Bombay High Court

Bombay High Court: The Division Bench of G.S.Patel and Madhav J Jamdar, JJ. dismissed an appeal ruling that lenders are entitled to voting rights on pledged shares as a matter of contract. The appeal was against the order of the Single Judge dated 17-06-2022. The main point of discussion before the Bench was the law relating to pledges and Sections 176 and 177 of the Contract Act, 1872.

Both sides relied extensively on PTC India Financial Services Ltd v. Venkateswarlu Kari, 2022 SCC OnLine SC 608 which was recently decided by the Supreme Court of India in a similar matter where question of whether the provisions of the Depositories Act, 1996 (Depositories Act) and Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996 (Depositories Regulations) altered the legal position applicable to pledges under Section 176 and Section 177 of the Indian Contract Act, 1872 (Contract Act) was considered. Read more


The Appellant is World Crest Advisors, a Limited Liability Partnership (“World Crest”; “WCA”). It holds equity in Defendant 3, Dish TV India Limited (“Dish TV”), a media company. The 1st Defendant is Catalyst Trusteeship Limited (“Catalyst”). In this case, Catalyst is a security trustee and a pledgee of World Crest’s shares in Dish TV. Respondent/Defendants 2 is YES Bank Limited (“YBL”), a banking company. Defendants 4 to 9 are borrowers from YBL. Defendants 4 to 9 and two other companies, Pan India Infraprojects Pvt Ltd and RPW Projects Pvt Ltd took financial facilities from YBL and they were and continue to be indebted to YBL. The indebtedness of these parties to YBL between November 2015 and April 2018 was in the amount of approximately Rs. 5270 crores. YBL advanced a loan to Defendants 4 to 9 (and the two other entities; “the Borrowers”). party D. The repayment of this loan was secured by a pledge of shares held by World Crest in Dish TV. These shares are all in what is called demat form. The pledge in question is created in favour of a security trustee, Catalyst. YBL is not a party to the pledge document, although it fits the definition of a ‘lender’ in the pledge document.

Catalyst transferred the pledged Dish TV shares to itself. Catalyst then further transferred the shares to YBL or constituted YBL as its nominee; at any rate, it was YBL that exercised rights arising from those shares.

Major questions that arose:

  1. Whether, once Catalyst makes this first transfer so that the shares stand in its name such that the relevant records show it as a “beneficial owner”, does Catalyst acquire the fullness of rights in those shares?
  2. Can it act for the purposes of, say, the Companies Act as a ‘beneficial owner’ and exercise voting rights over those shares?
  3. Can it further transfer those shares downstream, or constitute a nominee?
  4. Is this forbidden by the law of pledges as declared by Supreme Court in PTC India ?
  5. Can World Crest and Catalyst agree that Catalyst would have such rights, or is such a contract forbidden by law?

The appellants contended that (i) the transfer of Shares from the Security Trustee to the Lender amounts to a sale-to self, which has been declared illegal in PTC India; (ii) that parties cannot by contract confer on the pledgee ‘general property in Shares, which includes the right to vote since such a contract is contrary to Sections 176 and Section 177 of the Contract Act; and (iii) that PTC India is an authority for the proposition that a pledgee in spite of being a beneficial owner of Shares only has ‘special property’ in Shares viz. only the right to sell the Shares to a third party and thus, cannot participate and vote at general meetings of the Company.


The Court examined the pledge deeds, analyzed the decision of the Supreme Court in PTC India. The contentions of the appellants were rejected while dismissing the appeal on the following grounds:

  1. The Supreme Court in PTC India only restates the long-standing law on pledge and does not rewrite it;
  2. PTC India categorically affirms that the legal principles under Section 176 and Section 177 of the Contract Act apply to pledge of shares in dematerialised form and that the Contract Act, Depositories Act and Depositories Regulations are to be construed harmoniously;
  3. PTC India further affirms that the Depositories Act and the Depositories Regulations, in particular Regulation 58(8) of the Depositories Regulations, deal with the manner in which dematerialised securities can be transferred and sold on the depository and the same are enabling provisions incorporated to facilitate sale of shares through the depository system to third parties;
  4. Regulation 58(8) of the Depositories Regulation does not create any new rights and obligations and/or change the law under Section 176 and Section 177 of the Contract Act;PTC India does not interpret the transfer to the pledgee/ its nominee as beneficial owner under Regulation 58(8), to be restricted only for the purpose of effecting a future sale. While the pledgor’s right of redemption is intact until the sale of the shares to a third party, in the interim there is no restraint on the pledgee and/ or its nominees to exercise all the available rights as the beneficial owner of those shares including voting rights;
  5. Neither the Depositories Act nor the Depositories Regulations envision that pledgees or their nominees, who become beneficial owners of shares, are to be treated as a distinct class of beneficial owners (shareholders) with significantly curtailed rights;
  6. Section 176 and Section 177 of the Contract Act prohibit a sale-to-self and any such sale will amount to conversion. However, a transfer of shares whereby upon invocation of the pledge, the pledgee becomes beneficial owner of the shares and/or a transfer of shares by the pledgee to its nominee whereby the nominee becomes the beneficial owner of shares cannot be regarded as ‘sale’ and is therefore not inconsistent with Section 176 and Section 177 of the Contract Act; and
  7. PTC India does not hold that parties cannot by contract confer on the pledgee the right to vote and/or any other rights available with the pledgor. PTC India only lays down that parties cannot contract out of a non-derogable mandate under Section 176 or Section 177 of the Contract Act such as the requirement to provide a reasonable notice before a sale or prohibition on sale to-self.
  8. It was clarified that unequivocal re-affirmation of voting rights of a pledgee upon invocation of a pledge of de-materialised shares is welcome.

[World Crest Advisors LLP v. Catalyst Trusteeship Ltd., 2022 SCC OnLine Bom 1409, decided on 23-06-2022]

Advocates who appeared in this case :

Mr Navroz Seervai, Senior Advocate, with Gulnar Mistry, Shreni Shetty, Krusha Maheshwari, & Swati Chandan, (ANB Legal), Advocates, for the Applicant/appellant(“World Crest”);

Mr JP Sen, Senior Advocate, with Gathi Prakash, Nidhi Asher, Arushi Pddar & Priyanka Desai (Cyril Amarchand Mangaldas), Advocates, for the Respondent 1 (“Catalyst”);

Mr Darius Khambata, Senior Advocate, with Mr Venkatesh Dhond, Senior Advocate, and Shyam Kapadia, Indranil Deshmukh, Gathi Prakash, Nidhi Asher, Arushi Pddar & Priyanka Desai (Cyril Amarchand Mangaldas), Advocates, for the Respondent 2 (“YBL”);

Mr Aspi Chinoy, Senior Advocate, with Zal Andhyarujina, Senior Advocate, and Rugved More, Maithili Parekh, Tanya Mehta & Vaibhavi Bhalerao, Advocates, for the Respondent 3 (“Dish TV”);

Mr Sayeed Mulani, Advocate, for the Respondents 4 to 9.

*Suchita Shukla, Editorial Assistant has reported this brief.

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