Company Law Board
Times Bank Ltd. vs Sri Sharada Parmeshwari Textiles Ltd. ... on 29 May, 2000
Equivalent citations: [2000]101COMPCAS412(CLB)
ORDER
K.K. Balu, Member
1. This is a petition filed under Section 141 of the Companies Act, 1956 ("the Act"), against Sharada Parmeshwari Textiles Limited ("the company") and others for grant of the following reliefs :
(a) to declare that the charge created by the company on March 31, 1995, in respect of the immovable properties described in the petition (the immovable properties) securing the advances made by the second respondent and registered by the third respondent is null and void ;
(b) to direct the third respondent to rectify the register of charges of the company by deleting the particulars of the charge registered on July 22, 1999, in favour of the second respondent ;
(c) to direct the second respondent to deliver the title deeds of the immovable properties to the petitioner ; and
(d) to direct the company to rectify the register of charges and deliver a certified copy of the corrected register of charges to the petitioner.
2. S. Srinivasan, practising company secretary and authorised representative appearing on behalf of the petitioner, while reiterating the averments made in the petition as well as rejoinder has submitted that the company had created a charge on December 22, 1995, in favour of the petitioner for securing an aggregate sum of Rs. 6 lakhs on all raw materials, work-in-progress, finished goods, stores and book-debts belonging to the company. The charge was duly filed and registered by the third respondent on January 19, 1996, which was subsequently modified from time to time. The petitioner renewed the credit facilities enjoyed by the company to the extent of Rs. 550 lakhs on the security of the immovable properties. Accordingly, the company deposited certified copies of the title deeds in respect of the immovable properties with the petitioner on April 7, 1998, after taking necessary precautions and filed modification of the charge originally created on December 22, 1995, which was registered by the third respondent on April 23, 1998. Subsequently, it transpired that the company had already created a charge on March 31, 1995, in respect of the immovable properties securing the facilities extended by the second respondent, which was registered by the third respondent on. July 22, 1999, resulting in the petitioner's charge becoming subservient and subject to the second respondent's charge. According to Srinivasan, the mortgage created by the company in favour of the second respondent lacks the essential ingredients of Section 58(f) of the Transfer of Property Act, 1882. The second respondent is not, therefore, entitled to any charge on the immovable properties. The said charge is void ab initio and should be deleted from the register of charges of the company. The petitioner had taken all precautions to ascertain the existence of any charge on the immovable properties before allowing the company to create charge by way of equitable mortgage on April 7, 1998. As the charge created by the company on March 31, 1995, in favour of the second respondent was registered only on July 22, 1999, the petitioner had no notice of any charge as on April 7, 1998, on which date the petitioner became entitled to the charge on the immovable properties. The third respondent ought not to have registered the charge in favour of the second respondent for the following reasons :
(a) The company had created charge by deposit of the title deeds with the second respondent on August 1, 1994, and not March 31, 1995, as claimed by the company. Forms Nos. 8 and 13 were filed on April 27, 1995, after a delay of eight months and 26 days from the date of creation of the charge, i.e., August 1, 1994. The third respondent has no authority to condone the aforesaid delay and exceeded his statutory powers usurping powers of the Company Law Board.
(b) There has been a delay of nearly five years in registering particulars of the charge created on August 1, 1994.
(c) Prior charge existed on the properties even as of April 23, 1998, in favour of the petitioner.
(d) Forms Nos. 8 and 13 have not been signed by the company in compliance with Rule 6 of the Companies (Central Government's) General Rules and Forms, 1956.
(e) Revised Forms Nos. 8 and 13 were filed without payment of filing fee.
3. Srinivasan, while concluding his arguments, asserted that the Company Law Board exercising its powers should order rectification of the register of charges by deleting the charge registered in favour of the second respondent on just and equitable grounds. In this connection, Srinivasan relied upon the following decisions :
(i) Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 All ER 492 (HL).
(ii) Hind Overseas Pvt. Ltd. v. Raghunath Prasad Jhunjhunwalla [1976] 46 Comp Cas 91 ; AIR 1976 SC 565.
(iii) Rajahmundry Electric Supply Corporation Ltd. v. A. Nageswara Rao [1956] 26 Comp Cas 91 ; AIR 1956 SC 213.
(iv) S.S. Rajakumar v. Perfect Castings Pvt. Ltd. [1968] 38 Comp Cas 187 ; [1968] 1 Comp LJ 41 (Mad) ;
wherein the courts, interpreting the term "just and equitable" have evolved the following rules ;
The "just and equitable" clause leaves the entire matter to the wise and wide discretion of the court.
It depends on the facts and circumstances of each case and it cannot be put in a straitjacket of an inflexible formula.
The rule of ejusdem generis does not apply while interpreting the term "just and equitable".
When the Act provides for relief under the term "just and equitable", the same should be read independent of the rest of the clauses and should not be read in unison.
The rule of "just and equitable" is wide enough, but it has own circumspection. Justice, equity and good conscience is a salutary rule in jurisprudence, which prompts company courts to act in real and compelling circumstances.
The just and equitable provision, does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations.
4. Srinivasan, in support of his arguments, has further cited the following decisions :
I. Hind Overseas Pvt. Ltd. v. Raghunath Prasad Jhunjhunwalla [1976] 46 Comp Cas 91 ; AIR 1970 SC 565, to state that the principle of "just and equitable" clause baffles a precise definition. It must rest with the judicial discretion of the court depending upon the facts and circumstances of each case. These are necessarily equitable considerations and may, in a given case, be superimposed on law. Whether it would so done in a particular case cannot be put in the straitjacket of an inflexible formula.
II. Rajahmundry Electric Supply Corporation Ltd. v. A. Nageswara Rao [1956] 26 Comp Cas 91 ; AIR 1956 SC 213, to state that the words "just and equitable" are not to be construed "ejusdem generis".
III. Corporation Bank v. Registrar of Companies [1997] 4 Comp LJ 278 ; [1998] 93 Comp Cas 415.
IV. Heathstar Properties Ltd., In re [1966] 36 Comp Cas 768 ; [1966] 1 All ER 1000 (Ch. D); [1966] 2 CLJ 246, to state that "it is not necessary for the Company Law Board to go into the validity of the charge while considering a petition for extension of time."
V. Anandji Haridas and Co. Pvt. Ltd. v. Engineering Mazdoor Sangha (C. A. No. 2053 of 1971), where the Supreme Court laid down the rule of interpretation that when the language of statute is clear and unambiguous, the intention of the Legislature is to be gathered from the language of the statute itself and no external aid is admissible to construe these words.
5. Vidya Shankar, advocate appearing on behalf of the company has raised a preliminary objection regarding maintainability of the petition. Section 141 can be invoked only if there is omission to file any particulars with the Registrar of Companies or if any particulars are not filed within time or there is any omission or misstatement of any particulars with respect to any charge, modification of charge or satisfaction of charge. The relief is restricted to grant extension of time for registration of any charge, modification of charge and satisfaction of charge and for rectification of omission or misstatement of particulars of charges. The petitioner, however, is questioning the very validity of the charge created by the company on March 31, 1995, and for deletion of the said charge, which is not within the ambit of the provisions of Section 141. In this connection, Vidya Shankar has relied on (a) Heathstar Properties Ltd., in re [1966] 36 Comp Cas 768 ; [1966] 1 All ER 1000 (Ch. D) and (b) Corporation Bank v. Registrar of Companies [1998] 93 Comp Cas 415 (CLB) to state that it is not necessary for the Company Law Board 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 rights in this connection. He further relied on C.L. Nye Ltd., In re [1970] 3 WLR 158 (CA) delivered under Section 101 of the Companies Act, 1948 (English Act), which corresponds to Section 141 of the Act to state that the court has no power to order deletion of a whole registration. Vidya Shankar pointed out the difference in language between Section 111(4) and Section 141. Section 111(4) provides for rectification of the register of members in case the name of a person is entered in the register of members without sufficient cause. On the contrary Section 141 permits rectification only in respect of misstatement or omission of particulars and does not permit rectification which would amount to determination of validity of a charge and consequent deletion of a charge from the register of charges. The charge created by the company on March 31, 1995, was registered by the third respondent in pursuance of which a certificate of registration was granted. Such a certificate cannot be nullified by resorting to Section 141. He further submitted that registration or non-registration of a charge in the office of the ROC is an issue only if the company is wound up. In the case of winding up, the High Court has jurisdiction to determine on the validity and priority of the charge. In the case of a going concern, the question of registration or non-registration of a charge does not arise and the civil court will have its jurisdiction to decide on 'the validity and priority of charge. Vidya Shankar has therefore, sought for dismissal of the petition.
6. Anandam, company secretary and authorised representative appearing on behalf of the second respondent has submitted that the charge created by the company in favour of the second respondent in respect of the immovable properties was duly registered by the third respondent on July 22, 1999, and issued a certificate under Section 132 of the Act. This cannot be challenged in Section 141 proceedings. He further reiterated that the charge created by the company in favour of the petitioner on April 7, 1998, by depositing certified copies of the title deeds is not valid in law. There has been no privity of contract between the petitioner and the second respondent. The petitioner cannot claim any remedy against this respondent.
7. V. Selvaraj, Registrar of Companies, Tamil Nadu, Coimbatore, the third respondent, in his oral submissions has stated that the company had deposited the title deeds in respect of the immovable properties with the second respondent as on August 1, 1994, the fact of which has been evidenced by a memorandum of deposit of title deeds executed by the company on March 31, 1995. He, therefore, reiterated that the charge was created on March 31, 1995, and not on August 1, 1994, on which date, there was no instrument evidencing the charge. In this connection, he referred to several dictionaries and various provisions, namely, Sections 125, 136 and 144 from the Act for the meaning of the term "instrument". Accordingly, the term "instrument" means a written agreement evidencing the charge. He further relied on Krishan Mohan Singh v. Sri Chand Gupta, AIR 1993 Delhi 365, to state that an instrument normally indicates a document executed between the parties to it. Consequently, the memorandum dated March 31, 1995, evidencing deposit of the title deeds only amounts to an instrument creating charge and not the date on which the title deeds were deposited. Forms Nos. 8 and 13 were filed by the second respondent on April 27, 1995, within the requisite period as contemplated by Section 125 of the Act. However, the charge could not be registered for non-availability of the documents filed by the company. Thereafter, at the instance of the third respondent, the company had filed revised Forms Nos. 8 and 13 on July 19, 1999. This respondent had registered the charge on July 22, 1999, and issued a certificate of registration of the charge under Section 132 of the Act. By virtue of Section 132, the certificate of registration shall be conclusive evidence that the requisite requirements as to registration of the charge have been complied with. This cannot be challenged in Section 141 proceedings. He further pointed out that Forms Nos. 8 and 13 are then not required to be signed by the company under the General Rules and Forms, 1956. The requirement of fresh filing fees on the revised Forms Nos. 8 and 13 does not arise, especially when the revised forms were filed at the instance of this respondent. Selvaraj summed up his arguments by stating that the charge created on March 31, 1995, was duly registered by this respondent on July 22, 1999, and that there is no infirmity in registration of such charge.
8. After considering the pleadings and submissions of the authorised representative of the petitioner, counsel for the company, authorised representative of the second respondent and the Registrar of Companies, the following issues arise for my consideration :
(a) Whether the charge registered on July 22, 1999, by the third respondent shall be declared as null and void ?
(b) If so, whether the register of charges of the company shall be rectified by deleting the particulars of the charge registered on July 22, 1999 ?
(c) Whether the second respondent shall deliver the title deeds in respect of the immovable properties to the petitioner ? and
(d) Whether the company shall rectify the register of charges and deliver a certified copy of the corrected register of charges to the petitioner ?
9. In view of the preliminary objection raised by the company regarding maintainability of the petition, I shall take up first the issue of maintainability, before going into the merits of the case.
10. A careful scrutiny of the available records shows that the company had deposited the original title deeds in respect of the immovable properties on August 1, 1994, with the second respondent to secure the financial assistance obtained from the latter. The company had executed a memorandum dated March 31, 1995, evidencing deposit of the title deeds in favour of the second respondent. Forms Nos. 8 and 13 were filed by the company with the filing fee before the third respondent on April 27, 1995, and again at the instance of the third respondent the company filed revised original Forms Nos. 8 and 13 on July 19, 1999, without any filing fee. The third respondent had registered the charge and issued a certificate of registration on July 22, 1999. In the meanwhile, the company created a charge in respect of the immovable properties in favour of the petitioner on April 7, 1998, by deposit of certified copies of the title deeds, which were registered by the third respondent on April 23, 1998. The petitioner, aggrieved by the act of the company and the third respondent is seeking the following among other reliefs :
(a) to declare the charge registered by the third respondent on July 22, 1999, as null and void ;
(b) to direct the third respondent to rectify the register of charges of the company by deleting the charge registered on July 22, 1999 ; and
(c) to direct the second respondent to deliver the original title deeds relating to the immovable properties to the petitioner.
11. It is observed that the petitioner is questioning the validity of the charge registered by the third respondent on July 22, 1999, for the following reasons :
(i) The date of mortgage created by the company in favour of the second respondent is under dispute.
(ii) The charge created by the company in favour of the second respondent not having satisfied the requirements of Section 58(f) of the Transfer of Property Act, 1882, is void ab initio.
(iii) The charge in favour of the second respondent was created as early as on August 1, 1994. But Forms Nos. 8 and 13 were filed with the third respondent after a delay of eight months and 27 days.
(iv) The ROC has no authority to condone the delay of eight months and 27 days and register the charge.
(v) Forms Nos. 8 and 13 have not been signed by the company as required under the Companies (Central Government's) General Rules and Forms, 1956.
(vi) The ROC has not collected any filing fee, while accepting revised Forms Nos. 8 and 13 filed by the company on July 12, 1999.
(vii) The certificate of mortgage dated July 22, 1999 (annexure A-24), is impugned. It is to be seen whether the above contentious issues can be gone into in a petition under Section 141. The jurisdiction of the Company Law Board under Section 141(1)(b) consists of two parts, namely,
(a) direction with regard to extension of time for the filing of the particulars or for the registration of the charge or for the giving of intimation of payment or satisfaction ; and
(b) direction for rectification of mis-statement or omission, if any.
12. Section 141 empowers the Company Law Board to order rectification of the omission or misstatement of particulars of any charge provided it was accidental or due to inadvertence or to some other sufficient cause or is not to prejudice the position of creditors or shareholders of the company on just and equitable grounds. Admittedly, the petitioner does not seek for rectification of any mis-statement or omission in the particulars of the charge created by the company in favour of the second respondent, but seeks for declaration that the charge created in favour of the second respondent and registered by the third respondent is null and void ; deletion of the charge from the register of charges of the company ; delivery of the original title deeds held by the second respondent, etc. I am afraid, whether the Company Law Board is empowered to go into the validity of a charge and grant any of these remedies in Section 141 proceedings. There is no reference in the section to the Company Law Board being satisfied as to the validity of a charge. This is not the occasion for deciding the validity of a charge, especially when it is not contemplated in Section 141. In this connection, reference may be made to the following decisions :
(i) Corporation Bank v. Registrar of Companies [1998] 93 Comp Cas 415 (CLB).
(ii) Heathstar Properties Ltd., In re [1966] 1 All ER 1000 (Ch. D), wherein it is observed that the courts need not consider the validity of a charge, before granting extension of time and that the company is at liberty to challenge the validity in a proper forum. While the Company Law Board may rectify an omission by adding, or rectify a misstatement by correcting, it has no authority to delete a whole registration, as has been held in C. L. Nye Ltd., In re [1970] 3 WLR 158 (CA) cited by counsel for the company. Accordingly the prayer of the petitioner, which would result in deletion of the whole of the charge created in respect of the immovable properties in favour of the second respondent cannot be granted in a petition under Section 141. Moreover, the third respondent, in exercise of his powers under Section 132 has certified by a certificate of registration of mortgage dated July 22, 1999 (annexure A-24) that the mortgage/charge dated March 31, 1995, made between the company and the second respondent has been registered in accordance with the provisions of Sections 125 to 130 of the Act. This certificate of registration issued by the third respondent shall be conclusive evidence that the relevant registration requirements have been satisfied as held in C. L. Nye Ltd., In re [1970] 3 WLR 158 (CA) stated supra and cannot be challenged before the Company Law Board. I am, therefore, convinced that the petition under Section 141 challenging the validity of the charge registered on July 22, 1999, by the third respondent and seeking its deletion from the register of charges of the company is not maintainable. Accordingly, without going into the merits of the other contentions of the petitioner and the decisions cited in this behalf, the petition is dismissed.
13. No order as to costs.