ISSUES:

1. Procedure for invoking a pledge

a) For shares
 Physical
 DEMAT

2. “TRANSFER”
a) Under IBC
b) Under TP Act
c) Sale of Goods Act
d) Cases on meaning and ingredients of Transfer. English cases related to transfer
and what amount to it.

3. Whether invocation of pledge can be a considered a “transfer” under sec.43 of the

IBC?

Essentials of a pledge (General - Commentary )

Shatzadi Begum Saheba v. Giridharlal Sanghi AIR 1976 SC 1322

1. Bailment of the goods pledged
2. Bailment by way of security
3. Security for payment of a debt.

State Bank of India v N.Sathiah, AIR 1989 Mad 279

A pawnee has 3 rights in case of default by pawnor –
1. He may bring a suit upon the debt
2. He may retain the pawn as a collateral security
3. He may sell it giving the pawnor reasonable notice

1. PROCEDURE FOR CREATION AND INVOCATION OF SHARES

 Procedure for creation of pledge of Securities in case of shares in physical

form ( Stci Finance Ltd vs Cedar Infonet Pvt Ltd & Ors )
Regulation 58 of the Securities and Exchange Board of India (Depositories and Participants)
Regulations, 1996 is as under:
Manner of creating pledge or hypothecation.
58(1) If a beneficial owner intends to create a pledge on a security owned by him, he shall
make an application to the depository through the participant who has his account in respect
of such securities.
(2) The participant after satisfaction that the securities are available for pledge shall make a
note in its records of the notice of pledge and forward the application to the depository.
(3) The depository after confirmation from the pledgee that the securities are available for
pledge with the pledgor shall within fifteen days of the receipt of the application create and
record the pledge and send an intimation of the same to the participants of the pledgor and the
pledgees.
(4) On receipt of the intimation under sub-regulation (3) the participants of both the pledgor
and the pledgee shall inform the pledgor and the pledgee respectively of the entry of creation
of the pledge.
(5) If the depository does not create the pledge, it shall send along with the reasons an
intimation to the participants of the pledgor and the pledgee.
(6) The entry of pledge made under sub-regulation (3) may be cancelled by the depository if
the pledgor or the pledgee makes an application to the depository through its participant:
Provided that no entry of pledge shall be cancelled by the depository with the prior
concurrence of the pledgee.
(7) The depository on the cancellation of the entry of pledge shall inform the participant of
the pledgor.

 Procedure for invocation of pledge of securities in case of shares in

physical form
(8) Subject to the provisions of the plegde document, the pledgee may invoke the pledge and
on such invocation, the depository shall register the pledgee as beneficial owner of such
securities and amend its records accordingly.
(9) After amending its records under sub-regulation (8) the depository shall immediately
inform the participants of the pledgor and pledgee of the change who in turn shall make the
necessary changes in their records and inform the pledgor and pledgee respectively.
(10)(a) If a beneficial owner intends to create a hypothecation on a security owned by him he
may do so in accordance with the provisions of sub-regulations (1) to (9).
(11) No transfer of security in respect of which a notice or entry of pledge or hypothecation
is in force shall be effected by a participant without the concurrence of the pledgee or the
hypothecate, as the case may be.";

 Procedure for creation of pledge of Securities in case of shares in DEMAT

form

o The pledger will submit an instruction to its DP to initiate a pledge/hypothecation

request in the DPM (software provided by NSDL to the DP) indicating the option 'create
a pledge/hypothecation' in the pledge/hypothecation form. The pledger will indicate
therein, the agreement number, closure date of the pledge/hypothecation (this date is
indicative of the duration of pledge/hypothecation), pledgee's details, and the details of
securities to be pledged.
 o The DP will check for the completeness of the form. The DP has to ensure that symbols
like '-', '{' , '}', '[', ']', and ':' should not be the first character of the agreement number and
that the securities requested to be pledged exist in the pledger’s account. If not so, the
DP will return the same to the pledger for rectification.
o If the form is complete in all respects, the DP will accept the form for processing and
issue an acknowledgment for the same to the pledger.
o The DP will enter the details of the request in the DPM, generate a
pledge/hypothecation instruction number for the request and release the request to
NSDL.
o The securities pledged are moved from 'Free balances' to 'Pledged balances' account.
Thus the securities pledged will not be available to pledger for any other purpose.
o The DP shall write the pledge/hypothecation instruction number on the
pledge/hypothecation form and intimate the same to the pledger.
o The details of the pledge/hypothecation are electronically communicated to the DPM of
pledgee's DP through the DM for confirmation.

 Procedure for invocation of pledge of securities in case of shares in

DEMAT form
In case of default by the pledger in repaying the loan to the pledgee, after taking such
steps as may be necessary as per the terms of the underlying agreement with the pledger and
the Bye Laws & Business Rules of NSDL and SEBI Regulations, the pledgee will submit an
instruction to its DP to initiate a pledge/hypothecation invocation by indicating the option
'invoke the pledge/hypothecation' in the pledge/hypothecation form.
If the form is complete in all respects, the DP will accept the form for processing and issue
an acknowledgment for the same to the pledgee.
The DP will compare the details on the form with that of the details as shown by the DPM
against the pledge/hypothecation instruction number.
The DP will enter the invocation request details in the DPM against the
pledge/hypothecation instruction number as per the instructions given in the form and
verify/release the instruction to NSDL.
The details of the hypothecation invocation request are electronically communicated to the
DPM of pledger’s DP through the DM for confirmation.
In the case of invocation of a pledge, the securities are transferred from the pledged
balances of the pledger to the pledgee's beneficial owner account. The intimation of the same
travels to the pledger’s DP through DM and the status of the pledge is changed to "closed,
invoked".
Locked-in securities cannot be invoked before the lock-in release date.

Trfi Investment Pvt Ltd vs Pisces Portfolios Pvt. Ltd C.S. No.31 of 2009

Therefore, this statement makes it clear that creation of the pledge is complete on delivery of
original warrant certificate as well as deed of pledge, blank transfer deed. Mere signing
of deed unilaterally by the plaintiff at its office does not constitute any part of cause of action.
The moment document is signed by the pledgee not by the pledgor alone execution of deed of
assignment is complete. Moreover, for creation of pledge delivery of the movable goods viz.
here warrant certificate together with delivery of blank transfer deed are sufficient. (see AIR
1953 Cal 526 Kanhaiyalal Jhanwar.
 2. DEFINITION OF TRANSFER :

 TRANSFER UNDER IT ACT

As per S. 2(47) of Income Tax Act, 1961, unless the context otherwise requires, the
term “transfer”, in relation to a capital asset, includes-

(i) the sale, exchange or relinquishment of the asset; or

(ii) the extinguishment of any rights therein; or

(iii) the compulsory acquisition thereof under any law; or

(iv) in a case where the asset is converted by the owner thereof into, or is treated by him as,
stock-in-trade of a business carried on by him, such conversion or treatment; or

(iva) the maturity or redemption of a zero coupon bond; or

(v) any transaction involving the allowing of the possession of any immovable property to be
taken or retained in part performance of a contract of the nature referred to in section 53A of
the Transfer of Property Act, 1882; or

(vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-
operative society, company or other association of persons or by way of any agreement or any
arrangement or in any other manner whatsoever) which has the effect of transferring, or
enabling the enjoyment of, any immovable property.

 TRANSFER UNDER IBC

“transaction” includes a agreement or arrangement in writing for the transfer of assets, or
funds, goods or services, from or to the corporate debtor;
“transfer” includes sale, purchase, exchange, mortgage, pledge, gift, loan or any other form
of transfer of right, title, possession or lien;
“transfer of property” means transfer of any property and includes a transfer of any interest
in the property and creation of any charge upon such property;

 TRANSFER UNDER TRANSFER OF PROPERTY ACT

In the following sections “transfer of property” means an act by which a living person
conveys property, in present or in future, to one or more other living persons, or to himself,
2[or to himself] and one or more other living persons; and “to transfer property” is to perform
such act.
2 [In this section “living person” includes a company or association or body of
individuals, whether incorporated or not, but nothing herein contained shall affect any law for
the time being in force relating to transfer of property to or by companies, associations or
bodies of individuals.]
CASES
United Bank Of India & Anr vs State Of West Bengal & Ors
https://indiankanoon.org/doc/170098957/

He refers to the meaning of transfer in Black's Law Dictionary. He submits

that, transfer can both be a noun and a verb.

The meaning of the term in Black's Law Dictionary is " to transfer or deliver to another; to
pass or transmit title to property from one to another; to transfer property or the title to
property by deed, bill of sale or instrument under seal. Used popularly in sense of "assign",
"sale" or "transfer".

Patel Engineering Ltd. vs Deputy Commissioner Of Income Tax (2004) 84 TTJ Mum
646 https://indiankanoon.org/doc/872023/

"1. An act of the parties, or of the law, by which the title to property is conveyed from one
person to another (Section 44, Transfer of Property Act);

2. To convey title or interest in property to another Section 19(2)(g) Indian Partnership Act] ;

3. To transfer from one place to another.

As per Blacks Law Dictionary "transfer" is defined :

Transfer : To convey; to make over from one to another, to remove. Document whereby one
person transfers property, securities, or rights to another. ”

Tendril Financial Services Pvt. ... vs Namedi Leasing & Finance Ltd. & Ors

https://indiankanoon.org/doc/15119893/

The pledgee may invoke the pledge at any time in the event of default or otherwise for as
many number of shares as the Pledgee/lender deems fit in its sole discretion. However, such
invocation of pledge will not amount to sale of shares to the lender and the borrower will
not be entitled to any credit / adjustment on such invocation / transfer of shares to the lender's
account on that date.