(1) Sree Meenakshi Mills Ltd., filed a balance sheet for the year ended 31-3-1962 with the Registrar of Companies. On the liabilities side under the heading 'secured loans' a sum of Rs. 36,57, 804 was exhibited as having been raised on the security of fixed deposits with the Bank. What happened was that Sree Meenakshi Mills Ltd., had some fixed deposits with the Bank and raised a loan from the Bank to the extent of Rs. 36,57,804, by pledging those fixed deposit receipts. This pledge was however not registered with the Registrar of Companies. The Registrar, however, took an objection that it was a charge which required to be registered under S. 125 of the Indian Companies Act, 1956. It is here necessary to quote S. 125(1) and 125(4)(d) and (e). They are as follows:
'Section 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 confined 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 21 days after the date of its creation.
(4) This section applies to the following charges;
(d) a charge on any book debts of the company; (b) a charge, not being a pledge, on any movable property of the company'.
The contention of the Registrar was that the fixed deposit amounts were book debts of the company, that a charge had been created thereon, and that it required to be registered under S. 125(4)(d). The company has filed this application under S. 622 of the Companies Act, 1956, urging that the contention of the Registrar is not right, that there was only a pledge of movable property of the company, namely, the fixed deposit receipts, and that consequently it is exempt from registration by virtue of S. 125(4)(e).
(2) Now this contention of the petitioner is supported by the Bench decision of this court in Radhakrishnan Chettiar v. Madras Peoples' Bank Ltd. : AIR1943Mad73 . In that case the Madras Peoples' Bank Ltd., was indebted to one Radhakrishnan Chettiar in a sum of Rs. 3000. Being unable to repay the money, the Bank endorsed five promissory notes to Redhakrishnan Chettiar as security for its indebtedness to him. Those promissory notes had been executed in favour of the Bank by its own debtors. The bank subsequently went into liquidation. Redhakrishnan Chettiar, as endorsee of the promissory notes, collected a sum of Rs. 1100 and odd, from the makers of those notes. The Official liquidator of the bank took out an application against Redhakrishnan Chettiar asking him to refund the sum of Rs. 1100 so collected on the ground that the agreement between the Bank and Redhakrishnan Chettiar by which the promissory notes had been endorsed required registration under s. 109(1)(e) of the Indian Companies Act, 1913 (which in this respect was similar to S. 125 of the Act of 1956), that since it had not been registered, it was void against the Official liquidator. The Official liquidator succeeded before Gentle J. but the Bench (Leach C. J. and Bell J.) reversed that decision. S. 109 of the 1913 Act contained the following provisions:
'109(1) Every mortgage or charge created after the commencement of this Act by a company and being either (d) a mortgage or charge on any book debts of the company; or (e) a mortgage of a charge, not being a pledge on any movable property of the company except stock-in-trade;
Shall so far as any security on the company's property or undertaking is thereby conferred, be void against the liquidator and any creditor of the company, unless the prescribed particulars of the mortgage or charge, together with the instrument, (if any) by which the mortgage or charge is created or evidenced or a copy thereof verified in the prescribed manner are filed with the Registrar for registration in manner required by this Act within 21 days after the date of its creation, but without prejudice to any contract or obligation for repayment of the money thereby secured, and when a mortgage or charge becomes void under this section, the money secured thereby shall immediately become payable'.
From the judgment of the Bench it is seen that no point was urged that the case would come under clause (d) of S. 109(1) namely, that the indebtedness of the makers of the pronotes amounted to book debts of the bank, Madras Peoples Bank, that a charge had been created thereon and therefore required registration. The argument was addressed only with reference to clause (e). The contention there was a mortgage of the promissory notes which were conceded to be movable properly of the Madras Peoples Bank Ltd., and therefore required registration under clause (e) of S. 109(1). The contention of Redhakrishna Chettiar however was that though it might be a mortgage, it was a pledge of the promissory notes, that consequently it was exempt from registration. The learned Judges pointed out by quoting the definition of 'pledge' in S. 172 of the Contract Act (the bailment of goods as security for payment of a debt or performance of a promise) and a decision of the Exchequer Chamber that there was a pledge of the promissory notes which, of course, were movable property within the meaning of the Sale of Goods Act.
They expressed the opinion that the transaction might amount to a mortgage in that there was a transfer of the property in the promissory notes to Redhakrishna Chettiar. But they pointed out that it was also a pledge, and the legislature must have had a purpose in introducing the words 'not being a pledge' on any movable property' and that the purpose must have been that where the mortgage also contains the character of a pledge, it would not require registration. Leach C. J. observed that the only object it could have had was to provide that registration should not be necessary where the person entitled to the security has obtained possession of the goods. Now this decision directly applies to the facts of the case because the fixed deposit receipts would also be movable property and though there might be a charge, it is also a pledge and hence it is exempt from registration under S. 125(4)(e). It is unnecessary to decide in this case whether it is a charge on the book debts of the company. It is sufficient to say that where there are two provisions, one requiring registration and the other not requiring registration, there is no reason why the second provision should not be availed of by the company or by the Bank with whom the fixed deposit receipts have been pledged.
This also receives support from the principle possibly underlying the necessity for the registration of a charge. The registration of the charge is intended to give notice to people who may not otherwise be aware of it, particularly, to persons who may advance mony to the company and it may also serve the purpose of preventing a fraudulent and belated claim of a charge in the event of liquidation. But where the movable property of the company has itself been taken possession of by its creditor, the very possession of the movable property should itself be notice of the charge. Following the Bench decision I shall have to hold that in the present case the registration is not required.
(3) The learned Government Pleader has cited the decision in Independent Automatic Sales v. Knowles & Foster, 1962 3 All ER 37. In that case, the plaintiff company carried on the business of manufacturing and dealing in automatic machines. They used to sell their products under hire purchase agreements. For obtaining finances for their business, they hypothecated some of these hire purchase agreements with the defendants. That hypothecation however, was not registered under S. 95 of the English Companies Act. The plaintiff company went into liquidation. The Liquidator contended that not having been registered the hypothecation was void against him. The contention was upheld on the ground that the hire purchase agreements contained book debts of the company, that the hypothecation of the hire purchase agreements created a charge on the book debts of the company, and that it was immaterial that the hypothecation bond was intended to secure to the defendants other rights besides the book debts. I find however that in S. 95 of the English Companies Act. there is no provision corresponding to S. 125(4)(e) of our Act, exempting from registration a pledge of movable property Consequently that decision may have to be distinguished whereas there is no reason for distinguishing the Bench decision of this court which is binding on me.
(4) It is hereby declared that S. 125 is not applicable to the security created by the company over the fixed deposits and that relief will be granted to the petitioners against any action for alleged default or omission relating thereto. Parties will bear their own costs of this petition Government Pleader's fee is fixed at Rs. 250.
(5) Order accordingly.