Companies Act Case Law Indian Bank Vs The Official Liquidator Chemmeens Exports (P) Ltd & Ors

PETITIONER:
INDIAN BANK

Vs.

RESPONDENT:
THE OFFICIAL LIQUIDATOR, CHEMMEENS EXPORTS (P) LTD. & ORS.

DATE OF JUDGMENT: 08/05/1998

BENCH:
B.N. KIRPAL, SAYED SHAH MOHAMMED QUADRI

 
ACT:

 

HEADNOTE:

 

JUDGMENT:
J U D G M E N T
QUADRI,J.
This appeal, by special leave, is directed against the
order of the Division Bench of Kerala High Court in
M.C.A.No.11 of 1983 passed on January 29, 1986. That was an
application filed before the learned Single Judge of the
High Court of Kerala (hereinafter referred to as ‘the
Company Court’) by the Official Liquidator against the
Indian Bank and respondents Nos.2 to 5 herein under Section
446(2) and Section 460(4) read with Section 125 of the
Companies Act, 1956 (for short ‘the Act’) and Rule 9 of the
Companies (Court) Rules, 1959 praying for a declaration that
the charge created by the in Liquidation in favour of the
Indian bank against the land and buildings of the company,
being plaint schedule properties in O.S.169/80 before the
Principal Sub-Court, Cochin, was void and a further
declaration that the preliminary decree passed in the said
suit to the extent that it created three charge on the
assets of the company was contrary to the provisions of
Section 125 of the Act and as such void and unenforceable
against the Official Liquidator representing the Central
body of creditors excluding the decree holder.
It will be necessary to notice the facts giving rise to
this appeal for a proper appreciation of the questions
raised before us. The Indian Bank advanced certain amounts
to M/s. Chemmeens Exports Pvt. Ltd. which was secured by an
equitable mortgage by deposit of title deeds of the debtor
company with the Bank. Thereafter, winding up proceedings
were initiated against the debtor-company and on March 1,
1979 and winding up order was passed in Company Petition
No.18 of 1978. The bank sought leave of the Company Court to
file a suit for recovery of the debt amount in a sum of
Rs.29,50,609.58 due to it. The permission having been
granted by the Company Court on 7.12.79, the Indian Bank
filed the said suit, O.S.No.169/80 in the Subordinate Judg’s
Court, Cochin, against the debtor company in liquidation
which was represented by the Official Liquidator, duly
impleading the Directors of the Company. The Official
Liquidator filed written statement and contested the suit
taking, inter alia, the plea that the charge against the
properties of the company not having been registered under
Section 125 of the Act, was void. On 28.5.82, in the said
suit the Court passed a preliminary decree in favour of the
Bank. No appeal was filed by the Official Liquidator against
the said decree.
However, on March 21, 1983, the Official Liquidator
filed an application being C.M.A.No.11 of 1983 before the
Company Court for the reliefs indicated above. The bank
resisted the application on the ground that the decree
passed by the Court had become final and operates as res
judicata. The learned Company Judge referred the case to a
Division Bench expressing the view that the question was not
free from doubt. By the impugned order of January 29, 1986,
the Division Bench held that the preliminary decree passed
in the suit did not operate as res judicata; that on account
of non-registration of the charge it was void under Section
125 of the Act and that plea could be raised by the Official
Liquidator as such and also on behalf of the body of the
creditors in the application and also declared that the
preliminary decree passed on the basis of the charge created
by the company in favour of the bank against the land,
buildings and machinery of the company, as set out in the
preliminary decree, was void against the Official Liquidator
and the creditors of the company and that the same was not
enforceable against the assets of the company.
Shri Ram Kumar, the learned counsel for the appellant,
contended that since no appeal was preferred against the
preliminary decree passed in the suit filed by the bank with
permission of the Company Court against the company
represented by the liquidator on the basis of equitable
mortgage of the company’s property, it had become final, and
the Division Bench could not have gone behind the decree to
hold that as the charge, the basis of the decree, was not
registered with the Registrar and was void, the decree, was
not registered with the Registrar and was void, the decree
itself was void; that under Section 125 of the Act, what was
required to be registered was charge created by the company
and as the preliminary decree in the suit could not be said
to be a charge created by the company, Section 125 had no
application to the decree of the court. In any event,
submitted the learned counsel, the liquidator himself being
a party to the decree, it was binding on him and he could
not be permitted to plead to the contrary. Shri E.M.S.Anam,
the learned counsel appearing for the contesting respondent,
argued that because the charge created by the company on its
properties was void in view of mandatory provision of
Section 125, the Division Bench had rightly held that the
preliminary decree was also void against the creditors and
the liquidator and that it was of no consequence that the
liquidator did not appeal against it and that the principle
of res judicata had no application.
On these submissions, the question which falls for
consideration is : what is the effect of Section 125 of the
Act on a preliminary decree in a mortgage suit passed on the
basis of an unregistered charge; and what is relief to which
the judgment creditor will be entitled to in such a case?
Since the preliminary decree is assailed as being void
under Section 125 of the Act, it would be useful to read
here the said provision, insofar as it is relevant for our
purposes. It reads :
“Certain charges to be
void against liquidator
or creditors unless registered.
125. (1) Subject to the provisions
of this Part, every charge created
on or after the Ist day of April,
1914, by a company and being a
charge to which this section
applies shall, so far as any
security on the company’s property
or undertaking is conferred
thereby, be void against the
liquidator and any creditor of the
company, unless the prescribed
particulars of the charge, together
with instrument, if any, by which
the charge is created or evidenced,
or a copy thereof verified in the
prescribed manner, are filed with
the Registrar for registration in
the manner required by this Act
within thirty days after the date
of its creation :
Provided that the Registrar
may allow the particulars and
instrument or copy as aforesaid to
be filed within thirty days next
following the expiry of the said
period of thirty days on payment of
such additional fee not exceeding
ten times the amount of fee
specified in Schedule X as the
Registrar may determine, if the
company satisfies the Registrar
that it had sufficient cause for
not filing the particulars and
instrument or copy within that
period.
(2) Nothing in sub-section (1)
shall prejudice any contract or
obligation for the repayment of the
money secured by the charge.
(3) When a charge becomes void
under this section, the money
secured thereby shall immediately
become payable.
(4) This section applies to the
following charges :
(a) a charge for the purpose of
securing any issue of
debentures:
(b) a charge on uncalled share
capital of the company;
(c) a charge on any immovable
property, wherever situate, or
any interest therein:
(d) a charge on any book debts of
the company;
(e) a charge, not being a pledge,
on any moveable property of
the company;
(f) a floating charge on the
undertaking or any property of
the company including stock-
in-trade;
(g) a charge on calls made but not
paid;
(h) a charge on a ship or any share
in a ship;
(j) a charge on goodwill, on a
patent or a licence under a
patent, on a trade mark, or on
a copyright or a licence under
the copyright.
Sub-sections (5) to (8) *** ***
***”
On a plain reading of sub-section (1) it become clear
that if a company creates a charge of the nature enumerated
in sub-section (4), after Ist day of April, 1914, on its
properties, and fails to have the charge together with
instrument, if any, by which the charge is created,
registered with the Registrar of the Companies within thirty
days, it shall be void against the liquidator and any
creditor of the company. This, however, is subject to the
provisions of Part-V of the Act. The proviso enables the
Registrar to relax the period of limitation of thirty days
on payment of specified additional fees, on being satisfied
that there has been sufficient cause for not filing the
particulars and instrument or a copy thereof within the
specified period. Sub-sections (2) and (3) deal with
repayment of money secured by the charge. Sub-section (2)
provides that the provision of sub-section (1) shall not
prejudice the contract or obligation for repayment of money
secured by the charge and sub-section (3) says that when a
charge becomes void under the section, the money secured
shall become payable immediately. Though as a consequence of
non-registration of charge under Part-V of the Act, a
creditor may not be able to enforce the charge against the
properties of the company as a secured creditor in the event
of liquidation of the company as the charge becomes void
against the liquidator and the creditor, yet he will be
entitled to recover the debt due by the company on par with
other unsecured creditors. It is also evident the Section
125 applies to every charge created by the company on or
after the Ist day of April, 1914. But where the charge
is by operation of law or is created by an order or decree
of the court, Section 125 has no application.
In re: Overseas Aviation Engineering (G.B.) Ltd, [1963
(33) Company Cases 315], the Court of appeal held, inter
alia, that an order passed by the court giving effect to the
charge unregistered under Section 95 of the English
companies Act (which is not only in pari materia with
Section 125 of the Companies Act but is also identical in
terms) was not void against the liquidator of the company on
its winding up.
In Praga Tools Ltd. vs. Official Liquidator of the
Bengal Engineering Co. (P) Ltd. [1984 (56() Company Cases
214], a consent decree for repayment of money was passed
against the Bengal Engineering Company on the suit filed by
Praga Tools Company. The decree provided, inter alia, that
in the event of non-payment of the decreed amount, the praga
Tools Company would be entitled to execute decree and in the
event of execution of the decree, the security furnished by
the Bengal Engineering Company with the Registrar under an
earlier order of the court to the extent of Rs. 53,000/-
would continue as security for the decree. That decree was
not registered. Thereafter, Bengal Engineering Company went
into liquidation and its entire assets were sold by the
official liquidator. The Praga Tools Company applied
claiming to be a secured creditor to the extent of
Rs.50,000/-. A learned Single Judge of the Calcutta High
Court held that as the charge was created by an order of the
court, it would not require registration under Section 125
of the Companies Act and that the Praga Tools Company should
be treated as secured creditor to the extent of Rs.50,000/-
and was entitled to recover the amount from the official
liquidator. We approve the principle laid down by the
learned Single Judge of the Calcutta High Court. We also
make it clear that an order or decree of a Court creating
charge on the properties of a company has to be
distinguished from a preliminary decree passed in a mortgage
suit based on an unregistered charge which is hit by Section
125 of the Act. We shall advert to this aspect presently.
Now, it will be necessary to read here Section 446 of
the Act. It deals with the effect of winding up order on the
suits and other proceedings pending or in the offing.
Section 446 is in the following terms :
” Suits stayed on winding up order,
446. (1) When a winding up order
has been made or the Official
Liquidator has been appointed as
provisional liquidator, no suit or
other legal proceeding shall be
commenced, or if pending at the
date of the winding up order, shall
be proceed with, against the
company, except by leave of the
Court and subject to such terms as
the Court may impose.
(2) The Court which is winding up
the company shall, notwithstanding
anything contained in any other law
for the time being in force, have
jurisdiction to entertain, or
dispose of —
(a) any suit or proceeding by or
against the company;
(b) any claim made by or against
the company (including claims
by or against any of its
branches in India);
(c) any application made under
Section 391 by or in respect
of the company;
(d) any question of priorities or
any other question whatsoever,
whether of law or fact, which
may relate to or arise in
course of the winding up of
the company;
Whether such suit or proceeding has
been instituted, or is instituted,
or such claim or question has
arisen or arises or such
application has been made or is
made before or after the order for
the winding up of the company, or
before or after the commencement of
the Companies (Amendment) Act,
1960.
(3) Any suit or proceeding by or
against the company which is
pending in any Court other than
that in which the winding up of the
company is proceeding may,
notwithstanding anything contained
in any other law for the time being
in force, be transferred to and
disposed of by that Court.
(4) Nothing in sub-section (1) or
sub-section (3) shall apply to any
proceeding pending in appeal before
the Supreme Court or a High Court.”
A perusal of the provisions, extracted above, makes it
clear that when a winding up order has been made or the
official liquidator has been appointed as provisional
liquidator in respect of a company, the Court passing the
winding up order is empowered to adopt any of the following
courses :
(1) To grant leave to any person to institute or continue
suit or legal proceeding, pending at the date of winding up
against the company subject to such terms as that court may
impose;
(2) to entertain or dispose of
(a) any suit or proceeding by or against the company;
(b) any claim made by or against the company; including
claims by or against any of its branches in India;
(c) any application made under Section 391 by or in respect
of the company; and
(d) any question of priorities or any other question
whatsoever whether of law or fact which may relate to
or arise in the course of winding up of the company;
and
(3) to transfer to itself any suit or proceedings by or
against the company which is pending in any court (other
than that in which the winding up of the company is
proceeding) and disposed of the same.
It may be noted that these provisions have no
application to any proceeding pending in appeal before a
High Court or the Supreme Court. From this what follows is
when a suit is instituted in the court of competent
jurisdiction with the leave of the court under sub-section
(1) and a decree is passed by that court whether on the
basis of mortgage or otherwise, it would be binding on the
official liquidator and no plea inconsistent with the decree
passed against the official liquidator can be raised while
deciding the questions of priorities under clause (d) of
sub-section (2). We wish to make it clear that under Section
446, no power is conferred on the company court to declare a
decree of the competent court void – a prayer which is made
by the official liquidator in the application out of which
this appeal arises – so to that extent the application filed
by the liquidator in the company court is not maintainable.
The question, however, remains what is the effect of
the preliminary decree passed by the court against the
official liquidator on May 28, 1982. It will be useful to
read here the material portion of the preliminary decree :
“It is ordered and decreed that a
preliminary decree is passed and
that the plaintiff is entitled to
realise from the defendants a sum
of Rs. 29,50,605.59 with interest
at 14% from the date of suit till
the realization and that plaintiff
is entitled to the cost of the suit
also and that the defendants 1 to 3
will deposit in Court on or before
28.8.1982 the above said amount and
cost of the Suit and on payment of
the amount the equitable mortgage
will stand discharged and documents
of title deposited with the
plaintiff by the defendants and
which are produced by the plaintiff
in Court will be delivered to the
defendants and that in default of
payment as aforesaid, the plaintiff
may apply to the court for passing
a final decree for the sale of the
plaint schedule property and that
the money realised by such sale
shall be applied in payment of the
amount due under the decree, and
the balance if any, shall be paid
to the Ist defendant and that if
the money realised by the sale of
the plaint schedule property is
insufficient for payment of the
decree debt in full, the plaintiff
shall be at liberty to apply for a
personal decree against defendants
2 to 5 for the balance and that the
defendants will suffer cost
hitherto incurred.”
From the above quoted extract of the decree the
following directions of the Court may be noticed :
(1) that the appellant (plaintiff therein) became entitled
to realize from the respondent (defendants therein which
included company represented by the official liquidator a
sum of Rs.2,50,605.590 with interest and costs of the suit;
(2) the respondents were given liberty to deposit the said
amounts on or before August 28, 1982;
(3) if the amounts are deposited, the equitable mortgage
will stand discharged and the documents of title deposited
with the appellant-Bank by the respondents will be delivered
to them;
(4) in default of payment of the amounts, the appellant was
authorised to apply to the court for passing the final
decree for the sale of the company’s property and
realisation of the decreed amount; and
(5) in the event of the sale proceeds being less than the
amount decreed, a personal decree was also passed against
Defendants 2 to 5 therein for recovery of the unrealised
amount.
The aforementioned preliminary decree was passed by the
Court even though the official liquidator raised the plea in
the written statement that the charge created on the
company’s property was void under Section 125 of the Act.
But it may be that plea was not argued at the hearing.
However, what is clear from the material on record is that
no appeal was filed against the said preliminary decree by
the official liquidator and the preliminary decree has
attained finality.
From the above discussion, it follows that the right of
the respondents including the company represented by the
official liquidator to deposit the decree amount was
available till August 28, 1982. In other words, the right to
recover the amounts pursuant to the contract creating
charge, even under the terms of the decree was available
till the said date and thereafter ‘the matter had passed
from the domain of the contract to that of judgment’.
In Rani Sundar Koer vs. Rai sham Krishan [1934 Indian
Appeals P.9 (P.C.)], Lord Davey observed as follows :
“Their Lordships think that the
scheme and intention of the
Transfer of Property Act (now the
corresponding provisions of the
Civil Procedure Code) was that a
general account should be taken
once for all, and an aggregate
amount be stated in the decree for
principal, interest and costs due
on a fixed day; and that after the
expiration of that day, if the
property should not be redeemed,
the matter should pass from the
domain of contract to that of
judgment and the rights of the
mortgagee should thenceforth
depend, not on the contents of his
bond, but on the directions in the
decree.”
That principle was followed by the Privy Council in Kusum
Kumari vs. Debi Prosad Dhandhania & Ors. [1936 P.C. 63]
where the question of granting interest under Regulation 6
of 1872 fell for consideration. Regulation 6 provided, “the
total interest decreed on any loan or debt shall never
exceed one-fourth of the principal sum, if the period be not
more than one year, and shall not in any other case exceed
the principal of the original debt or loan”. The trial court
decreed the suit based on mortgage with interest at six per
cent per annum from the date of the decree till its
realisation. The amount of interest so decreed exceeded the
limitation prescribed under the said Regulation. The Privy
Council has observed that once a decree had been passed, the
loan or debt as the subject of enforcement no longer exists;
it was in effect merged in the decree and the allowance of
interest on the decree was not the allowance of additional
interest on the loan or debt. The same principle was
reiterated by this Court in Gyarsi Bai vs.Dhansukh Lal [AIR
1965 SC 1055]. This Court observed, “it cannot also be
disputed and the rights of the parties are thereafter
governed by the said decree”.
In Suryakant Natvarlal Surati & Ors. vs. Kamani Bros
Pvt. Ltd. [1985 (58) Company Cases 121], the company created
a charge under a mortgage in favour of the trustees of the
Employees’ Gratuity Fund. The creditors by a preliminary
decree of December 3, 1977 were entitled to receive the
amount secured on the property of the company; the court
fixed December 8, 1988 as the date for redemption and
ordered that in default of payment of the sum due by that
date, the property was to be sold by public auction. On an
application made on February 16, 1978, the company was
ordered to be wound up by and order dated August 3, 1979. As
default in payment of the decreed amount was committed, the
mortgages applied for leave of the court under Section 446
to execute the decree against the official liquidator by
application dated July 10, 1981. Three contributories sought
injunction against taking any further action on the ground
that the charge created by the company was not registered
under Section 125 of the Companies Act, therefore, the
mortgages should be treated only as unsecured creditor.
Their application was dismissed by a learned Single Judge.
On appeal, speaking for the Division Bench of the Bombay
High Court Justice Bharucha (as he then was) laid down,
inter alia, the principle that the question of applicability
of Section 125 had to be decided on the terms of the decree
– whether the unregistered charged created by the mortgagor
was kept alive or extinguished or replaced by an order of
sale created by the decree; if upon a construction of the
decree, the court found that the unregistered charge was
kept alive, the provisions of Section 125 would apply and
if, on the other hand, the decree extinguished the
unregistered charge, the section would not apply. We are in
respectful agreement with that principle. We hold that a
judgment creditor will be entitled to relief from the
Company Court accordingly.
Reverting to the facts of this case, on the
construction of the decree we have already held that the
charge was kept alive till August 28, 1982 and thereafter in
default of payment of decree amount the sale order would
take effect. In this case, admittedly the decree amount was
not paid before August 28, 1982, as such the matter had
passed from the domain of contract to the realm of the
judgment. The official liquidator filed application on March
21, 1983 seeking to declare the decree as void. By that date
what was operative in the decree as void. By that dates what
was operative in the decree was not a more unregistered
charge but an order for sale of mortgaged property for
realisation of decree amount. The preliminary decree cannot
therefore by said to be void and inoperative.
For the above reasons we hold that the Division Bench
ought not to have hold that the preliminary decree passed by
the competent court on May 25, 1980 was void and un-
enforceable and accordingly we set aside the order under
appeal dated January 29, 1986 by allowing the appeal dated
January 29, 1986 by allowing the appeal with costs.

 

 

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