Supreme Court Provides Clarity On Creation, Enforcement Of Pledged Securities: Khaitan & Co.
The Legal Library section collates quality and in-depth reports on regulatory developments, court rulings and policy changes authored by India’s top law firms and consultants. These reports offer BQ Prime’s subscribers an opportunity to expand their understanding of law and policy.
Khaitan & Co. Update
The Supreme Court held that the Indian Contract Act, 1872, which is a substantive and general law relating to contracts, and the Depositories Act,1996 which is primarily a law relating to securities, are to be read together and interpreted harmoniously.
The court held that section 12 of the DP Act - pertaining to creation of pledge over dematerialised shares - is not ex facie inconsistent with the obligations of a pawnor and a pawnee under the Contract Act.
The provisions of contract law governing pledge shall continue to be applicable even in the case of pledge over dematerialised shares and are not overridden or diluted by the DP Act.
In view of the above, the SC examined the issues before it by placing reliance on ICA and DP Framework.
With pledge over dematerialised shares being extremely common as a collateral in debt transactions, the SC’s clarification is of significance in case of enforcement of pledged shares in demat form and is likely to have a far-reaching impact on lending transactions in India.
Click on the attachment to read the full report:
This alert does not constitute legal advice and is for information purpose only. This report is authored by an external party. BQ Prime does not vouch for the accuracy of its contents nor is responsible for them in any way. The views expressed in the report are that of the author entity and do not represent the views of BQ Prime.
Users have no license to copy, modify, or distribute the content without permission of the Original Owner.