Division Bench of this Court interpreting provisions of
Sections 148, 160 and 172 of the Contract Act held that when the goods
are bailed for securing payment of a debt or performance of a promise,
the bailor will get the right for the return of the said goods when the
purpose is accomplished, namely, the debt is returned, or the promise is
E performed. Referring to Section 163 of the Contract Act, it is observed
that in the absence of a contract to the contrary, the bailee is bound to
deliver to the bailor, or according to his directions, any increase of profit
that may have accrued from the bailed goods. An example in this Section
states that if a calf is born to the cow, then the bailee is bound to deliver
the calf as well as the cow to the bailor. In other words, the pledge
F extends to accretions and additions, and therefore, when the pawnee
returns the pledged goods, the accretions and additions must be returned
to the pawnor. It also follows that the pawnee’s right to retain and sell
the pledged goods stretches to the right to retain and sell any increase
and accumulations to the pledged goods.
G 6.2 Accordingly, in Seth Motilal Hirabhai and Ors. v. Bai Mani,30
where the shares were already pledged, it is held that when fresh shares
were issued taking the call money from the yearly dividend payable on
28
(1998) 7 SCC 707.
29
(2000) 6 SCC 427.
30
H 1924 SCC OnLine PC 81.
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1089
ANOTHER [SANJIV KHANNA, J.]

the old shares, the new shares must be returned to pawnor along with A
the old shares. Similarly, the Delhi High Court in M.R. Dhawan v. Madan
Mohan and Others,31 has held that any accretion in the shape of
dividends, bonuses or right shares issued in respect of the pledged shares,
in the absence of any contract to the contrary, is the special property of
the pawnee as a security for the debt.
B
(iv) Notice of sale by pawnor and the pawnee’s right to
sue for recovery and sell the pawned goods
7.1 Relying upon Lallan Prasad (supra)and Bank of Bihar
(supra), this Court in Balkrishan Gupta and Others v. Swadeshi
Polytex Ltd. and Another32 has held that under Section 176, if the pawnor C
makes default in payment of the debt or performance as promised, and
in respect of which the goods were pledged, the pawnee may bring a
suit on the pawnor upon the debt or promise and may retain the goods
pledged as collateral security, or the pawnee may sell the things pledged
on giving the pawnor reasonable notice of sale.
D
7.2 Several High Courts in F. Nanak Chand Ramkishan Das of
Hodel and Others v. Lal Chand and Others,33Bank of Maharashtra
v. M/s. Racmann Auto (P) Ltd.34 and Rani Leasing & Finance Ltd.
v. Sanjay Khemani35 have held that while the pawnee has a right to sell
the goods after giving notice to the pawnor, he is not bound to sell at any
particular time. The power of sale conferred on the pawnee is expressly E
for his benefit, and it is his sole discretion to exercise the power of sale
or otherwise. If the pawnee does not exercise that discretion, no blame
can be put on him. Even where the value of the goods deteriorates due
to time, no relief can be granted to the pawnor against the pawnee as
the pawnor is legally bound to clear the debt and obtain possession of F
the pawned goods.
7.3 A Division Bench of the Calcutta High Court in Hulas Kunwar
v. Allahabad Bank Ltd.36 has held that law does not require that the
pawnee arrange for a sale beforehand and then give notice to the pawnor
as to the date, time and place of sale. Notice under Section 176 has to be G
31
AIR 1969 Del 313.
32
(1985) 2 SCC 167.
33
1958 SCC OnLinePunj 6.
34
AIR 1991 Del 278.
35
2015 SCC OnLine Cal 450.
36
AIR 1958 Cal 644. H
1090 SUPREME COURT REPORTS [2022] 9 S.C.R.

A given of the pawnee’s intention to sell in default of payment by the pawnor
within the specified time. This notice does not require specification of
the date, time and place of sale.
7.4 The Calcutta High Court in Haridas Mundra v. National
and Grind-Lays Bank Ltd.37refers to two earlier decisions in the cases
B of Hulas Kunwar (supra) and Kunj Behari Lal v. The Bhargava
Commercial Bank, Jubbulpore38 where the courts have held that the
notice under Section 176 is required before the sale to show the pawnee’s
intention to sell the good in order to give the pawnor reasonable
information to redeem the pawned goods. Further, the reasonableness
of notice may vary from case to case. The right to retain the pawn and
C the right to sell is alternative and not concurrent. When the pawnor
retains, he does not sell, but when he sells, he does not retain the pledged
goods. However, the pawnee can sue on the debt or the promise
concurrently with his right to retain the pawn or sell it. Even the sale of
the pawn does not destroy the pawnee’s right as the pawn is a collateral
D security, and the pawnor remains liable on the original promise to pay
the balance due. The right to sell the pawned goods is necessary to
make the security effectual for discharging the pawnor’s obligation. It
continues despite the institution of a suit for recovery of the dues.
7.5 In Vimal Chandra Grover v Bank of India, 39 specific
E reference was made to the decisions on the law of pledge that the pawnee
is under no compulsion to sell the pawned goods on the request of the
pawnor as a means of discharging the debt. The reason is that Section
176 grants an option to the pawnee to either retain or sell the pawned
goods for recovery of the debt. In the former case, the pawnee can also
file the suit to recover debt while holding the goods. However, giving of
F reasonable notice to the pawnor for sale is required, but even when
reasonable notice for sale has been given, the pawnee is not bound to
sell the goods after the expiration of the period mentioned in the notice.
At the same time, before the pledged goods are put to sale, the pawnor
is entitled to redeem the pawned goods. The pawnor has the right to
G redeem them after discharging the debt. However, the court did not
consider it necessary to go into legal niceties in view of the facts of the
case as the bank, as a pawnee, on the request of the borrower-pawnor

37
AIR 1963 Cal 132.
38
AIR 1918 All 363 (2).
39
H (2000) 5 SCC 122.
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1091
ANOTHER [SANJIV KHANNA, J.]

had agreed to sell a part of the shares to redeem the debt. In Vimal A
Chandra (supra), the Court held that the bank as the pawnee was liable
for negligence as it did not sell the pledged goods, after having agreed to
do so. This failure amounted to negligence in service under the Consumer
Protection Act, 1986.
7.6 At this stage we must refer to two detailed judgments of the B
Bombay High Court and the Delhi High Court and the observations of
the Andhra Pradesh High Court in Sri Raja Kakarklhpudi Venkata
Sudarsana Sundara Narasayamma Garu (supra).In The Official
Assignee of Bombay v. Madholal Sindhu and Others,40 the judgment
of the Bombay High Court authored by Chief Justice Leonard Stone
referred to the Commentaries on the Law of Bailments, Eighth Edition, C
by Mr. Justice Story, wherein it is observed on page 262:
“Another right resulting, by the common law, from the contract of
pledge is the right to sell the pledge, where there has been a default
in the pledge in complying with his engagement, but a sale before
default would be a conversion. Such a right does not divest the D
general property of the pawner but still leave in him (as we shall
presently see) a right of redemption.”
The following passage at page 263 was quoted:
“The common law of England, existing in the time of Glanville,
seems to have required a judicial process to justify the sale, or at E
least to destroy the right of redemption. But the law as at present
established leaves an election to the pawnee. He may file a bill in
equity against the pawner for foreclosure of sale and sale; or, he
may proceed to sell ex mero motu, upon giving notice of his
intention to the pledger.”
F
In this case, the judgment of Chief justice Leonard Stone also
referred to Section 1 of the Contract Act, which reads,
“1. Short title.—This Act may be called the Indian Contract Act,
1872.
Extent, Commencement.—It extends to the whole of India
G
except the State of Jammu and Kashmir; and it shall come into
force on the first day of September, 1872.
Saving—Nothing herein contained shall affect the provisions of
any Statute, Act or Regulation not hereby expressly repealed, nor
40
AIR 1947 Bom 217. H
1092 SUPREME COURT REPORTS [2022] 9 S.C.R.

A any usage or custom of trade, nor any incident of any contract,
not inconsistent with the provisions of this Act.”
to hold that the instrument of pledge therein, giving unqualified
power of sale, being inconsistent with Section 176, was not valid, and
the express provision of Section 176 shall prevail. The notice must be
B given in all pledge cases, even when the instrument of pledge contains
an unconditional power of sale. Another important observation made in
this judgment is that the pawnor’s right to redeem remains until the ‘lawful
sale’.
Chief Justice Stone’s judgment is also relevant for another reason.
C He has referred to, with approval, Mr. Justice Story’s commentaries on
the Law of Bailments, Eight Edition, which at page 262 draws distinction
between (actual) sale and conversion by the pawnee in the following
passage:
“Another right resulting, by the common law, from the contract of
D pledge is the right to sell the pledge, where there has been a default
in the pledge in complying with is engagement, but a sale
beforedefault would be a conversion. Such a right does not divest
the general property of the pawner but still leave in him(as we
shall presently see) a right of redemption.”
Chagla J., in his concurring opinion, referring to Section 176, held
E
that when the pawnor makes a default in the payment of the debt, the
pawnee may sell the pawned goods on giving the pawnor reasonable
notice of sale. He agreed that the requirement of giving the pawnor
reasonable notice of sale is mandatory and it is not open to the parties to
contract themselves out of this section. Section 176 of the Contract Act,
F unlike some of the sections of the Contract Act, does not specifically
provide that the contractual terms can override the provision by using
the expression “in the absence of the contract to the contrary” or “subject
to special contract to the contrary”. The notice, that is to be given for
the intended sale by the pawnee, is a special protection that the statute
has given to the pawnor, and the parties cannot agree that the pawnee
G
may sell the pledged goods without notice to the pledgor. Dwelling on
the aspect of the pawnor’s right of redemption under Section 177, the
judge held that the right remains till the ‘actual sale’ of the pledged goods.
The expression ‘actual sale’ in Section 177 must be a sale in conformity
with the provisions of Section 176 which gives the pledgee the right to
H
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1093
ANOTHER [SANJIV KHANNA, J.]

sell; and if the sale is not in conformity with those provisions, then the A
equity of redemption with the pledgor is not extinguished.
The sale by the pawnee to himself being void does not put an end
to the pledge, but the pawnor is bound by resale(s) duly effected by the
pawnee to the third parties after such abortive sales to himself.
Chagla J. on the rights of the pawnee held that the Contract Act B
provides two rights to the pawnee when the pawnor makes a default in
payment of the debt: (a) bring the suit against the pawnor for the debt
and retain the goods pledged as collateral security; and (b) sell the goods
pledged, which power, however, can be exercised in terms of Section
176 on giving the pawnor a reasonable notice for sale.
C
While upholding that the right of redemption given to the pawnor
vide Section 177 of the Contract Act ends on the sale of the goods by
the pawneein conformity with the requirements of Section 176 of the
Contract Act and not on unlawful or unauthorised sales, Chagla J. after
extensively referring to the case law on the subject held that: (1) the
pawnor does not become entitled to the possession of the goods pledged D
without tendering the amount due on the pledge; or in other words, without
seeking to redeem the pledge; and (2) that without a proper tender of
the amount due on the pledge, the only right of the pawnor in respect of
the unlawful or unauthorised sale is in tort for damages actually sustained
by him. Therefore, without tendering the amount, action of trover 41 and E
detinue42 are not maintainable.
7.7 The decision in Madholal Sindhu (supra) was carried in
appeal to the Federal Court, wherein the court by majority overruled the
decision of the Bombay High Court solely on a factual basis that, given
the assent of sale of shares by the pawnor therein and the acquiescence
thereof by the Official Assignee, the sale was good. However, it is to be F
espied that the question of whether the pawnor could enter into a contract
contrary to the provisions of Section 176 or whether want of notice is a
mere irregularity not affecting the title of the bona fide purchaser for
value did not arise for consideration before the Federal Court.
7.8 These principles interpreting Sections 176 and 177 of the G
Contract Act are reiterated and affirmed in Sri Raja Kakarklhpudi
Venkata Sudarsana Sundara Narasayamma Garu (supra). This
41
A common law action to recover the value of personal property that has been wrongfully
disposed of by another person.
42
A common law action for recovery of personal chattel wrongfully detained or of its
value. H
1094 SUPREME COURT REPORTS [2022] 9 S.C.R.

A decision also examines the waiver of the right to reasonable notice under
Section 176 of the Contract Act. Reference was made to the rule of
waiver as stated in Maxwell on Interpretation of Statutes43 in the following
words:
“Every-one has a right to waive and to agree to waive the
B advantage of a law or rule made solely for the benefit and protection
of the individual in his private capacity, which may be exercised
with without infringing any public right of public policy”.
After referring to foreign44 and Indian authorities45 on waiver, Sri
Raja Kakarklhpudi Venkata Sudarsana Sundara Narasayamma
Garu (supra) categorically observes that in terms of Section 176, its
C requirements are mandatory and that, even if there is a term in the contract
of a pledge to waive notice, still, the pledgee is not relieved of his obligation
to give notice before the sale.
7.9 Of particular importance is the reference in Sri Raja
Kakarklhpudi Venkata Sudarsana Sundara Narasayamma Garu
D (supra) to the following observations of Farelli J. in Soho Square
Syndicate Ltd. v Poland & Co.:46
“If it be right to say that a mortgagee, by merely getting the consent
of the mortgagor, can avoid the ..... necessity of applying to the
Court. a large part of the protection which this Act was intended
E to provide would virtually disappear. People in the position of such
persons as I have mentioned might easily be persuaded to give a
consent without really knowing what exactly was involved in such
consent, and an opportunity of expressing their reasons for their
inability to pay, whatever they may he, and of stating their
difficulties, which is now afforded to them by the necessity of an
F application to the court would be entirely removed. Moreover,
difficult questions might also arise whether the consent had in
fact been obtained, or whether it was a consent which was binding,
and similar questions.’’

43
G (1953), 10th Edition, Sweet & Maxwell, page 368.
44
Wilson v. Mcintosh, 1894 A.C. P. 129.; Corporation of the City of Tornoto v. John
Russel, D. Jones & Smiths Reports, 1908 Ac. 493; Selwyn v. Grafit, 38 Ch. D.P.
273;Griffiths v. The Earl of Dudley, 9, Q.B.D. P. 357.
45
Vellayan Chettiar v. Government of the Province of Madras, I.L.R. 1948 Mad. p. 214;
Raja Chetty v. JagannadhadasGovindas, 1949 II M.L.J. P. 694.
46
1940-1 Ch 638 at p. C43
H
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1095
ANOTHER [SANJIV KHANNA, J.]

Where the Contract Act prescribes a particular term that is binding, A
the statutory mandate must be followed by the parties. Neither party
can contract out of it. Otherwise, the legislative command that the statute
imposes would be violated with immunity by merely incorporating waiver
as a contractual term, depriving the frailer party of the benefit of the
legal protection. A condition prescribed to protect and benefit the public
B
cannot be dispensed with when it lays down a rule of public policy.
7.10 Section 6347 of the Contract Act governs the domain of
waiver. It is a general principle of law that everyone has a right to waive
the advantage of a law or rule made solely for the benefit and protection
of the individual in his private capacity.48 However, such a waiver cannot
infringe any public right or public policy. In Krishna Bahadur v.Purna C
Theatre and Others,49 this Court observed that,
“10. A right can be waived by the party for whose benefit certain
requirements or conditions had been provided for by a statute
subject to the condition that no public interest is involved therein.
Whenever waiver is pleaded it is for the party pleading the same D
to show that an agreement waiving the right in consideration of
some compromise came into being. Statutory right, however, may
also be waived by his conduct.”
In Halsbury’s Laws of England,50 it is stated thus:
“As a general rule, any person can enter into a binding contract to E
waive the benefits conferred upon him by an Act of Parliament,
or, as it is said, can contract himself out of the Act, unless it can
be shown that such an agreement is in the circumstances of the
particular case contrary to public policy. Statutory conditions may,
however, be imposed in such terms that they cannot be waived by F
agreement, and, in certain circumstances, the legislature has
expressly provided that any such agreement shall be void.”
However, there is a difference between statutory provisions meant
for the benefit of a person and statutory provisions which mandate
47
63. Promise may dispense with or remit performance of promisee.— Every promisee G
may dispense with or remit, wholly or in part, the performance of the promisee made
to him, or may extend the time for such performance, or may accept instead of it any
satisfaction which he thinks fit.
48
Cuilibet licet renuntiarejuri pro se introductoi.e., Any one may waive or renounce the
benefit of a principle or rule of law that exists only for his protection.
49
(2004) 8 SCC 229.
50
Vol. 8, Third Edn., para 248 at p. 143. H
1096 SUPREME COURT REPORTS [2022] 9 S.C.R.

A contracts to be in a specific manner. One cannot waive the statutory
obligations where the statute restraints explicitly or mandates parties to
contract in a particular manner.Formalities and requirements for making
contracts have generally been held to be mandatory.51 Where a statute
prescribes that a contract shall be in a specific form or shall or shall not
contain certain terms, the statutory form must be followed.52 In reference
B
to pledge, waiver by contract and statutorily mandated terms, the High
Court of Calcutta in The Co-Operative Hindusthan Bank, Ltd. v.
Surendranath De,53 observed:
“Section 176 of the Contract Act, unlike some other sections, e.g.,
sections 163, 171 and 174, does not contain a saving clause in
C respect of special contracts contrary to its express terms. The
section gives the pawnee the right to sell only as an alternative to
the right to have his remedy by suit. Besides, section 177 gives
the pawner a right to redeem even after the stipulated time for
payment and before the sale. In our opinion, in view of the wording
D of section 176 as compared with the wordings of the other sections
of the Act, to which we have referred, and also, in view of the
right which section 177 gives to the pawner, and, in order that the
provision of that section may not be made nugatory, the proper
interpretation to put on section 176 is to hold that, notwithstanding
any contract to the contrary, notice has to be given.”
E
Even when the general law provides liberty to contract, the parties
cannot contract contrary to express provisions of law. In Park Street
Properties Private Limited v. Dipak Kumar Singh and Another,54 in
reference to Section 106 of the Transfer of Property Act, 1882, this
Court held:
F
“While the agreement dated 7-8-2006 can be admitted in evidence
and even relied upon by the parties to prove the factum of the
tenancy, the terms of the same cannot be used to derogate from
the statutory provision of Section 106 of the Act, which creates a
fiction of tenancy in the absence of a registered instrument creating
G
51
G.P. Singh, Principles of Statutory Interpretation, 14 th Edition, Lexis Nexis (2016) at
page 462.
52
Craies on Statute Law by S.G.G. Edgar, 7 th Edition, Sweet & Maxwell Limited (1971)
at page 255.
53
1931 SCC OnLine Cal 224.
54
H (2016) 9 SCC 268.
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1097
ANOTHER [SANJIV KHANNA, J.]

the same. If the argument advanced on behalf of the respondents A
is taken to its logical conclusion, this lease can never be terminated,
save in cases of breach by the tenant. Accepting this argument
would mean that in a situation where the tenant does not default
on rent payment for three consecutive months, or does not commit
a breach of the terms of the lease, it is not open to the lessor to
B
terminate the lease even after giving a notice. This interpretation
of Clause 6 of the agreement cannot be permitted as the same is
wholly contrary to the express provisions of the law. The phrase
“contract to the contrary” in Section 106 of the Act cannot be
read to mean that the parties are free to contract out of the express
provisions of the law, thereby defeating its very intent.” C
7.11 In Nabha Investment Pvt. Ltd. v. Harmishan Dass Lukhmi
Dass,55 a decision of Delhi High Court, reference is made to the decision
in Sri Raja Kakarklhpudi Venkata Sudarsana Sundara
Narasayamma Garu (supra) wherein the High Court of Andhra Pradesh
had agreed with the opinion expressed by Chagla J. in Madholal Sindhu D
(supra), that in cases of unauthorized sale by the pawnee, the pawnor
could seek to file a suit for redemption by depositing the money, treating
the sale as if it had never taken place, or where the suit of redemption is
not filed, to ask for damages on the ground of conversion. However, the
decision in Nabha Investment (supra) disagreed with the view taken in
these two judgments that the pawnor cannot file the suit for redemption E
of the pledge unless preceded by tender or accompanied by pledged
money. Nevertheless, the judgment agrees with other principles of law
laid down by Chagla J. that Section 176 is mandatory observing that the
applicability and sweep of Section 176 is not eclipsed or curtailed by the
phrase “in the absence of the contract to the contrary”. In other words, F
the parties cannot contract out of Section 176. The need for notice to
the pawnor of the intended sale by the pawnee is the special protection
given to the pawnor, and the parties cannot override the special protection
by agreement. Further, the right to redeem can be exercised up to the
actual sale of the goods pledged, i.e., the sale referred to in Section 177
in conformity with Section 176. The judgment in Nabha Investment G
(supra) elucidates:
“22.8. Here I may utilize this opportunity for extracting other
principles of law laid down by Chagla, J. in his illuminating judgment
which are based on several authorities. They are:—
55
1995 SCC OnLine Del 239. H
1098 SUPREME COURT REPORTS [2022] 9 S.C.R.

A (i) The provisions of Section 176 Contract Act are mandatory.
The applicability and sweep of Section 176 unlike several
other provisions on the same subject is not eclipsed by the
phrase-”in the absence of a contract to the contrary.” The
notice that is to be given to the pledgor of the intended sale
by the pledgee is a special protection which statute has
B
given to the pledgor and parties cannot agree that in the
case of any pledge, the pledgee may sale the pledged articles
without notice to the pledgor (para 55).
(ii) If a sale is held of the shares under authority of the pledgor
then it could convey to the purchaser full title in the shares;
C sale under Section 27 of Sale of Goods Act title conveyed
to the purchaser would not be a title better than that of the
seller. (Para 56).
(iii) Notice under Section 176 of Contract Act must be given
before the power of sale can be exercised. If the notice is
D essential, the purchaser, however innocent cannot acquire
a title better than his vendor has (Para 56).
(iv) Right to redeem under Section 177 can be exercised right
upto time the actual sale of the goods pledged takes place.
The actual sale referred to in Section 177 must be a sale in
E conformity with the provisions of Section 176 which gives
the pledgee the right to sale; and if the sale is not in
conformity with those provisions, then the equity of
redemption in the pledgor is not extinguished (para 57).
(v) The pledgor has a right to call upon the pledgee to redeem
F the shares or payment of the debt. If the pledgee has
transferred the shares, he is entitled to call upon the
transferee for the same because the transferee does not
acquire anything more than the right, title and interest of
the pledgee which is to retain the goods as a pledge till the
G debt is paid off. If the pledgor may not be in a position to
redeem, he may contend himself with merely suing the
pledgee for conversation if any damage has resulted by
reason of the goods being sold without proper notice (para
59).

H
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1099
ANOTHER [SANJIV KHANNA, J.]

(vi) There is no analogy between Section 69(3) of T.P. Act and A
Section 176 Contract Act; there is a marked contrast
between the two. Former protects the innocent purchaser,
the latter does not do so. In the absence of any provision in
Section 176 of the Contract Act in favour of the innocent
purchaser, to import such protection from the provisions of
B
another statute is with respect wholly fallacious and
unjustifiable. It is always dangerous to draw analogy
between one statute and another;
22.9Vide para 64 Chagla, J. did not agree with the following
statement of law contained in Coote on Mortgages (Volume-II,
9th Edition page 1472):— C

“The pledgee has on default a right to sell the pledge if the
payment is to be made on a certain day; otherwise not; but a
sale before default would be a conversion; yet the sale, whether
wrongful or not, passes the title to the vendee as against the
pledgor. D

22.10 Chagla, J. has expressed his approval and agreement with
the following statement of law in Story’s Law of Bailments, (8th
Edition, page 272):—
“A pledgee of stock has no legal right to sell the same without E
notice to the pledgor and such sale passes no title as against
the pledgor, even to a bonafide party”.
22.11 The abovesaid principles deducible from the opinion recorded
by Chagla, J. with which I find myself in full agreement lend
strength to the plaintiff’s case….” F
7.12 The view of the Delhi High Court in Nabha Investment
(supra) expressing limited divergence56from the ratio in Madholal Sindhu
(supra) and Sri Raja Kakarklhpudi Venkata Sudarsana Sundara
Narasayamma Garu (supra) does not appeal to us. The reason given
by the Delhi High Court that there is no provision in any statute or principle
G
of law to hold that the pawnor has only two remedies, as elucidated by
Chagla, J. in Madholal Sindhu (supra), is not correct. Section 177,
which gives right of redemption to the pawnor till ‘actual sale’, itself
postulates not only payment of the debt due but also expenses of the
56
See paragraphs 22.7, 23 and 24 of the judgment in Nabha Investment.
H
1100 SUPREME COURT REPORTS [2022] 9 S.C.R.

A pawnee which have arisen from the pawnor’s default. The instances
noted subsequently when the pawned property is not available are well
covered and can be taken care under clause (2)57 of the opinion expressed
by Chagla, J. in Madholal Sindhu (supra).58
7.13 Section 176 of the Contract Act requires that the pawnee
B may sell the thing pledged on giving the pawnor reasonable notice of the
sale. It does not prescribe any fixed form of notice or specify any fixed
period of notice. The object and purpose of giving notice is to make the
pawnor know about the pawnee’s intent to sell the pawn and give himan
opportunity to exercise his statutory right of redemption, which as per
Section 177 can be exercised till the date of ‘actual sale’. Whether or
C not a notice was given and the period of notice was reasonable would
depend upon the facts of the case. In view of the above discussion, the
pawnor can communicate his willingness and desire to the pawnee that
the pledged goods may be sold. In case any such request is made, a
pawnee may well act upon the request without violating Section 176 of
D the Contract Act. However, a pawnee, unless he also agrees, cannot be
compelled by the pawnor to sell the pledged goods.
(v) Sale of the pledged goods by the pawnee to self
8.1 Dictum in the above judgments and Section 177 of the Contract
Act, which confers on the defaulting pawnor the right to redeem the
E pledged good still ‘actual sale’, does not support pawnee’s sale to self.Sale
to self would in terms of the judgment in Madholal Sindhu’s case (supra)
is a case of conversion and not ‘actual sale’, and therefore, would not
affect the pawnor’s right to redemption under Section 177 of the Contract
57
(2) that without a proper tender of the amount due on the pledge, the only right of the
F pawnor in respect of the unlawful or unauthorised sale is in tort for damages actually
sustained by him.
58
The reliance placed on the Madras High Court decision in S.L. Ramasamy Chetty
(supra) would not help as the decision is in conformity with the view expressed by
Chagla, J. that the pawnor does not become entitled to redemption of the goods pledged
without tendering the amount due on the pledge. The Madras High Court in S.L.
Ramasamy Chetty (supra) did not hold that the pawnor is entitled to redemption of the
G
pledged goods without payment of the debt due and the additional amount. The Court
would be entitled to ask the pawnor to deposit the ‘admitted amount’ at the initial stage
itself if the pawnee is ready and willing to deliver the property pledged. The position
would be different where the pawnee declares in advance his inability to return the
pledged property, in which case the pawnor’s claim cannot be defeated through a
useless ceremony of tender. Section 51 of the Contract Act relating to reciprocal promises
H was relied upon.
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1101
ANOTHER [SANJIV KHANNA, J.]

Act. Judgment of the Calcutta High Court in Haridas Mundra (supra) A
also states this rule. Earlier, the Privy Council in Neikram Dobay v.
Bank of Bengal,59 observed that the sale of goods by the bank as the
pawnee to itself is unauthorized but did not entitle the pawnor to have
the goods back. The pawnor would be required to pay back the debt for
which the goods were pledged as security to redeem the goods. If the
B
loan remains unpaid after the demand, the pawnee is entitled to sell the
goods and credit the proceeds towards the outstanding debt. After the
goods are sold to a third party, the pledge ends. The pawnee in such
cases would be liable if he fails to credit the loan account with the
proceeds on the sale of the pawned goods. The pawnee may also be
liable, subject to the contract, for damages for converting the goods for C
his use.
8.2 Several other High Courts have similarly opined and weagree
that the Contract Act does not conceive of sale of the pawn to self and
consequently, the pawnor’s right to redemption in terms of Section 177
of the Contract Act survives till ‘actual sale’ .In Ramdeyal Prasad v. D
Sayed Hasan,60 the Patna High Court has held that the sale by the
pawnee to himself of the securities pledged is void; it does not put an
end to the contract of the pledge to entitle the pawnor to recover the
goods without payment of the amount thereby secured, nor does it entitle
the pawnor to damages. The pawnor is bound by the resale duly effected
by the pawnee to third persons. However, where the pawnee has E
erroneously represented to the pawnor before such resales that the
securities have been sold and, therefore, no longer available for
redemption, the pawnee becomes liable for the value as conversion.
8.3 ADivision Bench of the Madras High Court inS.L.Ramaswamy
Chetty and Another v. M.S.A.P.L. Palaniappa Chettiar,61 relying upon F
the decision of the Privy Council in Neikram Dobey (supra),opined that
where the pawnee has the power to sell in default, takes over upon
himself the property pledged without the authority of the pawnor by
crediting its value in the account with him, this act, though an unauthorized
conversion would not put an end to the contract of pledge. 62 G
59
ILR (1892) 19 Cal 322.
60
AIR 1944 Pat 135.
61
1929 SCC OnLine Mad 62.
62
This decision also holds that the pawnor would be entitled to redeem without
payment. This proposition is contrary to several decisions including decision of the
Privy Council in NeikramDobey(supra). H
1102 SUPREME COURT REPORTS [2022] 9 S.C.R.

A 8.4 There is one solitary judgment of the single judge of the Punjab
and Haryana High Court in Dhani Ram and Sons v. The Frontier
Bank Ltd. and Another,63 which holds that the sale of the pawned
goods by the pawnee to himself is not void, and the pawnee was held to
be the legal owner of the pledged shares. This decision proceeds with
the incorrect understanding of the ratio in Neikram Dobay (supra), and
B
thus, we deem it appropriate to overrule this ratio in Dhani Ram and
Sons(supra).
D. Effect and Purpose of the Depositories Act, 1996 and
the Securities and Exchange Board of India
(Depositories and Participants) Regulation 1996.
C 9.1 Interpretation of statutes must depend on the text and the
context. To resolve a debate when two views are evident, it is best to
interpret the provision when we know why the statute is enacted. If a
statute is looked at, in the context of its enactment, with the glasses of
the statute-maker provided by such context, its scheme, the sections,
D clauses, phrases and words may take colour and appear different than
when the statute is looked at without the glasses provided by the context.64
This principle may equally apply when we examine interplay between
two statutes. The provisions of the Contract Act, which is substantive
and general law relating to contracts, and the Depositories Act, which is
a primarily a law relating securities, must be interpreted harmoniously.
E This does not mean that any provision of one enactment could nullify the
provisions of the other. This end can be best achieved by examining the
objects and the subject matter of the Depositories Act vis-a-vis the
Contract Act, which will clarify their separable spheres of operation to
avoid any conflict or overlap between them.It means that the two statutes
F shall be read together consistently and harmoniously to complement each
other so far as it is reasonably possible to do so, and where such
conciliation is not possible to clarify the legal position by application of
principles of interpretation applicable to such situations. 65
9.2 Thus, we begin by referring to the object and purpose behind
the enactment of the Depositories Act and which would underpin our
G
interpretation of the 1996 Regulations. Introduction to the Depositories
63
AIR 1962 P&H 321.
64
Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. and
Others, (1987) 1 SCC 424, para 33.
65
Vasudev Ramachandra Shelat v. PranlalJayanand Thakkar and Others, (1974) 2
SCC 323, para 5.
H
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1103
ANOTHER [SANJIV KHANNA, J.]

Act refers to one of the major drawbacks of the then Indian securities A
market, which was paper-based. Consequently, there was a lack of
assurance and certainty inthe transfer of securities dueto risks in the
form of ‘bad delivery’, forgery, theft etc. As a result, the investors suffered
and were deprived of liquidity in securities and the grievance redressal
was intractable. In turn, the capital market also felt pain due to lack of
B
confidence and consequently, the growth was cramped. To pave the
way for smooth, fast and constancy in the transfer of securities and to
promote and deal with an increase in trading of stocks and shares in a
transparent manner, there was a need for regulating the methodology of
trading of securities.
9.3 The Depositories Act is enacted to lay down a process and C
rules for the dematerialization of securities by converting them into
electronic data stored in the computers of ‘the depository’.66 The
Depositories Act establishes the depository eco-system and introduces
the concepts of a ‘registered owner’67and ‘beneficial owner’.68 Every
owner of a physical share has to enter into an agreement with ‘the D
depository’ for availing its services. The physical certificate of security
is cancelled. All securities held by ‘the depository’ are in a fungible form.
‘The depository’ becomes the ‘registered owner’ in respect of the security,
whereas the person who surrenders the physical shares is recorded as
‘the beneficial owner’. ‘The depository’, as the registered owner, does
not have any voting right or any other right in respect of the securities E
held by it. ‘The beneficial owner’ shall be solely entitled to all rights,
benefits, and liabilities attached to the securities held by ‘the depository’.
In terms of Section 11, every depository is mandated to maintain a register
and index of ‘beneficial owners’ in the manner provided in Sections 150,
151 and 152 of the Companies Act,1956. As per Section 769 of the F
66
Section 2(1)(e): “depository” means a company formed and registered under the
Companies Act, 1956 (1 of 1956) and which has been granted a certificate of registration
under sub-section (1-A) of Section 12 of the Securities and Exchange Board of India
Act, 1992 (15 of 1992).
67
Section 2(1)(j): “registered owner” means a depository whose name is entered as
such in the register of the issuer;
68
G
Section 2(1)(a): “beneficial owner” means a person whose name is recorded as such
with a depository;
69
7. Registration of transfer of securities with depository:
(1) Every depository shall, on receipt of intimation from a participant, register the
transfer of security in the name of the transferee.
(2) If a beneficial owner or a transferee of any security seeks to have custody of such
security, the depository shall inform the issuer accordingly. H
1104 SUPREME COURT REPORTS [2022] 9 S.C.R.

A Depositories Act, every ‘depository’, on receipt of intimation from a
participant, is required to transfer the security in the transferee’s name.
Further, on registration of transfer of security in the transferee’s name,
the transferee is registered as the ‘beneficial owner’.
9.4 Power and right to transfer ownership of a dematerialised
B security vests with the ‘beneficial owner’, same as in the case of buying
and selling physical securities. The difference lies in the delivery process
in case of sale, and receipt in case of purchase, which is affected by the
depository on instructions from the participant. Every person recorded
as the ‘beneficial owner’ to transact and deal in securities must act
through a participant who is an agent of the depository. Section 1070
C states that notwithstanding any other law for the time being in force,
‘the depository’ shall be deemed as the ‘registered owner’ and is entitled
to affect the transfer of ownership of the security on behalf of ‘the
beneficial owner’.No person, including the pawnee, can transfer the
pawn held in dematerialised form without being registered as a ‘beneficial
D owner’.
9.5 Section 12 of the Depositories Act permits pledge and
hypothecation of securities held by a depository and reads:
“12. Pledge or hypothecation of securities held in a
depository:
E
(1) Subject to such regulations and bye-laws, as may be made on
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
F
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.”
70
10. Rights of depositories and beneficial owner:
G
(1) Notwithstanding anything contained in any other law for the time being in force, a
depository shall be deemed to be the registered owner for the purposes of effecting
transfer of ownership of security on behalf of a beneficial owner.
(2) Save as otherwise provided in sub-section (1), the depository as a registered owner
shall not have any voting rights or any other rights in respect of securities held by it.
(3) The beneficial owner shall be entitled to all the rights and benefits and be subjected
H to all the liabilities in respect of his securities held by a depository.
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1105
ANOTHER [SANJIV KHANNA, J.]

In terms of sub-section (1) of Section 12, a ‘beneficial owner’ A
can create a pledge or hypothecation regarding the security owned by
him through ‘the depository’, subject to prior approval of ‘the depository’.
Section 12 or for that matter the Depositories Act does not define pledge
or hypothecation, and thereby accepts and adapts their meaning as known
in the commercial sense to people in the trade.This means that the
B
Depositories Act recognises the principles relating to pledge prescribed
by the Contract Act and the common law. Depositories Act states that
such a pledge or hypothecation should be made in accordance with the
regulations and by-laws made under the Depositories Act. A ‘beneficial
owner’ as the pawnor is required to intimate such pledge or hypothecation
to the depository, which thereupon makes entries in its records. This C
entry, made by ‘the depository’, is evidence of pledge or hypothecation.
9.6 Prior to the Depositories Act, physical shares and securities
were pledged and such transactions have resulted in several decisions
of the Supreme Court and the High Courts. In most cases, the pledge of
shares was accompanied by blank transfer deeds, and consequent dispute D
as to the correct nature of the transaction as was the case in Sri Raja
Kakarklhpudi Venkata Sudarsana Sundara Narasayamma Garu
(supra),Mohd. Sultan and Ors.(supra)and even in Madholal Sindhu
(supra). In Sri Raja Kakarklhpudi Venkata Sudarsana Sundara
Narasayamma Garu(supra),the Andhra Pradesh High Court, after
referring to Madholal Sindhu (supra),agreed with the view expressed E
in Kannambra Nayar Veetil Valia Ammukutti Neithiar’s Son
Kunhunni Elaya Nayar Avargal (Deceased) and Another v. P.N.
Krishna Pattar and Two Others71 that such transactions because of
execution of the blank transfer deeds should not be treated as mortgages.
A pledge of shares can be accompanied by execution of blank transfer F
deeds, which was a convenient mode of exercising the right to sell when
the pawnee is entitled to do so. In absence of blank transfer deeds, the
pawnee must take recourse to the court when he wishes to enforce the
securities.
9.7 Clearly, Section 12 of the Depositories Act is not ex-facie G
inconsistent with pawnee and pawnor’s contractual rights and obligations
under the Contract Actand the common law. On the other hand, the
Depositories Act expressly concedes that the securities held by the
depository can be pledged and hypothecated by the ‘beneficial owner’.
71
AIR 1943 Mad 74. H
1106 SUPREME COURT REPORTS [2022] 9 S.C.R.

A It simplifies the process by bringing transparency and certainty. It checks
and curtails possibilities of disputes as the pledge must be registered
with the ‘depository.’
9.8 Undoubtedly, the Depositories Act distinguishes between the
‘registered owner’ and the ‘beneficial owner’, i.e., the defacto owner,
B but this does not in any manner contradict or lay down a rule which is
contrary to the provisions of Sections 176 and 177 of the Contract Act.
These sections, given the objective and purpose behind them, would still
apply to any pledge deed and do notget diluted or overridden by the
provisions or requirements of the Depositories Act. Section 10, a non
obstante provision, which prevails over existing enactments by law, treats
C the ‘depository’ as the ‘registered owner’ and the shareholder/holder as
a ‘beneficial owner’. It does not undermine or rewrite the provisions of
the law of pledge and mutual obligations and rights of the pawnee and
pawnor. This aspect has been elaborated in some detail subsequently in
this judgement.
D 9.9 Under Section 25 of the Depositories Act, the Securities and
Exchange Board of India72 has been vested with the power to make
Regulations to carry out the purpose of the Depositories Act. Clause (d)
to sub-section (2) to Section 25 states that the regulations may provide
for the manner of creating a pledge or hypothecation in respect of a
security owned by a ‘beneficial owner’ under sub-section (1) to Section
E 12 of the Depositories Act.
9.10 In exercise of this power, the Board notified the 1996
Regulations. The relevant portion of Regulation 58 reads as under:
“58.
xx xx xx
F (2) The participant after satisfaction that the securities are available
for pledge shall make a note in its records of the notice of pledge
and forward the application to the depository.
(3) The depository after confirmation from the pledgee that the
securities are available for pledge with the pledgor shall within
G fifteen days of the receipt of the application create and record the
pledge and send an intimation of the same to the participants of
the pledgor and the pledgees.
(4) On receipt of the intimation under sub-regulation (3) the
participants of both the pledgor and the pledgee shall inform the
72
H Hereinafter referred to as “Board”.
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1107
ANOTHER [SANJIV KHANNA, J.]

pledgor and the pledgee respectively of the entry of creation of A
the pledge.
(5) If the depository does not create the pledge, it shall send along
with the reasons an intimation to the participants of the pledgor
and the pledgee.
(6) The entry of pledge made under sub-regulation (3) may be B
cancelled by the depository if the pledgor or the pledgee makes
an application to the depository through its participant:
Provided that no entry of pledge shall be cancelled by the depository
with the prior concurrence of the pledgee.
C
(7) The depository on the cancellation of the entry of pledge shall
inform the participant of the pledgor.
(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
D
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
E
respectively.”
A reading of Regulation 58 would show that a ‘beneficial owner’
is entitled to create a pledge on security owned by him. To do so, he
must apply to the ‘depository’ through the participant who has his account
in respect of the securities. Sub-regulation (2) requires the participant to
accord its satisfaction that the securities are available for pledge and F
make a note in this regard in its records. The note is to be forwarded to
the ‘depository’. In terms of sub-regulation (3), the ‘depository’ is required
to within fifteen days create and record a pledge and send an intimation
to the participants of the pledgor/pawnor and the pledgee/pawnee. The
participants of the pawnor and pawnee are required to inform the pawnor G
and the pawnee as to the entry of creation of the pledge. If the
‘depository’ does not create the pledge, intimation of the reasons has to
be given to the participants of the pawnor and the pawnee. The
‘depository’ can cancel the pledge if the pawnee applies to the depository
through its participants. The pawnor can also apply through its participant
H
1108 SUPREME COURT REPORTS [2022] 9 S.C.R.

A to the ‘depository’ for cancelling the pledge. In this case, the entry can
be cancelled by the ‘depository’ with the prior concurrence of the
pawnee. On cancellation of the pledge entry, the ‘depository’ is to inform
the participant of the pawnor.
9.11 Sub-regulation (8) to Regulation 58 uses the
B expression”subject to the provisions of the pledge document” with a
specific purpose and objective. In other words,sub-regulation (8) to
Regulation 58 does not seek to curtail or restrict, but on the other hand
respects party autonomyand freedom to decide the terms of the pledge,
including the event of default that would entitle the pawnee to invoke the
pledge and sell the pawn. The sub-regulation does not expressly nullify
C any provision of the Contract Act. However, the stipulation that the
pawnee may invoke the pledge, and on such invocation, the pawnee is to
be recorded as the ‘beneficial owner’ of the pledged securities is
mandatory. A pledge document cannot stipulate to the contrary, and any
contravening contractual stipulation would not be binding. The records
D maintained by the ‘depository’ are to be amended on the pawnee invoking
the pledge and thereupon, the ‘depository’ shall register the pawnee as
the ‘beneficial owner’ of the securities.Consequent to the change and in
terms of sub-regulation (9) to Regulation 58, the ‘depository’ is to inform
the participants of the pawnor and pawnee, with a direction that they
shall make necessary changes in their records and that the participants
E shall inform the pawnor and pawnee, respectively.
9.12 Thus, the non-obstante part of sub-regulation (8) to Regulation
58 serves a limited objective and purpose: the pawnee must record itself
as a ‘beneficial owner’ before he proceeds to sell the pledged securities.
Without the pawnee being accorded the status of a ‘beneficial owner’, a
F pawnee cannot proceed to sell the pledged dematerialized securities. A
contractual term cannot overwrite the requirement of Sections 7 and 10
of the Depositories Act, which is reflected in sub-regulation (8) to
Regulation 58as pe which the pawnee must be recorded as the ‘beneficial
owner ’ before the pledged dematerialized securities are sold.
G Section38(1)(e) of the Depositories Act requires the ‘depository’ to
maintain, inter alia, records of all approvals, notices, entries and
cancellations of pledge and hypothecation, as the case may be. This
mandate of sub-regulation (8) to Regulation 58 will apply whenever the
pledged/pawned goods are dematerialized securities.To reiterate, this
requirement of sub-regulation (8) to Regulation 58 does not circumscribe
H
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1109
ANOTHER [SANJIV KHANNA, J.]

or limit the contractual rights and obligations agreed upon between the A
parties on the agreed terms, including the pawnee’s right to sell the
pawned goods. While the contractual terms are fundamental and
determine the rights and obligations inter se the parties including when
the pawnee would be entitled to get his name substituted as a ‘beneficial
owner’ under the 1996 Regulations, however, the contractual terms are
B
not permitted to override the Contract Act as explained above in so far
as it regulates the rights and obligations of the pawnee and pawnor, and
the requirement of compliance with Regulation 58(8). It is absolutely
necessary that the pawnee must be accorded status of ‘beneficial owner’
to enable him to exercise his right to sell the pledged dematerialized
securities. The object is to ensure compliance with the procedure C
prescribed for the sale of dematerialised securities and not to interfere
with the freedom to contract as long as they comply with the Contract
Act and other laws. Further, if the terms of the pledge document violate
Regulation 58(8), the pledge is not rendered void or illegal, albeit
enforcement of the pledge viz. the dematerialised securities will be
D
rendered unattainable unless steps are taken to act in accordance with
the procedure prescribed by the 1996 Regulations. The pawnee would
be entitled to sue the pawnor for recovery of money, breach of contract
and may even apply for injunction/restrain on sale of dematerialised
securities. However, third-party rights on transfer of the dematerialized
securities, unless injuncted by a prior court order, would not be affected E
as long as the transfers are in terms of the Depositories Act and the
1996 Regulations.
E. Effect of the Depositories Act, 1996 and the Securities
and Exchange Board of India (Depositories and
Participants) Regulation,1996 on the pledge under the F
Contract Act, 1872
10.1 As per the 1996 Regulations, the pledgor/pawnor is not entitled
to sell the pledged/pawned securities. The special rights of the pledgee/
pawnee in the pawn remain intact under the Depositories Act and the
1996 Regulation. However, the right to sell dematerialized securities is G
conferred and given to the ‘beneficial owner’, who exercises this right
through the participants. Consequently, if a pawnee wants to exercise
his right to sell dematerialized security it is mandatory for the pawnee
first to get himself recorded as a ‘beneficial owner’ in the ‘depository’’s
records. Without the said exercise, the pawnee cannot exercise its rights
H
1110 SUPREME COURT REPORTS [2022] 9 S.C.R.

A to sell the pledge and retrieve the monies dueby taking recourse to its
rights under Section 176 of the Contract Act. Right to sell the pledge
after reasonable notice is one of the options, albeit, both under the
common law and under the Contract Act, the pawnee has the choice
even after issue of notice for sale to sue for the debt due while retaining
possession of the pledged goods. Similarly, the pawnor under the Contract
B
Act and the common law has the right to redeem the pledged goods till
‘actual sale’. Sale by the pawnee to self does not defeat the right of
redemption of the pawnor. It may amount to conversion in law. Other
provisions of the Contract Act enumerated in Chapter IX may well apply.
10.2 The Depositories Act (except for Section 10 which has been
C examined by us in some detail in re its application (supra)) and the 1996
Regulations do not expressly state that their provisions prevail over the
Contract Act or any other law in force. On the other hand, Section 28
states that “the provisions of this Act shall be in addition to and not in
derogation of any other law for the time force relating to the holding and
D transfer of securities.” Thus, the Depositories Act is in addition to other
laws relating to the holding and transfer of securities. Our reasoning
does not mean that compliance with Section 12 and Regulation 58 is not
compulsory or mandatory. Violations of the statute may lead to penalties
and even criminal action when permitted and warranted. Nevertheless,
given the nature and requirements under Section 12 or Regulation 58,do
E not by implication or due to conflict over-write and undo the legislative
mandate of Sections 176 and 177 of the Contract Act. We do not read
any legislative intent in the Depositories Act and the 1996 Regulations to
change the law of pledge requiring issue of reasonable notice; or as
allowing sale to self, or abolishing the right of the pawnor to redeem the
F pledged goods till ‘actual sale’. Sections 176 and 177 are not obliterated,
in so far as they would equally apply to pawned dematerialised securities
as they apply to other pawned goods.
10.3 The Depositories Act and the 1996 Regulations do not state
or impliedly reflect that sale of the pledged securities by the pawnee to
G self, which amounts to conversion and does not affect the rights of the
pawnor under Section 177, are no longer applicable. Doing so would
tantamount to reading and adding words to Section 12 and Regulation 58
to defy Sections 176 and 177 of the Contract Act. Law of pledge is
dynamic and as observed above must adapt itself in the context of the
current commercial environment, albeit we would avoid palpable conflict
H
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1111
ANOTHER [SANJIV KHANNA, J.]

that would arise in view of the enactment of the Depositories Act and A
the 1996 Regulations, or else the operation of law in practice would lead
to compliance difficulties and complications. While interpretating the law
relating to commercial matters and commerce the court must consider
the real-world impact and consequences. Therefore, the expression
‘actual sale’ in Section176 read in the context of the Depositories Act
B
and the 1996 Regulations have to be given a meaning. The expression
‘actual sale’ used in Section 177 in our opinion should be read as‘the
sale by the pawnee to a third person made in accordance with the
Depositories Act and applicable by-laws and rules’. It also means and
requires compliance with Section 176 of the Contract Act. Mere exercise
of the right by the pawnee to record himself as the ‘beneficial owner’, C
which is a necessary precondition before the pawnee can exercise his
right to sell, is not ‘actual sale’ and would not affect the rights of the
pawnor of redemption under Section 177 of the Contract Act. Every
transfer or sale is not ‘actual sale’ for the purpose of Section 177 of the
Contract Act. To equate ‘sale’ with ‘actual sale’ would negate the
D
legislative intent.
10.4 In Madholal Sindhu (supra) and several other decisions,
the expression ‘actual sale’ in Section 177 of the Contract Act has been
interpreted to mean lawful sale to a third person and not conversion or
unlawful sale contrary to Section 176 of the Contract Act. According to
us, exercise of right on the part of the pawnee and consequent action on E
the part of the ‘depository’ recording the pawnee as the ‘beneficial owner’
is not ‘actual sale’. The pawnor’s right to redemption under Section 177
of the Contract Act continues and can be exercised even after the pawnee
has been registered and has acquired the status of ‘beneficial owner’.
The right of redemption would cease on the ‘actual sale’, that is, when F
the ‘beneficial owner’ sells the dematerialised securities to a third person.
Once the ‘actual sale’ has been affected by the pawnee, the pawnor
forfeits his right under Section 177 of the Contract Act to ask for
redemption of the pawned goods.
10.5 We, however, accept that the Depositories Act, by-laws and G
rules relating to sale of dematerialised securities would be gravely
undermined in case the pawnor is entitled to redeem the dematerialised
shares from the third party on the ground that reasonable notice, as
postulated under Section 176 of the Contract Act, was not given to the
pawnor. To this extent, we would accept that there is a conflict between
H
1112 SUPREME COURT REPORTS [2022] 9 S.C.R.

A the Depositories Act and the interpretation given in Madholal Sindhu
(supra), which has been followed in other cases, including the judgment
of the Delhi High Court in Nabha Investment (supra). If this principle
is applied to dematerialised securities that have been transferred to the
third parties in accordance with the provisions of the Depositories Act,
by-laws and rules, it would materially impact certitude in the transaction
B
in listed dematerialised securities which would become vulnerable to
challenge even when the arm’s length purchasers are innocent third-
partybuyers for valuable considerations. Open market operations would
be affected. To this extent, therefore, we do hold that the dictum in
Madholal Sindhu (supra) and Nabha Investment (supra), that the
C pawnor has a right to redemption against third parties when the pawnee
does not give reasonable notice under Section 176 of the Contract Act,
would not apply to listed dematerialised securities which are sold by the
pawnee in accordance with the provisions of the Depositories Act, by-
laws and rules. In fact, the stipulations in Section 12 of the Depositories
Act and Regulation 58 of the 1996 Regulations have in built provisions in
D
terms of which the pawnor and the pawnee are informed about the
change of status with the pawnee making a request and being accorded
a status of the ‘beneficial owner’. The pawnee cannot make the sale of
dematerialised securities without being registered as a ‘beneficial owner’,
which is a step that a pawnee must take before he proceeds to sell the
E pledged dematerialised securities.
10.6 Beyond the additional need to comply with Sections 10 and
12 of the Depositories Act and Regulation 58 of the 1996 Regulations in
specific terms, we do not see any disharmony between these provisions
and Sections 176 and 177 of the Contract Act. They can be read
F harmoniously without nullifying or altering their effect, subject to the
exception in case of sale of listed securities to third parties in terms of
paragraph 10.5 (supra). They apply independently without hindering and
obstructing their application as the field and subject matter of Sections
176 and 177 of the Contract Act differ from the subject matter and the
objectof Sections 7, 10 and 12 of the Depositories Act and sub-regulation
G (8) to Regulation 58 of the 1996 Regulations.
F. Four decisions
11.1 The case of the Bombay High Court relied upon by the MHPL
in JRY Investments Private Limited v. Deccan Leafine Services Ltd.
H
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1113
ANOTHER [SANJIV KHANNA, J.]

and Others73 is distinguishable as it dealt with a different factual matrix. A
In the said case, there was a transfer of shares and not a pledge, a
factum specifically noticed and held in terms of the finding recorded in
paragraphs 16 to 20 of the said judgment.74 However, certain observations
are made concerning the Contract Act and the procedure prescribed for
pledging the shares by the Depositories Act. The Court observed that
B
the provisions of the Depositories Act are for accurately recording the
transfer and pledging of shares held in dematerialized form. The
Depositories Act contemplates the existence of a ‘depository’ that holds
the shares in the name of the ‘beneficial owner’. The ‘depository’ acts
as a ‘registered owner’ of the shares for effecting the transfer of
ownership security on behalf of the ‘beneficial owner’ in terms of Section C
10 of the Depositories Act. Section 10 is a non-obstante clause for the
purpose of effecting the transfer of ownership of security on behalf of
the ‘beneficial owner’. Accordingly, the transfer of shares must be done
in accordance with the provisions of the Depositories Act, which means
that a person recorded as a ‘beneficial owner’ alone can exercise the
D
power of transfer. Thereafter, Regulation 58 is quoted. It is observed
that the Depositories Act and the Regulations contain a whole and self-
contained procedure for creating a pledge. This statement and the
statement that the pledge of dematerialized securities would require
compliance and creation in accordance with the provisions of the
Depositories Act, are substantially correct, but have to be read and E
understood in terms our findings and opinion recorded above. However,
we overrule this decision of the Bombay High Court to the extent it
holds that dematerialised securities cannot be made subject matter of a
pledge under the Contract Act as it is not possible to transfer physical
possession. We have referred to the case law, including earlier judgments
F
of this Court, in Lallan Prasad (supra) and Maharashtra State Co-
operative Bank Limited (supra), which hold that delivery of possession
of goods for pledge can be actual or constructive.In the case before the
Bombay High Court, there was no pledge in terms of Regulation 58. On
73
(2004) 121 Comp Cas 12.
74
“20. It does not appear that the transfer of shares in the present case can be taken to G
be a pledge in law. Therefore, there can be no question of applicability of Section 176
of the Contract Act which requires the pledgee to give a notice to the pledgor of his
intention to transfer the pledged goods. This aspect is being considered because at one
stage it was argued by learned counsel for the plaintiffs that the transfer by defendant
No. 1 of shares in favour of the other defendants is void in the absence of the notice by
defendant No. 1 of their intention to sell the shares.”
H
1114 SUPREME COURT REPORTS [2022] 9 S.C.R.

A the other hand, the shares were transferred and held by the transferee
as a ‘beneficial owner’ upon transfer. The final outcome, therefore, would
remain undisturbed in spite of our finding.
11.2 In Pushpanjali Tie Up Pvt. Ltd. v. Renudevi Choudhary
and Others,75 a Division Bench of the Bombay High Court had expressed
B reservation on the finding in JRY Investments Private Limited
(supra)that the goods in dematerialised form cannot be pledged.76 The
said finding in JRY Investments Private Limited (supra) as held above
is contrary to the view expressed by this Court in Morvi Merchantile
Bank Limited (supra)and Bank of Bihar (supra). It would also be
contrary to the principle that the Contract Act is not an exhaustive law
C on pledge and mortgage of movables. In Pushpanjali Tie Up Pvt. Ltd.
(supra), the deed of pledge had permitted the lender to use the pawn as
a collateral for his margin with the third party, which right had been
exercised by the pawnee. In this background, the Court rejected the
claim of the pawnor for the redemption of the pawn as the pawnee had
D transferred the rights in respect of the pawned shares by depositing
them as margin with the third party. The view expressed was that the
said transaction by the pawnee could not be ignored; otherwise, it would
render the arrangement agreed upon as meaningless and devoid of
commercial sense. This judgment also refers to an earlier decision of
the Allahabad High Court in Firm Thakur Das Marakhan
E Lal v. Mathura Prasad and Others,77 which was a case in which the
three ornaments had been sub-pledged. The debt payable having been
extinguished by virtue of a debt redemption act, the pawnor had sued for
recovery of the ornaments on the ground that the sub-pledges did not
bind him. In this context, the Allahabad High Court had observed that
F Section 179 of the Contract Act clarifies that if a person has a limited
interest in the goods and pledges them, the pledge is valid to the extent
of that interest only. Reliance was placed on Judge Story’s book on
‘Bailments’, which records as under:
“The pawnee may by the common law deliver over the pawn to a
G stranger for safe custody without consideration; or he may sell or
75
2014 SCC OnLine Bom 3661.
76
“25. ……….. For the purpose of this judgment, we refrain from expressing any
opinion regarding the finding of the leaned single Judge in paragraph 16 that it is
impossible to hold that the goods in dematerialized form are capable of delivery that is
by handing over de-facto possession. We will presume that it is possible to do so…….”
77
AIR 1958 All. 66.
H
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1115
ANOTHER [SANJIV KHANNA, J.]

assign all his interest in the pawn; or he may convey the same A
interest conditionally by way of pawn, to another person without
in either case destroying or invalidating his security. But if the
pawnee should undertake to pledge the property (not being
negotiable securities) for a debt beyond his own, or to make a
transfer thereof as if he were the actual owner, it is clear that in
B
such case he would be guilty of a breach of trust, and his creditor
would acquire no title beyond that held by the pawnee.
Whatever doubt may be indulged in, in the case of a mere factor,
it has been decided in the case of a strict pledge, that if the pledgee
transfers the same to his own creditor the latter may hold the
pledge until the debt of the original owner is discharged.” C

Significantly, regarding the Depositories Act and the 1996
Regulations, this judgment rightly observes that dematerialised shares
must comply with the said pledge requirements to enable the pawnee to
exercise the right to sell. A third party would be entitled to and justified
in presuming that there is no pledge unless the procedure prescribed D
under the Depositories Act is followed. To this extent, the Depositories
Act has introduced a new regime. The legislative intent is to provide an
inode of putting the third parties concerned to express notice of the
pledge. Subject to the pledgor’s rights, only a party with express notice
of the pledge created by the ‘beneficial owner’, following the manner E
prescribed for the creation of a pledge, deals with the securities at his
own risk. This safeguards innocent third parties who would otherwise
have no means of being aware of the pledge in case of dematerialised
shares. The provisions of the Depositories Act, and in particular Section
12 thereof, and the 1996 Regulations, and in particular Regulation 58,
are salutary as they introduced transparency and certainty in the securities F
market. There is no other discernible reason for the legislature to have
provided for a particular manner alone for creating a pledge of shares in
a dematerialised form. More significant for our purpose are the
observations, with which we again agree, that the prescription in the
Depositories Act and the 1996 Regulations are for the manner in which G
creation and transfer of the dematerialised shares can be achieved. It is
to regulate the creation and transfer of dematerialised securities, including
how the pledge can be transferred to a third party. The Contract Act
does not stipulate that a pledge can be created only in a particular manner.
The Depositories Act prescribes how the dematerialised securities can
H
1116 SUPREME COURT REPORTS [2022] 9 S.C.R.

A be pledged. The provisions of the Depositories Act and the 1996
Regulations are not in derogation of the Contract Act but in addition to it.
In this regard, reference is made to Section 28 of the Depositories Act,
which we have referred to earlier. Therefore, the object of the
Depositories Act is not to rewrite the provisions of the Contract Act but
to regulate the creation and transfer of dematerialised securities.
B
Regulation 38(1)(e)78 requires a depository to maintain, inter alia, records
of all approvals, notices and entries, and cancellation of pledge or
hypothecation, as the case may be.
11.3 We have already referred to the judgment of the Allahabad
High Court in Firm Thakur Das Marakhan Lal (supra) and the view
C expressed by Justice Story on the Law of Bailment. On the identical
issue, there is another decision, which was noticed by Chagla, J. in
Madholal Sindhu (supra), in the case of Donald v. Suckling,79 wherein
‘A’ had deposited debentures with ‘B’ as security for payment of a bill
endorsed by ‘A’ and discounted by ‘B’. Before the maturity of the bill,
D ‘B’ deposited the debentures with ‘C’ to be kept by him as a security
until the repayment of the loan from ‘C’ to ‘B’ for an amount larger than
the bill. The bill was dishonoured and while it was still unpaid, ‘A’ brought
detinue action against ‘C’ for debentures. The Court held that the
repledge by ‘B’ to ‘C’ did not put an end to the contract of pledge between
‘A’ and ‘B’, and that ‘A’ could not maintain detinue action without having
E
78
38. Records to be maintained. (1) Every depository shall maintain the following
records and documents, namely :—
(a) records of securities dematerialised and rematerialised;
(b) the names of the transferor, transferee, and the dates of transfer of securities;
(c) a register and an index of beneficial owners;
(cc) details of the holding of the securities of beneficial owners as at the end of each day;
F (d) records of instructions received from and sent to participants, issuers, issuers’
agents and beneficial owners;
(e) records of approval, notice, entry and cancellation of pledge or hypothecation, as
the case may be;
(f) details of participants;
(g) details of securities declared to be eligible for dematerialisation in the depository;
and
G (h) such other records as may be specified by the Board for carrying on the activities as
a depository.
(2) Every depository shall intimate the Board the place where the records and documents
are maintained.
(3) Subject to the provisions of any other law the depository shall preserve records and
documents for a minimum period of five years.
79
H (1866) L.R. 1 Q.B. 585.
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1117
ANOTHER [SANJIV KHANNA, J.]

paid or tendered the amount of the bill. One of the Judges in the judgment A
had observed:
“and I think that, although he (pledgee) cannot confer upon any
third person a better title or a greater interest than he possesses,
yet, if nevertheless he does pledge the goods to a third person for
a greater interest than he possesses, such an act does not annihilate B
the contract of pledge between himself and the pawnor; but that
the transaction is simply inoperative as against the original pawnor,
who upon tender of the sum secured immediately becomes entitled
to the possession of the goods, and can recover in an action for
any special damage which he may have sustained by reason of
the act of the pawnee in repledging the goods. C
xx xx xx
Another Judge had observed:
“In detinue the plaintiff’s claim is based upon his right to have the
chattel itself delivered to him; and if there still remain in Simpson, D
or in the defendant as his assignee, any interest in the goods, or
any right of detention inconsistent with this right in the plaintiff,
the plaintiff must fail in detinue, though he may be entitled to
maintain an action of tort against Simpson or the defendant for
the damage, if any, sustained by him in consequence of their
unauthorized dealing with the debentures.” E

We should not be seen as commenting upon the merits of the
decision in Pushpanjali Tie Up Pvt. Ltd. (supra), as one of the findings
recorded therein was that the pawnor had permitted the pawnee to
repledge the pawn for a higher amount. The aspect, whether this can be
permitted and allowed, and whether the interpretation of the relevant F
clause of the document of pledge in Pushpanjali Tie Up Pvt. Ltd. (supra)
is correct, are not examined by us and are left open.
11.4 Our attention was also drawn to a Single Judge Bench
judgment of the Delhi High Court in Tendril Financial Services Pvt.
Ltd. & Ors. v. Namedi Leasing& Finance Ltd. and Ors., 80 which G
supports the MHPL’s case. However, a careful reading of the judgment
would show that it was passed in peculiar facts therein as there was an
ad interim order which had remained in force for twelve years,
consequent to which the pawnee was unable to sell the shares. We
80
2018 SCC OnLine Del 8142 H
1118 SUPREME COURT REPORTS [2022] 9 S.C.R.

A agree that normally a court would not grant interim injunction on the
prayer of the pawnor alleging non-compliance of Section 176 of the
Contract Act. The object and purpose requiring the pawnee to issue
notice to the pawnor before selling the pawn is to give an opportunity to
the pawnor to redeem the pledged goods before the ‘actual sale’. The
requirement of issue of reasonable notice under Section 176 would be
B
satisfied once the pawnor is made aware and has knowledge of the
pawnee’s desire/intent to sell. Continuation of interim orders predicated
on the ground of lack of reasonable notice under Section 176 would not
be a justification when the pawnee in his written statement clarifies and
takes a clear position. The written statement itself can be treated as
C reasonable notice. We have made these observations as we have come
across cases where such injunctions have been granted and confirmed
even after the pawnee has entered appearance.81
11.5 On other aspects the judgment has placed reliance on JRY
Investments Private Limited (supra) and made certain observations
D regarding Section 176 and Regulation 58 to hold that a notice under
Section 176 would be in derogation of Regulation 58 by giving the
following reasoning:
“21. I have considered the controversy and for the reasons
following, am of the view that the plaintiffs are not entitled to the
E continuation of the ad interim order which has remained in force
for the last 12 years:
xx xx xx
E. I may however add, that a notice under Section 176 of Contract
Act is in derogation of Regulation 58 supra. While Section 176
F entitles the pledgee/pawnee to, on default by the pledgor/pawnor,
sell the thing pledged, “on giving the pawnor reasonable notice of
the sale”, Regulation 58(8) entitles the pledgee to, “subject to the
provisions of the pledge document”, “invoke the pledge” and
mandates the depository to “on such invocation” i.e. by the pledgee,
“register the pledgee as beneficial owner of such securities” i.e.
G the securities pledged and further mandates the depository to
“amend its records accordingly”. There is no place for a prior
notice under Section 176, in the scheme of Regulation 58(8). On
81
However, cases praying for an injunction on the plea that the full/part amount of debt
has been paid or the event of default etc. has not occurred would have to be examined
H on their facts. See, infra para 11.7.
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1119
ANOTHER [SANJIV KHANNA, J.]

the contrary, Regulation 58(9) requires the depository to, after so A
amending its records under Regulation 58(8), inform the
participants of the pledgor and the pledgee of the same and
mandates the said participants to inform the pledgor and the
pledgee. Thus, (a) while Section 176 provides for a notice to pledgor
prior to effecting sale, Regulation 58 provides for notice post
invocation and on which invocation beneficial ownership of pledged B
shares changes from that of the pledgor to that of the pledgee and
which is equivalent to sale under Section 176. To hold that a prior
notice under Section 176 of Contract Act is also required in the
case of pledge of dematerialized shares would interfere with
transparency and certainty in the securities market, rendering fatal
C
blow to the Depositories Act and Regulations and the object of
enactment thereof.
F. The distinction sought to be drawn by the senior counsel for the
plaintiffs between “invocation” and “sale” is also not in consonance
with Regulation 58. I may notice that there is no such distinction
in Contract Act either. While Section 176 of Contract Act entitles D
pledgee to, on default of pledgor, sell the pledged thing i.e. transfer
title and possession thereof to purchaser, Regulation 58 entitles
the pledgee to, on default on pledgor, invoke the pledge by intimating
to the depository and mandates the depository to in its records
record the pledgee in place of the pledgor as the beneficial owner
of pledged shares, thereby transferring title as beneficial owner, E
from the pledgor to pledgee. The only condition imposed on
invocation of pledge by the pledgee, under Regulation 58 (8) is of
the same being required to be “subject to the provisions of the
pledge documents” i.e. of creation of pledge in the manner
provided in Regulation 58(1) to 58(6)-of which the participant of
F
the pledgee and the depository have been made aware and with
which they are thereby required to comply with. It is not the case
of plaintiffs that there was any condition of prior notice in the
pledge documents. Though it is not the plea that the Letters of
Pledge and Arbitral Award were intimated to the participant or
the depository but even they do not provide for prior notice. On G
the contrary, they provide otherwise. The distinction drawn in the
Letters of Pledge aforequoted between invocation of pledge,
whereupon the beneficial ownership in pledged shares, under
Regulation 58, was to stand transferred from that of pledgor to
that of pledgee, and sale of said shares by pledgee, to realize its
dues, is only for the purpose of determining the amount which H
1120 SUPREME COURT REPORTS [2022] 9 S.C.R.

A was to be offset from the debt to secure which the pledge was
made. However such agreement cannot be interpreted as the
pledgor continuing to have title in the shares. The only title in
dematerialized shares, under the Depositories Act, is as beneficial
owner in the records of the participant and the depository and
which beneficial ownership changes on invocation of pledge in
B terms of Regulation 58. Even otherwise, a plea of a pledgor, of
the pledgee, though after notice under Section 176, having sold
the pledged thing for less than optimum price cannot be a ground
for invalidating the sale. The mere fact that the parties, in terms
of Arbitral Award reversed the earlier invocation also cannot
change the said position. Such agreement is also not found to be
C inconsistent with Regulation 58. The quantum of consideration
does not affect the transfer of title as beneficial owner.”
11.6 In view of the discussion in the preceding paragraphs, we do
not agree with the reasoning in the aforesaid sub-paragraphs and
consequent ratio decidendi in Tendril Financial Services (supra). We
D do not find any derogation or conflict between Section 176 of the Contract
Act and sub-regulations (8) and (9) of Regulation 58. Regulation 58(8)
entitles the pawnee to record himself as a ‘beneficial owner’ in place of
the pawnor. This does not result in an ‘actual sale’. The pawnee does
not receive any money from such registration which he can adjust against
the debt due. The pledge creates special rights including the right to sell
E the pawn to a third party and adjust the sale proceeds towards the debt
in terms of Section 176 of the Contract Act. The reasoning that prior
notice under Section 176 of the Contract Act would interfere with
transparency and certainty in the securities market and render fatal blow
to the Depositories Act and the 1996 Regulations is farfetched as it fails
to notice that the right of the pawnee is to realise money on sale of the
F security. The objective of the pledge is not to purchase the security.
Purchase by self, as held above, is conversion and does not extinguish
the pledge or right of the pawnor to redeem the pledge. Equally, it may
be a disincentive for both the pawnor and the pawnee in many cases, if
we accept this interpretation and ratio, which would inhibit them from
entering into a transaction creating a pledge. Difficulties and disputes
G
regarding price, valuation, right to redemption etc. could invariably arise.
There would also be difficulties in case the dematerialised securities are
not traded as in the present case. If the case pleaded by MHPL is to be
accepted, the entire dues of PIFSL stand paid without in fact a single
penny coming to the coffer of PIFSL. Whether or not PIFSL will be
H able to find a willing buyer and sell the shares is unknown given the fact
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1121
ANOTHER [SANJIV KHANNA, J.]

that the shares are unlisted and MHPL continues to be the holding A
company of NEVPL. The effect of the ratio in Tendril Financial
Services (supra) is to enact an entirely new jurisprudence on the law of
pledge, annulling and re-writing the well-established law of pledge, which
gives two options to the pawnee when pawnor is in default, just because
the pawnee exercises his right to be recorded as the ‘beneficial owner’
to exercise his right to sell. Sale to self, if accepted as the norm, would B
be unlawful and amounts to conversion, is applicable in case of
dematerialised securities.
11.7 In fact, in the subsequent paragraphs, the learned Single Judge
in Tendril Financial Services (supra) does examine the position if
Section 176 were to apply and had not been complied with. It is rightly C
observed that due to the pendency of the suit, the requirement of giving
sufficient notice might not be relevant. The decision in Tendril Financial
Services (supra) also notices another decision of the Single Judge Bench
of the Delhi High Court in GTL Limited v. IFCI Ltd. &Ors.82 which
takes a contrary view and holds that compliance with Section 176 is
required to be made in respect of pledged dematerialized securities. In D
GTL Limited (supra) temporary injunction was granted. We have briefly
commented that injunction should not be normally granted in such cases.83
Clause (c) to sub-section (3) to Section 3884 of the Specific Relief Act,
1963 states that perpetual injunction may be granted when the defendant
invades the plaintiff’s right to or enjoyment of the property where the
invasion is such that the compensation in money would not afford adequate E
relief. Sub-section (2) to Section 3885 states that when any obligation
arises from a contract, the court shall be guided by the rules and provisions
contained in Chapter II.86 Section 10,87 as it stood before its substitution
82
2011 SCC OnLine Del 3628.
83
Supra para 11.4. F
84
Section 38. Perpetual injunctions when granted:
(3) When the defendant invades or threatens to invade the plaintiff’s right to, or
enjoyment of, property the court may grant a perpetual injunction in the following
cases, namely:—
(c) where the invasion is such that compensation in money would not afford adequate
relief;
G
85
Section 38(2): When any such obligation arises from contract, the court shall be
guided by the rules and provisions contained in Chapter II.
86
Chapter II: Specific Performance of Contract
87
Section 10. Cases in which specific performance of contract enforceable.—
Except as otherwise provided in this Chapter, the specific performance of any contract
may, in the discretion of the court, be enforced—
H
1122 SUPREME COURT REPORTS [2022] 9 S.C.R.

A by Act 18 of 2018, vide clause (ii) of Explanation, had stated that until
and unless contrary is proved, the court shall presume that the breach of
a contract to transfer movable property can be relieved except in cases:
(a) where the property is not an ordinary article of commerce, of special
value or interest to the plaintiff, or consists of goods which are not easily
obtainable in the market; and under clause (b) where the property is
B held by the defendant as the agent or trustee of the plaintiff.88As per
new Section 1089 with effect from 1st January 2018, specific performance
of a contract can be enforced subject to provisions contained in sub-
section (2) to Section 11,90 Section 1491 and Section 16.92 Clause (c) to
(a) when there exists no standard for ascertaining actual damage caused by the non-
C performance of the act agreed to be done; or
(b) when the act agreed to be done is such that compensation in money for its non-
performance would not afford adequate relief.
Explanation.—Unless and until the contrary is proved, the court shall presume—
(i) that the breach of a contract to transfer immovable property cannot be
adequately relieved by compensation in money; and
(ii) that the breach of a contract to transfer movable property can be so relieved
D except in the following cases:—
(a) where the property is not an ordinary article of commerce, or is of
special value or interest to the plaintiff, or consists of goods which are not
easily obtainable in the market; (b) where the property is held by the
defendant as the agent or trustee of the plaintiff.
88
A pawnee is a trustee but has a special right to sell the pawned property after giving
reasonable notice of sale to the pawnor.
89
E Section 10. Specific performance in respect of contracts.—The specific performance
of a contract shall be enforced by the court subject to the provisions contained in sub-
section (2) of Section 11, Section 14 and Section 16.
90
Section 11. Cases in which specific performance of contracts connected with trusts
enforceable.
91
Section 14. Contracts not specifically enforceable.
92
Section 16. Personal bars to relief: Specific performance of a contract cannot be
F enforced in favour of a person—
(a) who has obtained substituted performance of contract under Section 20; or
(b) who has become incapable of performing, or violates any essential term of, the
contract that on his part remains to be performed, or acts in fraud of the contract, or
wilfully acts at variance with, or in subversion of, the relation intended to be established
by the contract; or
(c) who fails to provethat he has performed or has always been ready and willing to
G perform the essential terms of the contract which are to be performed by him, other
than terms the performance of which has been prevented or waived by the defendant.
Explanation.—For the purposes of clause (c),—
(i) where a contract involves the payment of money, it is not essential for the
plaintiff to actually tender to the defendant or to deposit in court any
money except when so directed by the court;
(ii) the plaintiff must prove aver performance of, or readiness and willingness
H to perform, the contract according to its true construction.
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1123
ANOTHER [SANJIV KHANNA, J.]

Section 16 states that specific performance of a contract cannot be A
enforced in favour of a person who fails to prove that he has performed
or has always been ready and willing to perform the essential terms of
the contract which are to be performed by him, other than the terms the
performance of which has been prevented or waived by the defendant.
Explanation which applies to clause (c) states where a contract involves
B
payment of money, it is not essential that the plaintiff should actually
tender to the defendant or deposit in court any money except when so
directed by the court. However, the plaintiff must prove performance
of, or readiness and willingness to perform, the contract as per its true
construction. These aspects must be kept in mind by the court while
examining the question of grant of injunction, albeit the fundamental C
principles relating to law of pledge being the special law should be applied
as the plaintiff has to establisha prima facie case, balance of convenience
and irreparable harm. These aspects on most occasions would be fact
and situation specific.
11.8 Our attention was drawn to the decision of the Securities D
Appellate Tribunal, Mumbai, in the case of Liquid Holdings Private
Limited v. The Securities Exchange Board of India.93 In this case,
on exercising his rights, the pawnee was registered as a ‘beneficial
owner’, but pursuant to a settlement, the pawnor was re-recorded as
the ‘beneficial owner’. The Board had claimed and succeeded in
establishing that there was a transfer of the dematerialised securities E
resulting in violation of Regulation 7 and 11(1) of the Securities and
Exchange Board of India (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997. This decision, we may note, primarily
deals with the takeover regulations and in the passing refers toand
interprets Regulation 58 of the 1996 Regulations. The judgment is in the F
context of the takeover regulations and the legal violation thereof and on
the issue whether change in ‘beneficial ownership’ would trigger the
takeover regulations. The provisions of the Contract Act and the law of
pledge have not been noted and examined. The appeal preferred was
dismissed by a non-reasoned order. This decision, therefore, would not
help us decide the issue in controversy. We, however, do observe that in G
view of our findings and reasoning, the Board may re-examine the 1996
Regulations as well as the takeover regulations to avoid discord or
ambiguity resulting in instability or confusion. Clarity is necessary. The
takeover regulations may have its own impact and in a given case, may
93
(2011) SCC Online SAT 40. H
1124 SUPREME COURT REPORTS [2022] 9 S.C.R.

A be a detriment and a negative factor for the creditor who wants to secure
himself by a deed of pledge. The pertinent question is, should takeover
regulations apply when the pawnee exercises his right to be recorded as
a ‘beneficial owner’, while reserving his right to sell the pledge. There
would be tax and accounting implications which may be detrimental and
shackle financial market and deals. It may inhibit financial institutions
B
from accepting dematerialized securities as a pawn. A holistic review
of the impact of pledge viz. dematerialized securities, registration of the
pawnee as the ‘beneficial owner’ without the pawnee enforcing the
right to sell the pledge goods is required and necessary for the smooth
functioning of the securities market and free flow of transactions without
C hindrance and to avoid uncertainty in fiscal matters.
G. Analysis of facts and application of law of pledge to the
facts of this case
12.1 The relevant Clauses of the Pledge Deed dated 10th March,
2014are reproduced as under:
D
“6.1 Registration in the Name of the Bridge Loan Lender:
The pledgor agrees that, upon the receipt of a notice of occurrence
of Event of Default issued by the Bridge Loan Lender, the Bridge
Loan Lender shall have the right to have the Pledged Shared
E transferred in its name or its nominees.”
6.2 Enforceability and Sale:
Upon occurrence of an Event of Default, the Bridge Loan Lender
or its nominee may without further authority and without prejudice
to their other rights under applicable law but after giving notice to
F the Pledgor 5 (five) days’ notice (which period of notice the Pledgor
agree is reasonable notice) sell or otherwise dispose off all or any
part of the Pledged Shares in such manner and for such
consideration as the Bridge Loan Lender may in its sole judgment
deem fit (whether by private sale or otherwise) and apply the net
proceeds of any such sale or disposition in accordance with section
G
11 thereof.”
12.2 As per Clause 6.1, on receipt of the notice of the occurrence
of ‘event of default’ by the pledgor/pawnor, the pledgee/pawnee has the
right to have the pledged shares transferred in its name or its nominees.
Under Clause 6.2, the pawnee or its nominee may, without further
H
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1125
ANOTHER [SANJIV KHANNA, J.]

authority and prejudice to their other rights under the law, but on giving A
five days’ notice to the pawnor, sell or otherwise dispose of any or all of
the pledged shares in such manner and for such consideration as it in its
sole discretion deems fit. The net proceeds of such sale or disposition
are then applied in the manner prescribed under Clause 11 of the Pledge
Deed.94 Clause 14.195 clarifies that the Pledge Deed shall terminate only
B
upon the repayment in full of the outstanding debt to the lender.
12.3 In the context of the present case, the contract of pledge
envisages that PIFSL is entitled to get itself recorded as ‘beneficial owner’
without forfeiting its right in terms of Clause 6.2 to sell the shares. The
contention of MHPL that Clauses 6.1 and 6.2 are in the alternative and
once PIFSL has exercised option under Clause 6.1, the option under C
Clause 6.2 is closed must be rejected as absolutely untannable. We do
not find any such condition in the two clauses. As noticed above, PIFSL
could not have exercised the right under Clause 6.2 unless the pledge
shares were registered in its name as ‘beneficial owner’. This step was
necessary to enable PIFSL to exercise its right and enforce the sale of D
pledge shares. Whether or not it would be successful in selling the pledge
shares is unknown and uncertain even today. The amount of money that
would be received is also unknown and uncertain.
12.4 Clauses 6.1 and 6.2, therefore, draw a clear distinction
between a mere transfer of the pledged shares in the name of the pawnee E
or its nominee as a ‘beneficial owner’ and the ‘actual sale’ of the pledged
shares. The right to sell is without prejudice to any other right under the

94
11. APPROPRIATIONS OF PAYMENTS:
All monies, sums, distributions, and monetary accretions received or recovered by the
Bridge Loan Lender under or pursuant to this Deed of Pledge shall be applied, and F
appropriated in accordance with the Transaction Documents. Any surplus of such
monies following payment of the Amounts Outstanding in full, held by the Bridge Loan
Lender shall until such surplus amounts are paid to the Pledgor, be held in trust for the
benefit of the Pledgor.
95
14. RELEASE AND TERMINATION:
14.1 This Deed of Pledge shall terminate upon the repayment in full of the Amounts
Outstanding or upon a sale, transfer or other disposition of all the Pledged Shares in
G
accordance with the terms of this Deed of Pledge.
14.2 Upon termination of this Deed of Pledge, following the repayment in full of the
Amounts Outstanding, the Bridge Loan Lender shall, at the Pledgor’s cost and expense,
release the Pledged Shares from the pledge created under this Deed of Pledge and
intimate the Pledgor of such release, other than such of the Pledged Shares that may
have been sold or disposed off (sic.). H
1126 SUPREME COURT REPORTS [2022] 9 S.C.R.

A applicable law. Thus, there are two stages before the pledge can be
enforced by a sale. At the first stage, the pawnee must give notice to the
pawnor under Clause 6.1 to exercise the rights to have the pledge shares
transferred in its name or its nominees. This does not result in the discharge
of the debt equal to the value of the shares. The discharge of debt in
whole or partoccurs when the pawnee exercises his right to sell the
B
shares after giving five days’ notice to the pawnor in accordance with
Clause 6.2 and sells the pawn. Upon the actual sale, the pawnee can
apply the net proceeds of the sale or disposition in accordance with
Clause 11 of the Pledge Deed.
12.5 As discussed above, Clause 6.1 permits PIFSL to get itself
C recorded as a ‘beneficial owner’ of the shares pledged, a mandate and
a requirement to enable PIFSL as a pawnee to sell the shares pledged.
Clause 6.2 is for the sale of the said shares, and in this regard, we must
refer to sub-clauses (k) and (m) of Clause 5.1 of the Pledge Deed,
which read thus:
D “5.1 The Pledgor’s Undertakings:
The Pledgor assures, undertakes and agrees with the Bridge Loan
Lender that throughout the continuance of the pledge created
pursuant to this Pledge Deed and until the repayment of the
Amounts Outstanding in full under the Transaction Documents,
E the Pledgor:-
xx xx xx
(k) hereby irrevocably waives any right it may have under the
Depositories Act, the Depositories Regulations or any other
applicable law to the extent the same is inconsistent with the
F undertakings as aforesaid and the pledge of the Pledged Shares
pursuant to this Pledge Deed;
xx xx xx
(m) remain the sole beneficial owner at all times of the Pledged
Shares except on a sale by the Bridge Loan Lender of the Pledged
G Shares.”
As per Clause 5.1(m), the pawnor agrees that throughout the
continuance of the pledge created pursuant to the pledge deed and until
the repayment of the amount outstanding in full under the transaction
document, that is, the Bridge Loan Agreement, the pawnor shall remain
H
PTC INDIA FINANCIAL SERVICES LTD. v. VENKATESWARLU KARI AND 1127
ANOTHER [SANJIV KHANNA, J.]

the beneficial owner of the shares pledged at all times, except on the A
sale made by the pawnee as the bridge loan lender. Further, vide Clause
5.1(k), the pawnor has irrevocably waived any right it may have under
the Depositories Act, the 1996 Regulations, or any other applicable law
to the extent it is inconsistent with the provisions of the Pledge Deed.
Clause 5.1(k) would only apply if the Depositories Act, the 1996
B
Regulations, or any other law permits the parties to contract out of the
regulations by mutual agreement. It is a settled position of law and as
discussed above, a contract cannot be inconsistent with the provisions
of any existing law, including regulations, unless the said law permits the
parties to enter into a contract inconsistent with the provision.
12.6 PIFSL by the letter dated 23rd January 2018 had informed C
MHPL in terms of Clause 6.1 that there has been an occurrence of
default, which has continued and, therefore, they, on 16th January 2018,
in exercise of its right under Clause 6.1 of the pledge deed, have applied
for transfer of the pledged shares in its name. Consequently, all the
rights in the pledged shares, including but not limited to the right of D
attending general body meetings, voting rights, and rights to receive
dividends and other distributions, now vests with them as per Clause
2.3(A)(ii)(b)96 of the pledge deed. This intimation to MHPL is without
prejudice to any rights or remedies PIFSL has in terms of the pledge
deed or security documents executed in pursuance of the bridge loan
agreement. PIFSL expressly reserved its right to transfer and sell pawned E
shares for value providing five days’ notice as required under Clause 6.2
of the pledge deed and Section 176 of the Contract Act. We would,
without hesitation, therefore hold that on becoming the ‘beneficial owner’
in the records of the ‘depository’, the pawnee had complied with the
procedural requirement of Regulation 58(8) to enforce the right to sell F
the shares. Thereafter, such a sale should be made according to Sections
176 and 177 of the Contract Act. Violation of the said provisions, if
made by PIFSL, would have its consequences as per the law. Pawn has
96
2.3. Voting rights and dividends
(A) So long as no event of default or potential event of default has occurred and
is continuing, subject to the provisions of the Transaction Documents:
G
(ii) the Pledgor shall be entitled to receive and retain any and all dividends and
other distributions paid in respect of the Pledged Shares only with prior written
approval of Bridge Loan Lender, provided, however, that any and all:
(b) dividends and other distributions paid or payable in cash in respect of or in
con‘nection with any liquidation or dissolution or in connection with a reduction
of capital; H
1128 SUPREME COURT REPORTS [2022] 9 S.C.R.

A not been sold and there is no violation of the Contract Act or for that
matter the Depositories Act and the 1996 Regulations. PIFSL has not
overlooked its obligations under Sections 176 and 177 of the Contract
Act by relying upon sub-regulation (8) to Regulation 58, which has an
entirely different object and purpose. Recording change in the register
of the ‘depository’, whereby PIFSL as the pawnee has become the
B
‘beneficial owner’, is only to enable the pawnee to sell and transfer the
shares in accordance with the Depositories Act and the 1996 Regulations.
The object and purpose of sub-regulation (8) to Regulation 58 is not to
nullify the obligation of MHPL i.e., the pawnor, and PIFSL i.e., the
pawnee, under the Contract Act but to enable PIFSL to exercise its
C rights under Section 176. It also follows that MHPL is entitled to redeem
the pledge before the sale to a third party is made.
12.7 In view of the aforesaid findings, it has to be held that
registration of the pawn, that is the dematerialised shares, in favour of
PIFSL as the ‘beneficial owner’ does not have the effect of sale of
D shares by the pawnee. The pledge has not been discharged or satisfied
either in full or in part. PIFSL is not required to account for any sale
proceeds which are to be applied to the debt on the ‘actual sale’. The
two options available to PIFSL as the pawnee under Section 176 of the
Contract Act remain and are not exhausted.
E H. Conclusion
13.1 For the aforesaid reasons, the present appeal must be allowed
and the impugned order passed by the Appellate Authority dated 20thJune
2019 upholding the orders of the Adjudicating Authority dated 6 th July
2018 and the emails of the IRP dated 19th February 2018 are set aside.
F It is held that MHPL is not a secured creditor of the Corporate Debtor,
namely NNPIL, to the extent of the value of the 31,80,678 shares. PIFSL
has rightly made a claim as financial creditor of the Corporate Debtor
without accounting for the value of 31,80,678 shares of NEVPL in its
claim petition. Insolvency proceedings against the Corporate Debtor,
namely NNPIL, will proceed accordingly.
G
13.2 The appeal is allowed in the aforesaid terms without any
order as to costs.

Ankit Gyan Appeal allowed.
(Assisted by : Mahendra Yadav, LCRA)
H