Company Law Board
Industrial Credit And Investment ... vs Official Liquidator, Usha Automobiles ... on 19 November, 1999
Equivalent citations: [2000]100COMPCAS150(CLB)
ORDER
K.K. Balu, Member K.K. BALU, Member
1. This is a petition filed by M/s. Industrial Credit and Investment Corporation of India Limited ("the petitioner") under Sections 125 and 141 of the Companies Act, 1956 ("the Act") against (1) the official liquidator of Usha Automobiles and Engineering Co. Ltd. (in liquidation)--hereinafter "the company" and (2) the Registrar of Companies, West Bengal seeking the following reliefs :
(i) to direct the Registrar of Companies to register the charge in favour of the petitioner in respect of the immovable properties of the company ;
(ii) to rectify the register of charges by the Registrar of Companies including the charge of the petitioner over the immovable properties of the company ; and
(iii) to extend the time for filing of the particulars of charges.
2. Shri Sudipto Sarkar, senior advocate for the petitioner, initiating his arguments, submitted that the company was a constituent of the petitioner since April, 1979, availing of diverse credit facilities. The petitioner had extended in favour of the company a loan of Rs. 22 (twenty-two) lakhs in March, 1981, and another loan of Rs. 72 (seventy-two) lakhs in July, 1986, to be secured by way of mortgage of the immovable properties and hypothecation of the movables belonging to the company. The company had accepted the terms and conditions stipulated by the petitioner. Accordingly the company had executed the loan agreements in favour of the petitioner and availed of the credit facilities. The company had further undertaken to mortgage the immovable properties to secure the loan amounts. The company had passed the requisite resolutions to mortgage the properties in accordance with Section 293(1)(a) of the Act ; hypothecated the movables and filed the particulars of charge, which was duly registered by the second respondent. However, the company had neither mortgaged the immovable properties nor registered the charge with the second respondent, in spite of the demands made by the petitioner. In the meanwhile, the company went into liquidation pursuant to an order of winding up dated June 26, 1991, of the High Court of Calcutta. The official liquidator realised Rs. 3,61,50,000 by way of sale of the assets of the company which was confirmed by the High Court in April, 1995, and further reconfirmed by the Supreme Court in May, 1997. The petitioner duly filed its "affidavit of proof of debt" before the official liquidator claiming a sum of Rs. 3,43,97,047 being the amount due and payable by the company. The petitioner's claim was allowed by the official liquidator to the extent of Rs. 95,33,834 out of which only a sum of Rs. 49,64,880 was admitted as secured and the balance amount unsecured on the ground that the company had neither mortgaged the immovable properties nor registered the particulars of charge with the second respondent. The petitioner has challenged the order of the official liquidator before the High Court of Calcutta, which is pending. According to Shri Sarkar, the company had acted upon the loan agreements ; availed of the credit facilities and undertook to mortgage the immovables which are binding in nature and operate as valid equitable charge in favour of the petitioner. Moreover, the company had admitted its mortgage liability in its annual report for the year 1985-86, He further emphasised that the petitioner's interest as charge holder in respect of the immovable properties of the company came into existence when the company expressed its intention to create a charge over the immovables, though the formal documentation was to follow. In this connection, Shri Sarkar drew my attention to the following documents :
(a) An extract of the minutes of the proceedings of the extraordinary general meeting of the company held on February 5, 1981, according consent to mortgage the immovable properties for the loan amount of Rs. 22 lakhs (annexure H).
(b) A copy of the loan agreement dated March 28, 1981, for Rs. 22 lakhs.
(c) The letter dated March 28, 1981, of the company undertaking to mortgage the immovable properties (annexure G).
(d) The letter of sanction dated July 17, 1985, annexed at page 81 of the petition, stipulating first mortgage of the company's immovable properties.
(e) The letter dated July 22, 1985, of the company, annexed at page 86 of the petition, accepting the terms and conditions of sanction.
(f) An extract of the minutes of the proceedings of the annual general meeting of the company held on January 29, 1986, according consent to mortgage the company's immovables for the loan amount of Rs. 72 lakhs (annexure M).
(g) The letter of undertaking dated July 10, 1986, annexed at page 87 of the petition, executed by the company.
(h) A copy of the loan agreement dated July 10, 1986 for Rs. 72 lakhs (annexure L).
(i) A copy of the annual report for the year 1985-86, annexed at pages 130-146 of the petition.
3. Shri Sarkar pointed out that the petitioner, being a public financial institution, should not be deprived of its legal right and be penalised on account of failure of the company under Section 134 to file with the second respondent the particulars of charge created by the company. The Company Law Board in exercise of its discretionary powers and in public interest is empowered to grant the reliefs sought in the petition notwithstanding the fact that the company is wound up. Shri Sarkar, in support of his submissions, has relied on the following decisions and passages from Halsbury's Laws of England :
State Bank of India v. Registrar of Companies [1998] 91 Comp Cas 407 (CLB)--to state that the Company Law Board ordered rectification of the register of charges covering the immovable properties mortgaged in favour of the creditor.
Heathstar Properties Ltd., In re (No. 2) [1966] 36 Comp Cas 768 ; [1966] 1 All ER 1000 Ch D-to state that the court exercising its discretion extended the time for registering particulars of the charge, since the undertaking of the borrower company was evidence of an equitable charge by the borrower company.
Kris Cruisers Ltd., In re [1948] 2 All ER 1105-to state that the court has the discretionary power to extend the time for the registration of charges provided the court is satisfied that omission to register was not with any fraudulent intention, but was due to inadvertence or some other sufficient cause. The solvency or insolvency of the company is not a matter to which the court need pay attention.
Braemar Investments Ltd., In re [1988] BCLC 556--to state that the court is vested with the widest possible discretion to extend the time for registration provided it is just and equitable to grant relief. The imminence of liquidation is not an absolute bar to such an order.
Central Bank of India v. Saraf Textile Industries Ltd. [1998] 93 Comp Cas 309 (CLB)--to state that a charge can come into existence by virtue of an implied contract as borne out from the balance-sheet, correspondence read with the sanction letter, though the formal documentation is yet to follow.
Sher Singh v. Daya Ram, AIR 1932 Lahore 465 [FB]-to state that "the essence of a mortgage is a transfer of an interest in immovable property. A document which gives immovable property as security for the satisfaction of a debt, without transferring any interest in the property, merely constitutes a charge on the property and is not a mortgage".
Halsbury's Laws of England : Volume 32 : Mortgage :
"An agreement to charge real or personal estates, made for valuable consideration by a person who has power to create such a charge, operates as a valid equitable charge . . ." (para. 443 at page 216) :
"A memorandum or agreement in writing showing an intention to deposit title deeds by way of mortgage or to charge the property comprised in the deeds was sufficient even if no deeds were in fact deposited and even if some of the deeds were not executed" (para. 322 at page 158).
4. Shri Asim Banerjee, advocate for the official liquidator of the company, reiterating the averments made in the counter-affidavit has submitted that the petitioner had extended the credit facilities in favour of the company in the years 1981 and 1986, respectively. The company was wound up in June, 1991. The petition seeking the extension of time for filing the particulars of charge was filed before the Company Law Board on June 10, 1998, after an unexplained delay of seven years. The petition is affected by the laws of limitation. The petition is hit by the principles of acquiescence, waiver, res judicata and also by the principles of stay of proceedings. The petition does not disclose the cause of action. The petition is bereft of material particulars. The petition is an abuse of the process of the legal proceedings. The petitioner has preferred an appeal before the High Court at Calcutta against the order of the official liquidator, disallowing the claim of the former, in which case the petition before the Company Law Board is not maintainable. The petitioner has failed to produce any document evidencing the mortgage created by the company in compliance with the requirements of the Transfer of Property Act and the Indian Registration Act. There has been no charge registered in favour of the petitioner in respect of the immovable properties. The mere undertaking by the company to mortgage the assets does not amount to a charge registerable under Section 125 of the Act. The company was ordered to be wound up as early as in June, 1991, upon which the charge, if any, became void against the liquidator. The Company Law Board has, therefore, no jurisdiction to extend any time for filing the particulars of charge and cannot exercise its discretionary powers prejudicially affecting the interests of the other secured creditors and workmen of the company, as envisaged in Section 529A of the Act. The petitioner failed to implead the other secured creditors and no relief can be granted without affording an opportunity of being heard to the secured creditors. The petition is bad for non-joinder of necessary parties. Shri Banerjee in support of his arguments relied upon the following decisions :
Anglo Oriental Carpet Manufacturing Company, In re [1903] 1 Ch D 914--to state that where a company executed a trust deed and issued debentures including a charge, it required registration within 21 days. The charge was not registered within 21 days. The court extended the time for registration without prejudice to the rights of parties acquired prior to the time when such trust deed and debentures shall be actually registered. In the meantime, prior to registration of the charge, the company passed an extraordinary resolution for voluntary winding up. The court precluded the debenture holders from setting up their debentures as against any creditors of the company existing at the time of the passing of the resolution for winding up.
Molton Finance Ltd., In re [1968] 38 Comp Cas 833 ; [1968] Ch D 325 (page 833)--to state that the failure to register the charges rendered them void as against the liquidator. When the charge itself is avoided by the statute, the liquidator in a case of equitable mortgage is entitled to have the documents delivered by the mortgagee or chargee.
Mechanisations (Eaglescliffe) Ltd., In re [1965] 35 Comp Cas 478 (Ch D) ; [1965] 2 WLR 702--to state that where particulars of further charge were not registered in due time and the company was in the meantime, voluntarily wound-up, the further charge/modification cannot be allowed after winding up of the company.
Reshma Estate Pvt. Ltd., In re [1977] 47 Comp Cas 447 (Bom)-to state that those who on their own showing have been guilty of gross and unexplained delay, should not be permitted to defeat the rights or legitimate expectations of the other creditors who might ultimately benefit as a result of the winding up order that may be passed and the petition seeking extension of time was dismissed.
Official Liquidator v. Surayahant Natvarlal Surati [1986] 59 Comp Cas 147 (Bom)--to state that under Section 125, every charge created by a company, which is not registered under the provisions of the Companies Act is void against the liquidator. There is, therefore, no question but that a charge on the company's property which is unregistered is void ipso facto upon the company being ordered to be wound up. Such a charge has no effect upon the company's property, once the order of winding up is made. No steps are required to make or declare it void.
5. Shri Amar Chaudhury, Assistant Registrar of Companies, West Bengal, has submitted that the company never created any equitable mortgage in favour of the petitioner. The company's mere undertaking does not create any charge or mortgage over the properties. The company had created a charge only in respect of the plant and machinery and other movables which does not cover the immovable properties. The Company Law Board cannot grant any relief which would adversely affect the rights of all parties, which are determined on the commencement of winding up.
6. I have considered the pleadings and arguments of learned counsel for the petitioner as well as the official liquidator and the representative of the Registrar of Companies. The issues that arise for consideration are
(a) Whether the transactions covered by the loan agreements dated March 28, 1981, and July 10, 1986, attract the provisions of Section 125 of the Act ?
(b) If so, whether sufficient cause or justification is shown by the petitioner to condone the delay in filing the particulars of charges under Section 141 of the Act ?
Issue No. 1:
7. I think it fit that certain material provisions of the Act, in the light of which the nature of the subject transactions has to be examined, must be borne in view. Section 124 deals with the expression "charge", which includes a mortgage. Section 100 of the Transfer of Property Act provides that when immovable property of one person is, by act of parties or operation of law, made security for the payment of money to another, such person is said to have a charge on the property if the transaction does not amount to a mortgage. Section 125(4) of the Act requires that the following charges when created by a company must be registered with the Registrar of Companies :
(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 a 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.
8. Section 141(1) of the Act empowers the Company Law Board to extend the time for the filing of the particulars or for the registration of the charge provided the transaction is a "charge" within the meaning of Section 124 created by a company and falling under any of the categories contained in Section 125(4)(a) to (i) of the Act.
9. In the present case, it is to be seen whether the transactions covered by the loan agreements dated March 28, 1981, and July 10, 1986, constitute a charge on the immovable properties of the company attracting the provisions of Section 125 of the Act. A perusal of the available records reveal the following :
(a) The company at its extraordinary general meeting held on February 5, 1981 (annexure H) had accorded the consent in terms of Section 293(1)(a) of the Act to mortgage the immovable properties to secure the term loan of Rs. 22 lakhs.
(b) The company had executed loan agreements dated March 28, 1981, and July 10, 1986, according to which the company shall secure the loan amounts by way of mortgage of the immovable properties.
(c) The company by a letter dated March 28, 1981 (annexure G) had undertaken to mortgage the immovable properties in favour of the petitioner for the term loan of Rs. 22 lakhs.
(d) The company by a letter dated July 22, 1985, annexed at page 86 of the petition, accepted the terms and conditions stipulated by the petitioner in regard to the term loan of Rs. 72 lakhs, according to which the company shall mortgage the immovable properties.
(e) The company at its annual general meeting held on January 29, 1986 (annexure M) had accorded the consent in accordance with Section 293(1)(a) of the Act to mortgage the immovable properties for the term loan amount of Rs. 72 lakhs.
(f) The company by a letter dated July 10, 1986, annexed at page 87 of the petition, had undertaken to mortgage the immovable properties to secure the term loan of Rs. 72 lakhs,
(g) The company had acknowledged the mortgage liability in its annual report for the year 1985-86, annexed at pages 130-146 of the petition.
10. From the foregoing, it is far from doubt that the company had accepted the stipulated terms and conditions of sanction ; accorded the consent to mortgage the immovables ; undertaken to mortgage the immovable properties ; and acknowledged the mortgage liability in favour of the petitioner. The company was to mortgage the immovable properties in accordance with the loan agreements. Admittedly the company did not mortgage the immovable properties to secure both the loans. In the circumstances, whether a mere undertaking and acceptance of the terms and conditions of sanction by the company will not amount to a mortgage. In my view the undertakings of the company amount to an assurance to mortgage giving rise to an obligation on the part of the company, but do not constitute either a mortgage or a charge attracting the provisions of Section 125 of the Act. In this connection, reliance has to be placed on the decision of the apex court in J.K. (Bombay) Private Ltd. v. New Kaiser-I-Hind Spinning and Weaving Co. Ltd. [1970] 40 Comp Cas 689 ; AIR 1970 SC 1041, wherein it is held (page 709 of Comp Cas) that "the said provisions of the scheme and the agreement amount only to an agreement to mortgage which can given rise to an obligation to specifically perform it, a personal obligation, but do not constitute either a mortgage under Section 58 or a charge under Section 100 of the Transfer of Property Act".
11. The company's acknowledgment of mortgage liability in its annual report, in rny view, does not amount to a mortgage required to be registered under Section 125.
12. The question of equitable charge as reiterated by Shri Sarkar, on account of the company having acted upon the loan agreements ; undertaken to mortgage the properties and enjoyed the credit facilities from the petitioner, does not merit consideration especially when the company was ordered to be wound up as early as in June, 1991, upon which the equitable charge, if any, which was not registered under Section 125 of the Act, became void against the liquidator. There is, therefore, no question but that a charge on the company's properties which is unregistered, is void ipso facto upon the company being ordered to be wound up. Such a charge has no effect upon the company's properties once the order of winding up is made, as has been held in a number of decisions cited by learned counsel for the official liquidator.
13. In regard to the decisions cited by learned counsel for the petitioner it may be observed that the facts in State Bank of India v. Registrar of Companies [1998] 91 Comp Cas 407 (CLB) are not akin to the present case especially when there is no dispute with regard to existence of the charge over the immovable properties of the borrower-company, the fact of which is in dispute in the case before me.
14. The facts in Heathstar Properties Ltd., In re (No. 2) [1966] 36 Comp Cas 768 (Ch D) ; [1966] 1 All ER 1000, Kris Cruisers Ltd., In re [1948] 2 All ER 1105 and Central Bank of India v. Saraf Textile Industries Ltd. [1998] 93 Comp Cas 309 (CLB) are not applicable to the present case in view of the fact that the companies in the said cases were going concerns and not wound up unlike in the present case.
15. The decision in Braemar Investments Ltd., In re [1988] BCLC 556 does not come to the rescue of the petitioner in the light of the observations of Justice Mr. Haffmann at page 562 which run as under :
"As a matter of strict law an application to extend time is not too late if the registration can be effected before the liquidation actually commences,"
16. In the present case, the petition seeking extension of time has been made after the company has been ordered to be wound up and hence, the citation is of no consequence.
17. In Sher Singh v. Daya Ram, AIR 1932 Lahore 465 [FB], a mortgage is distinguished from a charge, which is not disputed by learned counsel for the official liquidator. However, the issue is whether the subject transactions amount to a charge attracting the provisions of Section 125 of the Act, which is answered elsewhere.
18. Thus, considering all the facts and circumstances of the case and the legal position explained herein above, I am of the view that the transactions covered by the loan agreements dated March 28, 1981, and July 10, 1986, do not constitute a charge attracting the provisions of Section 125 of the Act. Accordingly, this issue is answered in the negative.
Issue No. 2 :
19. In view of my finding on issue No. 1, the issue whether sufficient cause or justification is shown by the petitioner to condone the delay in filing the particulars of charge under Section 141, does not arise for consideration. This issue is answered accordingly.
20. In view of the foregoing, the petition is dismissed. No order as to costs.