COVID-19: Bombay HC stays sale of MEP Infrastructure Developers Ltd pledged shares by ICICI Home Finance Company Ltd

The Bombay High Court has restrained ICICI Home Finance Company Ltd (Defendant) from selling the pledged shares of MEP Infrastructure Developers Limited (MEPIDL) in connection with term loans extended to its subsidiary - Ideal Toll & Infrastructure Private Limited (Plaintiff), subject to the compliance of a payment schedule ordered by it. (Ideal Toll & Infrastructure Private Limited vs ICICI Home Finance Company Ltd).The orders was passed by a Single Judge Bench of Justice AK Menon. .In connection with a term loan of Rs 5 crore, the Plaintiff was liable to pay a sum of approximately Rs.4.72 crores as of January 20, 2020. Since the payment was not paid, the Defendant notified that they would be invoking the security and liquidating the suit shares..Separately, for another term loan advanced by the Defendant, a sum of Rs 3.01 crores was outstanding as on March 25, 2020..In two separate suits filed in connection with these loans, it was argued by the Plaintiff and MEPIDL Director that the invocation of pledged shares of MEPIDL was invalid..It was undisputed that in relation to the January default, a total of 1,52,413 shares were sold in two tranches in March 2020 by the Defendant. .The Plaintiff argued that the Defendant ignored the fact that BSE Sensex had fallen by 9878.71 points from March 1, 2020 and as a result, the price of the shares had also dropped. .At all material times, the shares were valued @ between Rs 40- to Rs 37.50 per share but on March 2, 2020, the shares were trading @ Rs 35 per share, the Court was informed. It was added that April 1, 2020, the shares value crashed to Rs 11.55 per share. .The sharp decline, the Plaintiff argued, was caused by the effect of the lockdown announced throughout the country, as a result of which road traffic came to a standstill and the only source of income of the Plainitff and MEPDIL also was badly affected..In support of its case, the Plaintiff drew attention to the Reserve Bank of India (RBI) Press Release dated March 27, 2020, declaring ‘Statement on Developmental and Regulatory Policies’ to mitigate the financial crisis caused by Covid-19..The Policy, inter alia, contemplated a moratorium on term loans and provided the repayment schedule of subsequent due dates be shifted by three months, it was said. .The Plaintiff added that the RBI also announced a “Covid-19-Regulatory Package’, in view of which, sale of shares could not be permitted..The Defendant argued that the RBI Policies only protected defaults made after March 1, 2020. .After persuing the RBI policies, the Court opined that the grant of moratorium of three months would only apply to the payment of all installments falling due between March 1, 2020 and not those instalments which were due prior thereto..It was thus held that the amount which was admittedly due as of January 2020 would not be covered by the moratorium..The Court nonetheless added in order to meet the ends of justice, the rights of the Plainiff, as well as the Defendant, were entitled to be protected. .The Court, therefore, stayed any further selling of pledged shares of MEPIDL, along with a direction to facilitate payment of the amount which was due in January 2020, in three instalments. .Till a default is committed, this term loan account shall not be declared a Non-Performing Asset, the Court ordered. .As far as the second term loan was concerned, the Court extended the protection offered by RBI as the moratorium covered amounts pertaining to March, 2020. .With respect to this term loan, the Court ordered that the Defendant shall not sell further pledged shares of MEPIDL during the three-month moratorium contemplated by the RBI, subject to payment of amount due after March 1 as per the rescheduled timeline. .The Court also clarified that in the event of any default in payment of any of the amounts which became due in January, the Defendant shall be at liberty to sell the pledged shares in the second term loan to the extent required to recover the balance due as on the date of default. .Plaintiff was represented by Senior Advocate Vikram Nankani with Advocates Sumeet Nankani, and Ameet Naik and Madhu Gadodia of Naik & Naik Co.Defendant was represented by Ranjit Shetty, Senior Partner, Argus Partners with Advocates Rahul Dev, Avina Karnad..Read the Orders: