KARNAVATI UNIVERSITY

UNITEDWORLD SCHOOL OF LAW

Case analysis project

Law of Contracts II
Submitted to: Prof. Arpit Vihan
Submitted by: Megh Patel
Enrollment no: 20220401055
Semester: 3
Section: B
BBA LLB

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 TABLE OF CONTENTS PG NO

1. FACTS 3

2. ISSUES 3

3. RULES APPLIED 4

4. ANALYSIS 4

5. CONCLUSION 6

6. REFERENCES 8

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PTC India Financial Services Limited Vs. Venkateswarlu Kari and
Ors.

FACTS:
PTC india financial services ltd is an Indian company registered under Companies
Act, 2013. Its main business is to invest in power and energy sector projects in India.
PIFSL has given a loan of Rs. 125 Crore to NSL Nagapatnam Power and Infratech
Limited by a way of Bridge loan agreement dated 10 th march 2014. As per the the
clause 3.1.1 of the loan agreement, the loan has to be secured. NNPIL and NEVPL are
subsidiaries of [Link], the respondent no 2 Mandava Holdings Private Limited
executed a Pledge Deed in favour of PIFSL, and pledged 31,80,678 shares equal to
26% of the shares of NSL Energy Ventures Private Limited as a security. Then on 17 th
November, 2017 insolvency proceedings were initiated and respondent no 1
Venkateswarlu Kari was appointed as a Interim resolution professional. On December
28th 2017 PIFSL issued a notice under pledge agreement that if debt is not paid then
PIFSL would exercise its right under pledge deed. The debt remains unpaid, On 14 th
January, 2018 PIFSL wrote to depository invoking its right under Pledge deed and
Depository accorded him as beneficial owner of 31,80,678 pledged shares. On 17 th
Jnauary 2018, PIFSL filed an application under section 7 of IBC as a financial
creditor for the due amount of Rs.167,29,23,507 which was payable by corporate
debtor. On 6th february, 2018 MHPL filed an application and stated that that PIFSL is
not longer the creditor because he had became an beneficial owner of the pledged
shares and now he is the creditor of the corporate debtor to the extent of value of
pledged share. The adjudicating body accepts the claim of MHPL based on
depositories act and Regulation 58 of 1996 regulation and held that the PLFSL had
exercised its right and now he is the owner of the pledged share and not a creditor.
MHPL is the creditor of the corporate debtor to the extent of the value of the pledged
shares. Then PIFSL challenged the order before National company law appellant
tribulnal. NCLAT dismissed the appeal and held that PIFSL had exercised its rights
under Clause 6.1 of the 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.

ISSUES
1. What is pledge and the legal difference between ownership, pledge and mortgage?
2. Whether pawnor can send Notice of sale and whether the pawnee has right to sue
for recovery and sell the pawned goods
3. Whether sale of the pledged goods by the pawnee to self is valid
4. What is effect and Purpose of the SEBI (Depositories and Participants)
Regulation, 1996 and Depositories Act, 1996.
5. What is the effect of the Depositories Act, 1996 and the Securities and Exchange
Board of India (Depositories and Participants) Regulation, 1996 on the pledge under
the Contract Act, 1872

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RULES APPLIED:
Section 151 of INDIAN CONTRACT ACT, 1872,
Section 152 of INDIAN CONTRACT ACT, 1872,
Section 153 of INDIAN CONTRACT ACT, 1872,
Section 154 of INDIAN CONTRACT ACT, 1872,
Section 157 of INDIAN CONTRACT ACT, 1872,
Section 160 of INDIAN CONTRACT ACT, 1872,
Section 161 of INDIAN CONTRACT ACT, 1872,
Section 172 of INDIAN CONTRACT ACT, 1872,
Section 176 of INDIAN CONTRACT ACT, 1872,
Section 177 of INDIAN CONTRACT ACT, 1872,
Section 179 of INDIAN CONTRACT ACT, 1872,
Section 12 of DEPOSITORIES ACT, 1996,
Section 25 of DEPOSITORIES ACT, 1996,

ANALYSIS:
The supreme court held that the owner has right of possession, right to sell, right to
enjoyment and right to disposition while the pawnee has limited ownership. Pawnee
has right to possession until the debt is paid and pawnee has right to sell if pawnor
makes any default but only after giving notice. Also, the pawnor has right to redem
the pledged goods before its actual sale. The difference between pledge and mortgage
is that in mortgage the rights of properties are transferred but in pledge there is only a
bailment. In mortagage the whole legal right is transferred and the mortgagee has the
general rights of the property subject to the rights to redemption of mortgagor. In case
of pledge, pledgee or pawnee does not have the absolute ownership of pledged goods
but has some special property along with the right to sell only if there is a default
from the side of pawnor. In case of Pledge, pawnee has right to possession of goods as
security and right to sell on if there is a default in payment of debt.
The court held that in case of bailment, the goods are given for specific purpose and
after the accomplishment of the purpose the bailor expects the goods to be returned.
As per the scetion 163 of indian contract act, if anything contrary is not mentioned in
the contract then it is the responsibility of the bailor to return the goods after the
accomplishment of purpose.

Notice of sale by pawnor and the pawnee's right to sue for recovery and sell the
pawned goods
The court relied on Balkrishan Gupta and Ors. v. Swadeshi Polytex Ltd. and Anr in
which it was held that under section 176 of indian contract act the pawnee can bring a
suit against pawnor and may retain the pledged or sell the goods if pawnor make
defaults in payment of debt aftergiving the advance notice. The Pawnee has right to
sell the bailed goods, he is not bound to sell it on particular time. It is only his
discretion to sell the goods. It is not necessary for pawnee to arrange a sale first and
then give notice to the pawnor regarding the date, place and time for sale because the
purpose of the notice is to make pawnor know the pawnee’s intention to sell. Pawnee
can give notice under section 176 of contract act when he has the intention to sell the
goods. It is not required to mention date, time and place of sale in the notice. The right
to sell and right to retain are not concurrent but an alternative. If the Pawnee sell the
goods then also he has the rights of pawnee which means that he can recover the due
amount from Pawnor. Section 176 of Contract act grants option to the pawnee to
either retain or sell the goods but the it is not compulsory for pawnee to sell the good

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on the request of pawnor. Pawnee has to give notice to pawnor before the sale of
goods but he is not bound to sell after the expiration of term, he may file a suit for
recovery of debt while holding the goods. Pawnor has the right to redeem the goods
before the sale or before the goods are put to sale.
It was held that Even when the general law provides liberty to contract, the parties
cannot contract contrary to express provisions of law. When pawnee sells the goods
unlawfully then the pawnor has the right to redem the good after depositing the
money. The advance notice is a special protection and parties cannot override it by
agreement.

Sale of the pledged goods by the pawnee to self

The court held that the pawnee cannot sell the goods to himself because section 177
of the contract act does not support the sale to self, it would be the conversion of
goods not a sale of goods. As per section 177 of India contract act, pawnor can
redeem the good before its sale but in the case of unauthorized sale in which pawnee
sold the goods to himself, the pawnor will have the right to redeem the goods because
it is not a sale, it is a conversion of goods.

Effect and Purpose of the SEBI (Depositories and Participants) Regulation, 1996 and
Depositories Act, 1996.
A statute can be interpreted by its text and context. The provisions of the contract act
and depositories act must be interpreted harmoniously. It means that the provisons of
contract act will not nullify the provisions of depositories act and vice versa. Both the
provisions should be read together. If any provision is contradicting the other then it
will be clarified through principle of interpretation of statute.
The Depositories act, 1996 was introduced because there was lack of certainity and
fear among investors due to risks in form of forgery, theft etc. It was affecting the
stock market. Depositories act laid down rules for trading in dematerialized security.
Dematrialization means converting the physical shares into electronic form. It
intoduced the concept of registered owner and beneficial owner. Every person has to
enter into a contract with depositories and have to surrender their physical shares. The
depositories became the ‘registered owner’ and the person who enters into a contract
with depositories and surrender his physical shared will become ‘beneficial owner’.
The beneficial owners shall have all the rights and liabilities attached to the securities
but the depositories will not have any rights attached to the securities.

Effect of the Depositories Act, 1996 and the Securities and Exchange Board of India
(Depositories and Participants) Regulation, 1996 on the pledge under the Contract
Act, 1872
The pledgor/pawnor is not permitted to sell the pledged/pawned securities in
accordance with the 1996 Regulations. The Depositories Act and the 1996 Regulation
preserve the pledgee's/pawnee's unique rights in the pawn. This right to sell
dematerialized assets, however, is granted to the "beneficial owner," who uses the
participants to exercise it. Therefore, in order for a pawnee to use his right to sell
dematerialized security, he must first register himself with the "depository" as a
"beneficial owner" in its records. The pawnee cannot use its rights to sell the pledge
and collect the money owed by using its rights if the aforementioned exercise is not
performed. in accordance with Contract Act Section 176. One of the possibilities is to
sell the pledge after giving fair notice, however under the Contract Act as well as
common law, the pawnee may choose to sue for the outstanding amount even after

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receiving notice of sale, all the while keeping control of the pledged items. In a
similar vein, the pawnor is entitled to redeem the pledged goods until the "actual sale"
under both the Contract Act and common law. The pawnor's right to redemption is not
negated by the pawnee's sale to themselves.
It is not specifically stated in the Depositories Act or the 1996 Regulations that their
provisions supersede those of the Contract Act or any other current legislation.
However, Section 28 declares that "the provisions of this Act shall be in addition to
and not in derogation of any other law for the time being in force relating to the
holding and transfer of securities." Thus, various regulations pertaining to the custody
and transfer of securities are in addition to the Depositories Act. This justification
does not absolve Section 12 and Regulation 58 of their obligatory or necessary nature.
When allowed and justified, violations of the Act may result in fines and possibly
criminal prosecution.
Further it was held that "the sale by the pawnee to a third person made in accordance
with the Depositories Act and applicable by-laws and rules" is the appropriate
interpretation of the term "actual sale" as used in Section 177. It also implies and
mandates adherence to Contract Act Section 176. The pawnee's mere use of his right
to record himself as the "beneficial owner," which is a requirement before he may
exercise his right to sell, does not constitute a "actual sale" and does not impact the
pawnor's redemption rights under Section 177 of the Contract Act.

CONCLUSION:
The Court observed that the terms of the Pledge Deed clearly distinguish between the
"actual sale" of the pledged shares and the mere transfer of the pledged shares into the
name of the pawnee or its nominee as a "beneficial owner." Accordingly, there are
two steps involved before a sale can enforce the pledge: the first is when the pawnee
has to notify the pawnor that it intends to exercise its right to have the pledged shares
transferred into its name or the names of its nominees; this does not lead to the
discharge of the debt in an amount equal to the share value. When the pawnee uses his
right to sell the shares after providing notice to the pawnor and sells the pawn, the
obligation is discharged in full or in part. The pawnee is able to use the net profits of
the sale or disposal when it is actually made.

The Supreme Court further ruled that the law of promise is dynamic and has to
change to reflect the contemporary business climate. The court also stated that while
interpreting the law as it relates to business and commerce, it is important to take the
real world's implications into account.

As a result, the Supreme Court held:

Once the pawnee was listed as the "beneficial owner" in the "depository's" records,
they had fulfilled the procedural requirement of Regulation 58(8) to get the right to
sell the shares. Following that, the Contract Act's Sections 176 and 177 should be
followed when making such a deal. PIFSL, the pawnee, has become the "beneficial
owner" through a change that was merely recorded in the "depository" register to
allow the pawnee to sell and transfer the shares in compliance with the Depositories
Act and the 1996 Regulations.
The dematerialized shares, or pawn, are registered in PIFSL's name as the "beneficial
owner," therefore this does not imply that the pawnee has sold any shares. The pledge
has not been discharged or satisfied either in full or in part. PIFSL is not required to

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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. As can be seen from the background information
and analysis above, the Supreme Court dismissed the NCLT and NCLAT's rulings
and granted PIFSL's appeal.
The Depositories Act and Contract Law are intricately entwined in the case of PTC
India Financial Services Limited vs. Venkateswarlu Kari and Ors., providing a lens
through which to examine the interaction between legislative requirements and
contractual duties in the financial sector. From the perspective of the Depositories Act
and Contract Law, my analysis of this case highlights the importance of legal
frameworks in financial transactions, as well as the nuances of duties and
enforceability.
First and foremost, the Depositories Act, which was created to control depositories
and securities transactions in India, is crucial in this situation. The legislative
objective to enable safe, effective, and transparent securities trading and holding
through depository systems is embodied in the Act. In this context, the case
emphasizes how depository system users have a duty to adhere to legal requirements
in order to maintain the accuracy and efficiency of securities transactions. The
statement highlights the crucial function of the Act in regulating the obligations and
privileges of entities involved in depository activities, thereby promoting investor
trust and stability in the market.
In addition, contracts, enforceability, and the rights and obligations of parties to a
contract all heavily rely on contract law. The case's contractual point of view
highlights the value of clear language, permission from both parties, and the
inviolability of contracts in business transactions. It emphasizes how crucial it is to
have precise, unambiguous contractual provisions that specify each party's obligations
and rights in a transaction.
The case illustrates a situation in which legislative requirements under the
Depositories Act clash with contractual duties. It highlights how important it is for
contracts to comply with laws in order to be enforceable, legitimate, and compliant. It
is crucial for parties to understand the boundaries of both contract law and statutory
laws since any violation of statutory provisions inside a contract might make it null
and invalid or unenforceable.
In addition, the case emphasizes how important it is to respect the integrity of
contracts while still following the law. It clarifies that legislative obligations cannot
be superseded by commercial agreements, even when they are thorough and precisely
prepared. Rather, contracts must to be read and carried out in accordance with the
larger legislative framework, making sure that they comply with statutory
requirements to support their enforceability.
The PTC India Financial Services Limited Vs. Venkateswarlu Kari and Ors. case, in
its whole, emphasizes the mutually beneficial interaction that shapes the parameters of
financial transactions between the Depositories Act and Contract Law. It highlights
how important it is for parties involved in securities transactions to draft contracts that
not only express their business goals but also comply with legal requirements in order
to guarantee their legality and enforceability.
This case is a wake-up call for careful contract writing and implementation in the
banking sector. It emphasizes how important it is for parties to align their contracts
with legal requirements in order to stay out of trouble with the law and make sure
regulations are followed. Through recognition of the natural relationship between the

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Depositories Act and Contract Law, this case underscores the need for accuracy,
thoroughness, and legal knowledge when negotiating the complex world of finance.
Within the parameters of the Depositories Act, the case of PTC India Financial
Services Limited vs. Venkateswarlu Kari and Ors. serves as a testament to the careful
balancing act between contractual duties and legislative compliance. It emphasizes
how important it is for statutory provisions and contractual agreements to function
together, explaining that following both sets of laws is essential to guaranteeing the
validity, enforceability, and efficiency of financial transactions in the securities
market.

REFERENCES
JSA Advocates & Solicitors . (2022). JSA law . Retrieved from jsalaw: [Link]
matter/pfs-judgement-ptc-india-financial-services-limited-versus-venkateswarlu-kari-and-
another/
PTC India Financial Services Limited Vs. Venkateswarlu Kari and Ors. , SCC 704 (The Supreme
Court 2022).

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