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Official Liquidator, High Court, Bombay Vs. Suryakant Natvarlal Surati and Others - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai High Court
Decided On
Judge
Reported in(1984)86BOMLR254; [1986]59CompCas147(Bom)
ActsCompanies Act, 1956 - Sections 125 and 446
AppellantOfficial Liquidator, High Court, Bombay
RespondentSuryakant Natvarlal Surati and Others
Excerpt:
companies act (i of 1956), sections 125, 446, 483 - transfer of property act (iv of 1882), sections 58, 60, 91 -- civil procedure code (v of 1908), order xxxiv, rules 4, 5 -- charge created by equitable mortgage against company on its properties not registered under provisions of companies act -- effect of, on company being wound up -- official liquidator whether required to take steps to get charge declared void -- decree passed against company on unregistered charge before it was ordered to be wound up -- provisions of section 125, companies act whether and when apply -- decree indicating that unregistered charge in favour of mortgagees kept alive -- mortgagees whether can sell property of company by virtue of decree -- official liquidator not raising plea of unregistered charge on.....bharucha j.1. this appeal is directed against the judgment and order of a learned single judge dismissing an applicants' chamber summons in execution proceedings of a decree passed on admission.2. the appreciate the contentions, the facts need to be set out. on january 18, 1966, kamani brothers p. ltd. (now referred to as 'the company') deposited, with intention to create an equitable mortgage, the title deeds of an immovable property called 'kamani house' with the trustees of the kamani engineering corporation limited employees' gratuity fund . it is an admitted position that the charge created by the equitable mortgage was not registered under the provisions of the companies act.3. the trustees of the gratuity fund filed in this court a suit ( being suit no. 308 of 1977 ) against the.....
Judgment:

Bharucha J.

1. This appeal is directed against the judgment and order of a learned single judge dismissing an applicants' chamber summons in execution proceedings of a decree passed on admission.

2. The appreciate the contentions, the facts need to be set out. On January 18, 1966, Kamani Brothers P. Ltd. (now referred to as 'the company') deposited, with intention to create an equitable mortgage, the title deeds of an immovable property called 'Kamani House' with the trustees of the Kamani Engineering Corporation Limited Employees' Gratuity Fund . It is an admitted position that the charge created by the equitable mortgage was not registered under the provisions of the Companies Act.

3. The trustees of the gratuity fund filed in this Court a suit ( being Suit No. 308 of 1977 ) against the company on the equitable mortgage and prayed for realisation of the security.

4. On December 3, 1977, a decree on admission was obtained in the suit . The decree recorded that the mortgagors (the company) admitted the claim of the mortgagees (the trustees). The decree declared that 'under or by virtue of the deposit made on or the about February 18, 1966, by the defendants with the plaintiffs of the title deeds of the property described in the plaint and in the schedule hereto the plaintiffs are entitled to the mortgage or charge on the defendants' property described in the schedule hereto.' It declared the sum that was due and owing by the mortgagors to the mortgagees 'on the security of the said mortgage'. It ordered and decreed that upon the mortgagors paying into Court on behalf of the mortgagees on or before December 3, 1980, being the date of redemption, the sum so declared to be due and owing, 'the plaintiffs do deliver up all deeds, documents and writings of or relating to the property described in the schedule hereto in these possession, custody or control.' It ordered that in the event of the mortgagors committing default in payment of such sum and costs by the date of redemption 'the Commissioner of this hon'ble Court for taking accounts do sell by the public auction the mortgagees to apply for a personal decree in the event of the net sale proceeds being insufficient to pay off the balance remaining due.

5. On February 16, 1978, a company petition (being Company Petition No. 109 of 1978) was filed in this Court for winding up the company. On August 3, 1979, a winding-up order was passed.

6. Default having been made in payment of the sum due and owing under the decree by the date of redemption, the plaintiffs applied on July 10, 1981, by way of judge's summons taken out in the company petition for winding-up for leave under section 446 of the Companies Act to execute against the official liquidator as liquidator of the company the decree dated December 3, 1977, and execute it against the mortgage property. Notice was given to the official liquidator of the judge's summons. On August 6, 1981, the judge's summons were made absolute. Thereafter, the Commissioner for Taking Accounts directed the giving of advertisements in respect of the sale of the mortgage property. On April 21, 1983, the official liquidator was present at a meeting before the Commissioner for Taking Accounts.

7. On June 20, 1983, the present chamber summons was issued by three contributories of the company. The chamber summons sought for an injuction restraining the taking of any further steps in execution of the decree by sale of the mortgage property. It was contended in the affidavit in support of the chamber summons that the charge claimed by the mortgagees over the mortgage property was not registered under the Companies Act, that section 125 thereof applied and that, therefore, the mortgagees could be treated only as ordinary creditors without preferential rights. The chamber summons was contested on behalf of the company. The official liquidator supported the stand of the contributories.

8. On July 22, 1983, the chamber summons was, as aforestated, dismissed. The learned single judge noted that what was required to be determined was whether section 125 could be applied to a mortgage decree which had been passed on an unregistered mortgage against a company prior to its being wound up so that such decree became void as against the liquidator. The learned single judge found that the decree was not a charge created by the company. It was, therefore, not covered by section 125. The rights of the decree-holder flowed from the decree itself. A decree enforcing the mortgage or charge was distinct from the mortgage or charge which is enforced. A decree on a mortgage, especially one obtained prior to the winding up of the company, was, therefore, not governed by section 125. The rights under the mortgage had, as a result of decree , become crystallised in the decree for sale which had been passed. It might be that the mortgagors' right of redemption was continued up to a period prescribed in the decree and even thereafter until the sale of the mortgage property under statutory provisions, but this did not mean that the decree itself was merely a charge. In the present case, rights under the mortgage had become finalised in the decree for sale which had been validly passed at a time when there was no winding-up petition pending against the company. The mortgage as against the company was valid and a valid decree had been passed pursuant to that mortgage and it was not open to the official liquidator to consider that decree as void as of against him.

9. During the course of the hearing before us, an order was made transposing the official liquidator as the applicant in the chamber summons and as the appellant. The order was made on the application of counsel on behalf of the official liquidator and without any objection being raised on behalf of any of the parties appearing before us.

10. It is convenient to dispose of, first, a preliminary point taken by Mr. Tulzapurkar, learned counsel for the mortgagees. It was contended by Mr. Tulzapurkar that since the official liquidator had not raised the plea that the unregistered charge was void against him at the stage of the application for leave under section 446, the principles of constructive res judicata applied and the Court could not now consider his objection to the execution of the decree by sale of the mortgage property on that basis.

11. Reference was made by Mr. Tulzapurkar to the judgment in Balkrishna Mahadeo Vartak v. Indian Association of Chemical Industries Ltd. : AIR1959Bom41 . The principal question to be decided in that case was whether an order on the application under section 446 of the Companies Act was appealable under section 483 thereof. The Court observed that the object of section 446 was to save the company which was being wound up form unnecessary litigation and to protect its assets for equitable distribution among its creditors and shareholders. In dealing with an application under section 446, the Court had to consider the interest of the company to see that its assets were not wasted in frivolous and unnecessary litigation. It was Mr. Tulzapurkar's submission, based upon this judgment, that the order under section 446 was not merely procedural ; that a lis existed between the parties to an application under section 446; that the official liquidator ought to have raised the plea under section 125 at the stage of application under section 446; and that, since he had not opposed leave under section 446; and that since he had not opposed leave under section 446 upon that plea, the principles of constructive res judicata debarred the Court from considering his plea at the later stage.

12. Section 446 provided that where a winding-up order has been made or the official liquidator has been appointed provisional liquidator, no suit or other legal proceeding shall be commenced, or, if pending at the date of winding-up-order, shall be proceeded with , against the company, except by leave of the Court and subject to such terms as the Court may impose. An order under section 125 grants the applicant liberty to take legal proceedings against the company in liquidation wherein the applicant's right or claim will be adjudicated upon. The rights or claims of the applicant are not adjudicated upon in proceedings under section 446 . Even where leave is refused , the rights or claim of the applicant is provable in the liquidation proceedings. In our view, therefore, the very basis for the creation of constructive res judicata is absent.

13. The real questions to be decided in this appeal concern the provisions of section 125 of the Companies Act. It reads thus :

'Certain charges to be void against liquidator or creditors unless registered. - (1) Subject to the provisions of this Part, every charge created on or after the 1st 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 undertaking is conferred thereby, be void against the liquidator and any creditor of the company, unless the prescribed particulars of the charge together with the 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 particulars and instrument or copy as aforesaid to be filed within seven days next following the expiry of the said period of thirty days if the company satisfies the Registrar that it had sufficient cause for not filing the particulars 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 movable 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;

(i) 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 a copyright.

(5) In the case of a charge created out of India, and comprising solely property situate outside India, 'thirty' days after the date on which the instrument creating or evidencing the charge or a copy thereof could, in due course of post and if despatched with due diligence, have been received in India shall be substituted for 'thirty days ' after the date of the creation of charge, at the time within which the particulars and instrument or copy are to be filed with the Registrar.

(6) Where a charge is created in India but comprises property outside India, the instrument creating or purporting to create the charge under this section or a copy thereof verified in the prescribed manner, may be filed for registration, notwithstanding that further proceedings may be necessary to make the charge valid or effectual according to the law of the country in which the property is situate.

(7) Where a negotiable instrument has been given to secure the payment of any book debts of a company, the deposit of the instrument of the purpose of securing an advance to the company shall not, for the purposes of this section, be treated as a charge on those book debts.

(8) The holding of debentures entitling the holder to a charge on immovable property shall not, for the purposes of this section, be deemed to be an interest in immovable property.'

14. The first question is : Is a charge on the company's property which is unregistered under the provisions of the Companies Act void ipso facto upon the winding-up of the company or has the official liquidator to take steps to make it void ?

15. It was the submission of Mr. Tulzapurkar that the official liquidator had to take steps to have the unregistered charge declared void as against the company in liquidation. He relied in this context upon the judgment in Independent Automatic Sales Ltd.v. Knowles & Foster [1962] 1 WLR 974; [1962] 32 Comp Cas 1090 (Ch D) . THis was a case which a company carried on the business of manufacturing and dealing in machines and had entered into hire-purchase agreements for their disposal. It opened an account with the defendants with a view to obtaining finance for its business and signed a letter of hypothecation in their favour whereby it was agreed that all bills of exchange and other documents, securities and property whatsoever belonging to the company then or thereafter deposited with the defendants by the company and the proceeds thereof should remain pledged to the defendants as continuing security for the due payment to the defendants of all moneys and satisfaction of all liabilities for which the company were then or might at any time, thereafter, be indebted or liable to the defendants. The company deposited 53 hire- purchase agreement with the defendants and the defendants advanced to it 80 per cent. of the outstanding instalments thereunder. No registration was effected under section 95 of the (English) Companies Act, 1948, in respect of the letter of hypothecation or the deposit of the hire-purchase agreements. The company went into voluntary liquidation. It then claimed delivery by the defendants of the hire- purchase agreements and an account of all money received under and ny virtue of them on the ground that the charge created by the deposit of the agreements was void as against its liquidator for non- registration under section 95 since the debts under the agreements were book-debts within the meaning of that section. The defendants took the preliminary point that the company could not sustain the action since, under section 95(1), the charge was not void as against the company but only against its liquidator. Buckley J., singly, held that, having regard to the provisions of section 95, the company was not the proper party to assert that the charge was void for lack of registration for it was not made void as against the company but against the liquidator. The purpose of the section was to enable the liquidator to deal with the assets of the company in the liquidation in a way which he would not otherwise be adopt for the benefit of the company's creditors. He observed 'that the right course in a case of this kind is for the proceedings to be brought by the liquidator.' In Mr Tulzapurkar's submission, this judgment showed that the official liquidator had to take proceedings to have the unregistered charge declared or made void.

16. In the first place, the application that was heard by Buckley J. was for delivery of the hire-purchase agreements and an account of the moneys received thereunder. It was not an application for making, or declaring, the charge void as against the liquidator for non- registration under section 95 . In the second place, having regard to the language of section 125, it is clear that every charge created by a company which is not registered under the provisions of the Companies Act is 'void against the liquidator.' There is, therefore, no question but that a charge on the company's property which is unregistered under the provisions of the Companies Act is void ipso facto upon the company being ordered to be wound up. Such a charge has no effect upon the company's property once the order of winding-up is made. No steps are required to make or declare it void.

17. The second question that arises in regard to section 125 is this : Does the fact that a decree has been passed against the company upon the unregistered charge before the company is ordered to be wound up make any difference to this position ?

18. It was contended by Mr. Nain, learned counsel for the official liquidator, and by Mr. G.A. Thakkar, learned counsel for the three contributories, that did not. In Mr. Tulzapurkar's submission, once a decree was passed upon the unregistered charge, the provisions of the section 125 had no application.

19. Before we deal with the authorities which were cited before us, it is convenient to refer to some of the provisions of the Transfer of Property Act and the Code of Civil Procedure. Section 58 of the Transfer of Property Act defines a mortgage to be the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced . Under section 60, the mortgagor has the right, upon payment of the mortgage debt, to require the mortgagee to deliver to him the mortgage property. Section 91 provides that besides the mortgagor, any other person who has any interest in, or charge upon, the property mortgaged, any surety for the payment of the mortgage debt, and any creditor of the mortgagor who has in a suit for the administration of his estate obtained a decree for sale of the mortgage property, also have a right of redemption. Order 34, rules 4 and 5 of the COde of Civil Procedure provide for the preliminary and final decrees that may be passed in a redemption suit. Under the provisions of rule 4, the Court is obliged in a suit for the sale of mortgage property, where the plaintiff succeeds, to pass a decree ordering the undertaking of an account of the amount due under the mortgage declaring that amount, and directing that, if the mortgagor pays the amount found due within six months, the plaintiff shall deliver up to him the mortgage property. In the event of This not being done, the plaintiff is to be made entitled by the preliminary decree to apply for a final decree directing that the mortgage property to be sold.

20. Reliance was placed by Mr. Thakkar and Mr. Nain upon the judgment of the Federal Court in Thota China Subba Rao v. Mattapalli Raju, AIr 1950 FC 1. The Federal Court held that the right of redemption was an incident of a subsisting mortgage and it subsisted so long as the mortgage itself subsisted. It could be extinguished as provided in section 60 of the Transfer of Property Act and, when it was alleged to have been extinguished by a decree, the decree should run strictly in accordance with the form prescribed for the purpose. Unless the equity of redemption was so extinguished, a second suit for redemption by the mortgagor, if filed within the period of limitation, was not barred . The Federal Court preferred in this behalf the view of this Court in Ramchandra Kolaji v. Hanmanta, AIR 1920 Bom 29 , to the contrary view taken by the Madras High Court.

21. Reference was also made to this Court's judgment in Rajaram Vithal v.Ramachandra Pandu, AIR 1948 Bom 226 . The Court quoted the judgment of the Privy Council in Raghunath Singh v. Hansraj Kunwar to this effect at p.228 of AIR 1948 Bom:

'The right to redeem is a right conferred upon the mortgagor by enactment , of which he can only be deprived by means and in manner enacted for the purpose, and strictly complied with. In the present case, the only basis for the claim that the right to redeem has been extinguished is section 60; but in their Lordships' view the old decree cannot properly be construed as doing that which it does not purport to do, namely, as extinguishing the right to redeem .'

22. The Court held that it was clear from this that the right of redemption could not be taken away from the mortgagor except in the manner provided in section 60 of the Transfer of Property Act.

23. Reliance was also placed upon this Court's judgment in Noorudin Esmailji Kurwa v. Mohammed Umar Subrati, : AIR1940Bom321 . Referring to the contention that the mortgage had been merged in the decree in an earlier suit and that by reason of that earlier decree the plaintiff was precluded from seeking rectification of the mortgage Blackwell J. observed that under Order 34, rule 5, a mortgagor, can redeem until confirmation of the sale of the mortgage property and that there was no merger of the security in the decree.

24. Basing themselves upon these decisions, Mr. Nain and Mr. Thakkar submitted that the passing of the decree in the suit against the company did not have the effect of extinguishing the unregistered charge created by the equitable mortgage. That the charge created by a mortgage survived the passing of the preliminary decree was, they submitted, borne out by the authorities just mentioned which held the right to redemption survived the passing of the preliminary decree.

25. Mr. Tulzapurkar argued that upon the passing of the decree, the unregistered charge created by the equitable mortgage merged in the decree and what his clients were seeking to execute was that decree. He relied in support of this contention upon a number of authorities to which we are now advert.

26. A Division Bench of the Punjab and Haryana High Court considered in Karam Chand Moola Ram v. Telu Ram , the effect of the passing of a final decree for sale on a mortgage on the right of the mortgagor to partial redemption . It held that the wording of section 60 of the Transfer of Property Act showed clearly that the right of partial redemption recognised thereby was a right corresponding in all essential respects to the rights to redeem conferred upon the mortgagor, but this right was expressly stated as a right to redeem the mortgage money which, in section 58 was referred to as 'the principal money and interest of which payment is secured for the time being '. These moneys were commonly referred to as the mortgage debt and 'there is no doubt whatever that, upon the ordinary rules as to res judicata, the mortgage debt merges in the decretal debt, and that is so under the provisions of Order 34, Civil Procedure Code, is clear from the judgment of their Lordships of the Privy Council in Kusum Kumari v. Debi Prosad Dhandhania . That being so, the moment the final decree is passed, there is no longer any mortgage debt or mortgage money which the mortgagor can pay or tender to the mortgagee. 'Upon this, it followed that not only was the mortgage debt merged in the decretal debt but also , firstly , that the mortgage security merged in the decree and was replaced by the security of the order for sale which merger was also in accordance with the ordinary principles of res judicata, the lower mortgage security which the mortgage necessarily relied upon in his suit for sale merging in the Higher security of the resulting decree; and , secondly the right to redeem conferred by section 60 , including the corresponding right to partial redemption thereby conferred, was extinguished by the final decree passed under Order 34, rule 5(3) and the mortgagor received in exchange the right to redeem the whole property by payment of the full decretal debt.

27. The Patna High Court in Ramchandra Bhagat v. Mrs. Eva Mitra : AIR1960Pat378 , and the Madras High Court in Narayanaswami Chetti v. Vellaya Pillai, AIR 1924 Mad 366; 83 IC 852, held that the right of the mortgagor to marshal the mortgage security was lost upon a decree being passed.

28. In Managi Singh v. Saheb Ram Singh (1909) 3 IC 289, a division Bench of the Calcutta High Court held that when a decree had been made on the basis of mortgage and a date for payment of whatever might be due thereupon had been fixed in the decree, the matter in controversy passed from the domain of contract to the domain of judgment. The decree decide finally the rights and liabilities of the parties which must thence forth be ascertained by reference to the decree and not by reference to the terms of the original contract.

29. Much emphasis was laid upon the observation of the Supreme Court in Gyarsi Bai v. Dhansukh Lal : [1965]2SCR154 . The suit in respect of which the appeal was preferred before the Supreme Court was by a mortgagee to enforce the mortgage. The principle question to be a determined by the Supreme Court was whether the preliminary decree passed in the suit debarred the mortgagor from claiming that the mortgagee had to account for the profit realized by him from the mortgage properties in his possession and, if he was not so debarred, what the period was for which the mortgagee could be compelled to render accounts in respect of such profit. The supreme Court observed that it was indisputable that in a mortgage suit there would be two decrees, namely, the preliminary ad final decrees, and that, ordinarily, the preliminary decree settle the rights of the parties and the final decree worked out those rights. The observation of the Supreme Court upon which stress was placed reads thus AIR 1965 SC 1059:

'It cannot also be dispute that a mortgage merges in the preliminary decree and the rights of the parties are thereafter governed by the said decree: See Kusum Kumari v. Debi Prosad Dhandhania . But we don not see any relevancy of the said principles to the problem that arise in this case in regard to the liability of the mortgagee to account for the net receipts under s. 76 (h) of the Transfer to Property Act. Preliminary decree is only concerned with dispute germand to the suit up to the date of the passing of the said decree. The new receipts of the mortgaged property by the mortgagee subsequent to the preliminary decree are out side the scope of the preliminary decree: they are analogous to amount paid to a mortgagee by a mortgagee subsequent to the preliminary decree.'

30. The Supreme Court went to agree with the observation of Clarck J. in Chandalvada Satyanarayana v. Alladi Suryanarayand, AIR 1949 Mad 613 , inter alia, to the effect that a mortgage suit continued until the final decree was passed and the relationship of a mortgagor and mortgagee continued until then, with the limitation that the observation quoted appeared to the Court to be rather wide and comprehensive.

31. Reference may be made to the judgment in Kusum Kumari v. debi Prosad Dhandhania relied upon by the Supreme Court in the case just referred to and by the Punjab and Haryana High Court in the case quoted earlier. The question that arose here was in regard to the quantum upon which interest was payable. On behalf of the mortgagor the complaint was of the allowance of interest on the decretal amount at the rate of 6 per cent. until realisation. On behalf of the mortgagees the complaints was that they had not been allowed interest between the dates of the institution of the suit and the final decree. The Privy council affirmed the observation of Lord Davey in an earlier case to the effect that the scheme and intention of the Transfer of Property Act was that a general account should be taken once and for all, and an aggregate amount be stated in the decree for the principle, 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. With regard to the case before it, the Privy Council observed that up to the date fixed for redemption, the matter between the parties was one of their contract and what the Court had to consider was how much the law allowed them to recover under it. This was limited to twice the amount of the principal. If that limit had been reached before the institution of the suit, no further interest could be allowed between that date and the date fixed for redemption.

32. It is necessary to refer to the judgment of the Kerala High Court in Kerala Financial Corporation v. C.K. Sivasankara Panciker (1977) KLT 935; (1978) Tax LR 1850, which was relied upon by the learned single judge to come to the conclusion that the mortgage merged with the decree. the observations of the Kerala High Court read thus (at p. 1856):

'With great respect, I am not able to adopt that reasoning in this case. Section 125 applies to every charge created by the company is so far as any security of the company's property is conferred thereby. It cannot be said that a decree by which the company's property is ordered to be sold for realisation of the amount due to the creditor is a charge created by the company. it may be that the decree is based on a mortgage created by the company. But, once that mortgage in the decree, the relationship of the parties is governed by the terms of the decree and the decree creating a charge is not hit by section 125 of the Act. (See Subrahmanyan Chettiar v. Muttuswami Goundan . If the charge has not matured in a decree, not doubt, section 125 will apply and the charge will be void against all creditors and the liquidator. It is not possible to extend the scope of that section to cases where there are supervening events which are not covered by the section.'

33. It will be noted that the learned judge of the Kerala High Court relied upon the judgment of the Federal Court is Subrahmanyan Chettiar v. Muttuswami Goundan in concluding that once the mortgage had merged in the decree, the relationship of the parties was governed by the terms of the decree and the decree creating the charge was not hit by section 125 of the Act. In the Federal Court case, what was in question was a debt under a promissory note and it was held that he liability ceased to be a debt evidenced by or based on the promissory note after it had merged in the decree and become a judgment debt.

34. To recapitulate, it is held by the Federal Court and this Court that the right of redemption is an incident of a subsisting mortgage. This Court has held that there is no merger of the mortgage security in the decree. To the contrary is the view of the Punjab and Haryana High Court which has held that, because the mortgage debt merges in the decretal debt, 'the mortgage security merged in the decree and was replaced by the security of the order for sale.' The Supreme Court, the Privy council and the Calcutta High Court have held that after the passing of the preliminary decree the rights of the parties are governed by it.

35. For the application of the provision of section 125 of the Companies Act, we must see whether under the terms of the decree the unregistered charge created by the mortgage is kept alive or is extinguished or replaced by an order of secreted by the decree. If, upon a construction of the decree, we find that the unregistered charge is kept alive, the provision of section 125 apply. If, on the other hand , the decree extinguishes the unregistered charge, they do not apply.

36. In the decree on admission obtained in the suit, the Court declared 'that under or by virtue of the deposit mad on or bout February 18,1966, by the defendants with plaintiffs of the title deeds of the property described in the plaint and in the schedule hereto the plaintiffs are entitled to the mortgage or charge on the defendants' property described in the schedule hereto'. the decree fixed a date for redemption of the 'mortgage or charge ' so declared. It ordered the mortgages to deliver up all deeds relating to the mortgage property to the mortgagors (the company) should the mortgagers make payment on or before the date of redemption of the amount declared by the decree to be due under the mortgage. From these provision of the decree declaring the equitable mortgage and the charge created thereby and permitting redemption thereof within the stated period, we find that the unregistered charge created by the company in favour of the mortgage is kept alive. The order of sale of the mortgage property under the decree is to operate only if by the stated period redemption has not been effected. Upon such sale, the charge would be extinguished. The provision of section 125, therefore, apply to the unregistered charge created by the equitable mortgage and declared by the decree and it is void as against the official liquidator. The unregistered chare has no effect upon the property of the company in liquidation. The mortgagees cannot sell the mortgage property notwithstanding the decree obtained prior to the order winding up the company.

37. We mention a judgment of the King's Bench in Mercantile Bank of India Ltd. v. Chartered Bank of India, Australia and China and Strauss & Co. Ltd. (1937) 1 ALL ER 231, cited by Mr. Tulzapurkar in passing because it appear to us to have no application to the facts before us. It was a case in which a floating charge was created. In execution of the floating charge, specific properties were sized. It was held that, having regard to the legislation concerned, there having being a seizure of specific properties, the charge was no longer a floating charge but attached to the specific properties and was, therefore, not bad.

38. It was contended by Mr.Tulzapurkar that the official liquidator could no go behind the decree unless there be fraud or collusion. In view of the provisions of section 125, the official liquidator is entitled, if not obliged, to place before the executing Court his objection based thereon.

39. We do not go into and express no opinion about the question, hypothetical here, whether in circumstance such a these, the official liquidator would be entitled to claim the sale proceeds if the mortgage property had been sold.

40. In this view of the matter, the appeal is allowed, and the impugned judgment and order are set aside. The plaintiffs, the servants and agents are restrained from taking any further steps for sale of the immovable property known as 'Kamani House' in execution of the decree dated December 3,1977, in Suit No. 308 of 1977.

41. There shall be no order as to costs.

42. Appeal allowed.


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