BANK OF MAHARASHTRA LTD v. OFFICIAL LIQUIDATOR — 1973 DIGILAW 51 (KAR)

( 1 ) THE above Company Application is a suit filed against the Karnataka paper Mills Ltd. (in liquidation) which is ordered to be wound up in company Petition No. 11 of 1970 by this Court. The said suit was originally instituted as O. S. No. 32 of 1969 on the file of the Civil Judge, dharwar, before the Company was ordered to be wound up and after the order of winding up was passed, by an order passed under S. 446 of the companies Act, 1956 (hereinafter referred to as the Act), it was withdrawn to this Court for disposal, and numbered as Company Application no. 57 of 1972. ( 2 ) THE parties to the above application shall be referred to as plaintiff and defendants in accordance with 'their description in the Court of the civil Judge at Dharwar and the pleadings shall be referred to as the plaint and written statements. ( 3 ) THE plaintiff is the Bank of Maharashtra and the suit is filed for recovery of Rs. 1,97,343-01 with future interest and costs by sale of mortgaged properties belonging to the first defendant and if necessary by applying for a personal decree against such of the defendants as are liable. The case of the plaintiff is briefly as follows : The plaintiff is engaged in banking business. Defendant 1 was a Company engaged in the business of manufacturing paper and mill board. Defendants 2, 3 and 4 are members of the Board of Directors of defendant 1 and defendant 2 is its Chairman. That in the year 1964 defendant 1 was being managed by a firm of managing Agents called M s. Paranjape Shah and Co. , and defendants 4 and 5 were partners of the said firm. That in the year 1964 defendants 2 to 5 acting on behalf of defendant 1 and on their own behalf, opened a cash credit account in the name of defendant 1 and borrowed a sum of rs. 1,50,000 in order to pay the price of the machinery bought by defendant 1. In connection with the said loan, defendants 2 to 4 executed a promissory note dt. 27-7-1964, an agreement dt. 27-7-1964 stating that the said promissory note should be regarded 'as continuing security for the loan, a document dt. 1,50,000 in order to pay the price of the machinery bought by defendant 1. In connection with the said loan, defendants 2 to 4 executed a promissory note dt. 27-7-1964, an agreement dt. 27-7-1964 stating that the said promissory note should be regarded 'as continuing security for the loan, a document dt. 20-7-1964 hypothecating the goods of defendant 1 to secure the demand cash credit and a registered memorandum of equitable mortgage dt. 15-5-1964 offering the properties of defendent 1 covered by the title deeds referred to in the Second Schedule of the plaint as security for the said loan. The amount borrowed was repayable with the stipulated interest in five annua] instalments and that the whole liability was repayable before 15-5-1969. Defendants 1 to 5 having committed default in payment of the debt, on the date of the suit a sum of Rs. 1,97,343-01 was due. It was stated that the equitable mortgage had been duly registered with the Registrar of Companies under S. 125 of the Act. ( 4 ) DEFENDANT 6 which is a registered firm was impleaded as a defendant as under an agreement dt. 17-6-1964 the possession of the assets of defendant 1 had been entrusted to it and that defendant 6 had filed a suit in o. S. No. 12/67 on the file of the Civil Judge, Dharwar, against deft. 1 for specific performance of an agreement to execute a mortgage in favour, of defendant 6 in respect of the properties of defendant 1. Defendant 7 was impleaded as he claimed to be a subsequent mortgagee of the properties of defendant 1. ( 5 ) THE plaintiff prayed for a decree for recovery of the money due under the cash credit account by sale of the mortgaged propeties of defendant 1 and also personally from defendants 2 to 5. On behalf of defendants 1 to 3 a common written statement is filed. They have denied the liability for the suit claim. The pronote ;the agreement of hypothecation of goods and the equitable mortgage are stated to be neither legal nor valid as they have not been executed by persons authorised to do so. They further pleaded as defendant 6 had been placed in possession of the assets of defendant 1 at the instance of the plaintiff, defendant 6 was liable to pay the debt. ( 6 ) DEFENDANT 4 has remained ex-parte. They further pleaded as defendant 6 had been placed in possession of the assets of defendant 1 at the instance of the plaintiff, defendant 6 was liable to pay the debt. ( 6 ) DEFENDANT 4 has remained ex-parte. Defendant 5 has stated that he had no objection for the suit being decreed. But he denied the subsequent mortgage said to have been executed in favour of defendant 7. Defendant 6 pleaded that there was collusion amongst defendants 1 to 5 and 7 and that no personal decree could be passed against it, as it was in possession of the assets of defendant 1 under the agreement dt. 17-7-1964 and it had filed a suit for specific performance of the said agreement in o. S. No. 12 of 1967. ( 7 ) DEFENDANT 7 pleaded that the suit mortgage was not valid and binding. After defendant 1 was ordered to be wound up and the Official Liquidator assumed his duties, an additional written satement was filed and the principal plea raised in that written statement was that the equitable mortgage was not enforceable against the Offical Liquidator as it had not been duly registered with the Registrar of Companies as required by the Act. On the basis of the above pleadings, the following issues have been framed: - (1) Whether the promissory note dt. 27-7-1964 is executed by defendants 2 to 5 and if so, is it by persons validly authorised as per provisions of the Indian Companies Act? (2) Whether the agreement of hypothecation dt. 20-5-1964 is executed by defendants 1 to 5 and if so, is it by persons validly authorised as per provisions of the Indian Companies Act ? (3) Whether the mortgage by deposit of title deeds dt. 15-5-64 is executed by the 1st defendant through its constituted attorney 5th defendant and if so, is it by persons validly authorised as per provisions of indian Companies Act ? (4) Whether promissory note, agreement of hypothecation and the mortgage by deposit of title deeds are not executed by persons validly authorised as per provisions of Indian Companies Act and if so, to what effect ? (5) Whether by virtue of the terms of the agreement dt. (4) Whether promissory note, agreement of hypothecation and the mortgage by deposit of title deeds are not executed by persons validly authorised as per provisions of Indian Companies Act and if so, to what effect ? (5) Whether by virtue of the terms of the agreement dt. 17-7-64 the liability to discharge the suit debt is transfered to the 6th defendant and that at the instance of the plaintiff and consequently the liability of the defendants 1, 2 and 3 is discharged? (6) Whether the plaintiff's suit is barrred by estoppel as contended in para 4 of the written statement of defendants 1 to 3 ? (7) Whether the 6th defendant was clothed with authority from the 1st defendant to acknowledge the liability on 31-12-1966 ? (8) What is the legal effect of the acknowledgement of liability by the 6th defendant on 31-12-1966 ? (9) Whether the 5th and 7th defendants are liable to discharge suit debt ?' (10) To what reliefs, if any, are the parties entitl additional ISSUES : (1) Whelther there has been compliance with S. 125 of the Companies act with respect to the claim of the plaintiff ? (2) Whether the claim of the plaintiff is unsustainable on account of non-compliance with S. 125 of the Companies Act ? issues 1 to 4: The above issues can be conveniently dealt with together. They relate to the validity and binding nature of the promissory note, agreement of hypothecation and the equitable mortgage. ( 8 ) THE evidenee of PW. 1 remains unchallenged. None of the defendants 2 to 5 has entered the witness box. It is clear from the statements of account exts. P-7 to P-11 issued by the plaintiff, which is a Banker, that as on 1-8-1969 a sum of Rs. 1,94,159-38 was due to the plaintiff under the cash credit account. Exts. P-1 to P-4 have been duly proved. They are not also denied by defendants 2 to 5 who have executed them. Exts. P-1 to P-4 are executed on behalf of defendant-1. Defendants 2 to 4 are the members of the Board of Directors and defendants 4 and 5 are partners of the Managing agency Firm managing defendant-1. They are authorised under the Articles of Association of defendant-1 to borrow money on behalf of defendant-1. Hence there is no substance in the plea that Exts. P-1 to P-4 are not binding on defendant-1. They are authorised under the Articles of Association of defendant-1 to borrow money on behalf of defendant-1. Hence there is no substance in the plea that Exts. P-1 to P-4 are not binding on defendant-1. Exts. P-1 to P-4 having been executed to secure the loan due under the cash credit account opened in the name of defendant-1, the plaintiff is entitled to enforce Exts. P-1 to P-4 for recovering the amount due under the said account. I may add that at the time of hearing, no arguments were addressed on these issues. There is also no dispute about the actual amount claimed by the plaintiff. Hence the plaintiff is entitled to recover the same in accordance with the terms of exts. P-1 to P-4. I hold that Exts. P-1 to P-4 are valid and binding on defendant-1. Issues 5 to 8: These issues relate to the liability of defendant-6. Issues 9: The above issue relates to the liability of defendants 5 and 7. Issue 10: This issue relates to the relief to which the plaintiff is entitled. I shall deal with this at the end of this judgment. ( 9 ) ADDITIONAL issues 1 and 2: These two issues were framed by this Court after the case was withdrawn to the file of this Court under S. 446 of the act. They arise out of the additional written statement filed by the official Liquidator in which he has pleaded that the mortgage created by ext. P-4 is not binding on him on the ground that the mortgage had not been duly registered with the Registrar of Companies as required by. S. 125 of the Act. The Registrar of Companies has been examined as a witness on behalf of the Official Liquidator in this case and he has produced the relevant documents which were in his custody. He has no personal knowledge about the registration of the charge. The question has to be decided only on the basis of the documents marked in the case. Ext. D-2 is the prescribed form (Form No. 8) signed by defendant-5. It relates to the mortgage created by Ext. P-4. It is dated 28-7-1964 and bears the seal of the Registrar of Companies. It is seen that it was received by the Registrar on 1-9-1964. Ext. D-2 is the prescribed form (Form No. 8) signed by defendant-5. It relates to the mortgage created by Ext. P-4. It is dated 28-7-1964 and bears the seal of the Registrar of Companies. It is seen that it was received by the Registrar on 1-9-1964. It is further seen that the said form had been received earlier on 11-6-1964 but had been returned in order to rectify certain mistakes. As the time prescribed for filing expired, defendant-1 applied to the district Judge, Dharwar, in Mis. 75 of 1964 as per Ext. D-4 under S. 141 of the Act for condoning the delay in registering the mortgage created under ext. P-4. The District Judge extended the time at the first instance by three and a half months from 20-5-1964 and later on to 15-8-195 for registering the mortgage. Thereafter defendant-1 forwarded the application for , registering the mortgage in Form No. 8 on 10-8-1965 and it was received by the Registrar before the date upto which time had been extended by the District Judge. Ext. P-21 dated 19-8-1965 is the Certificate of registration of Mortgage issued by the Registrar under S. 132 of the Act certifying that the equitable mortgage dated 20-5-1964 (Ext. P-4) for Rs. 1,50,000 in favour of the plaintiff had been duly registered in his office. It was argutd that the District Judge had by his order extended time for registering the mortgage and not for filing the particulars and hence the mortgage had not been duly registered. Reliance was placed on the words direct that time for filing of the particulars or for the registration of the charge or for the giving of intimation of payment or satisfaction shall be extended in clause (b) of S. 141 (1) of the Act in support of the contention that 'filing' was different from 'registration'. I do not think that there is any substance in the above contention. S. 125 prescribes only the time within which the particulars of a mortgage have to be filed and does not prescribe the time within which the Registrar should register it. Secondly, Clause (b) of S. 141 (1) empowers the Court to extend the time on an application filed by the Company or any person interested in the mortgage or charge being registered, but not by the Registrar. Secondly, Clause (b) of S. 141 (1) empowers the Court to extend the time on an application filed by the Company or any person interested in the mortgage or charge being registered, but not by the Registrar. What all a company is expected to do under S. 125 is to file the particulars in time. The act of registration has to be performed by the Registrar. If there is delay in registration then the only consequence may be that the registration may not prejudice any rights acquired in respect of the property before the mortgage or charge is actually registered. But it cannot be said that the registration itself is ineffective for all purposes. ( 10 ) THE argument urged on behalf of the Official Liquidator may be repolled on another ground in this case. Ext. P-21 is the Certificate of Registration issued under S. 132 of the Act. Section 132 reads:"132. Certificate of Registration: The Registrar shall give a certificate under his hand of the registration of any charge registered in pursuance of this Part stating the amount thereby secured; and the certificate shall be conclusive evidence that the requirements of his Part as to registration have been complied with. " ( 11 ) THE language of S. 132 is similar to S. 93 (5) of the Companits (Consolidation) act, 1908 of England. Dealing with the conclusive nature of the Certificate of Registration issued by the Registrar Servition, LJ. : observed in national Provincial and Union Bank of England v. Charnley, (1924)1 K. B. 431, as follows:-"the object of the certificate in that case is to prevent the debenture holders' security from being upset if it turns out that the company or the registrar has made a mistake as to what has been put on the register. I am bound to say that the language of the statute is rather puzzling: "every mortgage or charge created by a company. . . . . . . shall be void unless the prescribed particulars of the mortgage or charge. . . . are delivered. . . . . to the regiatrar. . . . . . . within twenty-one days. " That makes the avoidance depend on the neglect to send in the particulars. The neglect to register the charge will not make it void. . . shall be void unless the prescribed particulars of the mortgage or charge. . . . are delivered. . . . . to the regiatrar. . . . . . . within twenty-one days. " That makes the avoidance depend on the neglect to send in the particulars. The neglect to register the charge will not make it void. Then when the registrar has got the particulars and the instrument creating the charge, he is to enter in the register, not the particulard delivered by the company, but the date of the instrument and its description, the amount secured, short particulars of the property mortgaged or charged, and the names of the mortgagees or persons entitled to the charge, So that there is a possibility, First, of the company making an error in delivering the particulars, and secondly of the registrar making an error either in omitting to enter something specified in the particulars, or in misunderstanding the instrument of charge delivered to him with the particulars; and for that reason one can well understand a clause being put in favour of the grantees cf the charge, who are not the persons whose duty it is to deliver the particulars, that if the registrar gives a certificate that all is in order, that Certificate shall be conclusive evidence that the requirements as to registration have been complied with. The result of the legislation as it appears to me is that if the document sent in for registration does contain a charge on particular property, even if the company sending it in has misstated that charge, or the registrar considering it judicially has misunderstood it, when once 'the certificate has been given the grantees are safe. Though one can see that this may cause great hardship to a person who gives credit to the company in reliance on a defective register, one can also see that equal hardship would be caused to secured creditors with the action of persons over whom they had no control. For these reasons I take the view which was taken in In re yolland, Hussen and Birkest (1908) 1 Ch. 152 and Cunard Steamship co. v. Hopwood (1908) 2 Ch. 564. , that the giving of the certificate by the registrar is conclusive that the document creating the charge was properly registered, even if in fact it was not properly registered. 152 and Cunard Steamship co. v. Hopwood (1908) 2 Ch. 564. , that the giving of the certificate by the registrar is conclusive that the document creating the charge was properly registered, even if in fact it was not properly registered. " ( 12 ) WHILE construing S. 95 (5) of the Companies Act, 1948, which is similar to s. 132 of the Act, the view expressed by Scruttcn, LJ. in the case referred to above has been followed in re Mechantsations ' (Egaleseliffe) Ltd, 35 Comp. Cases 478, and In re Eric Holmes (Property Lid.) (In Liquidation), 35 Comp. Cases 811. In Benares bank Lid. v. Bank of Bihar Ltd. , AIR1947 All 117, it was held that when once a Certificate of Registration was issued under S. 114 of the Companies Act, 1913, it was no longer open to challenge any of the mechanical steps of registration including the delivery of particulars or payment of prescribed fees. Following the decisions referred to above, I hold that it is not open to the official Liquidator to contend that the mortgage created by Ext. P-4 is not enforceable against the assets of defendant-1 in his hands. My findings on the additional issues 1 and 2 are therefore against the Official Liquidator. The next question relates to the nature of relief which may be granted in this case. The assets of. defendant-1 which had been mortgaged under ext. P-4 have been sold by the Official Liquidator pursuant to orders passed by this Court free from encumbrances and therefore no question of passing a decree for sale arises in this case. The plaintiff is entitled to recover the money due to him from out of the moneys realised on sale of the mortgaged properties. ( 13 ) IN the result, the suit is decreed declaring that the plaintiff is entitled to recover from out of the sale proceeds of the mortgaged properties (after defraying or providing for payment of any prior liabilities) in the hands of the Official Liquidator a sum of Rs. 1,97,343-01 with interest at six per cent per annum on Rs. 1,50,000 from the date of the suit till the date of payment. The plaintiff is entitled to recover costs also. Advocate's fee shall be calculated in accordance with the Rules governing the same in original suit instituted before Civil Courts in the State. 1,97,343-01 with interest at six per cent per annum on Rs. 1,50,000 from the date of the suit till the date of payment. The plaintiff is entitled to recover costs also. Advocate's fee shall be calculated in accordance with the Rules governing the same in original suit instituted before Civil Courts in the State. If the sale proceeds (after defraying or providing for payment of any prior liabilities) are found to be insufficient, the plaintiff is permitted to make an application for payment of the balance of the decretal amount from out of the other assets of defendant-1 in the capacity of an unsecured creditor. A decree shall be drawn up accordingly. --- *** --- .