Judgement Consolidated Appeal (No.62 of 1943) from a decree of the High Court (August 3, 1938), which varied a decree of the Subordinate Judge of Agra (April 27, 1931). The father of the appellant (of whom the appellant was the heir and legal representative) on January 9, 1930, brought the suit out of which this appeal arose against the respondents, debenture holders, to recover Rs.31,000, with interest, advanced by him to the Agra United Mills, Ld., under an agreement of December 4, 1927, made between him and the receiver appointed by the court, at the request of the trustees for the debenture holders. He also claimed a declaration that the decretal amount should have priority over the debenture charge of the respondents on all the property of the Mills. The Subordinate Judge decreed the claim for the entire amount, with interest, and granted the declaration prayed for. The respondents appealed only on the question of the declaration, and the High Court (Bennet A.C. J. and Verma J.) allowed the appeal in part, varying the declaration by granting a declaration that the decretal amount should have priority over the assets of the Mills in regard to which the debenture holders (the respondents) had a floating charge, and not over the assets of the Mills in regard to which they had a fixed charge. The facts and the terms of the loan agreement appear from the judgment of the Judicial Committee. 1945. Jan. 23, 24. Sir Thomas Strangman K.C., and Khambatta for the appellant. The question is whether the appellant has total priority, as found by the trial court, partial priority, as held by the High Court, or, in effect, no priority, as contended by the debenture holders. There is no question with regard to the factum of the loan or the amount due. The main point is as to the meaning of the agreement. If the appellant has limited his rights as the High Court consider— to the lien of the employees for arrears of wages—then he cannot contend that the labourers would have any claim over the assets which were specifically charged; the authority cited by the High Court, \ In re Lewis Merthyr Consolidated Collieries, Ld., Lloyds Bank, Ld. v. The Company (i), is conclusive on that point. It comes back, therefore, to whether his rights have been limited in that way. They have not. v. The Company (i), is conclusive on that point. It comes back, therefore, to whether his rights have been limited in that way. They have not. The goods mentioned in the agreement having been proved to belong to the appellant he was entitled under the only operative part of the agreement to the hypothecation of property worth at least Rs.6o,ooo as security for the loan. That being so, his debt had a secured priority over all the property subject to the charge, whether fixed or floating, created in favour of the debentures, and the judgment of the Subordinate Judge was right. Rewcastle K.C., and U. Sen Gupta for the respondent R. E. John, one of the trustees for the debenture holders. This suit as put forward rested only on the agreement made between the appellants predecessor and the receiver and not on any claim under the general law. Admittedly, in English practice where a receiver of debenture holders is appointed, and where the assets are in jeopardy, it is open to the court to authorize the receiver to borrow, and to borrow so that the loan shall have priority over debentures. That rests on the authority of the court order. Here no such order was ever asked for or made by the court in India. The court said that, if necessary, the receiver might give the lender the equivalent right to that which the workmen had in respect of their wages; no question, therefore, arises here on the general law, and the case falls to be decided on the basis of the agreement. On the true construction of the agreement the receiver did not in fact give or purport to give a priority to the appellants debt over the property affected by the debentures, but merely agreed to secure the debt by the hypothecation of movable property worth Rs.6o,ooo. It was held in the In re Lewis Merthyr Consolidated Collieries case ([ 1929] 1 Ch. 498.) that when a receiver is appointed by a debenture holder whose debenture is secured by both a fixed charge and a floating charge, the priority given to the preferential debts applies only in respect of assets subject to the floating charge and not to assets subject to the fixed charge. That, it is submitted, is precisely the interpretation that should be given to ss. That, it is submitted, is precisely the interpretation that should be given to ss. 129 and 230 of the Indian Companies Act, and in a debenture holders action, as in a winding up, the priority given under the sections to labourers wages applies only in respect of assets subject to the floating charge, and not over those subject to the fixed charge. Therefore, on that basis, so far as the main appeal is concerned, the order of the court which empowered the loan to be made so that the lender should have this priority, did not give any priority over the assets covered by the fixed charge. When, however, debenture holders get a receiver appointed under debentures which create a charge both fixed and floating, the floating charges are crystallized and become fixed charges Robson v. Smith ([ 1895] 2 Ch. 118, 124.), and In re Crompton & Co., Ld., Player v. Crompton & Co., Ld. ([ 1914] I. Ch. 954. 961.). If, therefore, the charges were crystallized on November 30, when the receiver was appointed, it could not be the effect of any agreement made subsequently to that date that the loan should have any priority. Section 264 of the English Companies Act is a provision inserted to provide for exactly what the appellant here asks for, and the Indian Act, which otherwise is very much the same, for some reason omits that sub-section. Mar. 1. The judgment of their Lordships was delivered by LORD SIMONDS. These consolidated appeals from a decree of the High Court of Judicature at Allahabad, dated August 3, 1938, which varied a decree of the Subordinate Judge at Agra, dated April 27, 1931, raise the question whether the appellant, Lakshman Prasad (who will be called "the appellant"), is entitled as against the respondents, the holders of debentures issued by an Indian limited company known as Aga United Mills, Ld., and herein called " the company,” to any and what priority over such debentures in respect of moneys which had been borrowed from him by the receiver appointed in a suit brought by such respondents to enforce their security. The Subordinate Judge held the appellant entitled to priority in respect of all the property subject to the charge, whether fixed or floating, created in favour of the debentures the High Court limited the priority to the property subject to the floating charge. The Subordinate Judge held the appellant entitled to priority in respect of all the property subject to the charge, whether fixed or floating, created in favour of the debentures the High Court limited the priority to the property subject to the floating charge. The appellant seeks to restore the order of the Subordinate Judge, the respondents to deprive him of his priority even in respect of the property subject to the floating charge. The company was formed in 1920 with a nominal capital of Rs.150.00,000, of which Rs.65.00,000 were issued, for the purpose of working certain cotton and other mills which had previously belonged to the respondents or some of them. In the same year the company issued 200 first mortgage debentures of Rs.25,000 each, bearing interest at eight per cent, per annum. These debentures, which were in common form, were secured by a trust deed, dated August 8, 1923, which contained (a) a specific charge on certain immovable and other assets of the company, and (b) a floating charge on the rest of its property and undertaking. In and after 1925 the company also obtained financial assistance from the appellants father, Rai Bahadur Seth Suraj Bhan (whose heir and legal representative he is), under the terms of an agreement dated November 9, 1925. This agreement, which was of an elaborate character, provided (inter alia) for the lender having a lien for moneys advanced by him on raw materials in the companys godowns and other materials, products and property as therein specified. In 1927 the trustees of the debenture trust deed filed a suit (No. 84 of 1927) in the Court of the Subordinate Judge at Agra to enforce this security, and in that suit, on November 30, 1927, one, P. N. Raina, was on the application of the plaintiff trustees appointed receiver of the property and undertaking of the Company. The case was presented to the judge, and was accepted by him, as one of grave urgency, in which the appointment of a receiver was necessary for the protection of the property. It was alleged that the company had not been able to pay its staff and mill hands for at least three months, and that the mill hands had therefore gone on strike, creating a disturbance which threatened the safety of the companys property. It was alleged that the company had not been able to pay its staff and mill hands for at least three months, and that the mill hands had therefore gone on strike, creating a disturbance which threatened the safety of the companys property. On the following day, December 1, 1927, on a report made by the receiver, the court made a further order in these terms—" The Mill-hands have to be paid and from the " letter of the District Magistrate it appears that the Mill-" hands have been promised their dues, and if they do not " get their salaries then there is every chance of a riot and " disturbance at the Mill. The Mills are about to file an "appeal. In case Messrs. Suraj Bhan and Kunwar Ganesh " Singh decline to pay the money which they promised, then you can sell such properties which are admittedly theirs or raise money on such terms as you think proper. The plaintiffs should come forward to co-operate with you. The money which will be paid by Messrs. Suraj Bhan and Kunwar Ganesh Singh or any one else will confer on them the lien which the Mill-hands have on the property which is in the Mill premises." It appears that Messrs. Suraj Bhan and Kunwar Ganesh Singh did "decline to pay the money which they promised,” whatever their obligation may have been. The receiver was, therefore, by the order authorized to raise money on such terms as he might think proper. Their Lordships entertain no doubt that under this authority the receiver could validly raise money by a charge on the companys property ranking in front of the debentures. It is not to be supposed that a lender could be found to advance money on any other terms than that he should have priority for the sums advanced by him for the salvage of the property. It is not to be supposed that a lender could be found to advance money on any other terms than that he should have priority for the sums advanced by him for the salvage of the property. Acting on the authority of this order the receiver, on December 4, 1927, entered into an agreement with the appellants father which was in the following terms—"I have been appointed receiver by the court of the Additional Sub-Judge, Agra, in suit No. 84 of 1927—Major A. John versus The Agra United Mills, Limited, and under an order, dated the 30th of November and 1st December, 1927, the court has authorized me, the executant, to contract a sufficient amount of loan and pay off the salaries of the labourers, and to run the Mill so far as possible. Accordingly I have made Seth Suraj Bhan Rai Bahadur, who has been financier of the mill from before and has invested money in it, willing to advance to me at this time Rs.31,000 in cash bearing interest at annas 12 per cent, per month, on promise of paying back the amount after six months, so that salaries of the employees and labourers may be paid, and the said Seth Sahab may take away all the movable property, such as bales of prepared yarn, grain, flour, maida (fine flour), cotton, bales, packing materials, waste and other goods under preparation, i.e., under process, which lie within the limits of the Mill and which are stated by the Seth Sahab to be owned and purchased by him. Accordingly the parties have come to an agreement. I, the executant, have received Rs.31,000 in cash from Seth Suraj Bhan, Rai Bahadur, the proprietor of firm Seth Chunni Lal, resident and rais of Belanganj, Agra. As regards these goods it has been agreed upon that as there is no opportunity for sufficient inquiry at this time, hence in future if these goods will be proved to be the property and to have been purchased or under lien of Seth Sahab aforesaid, then within 10 days of the said decision I shall hypothecate to Seth Sahab aforesaid to his satisfaction, sufficient property worth at least Rs.60,000. If these goods will not be proved to be the property or under lien to Seth Sahab aforesaid, then he (Seth Sahab aforesaid) will set-off the sum of Rs.31,000 towards the price of the said goods and Seth Sahab shall have the same right and lien in respect of this amount of debt and only to that extent as the employees and labourers have in respect of these goods according to law and justice. The remaining goods aforesaid or the market value of the same, if any, shall after setting off this debt, be paid by Seth Sahab aforesaid to me, the executant, and shall be liable for the same. All these proceedings have been taken under the order of the court of the Additional Subordinate Judge of Agra, hence there is no personal liability of me, the executant, in any way." It is necessary to state this agreement in full since it appears to their Lordships that the rights of the parties depend on a proper appreciation of its effect, and that the High Court has in this respect fallen into error. It is not in dispute that the sum of Rs.31,000 was duly paid to the receiver, or that this sum was applied by him in the manner contemplated by the agreement, or that the goods therein referred to were proved to be the property of the lender and were in due course removed by him. From these facts two consequences follow. In the first place, it is clear that that part of the agreement which begins with the words "If these goods will not be proved to be the property or under lien to Seth Sahab did not come into operation, and therefore the question what right or lien the employees or labourers might have in respect of these goods according to law and justice does not arise. In the second place, it is clear that the obligation contained in the immediately preceding sentence of the agreement did become effective, and the receiver became bound to hypothecate to Seth Sahab aforesaid to his satisfaction sufficient property worth at least Rs.60,000." In these circumstances their Lordships consider that the judgment of the High Court proceeds on a wrong basis. In the second place, it is clear that the obligation contained in the immediately preceding sentence of the agreement did become effective, and the receiver became bound to hypothecate to Seth Sahab aforesaid to his satisfaction sufficient property worth at least Rs.60,000." In these circumstances their Lordships consider that the judgment of the High Court proceeds on a wrong basis. The terms of the agreement, by reference to which the learned judges of that court have determined the issue, may be assumed to be an infelicitous way of providing that the lender should be subrogated to the same rights of preferential payment as the relevant sections of the Indian Companies Act prescribe for labourers and workmen, and there is no reason to doubt the correctness of the conclusion to which the High Court has on that basis come, that in a debenture holders action as in a winding up of the company this preferential right is limited to the property subject to a floating charge. But, as already pointed out, this is not the real question for decision. It is the earlier part of the agreement which became operative, and the question is what is the right of the lender to whom the receiver has agreed to "hypothecate" sufficient property worth at least Rs.60,000." To this question there can be only one answer. The lender is entitled to a charge in priority to the debenture holders. It has been urged that the order does not expressly authorize the creation of a prior charge. That is true, but such priority is implicitly authorized. For if it were not so the order would be stultified and the property could not be saved. It has been further urged that there was not in fact any hypothecation. This, also, appears to be true. But it cannot help the debenture holders against them an agreement to hypothecate is as effectual as an actual hypothecation. This is the construction to which the Subordinate Judge came and, in their Lordships opinion, he was right. The decrees under review in this appeal were made not in the debenture holders suit, to which reference has been made, but in a fresh suit which the appellant commenced on the directions given by the Subordinate Judge on his application to have his rights determined in that suit. The decrees under review in this appeal were made not in the debenture holders suit, to which reference has been made, but in a fresh suit which the appellant commenced on the directions given by the Subordinate Judge on his application to have his rights determined in that suit. All proper parties appear to have been before the court and the result is the same. Their Lordships are of opinion that the order of the High Court should be set aside and the order of the Subordinate Judge restored, and that the respondents should pay the appellant his costs of these appeals and of the appeal to the High Court, and will humbly advise His Majesty accordingly.