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Maheshwari Brothers Vs. Official Liquidators, Indra Sugar Works Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtAllahabad
Decided On
Reported inAIR1938All574
AppellantMaheshwari Brothers
RespondentOfficial Liquidators, Indra Sugar Works Ltd.
Excerpt:
.....on 3rd january 1936 applied to this court for an order winding up the company. held that where an employee of a bank deposits a certain sum for security for good behaviour and honesty, and as a part of the engagement transaction the security deposited is placed upon fixed deposit in the name of the employee, the moneys are held by the bank in trust. david that the agreement clearly creates a charge in respect of the security money handed over to the company and at first sight, that would appear to be the case. in my view the charge created is clearly a floating charge and as such required registration. it must be remembered that the company was a going concern and it was clearly never the intention of the parties that the property actually charged should remain for ever subject to..........latter date the applicants ceased to be selling agents of the company and demanded a refund of the security money which they had deposited. on failure to obtain this or any sum from the company the applicants on 3rd january 1936 applied to this court for an order winding up the company. on 5th may 1936 a winding up order was passed but no liquidators were then appointed. in delivering judgment on the winding up petition the learned judges who heard the case framed certain issues and directed that the case should be again listed before that bench on 5th october 1936 for the decision of such issues. on 18th september 1936, however liquidators were appointed and on 18th january 1937 the bench who heard the winding up petition passed a further order directing the liquidators to proceed in.....
Judgment:
ORDER

Harries, J.

1. This is an application by Messrs. Maheshwari Brothers under Section 183, Companies Act praying that this Court should set aside the decision of the Official Liquidators in which they held that the petitioners claim for the sum due under an agreement dated 2nd December 1934 was not trust money and that the applicants were merely ordinary creditors in respect of the same. The applicants Messrs. Maheshwari Brothers entered into an agreement on 2nd December 1934 with the Indra Sugar Works Ltd., which is now in liquidation. By that agreement the applicants were appointed the sole selling agents of the Company for the period of one year. It was a term of the agreement that the applicants should deposit a sum of Rs. 50,000 with the Company as security for the fulfilment of their obligations under the agreement and such money was to carry interest at the rate of 5 per cent, per annum and was to be refunded to the applicants at the date of the expiry of the agreement. According to the terms the agreement was to expire on 30th November 1935. On this latter date the applicants ceased to be selling agents of the Company and demanded a refund of the security money which they had deposited. On failure to obtain this or any sum from the Company the applicants on 3rd January 1936 applied to this Court for an order winding up the Company. On 5th May 1936 a winding up order was passed but no liquidators were then appointed. In delivering judgment on the winding up petition the learned Judges who heard the case framed certain issues and directed that the case should be again listed before that Bench on 5th October 1936 for the decision of such issues. On 18th September 1936, however liquidators were appointed and on 18th January 1937 the Bench who heard the winding up petition passed a further order directing the liquidators to proceed in certain matters and making it clear that they did not think it necessary to proceed further and decide any of the issues which they had previously framed. It appears to me that the effect of this order of 18th January 1937 was to leave all matters arising in the winding up to be dealt with in the first place by the liquidators. The moment the liquidators were appointed they would in the ordinary course have moved in all the matters which had been made the subject-matter of the issues. The Bench on 18th January 1937 made it abundantly clear, in my view, that they did not propose to proceed any further with the decision of any of the issues framed.

2. One of the issues which had been framed related to the very question which is now before me and it has been argued by Mr. David that I have no power to deal with this application and that the matter must be decided by the Bench which passed the-winding up order. As I have pointed out that Bench has made it clear that it does not propose to proceed any further in the matter and has left the questions to which the issues related to be dealt with by the-liquidators in the ordinary course of liquidation. The liquidators called upon all creditors to establish their debts and the-applicants claimed that the Company were indebted to them to the extent of Rupees 55,437-8-0 and they further claimed that in respect of this sum they were preferential creditors or charges. The Official Liquidators allowed the petitioners claim for Rs. 82,694-8-0 but disallowed their claim to be preferential creditors or charges in respect of this sum. There is no dispute now as to the correctness of the Official Liquidators' finding as to the amount due and the only contention now is as to whether or not the applicants are preferential creditors or chargees for this sum.

3. Mr. David on behalf of the applicants has argued that there was a fiduciary relationship existing between the parties and that the sum of Rs. 50,000 deposited with the company must be regarded as trust money and that being so he is entitled to reclaim such money in preference to the other creditors. Secondly he has argued that the agreement between the parties creates a second charge and that in the events that have happened he is now the holder of a first charge upon all the assets of the company. I shall deal with these contentions separately.

4. In my view this agreement did not create a relationship of trustee and cestui que trust between the parties. The relationship created was rather one between creditor and debtor. In my view this point is completely covered by a Bench case of this Court, viz. In the matter of Annapurna Co. Ltd. : AIR1926All397 . The facts of that case were that by an agreement entered into between Dr. Tug and the Company the latter agreed to employ Dr. Tug's son. Dr. Tug or his son agreed to furnish security for Rupees 10,000 which money was to be repaid by the Company upon the expiry of the term of employment. It was further provided that in case the Company went into liquidation the applicant would have the position of a preferential creditor. The sum of Rs. 10,000 was paid to the Company and the latter utilized Rs. 3500 from the said sum to purchase a mill and used the remainder of the money in paying off a creditor of the Company. Upon the Company going into liquidation the liquidators sought the directions of the Court to sell the mill which had been purchased out of part of the moneys which had been deposited with the Company as security. Dr. Tug objected and claimed that the sum of Rs. 10,000 deposited with the Company was in the nature of trust money which could be followed. That being so, he contended that he was either the owner of the mill or had a first charge upon it by reason of the fact that it had been purchased out of the moneys which he had deposited with the Company under the agreement of employment. A Bench of this Court held that the agreement in question did not create a trust or anything in the nature of a trust. The Bench emphasizes that the document contained no direction that the money handed over by Dr. Tug was to be kept aside in trust for him or was not to be utilized by the Company for any purpose. That being so, it was held that Dr. Tug was merely a creditor of the Company and therefore could not claim any interest in the mill which had been purchased out of the moneys he had deposited with the Company.

5. The same view appears to have been taken by the Bombay High Court in G.K. Malwankar v. Credit Bank of India Ltd. (1914) 1 A.I.R. Bom. 118 and In re Manekji Petti . (1932) 19 A.I.R. Bom. 311. A contrary view was taken by a single Judge of the Madras High Court in In the matter fo Hindustan Commercial Bank (India) Ltd. (18938) 25 A.I.R. Mad. 651. In that case Gentle J. held that where an employee of a Bank deposits a certain sum for security for good behaviour and honesty, and as a part of the engagement transaction the security deposited is placed upon fixed deposit in the name of the employee, the moneys are held by the Bank in trust. He further held that the agreement to pay interest on such money deposited cannot destroy the character as such of those moneys and that if the Bank subsequently became insolvent the trust moneys could be followed. There is one very important distinction of fact between this Madras case and the present case. In the Madras case the sum of money handed to the Bank by way of security deposited was placed to a special account in the Bank, that is was placed in a fixed deposit account in the name of the employee who deposited such sums.

6. In the present case the receipt which is before me shows that the Company merely acknowledged the receipt of Rupees 50,000 from the applicants and did not deposit it in any account in the name of the applicants. In fact Mr. David tells me it was paid into the account of the Company with the Imperial Bank of India and was undoubtedly used as the money of the Company for carrying on the business. Even if this distinction of fact is not of importance I am unable to follow the view expressed by the Madras High Court and I am bound to follow the Bench decision of this Court which is binding upon me as a single Judge. I therefore hold that on the facts of this case the applicants are not entitled to any preferential treatment in respect of this debt by reason of any fiduciary relationship created by the agreement. In my view they are ordinary creditors for this sum under the agreement. Clause (14) of the agreement is in these terms:

That the amount of security money will be the second charge on the machinery and other goods of the company.

7. It has been contended by Mr. David that the agreement clearly creates a charge in respect of the security money handed over to the Company and at first sight, that would appear to be the case. On the other hand it has been argued that this charge is of no effect by reason of the fact that it was not registered. It is admitted on behalf of the applicants that no registration took place. Reliance has been placed on behalf of the liquidators on Section 109, Companies Act, 1913, which was in force when this sum became due. By that Section, all mortgages or charges on any immovable property or floating charges on an undertaking or property of the Company shall, so far as any security on the Company's property or undertaking is concerned, be void against the liquidators and any creditor of the Company unless the mortgage or charge together with the instrument creating it is filed with the Registrar for registration as required by the Act within 21 days of its date. No such registration took place and it is therefore contended that this charge is void as against the liquidators.

8. Mr. David, on the other hand, contends that this is not a floating charge but a charge upon the moveable property of the Company and as such it did not require registration in the year 1935 though after the amendment of the Companies Act in 1936 such a charge would require registration. In my view the charge created is clearly a floating charge and as such required registration. It must be remembered that the Company was a going concern and it was clearly never the intention of the parties that the property actually charged should remain for ever subject to the charge. If that was the intention, then the goods of the Company could never have been sold and the machinery of the Company could never have been replaced when it became obsolete. It appears to me that the parties intended to create a floating charge, that is a charge which would fasten on to the property when the time arrived for the charge to be enforced. It has been held by the Privy Council in Imperial Bank of India Ltd. v. Bengal National Bank Ltd. , that a floating charge can be created on part of assets of a Company and such was the case here. The principal tests as to whether a charge is a floating one are : (1) Is it a charge upon all or a certain class of assets, present or future? (2) Could the assets charged in the ordinary course of business be changed from time to time? (3) Has the Company power until such step is taken by the chargees to carry on the business of the Company in the ordinary way? It appears to me that if these tests are applied to the present charge, it is clear that the charge is a floating one. That being so the charge is void as against the liquidators for non-registration by reason of Section 109(1)(e), Companies Act, 1913.

9. It has been further argued that the charge is void against the liquidators by reason of Section 109(1)(c) as it is a charge on immovable property and as such requires registration. In certain circumstances machinery might be immovable property, but it is difficult for me upon the materials before me to decide whether the machinery charged in this case was or was not affixed to the soil as to become immovable property. That machinery can be immovable property is clear from the definition of that latter term in Section 3(25), General Clauses Act. However, on the materials before me it is impossible for me to say whether in this particular case the machinery should be regarded as immovable property. That being so I am unable to hold that the charge is bad by reason of Section 109(1)(c). My findings however on the other points are sufficient to dispose of this case. The result therefore is that this application fails and is dismissed. I shall consider the question as to whether the applicants should pay any costs to the liquidators on Friday, August the 19th, when the Official Liquidator will be present. (His Lordship on that date considered the question of costs and held that the liquidators were not entitled to any costs and neither was the creditor who appeared to oppose the application, because no notice was served on him and he appeared voluntarily.)


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