COURT ROOM EXERCISE

Before

THE LEARNED CIVIL COURT OF WASSEYPUR

PETITION NUMBER: ___XXX____ / 2020

FILED UNDER SECTION 15, 16, 19 AND 20 OF

THE CODE OF CIVIL PROCEDURE, 1908

IN THE CASE CONCERNING CLAIM OVER DIVIDENDS

AND

IN THE MATTER BETWEEN:

MR. FAIZAL PETITIONER

versus

MR. SARDAR KHAN RESPONDENT

MEMORIAL for PETITIONER

Submitted By:
Avinash Kumar
Semester II, Section A
Roll No. 987
 I

TABLE OF CONTENTS

Contents
TABLE OF CONTENTS .................................................................................................................. I

INDEX OF AUTHORITIES ............................................................................................................. II

INDEX OF ABBREVIATIONS ........................................................................................................ III

STATEMENT OF JURISDICTION .................................................................................................. IV

STATEMENT OF FACTS ............................................................................................................... V

ISSUES RAISED ......................................................................................................................... VI

Whether in the present facts and circumstances and in the law prevailing the present suit is
maintainable? ...........................................................................................................................VI

Whether in the present facts and circumstances and in the law prevailing Mr. Faizal has any
claim over the dividends of the shares pledged? .....................................................................VI

Whether the pledged shares by the virtue of being intangible and not being goods per se come
under the ambit of dematerialized securities for the purposes of Securities And Exchange Board
of India Regulations, 1996 And The Depositories Act, 1996 and therefore exempt Mr. Faizal
from providing prior notice before invoking the pledge? ........................................................VI

SUMMARY OF ARGUMENTS ..................................................................................................... VII

ARGUMENTS ADVANCED ............................................................................................................ 1

PRAYER FOR RELIEF.................................................................................................................... 9

MEMORIAL for PETITIONER TABLE OF CONTENTS

 II

INDEX OF AUTHORITIES

CASES:

1. Gagan Harsh Sharma and Ors. Vs. The State of Maharashtra, MANU/MH/3012/2018
2. Hunsur Plywood Works Ltd. vs. Commissioner of Income Tax, MANU/SC/0838/1998
3. Jry Investments Private Limited vs. Deccan Leafine Services Ltd. and Ors.
MANU/MH/1427/2003
4. Motilal Hirabai vs Bai Mani (1925) 27 BOMLR 455
5. R.K. Jewellers and Ors. vs. Union of India (UOI) and Ors. MANU/MH/0614/2010
6. Standard chartered bank v. The custodian and ors, (2011) 8 SCC 161
7. Syndicate Bank v. C.H Muhammed, 2006(2)SLR273(SC)
8. Pushpanjali Tie Up Pvt. Ltd v. Renudevi Choudhary, (2004) 12 SCC 118
9. The Karnataka Pawn Brokers' Association and Ors. vs. State of Karnataka and Ors.
MANU/KA/0061/2006
10. Tendril Financial Services Pvt. Ltd. and Ors. v. Namedi Leasing & Finance Ltd. and
Ors., AIR 1971 SC 1731
11. Tejkumar Balakrishna Raju v. A.K. Menon, , (2011) 2 SCC 62

BOOKS REFERRED

1. Contract And Specific Relief by Avatar Singh

2. The Indian Contract Act, Pollock And Mulla
3. Chitty on Contract", 28th Edition
4. Halsbury’s Laws of England, Vol 36

STATUTES REFERRED

1. The Indian Contract Act, 1872

2. The Code of Civil Procedure, 1908
3. The Depositories Act, 1996
4. Security And Exchange Board of India Regulations, 1996

MEMORIAL for PETITIONER INDEX OF AUTHORITIES

 III

INDEX OF ABBREVIATIONS

¶ Para
¶¶ Paras
AIR All India Reporter
Anr. Another
CPC The Code of Civil Procedure, 1908
Hon’ble Honorable
HC High Court
ICA Indian Contract Act, 1872
Corp. Corporation
SC Supreme Court
SCC Supreme Court Cases
SCR Supreme Court Record
v. Versus
Vol. Volume
Sec Section
J. Justice
Ltd. Limited
SEBI Security And Exchange Board of India
Ors. Others
Supl. Supplementary

MEMORIAL for PETITIONER STATEMENT OF JURISDICTION

 IV

STATEMENT OF JURISDICTION

The Petitioner has approached this civil court under the sections 151, 162, 193 and 204 of The
Code of Civil Procedure, 1908.

1
Court in which suits to be instituted. —Every suit shall be instituted in the Court of the lowestgrade competent
to try it.
2
Suits to be instituted where subject-matter situate. —Subject to the pecuniary or other
limitations prescribed by any law, suits—
(a) for the recovery of immovable property with or without rent or profits,
(b) for the partition of immovable property,
(c) for foreclosure, sale or redemption in the case of a mortgage of or charge upon immovable
property,
(d) or the determination of any other right to or interest in immovable property,
(e) for compensation for wrong to immovable property,
(f) for the recovery of movable property actually under distraint or attachment,
shall be instituted in the Court within the local limits of whose jurisdiction the property is situate:
Provided that a suit to obtain relief respecting, or compensation for wrong to, immovable property held by or on
behalf of the defendant may, where the relief sought can be entirely obtained through his personal obedience, be
instituted either in the Court within the local limits of whose jurisdiction the property is situate, or in the Court
within the local limits of whose jurisdiction the defendant actually and voluntarily resides, or carries on business,
or personally works for gain.
3
Suits for compensation for wrongs to person or movables. —Where a suit is for compensation forwrong done to
the person or to movable property, if the wrong was done within the local limits of the jurisdiction of one Court
and the defendant resides, or carries on business, or personally works for gain, within the local limits of the
jurisdiction of another Court, the suit may be instituted at the option of the plaintiff ineither of the said courts
4
Other suits to be instituted where defendants reside or cause of action arises. —Subject to the limitations
aforesaid, every suit shall be instituted in a Court within the local limits of whose jurisdiction—
(a) the defendant, or each of the defendants where there are more than one, at the time of the
commencement of the suit, actually and voluntarily resides, or carries on business, or personally
works for gain; or
(b) any of the defendants, where there are more than one, at the time of the commencement of the suit, actually
and voluntarily resides, or carries on business, or personally works for gain, provided

MEMORIAL for PETITIONER STATEMENT OF JURISDICTION

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STATEMENT OF FACTS

Some shares worth Rs. 12 lacs were pledged by Sardar Khan with Faizal Khan for a credit of
Rs. 10 lacs. Sardar Khan defaulted in making the repayment which led to the swelling of the
total debt up to Rs. 16 lacs (interest accrued in addition to the principal sum). Meanwhile, the
shares also had an augmentation of their worth derived from the dividend received, surging its
worth to Rs. 15 lacs. Faizal claims rights over the increased value; Sultan contends that Faizal
cannot claim any stakes in the increments, but only on the original value.

MEMORIAL for PETITIONER STATEMENT OF FACTS

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ISSUES RAISED

1. WHETHER IN THE PRESENT FACTS AND CIRCUMSTANCES AND IN THE LAW

PREVAILING THE PRESENT SUIT IS MAINTAINABLE ?

2. WHETHER IN THE PRESENT FACTS AND CIRCUMSTANCES AND IN THE LAW

PREVAILING MR. FAIZAL HAS ANY CLAIM OVER THE DIVIDENDS OF THE SHARES

PLEDGED?

3. WHETHER THE PLEDGED SHARES BY THE VIRTUE OF BEING INTANGIBLE AND NOT

BEING GOODS PER SE COME UNDER THE AMBIT OF DEMATERIALIZED SECURITIES FOR

THE PURPOSES OF SECURITIES AND EXCHANGE BOARD OF INDIA REGULATIONS,

1996 AND THE DEPOSITORIES ACT, 1996 AND THEREFORE EXEMPT MR. FAIZAL
FROM PROVIDING PRIOR NOTICE BEFORE INVOKING THE PLEDGE?

MEMORIAL for PETITIONER ISSUES RAISED

 VII

SUMMARY OF ARGUMENTS

1. WHETHER IN THE PRESENT FACTS AND CIRCUMSTANCES AND IN THE LAW PREVAILING

THE PRESENT SUIT IS MAINTAINABLE?

It is most humbly submitted before the learned bench that the Petitioner has approached
this civil court under the sections 15, 16, 19 and 20 of The Code of Civil Procedure, 1908.
It is submitted that this civil court is the court of lowest grade competent to try suits of this
nature and that Mr. Faizal has been harmed financially by the nature of default in payments
on the part of Mr. Sardar Khan. It is also submitted that the defendant resides in the
jurisdictional territory of this civil court.
2. WHETHER IN THE PRESENT FACTS AND CIRCUMSTANCES AND IN THE LAW PREVAILING
MR. FAIZAL HAS ANY CLAIM OVER THE DIVIDENDS OF THE SHARES PLEDGED?
It is submitted that the Mr. Faizal has the right over the dividend received as interest accrued
on the shares pledged are clearly accession to the shares pledged and since they are
accession to the shares, then they must also be regarded as forming part of the pledged
property which could not be ordered to be handed over unless redemption takes place as,
by the pledge of a thing, not only the thing itself is pledged, but also, accessory, the natural
increase thereof. Thus, if during the contract there is any increase in the value of the
security, Mr. Faizal is entitled to that increase as part of his security.
3. WHETHER THE PLEDGED SHARES BY THE VIRTUE OF BEING INTANGIBLE AND NOT
BEING GOODS PER SE COME UNDER THE AMBIT OF DEMATERIALIZED SECURITIES FOR
THE PURPOSES OF SECURITIES AND EXCHANGE BOARD OF INDIA REGULATIONS, 1996
AND THE DEPOSITORIES ACT, 1996 AND THEREFORE EXEMPT MR. FAIZAL FROM
PROVIDING PRIOR NOTICE BEFORE INVOKING THE PLEDGE?
It is most humbly submitted before the learned bench that pledge of dematerialized
securities is primarily governed by the Act and extant SEBI Regulations. While the
application of the Contract Act cannot be ruled out completely, yet the method/process by
which a pledge of dematerialized securities is created is different than that contemplated
under the Contract Act. It is further submitted that the notice requirement for invocation of
the securities and sale thereof are primarily dependent upon the terms of the pledge
document. The pledge document could (i) provide for a separate notice period; or (ii) not
mention the notice period/requirement; or (iii) specifically waive the notice requirement.
Further it is also contended that invocation of a pledge leads to the pledgee becoming the

MEMORIAL for PETITIONER SUMMARY OF ARGUMENTS

 VIII

beneficial owner of the pledged securities with, inter-alia, the right to vote thereon, where
applicable. The pledge, upon invocation, comes to an end.

MEMORIAL for PETITIONER SUMMARY OF ARGUMENTS

 1

ARGUMENTS ADVANCED

1. WHETHER IN THE PRESENT FACTS AND CIRCUMSTANCES AND IN THE LAW PREVAILING
THE PRESENT SUIT IS MAINTAINABLE?

It is most humbly submitted before the learned bench that the Petitioner has approached
this civil court under the sections 15, 16, 19 and 20 of The Code of Civil Procedure, 1908.
Section 15 states that, every suit shall be instituted in the Court of the lowest grade
competent to try it. Section 16 states that Subject to the pecuniary or other limitations
prescribed by any law, suits—
(a) for the recovery of immovable property with or without rent or profits,
(b) for the partition of immovable property,
(c) for foreclosure, sale or redemption in the case of a mortgage of or charge upon
immovable
property,
(d) or the determination of any other right to or interest in immovable property,
(e) for compensation for wrong to immovable property,
(f) for the recovery of movable property actually under distraint or attachment,
shall be instituted in the Court within the local limits of whose jurisdiction the property is
situate:
Provided that a suit to obtain relief respecting, or compensation for wrong to, immovable
property held by or on behalf of the defendant may, where the relief sought can be entirely
obtained through his personal obedience, be instituted either in the Court within the local
limits of whose jurisdiction the property is situated, or in the Court within the local limits
of whose jurisdiction the defendant actually and voluntarily resides, or carries on business,
or personally works for gain.
Section 19 states that, where a suit is for compensation for wrong done to the person or to
movable property, if the wrong was done within the local limits of the jurisdiction of one
Court and the defendant resides, or carries on business, or personally works for gain, within
the local limits of the jurisdiction of another Court, the suit may be instituted at the option
of the plaintiff in either of the said Courts.
Section 20 states that subject to the limitations aforesaid, every suit shall be instituted in a
Court within the local limits of whose jurisdiction—

MEMORIAL for PETITIONER ARGUMENTS ADVANCED

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(a) the defendant, or each of the defendants where there are more than one, at the time of
the
commencement of the suit, actually and voluntarily resides, or carries on business, or
personally works for gain; or
(b) any of the defendants, where there are more than one, at the time of the commencement
of the suit, actually and voluntarily resides, or carries on business, or personally works for
gain, provided that in such case either the leave of the Court is given, or the defendants
who do not reside, or carry on business, or personally works for gain, as aforesaid,
acquiesce in such institution; or
(c) The cause of action, wholly or in part, arises.
In the light of the aforementioned provisions the counsel for the petitioner humbly submits
that the present suit is maintainable in this court of law.
2. WHETHER IN THE PRESENT FACTS AND CIRCUMSTANCES AND IN THE LAW PREVAILING
MR. FAIZAL HAS ANY CLAIM OVER THE DIVIDENDS OF THE SHARES PLEDGED?
It is most humbly submitted before the learned bench that section 176 of the Indian
Contract Act, 1872 states that, "If the pawnor makes default in payment of the debt, of
performance, at the stipulated time of the promise, in respect of which the goods were
pledged, the Pawnee may bring a suit against the pawnor upon the debt or promise, and
remain the goods pledged as a collateral security, or he may sell the thing pledged, on
giving the pawnor reasonable notice of the sale.” The Pawnee also has the right to bring a
suit against the pawnor for the recovery of the amount advanced by him.
Further it is also submitted Further in Karnataka Pawn brokers Association and others v.
State of Karnataka and others5 the Hon’ble Supreme court held that ,"It cannot be and it is
not disputed that the Pawnee has special rights in the goods pledged, a right higher than a
mere right of detention of goods by a right lesser than general property right in the goods.
To put it differently, the pawnor at the time of the pledge not only transfers to the Pawnee,
the special right in the pledge but also passes on his right to transfer the pledged goods. To
put it differently, the pawnor at the time of the pledge not only transfers to the Pawnee, the
special right in the pledge but also passes on his right to transfer the goods in the event of
the pledge remaining unredeemed resulting in the sale of the pledge by public auction
through an approved auctioneer. The position being what is stated above, the natural

5
MANU/KA/0061/2006

MEMORIAL for PETITIONER ARGUMENTS ADVANCED

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consequence will be that it is the Pawnee who holds not only the absolute special right in
the pledge but also the conditional general interest in the pledge, the condition being that
he can pass on that general property only in the event of the pledge being brought to sale
by public auction in accordance with the Act and the Rules framed thereunder."

It is further contended that In Syndicate Bank v. C.H Muhammed,6 the court held that “The
Pawnee has the right to redeem good if the pawnor makes default in payment of debt, or
performance; at the stipulated time or the promise, in respect of which the good were
pledged.” Turing to the facts of the case, it is submitted that the pawnor, Sardar Khan
defaulted in making repayment of loan given by Faizal Khan which lead to swelling of the
total debt up to Rs. 16 lacs. Thus, in light of the above argument, it is submitted that the
Pawnee has the right over the pledged shares and he call sell the shares in order to recover
the amount of loan.
The counsel contends that in the case of Standard Chartered Bank V. The Custodian And
Ors7. The Hon’ble on Supreme court held that “the interest accrued on shares pledged are
clearly accession to the shares pledged and since they are accession to the shares then they
must also be regarded as forming part of the pledged property which could not be ordered
to be handed over unless redemption takes place.” According to Indian contract act, 1872
when goods are bailed for securing payment of debt or the performance of a promise the
bailor would get a right for the return of the said goods when the purpose is accomplished,
namely, the debt is returned or the promise is performed.
In the case of Hunsur Plywood Works Ltd. V. Commissioner8. The court held that “It is
perhaps necessary to make clear that the income or usufruct of attached property is also
attached property. Thus, if the property be shares, dividends and bonus and rights share
thereon would also be attached property. It is only income generated by a notified person
by dint of his own labor.” Thus, if the accretions are regarded as property which come to
existence after the date when the shares were pledged, therefore it will become necessary
for this court to observe that in Tejkumar Balkrishna Raju v. A.K Menon9 case the court
held that if pledged property is share then dividend received, bonus shares etc., would also

6
2006(2)SLR273(SC)

7
(2011) 8 SCC 161

8
MANU/SC/0838/1998

9
(2011) 2 SCC 62

MEMORIAL for PETITIONER ARGUMENTS ADVANCED

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be regarded as pledged property as by the pledge of a thing, not only the thing itself is
pledged, but also, accessory, the natural increase thereof. As if a flock of sheep are pledged,
the young, afterwards born, are also pledged. it is noted that "If during the pledge there is
an increase in the value of the thing pledged, the pledgee is entitled to the increase as part
of his security." To the same effect is the view contained in Halsbury’s Laws of England
“where it is stated in connection with the special property of the Pawnee "if during the
contract there is any increase in the value of the security, the Pawnee is entitled to that
increase as part of his security"
The counsel contends that in the case of Motilal Haribai v. Bai Mani10 the high court of
Bombay held that “the interest accrued on the shares is related to the share and thus must
be considered as accretions.” Further in the case of M/S.R.K.Jewellers vs Union of India11
the apex court held that in the That in case of pawner's default in payment of the debt,
Pawnee has also a right to sell the accretion along with the original goods pledged after
giving reasonable notice to the Pawnee. And that bonus shares arising out of and
appertaining to the original shares and that it was impossible to contend that the right to
these shares could be differentiated from the right to the original shares. Applying the same
logic dividend and interest which were relatable to the pledged stocks must also be regarded
as accretions thereto. Thus, pledgee is considered to be entitled to any increase or increment
of the thing pledged which may be used for the purpose of liquidating the debt or held in
trust for the pledgor. This right in the pledgee is held to arise by implication even though
there has been no transfer upon the books of the corporation; and if the corporation after
notice pays the dividends to the pledgor, it becomes liable in that amount to the pledgee.
The courts are even more strict where the dividend payments are in liquidation of corporate
assets, for in those cases notice is not a prerequisite of liability. Under such circumstances,
the corporation can protect itself by requiring that the stock certificate be presented before
payment of the liquidating dividend. It is therefore clear that a pledgee has the discretion
to decide whether he wants to sell the pledge security; when to sell it; and how much of it
to sell. The pledgor cannot dictate terms to the pledgee on how he is to exercise his right.
On the aforesaid backdrop, turning to the present case, the doctrine of accretion is clearly
applicable to the facts of the present case wherein the dividend received is on the shares
pledged and therefore it cannot be handed over unless Sardar Khan repays the debt. Thus,

10
(1925) 27 BOMLR 455

11
MANU/MH/0614/2010

MEMORIAL for PETITIONER ARGUMENTS ADVANCED

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the plaintiff, would be entitled to accrued interest on the pledged shares. Also, the appellant
is genuinely seeking the release of income which he earned from his service. There can be
no dispute, as there is no justification on the part of the defendant in retaining the amount
of interest earned on the pledged amount especially, on the touchstone of the doctrine of
accretion, which is squarely applicable to the facts of the case at hand.
3. WHETHER THE PLEDGED SHARES BY THE VIRTUE OF BEING INTANGIBLE AND NOT BEING
GOODS PER SE COME UNDER THE AMBIT OF DEMATERIALIZED SECURITIES FOR THE

PURPOSES OF SECURITIES AND EXCHANGE BOARD OF INDIA REGULATIONS, 1996 AND

THE DEPOSITORIES ACT, 1996 AND THEREFORE EXEMPT MR. FAIZAL FROM PROVIDING
PRIOR NOTICE BEFORE INVOKING THE PLEDGE?

It is most humbly submitted before the learned bench that the provisions of Indian Contract
Act, 1872 are a general set of laws governing the contractual rights and obligations interest
of parties thereto and the provisions of the Securities And Exchange Board of India,
Regulations, 1996 and the Depositories Act, 1996 are specific provisions pertaining to the
matter at hand. Therefore, the provisions of the Securities And Exchange Board of India,
Regulations, 1996 and the Depositories Act, 1996 would supersede the provisions of Indian
Contract Act, 1872 in so far as any issue pertaining to shares is concerned. It is also
submitted that the Bombay High Court in the case of Gagan Sharma & Anr. v The State of
Maharashtra and Anr12. relied upon the principle of lex specialis derogate legi general
(special laws repeal general laws).
It is further submitted that in JRY Investments Private Limited v. Deccan Leafine Services
Ltd. and Ors.13, wherein the Bombay High Court held that pledge of dematerialized shares
is not and cannot be in accordance with the Contract Act, which requires delivery of the
goods pledged. The Court held that pledging of securities in dematerialized form is directly
governed by the provisions of Depositories Act, 1996 (“Act”) and Securities and Exchange
Board of India (Depositories and Participants) Regulations, 1996 (“Regulation, 1996”) as
existing then. Thus, the Act and the Regulation contains a whole and self-contained
procedure for the creation of such pledges. The Court emphasized on the exhaustive nature
of the Act by citing Section 10 of the said Act which begins with a non-obstante clause
thereby providing that ownership and transfer of shares must be in accordance with the Act.

12
MANU/MH/3012/2018
13
MANU/MH/1427/2003

MEMORIAL for PETITIONER ARGUMENTS ADVANCED

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Moreover, Section 12 of the Act specifically provides for pledge or hypothecation of the
security.
It is also contended that in the decision of the Division Bench of the Bombay High Court
in the matter of Pushpanjali Tie Up Pvt. Ltd v. Renudevi Choudhary14, the Court held that
if a pledge could be created in any manner, there was no reason for the legislature to have
provided for a particular manner alone for creating a pledge of shares in a dematerialized
form. Thus, for a pledge to be valid, it is mandatory that the pawnor creates it in the manner
prescribed by the Act and the Regulation. The Court further stated that the provisions of
the Act, in particular Section 12 and Regulation 58, are salutary as they introduce
transparency and certainty in the securities market. The Court believed the Contract Act
does not specify the manner in which a pledge is to be created. However, the Act prescribes
the manner of creating a pledge.
It is further submitted that,the Delhi High Court in the case of Tendril Financial Services
Pvt. Ltd. and Ors. v. Namedi Leasing & Finance Ltd. and Ors., concurred with the view of
the Bombay High Court in JRY Investments Pvt. Ltd and Pushpanjali Tie Up Pvt. Ltd and
held that the shares in dematerialized form cannot be pledged in accordance with Section
176 of the Contract Act. The Court observed that the provisions of the Contract Act require
delivery of the goods pledged i.e. a physical possession of the goods. However, the
dematerialized shares are not capable of delivery by handing over de facto possession.
Since, the goods in such cases are invisible and intangible, it would be impossible to fix
the time and place of delivery. Hence, the requirement for sending a reasonable notice to
the pledger under Section 176 of the Contract Act prior to the actual sale is not required in
case of sale of dematerialized securities because the provisions of the Contract Act will not
be applicable for enforcing a share pledge. The provisions of the Act and Regulation therein
shall apply.
In case of dematerialized shares, upon invocation the lien marked shares in the pledger’s
account are transferred to the account of the pledgee. Hence, invocation and transfer to the
pledgee’s account, in dematerialized shares are largely simultaneous. In Tendril Financial
Services Pvt. Ltd. and Ors. v. Namedi Leasing & Finance Ltd. and Ors15., the Delhi High
Court held that upon invocation, beneficial ownership of pledged shares changes from the
pledger to the pledgee and this is equivalent to sale. Further, the distinction sought to be

14
(2004) 12 SCC 118

15
AIR 1971 SC 1731

MEMORIAL for PETITIONER ARGUMENTS ADVANCED

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drawn between ‘invocation’ and ‘sale’ is not in consonance with Regulation 58. The
difference between invocation of pledged securities and sale of pledged securities in the
case of Tendril Financial Services arose pursuant to the agreement between the parties in
the said case, i.e. the Letters of Pledge wherein the distinction was present only for the
purposes of determining the amount which has to be offset from the debt on the day of sale
of the securities.
It is important to note that neither the Act and the Regulation 1996/ Regulation 2018 nor
the Contract Act talk about ‘invocation’ and ‘sale’ as two separate events. However, in
Tendril Financial Services, the Court referred to the letters of pledge executed in that case
which stated that invocation of pledge would not amount to the sale of shares to the lender.
The Court observed that the distinction between “invocation” and “sale” is not in
consonance with either Section 58(11) of the Regulation, 1996 or Section 176 of the
Contract Act.
Consequently, upon invocation or enforcement of the pledge, the pledgee becomes the
beneficial owner and holds the pledged securities. Section 47 (1)(a) of the Companies Act,
2013, inter alia states that every member of a company limited by shares and holding any
equity share capital therein shall have a right to vote on every resolution placed before the
company. Further, the expression ‘member’ has been defined in Section 2 (55) of the
Companies Act, 2013 which includes every person holding equity share capital of a
company and whose name is entered as beneficial owner in the records of the depository.
It is submitted that, invocation of dematerialized securities would amount to sale to the
pledgee unless there is a contract to the contrary, which would consider sale as a separate
event relevant for the purpose of adjustment of the amount due against the loan advanced
by the lender.
It is observed that both the Delhi High Court and the Bombay High Court are inclined to
abide by the provisions of the Act and the Regulations while dealing with the pledge of
dematerialized securities. The courts agree that the requirement of a reasonable notice
mentioned in Section 176 of the Contract Act would not be applicable on the sale of
dematerialized pledged securities unless the pledge document specifies otherwise.
Considering this line of reasoning, invocation is a step towards the sale of the pledged
securities resulting in the pledgee becoming the beneficial owner in whom all the rights
vest and who takes up all the rights of the members of a company. A separate agreement
requiring the pledgee to transfer the invoked securities back to the pledger upon repayment

MEMORIAL for PETITIONER ARGUMENTS ADVANCED

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of the loan would amount to fresh acquisition of shares as the pledge ceases to exist and
the securities do not continue to remain as a collateral security.

MEMORIAL for PETITIONER ARGUMENTS ADVANCED

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PRAYER FOR RELIEF

Wherefore in light of issues raised, arguments advanced and authorities cited may this Learned
Court be pleased to adjudge and declare:

-I-

That the present suit is maintainable.

-II-

That Mr. Faizal has the right over the dividend received on the shares pledged by Mr. Sardar
Khan.

-III-

That Mr. Faizal had no legal obligation to provide a prior notice to Mr. Sardar Khan before3
invoking the pledge.

-IV-

Direct Mr. Sardar Khan to pay a sum of Rs. 1 lac to Mr. Faizal.

And/or pass any other order that it deems fit in the interest of Justice, Equity and Good
Conscience. For this act of kindness, the Petitioner as in duty bound shall forever humbly pray.

Sd.
Counsel for the Plaintiff

Date and Place:

MEMORIAL for PETITIONER PRAYER FOR RELIEF