BACKGROUND
M/s X Pvt Ltd , is into share trading. X also borrows, working capital, to purchase shares.
M/s Y, a limited company is an NBFC and into financing of loan against shares and also loan to purchase shares.
ADMITTED FACTS:
There was one loan agreement between X and Y, for a specific amount, valid for a period of one year, which got expired and never renewed .Such loan agreement had a requirement of execution of a PoA in favour of Y. Being the nature of loan was of working capital, loan amount used to vary on daily basis. There was no straight forward loan against say A shares for a finance of B amount.
M/s X has given sole and exclusive PoA to M/s Y to operate the demat account, to sell and purchase shares and bank account to make payment and receive payment and to do all acts have all rights, possible envisaged and available.
M/s Y invoked arbitration proceedings against M/s X, for recovering the loan, M/s X has completed the cross examination of Y and cross of X is yet to start.
During the course of cross examination it is revealed that :-
DISPUTE:
M/s Y, as a PoA of X, within the rights accrued under one of the clauses of PoA , used to transfer all shares to itself, as conclusive and beneficial owners and enjoy all rights therefore M/s X didn’t enjoy any rights on those shares. It is very pertinent to note that there was no specific need or mention or requirement be it under PoA or Loan Agreement..However it was more a matter of practice by lender to overly secure themselves.
M/s X could get the shares back to its demat account, (which was anyway under PoA,) only against payment equivalent to the then prevailing market price, however this was an informal understanding and matter of practice, therefore untill Y received money equivalent to prevailing market price, ownership of shares remained and belong to Y, as a matter of practice.
The books of accounts of X reflected an "A" amount payable to Y and shown all shares as its own, under its name, which now appears to actually incorrect.
No pledge or mortgaged or change was neither marked by M/s Y nor M/s X, against those shares nor their is any pledge agreement between M/s X and M/s Y, pertaining to pledge of any shares. Nor there is any document to show that shares would be parked in the name of Y
QUERY:
A) Does this transfer of title and ownership would be considered as sell by M/s X to M/s Y, as M/s X always considered those shares as pledged but lying in their own account and M/s Y hold the PoA. Of such account.
B) Does the transfer of title of ownership back to X by Y, against receipt of money be considered as purchase by X or sell by Y to X.
C) Since this fact has to come light now, during arbitration proceedings. Can M/s X change the pleadings, at this stage of arbitration.
D) A is a consented and admitted transaction, which doesn’t have sanctity of law or declared otherwise in a judgement, can still be enforceable.
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