Lenders Rights on Pledged Shares after closure dates
Judgment dated 26.8.2025 of the High Court of Bombay in Commercial Appeal from Order NO.19 of 2025 of Ashok Investors Trust Limited Vs. Crosslink Food & Farms Pvt Ltd and others with connected matters.
Right of Lender to Invoke Pledged Shares
Enforcement Rights of Lender over pledged shares – Judgment of Bombay HC
Judicial Clarity on Lenders Rights on Pledged Shares after expiry of closure dates
This is a unique transaction where the Plaintiffs, strangers to the loan agreements between the Bank and the Borrowers, had pledged their shares for the credit facilities given to the borrowers.
The plaintiffs filed commercial suit against the Defendant No.1 Bank and the borrowers for permanent injunction against the Bank from selling the alleged pledged shares and also for return of shares.
During the pendency of the suit, the Bank sold 31 lakhs shares of plaintiff. Further sale of 16 shares was effected.
By the Order dated 17.4.2025, the City Civil Court granted interim relief and restrained the Bank from selling the pledged shares, to render accounts of dividend / bonus shares and also to file statement of disclosure of sold shares.
The High Court affirmed that a lender such as bank or financial institution has the legal right to invoke and sell pledged shares in case of default provided the pledge agreement is valid and enforceable. However, such invocation and sale of pledged shares must comply with SEBI’s guidelines.
The borrower remains the owner of the pledged shares until the pledge is invoked.
Clause 12 of the NSDL Handbook
Closure date and Duration of Pledged Shares – There is clear dispute amongst the parties on (i) permissibility to restrict pledge to a specified date occurring before discharge of debt for which the pledge is executed and (ii) the exact significance of closure date specified in the pledge form.
