Ramachandra Iyer, C.J.
1. This is an appeal against the judgment of Baiakrishna Aiyar J. directing the deletion of the first respondent's name from the list of contributories, the question raised in the appeal being whether the existence of a mortgage (English mortgage) over the call money precludes the liquidator from including the name of the shareholder who is in arrears in respect of such money in the list of contributories. The facts giving rise to this appeal have been set out in our judgment in O. S. A. No. 23 of 1957. But we shall, however, recapitulate such of the facts as are necessary for the purpose of the present appeal.
2. The Link industries Ltd., which is now under liquidation, was incorporated in 1946. On 13-8-1947, the company issued 50,009 shares of the nominal value of Rs. 10 each. The respondent subscribed for 36,555 shares and paid to the company at the time of the application and allotment of a sum of Rs. 5 for each share. The balance of share money was payable under the Articles of Association on a call being made therefor by the Directors. But no call was made till the year 1953.
On 27-7-1949, the company had to borrow a sum of Rs. five lakhs from the Industrial Finance Corporation of India, for the purpose of its business. To secure the amount advanced by the Corporation, the company executed a deed of English mortgage, securing its properties as well as the uncalled share money due from its members. It will be convenient at this stage to refer to the relevant portions of the document:
'This indenture made on the 27th day of July 1949, ....................the company hereby grants, assigns and transfers and assures into the Corporation all and singular the freehold land, buildings and premises described in the schedule hereunder written and all and singular the engines, machinery (whether fixed or moveable and whether attached to the said premises or not), plant, stocks, fixtures, utensils, articles, ail other assets, and the uncalled capital of the company........and the company hereby covenants with the Corporation without prejudice to the rights of the Corporation under the provisions of the Industrial Finance Corporation Act, 1948, as follows :
... ... ... ... ... ... ...
(xii) that for the consideration aforesaid the company hereby assigns unto the Corporation all that the right of the company to receive the balance of the Rs. 5 per share remaining uncalled upon the said shares that have been issued by the company when the same shall be called up either by the directors in the exorcise of their powers or by any liquidator of the company in the event of the same being wound up together with all moneys that may hereafter be received in respect of any of the said shares which have not yet been issued or in respect of any shares that may hereafter be created upon any increase in the capital either upon application or Ellolment or in payment of calls as hereinbefore provided and all other (if any) of the uncalled capital of the company to hold the premises hereby assigned unto the Corporation.
(xiii) That the Company will as soon as any call in respect of the said shares shall have been resolved upon by the Directors...........immediately give notice of such call to the Corporation.........and will not until the expiration of seven clear days from the time when such notice shall have been sent to the Corporation issue any notice to the members of the company in respect of payment of any call........... and if the Corporation shall so require every notice.........sent out by the Company in pursuance of any such resolution shall direct the members to pay the call so made . . .... to the Corporation or as it shall direct and if no such requisition be made by the Corporation, the members............shall be directed to pay any call money into some Bank to the joint account of the company and the Corporation or in such manner as the Corporation may direct. The Corporation shall be entitled to require all such calls or the moneys received by the company to be applied either wholly or partly in or towards the payment or satisfaction of the said principal sum interest and other moneys due to the Corporation....................'
On 15-4-1953, the Directors of the company resolved to call the whole of the remaining uncalled amount from its share-holders in two instalments of Rs. 2-8-0 per share, the first instalment being payable by 31-10-1953 and the next within a month thereafter. A notice was issued to the respondent on 29-4-1953, calling upon him to pay a sum of Rs. 1,82,755, in respect of 35,555 shares held by him. The respondent repudiated his liability. Further correspondence followed between the parties. But, before the controversy could be settled, the Company was directed to be wound up by an order of this court dated 8-2-1956 in 0. P. No. 157 of 1955. After the liquidator took charge of the affairs of the company, he settled a list of the contributories. The respondent was shown in the list as due to the company in a sum of Rs. 1,82,775. The respondent thereupon filed Appln. No. 1598 of 1956 for deleting his name from the list of contributories. His case was that, at the time when he agreed to take up 36,555 shares, it was agreed between him and the then Managing agents of the Company that the uncalled shares amount should not be demanded of him till he was able to unload three-fourth of his holding in the market at a profit. He also contended that, as the unpaid share money had been assigned over to the Corporation under the English mortgage executed by the company on 27-7-1949, the Official Liquidator would be incompetent to make any claim in respect of such call money and that therefore the respondent could not be included in the list of contributories settled by the liquidator.
3. Balakrishna Aiyar J. was of opinion that the probabilities of the case showed that the Managing directors of the company must have given some assurance of the kind pleaded by the respondent while he subscribed for the shares; but the learned judge found it unnecessary to decide finally as to how far such assurance, even if made out, could be held to bind the company. On the other question, the learned Judge accepted the position taken on behalf of the respondent, namely, the right in respect of unpaid share money having been assigned over to the Corporation by virtue of the execution of an English mortgage in its favour in respect of the call money, the claim in respect of the call money would be outside the liquidation proceedings and the Official liquidator could not include the name of the respondent In the list of contributories settled by him. The Official liquidator has appealed.
4. The substantial contention urged on behalf of the liquidator is that an assignment of the unpaid share money by way of English mortgage in favour of the mortgagee would not take away the right of the company in the share money, and that, so long as that right viz., the equity of redemption subsisted it was competent for the liquidator to ascertain the amount due from the respondent and place him in the list of contributories.
5. Before considering that contention, it is necessary to refer to a few sections of the Indian Companies Act, 1913, which govern the present case. Under Section 156 of the Act, every past and present member of the company will be liable to contribute to the assets of the company an amount sufficient for payment of the company's liabilities, and costs and charges etc. of the winding up, and for the adjustment of the rights of the contributories inter se. In the case of a limited liability company, the amount to be contributed will not, however, exceed the unpaid amount on the shares, in respect of which the member would be liable either as a present or past member. Section 30 of the Act shows that members of the company are (1) the subscribers to the memorandum of the company, and (2) persons who agreed to become members of the company and whose name is entered in the register of the members of the company. Section 40 states that the register of members shall be prima facie evidence in respect of matters which are directed to be contained or inserted therein. Section 31 provides for their maintenance of the register of members. Therefore, if a person's name is found in the registers of the company, It would be prima facie evidence that he is a present member of the company liable to contribute in respect of unpaid share money.
Section 184 deals with the list of contributors. It will be the duty of the Liquidator, after he is appointed, to prepare a list of contributories from the share register and other documents available to him. After the list is prepared, Section 184 provides for settlement of the list by the court. The list will show the names and other particulars relating to the contributory, the number of shares held by him and the amount which he is liable to contribute.
The importance of the list of contributories lies In this, namely, that a call for contribution for unpaid share money can be made only after the list is settled and ft Is ascertained how much the contributory is liable to pay to the company for the purpose of liquidation. The settlement of list of contributories only enables the ascertainment of the amount due; but it does not ipso facto oblige the contributory to pay the money entered against him in the list. Section 187 provides a machinery for realising the call money from the contributory. In our judgment in O. S. A. No. 23 of 1957, we have held that the provisions of Section 187 would apply to a case where the unpaid share money is called for the first time after liquidation and also to call moneys which had become exigible before the date of liquidation by virtus of a call made by the directors while the company was a going concern. It would follow from the above that, if the liquidator had a right to make a call on the respondent, the latter could be included in the list of contributories subject to the determination of the question whether the shares were allotted to him conditionally or not.
6. It is however contended that the liquidator would have no power to make a call on the respondent, as the company had parted with its rights in relation to the unpaid share amount by executing an English mortgage over them. Mr. V. Thiagarajan, appearing for the respondent, contended that, as the unpaid share amount was a debt due to the company, it was an actionable claim, and that, when a security was created over such actionable claim, particularly by way of an English mortgage, it amounted to an assignment of the debt and the assignor thereafter would, have no interest therein to enable it to take proceedings in the company court. It was further contended that, as the money due in respect of future calls had been assigned to the mortgagee, who became thereafter the person entitled to collect the money, the claim for such money would be outside the liquidation proceedings, as it is, in essence, a claim by the secured creditor. We shall consider the contention presently.
7. It is not disputed that the company in the instant case had the power to mortgage the share money not yet called by it. Under Section 21(2) of the Act, all money payable by any member to the company under the memorandum of articles will be a debt due from him to the company. That would mean that uncalled share money would be a debt due by the shareholder to We company, although, by reason of the call not having been made, it had not become payable. A mortgage executed by the company, securing the unpaid share money, will therefore amount to an assignment of the future calls that may be made by it in favour of the mortgagee. The creation of a security over actionable claim of that kind could only be by way of assignment under Section 130 of the Transfer of Property Act. The fact that the right of the company in regard to the unpaid shares has been assigned, cannot alter the real character of the transaction, namely, that such assignment was intended only by way of security the assignor's right to redeem would subsist till it is put an end to or barred. The mortgagee, in case his claim is otherwise satisfied, will have to reconvey the same; if his claim is satisfied out of a portion of the call money, he will have to pay the balance to the company and till then he will be in the position of a trustee for the company in regard to the surplus. The transaction being by way of an English mortgage, the company will have a legal right in the equity of redemption.
In Ram Kinker v. Satyacharan , the Privy Council held that the interest which remains in a mortgagor under an English mortgage is a legal interest and the transfer to the mortgagee under an appropriate English mortgage would not amount to a transfer of an absolute interest. Therefore, whether the assignment, in the instant case, of the claim to unpaid share money is regarded as an assignment of actionable claim or as an assignment by way of English mortgage, the company will have, even during the subsistence of the mortgage, a substantial beneficial or legal interest in the call money. Section 156 of the Companies Act, which creates a statutory liability on the part of a shareholder who was in arrears of call money or in respect of whose shares there remained moneys uncalled, should include even a case where a mortgage had been created over the call moneys, as the interest of the company in regard to the unpaid share money, which had bean assigned over to a mortgagee, would still be an asset ef the company.
The nature of the Interest of the company in the call money validly mortgaged has been considered in In re; Pyle Works 1890 44 Ch D 534, where Cotton LJ observed.
'But then the question arises, what are to be considered 'assets' or 'property' of the company? In my opinion, the 'assets' or 'property' of the company which are referred to in these sections must mean that portion of the capital which the directors have not actually dealt with before the winding up commenced. That portion of the capital, being the property of the company, must be got in by the liquidator; but, if the legal estate, so to speak, is outstanding in a mortgagee, then the only portion of that property which the liquidator can look upon as a fund in the winding up for payment of the debts of the creditors will be the equity of redemption, or, in other words, that portion of the property remaining after the satisfaction of all the obligations which the directors have properly thrown upon this part of the property of the company.'
This view was approved of by the Privy Council in Newton v. Anglo-Australian Investment Co's Debenture-holders, 1895 AC 244, where Lord Macnaghten observed:
'The liability of a contributory as a present member to pay calls in the winding up, is not a liability springing into existence for the first time on the company going into liquidation. It is merely the ripening of that liability which the contributory undertook when he became a member. The liquidator, no doubt, is bound to distribute what belongs to the company in the manner prescribed by the Act. But, after all, the question is, what does belong to the company? What are its assets or its property? That must depend on what dispositions have bean made, and what charges have been validly created while the company acting within its powers was free to deal as it pleased with its own.'
The question in the two cases arose as to the validity of a charge created by the company before its liquidation. After liquidation supervened, a contention was raised that the liquidator was entitled to receive the the entire call money, without any obligation to pay the chargeholder, for the benefit of the simple money creditors. It was held in those cases that the mortgage or charge continued to be valid even after winding up. The observations referred to above show clearly that the liquidator would be entitled to an interest in the unpaid call money. If so much is certain, the next step is easy. The liquidator in whom such interest In the call money vests under Section 156 should be able to call the money due from the shareholder under the machinery provided in the Companies Act, and, out of the sums realised, pay the mortgagee, and, if there is any surplus, utilise it for the purpose of liquidation; we shall show presently that he will be the only person entitled to make the call.
When the liquidator takes steps to realise tile call money under those circumstances, he is really not doing It as the agent of the mortgagee or by way of enforcing the mortgagee's claim, but collecting monies for the purpose of winding up, though incidentally he may have to pay off the mortgagee out of the amounts realised. To hold otherwise, i.e., that the mortgagee alone could recover the calls would lead to an inconvenience which can best be expressed by way of illustration. Suppose a company had call money due from a shareholder to the extent of one lakh of rupees, but that uncalled share money had been mortgaged to a mortgagee whose claim was about Rs. 500. If the argument of the respondent Is to be accepted, the liquidator would not be enabled to get the large sum of money due to the company after paying off the mortgagee; but he will have to wait for the pleasure of the mortgagee to realise his moneys and take the surplus. A contention which leads to this result cannot obviously be sound.
8 . Mr. V. Thyagarajan, however, placed considerable reliance on the decisions in Muthukrishna Aiyar v. Veera raghava iyer, ILR 38 Mad 297 : AIR 1915 Mad 1031, and Santuram Hari v. Trust of India Assurance Co., : AIR1945Bom11 , as being contrary to what, we have stated above. In the former case, it was held that, where a promissory note was the subject matter of a mortgage by the payee thereof in favour of a third party, the transaction amounted to an assignment of the promissory note itself in favour of the mortgagee, and the right to sue on such assignment would only vest in the mortgagee, and the original payee would not be entitled to institute a suit thereon. In the latter case, there was an assignment of a life insurance policy by way of security. Chagla J. held that it was not competent for the assignor to sue the insurance company for the amount due under the policy on the ground that, on the transfer of an actionable claim, all rights and remedies of the transferor vested in the transferee, and that, thereafter, the transferee alone was entitled to enforce the remedy as there was no interest left in the transferor which would entitle him to maintain a suit. The learned Judge quoted with approval the following observations of Lord Esher M. R. in Read v. Brown, (1888) 22 QBD 128.
'The debt is transferred to the assignee and becomes as though it had been his from the beginning: It is no longer to be the debt of the assignor at all, who cannot sue for it, the right to sue being taken from him; the assignee becomes the assignee of a legal debt and is not merely an assignee in equity, and the debt being his, he can sue for it, and sue in his own name.'
We do not at all doubt that, where a mortgage is creates over an actionable claim, the transaction is, in form, an assignment of the actionable claim itself, and the assignee would be the person entitled to file a suit But the question is whether that rule would apply in all its rigour regardless of the nature of the subject matter of the mortgage. The rule was not applied by this court in the case of pledges (vide Official Assignee, Madras '. Hukumchand Khimsura ILR (1941) Mad 378 : 1941 Mad 147. In Chandrasekharalingam v. Nagabhusnamm, : AIR1927Mad817 , Ramesam J. sitting singh held that a person who transferred a claim to past mesa profits (which would be an actionable claim) could maintain suit for the benefit of the assignee .and that he could 68 made to hand over the amount in that suit to the assignee The learned Judge observed that Chapter VIII of the Transfer of Property Act was intended to enable the transferees of actionable claims to maintain the action and was not intended to lay down that the transferor himself could not maintain an action for the benefit of the transferee it is, however, unnecessary for us to decide as to which of the two views is correct, as, in the present case, at the time when the mortgage was created, there had been no call of the unpaid share money.
9. Uncalled share money would, no doubt, be a debt by virtue of the fiction created by Section 21(2). But the debt had not become exigible. It was payable only on the directors deciding to call the share money. The right of the company to unpaid capital, as bid down in the Bank of South Australia v. Abrahams, (1875) 6 PC 265, is 'strictly speaking, more in the nature of powerthan of property'. By virtue of the covenant containedin the mortgage, it will of course, be open to the mortgageeto call upon the directors to exercise that power andcall the unpaid share money. He could also require theliquidator to do likewise if the company had been directed to be wound up. Indeed, in the mortgage deed inthe instant case, such power is expressly vested in themortgage. While, on the terms of the mortgage, themortgagee could require the directors or the liquidators,as the case may be, to call the unpaid share money, hecould not himself do so. It follows, that, notwithstanding.the mortgage, it is the company or the liquidator thatwill have to make the call. In Buckley on the CompaniesAct, 12th Edn. page 221, it is stated.
'A mortgage of uncalled capital must be treated as a mortgage of a chose in action......... The holder of a charge on. uncalled capital, is, it seems, entitled to a remedy by foreclosure against the uncalled capital...... But, inasmuch as after winding up it is only the liquidator who can make calls, the realisation of the security on uncalled capital must be through the liquidator, and If made by the court the jurisdiction is by an order in the winding up. If necessary, the receiver in the action may be empowered to use the liquidator's name to get In the call.'
Sadler v. Worley, (1894) 2 Ch D 170, was a case where a debenture created a floating charge of all property of the company, present and future, including uncalled capital. The company was wound up, and a question arose as to the form in which judgment was to be entered in the mortgagee's (debenture holder's) action for foreclosure. Kekewich J. observed:
'But these are the assets of the company, and some of them cannot be realised except by the exercise of powers which are vested by statute and articles of association in the company itself as represented by directors or liquidator. To take the most extreme and most embarrassing item, how can there be foreclosure of uncalled capital? It cannot be vested in the mortgagee, and the extreme limit of his right must be to have the power of calling on the directors or liquidator to exercise their power on his behalf. This sounds somewhat anomalous. But it must be remembered that a mortgage of uncalled capital can be effectually made; and the decisions sanctioning that would be idle if they did not also sanction the realisation of the mortgage security. If it be urged that such realisation must be by sale, the answer is that a sale is open to the same objection.'
In the judgment as drawn up, the learned Judge gave the direction :
'And it is ordered that in such case the defendant company, and the liquidators thereof for the time being, do all such ads, and execute ail such conveyances and deeds, as may be necessary for vesting in the plaintiff the said mortgaged property, such conveyances and deeds to be settled by the Judge in case the parties differ.'
This decision would show that it is the liquidator alone after winding up that would be competent to make the call for the benefit of the mortgagee. In an earlier decision in Fowler v. Broad's Patent Night Light Co., 1893 1 Ch 724, it was held that, where a company had been ordered to be wound up, the power of its directors to make calls came ipso facto to an end, and that thereafter the power to make calls would be with the liquidator, and that, where there was a charge created over un-called capital by the company in favour of its debenture holders and a winding up of the company supervened, the liquidator alone should make the call in the winding up, and not outside it. It was, however, held that it was open to a receiver in the mortgagee's suit to be empowered to take proceedings in the name of the liquidator for getting in the call. In In re Westminster Syndicate Ltd., 1908 WN 236, a mortgagee of uncalled capital applied in the winding up of the company to direct the liquidator to proceed with the settlement of the list of contributories and to make calls in respect of unpaid share money. Neville J. observed.
'it appears that it has been the practice for sometime past, where a receiver has been appointed in a debenture holder's action against a company in liquidation, if uncalled capital is included in the security to allow in proper cases, the receiver, upon giving the liquidator or a proper indemnity, to use the name of the latter for the purposes of recovering the calls made by him. I see no objection to the continuance of this practice'.
And an order in terms of the prayer was made.
From the principle laid down in the above cases it will follow that, notwithstanding the creation of a mortgage by the company over its uncalled capital, the proper procedure for the mortgagee would be to ask the company, if it is a going concern to call in the unpaid-share money and pay the mortgagee, or in case the company has been directed to be wound up, to ask the liquidator to call in those moneys.
10. Mr. Thyagarajan', however, contends that the principle of these cases could be applied only to a case where there has been no call by the directors of the share money prior to the winding up, there being unpaid share money to be called for the first time after liquidation, and that a case like the present, where the call had been made by the directors, would stand on a different fooling, inasmuch as such call money had become a debt payable by the shareholder, in O. S. A. No. 23 at 1957, we have held that there could be no distinction, in regard to the claim against the contributory, whether the call had been made by the directors anterior to the winding up or whether such call was made for the first time by the liquidator after winding up. We can see no distinction in principle between the two cases so far as the right of the Official liquidator to call in the unpaid share moneys is concerned, particularly in the view we have stated that the company is entitled at least to a beneficial interest in the surplus after meeting the claim of the mortgagees. That there is no distinction between the case of a call made before the winding up and that made after it has been recognised by Stirling J. in (1890) 44 Ch. D. 534, though for meeting a different contention. The learned Judge has referred to the case in In re Sankey Brook Coal Co., (1870) 9 Eq. 721, where a charge was given on an uncalled share money; as a part of that arrangement a call was thereafter made by the company; but it was voluntarily wound up before the entire proceeds were brought in. It was held that the charge was valid; the liquidators were directed to apply the proceeds of the call towards payment of the debt secured by the charge. That decision recognises the power of the liquidator to call in moneys due in respect of calls made earlier than winding up and over which a charge had been created. It follows that, on principle and authority, alike it would be competent for the Official liquidator to include a shareholder, whose name appears in the share register in the list of contributories in respect of the amount of share money due from him beit there has been a valid mortgage created over such call money pay the company while it was functioning. With great respect to Balakrishna Aiyar J. therefore we areunable to agree with his view that, on the execution ofthe English mortgage in favour of the Industrial FinanceCorporation over the unpaid call money, the company andthe liquidator lost all rights to call in the money andthat the latter cannot settle the list of contributoriesincluding the respondent as a contributory.
11. But this does not wholly dispose of the controversy between the parties. As stated earlier, Balakrishna Aiyar J. did not give any final decision of the question whether the case of the respondent that there was an assurance on the part of the then Managing Agents not to make a call on him in respect of unpaid share 'money till he was able to transfer three-fourth of his holding at a profit, and, whether such an assurances, even if made out, would exonerate the respondent from liability to pay the unpaid share money. It has therefore become necessary while setting aside the judgment of Balakrishna Aiyar J. in Appln. No. 1598 of 1956, to remand the application to the learned Judge exercising jurisdiction over the company matters for final disposal; filers will be an order accordingly.
12. The costs of this appeal will abide the final result.