SUPREME COURT ON PLEDGE OF DEMATERIALIZED SHARES

BACKGROUND
Recently, on 12th May 2022, the Supreme Court of India, gave a detailed judgement on issues relating to the pledge of dematerialized shares and its invocation. Apart from minutely going into the process of the pledge of shares in such form, and making certain rulings on it, it also highlighted that dematerialized shares (“demat shares”) have raised several other issues which SEBI and other regulators will need to clarify or regulate. These include issues of accounting, taxation, Takeover Regulations, etc. Importantly, the Court has taken a harmonious view of the Indian Contract Act, 1872, and the Depositories Act/ Regulations and, for this purpose, overrules certain decisions of the High Court. This decision is in the case of PTC India Financial Services Limited vs. Venkateswarlu Kari & Another ((2022) 138 taxmann.com 248 (SC)).

PECULIARITIES OF PLEDGE OF DEMAT SHARES AND ISSUES THE NEW FORMAT AND PROCESS RAISE
Barring very few exceptions, shares (and even other securities) of listed companies (and even some unlisted companies) are held in dematerialized form. A pledge of such shares is quite common and carried out by many shareholders. In the simplest form of a pledge, a shareholder may want to borrow monies against such shares and would thus pledge them to the lender. Promoters typically pledge their shares for borrowings by the listed company they have promoted or even for their own borrowings. When