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Grounds publishedDecided 4 Aug 2011
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High Court

State Bank of India Singapore v Rainforest Trading Ltd and another

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[2011] SGHC 182Case no. Originating Summons No 958 of 2010

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  1. Steven Chong J:

  2. Introduction

  3. [1] The case before me concerns an application by a bank to enforce a “pledge” of shares in a private company. Initially, the application sought an order for the enforcement of the “pledge” without further notice to the defendants and without reference to the Articles of Association of the company. Typically, the Articles of Association of private companies would provide for the exercise of pre-emption rights in respect of the sale of shares to other members of the company. How would such a pre-emption right operate when the private company is a wholly owned subsidiary? When questions as regards the difficulties posed by the plaintiff’s application were raised by the court, the original application was abandoned and in its place various declaratory reliefs were sought.

  4. [2] In their attempt to resist the application, various allegations of fraud were raised by the defendants against the bank. Fraud is “easy” to allege and not infrequently is raised in affidavits without any basis to support the allegation. This judgment will also address counsel’s duty to act responsibly when raising allegations of fraud. Counsel and the clients they represent should be reminded that legal proceedings cannot be used as a “licence” or a “shield” to cast serious allegations of fraud without any credible basis.

  5. Background facts

  6. Dramatis personae

  7. [3] The plaintiff, State Bank of India, Singapore (“SBI SG”), is a banking institution which is governed and regulated in Singapore by the Monetary Authority of Singapore.

  8. [4] The first defendant, Rainforest Trading Limited (“Rainforest”), is a company incorporated in the British Virgin Islands.

  9. [5] The second defendant, eSys Technologies Pte Ltd (“eSys”) (now known as Haruki Solutions Pte Ltd), is a private company incorporated in Singapore. eSys is a wholly owned subsidiary of Rainforest and is engaged in the business of distributing computers, components, related products as well as the provision of technical, advisory and consultancy support, research and development and services for users of high technology products.

  10. [6] Teledata Informatics Limited (“Teledata”) (now known as Agnite Education Limited) is a publicly listed company incorporated in India which engages in the business of development of marine software, logistics software and utility software products as well as the provision of services for users of high technology products.

  11. [7] Baytech Inc (“Baytech”) is a company incorporated in the British Virgin Islands and is a wholly owned subsidiary of Teledata. While Teledata and/or Baytech are not parties to these proceedings, they play material roles in the factual matrix preceding the present application.

  12. Key personnel

  13. [8] The following individuals feature prominently in the dispute at hand:

  14. Underlying transaction: Share Subscription Agreement

  15. [9] On 10 November 2006, Mr Ram and Mr Padma of Teledata and/or Baytech, met with Ms Chay and Mr Goel of eSys, wherein it was proposed that Teledata was interested in investing in eSys. A Share Subscription Agreement (“SSA”) dated 29 November 2006 was thereafter entered into between Mr Goel, eSys and Teledata.

  16. [10] The acquisition of majority control of eSys by Teledata was implemented via the acquisition of shares in Rainforest, a special purpose vehicle set up by eSys. Consequently, on 29 December 2006, eSys passed directors’ resolutions to approve the transfer of its entire issued and paid up share capital to Rainforest. eSys’s share capital consisted of 20 million fully paid up ordinary shares. In the result, eSys became a wholly owned subsidiary of Rainforest.

  17. Terms of SSA and Supplemental Agreements

  18. [11] The salient terms of the SSA are as follows:

  19. (a) Rainforest, a special purpose vehicle, was to be incorporated in the British Virgin Islands for the purpose of the SSA. Mr Goel would conduct a share swap by transferring all of his shares in eSys to Rainforest in return for 49% of the shareholding of Rainforest.

  20. (b) Teledata would invest approximately US$65 million in equity in Rainforest and would extend a further loan of US$40 million to Rainforest.

  21. (c) Rainforest was to utilise the monies and extend loans of up to US$60 million to eSys.

  22. (d) Teledata would hold 51% of the shares in Rainforest upon payment of the requisite sums.

  23. [12] The defendants stated that the SSA dated 29 November 2006 was subsequently revised by supplemental agreements on 29 November 2006 (twice), 9 February 2007 (once) and 14 February 2007 (once). Under the amended SSA, the defendants stated that it was agreed by Mr Goel and eSys that Baytech was to be appointed as Teledata’s nominee for the purposes of subscribing to shares in Rainforest pursuant to the SSA. SBI SG denied knowledge of any amendments having been made to the SSA dated 29 November 2006. However, in an email chain between Mr Ram and Mr Uthayacharan, the advocate and solicitor representing SBI SG , Mr Uthayacharan specifically raised queries to Mr Ram in relation to the supplemental agreement to the SSA dated 9 February 2007. From the email chain, it would appear that contrary to SBI SG’s assertion, SBI SG was aware of the supplemental agreements to the SSA. However, for reasons as explained in [53] below, nothing turns on this.

  24. [13] In or around December 2006, payments due and owing under the SSA from Teledata to eSys had not been made. Mr Padma and Mr Ram informed Ms Chay and Mr Goel that Teledata had applied for a loan to finance the acquisition of the shares in Rainforest and that the payments due and owing under the SSA would be made soon thereafter. It was at this point that SBI SG entered into the picture, in the provision of a sizeable loan facility to Baytech.

  25. The Facility Agreement

  26. [14] Sometime in or around December 2006, Teledata decided to obtain financing from SBI SG and negotiations were underway between the parties as evidenced by the “indicative quote” dated 31 January 2007 from SBI SG to Teledata. However, as Baytech was the special purpose vehicle of Teledata for the purposes of this loan facility, SBI SG’s letter of offer dated 31 January 2007 was addressed to Baytech instead. Upon conclusion of the negotiations, SBI SG entered into a Facility Agreement dated 22 February 2007 (“the Facility Agreement”) with Baytech. Pursuant to the terms of the Facility Agreement, SBI SG agreed, inter alia, to make available a US Dollar term loan facility in aggregate sum of US$80 million to Baytech. The “Final Maturity Date” was defined as 36 months from the date of drawdown and the entire loan facility was drawn down by Baytech in one tranche on 23 February 2007.

  27. [15] Pursuant to cl 3.1, the stated purpose of the Facility Agreement was clearly to finance the acquisition of 51% of the shares in Rainforest though the SSA was not specifically referred to in the Facility Agreement:

  28. [16] A number of securities were provided to SBI SG pursuant to cl 4 of the Facility Agreement to secure Baytech’s liability in the event of default:

  29. (a) Corporate Guarantee by Teledata.

  30. (b) Personal Guarantee of Mr Padma.

  31. (c) An extension of all charges on all collateral securities in respect of Teledata held by the State Bank of India, Overseas Branch, Chennai.

  32. (d) First charge on all the fixed assets of Teledata.

  33. (e) First charge on all the fixed assets of Teledata Marine Solutions Limited and Teledata Technology Solutions Limited upon demerger.

  34. (f) Pledge of 51% of the paid up share capital of eSys to be acquired out of the facility, which pledge shall be completed and duly registered as a charge in favour of SBI SG within 30 days of the execution of the Facility Agreement.

  35. (g) Pledge of 51% of the paid up share capital of Rainforest, which pledge shall be completed and duly registered as a charge in favour of SBI SG within 30 days of the execution of the Facility Agreement.

  36. [17] In accordance with cl 4, as security for the Facility Agreement, both Teledata and Mr Padma signed corporate and personal guarantees respectively dated 1 October 2008 in favour of SBI SG. More importantly, for the purposes of this dispute, pursuant to cl 4(iv), 10,200,000 shares in eSys (representing 51% of eSys’s share capital) (“the Pledged Shares”) were “pledged” by Rainforest to SBI SG.

  37. The Pledged Shares

  38. [18] By letter dated 5 April 2007 addressed to SBI SG, Rainforest delivered Share Certificates Nos 10, 11, 12, 13 and 14 of eSys, (“the Share Certificates”) together with a signed blank share transfer form to SBI SG. The letter signed by Mr Goel as “Sole Director of Rainforest” read as follows:

  39. [19] In a separate letter dated 5 April 2007 from eSys to SBI SG also signed by Mr Goel, eSys expressly acknowledged the delivery of the Share Certificates and stated that such delivery was “part of the security for the [Facility Agreement]”. The letter signed by Mr Goel as “Managing Director” of eSys read:

  40. [20] In addition, a further accompanying cover letter dated 5 April 2007 attached to the blank share transfer form duly signed by Mr Goel as the “Sole Director” of Rainforest, read:

  41. [21] In the letters dated 5 April 2007 from both Rainforest and eSys, Mr Goel expressly stated that SBI SG’s interest in the Pledged Shares was recorded in the companies’ books/register of members and that the shares were being offered as security for the loan provided by SBI SG to Baytech under the Facility Agreement. Furthermore, on or around 10 December 2007, Rainforest had pursuant to the Facility Agreement, registered a charge over the Pledged Shares in favour of SBI SG in the British Virgin Islands as “security for a US Dollar term loan” for the sum of US$80 million.

  42. Event of default

  43. [22] Clause 21 of the Facility Agreement states that an event of default will be deemed to have occurred if:

  44. “Core Group” is defined under the Facility Agreement to mean “the Borrower, Obligors and the Guarantor/s”.

  45. [23] Clause 7.1 of the Facility Agreement, the governing clause pertaining to repayment of the loan, states:

  46. It is common ground that in breach of cl 7.1, Baytech failed to make payment of the US$13 million due and owing to SBI SG on 20 February 2009. By letter dated 25 March 2010 to Baytech, SBI SG declared that an event of default had occurred under the Facility Agreement and that all outstanding sums, together with accrued interest, and all other amounts accrued under the Facility Agreement became immediately due and payable. SBI SG stated that a sum of US$41,989,189.91 plus interest accrued from the date of default until the date of full payment was due and owing under the Facility Agreement to be paid within seven days of receipt of the letter, ie, on 2 April 2010.

  47. [24] Having received no response from Baytech, by way of letters dated 16 April 2010, SBI SG called upon Teledata and Mr Padma to pay under the corporate and personal guarantees respectively. Teledata and Mr Padma failed to make the payment within the stipulated deadline. In light of the failure of the guarantors to honour their respective guarantees, SBI SG then sought to enforce its security over the Pledged Shares towards repayment of the outstanding debt owed by Baytech. This was the background against which the principal issue relating to the enforcement of the Pledged Shares came before this court for determination.

  48. [25] The parties central to the present dispute have also commenced other proceedings against each other in India, New York and Singapore. In or around November 2009, Teledata commenced court proceedings against Mr Goel and eSys in India. Mr Goel and eSys have also commenced committal proceedings against Teledata in India on the basis that Teledata had relied on a forged document in the Indian proceedings.

  49. [26] On 18 November 2010, Mr Goel and Rainforest brought an action in New York against Mr Ramachandran, Bunge Ltd and Bunge SA in relation to the illegal transfer of US$7.5 million out of Rainforest’s bank account.

  50. [27] On 12 November 2010, Mr Goel and Rainforest commenced arbitration proceedings in Singapore against, inter alia, Teledata, in relation to, inter alia, the use of a purportedly forged SSA (“the forged copy”) by Teledata. In the arbitration proceedings, the defendants are seeking an order for Teledata/Baytech to procure the delivery up of the Pledged Shares.

  51. [28] It is, however, material to highlight that SBI SG is not a party to any of the other proceedings and, more significantly, none of the papers filed in support of the legal proceedings contain any allegations against SBI SG. However, on 18 May 2011 (one day prior to the hearing of OS 958/2010) Rainforest commenced a separate action, Suit No 362/2011 (“S 362/2011”) against SBI SG and others, seeking, inter alia, an order to set aside the Pledged Shares, essentially in reliance on the various allegations raised against SBI SG in the present action, OS 958/2010.

  52. Procedural history of the OS

  53. [29] At the Pre-Trial conference held on 12 October 2010 in relation to OS 958/2010, in response to the defendants’ notice that they would be raising allegations of fraud, the Senior Assistant Registrar, Mr Yeong Zee Kin directed the defendants to file an application to convert OS 958/2010 to a writ action. Accordingly, the defendants filed Summons No 5300 of 2010/B (“the Summons”) and it came before an Assistant Registrar (“the AR”) on 11 January 2011 whereupon he ordered OS 958/2010 to be converted to a writ action.

  54. [30] SBI SG appealed against the AR’s decision and on 4 March 2011, Kan Ting Chiu J allowed the appeal and restored the action as OS 958/2010. In Kan J’s view, the allegations of fraud raised in the affidavits by the defendants did not constitute sufficient evidence to warrant the conversion of OS 958/2010 to a writ action. In any event, Kan J opined that the allegations of fraud could be re-considered by the court at the substantive hearing in OS 958/2010. There was no appeal from Kan J’s decision. For reasons which I will elaborate below at [48]–[77], it is clear to me that the allegations of fraud raised by the defendants are devoid of any merit and consequently have no bearing on the substantive issues before me.

  55. The original OS

  56. [31] SBI SG presented a straightforward case in OS 958/2010. As an event of default had occurred under the Facility Agreement, SBI SG sought to perfect its security in the Pledged Shares. SBI SG submitted that the deposit of the share certificates accompanied by a signed blank share transfer form gave rise to an equitable mortgage with an implied power of sale upon default. The crux of the defendants’ case was that the Pledged Shares were procured and/or obtained through an elaborate fraud perpetrated by Teledata, Baytech and SBI SG. As a result of the purported fraud and forgery, the defendants argued that Rainforest was induced into granting the Pledged Shares as security for the Facility Agreement and consequently, by reason of SBI SG’s involvement in the fraud, SBI SG is not entitled to benefit from or enforce the Pledged Shares. Further, the defendants reinstated their original position that OS 958/2010 should be converted to a writ action.

  57. [32] As Baytech and Teledata are not parties to these proceedings and the enforcement of SBI SG’s security in the Pledged Shares is the primary issue before the court, the defendants’ case rested on establishing that SBI SG was complicit in the purported fraud. It cannot be gainsaid that the fraud, if any, perpetrated by other parties to this dispute, in the absence of complicity on the part of SBI SG, would not affect the validity or enforceability of the Pledged Shares.

  58. Amendment of the OS

  59. [33] At the commencement of the hearing before me, the reliefs originally sought by SBI SG in OS 958/2010 were as follows:

  60. (a) Declarations that pursuant to the terms of a Facility Agreement dated 22 February 2007 entered into between SBI SG and Baytech:

  61. (b) SBI SG be at liberty to sell the Pledged Shares without further notice to the defendants.

  62. (c) SBI SG be empowered to transfer the Pledged Shares to any party without further notice to the defendants and/or any member notwithstanding any provision in eSys’s Articles of Association (“eSys Articles”), and to receive any dividends due or to accrue thereon.

  63. (d) Directors of eSys be directed to register any transfer of the Pledged Shares.

  64. (e) eSys to give access to SBI SG and/or authorised representatives to all books and records as may be reasonably required to carry out a valuation of the Pledged Shares.

  65. (f) Costs to be fixed and paid to SBI SG.

  66. [34] Counsel for the defendants, Mr Samuel Chacko (“Mr Chacko”) initially challenged OS 958/2010 only on the basis of various allegations of fraud/forgery and complicity against SBI SG. In the course of the hearing, I expressed my doubts as to whether the court is empowered to order the sale of the Pledged Shares without reference to the eSys Articles. I invited both Mr Chacko and counsel for SBI SG, Mr Pradeep Pillai (“Mr Pillai”) to research the point and on resumption of the hearing, both counsel accepted that any sale of the Pledged Shares, even if ordered by the court, must comply with the eSys Articles. Under these circumstances, Mr Pillai, having considered the inherent difficulties with the original reliefs, sought leave to amend OS 958/2010 (“Amended OS”) as follows:

  67. (a) SBI SG be at liberty to sell the Pledged Shares subject to the provisions in eSys’s Articles of Association.

  68. [35] SBI SG also re-stated the other declaratory reliefs sought earlier pursuant to the Facility Agreement:

  69. (a) An event of default has occurred pursuant to inter alia cl 21.

  70. (b) SBI SG is entitled to enforce its security over the Pledged Shares in connection with the Facility Agreement.

  71. (c) Rainforest forthwith give access to SBI SG and the authorised representatives all books and records of eSys as may be reasonably required to carry out a valuation of the Pledged Shares.

  72. (d) Costs to be fixed and paid to SBI SG.

  73. Mr Chacko did not raise any objection to the amendments made to OS 958/2010.

  74. The issues

  75. [36] Arising from the Amended OS, the following issues are before me for determination:

  76. (a) Should this OS be converted to a writ action?

  77. (b) Has an event of default occurred under the Facility Agreement?

  78. (c) Is there any merit in the defendants’ allegations of SBI SG’s complicity in the purported fraud of Teledata/Baytech?

  79. (d) Does the deposit of share certificates and a signed blank share transfer form as security give rise to an equitable mortgage?

  80. (e) Whether the deposit of share certificates together with a signed blank share transfer form alone, gives an equitable mortgagee a power of sale.

  81. (f) How do restrictions in the eSys Articles affect the implied power of sale of an equitable mortgagee?

  82. (g) Assuming there is such a power of sale, how does SBI SG as an equitable mortgagee enforce the power of sale with reference to the eSys Articles?

  83. (h) How do the eSys Articles operate when the shares involved a wholly owned subsidiary, ie, eSys, “pledged” by its holding company, Rainforest?

  84. (i) Given that SBI SG accepts that the court cannot order the sale of the Pledged Shares without reference to the eSys Articles, is there any practical purpose in the court granting the relief sought by SBI SG?

  85. Issues (d) to (i) were raised by the court and both parties were given time to address them by way of supplementary written submissions.

  86. Should the OS be converted to a writ action

  87. [37] In spite of the Order made by Kan J, the defendants revived their earlier submission that OS 958/2010 should be converted to a writ action to be heard together with S 362/2011 or in the alternative, that OS 958/2010 should be heard after the conclusion of S 362/2011. In my view, there is no merit in this submission. First, the defendants did not appeal against Kan J’s decision when he disallowed the application to convert OS 958/2010 to a writ action. Secondly, although Kan J remarked that the fraud allegations could be re-considered by the judge hearing the substantive application, for reasons which will be apparent below (see [48]–[77]), having considered the allegations, I can see no reason why the matter cannot be disposed of by way of the Amended OS.

  88. Has an event of default occurred

  89. [38] By letter dated 25 March 2010 to Baytech, SBI SG declared that an event of default had occurred under the Facility Agreement and that all outstanding sums, together with accrued interest, and all other amounts accrued under the Facility Agreement became immediately due and payable. There was no response from Baytech.

  90. [39] In their written submissions, the defendants conceded that they are not in a position to challenge SBI SG’s assertion that Baytech is in default. However, Mr Chacko submitted that since Baytech is not a party to OS 958/2010, such a declaration does not bind Baytech and therefore there is “no legitimate reason in granting the declaration” and to do so, the court would be acting in vain.

  91. [40] While it is correct that Baytech is not a party to OS 958/2010, I disagree with Mr Chacko that there is no legitimate reason to declare that an event of default has occurred. For reasons as explained in [93]–[96] below, the implied power of sale of an equitable mortgagee only arises by operation of law upon default. That being the case, a declaration of default must necessarily precede any steps to enforce the Pledged Shares. On the evidence before me, there can be no doubt that an event of default has occurred under the Facility Agreement and I so declare it.

  92. The fraud allegations raised by the defendants

  93. [41] The defendants’ principal argument, whether under the original OS or the Amended OS, was that SBI SG’s security interest in the “Pledged Shares” was tainted by fraud, forgery and bribery (“collectively referred to as the fraud allegations”). In an effort to make good their case on fraud, the defendants have raised a wide range of fraud allegations against SBI SG, each of which will be examined below. However, before embarking on a detailed review of the fraud allegations, it is perhaps useful to take cognisance of the rules governing reliance on hearsay evidence in affidavits and the duty of counsel in raising allegations of fraud in affidavits.

  94. Contents of the defendants’ affidavits

  95. [42] Order 41 rule 5 of the Rules of Court (Cap 322, 2006 Rev Ed) (“the Rules of Court”) pertaining to the contents of affidavits states:

  96. [43] The default rule is that an affidavit may only contain facts within the deponent’s personal knowledge. The exception to this default rule is set out under O 41 r 5(2) which permits reference to hearsay evidence for interlocutory proceedings provided the grounds and source of belief are stated. While the Rules of Court do not specifically define the term “interlocutory proceedings” for the purposes of O 41 r 5(2), there is a considerable body of case law on point. In MUI Bank Bhd v Alkner Investments Pte Ltd [1990] 3 MLJ 385 at 387–388, following the English Court of Appeal decision of Rossage v Rossage [1960] 1 WLR 249, Chao Hick Tin JC (as he then was) held that the application before him was not an interlocutory matter as it was an application “to determine the rights of the parties”. Adopting a similar approach to Chao JC, in “The Ocean Jade” [1991] 1 SLR(R) 354 at [86], Karthigesu J stated that “only those applications which do not decide the rights of the parties can be considered to be interlocutory”. The relevant distinction is essentially between proceedings which seek an order relating to the conduct or progress of the action or for the purposes of keeping things in status quo till the rights can be decided and proceedings which require the court to adjudicate on the parties’ substantive rights.

  97. [44] Mr Pillai submitted that the OS before me clearly falls in the latter category. This was not challenged by Mr Chacko. The court is faced with the task of determining whether an event of default has occurred, whether an equitable mortgage has arisen, if so whether a power of sale has accrued and whether an order should be made to facilitate the fair valuation of the Pledged Shares so as to enforce the eventual sale and transfer of the Pledged Shares. The declaratory reliefs sought by SBI SG are not interlocutory in nature as they cover substantive rights. It is clear that the underlying purpose of O 41 r 5(1) is to ensure that ordinary rules of evidence including the prohibition of hearsay evidence apply when the substantive rights of parties are being adjudicated. Accordingly, the exception of O 41 r 5(2) does not extend to the defendants in which event the defendants are precluded from making allegations in its affidavits outside the personal knowledge of the deponents. This might well be the reason why the defendants sought to convert the OS to a writ action in order to circumvent the prohibition under O 41 r 5(1). This will become even clearer when the specific allegations of fraud are scrutinised.

  98. [45] It should also be pointed out that there are professional rules of conduct governing the conduct of solicitors in the drafting of affidavits containing allegations of fraud. In this regard, lawyers should be reminded that Rule 59 of the Legal Profession (Professional Conduct) Rules (Cap 161, R 1, 2010 Rev Ed) dictates as follows:

  99. [46] Rule 59 stipulates that an affidavit should not contain allegations of fraud unless the advocate or solicitor has before him reasonable credible material to establish a prima facie case of fraud. In my view, the graver the allegation of fraud, eg, bribery, the greater the need for counsel to address the issue of reasonable credible evidence to support it. In the present case, as will be appreciated below, a number of the fraud allegations made by the defendants were based entirely on hearsay evidence. The question is whether evidence, inadmissible by reason of its hearsay nature, is ipso facto not reasonably credible for the purposes of r 59. As no submission was made by either counsel on this issue and since its determination is strictly not necessary for the purposes of the Amended OS, I shall refrain from expressing a view on the matter. However, I wish to take this opportunity to remind counsel of their duty under r 59.

  100. The fraud allegations

  101. [47] The defendants have made wide ranging allegations in relation to the purportedly fraudulent conduct of Teledata, Baytech, SBI SG and a number of other unrelated entities to this action. Specifically, the defendants made the following allegations, each of which will be considered below:

  102. (a) The SSA exhibited by SBI SG was the forged copy and by comparing it with the “true copy”, SBI SG would have been or was put on notice of the purported forgery (“the Forgery Allegation”).

  103. (b) SBI SG did not monitor the use of the loan monies by Baytech in accordance with the stated purpose of the Facility Agreement (“the Failure to Monitor Allegation”).

  104. (c) SBI SG was complicit in the fraud of Teledata and Baytech, in relation to the procurement of the Pledged Shares (“the Fraudulent Procurement Allegation”).

  105. (d) SBI SG was complicit in the fraudulent conduct of Teledata and Baytech such as the churning of debts and acceptance of bribes from the representatives of Teledata in granting the Facility Agreement. OS 958/2010 was also filed by SBI SG to gain majority control of eSys in order to stymie other proceedings from being commenced by the defendants (“the Bribery Allegation”).

  106. The Forgery Allegation

  107. [48] The defendants alleged that Teledata relied on the “forged copy” of the SSA to obtain the Facility Agreement from SBI SG. The defendants asserted that the SSA drafted by M/s Drew & Napier LLC and certified by Mr Aaron Kok Ther Chien of Drew & Napier LLC, was the “true copy” of the SSA which accurately reflects the agreement reached between eSys, Mr Goel and Teledata. By reason of a range of “glaring inconsistencies” identified between the “true copy” and the “forged copy” of the SSA, the defendants claimed that the SSA exhibited by SBI SG was a forgery and that SBI SG should have been put on notice of the forgery. The following discrepancies were identified between the “forged copy” and the “true copy” of the SSA:

  108. (a) Clause 2.1 of the “forged copy” of the SSA stated that the acquisition price for each Rainforest share was $1.00. Hence for the 61,200,201 Rainforest shares to be purchased, the total sum payable by Teledata should have been US$61,200,201. Instead, cll 2.1 and 2.3 reflected the total sum payable as US$105 million.

  109. (b) The “forged copy” of the SSA was signed only on the execution page whereas the “true copy” was signed and initialled on every page.

  110. (c) The “forged copy” of the SSA contained numerous spelling, formatting errors and was poorly drafted.

  111. (d) No reference was made to Baytech in the “forged copy” of the SSA raising questions as to why SBI SG would extend the Facility Agreement to Baytech.

  112. [49] The defendants averred that Teledata and/or Baytech forged the SSA exhibited by SBI SG dated 29 November 2006 to reflect a higher sum payable for the Rainforest shares (ie, US$105 million instead of about US$61 million) so as to procure a larger loan from SBI SG. The crux of the defendants’ argument was that SBI SG knew or ought to have known that the SSA was a forgery but nonetheless approved and extended the Facility Agreement to Baytech to purchase shares from Rainforest at an inflated price. The defendants argued that by reference to the “true copy” of the SSA and its supplemental agreements, it was apparent or ought to have been apparent to SBI SG that “the documentation underlying the transaction was flawed”.

  113. [50] The defendants averred that under cl 2.3 of the “forged copy” of the SSA, Teledata (or its subsidiaries/associates) would make payment of US$105 million to acquire a 51% interest in Rainforest. The defendants stated that in the “true copy” of the SSA, the acquisition price was instead stated as US$61 million. The defendants therefore extrapolated that by advancing a loan facility of US$80 million in reliance on the “forged copy”, SBI SG effectively granted Baytech a loan of 76% of the total price payable to acquire the 51% interest in Rainforest. As 76% of the total consideration price of US$105 million was granted pursuant to the Facility Agreement, the defendants speculated that if the “true copy” had been relied on, SBI SG might only have approved a loan of US$46 million (ie, 76% of US$61 million). On the back of this submission, the defendants then rationalised that SBI SG cannot legitimately claim for the outstanding amount of US$41,989,189.91 due and owing under the Facility Agreement because this would mean that more than US$38 million (US$80 million – US$41,989,189.91) has since been repaid under the Facility Agreement. It therefore follows, according to the defendants, that if the loan amount had been US$46 million instead of US$80 million, the balance outstanding would only have been about US$8.5 million.

  114. [51] The heart of the “Forgery Allegation” presupposed two fundamental assumptions. First, SBI SG had in its possession both the “forged copy” and the “true copy” of the SSA and second that if Rainforest had known that the loan amount to Baytech under the Facility Agreement was US$80 million, Rainforest would not have pledged the eSys shares.

  115. [52] It should be noted that the defendants have not alleged that SBI SG had in any way participated in the “forgery” of the SSA. They merely asserted that by comparing both versions of the SSA, SBI SG ought to have known that the version in its possession was forged. However, the defendants have not adduced any evidence to establish that SBI SG had received the “true copy” of the SSA at any material time. Upon my examination of both versions of the SSA, I found it interesting that at the top of every page of the “forged copy”, the facsimile printout clearly evidenced that the “forged copy” was faxed over by Teledata to SBI SG on 15 February 2007. In contrast, no similar marking appeared on the “true copy”. In the absence of any evidence that SBI had received the “true copy”, the defendants could not credibly assert that SBI SG was in possession of both versions and was thereby put on notice of the discrepancies by comparing them.

  116. [53] Although it appears that SBI SG was aware of the supplemental agreements to the SSA, the defendants have not suggested that SBI SG knew or ought to have known that the SSA in its possession was the “forged copy” from a perusal of the supplemental agreements. It is also curious for the defendants to claim that since no reference was made to Baytech in the “forged copy” of the SSA, it raises questions as to why SBI SG would extend the Facility Agreement to Baytech. By the same token, no reference was made to Baytech in the “true copy” of the SSA as well. Further, when I perused the supplemental agreements (which the defendants claimed SBI SG were aware of), there was actually a reference to Baytech in the supplemental agreement dated 9 February 2007.

  117. [54] Further, while it cannot be denied that the loan under the Facility Agreement was to finance the purchase of 51% shareholding in Rainforest, the execution of the SSA, true or forged copy, under which the Rainforest shares were purchased was not a condition precedent to the Facility Agreement and was in fact not even referred to in the Facility Agreement. It is relevant to point out that SBI SG only received the “forged copy” on 15 February 2007, after the letter of offer for the Facility Agreement had been issued to Baytech on 31 January 2007.

  118. [55] While it is true that the Facility Agreement was executed on 22 February 2007 after receipt of the “forged copy” of the SSA, it is crucial to note from the three letters dated 5 April 2007 signed by Mr Goel on behalf of Rainforest and eSys as well as the charge over the Pledged Shares registered by Rainforest (see [18]–[21] above), that Rainforest knew that the loan amount under the Facility Agreement was US$80 million. Therefore the forgery, even if true, does not alter the undeniable fact that Rainforest knew that the Pledged Shares were offered as security for a US$80 million loan to Baytech under the Facility Agreement. It is disingenuous for the defendants to undertake a speculative mathematical exercise as to what the loan amount would have been had SBI SG been aware of the “true copy” of the SSA when by the objective evidence before me, Rainforest knew fully well that the Pledged Shares were offered as security for a US$80 million loan to Baytech. If what the defendants say is true, it would mean that Rainforest, eSys and Mr Goel who signed the three letters were themselves complicit in obtaining a loan at an inflated price of the Rainforest shares under the “true copy” of the SSA. As such, it is fallacious for the defendants to submit that “[i]f the Defendants had known of the attempts to rely on a forged document for the purposes of fraudulently obtaining a higher loan facility, the Defendants would not have agreed to grant any charges to SBI over the shares.”

  119. [56] On the facts before this court, no evidence was adduced to establish that SBI SG had any knowledge of the purported forgery or had even received the allegedly “true copy” of the SSA in order to be placed on notice of the alleged discrepancies. Finally, as highlighted above, Rainforest at all material times was fully aware that the loan under the Facility Agreement was US$80 million and more importantly, willingly offered the Pledged Shares as security for the Facility Agreement.

  120. The Failure to Monitor Allegation

  121. [57] The defendants stated that the Facility Agreement was not used for its stated purpose as Baytech did not utilise the loan monies to make the payments due and owing to Rainforest in accordance with the SSA. While the Facility Agreement or the letter of offer did not make specific reference to the SSA, by reason of cl 3.1 of the Facility Agreement, reproduced at [15], it is apparent that the purpose of the US$80 million loan was to acquire the 51% shareholding in Rainforest.

  122. [58] Did Teledata and/or Baytech fail to make payment to Rainforest in breach of the SSA? If so, how is this relevant to the issues to the present dispute? In an affidavit filed by Mr Goel in a separate proceeding in Suit 854 of 2006 (“S 854/2006”) at [63], he confirmed that Teledata had paid US$55 million for 55 million shares in Rainforest. Of the US$55 million paid to Rainforest, US$31 million was paid after the Facility Agreement was executed on or about 22 February 2007. So clearly at least a substantial part of the loan was used to pay for the Rainforest shares. The defendants argued that in breach of cl 3.1 of the Facility Agreement, the balance US$49 million of the loan disbursed by SBI SG was not used to fund the acquisition of the 51% shareholding of Rainforest. Further, the defendants claimed that the subscription price of US$61 million has not been paid in full and until full payment, Baytech was not entitled to the shares in Rainforest and as such the defendants argued that it was “inconceivable that SBI [SG] could claim rights to these shares under a purported charge”. Baytech’s purported breaches of its obligations to Rainforest under the SSA are currently the subject matter of separate arbitration proceedings in Singapore between, inter alia, Mr Goel, Rainforest, Teledata and Baytech to which SBI SG is not a party.

  123. [59] There are serious and insurmountable difficulties in the defendants’ arguments. First, under cl 3.2 of the Facility Agreement, SBI SG was not required to monitor the use of the loan facility by Baytech/Teledata:

  124. “Finance Party” is defined in the Facility Agreement to include the Lender, SBI SG.

  125. [60] Secondly, it is clear that the loan amount of US$80 million was in fact granted to Baytech and that there was a drawdown by Baytech of the entire US$80 million in one tranche on 23 January 2007. The enforcement of any security, including the Pledged Shares, under the Facility Agreement was in no way contingent on the successful completion of the SSA particularly since the SSA was concluded some three months prior to the Facility Agreement. Contrary to the defendants’ submission, there is nothing “inconceivable” for SBI SG to enforce the Pledged Shares upon default of the Facility Agreement. Any non-payment by Teledata and/or Baytech under the SSA is irrelevant to the rights and obligations of SBI SG vis-a-vis Rainforest in relation to the Pledged Shares. They are entirely separate transactions.

  126. [61] In any event, taking the defendants’ argument at its highest, even if Baytech had breached cl 2.3 of the SSA in failing to make full payment for the Rainforest shares by the contractually stipulated deadline of 30 December 2006, Rainforest nevertheless readily pledged the shares to SBI SG on or about 5 April 2007, well after passing the payment deadline. In other words, the shares were pledged notwithstanding the fact that Rainforest had full knowledge that the purchase price under the SSA had not been fully paid up. In spite of the alleged non-compliance with the stated purpose of the Facility Agreement, Rainforest willingly and unequivocally provided security by way of the Pledged Shares for the Facility Agreement and soon thereafter duly registered a charge over the Pledged Shares in SBI SG’s favour in the British Virgin Islands.

  127. [62] In an attempt to clarify Mr Goel’s evidence in S 854/2006, the defendants stated that between December 2006 and February 2007, a sum of US$55 million was indeed paid to Rainforest under the SSA in ten separate deposits. However, they alleged that a total sum of US$54,800,000 was then transferred out of Rainforest’s account as short-term loans for Teledata’s suppliers for which Teledata agreed to pay interest at 12% per annum. The defendants claimed that Rainforest’s bank account was operated on the instructions of Baytech/Teledata and since Teledata was a majority shareholder of Rainforest, there was no reason to doubt its intentions. It is far from clear how this allegation or submission in any way implicates SBI SG or relates to the central question of the validity or enforceability of the Pledged Shares. The claim by Rainforest against Teledata for repayment of theses alleged short term loans has nothing to do with the enforceability of the Pledged Shares.

  128. [63] As SBI SG had no obligation to monitor the use of the loan monies and as Rainforest had willingly provided security by way of the Pledged Shares to SBI SG for the Facility Agreement notwithstanding Baytech’s alleged failure to make payment of the full purchase price for the Rainforest shares under the SSA, the defendants’ arguments at this stage came across as an afterthought and were irrelevant to either the validity or the enforceability of the Pledged Shares.

  129. The Fraudulent Procurement Allegation

  130. [64] The defendants submitted that the purpose of the pledge was “intended to prevent a sale of the eSys Shares to third parties” and not as security for the Facility Agreement. The defendants submitted that sometime in or around January or February 2007, Ms Chay, accompanied by another employee of eSys, handed over the Share Certificates to Mr Uthayacharan, the solicitor representing SBI SG. The defendants reasoned that the Share Certificates were delivered to Mr Utayacharan prior to the execution of the Facility Agreement (ie, 22 February 2007) because Mr Goel and the defendants were allegedly informed by Mr Ram of Teledata that SBI SG’s Mr S Adikesavan, the Manager of Credit Administration, had made clear that the request for the pledge of eSys shares was merely an administrative formality and would not amount to a formal charge. SBI SG objected to this allegation as it is plainly hearsay. In response, the defendants, while not denying its characterisation as hearsay evidence, alleged that they were prevented by Teledata and its representatives from having any contact with SBI SG and its officers. The primary contact between them in respect of the Facility Agreement was Mr Ram from Teledata, who purportedly repeatedly told them not to contact SBI SG or its officers. I fail to see how the alleged difficulties experienced by the defendants in having direct contact with SBI SG can render the evidence any more admissible. Even if these representations had indeed been made by Teledata’s representatives to the defendants, there is no objective evidence before me that SBI SG was aware of them at any material time.

  131. [65] Notwithstanding these allegations, it is undeniable that the express wording of the three covering letters from eSys and Rainforest unequivocally referred to the Pledged Shares as security. None of the letters referred to the alleged “administrative formality”. Further, in an internal email dated 23 March 2007 from Mr Ravindran Varadarajan (“Mr Ravi”), Senior Finance Manager of eSys to Ms Chay and Mr Ram, Mr Ravi informed Ms Chay of the need to submit additional documents, namely a blank signed share transfer form and a letter from Rainforest specifically stating that the Pledged Shares were provided as security for the Facility Agreement.

  132. [66] In the circumstances, I accept SBI SG’s submission, that it was incredible that Mr Goel would have unreservedly pledged 51% of the shares in eSys, issued a signed blank share transfer form and consistently referred to the Pledged Shares as “security” if he was indeed under the genuine belief that the pledge was merely an administrative formality. Additionally, both Rainforest and eSys recorded SBI SG’s interest in the Pledged Shares in their books and registers of members in addition to registering a charge in the British Virgin Islands in favour of SBI SG over the Pledged Shares. If the true purpose of the delivery of the share certificates was merely to prevent a sale of the same, eSys/Rainforest would not have undertaken such elaborate steps without protest or query. Such a claim rings hollow in the face of clear objective evidence that the shares were indeed “pledged” to SBI SG as security for the Facility Agreement.

  133. The Bribery Allegation

  134. [67] A multitude of serious allegations were made by the defendants through the affidavits of Mr Goel and Mr Sharma under this category. Each of them will be separately examined below:

  135. (a) In or around early 2007, at a meeting held at a seafood restaurant in Bangkok, Mr Padma told Mr Goel that Teledata paid a bribe of 2% of the Facility to senior officers of SBI SG to ensure that the Facility was approved.

  136. [68] This is plainly hearsay and yet the serious allegation of bribery was made without any qualms on the part of the defendants. It is obvious that the allegedly “corrupt” senior officers of SBI SG were not even identified. Further, Mr Goel, by his own evidence, knew about the bribery in early 2007 and yet he continued to participate in the transaction with Teledata and Mr Padma without any record of his protest in the contemporaneous documents and thereafter took several steps in offering the Pledged Shares as security for the Facility Agrement.

  137. (b) As SBI SG is a major international bank, the bribe was “the only possible explanation for the failure of [SBI SG’s] officers to perform proper due diligence to ensure that the terms of the Facility Agreement are genuine and correctly reflect the underlying documentation”.

  138. [69] The Facility Agreement was supported by contemporaneous documentation and there was no evidence that SBI SG had failed to properly conduct proper due diligence. It is also clear from the evidence that Rainforest was fully aware that the Pledged Shares were offered as security for the US$80 million under the Facility Agreement. I fail to see how the lack of due diligence on the part of SBI SG, if any, would necessarily mean that the officers of SBI SG must therefore have been bribed.

  139. (c) SBI SG’s decision to release the US$80 million to Baytech rather than Rainforest was “against industry practice” as it facilitated fraud in cases where the buyer did not use the said funds for the stated purpose. The defendants suggested that normal practice would dictate releasing the funds directly to the seller.

  140. [70] This is an ill-considered allegation. It bears mention that the Borrower under the Facility Agreement is Baytech and not Rainforest. There is no reason why releasing the loan to Baytech, ie, the Borrower, would facilitate fraud or is contrary to industry practice. The defendants’ scenario of dispensing the funds to the seller is typically adopted where the agreement specifically provides for release of the purchase price to the seller. Such a submission, in the absence of any contractual obligation under the Facility Agreement, is bereft of any merit.

  141. (d) Teledata and SBI SG shared a long standing banking relationship and it is stated that in or around 2008, Mr Padma and Mr Anush Ramachandran (“Mr Ramachandran”) told Mr Goel that Teledata owed substantial sums of money to SBI SG. Mr Padma and Mr Ramachandran confirmed that SBI SG’s officers assisted Teledata in “churning” its debts and other obligations, ie, establishing new dummy loans to settle existing obligations owed to SBI SG. One of the examples stated of “churning of debts” was Teledata making two separate payments amounting to US$7.5 million to a Swiss Company Bunge SA, a company which had loans with SBI SG. The defendants alleged that a substantial part of the balance amount of approximately US$46 million of the remaining portion of the loan facility also found its way back through Bunge/Teledata and other dummy companies back to SBI SG.

  142. [71] First, there is nothing objectionable or unusual for banks to have long standing relationship with clients. In fact, banks strive to achieve such relationships. Secondly, the above allegations are completely hearsay. Although there was no basis for the defendants to have alleged that part of the US$80 million loan found its way back to Teledata and its related companies, nonetheless, during the hearing, I directed Mr Pillai to produce documentary evidence to show that the loan monies had in fact been disbursed to Baytech. In response to my direction, SBI SG filed an affidavit by Marur Narasimha Aravind Kumar dated 19 May 2011 wherein a Swift secure authenticated message was exhibited evidencing the transfer of US$80 million to Baytech’s account with HSBC Bank in Hong Kong. The loan was therefore paid to a different bank (HSBC Bank) in a different country (Hong Kong). Thirdly, by their own case, at least US$24 million had already been paid by Teledata to Rainforest under the SSA prior to the Facility Agreement. It therefore stands to logic that part of the loan amount would not be released to Rainforest under the SSA otherwise there would be overpayment. Finally, even if the allegation of debt churning is true, it does not change the fact that the Pledged Shares were willingly offered by Rainforest as security for the US$80 million loan under the Facility Agreement and more pertinently, Rainforest had received at least US$31 million from the loan drawdown.

  143. (e) If SBI SG was innocent it should have made civil or criminal complaints against Baytech and Teledata by reason of awareness of their forgery and fraud for almost 2 years now. HSBC, Vijaya Bank and Canara Bank have all commenced proceedings against Teledata in the past year.

  144. [72] This allegation presumes that Baytech and Teledata are guilty of fraud or forgery but this has not been established. While the defendants may be entirely comfortable to raise allegations of fraud without foundation, the fact that others are not prepared to do so does not mean that they are therefore complicit. This submission is nothing more than another shocking specimen of a quantum leap in logic.

  145. [73] SBI SG has issued letters of demand to Baytech, Teledata and Mr Padma and proceedings against the same, according to Mr Pillai, are being contemplated in India. In any event, there is no requirement at law that steps must be taken or judgment must be obtained against the Borrower or the guarantors before SBI SG is entitled to enforce its security over the Pledged Shares.

  146. (f) SBI SG refused to meet Mr Sharma after the meeting in January/February 2010 to discuss the fraud that Teledata had committed. SBI SG’s refusal to meet was because it was involved in the said fraud and has been actively taking instructions from Teledata executives and assisting Teledata for some years to “churn” its old debts with new debts.

  147. [74] This is another outrageous allegation which is utterly baseless and speculative.

  148. (g) The defendants raised the fact that beyond issuing the letters of demand to Baytech, Teledata and Mr Padma, SBI SG has not done anything to enforce the various other securities provided for under the Facility Agreement. Instead SBI SG has only taken steps to enforce the Pledged Shares which the defendants speculated was to gain control of eSys.The defendants averred that SBI SG was working with “Teledata to attempt to obtain control over [eSys] to stymie [eSys’s] legal claims against [SBI SG] and Teledata and/or its officers”.

  149. [75] This allegation should be examined in light of the chronology of the various legal proceedings. It is not disputed that the arbitration proceedings were commenced on 12 November 2010 some two months after OS 958/2010 was filed (16 September 2010). Further, the motive behind the enforcement cannot affect the enforcement rights of SBI SG against the Pledged Shares. Any suggestion that OS 958/2010 was brought to stymie legal proceedings against SBI SG and/or Teledata is both irrelevant and speculative.

  150. [76] Mr Goel’s affidavit also raised multiple unrelated allegations in relation to a number of unrelated entities to these proceedings such as eSys Information Technologies Ltd (India), Bank of India, AlphaSoft and Solitus. In my view, none of them have any bearing on the validity or enforceability of the Pledged Shares.

  151. [77] Having determined that none of the fraud allegations levelled by the defendants holds any water against SBI SG, I shall now turn my attention to consider the issues of law raised by me during the hearing.

  152. The nature of an equitable mortgage of shares

  153. [78] It is perhaps helpful to begin the analysis by underscoring the fact that the deposit of share certificates together with a blank share transfer form, often loosely described as a pledge of shares, actually gives rise to an equitable mortgage and not a pledge. Associate Profesor Poh Chu Chai in Law of Pledges, Guarantees and Letters of Credit (Butterworths Asia, 5th Ed, 2003) at p 47 explains that:

  154. [79] There is ample authority, both local and English cases, in support of the settled principle of law that the deposit of share certificates together with a signed blank share transfer form creates an equitable mortgage over the shares. Mr Pillai relied on Harrold v Plenty [1901] 2 Ch 314 (“Harrold v Plenty”) where the court held (at 316) that:

  155. [80] In Stubbs v Slater [1910] 1 Ch 632 (“Stubbs v Slater”), the court (at 638–639) arrived at the same conclusion on the law:

  156. [81] Similarly, the Court of Appeal in Pacrim Investments Pte Lte v Tan Mui Keow Claire and another [2008] 2 SLR(R) 898 at [15] remarked:

  157. [82] I had occasion in the recent decision of Kong Swee Eng v Rolles Rudolf Jurgen August [2011] 1 SLR 873 (“Kong Swee Eng”) to consider this area of the law. I observed that the decisions of Harrold v Plenty and Stubbs v Slater, though not of recent vintage, remain good law. In Kong Swee Eng, the facts were not as straightforward as the present case. As part of the security for a sale and purchase agreement, the majority shareholder granted a fixed charge over his shares as security. Under the charge, the majority shareholder was supposed to deposit the share certificates together with the duly executed share transfer forms with an escrow agent. However, due to an oversight, the share certificates and the executed share transfer forms were not deposited. In that case, it was common ground between the parties that the pledge of the shares constituted an equitable mortgage even though neither the share certificates nor the blank share transfer forms were in fact deposited. I held at [28] that the omission on the part of the majority shareholder did not alter the nature of the security interest in the shares.

  158. [83] Leading textbooks have also made the position clear beyond doubt. Edward I Sykes and Sally Walker, The Law of Securities (The Law Book Company Limited, 5th Ed, 1993), at p 782 states:

  159. Further, Fisher and Lightwood’s Law of Mortgage (Wayne Clark ed, LexisNexis Butterworths, 13th Ed, 2010) (“Fisher and Lightwood”) at [17.23] also states:

  160. [84] It was therefore not remarkable for Mr Chacko to have initially conceded during the hearing that SBI SG’s interest in the Pledged Shares was indeed in the nature of an equitable mortgagee. However, he subsequently changed his position during the hearing and claimed that the deposit of the Pledged Shares together with the duly executed blank share transfer form “without more” was in law, no more than a possessory lien over the shares in order to prevent Rainforest from dealing with or selling the shares. To borrow the words of Cozens-Hardy MR in Stubbs v Slater at 639, “I am astonished that there should be any doubt about it” [emphasis added].

  161. [85] In his written submissions, Mr Chacko suggested that Harrold v Plenty might not offer as a reliable authority since the claim was not contested and the decision was allegedly based on a misreading of France v Clark (1881) 26 Ch D 257 (“France v Clark”). He further relied on Hunter v Hunter [1936] AC 222 (“Hunter v Hunter”) to demonstrate that the cases do not support the “broad proposition put forward in Harrold v Plenty”. However, on any examination of France v Clark or Hunter v Hunter, it is clear that the principal issue in both cases concerned the propriety of the exercise of the power of sale by an equitable mortgagee. In fact, in France v Clark at 262 and Hunter v Hunter at 249, the courts proceeded on the basis that the deposit of the shares together with the signed share transfer form gave rise to an equitable mortgage. The defendants’ submissions on France v Clark and Hunter v Hunter properly belong to the issue relating to the exercise of the power of sale which I will address separately below at [97]–[111].

  162. Possessory lien

  163. [86] The spectre of the possessory lien was raised by Mr Chacko during the hearing without any supporting authority. I indicated my preliminary view that the concept of a possessory lien might not apply to shares. Despite the time given for additional research, this submission was repeated in the defendants’ further written submissions without any substantive authority other than definitions extracted from various legal dictionaries. Mr Chacko did not attempt any argument or furnish any authority to distinguish the preponderance of local and English authorities and leading textbooks that a deposit of share certificates accompanied by a signed blank share transfer form gives rise to an equitable mortgage. As I have explained at [85] above, his reliance on France v Clark and Hunter v Hunter in fact support the settled principle of law.

  164. [87] As a convenient starting point, ELG Tyler and NE Palmer, Crossley Vaines’ Personal Property (Butterworths, 5th Ed, 1973) at p 137 (“Crossley Vaines”) provides a useful summary of the different kinds of lien:

  165. [88] The classic definition of a common law lien is that by Grose J in Hammonds and Another, Executors of Blight v Barclay and Others, Assignees of Fentham a Bankrupt (1802) 102 ER 356, namely that it is a right in one man to retain that which is in his possession belonging to another, till certain demands of him, the person in possession, are satisfied. A lien differs from a mortgage in that the ownership of the goods does not pass, and from a pledge in that it bestows no right of sale.

  166. [89] Crossley Vaines categorised possessory liens into (a) General Liens and (b) Particular Liens. Alfred H Silvertown, The Law of Lien (Butterworths, 1988) at 19 states that general possessory liens can exist as a common law right arising from general usage or by express agreement. General liens are such that those entitled to them may retain in their possession the goods of others until all claims against the latter are satisfied.

  167. [90] In contrast, a particular lien is a right to retain chattels until all charges incurred in respect thereof have been paid. As stated by Halbury’s Laws of England vol 68 (LexisNexis, 5th Ed, 2008) (“Halsbury”) at [818], particular liens are favoured by the law and may arise in the same manner as general liens. The particular possessory lien arises because work has been done upon the chattel and is exercisable against the owner. Anyone who works on a chattel, in consideration of an agreed price or with reference to an implied contract to pay a reasonable sum, may retain the chattel until the price is paid. Of note, Crossley Vaines sets out the following requirements to satisfy a claim for a particular lien at p 140:

  168. (a) The work must improve the chattel, mere maintenance is insufficient.

  169. (b) No lien arises unless the work is done at the request of the owner or his agent. No lien is acquired by merely finding a chattel and maintaining it. There is no right of salvage at common law.

  170. (c) No lien exists for storage or keep. If the depositee does no work on the chattel but spends money on it at the request of the owner, he must recover the money from the owner of the action, for he has no lien therefor.

  171. (d) A lien claimed in respect of work done on a chattel arises only upon completion of the work, unless completion is prevented by the owner, in which case a lien arises for the work actually done.

  172. [91] Mr Chacko, in his submissions, did not specify which type of possessory lien he was referring to. However, it is manifest that he could not be referring to a particular lien since there can be no question of “improvement” to the Pledged Shares. Likewise, there is no suggestion of any agreement or usage by custom to satisfy the elements of a general lien at common law.

  173. [92] In the present case, from the objective evidence before me, the parties evidently intended SBI SG to have a security interest in the Pledged Shares. Not only were the Share Certificates deposited with SBI SG together with the blank transfer form signed by Rainforest, both Rainforest and eSys wrote to SBI SG to confirm that the deposit of the Share Certificates was to provide security for the loan under the Facility Agreement. In addition, a charge over the Pledged Shares was duly registered by Rainforest. In these circumstances, it is clear beyond peradventure that SBI SG are the equitable mortgagees of the Pledged Shares. In effect, Mr Chacko’s incorrect use of the term “possessory lien” was probably in support of his argument that the deposit of share certificates was merely an “administrative formality” (see [64]–[66] above). If it was merely for “safekeeping” (which is in essence Mr Chacko’s submission), there would be no conceivable reason for Rainforest to have signed the share transfer form in blank, registered a charge over the Pledged Shares in favour of SBI SG or confirmed to SBI SG that the shares were deposited to provide security for the loan.

  174. Power of sale pursuant to an equitable mortgage

  175. [93] Having determined that SBI SG is an equitable mortgagee in respect of the Pledged Shares, I direct my attention to discuss the enforcement rights of an equitable mortgagee, in particular, the power of sale. A mortgagee’s power of sale typically arises in three situations:

  176. [94] SBI SG submitted that under both English and Singapore authorities a power of sale under an equitable mortgage is implied by operation of law upon default.

  177. [95] In Harrold v Plenty, having decided that an equitable mortgage arose by deposit of the share certificates, Cozens-Hardy MR noted that in a mortgage where there was no express power of sale, a right to sell was implied by operation of law after giving reasonable notice to the mortgagor. Similarly in Deverges v Sandeman, Clarke & Co [1902] 1 Ch 579 (“Deverges”), the defendant stockbrokers took instructions on two occasions from their client to purchase 400 shares and subsequently 300 more shares in a company. A charge was placed on the shares for the sum owing by the client with interest accruing at six per cent. Upon the client’s failure to make payment, the shares were transferred to the stockbrokers and registered in their names. The stockbrokers sought to recover the unpaid purchase money by selling the shares that were registered in their names. The client commenced an action against the stockbrokers after discovering the sale of the shares. The English Court of Appeal proceeded on the agreed basis that the defendants were equitable mortgagees and dealt with the specific question of whether a mortgagee of shares had an implied power to sell the shares upon default. The decision of the court turned on whether or not the notice given by the defendants was reasonable. The court held at 588 and 596:

  178. [96] In determining whether an implied power of sale arose in Deverges (as no time for payment had been fixed), the court considered the length of the notice period necessary to ensure that the purchaser was afforded the opportunity to redeem the shares by settling the debt owed. If time for payment is fixed, the power of sale can be exercised upon default. In the case where no time for payment is fixed, the power of sale could be exercised upon the expiration of a reasonable time. Before me, a charge has been registered over the Pledged Shares in favour of SBI SG. Further, there was a fixed date of payment stipulated under the Facility Agreement. There can be no question that the power of sale has arisen given my earlier finding at [38]–[40] above that an event of default has occurred.

  179. The effect of the Articles of Association on a mortgagee’s power of sale

  180. [97] To begin with, it is pertinent to highlight that SBI SG accepts that the sale of the Pledged Shares must be carried out in compliance with the eSys Articles. Therefore there is no issue of any sale taking place without having to comply with the eSys Articles. Nevertheless, Mr Chacko sought to persuade this court that SBI SG does not have the requisite documentation or waivers to enforce the security on the Pledged Shares or to exercise its power of sale. He identified four alleged shortcomings in SBI SG’s power of sale:

  181. (a) Rainforest had not signed any formal documentation to mortgage or granted a legal charge over the Pledged Shares to SBI SG.

  182. (b) Rainforest had not waived any of the relevant provisions of the Articles relating to the sale or transfer of eSys’s shares.

  183. (c) Rainforest had not granted any power of attorney to SBI SG to authorise or empower SBI SG to take any action on its behalf to sell or deal with the Pledged Shares in the event of default by Teledata/Baytech of its obligations under the Facility Agreement.

  184. (d) Rainforest had not signed any document granting SBI SG the power to sell the Pledged Shares on its behalf.

  185. [98] Further, the defendants averred that a mere pledge of shares by the deposit of share certificates and blank share transfer forms with a creditor is insufficient to grant the creditor a right to sell the deposited shares where the Articles of the company whose shares are pledged contain restrictions on their transfer or sale.

  186. [99] Before examining the authorities cited by Mr Chacko, it is apposite to make a few preliminary observations. It is irrelevant for the defendants to submit that Rainforest had not waived compliance with the eSys Articles relating to the sale or transfer of Pledged Shares. No such argument was mounted by SBI SG to this effect who has in any event confirmed its intention to sell the Pledged Shares in conformity with the eSys Articles. The other three objections raised by Mr Chacko related to the absence of formal documentation granting the power of sale. An equitable mortgage by its nature typically arises by operation of law in the absence of formal documentation. If Mr Chacko is right, it would follow that shares which are the subject of an equitable mortgage, which does not expressly provide for a power of sale, cannot be enforced. I am not aware of any authority to support such a wide proposition. In fact, the authorities are to the contrary.

  187. [100] Finally, Mr Chacko’s submission also fails to recognise the distinction between the accrual of the power of sale and the exercise of the power of sale. The important distinction was spelt out in the Australian case of Elders Forestry Ltd v Bosi Security Services Ltd & Others [2010] SASC 223 where the court at [147] held that:

  188. [101] Mr Chacko cited several decisions in aid of his proposition that an implied power of sale does not arise in respect of the Pledged Shares given the restrictions of sale and transfer under the eSys Articles. First, Mr Chacko relied on France v Clark, where France, the registered holder of ten fully paid up shares, deposited the certificates together with a signed blank transfer of the shares with Clark as security for a loan for 150 pounds. The Articles of Association of the company required that all transfers should be subject to the approval of the directors. Clark then used the share certificates as security for his own debts to Quihampton for the sum of 250 pounds and in so doing, transferred the benefit of his equitable mortgage by deposit to Quihampton. Clark passed away shortly thereafter. Without communicating with France, Quihampton filled in his own name as transferee of the shares and sent them for registration to the company. The issue before the court was whether Quihampton became the purchaser for valuable consideration without notice of France’s rights when he filled in the blanks in the share transfer. The court rejected the argument that France, by the deposit of the shares and the signed blank transfer, had enabled Clark to represent himself as the true owner or the person having the power to deal with the shares as owner because the share transfer form itself showed that Clark was not the owner. The court held that Quihamption merely stepped into the shoes of Clark as equitable mortgagee and accordingly, the share transfer to himself as owner was a nullity. This decision provides no assistance to the defendants for various reasons.

  189. [102] First, before me there is no issue of SBI SG transferring the Pledged Shares to itself as owner. Instead, SBI SG is taking steps to sell the Pledged Shares as an equitable mortgagee with the court’s assistance and in compliance with the eSys Articles. Secondly, SBI SG is not claiming to have ownership rights over the Pledged Shares unlike in France v Clark. Instead it is merely seeking to enforce its rights as equitable mortgagee which was what the court held Quihampton was entitled to do.

  190. [103] The defendants’ reliance on Hunter v Hunter is also misguided. There, the plaintiff as registered owner of the shares, deposited the shares as security for a loan from the bank. The plaintiff signed a continuing guarantee to the bank and also a memorandum of charge whereby he charged in favour of the bank all the shares certificates which were deposited as security for payment on demand of the monies due to the bank. The memorandum of charge contained an express power enabling the bank to sell or dispose of any of the shares in the event of default. The shares were of a private company containing restrictions in its Articles of Association on the transfer of shares. The bank was aware of the restrictions in the Articles of Association, but transferred the shares in violation of the mechanism set out therein. The House of Lords eventually held that the transfers were void for having been made in contravention of the Articles of Association of the company.

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