Judgement Appeal (No. 9 of 1928) from a decree of the Chief Court of Oudh (November 26, 1926) varying a decree of the Subordinate Judge of Unao. The appellants brought a suit against the Pioneer Mills, Ld., upon a mortgage dated August 10, 1922, executed by that company. Subsequently a winding-up order was made against the company. The appellants were given leave under the Indian Companies Act, 1913, s. 171, to continue their suit and the liquidators were brought on the record as defendants. The present respondent firm was added as a defendant, as they claimed a charge on the companys assets under a mortgage to them by the company dated August 31, 1922, which was registered on September 21, 1922. Law. Rep. 57 Ind. App. 76 ( 1929- 1930) Ram Narain V. Radha Kishen Moti Lal C hamaria Firm 233 The Chief Court, varying the decree of the trial Court, decreed the plaintiffs Rs.4,18,666-10-0 against assets of the company in the hands of the liquidators, subject however to a prior charge in favour of the defendant firm under the mortgage to them of August 31, 1922. Upon the present appeal the Judicial Committee found upon the facts that the mortgage of August 31, 1922, was without consideration. Thereupon there arose the question which alone is the subject of the present report—namely, the right of priority between the mortgage of August 10, 1922, sued on, and a mortgage of the same date executed by the company in favour of the Tata Industrial Bank, Ld., and assigned to the defendant firm in 1923. Both these mortgages were secured upon the companys refinery. The mortgage to the plaintiffs, which was in terms a second mortgage upon the refinery, was registered under the Indian Companies Act, 1913, on November 21, 1922; the mortgage to the bank was not so registered until December 22, 1922. The order extending the time for registering the mortgage to the bank was dated December 6, 1922, and provided that it was made "without prejudice to the rights of any mortgagee accrued in the meantime." The material facts and the terms of ss. 109 and 120 of the Indian Companies Act, 1913, appear from the judgment of the Judicial Committee. 1929. Nov. 5, 7, 8, 11, 12. Upjohn K.C. and Dube for the appellants. Dunne K.C. and Swords for the respondent firm. 109 and 120 of the Indian Companies Act, 1913, appear from the judgment of the Judicial Committee. 1929. Nov. 5, 7, 8, 11, 12. Upjohn K.C. and Dube for the appellants. Dunne K.C. and Swords for the respondent firm. Reference was made to In re Monolithic Building Co. ([ 1915] 1 Ch. 643.) and In re Cardiff Workmens Cottage Co. ([ 1906] 2 Ch. 627.) Dec. 12. The judgment of their Lordships was delivered by SIR LANCELOT SANDERSON. This is an appeal by the plaintiffs against a judgment and decree of the Chief Court of Oudh, dated November 29, 1926, which partly affirmed and partly reversed a judgment and decree of the Subordinate Judge of Unao. The plaintiffs are the representatives of Bilas Rai Hardat Rai, a mercantile firm of Nayaganj, Cawnpore. The defendants were the Pioneer Mills, Ld., and the respondent firm Radha Kishen Moti Lal Chamaria. The Pioneer Mills, Ld. (hereinafter called "the company"), was registered under the Indian Companies Act, 1913, and carried on the business of sugar manufacturers; the factory was at Unao and the head office was in Calcutta. Radha Kishen Moti Lal Chamaria (hereinafter called "the defendant firm") carried on their business in Calcutta. The main question in this appeal is whether a mortgage dated August 31, 1922, executed by the company in favour of the defendant firm, ever took effect as a valid security, the plaintiffs alleging that there was no consideration in respect thereof. The learned Subordinate Judge found in favour of the plaintiffs on this issue. The plaintiffs suit was for the recovery of four lakhs of rupees principal and Rs. 18,666 interest on a mortgage dated August 10, 1922, executed by the company in favour of Bilas Rai Hardat Rai. The learned Subordinate Judge made a decree in favour of the plaintiffs for the sum of Rs.2, 68,000 and interest thereon, and directed that the plaintiffs should withdraw that amount from the moneys held in deposit by the Imperial Bank of Calcutta. The company was in liquidation and the said moneys in deposit represented the proceeds of the sale of the companys assets. Law. Rep. 57 Ind. App. The company was in liquidation and the said moneys in deposit represented the proceeds of the sale of the companys assets. Law. Rep. 57 Ind. App. 76 ( 1929- 1930) Ram Narain V. Radha Kishen Moti Lal C hamaria Firm 234 The defendant firm appealed to the Chief Court of Oudh ; the plaintiffs also appealed against that part of the Subordinate Judges decree which disallowed a portion of the plaintiffs claim on their mortgage. Both appeals were allowed by the Chief Court, and the plaintiffs claim was decreed for Rs.4, 18,666-10-0 with 8 per cent, per annum interest from March 15, 1923, till realization against the liquidators "subject to the prior incumbrance in favour of Radha Kishen Moti Lal Chamaria, defendant No. 2, under the deed of mortgage dated August 31, 1922." No question arises in this appeal as to the amount due to the plaintiffs on their mortgage. The appeal is against that part of the decree which directed that the plaintiffs claim should be subject to the prior incumbrance in favour of the defendant firm under the mortgage of August 31, 1922. The liquidation of the company was in consequence of an application made by the company on April 9, 1923, to the High Court at Calcutta, which made an order on June 4, 1923, for the winding up of the company. The company and the liquidators are not parties to this appeal. The material facts are as follows— On August 10, 1922, the company executed a mortgage in favour of the plaintiffs to secure a sum of four lakhs and interest at 8 per cent, per annum. The property comprised in the mortgage was the sugar refinery at Unao and the distillery, including engines, machinery, buildings and lands, considered to be part and parcel of the said sugar refinery and distillery. It was stipulated that the mortgage should be treated as a second mortgage against the sugar mills (which it was agreed meant the refinery), and as a first mortgage against the distillery. The above mentioned mortgage was not registered in pursuance of the provisions of the Indian Companies Act of 1913 until November 21, 1922. The time for registration was extended by an order of the High Court at Calcutta dated November 14, 1922, for three weeks from the date of the order. The above mentioned mortgage was not registered in pursuance of the provisions of the Indian Companies Act of 1913 until November 21, 1922. The time for registration was extended by an order of the High Court at Calcutta dated November 14, 1922, for three weeks from the date of the order. On the same day, August 10, 1922, the company executed a mortgage in favour of the Tata Industrial Bank, Ld. (hereinafter called " the bank "). It recited that the bank had agreed to open a cash credit loan account to the extent of five lakhs of rupees, and in consideration of the advances to be made and as security for the repayment the company pledged and hypothecated to the bank all the stocks of gum, sugar, molasses, coal, gunny bags and other articles from time to time on the premises of the companys refinery at Unao or at any other place which might be used as a godown. In further consideration of the said advances the company mortgaged the immovable property and machinery mentioned in a schedule, the whole of which were declared to be free from incumbrances. The premises thus mortgaged were the refinery and the machinery attached thereto. It was on these premises that the plaintiffs held a second mortgage. The above mentioned mortgage in favour of the bank was not registered under the Companies Act until December 22, 1922. The time for registration had been extended by an order of the High Court at Calcutta dated December 6 for three weeks from the date of the order. It will be necessary to refer to the terms of this order in detail when another part of this case comes to be considered. On August 31, 1922, the company executed a mortgage in favour of the defendant firm to secure an advance of five lakhs of rupees. This mortgage comprised both the refinery and the distillery and the machinery appertaining thereto. It was recited therein that the consideration for the mortgage was the sum of five lakhs paid by the defendant firm to the company at or before the execution of the mortgage, the receipt whereof the company acknowledged. The mortgage contained a proviso for redemption, and the company covenanted that it was lawfully seised and possessed of the said mills, Law. Rep. 57 Ind. App. The mortgage contained a proviso for redemption, and the company covenanted that it was lawfully seised and possessed of the said mills, Law. Rep. 57 Ind. App. 76 ( 1929- 1930) Ram Narain V. Radha Kishen Moti Lal C hamaria Firm 235 lands and premises, free from all incumbrances. The mortgage was executed by three directors of the company, and at the end of the mortgage deed there was the following memorandum "Consideration by cheque to the Tata Bank, Ld., No. 1332, dated this day, for Rs.5, 00,000, on the Imperial Bank, Burra Bzar Branch." This was signed by the same three directors. The mortgage of August 31, 1922, in favour of the defendant firm was duly registered in compliance with the provisions of the Companies Act on September 21, 1922. This is the mortgage to which the plaintiffs claim was made subject by the decree of the Chief Court, and which the plaintiffs allege was in fact without any consideration. [The judgment dealt at length with a correspondence which then took place between the defendant-respondent firm and the Tata Industrial Bank, Ld. ; it was found that the five lakhs were not paid or credited to the company or held in trust for it under the mortgage of August 31, 1922. The judgment continued—] Their Lordships are of opinion that the arrangement made on August 31, 1922, between the company and the defendant firm, of which the defendant firms mortgage was part, was never carried out; and that the arrangement made between the bank and the defendant firm in April, 1923 (which included the assignment to the firm of the mortgage of August 10, 1922, from the company to the bank), was a transaction of an entirely different nature and on different terms, to which the company were not parties, and from which the company obtained no benefit. They are, therefore, of opinion that there was no consideration in respect of the mortgage in favour of the defendant firm dated August 31, 1922. The result is that their Lordships are unable to agree with that part of the decree of the Chief Court which directed that the plaintiffs claim should be subject to the prior incumbrance in favour of the defendant firm under the mortgage of August 31, 1922. There is, however, a further matter to be considered. The result is that their Lordships are unable to agree with that part of the decree of the Chief Court which directed that the plaintiffs claim should be subject to the prior incumbrance in favour of the defendant firm under the mortgage of August 31, 1922. There is, however, a further matter to be considered. The learned counsel for the plaintiffs argued that, although the defendant firm by means of the assignment became entitled to the security held by the bank, which included a mortgage over the refinery, the plaintiffs mortgage, which was on both the refinery and the distillery, had priority over the banks mortgage, even though the two mortgages were executed on the same day—namely, August 10, 1922, and the terms of the plaintiffs mortgage expressly stated that the plaintiffs mortgage should be treated as a second mortgage against the sugar mills, i.e., the refinery. The basis of the learned counsels argument was that whereas the plaintiffs mortgage was registered in pursuance of the Indian Companies Act of 1913 on November 21, 1922, the banks mortgage was not registered until December 22, 1922, and that the order of the High Court of Calcutta of December 6, 1922, by which the time for registering the banks mortgage was extended, provided that the order should be without prejudice to the rights of any mortgagee accrued in the meantime. It was argued that by registering their mortgage on November 21, 1922, the plaintiffs acquired a right which they did not possess before, and consequently that such right could not be prejudiced by the subsequent order of the High Court or by the registration of the banks mortgage in pursuance of the said order. The order of the High Court was made under s. 120 of the Indian Companies Act. Sect. 109, which should first be referred to, is as follows "Every mortgage or charge created after the commencement Law. Rep. 57 Ind. App. 76 ( 1929- 1930) Ram Narain V. Radha Kishen Moti Lal C hamaria Firm 236 of this Act by a company and being either .... Sect. 109, which should first be referred to, is as follows "Every mortgage or charge created after the commencement Law. Rep. 57 Ind. App. 76 ( 1929- 1930) Ram Narain V. Radha Kishen Moti Lal C hamaria Firm 236 of this Act by a company and being either .... (c) a mortgage or charge on any immovable property, wherever situate, or any interest therein shall, so far as any security on the companys property or undertaking is thereby conferred, be void against the liquidator and any creditor of the company, unless the prescribed particulars of the mortgage or charge, together with the instrument (if any) by which the mortgage or charge is created or evidenced, or a copy thereof verified in the prescribed manner, are filed with the registrar for registration in manner required by this Act within twenty-one days after the date of its creation, but without prejudice to any contract or obligation for repayment of the money thereby secured, and when a mortgage or charge becomes void under this section the money secured thereby shall immediately become payable." Sect. 120 is as follows "The Court, on being satisfied that the omission to register a mortgage or charge within the time required by s. 109, or that the omission or misstatement of any particular with respect to any such mortgage or charge, was accidental, or due to inadvertence or to some other sufficient cause, or is not of a nature to prejudice the position of creditors or shareholders of the company, or that on other grounds it is just and equitable to grant relief, may, on the application of the company or any person interested, and on such terms and conditions as seem to the Court just and expedient, order that the time for registration be extended, or, as the case may be, that the omission or misstatement be rectified, and may make such order as to the costs of the application as it thinks fit." By the terms of s. 120 the Court, when extending the time for registration, has a discretion to impose such terms and conditions as it thinks just and expedient, and the material words of the order in this case are "without prejudice to the rights of any mortgagee accrued in the meantime." The phraseology of the order is not very precise, but their Lordships assume that " in the meantime " must be taken to mean the period between the date when the banks mortgage should have been registered and the date of actual registration. This period would cover November 21, 1922, when the plaintiffs mortgage was registered. Sect. 109 provides that a mortgage, such as the banks mortgage of August 10, 1922, shall so far as any security on the companys property or undertaking is thereby conferred, be void against the liquidator and any creditor of the company unless the prescribed particulars are filed with the registrar within twenty-one days after the date of its creation. It is to be noted that the section does not avoid the mortgage absolutely, but only so far as any security is given thereby on the companys property or undertaking. The effect, therefore, is that if a mortgage is not registered it is valid as an admission of debt, but as against a creditor or the liquidator it could not be said that a valid charge on the companys property had been created. The effect, therefore, is that if a mortgage is not registered it is valid as an admission of debt, but as against a creditor or the liquidator it could not be said that a valid charge on the companys property had been created. But it is provided by s. 120 that the Court may extend the time for registration in a proper case, as was in fact done in this case. What, then, was the effect of the registration of the banks mortgage within the extended time? In their Lordships opinion, the Court having extended the time for registration, and the mortgage having been registered within that time, the mortgage was constituted a valid charge ab initio, i.e., from the date of its execution —namely, August 10, 1922, subject only to such conditions as were imposed by the Court in the order which extended the time. If that be so, the banks mortgage on registration became a valid charge /on the refinery as from August 10, 1922, and the plaintiffs mortgage of August 10, 1922, which also was registered within the time extended by the High Court, became a valid charge from August 10, 1922, on the refinery and the distillery; but on the face of the plaintiffs mortgage it was only a second charge upon the refinery. Law. Rep. 57 Ind. App. 76 ( 1929- 1930) Ram Narain V. Radha Kishen Moti Lal C hamaria Firm 237 But it was said on behalf of the plaintiffs that a right to enforce their mortgage had accrued to them on the registration of the mortgage on November 21, 1922, and by the order of the Court such right was not to be prejudiced. The right which the plaintiffs had to enforce their mortgage against the property of the company depended not only upon the registration, but also on the terms of the mortgage itself, and the right which they had to enforce in respect of the refinery was a second charge only. The order of the Court of December 21, 1922, that it should be " without prejudice to the rights of any mortgagee accrued in the meantime," in their Lordships opinion, could not have been intended to convert the plaintiffs second charge upon the refinery into a first charge thereon. The learned counsel for the plaintiff-appellants, in support of his argument, referred to the decision In re Monolithic Building Co. The learned counsel for the plaintiff-appellants, in support of his argument, referred to the decision In re Monolithic Building Co. ([ 1915] 1 Ch. 643.), which decided that s. 93 of the Companies (Consolidation) Act, 1908, avoids an unregistered mortgage as against a subsequent registered incumbrancer, even though he had express notice of the prior mortgage at the time when he took his own security. The facts of the present case are materially different from the facts of the cited case, especially by reason of the fact that the plaintiffs mortgage contains an express term that it is a second charge on the refinery. Further, the learned judges who decided the cited case seem to have dealt with it "in reference to the difference of position between a registered secured creditor and a prior unregistered secured creditor" see judgment of Cozens-Hardy M.R. ([ 1915] 1 Ch. 662); the effect of the subsequent registration of the prior creditors security within the time extended by the Court does not seem to have been considered. Their Lordships are of opinion that there is nothing in the order of the High Court of December 6, 1922, which interfered with the priority of the banks mortgage upon the refinery over the plaintiffs mortgage therein. Their Lordships, therefore, are of opinion that the appeal should be allowed on the ground that there was no consideration for the mortgage of August 31, 1922, in favour of the defendant firm, but they are further of opinion that the banks mortgage of August 10, 1922, which was assigned to the defendant firm, has priority over the plaintiffs mortgage in respect of the property comprised in the mortgage so assigned to the defendant firm. The decree of the Chief Court therefore should be set aside. The decree of the Chief Court therefore should be set aside. The proper direction will be that the plaintiffs claim be decreed for Rs.4,18,666-10-0, with 8 per cent, per annum interest from March 15, 1923, till realization against the company and the liquidators thereof, with a declaration that the aforesaid claim is subject to the prior incumbrance created by the mortgage dated August 10, 1922, in favour of the Tata Industrial Bank, Ld., which was assigned to the respondent-defendant firm, and inasmuch as their Lordships understand there are other charges affecting the property of the company, the case will be remitted to the Chief Court in order that the rights of the respective creditors of the company, secured and unsecured, may be adjusted in the liquidation. The main question in this litigation was whether there was consideration for the mortgage of August 31, 1922. On that question the plaintiffs succeeded in the trial Court and failed in the Chief Court. On appeal to His Majesty in Council the plaintiffs have succeeded on the aforesaid main question, but they have failed on the question of priority of the banks mortgage over the plaintiffs mortgage. Their Lordships therefore are of opinion that the plaintiffs should recover from the defendant firm, Radha Kishen Moti Lal Chamaria, their costs in the trial Court and in the Chief Court, and two-thirds of their costs of the appeal to His Majesty in Council. The direction of the Chief Court that there should be no order as to costs of the cross-objections filed in that Court will stand. Their Lordships will humbly advise His Majesty accordingly. Law. Rep. 57 Ind. App. 76 ( 1929- 1930) Ram Narain V. Radha Kishen Moti Lal C hamaria Firm