LENDERS, ARCS CAN EXERCISE VOTING RIGHTS ON PLEDGED SHARES
In World Crest Advisors LLP v Catalyst Trusteeship Limited & Ors.1 (World Crest-II), a single judge of the Bombay High Court, Justice R.I. Chagla, has affirmed the rights of lenders and/ or their assignees to be registered as the beneficial owner of pledged shares and to vote on the said shares, upon invocation.
In previous Client Alerts2, we analysed (i) the Supreme Court’s decision in PTC India3, which reinforces the law on pledge over dematerialised shares; and (ii) the judgment of a Division Bench of the Bombay High Court in World Crest Advisors LLP v Catalyst Trusteeship Limited & Ors.4 (World Crest-I), which too affirms lenders’ right to vote on pledged shares (and has been passed in appeal proceedings filed in the same suit). In this judgment, the High Court considers both PTC India and World Crest-I, and sheds light on the rights of pledgee-lenders and pledgee-asset reconstruction companies (ARCs) (as assignees of such lenders) under the Indian Contract Act, 1872 (Contract Act), the Companies Act, 2013 (Companies Act), the Depositories Act, 1996 (Depositories Act), the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996 (Depositories Regulations), and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). Key takeaways from the Bombay High Court judgment are summarised herein below.
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