The High Court of Delhi on July 6, 2020 in the case of K L Enterprises LLP & ors. v. Bajaj Finance Limited (Single Bench) (“KL Enterprises”) and on July 13, 2020 in case of Cyquator Media Services Private Limited v. IDBI Trusteeship Services Ltd. and another (Division Bench) (“Cyquator”) on the issue of, whether the ongoing pandemic and the circulars issued by RBI and SEBI relating to moratorium can be considered to be a ground to grant some relief in case of invocation of pledge held that, past non-performance of the contractor cannot be condoned due to Covid-19 lockdown in March, 2020.
In both these cases, there was a challenge to the proposed invocation of the pledge by the lenders, with the primary argument against invocation of pledge being that, value of the pledged shares in the prevailing circumstances of an ongoing pandemic was not reflective of the true value of the pledged shares. The appellant and petitioners also sought umbrage under notifications issued by various regulators and statutory authorities, including the RBI and SEBI, granting moratorium/ relaxations and relief packages in order to maintain liquidity in the market.
Decision by the court:
The High Court of Delhi in the both the cases refused to restrain the right of the pledgee to involve pledged securities, in light of the ongoing pandemic.
Dealing with the submissions made with reference to the prevailing circumstances of Covid-19 in the case of Cyquator, the Division Bench of the High Court of Delhi held that, as the regulatory authorities viz. RBI and SEBI had not issued circulars to restrict the right of pledgees of shares, therefore, the court could not read in to the contract, a clause akin to force majeure, for postponing the obligations under the contracts, the obligations and liabilities of the appellants as pledgors and guarantors had already come into play and they were not entitled to any relief.
Dealing with the issue of whether past performance can be condoned in light of the ongoing pandemic in the case of K L Enterprises, the Single Bench of High Court of Delhi held that, the petitioners were not entitled to take refuge under the ongoing pandemic since there being no force majeure clause in the agreement between the parties. However, assuming that the agreement did contain a force majeure clause, then also the parties would not be entitled to relief where the parties were in breach of their respective obligations even prior to the Covid-19 induced lockdown.
This update has been contributed by Arka Majumdar (Partner) and Juhi Roy (Associate).
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