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Suryakant Natvarlal Surati and Others Vs. Kamani Bros. P. Ltd. and Others - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai High Court
Decided On
Case NumberChamber Summons No. 332 of 1983 in Suit No. 308 of 1977
Judge
Reported in[1985]58CompCas121(Bom)
ActsCompanies Act, 1956 - Sections 125, 125(1) and 125(4)
AppellantSuryakant Natvarlal Surati and Others
RespondentKamani Bros. P. Ltd. and Others
Excerpt:
company - winding up - sections 125, 125 (1) and 125 (4) of companies act, 1956 - decree in mortgage suit provides for sale of mortgaged property on default - insolvency proceedings instituted against company subsequently - whether section 125 prevents execution of said decree - section 125 deals with charge created by company - time of redemption under decree covers a period subsequent to order of winding up - decree by which company's property is ordered to be sold for realization of amount due to creditor cannot be treated as charge in favour of company - held, decree enforcing a charge passed prior to winding up not affected by section 125. - maharashtra scheduled castes, scheduled tribes, de-notified tribes (vimukta jatis), nomadic tribes, other backward classes and special..........and the creditors. what is required to be determined is whether s. 125 can be applied to a mortgage decree which has been passed on such a mortgage against a company prior to its being wound up, so that the decree on the mortgage becomes void as against the liquidator.4. the only point which requires consideration in the present case is whether s. 125 of the companies act will prevent the decreeholder from executing a decree for sale obtained in a mortgage suit against a company prior to the order of winding up, if the decree is in respect of a mortgage unregistered under the companies act. section 125 deals with a charge created by the company. such a charge must be registered as provided in s. 125. otherwise, it will not bind the liquidator. now, a decree is not a charge.....
Judgment:

Sujatha V. Manohar, J.

1. The plaintiffs, who are the trustees of Kamani Engineering Corporation Limited Employees' Gratuity Fund, had filed Suit No. 308 of 1977 in this court against the defendant company for realisation of amounts due under a mortgage created in their favour by deposit of title deeds made on January 18, 1966. In this mortgage suit, a decree on admission was passed on December 3, 1977. Under this decree, it has been declared that by virtue of the deposit made on or about February 18, 1966, by the defendants with the plaintiffs of the title deeds of the property described in the plaint, the plaintiffs are entitled to the mortgage or charge on the said property. It has been further declared that there is due and owing to the plaintiffs on the security of the said mortgage, the sum of Rs. 20,55,541 for principal and Rs. 1,93,135.92 for interest and other amounts as stated therein; under the said decree, the date of redemption is fixed as December 3, 1980. It is further provided that in the event of the defendants committing default in payment of the said principal sum and interest and costs by the prescribed time, the Commissioner of this court for taking accounts do sell by public auction the said mortgaged property and that the net sale proceeds of such sale or so much thereof as may be sufficient be applied in or towards satisfaction of the said decree and the costs. We are not concerned with the other provisions of this decree.

2. On August 3, 1979, a winding-up order was made in respect of the defendant company in Company Petition No. 109 of 1978. The decree on admission is admittedly prior to the order of winding up of the defendant company or the filing of the winding-up petition.

3. The applicants contend that no steps can be taken under the said decree by the plaintiffs for the sale of the mortgaged property in question and they further contend that the said decree is not binding on the official liquidator. In support of this contention, they rely upon s. 125 of the Companies Act. Section 125 provides as follows :

'125. 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 or undertaking is conferred thereby, be void against the liquidator and any creditor of the company unless the prescribed particulars of the charge, together with the instrument, if any, by which the charge is created or evidence 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 :

(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 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.'

Thus, under the provisions of s. 125, a charge, which is mentioned in sub-s. (4), which is not registered with the Registrar of Companies is void as against the liquidator or the creditors. This section comes into operation when a winding-up order is made against the company. In the present case, the mortgage by deposit of title deeds, which was created on January 18, 1966, was not registered with the Registrar of Companies. In view of s. 125 of the Companies Act, the mortgage would have been void as against the official liquidator and the creditors. What is required to be determined is whether s. 125 can be applied to a mortgage decree which has been passed on such a mortgage against a company prior to its being wound up, so that the decree on the mortgage becomes void as against the liquidator.

4. The only point which requires consideration in the present case is whether s. 125 of the Companies Act will prevent the decreeholder from executing a decree for sale obtained in a mortgage suit against a company prior to the order of winding up, if the decree is in respect of a mortgage unregistered under the Companies Act. Section 125 deals with a charge created by the company. Such a charge must be registered as provided in s. 125. Otherwise, it will not bind the liquidator. Now, a decree is not a charge created by the company. It is, therefore, not covered by s. 125. Secondly, the rights of a decreeholder flow from the decree itself. Hence, a decree enforcing a mortgage or a charge is distinct from the mortgage or charge which it enforces. Under sub-s. (4) of s. 125 of the Companies Act, various unregistered charges which became void under that section are enumerated. These include 'a charge on any immovable property wherever situate or any interest therein'. These words do not cover a mortgage decree. This becomes even more apparent if these words are read with the main provision in s. 125(1) which deals with only a charge created by a company A decree on a mortgage, especially one obtained prior to winding up of the company, is, therefore, not governed by s. 125.

5. As a result of the decree in the present case, the rights under the mortgage have become crystallised in the decree for sale which has been passed. It may be that the mortgagor's right of redemption may continue up to a period prescribed in the decree and even thereafter until the sale of the mortgaged property under statutory provisions, but that does not mean that the decree itself is merely a charge. In the present case, rights under the mortgage have become finalised in the decree for sale which was validly passed at a time when there was not winding up petition pending against the company in the court. The mortgage as against the company was valid and a valid decree has been passed pursuant to that mortgage. It is not open to the official liquidator to consider that decree as void as against the official liquidator. In this connection a reference may be made to a judgment of the Kerala High Court in the case of Kerala Financial Corporation, Trivandrum v. Sivasankara Panicker [1978] Tax LR 1850. In that case, the Kerala High Court was required to consider the effect of a statutory charge under the provisions of the Kerala State Financial Corporations Act, 1951. The learned judge of the Kerala High Court in the course of the judgment observed that a decree by which the company's property is ordered to be sold for realisation of the amount due to the creditor cannot be considered as a charge created by the company. I am in respectful agreement with that observation. In short, a decree enforcing a charge passed prior to winding up is not hit by s. 125 of the Companies Act.

6. Mr. Zaiwalla, learned counsel for applicants, drew my attention to the provisions of s. 60 of the Transfer of Property Act, 1882, under which the right of a mortgagor to redeem the mortgaged property continues until such right is extinguished either by the act of the parties or by a decree of a court. He drew my attention to a decision of the Full Bench of this court in Rajaram Vithal v. Ramchandra Pandu AIR 1948 Bom 226. In that case, the mortgagor had filed a suit for redemption. The suit abated on the death of the mortgagor; thereafter, the heirs of the mortgagor filed a suit for redemption. The court held that a second suit for redemption was not barred. The court, in the course of its judgment, observed that by virtue of the proviso to s. 60 of the Transfer of Property Act, the right to redeem continues so long as it has not been extinguished either by the act of the parties or by a decree of a court. It went on to observe that so long as the relationship of mortgagor and mortgagee continues and so long as the right to redeem has not been extinguished by a decree of the court or by the act of the parties, the mortgagor is entitled to go to a court of law to enforce his right to redeem. The court further held that the abatement of the first suit for redemption did not amount to extinguishment of the right of redemption by virtue of a decree of the court. Mr. Zaiwalla also cited a decision of the Federal Court in the case of Thota China Subba Rao v. Mattappalli Raju AIR 1950 FC 1, where the court was required to consider whether the right of redemption had been extinguished by a decree of the court. In that case, a suit for redemption which was filed by the mortgagor was dropped as the parties had settled their disputes and the compromise was recorded in two documents. The court came to the conclusion that this did not amount to an extinguishment of the right of redemption. Mr. Zaiwalla strongly relied upon the observations in that judgment to the effect that the right of redemption is an incident of a subsisting mortgage and it subsists so long as the mortgage itself subsists.

7. My attention was also drawn to the provisions of O. 34, r. 5, CPC, under which it is open to the mortgagor to make payment in court of all the amounts due from him under sub-r. (1) of r. 4 on or before the day fixed or at any time before the confirmation of sale made in pursuance of a final decree passed under sub-r. (3) of r. 5.

8. It is difficult to see how these judgments or the provisions of O. 34, r. 5, can be of any assistance to the applicants in the present case. It has been submitted by Mr. Zaiwalla on the strength of these judgments that although a decree may have been passed on the basis of the mortgage, the mortgagor's right to redeem the mortgage continues. In the present case, since the time of redemption under the decree covers a period subsequent to the order of winding up, the mortgage continues after the order of winding up, and the decree becomes void as against the official liquidator. This contention does not appear to be correct. We are not concerned in the present case with the right of the mortgagor to redeem the mortgaged property. The right of redemption may continue even after a decree on the mortgage either under the express terms of the decree or by operation of law. But that does not convert a decree on a mortgage into a mortgage, much less a mortgage created by the company. Such a decree is not affected by s. 125 of the Companies Act.

9. Mr. Nain, learned counsel for the official liquidator, pointed out that under s. 529 of the Companies Act, the same rules shall prevail in winding up of insolvent companies as the rules applicable under the law of insolvency to the estates of insolvents. He submitted that a decree passed against an insolvent company can be reopened if it is unconscionable or collusive. There is, however, nothing in the present case which would indicate that the decree is collusive or unconscionable. A decree on admission is not per se collusive. No grounds have been made out for going behind the decree, assuming that it is open to do so.

10. In the premises, the present chamber summons is dismissed with costs.


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