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Akkirath Mundanat Manakkal Thuppan Nambudiri Vs. A.P. Kutti Sankara Menon, Official Liquidator of the Malayalee Bank Ltd. (In Liquidation) and anr. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtChennai High Court
Decided On
Case NumberO.S. Appeal No. 4 of 1952
Judge
Reported inAIR1955Mad35
ActsCompanies Act, 1913 - Sections 120, 120(1) and 120(2)
AppellantAkkirath Mundanat Manakkal Thuppan Nambudiri
RespondentA.P. Kutti Sankara Menon, Official Liquidator of the Malayalee Bank Ltd. (In Liquidation) and anr.
Appellant AdvocateV. Thyagaraja Aiyar and ;D.H. Nambudiripad, Advs.
Respondent AdvocateC.S. Vidyasankaran, Adv.
DispositionAppeal allowed
Excerpt:
.....and on such terms and conditions as seem to the court just and expedient, order that the time for registration be extended, or, as the case may be, that the omission or misstatement be rectified, and may make such order as to the costs of the application as it thinks fit. if the court is satisfied that the omission to register in time was due to inadvertence or some other sufficient cause, it is not necessary that the court should be further satisfied that it 'is not of a nature to prejudice the position of creditors or shareholders of the company. on a proper construction of the section, it is clear that the court is entitled to extend the time provided the court is satisfied that any one of the following conditions is satisfied, namely, (1) the omission was accidental or due..........inadvertence or to some other sufficient cause, the learned judge had the power to order that the time for registration be extended. section 120 (1) runs as follows:'the court, on being satisfied that the omission to register a mortgage or charge within the time required by section 109, or that the omission or misstatement of any particular with respect to any such mortgage or charge, 'or the omission to give intimation to the registrar of the payment or satisfaction of a debt for which a charge or mortgage was created' was accidental, or due to inadvertence or to some other sufficient cause, or is not of a nature to prejudice the position of creditors or share-holders or the company, or that on other grounds, it is just and equitable to grant relief, may, oh the application of the.....
Judgment:

Rajamannar, C.J.

1. This is an appeal against the order of Krishna-swami Nayudu J. dismissing an application filedby the appellant under Section 120, Companies Act, in the following circumstances.

2. On 26-6-1950 the Malavalee Bank Ltd., exe-cuted and registered a deed of sub-mortgage ofsome of the securities held by the Bank in favourof the appellant to secure a sum of Rs. 10,000,advanced by the appellant to the Bank. The loanwas repayable within six months. On 4-7-1950 themanaging director of the Bank forwarded to theRegistrar of Joint Stock Companies particularsof the mortgage as prescribed in a form providedfor the purpose, but he did not send either theinstrument of mortgage or a copy thereof verifiedin the prescribed manner.

The Registrar acknowledged receipt of the parti-culars and called upon the managing director tofile the instrument or a copy of the same. TheBank replied to the Registrar on 13-7-1950 thatthey had not received a copy of the mortgagedeed and that as soon as it was received theywould furnish the Registrar with it. It appearsthat a copy of the mortgage deed was obtainedby the managing director on 24-7-1950, but thesame was not filed with the Registrar. By anorder of Court dated 10-10-1950, the Bank wasdirected to be wound up and the first respon-dent was appointed official liquidator.

Soon after the expiry of six months, the timefixed for the repayment of the amount due underthe sub-mortgage, the appellant wrote on 25-1-1951 to the Official liquidator to make arrangements to pay the amount due to him. The Official Liquidator replied that the deed of mortgage in favour of the appellant was void under Section 109, CompaniesAct, as against the official liquidator and the other creditors, as the requisite particulars of mortgage had not been filed with the Registrar of Joint Stock Companies in time. The appellant thereupon himself applied to the Registrar in the prescribed form on 29-2-1951 for registration. As the application was made beyond the 21 days provided for under Section 109 of the Act, the appellant filed the application under Section 120 of the Act, out of which this appeal arises.

3. The learned Judge held that the omission to file the particulars of the mortgage with the Registrar in time was due to inadvertence on the part of the managing director in not filing the copy of the mortgage deed, that the appellant was not responsible for his omission, and therefore there was sufficient cause for the applicant not applying in time. In spite of his conviction that the appellant's cause was just and that the omission was due to ignorance of the requirements of registration on the part of the appellant which he considered to be sufficient cause, the learned Judge held that he was helpless to pass an order in favour of the appellant, because in his opinion he should be further satisfied that the extension of time would not prejudice the position of creditors or share-holders of the company.

As the liquidation had intervened in the meanwhile and the effect of extension of time would be to entitle the appellant to rank as a secured creditor in preference, to other unsecured creditors of the company, he held that it was a case where the Court was unable to extend the time under the provisions of Section 120 of the Act. He, therefore, dismissed the application. He, however, observed that he was leaving open the question whether the mortgage in favour of the appellant had become void under Section 109, Companies Act. The learned Judge was inclined to hold that since the requirements of Section 109 of the Act had been substantially complied with by the managing director, the mortgage in favour of the appellant had not become void. The appeal is against this order.

4. Learned counsel for the appellant relied upon the language of Section 120 (1), Companies Act, in support of his contention that on the finding of the learned Judge that the omission to register the mortgage within the time required was due to Inadvertence or to some other sufficient cause, the learned Judge had the power to order that the time for registration be extended. Section 120 (1) runs as follows:

'The Court, on being satisfied that the omission to register a mortgage or charge within the time required by Section 109, or that the omission or misstatement of any particular with respect to any such mortgage or charge, 'or the omission to give intimation to the registrar of the payment or satisfaction of a debt for which a charge or mortgage was created' was accidental, or due to inadvertence or to some other sufficient cause, or is not of a nature to prejudice the position of creditors or share-holders or the company, or that on other grounds, it is Just and equitable to grant relief, may, oh the application of the company or any person in-terested and on such terms and conditions as seem to the court Just and expedient, order that the time for registration be extended, or, as the case may be, that the omission or misstatement be rectified, and may make such order as to the costs of the application as it thinks fit.'

Undoubtedly, the language of the section supports the contention of the appellant. If the court is satisfied that the omission to register in time was due to inadvertence or some other sufficient cause, it is not necessary that the Court should be further satisfied that it 'is not of a nature to prejudice the position of creditors or shareholders of the company.' With great respect to the learned Judge, we think that he overlooked the effect of 'or' which separates each of the clauses in Section 120 (1) from the other.

On a proper construction of the section, it is clear that the court is entitled to extend the time provided the court is satisfied that any one of the following conditions is satisfied, namely, (1) the omission was accidental or due to inadvertence or to some other sufficient cause, (2) the omission is not of a nature to prejudice the position of creditors or share-holders of the company, and (3) on other grounds it is just and equitable to grant relief. These conditions are not cumulative because of the disjunctive 'or'.

5. Learned counsel for the official Liquidator contended that the court could not, & in any event ought not, to grant an extension under Section 120 (1) if before the filing of the mortgage with the Registrar under Section 109 the company is ordered to be wound up. This contention is based entirely on certain English decisions and statements in the text books. Though at first sight it does appear as if they support the respondent, on a closer examination of the entire case law on the point, it is evident that there is no such rule established in England. In Palmer's Company Law, 19th Edn., 1949, learned counsel cited to us the following passage at page 270;

'An order for extension will not be made after a winding up commences.'

This statement is apparently made on the authority of the decision in 'In re S. Abrahams and Sons', 1902 1 Ch 695 (A). In Buckley on Companies Acts, 12th Edn., there is a reference to a practice to support an application for extension with evidence that no winding up is pending and no Judgment has been recovered against the company and remains unsatisfied (page 231).

6. The first reported case on the point is in re Joplin Brewery Co. Ltd.', 1902 1 Ch 79 (B). There was an application by a company for extension of time for the registration of certain mortgage debentures. The company was entirely solvent and there was no question of liquidation. The relevant section in force at the time was Section 15 of the Companies Act, 1900, which was in the following terms:

'A Judge of the High Court, on being satisfied that the omission to register a mortgage or charge within the time required by this Act, or the omission or mis-statement of any particular with respect to say such mortgage or charge, was accidental, or due to inadvertence or to some other sufficient cause, or is not of a nature to prejudice the position of creditors or shareholders of the company, or that on other grounds it is just and equitable to grant relief may, on the application of the company or any person interested and on such terms and conditions as seem to the Judge Just and expedient, order that the time for registration be extended, or, as the case may be, that the omission or mis-statement be rectified.'

Buckley J. ordered the application, but he directed that the following words be added to the order. viz.,

'but that this order be without prejudice to the rights of parties acquired prior to the time when the debentures shall be actually registered.' The learned Judge was of opinion that these words ought to be added in every case, unless there was some good ground to the contrary. A few months after this decision, Swinfen Eady J. dealt with a similar application for extension in 'In re Spiral Globe Ltd.', 1902 1 Ch 396 (C). Here, the debenture-holders were the applicants, and the application was made after the commencement of the winding up of the company. An order of extension was made but with the addition of the following words 'without prejudice to the rights of parties acquired prior to the time when such debentures shall be actually registered'.

The learned Judge made the following observations on the effect of the winding up of the company:

'It is true that on the winding up of a company the property does not become vested in the liquidator as it does become vested in the the trustee of a bankrupt on the bankruptcy of an individual. But the principle of the cases before referred to is not limited in its application to those cases in which the ownership of or property in goods or chattels has actually changed; it extends, in my judgment, to cases in which the rights of third persons have actually accrued, and which would be prejudicially affected if registration were allowed without saving and protecting those rights. Upon a Winding up the rights of the whole body of the company's creditors have intervened, and the position of the liquidator, and through him of all the general creditors or the company, would now be very much prejudiced if the time for registration were unconditionally extended.' In 1902 1 Ch 695 (A)', Euckley J. had to deal with an application for extension made by a debenture-holder after the company had passed an extraordinary resolution for voluntary winding up. Though the learned Judge held that the omission to register was due to some other sufficient cause, he dismissed the application because it would be unjust to the other creditors to grant extension of time without qualifying the order as in 1902 1 Ch 79 (B)', and to make an order in that form in a case where the winding up of the company had commenced could not benefit any one. The conclusion arrived at by the learned Judge was obviously on the assumption that the qualifying words as in 1902 1 Ch 79 (B)' were intended to benefit both secured and unsecured creditors.

The facts in 'In re Anglo Oriental Carpet Manufacturing Co.', 1903 1 Ch 914 (D) were slightly different. In June 1901 the company issued debentures creating a charge but the charge was not registered within twentyone days. On 1-11-1901, an order was made under Section 15, Companies Act, 1900, extending the time for registration until November 15, but 'without prejudice to the rights of parties acquired prior to the time when such trust deed and debentures shall be actually registered.'

The charge was registered on November 15; but in the meantime, on November 11, the company passed an extraordinary resolution for voluntary winding up. Buckley J. held that the rights of the general body of creditors under the winding up order were protected by the saving words of the order extending the time for registration, and the debenture-holders were not entitled to set up the debentures in their favour against any of the creditors of the company existing at the time of the passing of the resolution for winding up. The learned Judge thought that the case was covered by his previous decision in 1902 1 Ch 695 (A)',

In 'Ehrmann Bros. Ltd. In re', 1906 2 Ch 697 (E), the court of Appeal had to deal with the effect of the usual proviso added to an order extending time, such as that in 1902 1 Ch 79 (B)'. It was held that such a proviso did not enable an ordinary unsecured creditor of the company at the date when the charge was registered to rank 'pari passu' with the charge-holders, unless he had taken steps to enforce his debt or unless a winding up had intervened. Vaughan Williams L. J. said:

'.....according to my reading of this order, the protection is given only to those who have acquired rights of property or rights against property, and this, as it seems to me, clearly does not include unsecured creditors who have no right against the property in question and no charge against it.'

Romer L.J. was of the same opinion, and also Cozens-Hardy L. J, It was pointed out, however, that different considerations would arise if a winding up intervened before the registration was made. Vaughan Williams L.J. observed:

'One sees, of course, that if there is an order for extension of time, and before the registration actually takes place, there intervenes a winding up, these words would protect the rights of property so acquired in that interval.'

7. So also Romer L.J. thus:

'An ordinary creditor would have no 'locus standi;' if there was liquidation, of course, different considerations would apply, and if he had a charge different considerations would apply; he might then intervene, and I think his intervention would be accepted by the Court.'

Cozens-Hardy L.J. specifically approved of the two decisions of Buckley J. in -- 1902 1 Ch. 695 (A)'; -- 1903 1 Ch. 914 (D)'. In view of this decision of the Court of Appeal, the later decision of Buckley J. in -- 'In re Cardiff Workmen's Cottage Co., Ltd., 1906 2 Ch. 627 CF)', does not require much notice. The learned Judge held that an order under Section 15 of the Companies Act granting an extension of time for the registration of debentures would not protect unsecured creditors of the company. There was no question of winding up involved in that case, The learned Judge, however, suggested, that it may be just and expedient to provide for protection of unsecured creditors also.

The decision in -- 'In re M. I. G. Trust Ltd., 1933 1 Ch. 542 (G)', is not directly on the point we are concerned with, but it is valuable for the discussion of the matter, particularly in the judgment of Romer L.J. A mortgage by deposit of title deeds was by Inadvertence omitted to be registered within twenty one days. The mortgagee 10 months later, applied to the court to extend the time for registration. Notice was served on the company. At that date the mortgagor company was hopelessly insolvent, and a petition for its winding up was impending. The mortgagor company appeared by counsel, who was instructed to oppose the motion. But a few days later, when the motion came on again, the opposition of the company was withdrawn, and the order extending time for registration was made.

Shortly after the order for extension of time was made, the mortgagor company was ordered to be wound up compulsorily on its own petition. The liquidator took out a summons to declare the charge void against him inasmuch as the company had suffered a judicial proceeding when unable to pay its debts and thus was guilty of a fraudulent preference, it was held by the Court of appeal that the liquidator was not entitled to any relief. Bonier L.J. once again pointed out that the protecting proviso usually added to an order for extension did not apply to unsecured creditors. But then it was asked by counsel, if that be so, and if the court was not going to protect unsecured creditors, why was it that the court always insisted on being furnished with evidence that there had been no judgment obtained against the company and that no resolution had been passed or even notice sent out convening a meeting of the company to pass a resolution to wind up? The learned Lord Justice answered it thus:

'The Court, as far as I know, does not do it. I do not know of any case in which the Court has insisted upon having evidence of that kind. It is perfectly true that in practice such evidence is nearly always furnished to the court when application is made under Section 85, but I think the reason for that is to be found by reference to -- 'In re Bootle Cold Storage and Ice Co., 1901 WN 54 (H)', which is, as Mr. Tucker tells us, the first reported case of any extension made under Section 15 of the Act of 1900. in looking at this report, I find a statement that, in addition to other relevant facts, 'evidence was given that the company was still carrying on business, and that no petition to wind up the company had been presented, nor had notice of a meeting to pass a resolution to wind up the same been given, nor had any creditor recovered judgment against the com-pany.' .....

The result of that of course was that any one who mode an application under the section after that note appeared in the Weekly Notes, if he knew his business, would put into his affidavit evidence similar to that in the case before Farewell J. and I think in that way the practice has sprung up and is still continuing of putting in statements which to my mind are wholly irrelevant; that is to say, statements which do not indicate that there is anybody who has obtained any interest in the property of the company, but statements dealing with the position of the company so far as regards its unsecured creditors.'

8. The latest case on the point is -- 'In re Kris Cruisers Ltd., 1949 1 Ch. 138 (I)'. In that case, there was an order made under Section 101 of the Companies Act, 1948, which is in 'pari mate-ria' with Section 15 of the Act of 1900 and Section 120 (1) of the Indian Companies Act. There was no winding up in that case. Vaisey J. held that the traditional and well settled form of proviso inserted in orders for extension of time for registration protected only secured creditors arid not unsecured creditors. Such a proviso did not extend to protect the inchoate or other rights of unsecured creditors as such. The learned Judge said at page 141:

'The true view is, however, that there is a statutory right in the mortgagee or chargee to come to the court to be relieved of the consequences of his own negligence and lack of caution provided that the court is satisfied that the omission to register was not an omission with any fraudulent intention but was, in the words of the Act, 'due to inadvertence or to some other sufficient cause''.

The learned Judge was not satisfied in that case with the solvency of the company. But he thought that the solvency or insolvency of the company was not a matter to which he need pay attention. For this he had the authority of Romer L.J. in -- 1933 1 Ch. 542 (G)'.

9. In the Indian Companies Act, originally, Section 120 did not contain what is now to be found in Sub-section (2). It was by the Companies (Amendment) Act, 1936, that that Sub-section was added. It runs thus:

'Where the court extends the time for the registration of the mortgage or charge, the order shall not prejudice any rights acquired in respect of the property concerned prior to the time when the mortgage or charge is actually registered.'

Whatever may be the usefulness of the English decisions before the Amendment Act of 1936, inserting Sub-section (2) there is now very little scope for the application of the practice in English courts and of the protecting proviso added to an order for extension. In Sub-section (2) of Section 120, the Legislature had laid down the effect of the order, namely, that it shall not prejudice any rights acquired in respect of the property concerned prior to the time when the mortgage or charge is actually registered. This sub-section obviously excludes unsecured creditors. In our opinion, it also excludes the rights of unsecured creditors even when there is a winding up order.

As a result of a winding up order, the unsecured creditors do not acquire any rights in respect of any particular property which is the subject matter of the charge. The unsecured creditors may have a general recourse to all the assets of the company left after satisfying the secured creditors, but it cannot be said that they secure any rights in respect of any particular property of the company. The later decisions in England make it clear that the solvency of the company is not a matter of any consequence in disposing of an application for extension of time. Romer L.J. pointed out in -- 1933 1 Ch 542 (G)', how the practice grew of alleging that there was no winding up order and that no judgment had been obtained against the company. In Gore-Browne's Handbook on Joint Stock Companies, 41st Edn., 1052, the law on the point is thus stated:

'And it is now clearly established that the order only protects creditors who have acquired a security or levied execution on the property the subject matter of the charge, and that the court will not insert any terms for the protection of the unsecured creditors of the company. An order to extend the time for registration may be made notwithstanding that the company is insolvent or that a meeting has been convened to consider a resolution for voluntary winding up.'

But, as mentioned before, we are directly govern-ed by the language of Section 120 (2) and that makes it clear that unsecured creditors would not have any right to contend that an extension of time for registration made after the winding up order would not give the charge-holder the rights of a secured creditor.

10. With respect to the learned Judge, we do not agree with him that he was helpless in the matter. But we agree with him that this is a case in which it must be held that the omission to register in time was due to inadvertence or some other sufficient cause.

11. We allow the appeal and make the orderof extension of time under Section 120, Companies Act, as prayed for. No orders as to costs.The Official Liquidator will have his costs fromthe Estate.


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