The Delhi High Court observed that the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as “SARFAESI”) envisages the transfer of assets by the original lender including banks and financial institutions to asset reconstruction companies like the Petitioner in the present case. It also provides for the treatment of such buyers as lenders for all purposes.
It was noted that after the purchasing of the NPA account, the Petitioner became the new pledgee by way of the Debt Assignment Deed and as a buyer acquired the right to deal with the pledged shares. This right is absolute and is required to be recognized by all third parties including statutory authorities.
Further, it was remarked that once the original pledgee issued instructions to Respondent No.2 for substitution, there is no justification for denying so. Merely because no such procedure has been laid down in the Depositories Act, 1996 or SEBI (Depositories and Participant) Regulations, 2018, Respondent No.2 cannot deny the changes.
Brief Facts
The Petitioner Company is registered under Section 3 of the SARFAESI.
M/s Burnpur Cement Ltd. (hereinafter referred to as “BCL”) availed certain term loans from SBI and a Master Restructuring Agreement was entered into. Following the terms therein, some equity shares were pledged by the BCL with SBI vide a Pledge Agreement. The terms loans were not repaid by BCL and hence, the account with SBI was declared as a Non-Performing Asset (hereinafter referred to as “NPA”) and the same was acquired by the Petitioner with all underlying securities.
Subsequently, a Debt Assignment Agreement was entered into by SBI, Assignor and Petitioner as the Assignee.
The Petitioner has approached the Court because Respondent No.2 has refused to substitute the name of the Petitioner as the new pledgee in place of the original pledgee (State Bank of India) in respect of the pledged shares of BCL which have been now assigned to the Petitioner pursuant to the Debt Assignment Agreement.
Contentions of the Petitioner
The Petitioner contended that instead of the Debt Assignment Agreement, the Petitioner has become the pledgee in place of SBI and has taken over the role of SBI as its successor in interest qua the management of BCL.
It was argued that the Petitioner should be treated as a lender concerning the pledged shares of BCL. By Section 5(2), (3) of SARFAESI, when the Petitioner becomes the owner of the pledged shares, Respondent No.2 cannot refuse to make the required changes.
Contentions of the Respondent No.3
It was contended that the Respondent be deleted from the parties as he has no role whatsoever in the present petition.
Contentions of the Respondent No.2
It was argued that there is no provision in either Depositories Act, 1996 or SEBI (Depositories and Participant) Regulations, 2018 for incorporating changes as contended by Petitioner. The request of Petitioner was denied as one of the pledgors has opposed the such request.
Observations of the Court
It was observed that SARFAESI envisages the transfer of assets by the original lender including banks and financial institutions to asset reconstruction companies like the Petitioner in the present case. It also provides for the treatment of such buyers as lenders for all purposes.
The Bench noted that after the purchasing of the NPA account, the Petitioner became the new pledgee by way of the Debt Assignment Deed and as a buyer acquired the right to deal with the pledged shares. This right is absolute and is required to be recognized by all third parties including statutory authorities.
Further, it was remarked that once the original pledgee issued instructions to Respondent No.2 for substitution, there is no justification for denying so. Merely because no such procedure has been laid down in the Depositories Act, 1996 or SEBI (Depositories and Participant) Regulations, 2018, Respondent No.2 cannot deny the changes. Moreover, the objections of the pledgors cannot be permitted as they agreed that it would be the option of SBI to sell the shares to any third party if they fail to repay the money.
Decision of the Court
Based on the abovementioned reasons, the High Court allowed the petition and directed Respondent No.2 to make desired changes.
Case Title: UV Asset Reconstruction Company Ltd. V. Union of India & Ors.
Coram: Hon’ble Ms. Justice Rekha Palli
Case No.: W.P. (C) 15395/2022
Advocates for Petitioner: Advs. Mr. Sanjay Ghose, Ms. Mallika Joshi, Ms. Isha Tyagi, Ms. Jyotishman, Mr. Rohan Mandal
Advocates for Respondent: Advs. Mr. Ravi Prakash, Mr. Gokul Sharma, Mr. Farman Ali, Ms. Shruti Shiv Kumar, Ms. Usha Jamnal, Mr. Neeraj Malhotra, Mr. Sidharth Seth, Mr. Rishabh Yadav, Mr. Nimish, Mr. Sagar Dwivedi
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