Company Law Board
Corporation Bank vs Registrar Of Companies And Ors. on 17 February, 1997
Equivalent citations: [1998]93COMPCAS415(CLB)
ORDER
S. Balasubramanian, Chairman
1. The Corporation Bank (hereinafter referred to as "the petitioner") has filed this petition under Section 141 of the Companies Act, 1956 (hereinafter referred to as "the Act"), seeking extension of time for filing the particulars of modification of charge executed with Dhanalakshmi Consolidated Industries Limited (hereinafter referred to as "the company").
2. The facts alleged in the petition are that the company borrowed a sum of Rs. 50 lakhs from the petitioner against the security of vehicles, machinery and equipment belonging to the company which were to be let out by the said company to any party on hire or lease, by executing ah hypothecation agreement dated February 12, 1987, and the same was duly registered with the Registrar of Companies, Tamil Nadu, Madras. The said charge was modified by executing two hypothecation agreements both dated May 20, 1988, by hypothecating (a) all the movables belonging to the company both existing and proposed to be purchased and thereby creating a floating charge and (b) all the present as well as the future book debts, outstanding monies, receivable claims, bills, contracts, engagements, securities, investments, etc., by way of first charge. The said modification of charges should have been filed with the Registrar of Companies as required under Section 135 of the Act within 30 days after execution. The second opposite party ("the company") failed to submit Form No. 8 in spite of repeated requests by the petitioner. Under these circumstances, the petitioner was obliged to file the relevant Form No. 8 with the Registrar of Companies, Tamil Nadu, Madras, on March 20, 1989, after a delay of nine months. In view of the delay in filing the modification of charge, the Registrar of Companies did not take the same on record. Hence, this petition had been filed by the petitioner seeking extension of time to file the charges as envisaged under Section 141 of the Act.
3. On the basis of the notice published by the petitioner in this connection, the Syndicate Bank (SB) and the New Bank of India (NBI) have filed objections before the Company Law Board (CLB). According to NBI, the said bank had advanced a sum of Rs. 30 lakhs under a cash credit facility to the company on its executing necessary documents in favour of NBI and the company has failed to repay the dues to NBI and as such a suit was filed against the company by the NBI in the High Court of Judicature at Madras on February 20, 1990, and the said suit is still pending. According to NBI, all items of assets which have been included in the modification of charge filed by the petitioner had been included in the hypothecation deed executed in favour of NBI on February 29, 1988, by the company and as such if the delay is condoned it would affect the rights of the NBI.
4. The Syndicate Bank (hereinafter referred to as "SB"), has in its objection stated that it has created a charge for over Rs. 5 crores on certain valuable properties of the company and the extension of time if granted in this case, would adversely affect the SB. It has also submitted that under Section 135 of the Act it is only the company which is entitled to register a charge and not the petitioner. The company has also objected to the granting of extension of time, on the ground that the petitioner has already filed a winding up petition against the company in 1988 and the company has also filed a suit seeking certain declarations, against the petitioner. Further, the hypothecation agreements dated May 20, 1988, which are sought to be registered were not executed on the said date as there was nothing to warrant such executions of such documents. It is further averred that these documents have probably been obtained in blank forms while other documents were executed and the company never intended to create any fresh charge over any assets other than those that have already been given as security earlier. Accordingly, the company has prayed for dismissal'of the petition.
5. The matter was finally heard on February 15, 1996, when the advocates appearing on behalf of the objectors contended that if the extension of time is granted and the modification of charge is registered, it would affect their rights in terms of the charges created in their favour by the company and as such the extension should not be granted. Counsel for the company contended that when the company questions the authenticity/genuineness of the charge, the Company Law Board should not grant extension of time. The authorised representative of the petitioner stated that as long as the petitioner is in position to satisfy the Company Law Board the reasons for the delay in not registering the modification in time, the delay should be condoned irrespective of whether there are any objections or not from other alleged chargeholders. The petitioner honestly believed that the company itself would register the modification in time and only when the petitioner realised that the company failed to do so, without any loss of time, the petitioner filed the modification of charges and as such there was no avoidable delay on the part of the petitioner in filing the modification and as such the delay be condoned.
6. I have gone through the pleadings and heard the arguments of the authorised representative of the petitioner bank and learned counsel for the objectors and the company. The issues that arise for consideration are (i) whether I should go into the validity of the charge which is denied to have been executed by the company ; (ii) whether the petitioner has given sufficient justification for condoning the delay in filing the modification and (iii) if the extension is granted whether it would affect the interest of the objectors.
7. As far as the first issue regarding the contention of the company that it has not executed the modification of charge on the said date is concerned, I do not consider it necessary to go into the validity of the charge, A reading of Section 141 of the Act clearly shows that what the Company Law Board has to satisfy itself is that the delay in registering charges within the prescribed period was accidental or due to inadvertence or to some other sufficient cause or is not of a nature as to prejudice the position of creditors or shareholders of the company or on other grounds that are just and equitable. There is nothing in the section to indicate that the Company Law Board should also be satisfied about the validity of the charge. Reference may be made to the decision of Heathstar Properties Ltd., In re [1966] 36 Comp Cas 768 (Ch.D), wherein a similar case arose regarding validity of charge and the court held, with reference to Section 101 of the English Companies Act, which more or less contains the same provision as Section 141 of our Act that (page 776) :
"There is no reference there to the court being satisfied as to the validity of the charge, and it would have been very simple to insert such a reference if it had been intended. What Section 101 does, is to give the court power in certain circumstances to substitute its own time-limit for the time-limit in Section 95, but apart from that it leaves Section 95 to operate as if the application to register had been made in time."
8. Thus, considering the legal position as explained above, I do not consider that it is necessary for me to go into the validity of the charge before granting extension of time. The company is always at liberty to challenge the validity in a proper forum and registration of the charge does not take away its right in this connection.
9. As far as the second issue is concerned, it is always the person who creates the charge who files the charge for registration and very rarely the chargeholder files the charge for registration. In this case, it is the charge-holder viz., the petitioner who filed the modification after a delay of nine months on the ground that the company failed to do so in spite of repeated requests. Considering the facts and circumstances of the case, I am of the view that the grounds given by the petitioner seeking for condonation of delay in filing the modification are sufficient and as such I am inclined to condone the delay.
10. In regard to the third issue, it is seen that the hypothecation deed executed in favour of NBI on February 29, 1988, is prior in time to the modification of charge sought to be registered by the petitioner now. As far as Syndicate Bank is concerned, the hypothecation deed which is yet to be registered is dated April 27, 1989. This bank has already filed a petition under Section 141 for extending the time for filing the charges up to August 28, 1989 (the date on which charges were filed with the ROC). In other words, the charges created in favour of this bank by the company are yet to be registered. In view of the provision of Section 141(3) of the Act which reads :
"Where the Company Law Board extends the time for the registration of a charge, the order shall not prejudice any rights acquired in respect of the property concerned before the charge is actually registered."
11. The extension of time sought to register the modification if granted will not in any way affect the rights of the objectors.
12. In view of the above, I am satisfied that it is just and equitable that the delay is condoned and the time for filing the modification of charge is extended as prayed for subject to payment of costs referred to herein.
13. This Bench doth therefore hereby order :
That the delay in filing the particulars of modification of charge on May 20, 1988, is hereby condoned and the time for filing the same is extended up to March 20, 1989, subject to payment of Rs. 1,000 (rupees one thousand only) as costs under Section 141(2) of the Act to the Registrar of Companies, Madras, Tamil Nadu.