Upholding the single bench ruling, in a plea filed by the Essel Group, the division bench of the Delhi High Court has paved the way for Franklin Templeton mutual fund(MF) to sell shares of Zee Entertainment and Dish TV to recover Rs 616 crore.
The shares in question were pledged to Franklin Templeton as a security cover for the Rs 425 crore worth debentures of Essel Infraprojects that the fund house had subscribed to. The transaction happened in May 2015 while the debentures had come up for maturity on May 22, 2020. However, the fund house didn’t receive the said money from the Essel Group, prompting it to invoke the pledge on shares.
Essel Group had moved Delhi High Court seeking a stay in the matter citing the poor market conditions due to Covid-19. However, IDBI Trustees – who are the debenture trustees in the matter– argued that the trouble in the case started before Covid-19 and as the trustee, IDBI has powers to invoke the pledge if the contractual obligations aren’t met.
Subsequently, on July 3, the single bench had dismissed the plea filed by the Essel Group and observed that the plea lacks the merit.
Subsequently, the company had challenged the ruling in the division bench with the arguments that the learned judge had not considered the extraordinary situation prevailing due to the pandemic and had failed to factor in the consequent difficulties of liquidity that companies were facing.
“It is also pointed out that the learned Single Judge erred in not considering the fact as far as the appellant/Direct Media were concerned, they were also governed by the terms of the license which prohibited them from changing the equity shares holding without permission from the Government,” argued the counsels for the Essel Group companies.
IDBI trustee submitted to the court that any injection in the matter would be detrimental for the interests of unitholders of Franklin MF.
However, the division bench of Justice Rajiv Sahai Endlaw and Justice Asha Menon dismissed the plea and observed that the economic stress faced by the appellants (Essel Group) in order to discharge their legal liabilities founded on the contractual obligations agreed to by them and as incorporated in the DTD and the Share Pledge Agreements and the corporate guarantees, cannot be a ground to restrain the respondent No 1 (IDBI Trusteeship) from exercising their rights as a pawnee as per their discretion.
“The learned Single Judge rightly concluded that the court has no power to introduce a clause akin to a force majeure clause into the various contracts entered into by the parties,” said the court further adding that there is no merit in the present appeals which are accordingly dismissed.
According to a copy of petition accessed by ET, IDBI Trustee held 6.25 crore shares of Dish TV and 43 lakh shares of Zee Entertainment. In early 2019, a sharp fall in the share prices of Zee Group had prompted a dip in the security cover they pledged to various MFs. In this instant case, the security cover fell below the mandatory 1 time to 0.7 times. Essel Group provided additional shares as security cover in 2019.
“Now our clients are free to sale their shares and there is no embargo on it anymore with this order,” said Vikram Trivedi, managing partner of law firm Manilal Kher Ambalal & Co who appeared along with senior counsel Neeraj Kishan Kaul for the IDBI Trusteeship. Essel Group entities were represented by senior counsel Harish Salve.