Invocation Of The Pledge By Creditors - A Deep Dive Analysis

The Supreme Court has recently answered the conundrum surrounding the impact of invocation of pledge vis-à-vis the actual discharge of the debt in the matter of PTC India Financial Services Limited (PFS) v. Venkateswarlu Kari and Anr1. The said judgment of the Hon'ble Supreme Court affirmatively states that mere registration of the pawn i.e. the dematerialized shares in the said matter in favour of the creditor as a 'beneficial owner' does not have the effect of sale of shares by the pawnee. The pledge at that stage is not discharged and thus the debt remains due and payable in entirety.

Background of the Case

PFS, a non-banking finance company registered with the Reserve Bank of India, had advanced a loan of Rs. 125 crores to NSL Nagapatnam Power and Infratech Limited (NSL/Corporate Debtor). One of the conditions of the loan agreement executed interalia between the Corporate Debtor and PFS, was to secure the loan amount by way of pledge of shares vide pledge