Delhi HC allows Franklin Templeton MF to sell pledged Essel shares

The pledges were created for Rs 425 crore non-convertible debenture (NCD) issue of Essel Infraprojects in May, 2015
The division bench of Delhi High Court (HC) upheld the ruling of the HC’s single bench, clearing the decks for Franklin Templeton Mutual Fund (FT MF) to sell pledged shares of Essel group firms -- Zee Entertainment Enterprises (ZEEL) and Dish TV -- towards recovery of Rs 616 crore dues.

Essel group firms -- Cyquator Media, Direct Media and Khoobsurat Infra -- had appealed to the division bench after the single-bench of Delhi HC had declined any relief.

The pledges were created for Rs 425 crore non-convertible debenture (NCD) issue of Essel Infraprojects in May, 2015. They were up for maturity on May 22, 2020.

FT MF had disclosed default in maturity payments of Rs 616 crore by Essel Infraprojects on its zero-coupon bonds. These exposures were held in four of the six debt schemes that under wind-up.

In order to ensure that the obligations were met by the maturity, certain securities were incorporated in debenture trust deed (DTD). A first and exclusive pledge was created by Cyquator in favour IDBI Trusteeship (on behalf of NCD holders), over its holdings in Zee Entertainment. Similarly, an exclusive pledge was created by Direct Media in favour of IDBI Trusteeship, over its holdings in Dish TV. Khubsoorat Infra also executed a similar pledge.

An irrevocable and unconditional corporate guarantee was executed by Cyquator.

In its observations, the division bench said, “the economic stress faced by the appellants in order to discharge their legal liabilities founded on the contractual obligations agreed to by them and as incorporated in the DTD and the share pledge agreements and the corporate guarantees, cannot be a ground to restrain the respondent No. 1/IDBI Trusteeship from exercising their rights as a pawnee as per their discretion”.

Further, the bench pointed out that dealing with the submissions made with reference to Covid-19, the single judge held that as Reserve Bank of India and Securities and Exchange Board of India had not issued circulars to restrict the right of pledgees of shares, the court could not read in to the contract, a clause akin to force majeure, “for postponing the obligations under the contracts and as the debentures had already reached maturity”.

The single-bench had concluded that when the law granted absolute discretion to the “pawnee to sell the shares when it liked to do so, the court could not substitute it with its own discretion”.

Essel group firms had sought protection against invocation of the share pledge agreement till mid-August 2020.

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