Madras High Court
Official Liquidator, Manasuba And Co. ... vs Commissioner Of Police And Ors. on 10 November, 1967
JUDGMENT Ramaprasada Rao, J.
1. This is an application taken out by the official liquidator for determination of the rights of many of the respondents to this application who are claiming preferential rights over the sale proceeds of the various vehicles belonging to the company in liquidation and sold by the official liquidator with the consent of such respondents and by orders of court. He has also sought a relief for determination of the rights of priority inter se between such respondents, as according to him, amongst the respondents one or the other of them claims that he is entitled to be paid the entire amount due and payable to him in priority to others who might have a preferential right to ask for the sale proceeds now in the hands of the official liquidator. In so far as the latter prayer of the official liquidator for determination of the rights inter se between the respondents is concerned, it is completely outside the scope of this court as a company court. Even if it were to be held ultimately that the respondents' claim to be declared as preferential creditors is well-founded, the forum in which the issues that might arise as between the respondents themselves as to who amongst them have to be preferred in the matter of such payment of the sale proceeds now in the hands of the official liquidator, notwithstanding the fact that it is justiciable, cannot be agitated in a summary proceeding like the one that is being enquired into by this court under the Companies Act, 1956. As such rights of preference inter se amongst the respondents have to be determined-in another forum and not by this court as a company court, I am not persuaded to consider this aspect of the prayer in the judge's summons. In the instant case however in the ultimate analysis of the facts, the general proposition set out above should give way to avoid multiplicity of actions. I shall advert to this later.
2. It is common ground that the vehicles in question were handed over to the official liquidator or otherwise secured by him under Section 456 of the Companies Act and it is also not disputed that in order to avoid further damage to the vehicles and also to secure the best possible price as early as possible for such vehicles which were by then not put on the road for a considerable length of time, they were sold under orders of court and the official liquidator has, after incurring the necessary expenditure, effected such a sale publicly and has obtained the moneys therefrom and such sale proceeds are now in his custody. Ordinarily, the official liquidator would be entitled to retain this money for the benefit of the general body of creditors. But as many of the respondents to this application projected rights before him as preferential creditors or as charge-holders over the erstwhile vehicles, he is seeking the necessary directions from this court for determination of the quality and quantity of rights so put forward by many of the respondents to this application. It is necessary to set out the succinct facts so as to appreciate the compass of the issues between the parties. It may be noted that the Commissioner of Police filed a report through the Government Pleader, Madras, furnishing particulars with regard to the vehicles in question. Such particulars furnished by the Commissioner of Police read in the context of events, disclose that the company was indiscriminately dealing with the lorries by approaching one or the other of the respondents from time to time and on the foot of false ' C ' certificates, forged documents and by representations made by the managing director on behalf of the company, the company secured the vehicles or secured finances over the vehicles already owned by them. The modus operandi of the managing director appears to be either to execute a deed of hypothecation in favour of such financiers or banks who lend moneys to the company through him or by executing hire purchase agreements in favour of such financiers or banks. One thing, however, is clear and conspicuous that apart from one vehicle which was hypothecated in favour of the Pandyan Bank, bearing No. MDF 1136, all other vehicles have been subjected to either a hypothecation agreement or a hire-purchase agreement in favour of more than one respondent to this application. Apparently, this was done by the managing director, Mr. C.V. Raman, in perpetration of a fraud practised by him consistenly against the creditors and incidentally against the company as well. One thing, however, emerges from the events that happened. The vehicles purchased by the managing director by securing the finances from one or the other of the respondents herein, or the money secured on hypothecation of such vehicles or on a hire-purchase agreement which is in commercial parlance called refinancing agreement, were secured for the benefit of the company and both vehicles and the money so obtained by the managing director were utilised for the company and for the benefit of the company. It is in such conspectus of events that the merits of the applicant and the respondents have to be considered in this case.
3. In the report of the official liquidator, his case is put forward thus. The company was wound up by an order of this court on August 11, 1961. The petition itself was filed by two of the directors of the company. It is also averred in the petition that the managing director was charged for forgery, cheating and other offences which were by then being investigated by the police and in pursuance of which a criminal case has also been laid against the managing director and others. The official liquidator would say that 21 lorries and 2 motor cars belonging to the company were seized by the police from various persons ; but moneys have been borrowed on the security of these vehicles from many of the respondents hereto and as he was not in a position to ascertain the nature of the rights of such respondents who financed the company, he sought for directions for sale of the vehicles as some of them were by then not even roadworthy. In the interim this matter was disposed of by this court earlier and permission was accorded, after notice to the respondents for the sale of such vehicles and conversion of the corpus into cash. The official liquidator is therefore seeking for further directions from this court as to how and in what manner the funds in his custody have to be disposed of, after determining the rights of many of the respondents to this application. The report of the official liquidator further shows that there are several respondents claiming rights over one and the same vehicle and that therefore there is a conflict of interest between the parties inter se and a scramble for possession of the vehicles as on the date when he hied the application and which is now traced to the sale proceeds in his hands. He has therefore come up with this application for determination of such questions arising in this application as to priority of interests of such of those respondents amongst whom there is conflict of interest and the legality and propriety of such claims of the respondents. He would state that this court has the jurisdiction to entertain and dispose of all questions as may be necessary or incidental to give effect to the winding-up order including determination of the conflicting claims. I have already observed that even though this court has seisin of the affairs of the company in the course of the winding up, the question whether who amongst the respondents should rank as the first of such creditors who is entitled in preference to be paid a portion of the sale proceeds in the hands of the official liquidator is a civil claim which has to be necessarily adjudicated by civil courts. The, company court which is vested with jurisdiction to deal with affairs relating to the winding up Of a company Cannot be said to have been invested with such jurisdiction either expressly or by necessary implication. To assume such jurisdiction would necessarily mean that civil and justiciable rights of parties, who are outside the scope of the winding up of the company can secure relief from this court in a summary manner without paying the necessary court fee and without following the usual common law procedure as to the ascertainment and adjudication of civil rights. I am, therefore, refraining from addressing myself to this question which the official liquidator seeks the company court to determine. But, in the circumstances of this case, the above principle is inapplicable and has to give way to render justice and to avoid multiplicity of actions. The several interested parties, including the Commissioner of Police, as already stated, have filed their respective counters to the report of the official liquidator.
4. The 2nd respondent states that 8 vehicles amongst the list of vehicle's furnished by the official liquidator were the subject matter of a hypothecation dated May 30, 1960, under exhibit A-27. As the hypothecation created an equitable charge, the resultant charge was registered in the books of the Registrar of Companies under Sections 125 and 132 of the Companies Act, as is seen from exhibit R-54, This respondent states that even the insurance policies granted in respect of the vehicles have been effected by the bank. Inter alia the 2nd respondent submits that MDC 1136, which is also the subject-matter of the above hypothecation agreement, was actually in the possession of the Pandyan Bank Ltd. and that there are no other claims in respect of the same and he is therefore entitled to be paid the sale proceeds less the necessary expenses incurred by the official liquidator while administering the same thus far. Pursuant to the said hypothecation deed, the 2nd respondent's case is that he is entitled to be treated as a secured and as a preferential creditor and be dealt with as such.
5. It would be also convenient at this stage to record the contentions of the learned counsel appearing for the 2nd respondent. Mr. V. S. Subrah-manyam, who has been of great assistance to me in this case, contends that the 2nd respondent, namely, the Pandyan Bank Ltd., is a bona ride lender having placed implicit faith arid confidence in the representations made by the managing director. The bank had no reason to doubt the genuineness of the resolutions of the board as lorwarded to it by the managing director. As the minutes book of the board is a document to which he cannot have recourse, as it is a private document of the company, and as the resolutions contained therein are purely matters relating to indoor management and as the managing director was acting for the company and persuaded the 2nd respondent to act upon the copies of such resolutions produced by him and duly certified by him, no overt or covert act of mala fides can be attributed to it. His case is Section 292 of the Companies Act has no application. The lending is evidenced by the hypothecation deed exhibit A-27 dated May 30, 1960. 8 vehicles are involved in this hypothecation. It is not in dispute that MSX 5976, which was originally included was later substituted in the hypothecation deed. The two other lorries mentioned in exhibit A-27 were later registered as MSX 8928 and MSX 8929. This hypothecation has been duly notified with the Registrar of Companies as a registrable charge under Section 125 of the Companies Act. Mr. V. S. Subrahmanyam, learned counsel for the 2nd respondent, on the strength of such a registration of the charge and since the transactions are bona fide transactions in that they are not tainted in any manner known to law, contended that the bank is entitled to be treated by the official liquidator as a preferential creditor and cannot be directed to be ranked along with ordinary creditors. He cited before me many decisions, all to the effect that: the bank is a hypothecate arid therefore is a mortgagee of the lorries or vehicles concerned and its right to enforce the equitable charge over the vehicles cannot be defeated by supervening liquidations He referred in particular to exhibit A-3 and sought to add that by reason of the subsequent conduct of the directors, no possible attack can be made- against the transactions o-f the company through the managing director and in fact the company is equitably estopped from questioning the priority rights of the 2nd respondent. Mr. V.S. Subrah-manyam also maintains that the company is estopped from saying that the managing director is not a person who is not authorised to borrow and to make all the dealings which he had with the 2nd respondent and to enter into certain transactions which are now impugned by the official liquidator. He referred to certain dates which are relevant. The managing director was arrested on May 19, 1961, and the other two directors, who are petitioners in C.P. No. 21 of 1961, were arrested on May 25, 1961. The resolution to wind up the company was made on May 29, 1961, and the petition for winding up was filed actually on May 30, 1961. But this resolution was not signed by Mr. C.V. Raman. This is seen from exhibit A-3 at page 4. The official liquidator was appointed as interim liquidator on June 6, 1961. Notwithstanding the winding-up petition which was by then pending, the directors, that is, the petitioners in C.P. No. 21 of 1961 and the managing director Mr. C.V. Raman, met on June 4, 1961 and passed the resolution--vide exhibit A-3 at page 4--resolving to revive the company and to seek all matters to run the same. This is the essence of the resolution passed on that date. Thus, the learned counsel says that it cannot be pretended now at this stage by the official liquidator that the other directors were not aware of all the dealings which Mr. C.V. Raman had by then and it is impossible to conceive that all that Mr. C.V. Raman did was on his own volition and without the knowledge of the other directors. It is not disputed that the managing director, Mr. C.V. Raman, was the person in charge of all the affairs of the company. This is seen from paragraph 9 of the petition in support of the winding-up. Paragraphs 6 and 7 also throw light upon it. Even in exhibit A-2 there are certain resolutions, though no doubt anterior to the date of the winding up, to the effect that it was the managing director, Mr. C.V. Raman, who was the pivot and who was in charge of all its affairs and thus the contention of the learned counsel for the 2nd respondent is that it is not open to the official liquidator, to say that there is no authority or at any rate authority by necessary implication given by the company to the managing director to deal in the manner he did. Learned counsel says that his client no doubt was acquainted with the objects of the company and the articles of the company and it is not obliged in law to know anything more about the company. In view of the copies of the resolutions produced by the managing director to the effect that he had the authority to borrow and hypothecate the lorries in question, it cannot be said that the bank in any way acted in an unreasonable or imprudent manner so as to divest it of its legal, legitimate and equitable right to recover the moneys as a charge-holder, from the official liquidator. Exhibit A-21 is the resolution which the 2nd respondent has produced as the one which the managing director has forwarded to it while applying for the loan on the hypothecation.
6. The complaint of the official liquidator that such a resolution is non-existent is a matter which cannot be investigated and which could not have been investigated by the 2nd respondent on its own volition, and the bank out of necessity relied upon the representations of the managing director in so far as this resolution is concerned. Learned counsel has classified the decisions cited by him under the following heads : (a) the managing director should be deemed to have had ostensible authority to deal with the property of the company and the bank having acted upon such authority which is either actual or ostensible must be deemed to be a bona fide creditor ; (b) an irregularity in the exercise of such powers by a person ostensibly acting on behalf of the company would be immaterial in so far as the bona fide creditor is concerned and whilst developing this argument, learned counsel submits that even if there is no resolution in fact passed by the company and if representation to that effect has been made by the managing director, that would suffice to protect its interests ; (c) in any event the company should be deemed to have rectified all the acts of the managing director in that the company did have benefit of the lorries on the one hand and also the benefit of such borrowings made by the managing director on the other. They cannot therefore have the benefit alone and reject the liability ; and (d) the absence of the resolution, even if it were to be true, is a matter which relates to the indoor management of the company and such absence of a resolution cannot be put against it and its interests jeopardised thereby.
7. It is however brought to my notice in the course of the hearing of this application that all the above 8 vehicles excepting one bearing MDF 1136, are subjected to independent dealings with other parties. I have already expressed that the company court cannot be called upon to adjudicate upon the claims inter se between the respondents, who project rights over the same vehicle or vehicles pursuant to independent arrangement with the company through the managing director. It is for the contesting respondents in such circumstances, to establish their claims one against the other in appropriate proceedings. But as regards MDF 1136, it is admitted that no one else has put forward any concurrent claim over the vehicle. The sole rights of the 2nd respondent against MDF 1136 are not challenged by any other respondent. In these circumstances, the submission of the 2nd respondent is that in so far as the vehicle is concerned, it is entitled to be paid out the sale proceeds of the same, less the expenses incurred by the official liquidator so far.
8. We can now take up the case of respondents Nos. 3, 11 and 23. The common case of these respondents is that the company through its managing director secured loans under hire-purchase agreements over vehicles which the company owned and possessed. This system of financing is what is known as the refinancing agreement, the concept and details connected with which I shall presently advert. On the strength of such refinancing hire-purchase agreements the respondent claims as preferential creditors. The 3rd respondent, inter alia, would state that as regards MSX 8469, a hire-purchase agreement was executed by the company on July 29, 1960, under exhibit A-112 and the registering authorities under the Motor Vehicles Act were informed about such a hire-purchase agreement and an endorsement to that effect is said to have been made by the traffic office consequent upon such an intimation. The intimation from the company to the registering authority is exhibit A-114 and the confirmation of the endorsement in the certificate of registration by the traffic authorities is seen from exhibit A-115. For the vehicle MSX 7305, which is also one dealt with by the company with the 3rd respondent, the hypothecation agreement is under exhibit A-116 dated January 23, 1961. One other factor which appears from the voluminous records filed in this case is that in so far as these two vehicles are concerned, they were dealt with by the company earlier and finances secured from others and it is said that in so far as MSX 8469 was concerned, there were no prior encumbrances. But as regards MSX 7305 there were such encumbrances. The 11th respondent claims to have such preferential rights on the basis of refinancing hire-purchase agreement over 5 vehicles. Exhibits A-137 and A-143 are the hypothecation agreements under which this respondent claims. This is also a case in which the company dealt with the vehicles in question prior to its securing the finances from this respondent. It is reported however that such prior hire-purchase agreements have been cancelled in favour of some and subsisting in favour of others. In some of these cases also, the traffic authorities were informed of the hire-purchase agreements and this respondent received a communication to that effect from them. The 23rd respondent claims to have similar rights over vehicles MSW 2307 and MSX 9862. Both these vehicles appear to have been dealt with by the company who through its managing director secured finances from others. This respondent as well was tricked into entering into finance agreements exhibit A-207 in respect of two vehicles in question. But these two hire-purchase agreements were entered into by Chakra Traders. In the course of my judgment it would be necessary to consider as to whether Chakra Traders was a trading unit distinct and separate from the company in liquidation. In fact, the argument of Mr. C. Vasudevan, learned counsel for this respondent, is that Chakra Traders is a proprietary concern of the managing director and that therefore the company in liquidation cannot by any stretch of imagination claim to have any rights over the properties of Chakra Traders and on this ground alone this respondent is entitled to the sale proceeds of the vehicles in question less the expenses. It should however be noted that prior to the hypothecation agreement in favour of the 11th respondent by Chakra Traders, there are other creditors who claim equally such rights of priority over the vehicles in question by virtue of independent hire-purchase agreements entered into between Chakra Traders and themselves. To complete the narration, in respect of MSW 2307 Sundaram Finance Private Limited, and Fleet Financiers, do claim to have such rights, which arose in their favour earlier in point of time to that projected by this respondent.
9. Mr. C. Vasudevan, learned counsel appearing for respondents Nos. 3, 11 and 23, concedes that the equitable charge or lien created under the refinancing hire-purchase agreements was not registered with the Registrar of Companies under Section 125 read with Section 132 of the Companies Act of 1956. He referred to a passage in paragraph 889 of Halslmry's Laws of England, Simonds edition, volume 6. He took me through the various clauses in exibit A-112 which is a pattern of the refinancing hire-purchase agreements in the series in question and submitted that on the strength of the sale letter executed by the company in favour of the respondents contemporaneously with the hire-purchase agreements, it would take out the transaction from the mischief of a refinancing agreement and would in effect be a financing agreement and therefore the non-intimation of such charge to the Registrar of Companies would not deprive the respondents of their rights as preferential creditors. He relied on Manchester, Sheffield, and Lincolnshire Railway Company v. North Central Wagon Company [1088] 13 App. Cas. 554, and contended that the reality of the transaction has to be looked into. One other contention raised by the learned counsel was that Chakra Traders, which was originally a sole proprietary concern, dealt with the 23rd respondent and that therefore the company in liquidation cannot be said to be the owner or a person in possession of the vehicle in question. I have already stated that I will deal with the inter se relationship between Chakra Traders and the company in liquidation. Suffice it, however, to say at this stage that no question was put to the witnesses who were directors of the company and who were specially called upon and examined in this case, to the effect that the assets, liabilities and dealings of Chakra Traders should be dealt with de hors the assets, liabilities and dealings of the company in liquidation. Learned counsel virtually states that Sundaram Finance Ltd. v. State of Kerala [1966] 17 S.T.C. 489 applies to the facts of this case, but would add that non-registration of the charge under the Companies Act does not preclude him from enforcing his vested right as a secured or a preferential creditor.
10. Mr. Sankara lyer, appearing for respondents Nos. 4 and 5, states that his clients are concerned with 13 vehicles the particulars of which are set out in exhibit A-43. The vehicles are subject to a hypothecation in favour of the Punjab National Bank. This is seen from exhibits A-52 and A-53. That there is such a hypothecation in favour of the Punjab National Bank is not in dispute. This is signed by the managing director, Mr. C. V. Raman, and has been registered with the Registrar of Companies under Section 125 read with Section 132 of the Companies Act. The managing director is reported to have represented to the bank that he had the necessary authority to borrow and is said to have furnished to the bank the copy of the resolution enabling him to borrow. The resolution was produced by the managing director and exhibited as exhibit A-48. In this resolution C. V. Raman is expressly authorised to furnish the vehicles in question as security and sign and execute on behalf of the company all documents as required by the bank. He referred to me the various documents, exhibits A-41, A-48, A-43, A-44, A-300, A-49, A-57, A-52, A-53, A-54 and A-58 in support of his claim. Being hypothecatees, he claims an equitable charge and practically adopts the arguments of the learned counsel for the 2nd respondent. He would also add that the bank acquainted itself with the memorandum of association and the articles and were bona fide satisfied that the managing director had real or in any event ostensible authority to so borrow. His contention is that the company virtually delegated its powers to the managing director. As the resolutions passed by the board of directors are creatures of indoor management, he had neither the occasion nor the necessity to probe into the regularity or legality of such resolutions in the light of Article 100 of the articles of the company. He added that the bank had no right to pry into the company's archives. He referred in particular to paragraphs 2, 5, 26 and 29 of the memorandum, to substantiate his contention. He contends that the copy of the resolution as forwarded by the company through its managing director having come from proper custody, the presumption as to its genuinenenss and its sanction arises as a matter of course and that no investigation by the official liquidator can be undertaken independent of and de hors the content and context of such resolutions. He relied upon the dictum in In the matter of Ambrose Summers, an Insolvent (1896) I.L.R. 23 Cal. 592. in support of his argument. At all material times the bank believed that C. V. Raman was at the helm of affairs, had the power to borrow for purposes of business expansion and that the moneys were taken from the bank for purposes of securing assets to the company. He also adds that under the hypothecation agreement, the bank had the right to seize the vehicles and having seized the vehicles in question their right was converted to that of a pledgee and therefore they should be treated as preferential creditors. He also relied upon the fact that the official liquidator is ratifying the purchase of the vehicles and as ratification can only be of the whole and not of any part, his claim to trace his right to the sale proceeds of the vehicles in question cannot be negatived.
11. The 6th repondent reported no instructions and never interested himself in this enquiry.
12. Mr. V. K. Thiruvenkatachari who has taken the brunt of the argument in this case contended that the type of hire-purchase agreement with which respondents Nos. 7 and 8 are concerned is the financing hire-purchase agreement. Under this agreement, the vehicle is purchased and the major portion of the sale price is found by the financier. He invited my attention to the two ordinary types of hire-purchase agreements and made pointed references to the various documents filed in this case to substantiate his contention that the dealings in which these respondents were involved were financing hire-purchase agreements in which the ownership of the vehicle always vested in the financier at the time of the transaction. He also took me through the various clauses in the hire-purchase agreements in question to substantiate his contention that the ownership vested with the financier until the instalments under the hire-purchase agreements are fully paid. He also explained that the formal registration of the vehicle in the name of the company does not militate against his above contention. Inter alia, he referred me to the provisions of the Motor Vehicles Act and particularly Rule 82 and forms E and G prescribed thereunder to solve the apparent riddle which prima facie appears from the documents regarding the ownership of the vehicle ; his contention is that once a dealer has been told by the customer that part of the price is being paid by him and the rest to come from the financier, the intention at all material times that subsisted between the parties was that property in the vehicles is not to pass to the customer but to the financier and the former was only to hire the vehicle from the financier. He referred to exbitit R-75, the printed book filed in Sundaram Finance Ltd. v. State of Kerala and particularly to pages 209, 218 and 219 to show that the vehicles involved in the transaction in question are new vehicles for which a substantial portion of the purchase price was provided for by the financier. He brought out the distinction between hire-purchase agreements entered into under Rules 82(a) and 82(b) of the Madras Motor Vehicles Rules and stated that the hire-purchase agreements in question with the respondents come within the scope of Rule 82(a). His contention is that even though in some cases the financier may not send the cheque direct to the dealer, yet if the dealer knows that it is a hire-purchase agreement within the meaning of Rule 82(a) of the Madras Motor Vehicles Rules and the money of the financier went for the purchase of the vehicle through the hands of the customer with notice of such hire-purchase agreement, then the dealer is obliged to deal with it by acknowledging the hire-purchase agreement under Rule 82(a) read with Form E referred to above. His alternative case was, though it was not quite essential for his purpose, that assuming that the transaction was only a secured loan, the charge need not be registered as the official liquidator is ratifying the transaction. He argues that ratification cannot be in part, but it should be for the whole and therefore the official liquidator cannot keep the assets of the company without the same being purged of the moneys obtained by the company from the financiers who were bona fide lenders without notice of any defect in the ostensible authority of the managing director who dealt with these respondents. Under Section 199 of the Contract Act the liquidator cannot own the vehicle without paying the liabilities due and payable towards the same. He contends that the substance of the transaction should be ascertained and much reliance should not be placed on the form and referred me to the decision in Laurence Arthur Adamson v. Melbourne and Metropolitan Board of Works A.I.R. 1929 P.C. 181. and Commercial Banking Company of Sydney Ltd. v. Mann. Reference [1960] 3 All E.R. 482, 487. was also made to a passage in Halsbury's Laws of England, third edition, volume 3 page 316. Learned counsel says that the clause enabling the financier to seize the vehicle converts the original lien into a pledge and on such conversion the rights of these respondents are crystallised into that of a pledge with possession which could be traced to the funds in the hands of the official liquidator. My attention was drawn to Section 172 of the Contract Act.
13. Anticipating the argument of the official liquidator that the managing director acted illegally in securing finances from these respondents, Mr. V.K. Thiruvenkatachari would state that the company cannot approbate and reprobate, once the company concedes that the vehicles which were the subject-matter of hire-purchase agreements as above are vehicles of the company the sale proceeds thereto do belong to the body of creditors. It cannot re-elect having so elected and contend that there cannot be any preference over such body of creditors if such a preference amongst the creditors can be established in the eye of law. Particular reference was made to the well known decisions in Sinclair v. Brougham [1914] A.C. 398. and In re Diplock : Diplock v. Wintle [1948] Ch. 465 ; [1948] 2 All E.R. 318. The passage in Halsbury's Laws o] England, third edition, volume 6 paragraph 888 was also pressed for the purpose and ultimately the submission was made that the funds in the hands of the official liquidator can be separated and earmarked for the benefit of the body of preferential creditors, as against such funds if any available, for the benefit of the general body of creditors. The official liquidator being a public body cannot unjustly enrich himself ignoring the rights of parties.
14. Allied with the above contention was the answer given by the learned counsel regarding the formidable objection of the official liquidator that if the respondents' claim were to be treated as a secured loan, then it ought to fail for want of registration under Section 125 read with Section 132 of the Companies Act. The main contention of Mr. Thiruvenkatachariar is that under Rule 6 of the Companies (Central Government's) General Rules and Forms, 1956, it is only every instrument or deed creating or evidencing a charge that has to be registered with the Registrar oi Companies. According to him, the instrument of hire-purchase in question not being an instrument executed by the person having title to the vehicle in question but being an agreement between the financier who is the real owner of the property and the company who is the hirer, does not come within the grip and mischief of Sections 125 and 132 of the Companies Act and therefore the absence of registration cannot fail these respondents. He would rely upon the dicta of the Supreme Court in K.L. Johar & Co. v. Deputy Commercial Tax Officer [1965] 16 S.T.C. 213 (S.C.)and in the alternative on his contention that the rights of the respondents fruitioned into a pledge on seizure and such event being the necessary result of the statutory impact and the contractual obligations under the document, was one which was not foreseen on the date of the execution and therefore such an instrument need not have been and could not have been registered under Section 125 read with Section 132 of the Companies Act. Incidentally and in support of his alternative contention that by reason of the supervening impact of the provisions of the Contract Act and the effect of the legal obligations under the very instrument of hire-purchase an equitable charge is created over the vehicles in question which cannot be lightly brushed aside by the official liquidator, reliance was placed on the dicta in In re Ambrose Summers, an Insolvent [1896] I.L.R. 23 Cal. 592. and Puninthavelu Mudaliar v. Bhashyam Ayyangar. [1901] I.L.R. 25 Mad. 406.
15. As regards one other contention which arose in the course of arguments that the hire-purchase agreements cannot be acted upon because some of them contain the signatures of the other directors of the company which are admittedly forgeries, it is seen that two directors have been examined as P.Ws. 1 and 3 and it can be taken for granted that the signatures of the other directors wherever they appear in any document filed in the course of these proceedings, excepting that of the managing director, are forgeries. Mr. Thiruvenkatachari suggests that this is not a case of a hypothecation but is a case of financing hire-purchase agreement wherein the company secured vehicles. Therefore it is not a case of borrowing. Section 292 of the Indian Companies Act will not apply. As regards the document itself, it has been signed by the managing director who was in charge of the affairs of the company. The fact that in some of the hire-purchase agreements two other directors or one amongst them signed as a guarantor would not take away the legal effect of the document. His contention is that if indeed the guarantor's signature is ultimately discovered to be a forgery, it is for the creditor to set it aside. This is not the case here. Even otherwise the document is distinctive in the sense that it is separable and so separated the document creates an actionable and an enforceable claim in favour of the financier ; whatever may be said in such circumstances of executed contracts cannot apply to executory contracts. The fraud, if any, was discovered after the instrument was acted upon and therefore these respondents' rights as preferential creditors cannot in any way be disturbed in view of the guarantor's signature only being a forgery.
16. In conclusion, the learned counsel stated that this court can adjudicate upon the rights of preferential creditors infer se, which is the subject-matter of Application No. 132 of 1966. He invited my attention tosection 446(2)(b). The effect of this argument is that the non-obstante parenthesis in Clause (2) of this section enables this court to investigate the claims inter se as between preferential creditors and therefore he requests that the claims of the respondents inter se who are similarly placed can be enquired and adjudicated upon. I have expressed to the contrary even in the beginning. Section 446(2)(b) is only concerned with any claim made by or against the company. In the instant case, claims were made against the company by many of the respondents hereto. The court has jurisdiction to adjudicate upon the character of such claims. By this it would not necessarily involve the consideration of the quality or the quantity of the claims amongst such claimants against the company. This would essentially be civil claim which is outside the scope of Section 446(2)(b). As the learned counsel mainly pressed Application No. 132 of 1966 for this purpose and called for a decision from this court on this, I am obliged to opine that the company court exercising jurisdiction under Section 446 cannot entertain and dispose of claims by creditors placed in the same level who require this court to consider who amongst them has to be preferred as against the rest. Learned counsel wished to draw an analogy from the Banking Companies Act, 3949. Section 45 of the said Act, no doubt, expressly enjoins the court to decide all questions arising between the company in liquidation and the creditor. In fact, it is the company court which is competent under the Banking Companies Act to enquire whether a purchaser in a public sale held by the official liquidator has validly secured title thereto as against third parties projecting adverse claims against such court auction purchaser. This is one amongst the series of claims that could be adjudicated upon by the company court. In my view, however, even the invitation and reference to the provisions of the Banking Companies Act, 1949, cannot solve the problem posed in this application whether the company court can investigate into the merits or demerits inter se of conflicting claimants who are admittedly ranked in the same plane of action. No doubt, Buckland J., in Bibhuti Bhusan Shoma v. Baidya Nath Dev, 1936) 40 C.W.N. 625 observed that where there is a dispute as to the priority between two hypothecatees, the principle of qui prior est tempore, potior est jure should applv. This rule of equity was considered by the learned iudee in that case in a regular suit which involved a contest between two persons both of whom were similarly placed. This is not, however, the case here. Viewed in the context of events which has led to the official liquidator to take out this application for determination of the rights of each of the respondents to this application, I am unable to accept the contention of the learned counsel that in such proceedings the company court can delegate to itself the powers of a civil court and enter upon the enquiry as to who amongst themselves should rank in priority over the others. Application No. 132 of 1966 is therefore dismissed, but there will be no order as to costs. To repeat again, the principle stated by me is not strictly applicable to the facts of the instant case as in the ultimate analysis only two respondents out of the many before me are adjudged by me as preferential creditors ranking in the same plane and it is in the interests of justice that their rights should be finally decided in these proceedings to avoid procrastination and prolonging in general and multiplicity of actions in particular.
17. The 9th respondent's case is a peculiar one. No doubt, the two lorries in question, MSW 3056 and MSW 3589, were in the possession of this respondent at the time of seizure. These lorries were sold by this respondent as new lorries in March, 1961, to Chakra Traders, who, according to this respondent, were acting for Manasuba and Company Private Limited. But the financing agreement was entered into with Hindusthan Motor Corporation in respect of MSW 3056 under exhibit A-l 19 and in respect of MSW 3589 under exhibit A-120. Necessary endorsements were secured but the charges were not registered. This respondent guaranteed the performance of the hire-purchase agreement to Hindusthan Motor Corporation. The financiers terminated the hire-purchase agreement on May 21, 1961. This respondent also states that one Pushpa Kavur of Mint Street is claiming interest in the said lorries stating that the lorries are under hire-purchase agreements with her. It is not clear, however, how the vehicles were taken possession of by Messrs. Ranc (Madras) Limited. It is claimed, that such possession was taken by them on behalf of Hindusthan Motor Corporation and the vehicles continued to be in their custody till they were handed over to the Commissioner of Police. R.W. 1, T. A. Sankaranarayanan, the accountant of Messrs. Rane (Madras) Limited, was examined and he would say that after the vehicles were seized by the financing company they paid the amount to Hindusthan Motor Corporation and secured possession. It is claimed by this witness that the amounts were so paid because they were the guarantors under the agreement. In cross-examination he admitted that this respondent was not a party to the hire-purchase agreement either as guarantor or in any other character. He would also add that there are no other documents with reference to these vehicles in particular to show their interest. His case is that the vehicles were seized by this respondent as the financiers wanted them to seize and it was done on behalf of the financiers. Learned counsel for the 9th respondent argued that this respondent was acting as the general power of attorney of Messrs. Hindusthan Motor Corporation under exhibit R-91 and he also produced the letter of authority, exhibit R-90, to show that the vehicles were repossessed on default of the company. The power of attorney, however, is dated December 22, 1961. It is admitted to be later than the date of seizure. Under this, this respondent is authorised to take possession of the two vehicles in question which were the subject-matter of the above hire-purchase agreement and generally to take all steps to realise the amounts due under the aforesaid hire-purchase agreement. It is contended on the strength of this power of attorney and on the fact of actual payment of the dues to Hindusthan Motor Corporation, that this res-respondent has stepped into the shoes of the financier and the hire-purchase agreement in question being financial agreement, it is entitled to be treated as preferential creditor. One other person by name Pushpa Kavur, who is not a party to these proceedings, is said to be interested in these vehicles.
18. The 10th respondent, besides filing the counter, did not make any independent submission. His case is that MSY 2662 was under a hire-purchase agreement with him. This hire-purchase agreement is exhibited as exhibit A-131 and is obviously a refinancing agreement creating a secured loan which has not been registered with the Registrar of Companies.
19. Mr. Ranganatha Sastri, appearing for respondents Nos. 12 to 15, also claims that his clients should be ranked as preferential creditors. In so far as the 12th respondent is concerned, six vehicles are involved. All the six vehicles are the subject-matter of refinancing hire-purchase agreement. They are evidenced by exhibits A-146 to A-151. The charge or the lien created under the hire-purchase agreements are not registered under the Companies Act. So far as the 13th respondent is concerned, eight vehicles are involved and they are said to be subject to hire-purchase finance agreements under exhibits A-171, A-172, A-174, A-175, A-168, A-164, A-170 and A-167. All the vehicles are said to have been purchased and the hire-purchase agreements were entered into to secure finance for such purchase. The very same vehicles have been subject to such similar dealings with one or the other of the other respondents. Even so, the 14th respondent is concerned with three vehicles. The hire-purchase agreements are exhibits A-180, A-183 and A-181. They are said to be finance hire-purchase agreements relating to purchase of new vehicles. But these vehicles are dealt with by the company with one or the other of the other respondents. As regards the 15th respondent, the vehicles are three in number, two said to be covered by hire-purchase finance agreements and the other being an used vehicle, by a hire-purchase refinance agreement. The relative documents are exhibits A-178, A-176 and A-166.
20. Mr. Ranganatha Sastri contends that though the charges have not been registered, his clients are entitled to be treated as preferential creditors because they have in all those cases secured a sale letter from the registered owner of the vehicle and even otherwise their right to seize in default clothes them with the rights similar to that of a charge-holder and that they are entitled to be ranked as preferential creditors. Even if such a charge has to be registered, it could be done by this court exercising its discretion under Section 141(3) of the Companies Act and time may be extended for such registration of the charge under Section 132 of the Companies Act. He refers to Akkirath Mundanat Manakkal Thuppan Nambudiri v. A. P. Kutti Sankara Menon, Official Liquidator of the Malayalee Bank Ltd. [1954] 24 Comp. Cas. 489 ; [1955] 1 M.L.J. 46 It is however conspicuous that no application for such extension of time for filing the charge has been filed so far. On the strength of the above, however, it is contended that respondents Nos. 12 to 15 are to be treated as preferential creditors.
21. Regarding the 21st respondent, no one appeared and he has not interested himself in this enquiry.
22. Mr. Ramaswami, learned counsel appearing for the 22nd respondent, stated that his client is concerned with two vehicles which are the subject-matter of a refinancing arrangement. His case is that the endorsement in the " C " certificate showing the hire-purchase agreement in favour of his client is sufficient for him to claim as a preferential creditor. He invited my attention to the usual sale letter executed by the company (which in this case is Chakra Traders) in favour of his client and states that that is sufficient to establish that the property in the vehicles in question passed to the 22nd respondent and that, notwithstanding the non-registration of the charge under Section 125 read with Section 132 of the Companies Act, it is valid and enforceable. It is in" this behalf he states that he should be ranked as a preferential creditor.
23. Mr. G. Subrahmanyam, appearing for the 24th respondent, says that his client is concerned with four vehicles, MSX 9862, MSW 719, MSW 720 and MSW 2305. This is a case of refinancing. The hire-purchase agreement is dated April 24, 1961, and exhibited as exhibit A-212. The borrower was Chakra Traders, represented to be a sole proprietary concern of the managing director of the company. As in other cases, a sale letter, exhibit A-213, in respect of the four vehicles is taken in favour of this respondent from Chakra Traders. Timely intimation is given to the Regional Transport Authority under the Motor Vehicles Act, about the hire-purchase agreement. Long after the company was wound up, this respondent gave a notice to Messrs. Chakra Traders, on October 20, 1961, determining the hire-purchase contract and called for the amount due. The official liquidator replied on October 31, 1961, that the company has been wound up and that this application for directions has been filed. This respondent thereupon filed Company Application No. 454 of 1961 for impleading himself as a party and this application was ordered on December 12, 1961. This respondent in his counter affidavit would state that his information was that the company was the proprietor of Messrs. Chakra Traders and it was such information which prompted him to file the above application. He pleads that he is a bona fide lender for value and that the safe note taken by the respondent at or about the time of the hire-purchase agreement in question would entitle him to be treated as a preferential creditor. It is admitted that the hire-purchase agreement in question is a refinancing hire-purchase agreement. The lien or charge created thereunder has not been registered under the Companies Act. His main contention is that as on the date when the hire-purchase agreement was entered into, the vehicles still stood in the name of Chakra Traders, and that there was no obligation to register the charge under Section 132 of the Companies Act. As, according to him, the company was not the registered owner of the vehicle but Chakra Traders, the official liquidator has no right to deal with the property and negative his right. It should however be noted that, prior to the hire-purchase agreement, the very vehicles were subject to hire-purchase agreements in favour of other respondents, who also claim contemporaneously preferential rights over the same vehicles as charge-holders of the same. This respondent also projects a claim as a preferential creditor for the amounts due by Chakra Traders.
24. One Pushpa Kavur who has not been added as a party to this judge's summons has filed a counter affidavit representing herself to be the 25th respondent, but no attempt has been made before me to substantiate her case.
25. The 24th respondent has claimed interest in four vehicles. His counter-affidavit discloses that amounts were advanced under refinancing hire-purchase agreements. The charge created thereunder has not been registered with the Registrar of Companies. This respondent, however, did not attempt to substantiate his case further in the course of arguments.
26. Sri V. Thyagarajan, learned counsel for the petitioner, when he opened the case, filed all the documents relevant for the enquiry with particular reference to each of the respondents herein. The useful data prepared by the official liquidator and a summary sheet thereto was of considerable assistance to the court. Those documents had to be necessarily marked so as to have a full and complete picture of the events connected with each of the dealings of the company with the respective creditors and also for the purpose of appreciating the chronology of events. In spite of the voluminous record that has been filed and meticulously referred to before me in these proceedings, in the ultimate analysis the important documents only need be adverted to to appreciate the real controversy between the parties. To illustrate, in the case of the creditors who lent moneys on hire-purchase agreements, whether at the financing stage or at the refinancing stage, the documents that require consideration are the hire-purchase agreements, the resolutions of the company which were acted upon by the lenders and which prompted them to lend moneys to the company which was invariably acting through its managing director. In the case of creditors who secured a hypothecation over the goods of the company, the hypothecation agreement, the resolution to borrow, the certificate of registration with the Registrar of Companies are the few important documents. The other documents are ancillary to and invariably contemporaneous with the main hire-purchase agreements or hypothecation agreements as the case may be. A reference to such documents does not further the case either of the petitioner or of the respondents. I have, therefore, discreetly avoided in this order to the reference of such of those documents which may not be quite necessary for arriving at the conclusion required.
27. In answer to the various contentions of the respondents, Mr. V. Thyaga-rajan, learned counsel for the petitioner, broadly divided his submissions under many heads. Firstly, his answer to the creditors claiming under hire-purchase agreements was that they are not entitled to any preference. As regards creditors claiming under financing hire-purchase agreements, his case was that if only the chassis or/and the engine had been purchased by the company with the funds so secured, they cannot project a claim over the entire vehicle as such, including the body built upon it by the company with its funds, on the foot of their respective hire-purchase agreements. He distinguished the case reported in K. L. Johar and Co. v. Deputy Commercial Tax Officer on this ground and also on the ground that in some of such cases in these proceedings the respondents concerned did not advance the full amount of the purchase price and therefore the principle in K. L. Johar and Co. v. Deputy Commercial Tax Officer is not applicable to the facts arising in these proceedings, I may at once state that this argument is based on a misapprehension. Even in K. L. Johar and Co. v. Deputy Commercial Tax Officer the Supreme Court's dicta cannot be said to be applicable only to cases where the financier in the first type of hire-purchase agreements advanced the totality of the purchase price and paid the same to the dealer. If it could be normally established that the funds made available under the financing hire-purchase agreement was responsible for the acquisition of the goods by the company, then it would not matter whether a part of the price of such goods came from the funds of the company. Continuing his argument, the learned counsel would state that, inasmuch as the company has also provided a part of its funds to build the body to make the vehicle complete and road-worthy as a lorry, such, portion of the funds so expended by the company has to be excluded and the necessary equities between the financier and the company have to be allocated. This argument does not appeal to me. When a person obtained an advance over the base of the goods and if such a base is improved upon by the borrower conscious of such a charge in favour of the creditor who was responsible for the purchase of that base, the borrower cannot later set up a case that the amounts spent by him for putting up a body over the unfinished base and for other improvements have to be separated from the totality of the value of the vehicle and the rights ascertained. Not only the borrower is estopped from contending in the manner as above, but there is absolutely no equity in favour of the borrower to put up such a contention as when he sought to improve the base he was conscious that it would get itself affixed and planted over the base and that the finished product would still be available to the creditor who has a lien or a charge over the base. I am unable, therefore, to accept this contention.
28. Before proceeding further to consider the contention of Mr. V. Thyaga-rajan, learned counsel for the petitioner, a fair appraisal is necessary as to what is a hire-purchase agreement, which is a hypothecation and who is a secured creditor, and the rights of parties thereto.
29. With the growth of society and its needs, the old conventional and orthodox system of credit has changed and novel and new innovations have been made in the matter of such borrowing and lending. A citizen is now enabled to secure articles of utility by paying the price therefor in instalments. This was rare in olden days. With the advancement of commerce and industry, a new outlet and a marketing system commonly known as " hire-purchase system " has been introduced. Under this system the mutual rights and obligations of a lender and a borrower or, to adopt the words used in hire-purchase agreements, the " owner " and the " hirer" are curiously veiled in mercantile allegorical language. Such inherence of allegory and peculiar words in the documentation of the system, has com-pulsorily led courts of law to pierce through such a commercial veil and find out the real scope and intendment of the bargain. Courts are bound to be astute in interpreting them. As Lord Esher M. R. said in Madell v. Thomas & Co. [1891] 1 Q.B. 230, 234 " ... the court is to look through or behind the documents and to get at the reality."
30. Such a penetration behind what appears on the face of the record is no doubt an exception to the rule, " what is expressed makes what is silent cease ". But such exceptions are bound to be ingrafted in circumstances where a well instructed judge finds that what is patent is not the reality but what is latent. It is this peculiar mode of interpretation that has to be necessarily adopted while scrutinising a hire purchase agreement. Such type of agreements are two-fold. One is entered into between the financier and the customer (who are respectively described as owner and hirer in the hire purchase agreement) in a case where the customer secures a new vehicle from a dealer but is unable to pay the price therefor to the dealer. To secure accommodation he straightaway approaches the financier, who purchases the vehicle from the dealer, through the instrumentality of the customer and in return enters into a hire-purchase agreement with the customer, providing therein a right to the customer to become the owner after payment of all dues to the financier or on paying a nominal price as agreed to. Besides other usual terms, the vehicle has to be registered in the name of the financier as owner, and a right of seizure of the vehicle in case of default of the customer is also provided. But to satisfy the provisions of the Motor Vehicles Act, the certificate of registration, is kept in the name of the customer.
31. In the second form of hire-purchase agreement, usually adopted, the customer is the indisputable owner of the vehicle and it is so registered in his name under the Motor Vehicles Act. He requests the financier to grant a loan on the security of the vehicle. This is granted and a hire-purchase agreement is entered into. The terms, inter alia, of this type of agreement provides that on payment of the entire hire as contemplated in the agreement and in some cases on paying a nominal price, the customer (called hirer again) becomes the sole owner. There is also the right of retaking the vehicle on default of the hirer in any manner as stipulated. Ordinarily, the clause vesting in the hirer an option to purchase the vehicle or goods as the case may be would be absent. But its absence does not detract the real legal significance of the agreement.
32. Thus it is seen that whilst in the first type of hire-purchase agreement, the property in the goods always remains with the financing company and the customer or hirer becomes the owner thereof eo instanti he pays off the dues or exercises his option, in the second type of hire-purchase agreement, the intention as gathered from the content and terms of the agreement is, not to transfer any interest in the vehicle by the customer or hirer to the financing company, notwithstanding there appears in the ancillary documents connected with such a hire-purchase agreement, a sale letter by the hirer in favour of the financing company. In both types of agreements, the financing company is described as the owner and the customer as hirer. But in some cases, in the first type of agreement, the vehicle is registered in the name of the hirer as owner under the Motor Vehicles Act. This apparent paradox has to be reconciled. It can be done if we appreciate that the description of the customer as the owner under the Motor Vehicles Act is to satisfy its statutory norms. This is one of those cases in which the technical meaning of the word has to be followed, as it is sometimes the rule--see Laurence Arthur Adamson v. Melbourne and Metropolitan Board of Works. In the view of the Supreme Court, such a factum of registration under the Motor Vehicles Act in the name of one or the other of the parties to a hire-purchase agreement, may not be determinative of the ownership of the vehicle ; even so the learned judges would say that undue importance to the sale letter in the second type of the hire-purchase agreement cannot be attached--vide K, L. Johar and Co. v. Deputy Commercial Tax Officer and Sundaram Finance Ltd. v. State of Kerala. The distinction between the first type of hire-purchase agreement (hereinafter referred to as the finance hire-purchase agreement) and the second type of hire-purchase agreement (hereinafter referred to as the refinance hire-purchase agreement) has been well brought out by the Supreme Court in Sundaram Finance Ltd. v. State of Kerala thus :
" The agreement, ignoring variations of detail, broadly takes one or the other of two forms : (1) When the owner is unwilling to look to the purchaser of goods to recover the balance of the price, and the financier who pays the balance of the price undertakes the recovery. In this form, goods, are purchased by the financier from the dealer, and the financier obtains a hire-purchase agreement from the customer under which ihe latter becomes the owner of the goods on payment of all the instalments of the stipulated hire and exercising his option to purchase the goods on payment of a nominal price. The decision of this court in K, L, Johar & Company v. Deputy Commercial Tax Officer dealt with a transaction of this character. (2) In the other form of transactions, goods are purchased by the customer, who in consideration of executing a hire-purchase agreement and allied documents remains in possession of the goods, subject to liability to pay the amount paid by the financier on his behalf to the owner or dealer, and the financier obtains a hire-purchase agreement which gives him a licence to seize the goods in the event of failure by the customer to abide by the conditions of the hire-purchase agreement. "
33. There is therefore considerable force in the contention of Mr. V. K. Thiru-venkatachari that in all cases where financing hire-purchasing agreements are involved, such respondents ought to be treated as preferential creditors straightaway since they are the owners of the vehicle and there cannot be any conflict in so far as their right to be ranked as preferential creditors is concerned. There is sufficient force in this contention and I shall refer to it at a later stage.
34. The next aspect to be considered is what is hypothecation and what are the rights of the hypothecatee. A mortgage of movables without possession is called a hypothecation. This is not denned in the Contract Act, but referred to in the Indian Stamp Act for purposes of reckoning of stamp duty. As stated by Ghose at page 115 of The Law of Mortgage in India, fifth edition :
" We must not, however, infer from the silence of the legislature that such transactions are invalid in this country, or that they may not be enforced even against bona fide purchasers without notice. "
35. At the Bar, a number of decisions on the point were cited. In In the matter of Ambrose Summers, an Insolvent, Sale J. was of the view that a bank which has acted on a letter of hypothecation is entitled to preferential payment of so much of the fund as can be shown to represent assets of the insolvent's business, which were in existence at the date of the letter of hypothecation, and that, as regards the balance of the debt the bank must rank only as a general creditor of the estate. In Puninthavelu Mudaliar v. Bhashyam Ayyangar, Bashyam Ayyangar J. was of the view that the instrument in question in that case created a charge or hypothecation in the plaintiff's favour, but a charge-holder is as much the substantial owner of and has as substantial an interest in the goods and chattels as a mortgagee thereof. In Official Assignee of Madras v. Mercantile Bank of India Ltd., (1934) I.L.R. 58 Mad. 161 (P.C.) which dealt with a case of a railway receipt, the opinion of the Law Lords of Privy Council was to the effect that where the owner of goods hands to a bank indorsed railway receipts relating thereto as security for an advance (even without a formal letter of hypothecation), there is constituted, in the absence of evidence to the contrary, an equitable charge upon the goods which is binding between the owner and the bank. In Pramatha Nath Tahikdar v. Maharaja Probirendra M. Tagore, Mallick J. observed as follows :
" By hypothecation no interest or property is transferred to the hypothecatee. Hypothecatee has nothing more than an equitable charge to have his claim realised by the sale of goods hypothecated. By a charge no interest in the property is transferred. The only right acquired by the charge-holder is the right to be paid out of the property charged."
36. In Md. Sultan v. Firm of Rampratap Kannyalal, the court observed :
" ...In the absence of specific rules applicable to any matter, the principle recognised in the various Civil Courts Acts is that the courts should decide according to justice, equity and good conscience which is considered to be equivalent to the English law wherever such law is applicable to Indian conditions. It is only under this principle that the hypothecation or mortgage of movable property, although not specifically provided for in the Contract Act, are valid and a decree can be passed in enforcement of such transactions. "
37. Thus, a hypothecation of moveables is permitted by law and even though the possession of the hypotheca is with the hypothecator, the hypothecatee has an equitable and enforceable charge over the movables mortgaged. Can such a charge be traced by the hypothecatee against the sale proceeds of the hypotheca if it is sold by volition of the parties to such an hypothecation ? In the instant case, by orders of court the hypothecated vehicles were sold by the official liquidator after the winding-up of the company was ordered. This was apparently by consent and by orders of this court. It cannot be disputed that it was the loan advanced by the hypothecatee under the hypothecation agreement that created assets for the company ; if such assets by some due process are taken into custody by the official liquidator, then, in my view, the hypothecatee's rights to trace his claim under the hypothecation agreement cannot be discountenanced. The sale proceeds in the hands of the official liquidator are equitably charged with the right of the hypothecatee to recover his lawful and legitimate dues therefrom. Otherwise, to adopt the language of the House of Lords in Sinclair v. Brougham it would result in a ruthless logic whereby the company would be entitled to approbate the gains while permitting them to reprobate the borrowing by which they were acquired. The above principle has been re-stated in In re Diplock : Diplock v. Wintle. Their Lordships held that :
" ...It was impossible to contend that a disposition which according to the general law ..... was held to be entirely invalid could yet confer on those who, ex hypothesi, had improperly participated under the disposition, some moral or equitable right to retain what they had received against those whom the law declared to be properly entitled. "
38. In my view, the right to trace the sale proceeds in the hands of the owner or a third party is available to a hypothecatee by virtue of the equitable charge to which he is entitled under the instrument of hypothecation. Thus, a hypothecatee, therefore, can be rightly characterised as a secured creditor.
39. The Presidency Towns Insolvency Act, 1909, gives only an inclusive definition to the words " secured creditor ". But the Provincial Insolvency Act, 1920, defines a "secured creditor" so as to mean a person holding a mortgage, charge or lien on the property of the debtor or any part thereof as a security for a debt due to him from the debtor. Stroud in his Judicial Dictionary says that though a lien is a security, yet the former word is much too narrow to comprise all that may be apprehended under the law.
40. It would thus appear that not only a hypothecatee but also the financier under the re-financing hire-purchase agreement being a person who has lent moneys by way of a loan on a security is also a secured creditor. I am fortified by the view expressed by the Supreme Court in Sundaram Finance Limited v. State of Kerala .
41. Mr. V.K. Thiruvenkatachari, though not necessarily for his case, has argued this point. His case is that if in a refinancing hire-purchasing agreement the vehicle is seized, the financier became a pledgee and the official liquidator is bound to redeem the pledge; but as in the instant case the hypotheca has been sold by consent, the official liquidator is bound to respect the rights of the pledgee-financier, by paying off the dues owing to him. No doubt, the right to seize the vehicle is peculiar to a hire-purchase contract. This licence to seize the vehicle in case of default is an extraordinary right not available at common law but provided for in the document of hire-purchase and which is a peculiar concept by itself. By an overt act of his and on his own volition a financing company or a creditor under a hire-purchase agreement can seize a vehicle without intervention of law. This right provided for in the hire-purchase agreement has a special signification. It establishes that the financing company or the creditor is not an ordinary creditor, but a creditor having such ordinary rights known to law coupled and annexed with a privilege to seize the vehicle in case of default. Halsbury's Laws of England, [1966] 17 S.T.C. 489. third edition, volume 3, paragraph 593 states as follows; where seizure is contemplated :
" When the grantee seizes the chattels, the grantor's legal interest in them ceases, and he cannot sue the grantee in trespass for removing them, even after tender of principal, interest and costs. "
42. I am of the view that if the official liquidator desires to own the vehicles so seized, he cannot ignore the pledge, lien, hypothecation or rights under the hire-purchase agreement, if it is otherwise cognizable and enforceable under the Companies Act, 1956.
43. It is an accredited canon of law that parties to an ordinary contract cannot unjustly enrich themselves. A fortiori, the official liquidator, a public officer, cannot. Though on the principle of money had and received, the problem can be approached, yet in the ultimate analysis, a nearest possible approach practicable to substantial justice has to be found. This is based on the principle of ratification. In the chain of events that happened, it is impossible to conceive that the official liquidator has not ratified the acts of the company in its entirety. Section 199 of the Contract Act provides:
'' A person ratifying any unauthorised act done on his behalf ratifies the whole of the transaction of which such act formed a part."
44. The official liquidator cannot therefore escape the impact of the vested rights of such secured creditors under the hypothecation instruments or financiers under the refinancing hire-purchase agreements. This aspect has to be adverted to again by me while dealing with the effect of Section 125 read with Section 132 of the Companies Act.
45. From the above discussion, the following points emerge: (a) In the case of a financing hire-purchase agreement, the financier being the owner is entitled to be treated as a preferential creditor by the official liquidator and no question of conflict of his interests with the other creditors even though secured will arise, (b) In the case of refinancing hire-purchase agreement, the financier is no doubt a secured creditor. But his rights are subject to Sections 125 and 132 of the Companies Act, 1956, and if he is able to surpass and hurdle the same, he would be entitled to be treated as a preferential creditor by the official liquidator, (c) A hypothecatee is a secured creditor and has to be treated as such subject however to the provisions of Sections 125 and 132 of the Companies Act, 1956. (d) All creditors having an enforceable charge, legal or equitable, over the movables of the company, have a right to trace such lien even over the sale proceeds of the hypotheca, if indeed the movable property has been so converted.
46. The next phase of the argument of Sri V. Thyagarajan is that even assuming the creditor is a preferential creditor, Section 292 of the Companies Act, 1956, is a mandatory provision and the non-observance of the strict inhibitions contained therein by a creditor of the company, would deprive him of his rights and privileges and his claim as against the company as a preferential creditor or otherwise cannot be countenanced. Section 292 deals with powers to be exercised by the board only at meetings. Section 292(1)(d) provides that the board of directors shall have the power to take loans on behalf of the company and it shall do so only by means of resolutions passed at meetings of the board. No doubt the power of borrowing mentioned in this section would include the power to enter into any arrangement for deferred payments in case goods, vehicles or other machinery purchased for the benefit of the company. It may also be noted incidentally that the power may also be delegated to one or more of the directors provided however there is no express prohibition under the memorandum of articles of the company in question. In this case it is not seriously disputed that such power to borrow was indeed delegated to the managing director. The articles do not prohibit such a delegation. The oral evidence let in is a pointer in this direction.
* * * * [His Lordship referred to the oral evidence and continued.] I find that there was a delegation of authority by the board to the managing director within the meaning of Section 292 of the Act.
47. As the company cannot be said to have disclosed all the books, it cannot be presumed that there was no resolution under which powers were delegated. Even otherwise, there is ample evidence in this case as spoken to by two of the directors that Mr. Raman was actually the person who was piloting the affairs of the company. As pointed out by. Astbury J., in In re Fireproof Doors, Limited: Umney v. Company [1916] 2 Ch. 142, 149.an unrecorded resolution may be proved aliunde ". Such proof is available in the instant case.
48. Whether the official liquidator is bound by the act of the company through its managing director, can also be approached from a different perspective which is based on the theory of ostensible authority and equitable estoppel. Whether a person can be deemed to have ostensible authority in a particular case, is a mixed question of law and fact. The evidence of the directors in this case and the minutes book discloses that C.V. Raman had the requisite authority. By functioning as such, the company secured the benefit of the advances from the respondents. The classical passage of Lopes L.J. in Biggerstaff v. Rowatt's Wharf Limited [1896] 2 Ch. 93, 104 may be usefully quoted :
"...a company is bound by the acts of persons who take upon themselves, with the knowledge of the directors, to act for the company, provided such persons act within the limits of their apparent authority ; and that strangers dealing bona fide with such persons, have a right to assume that they have been duly appointed. "
49. It is unnecessary to multiply authorities. The cardinal principle appears to be that if a company allows its affairs to be managed by one and such functional exercise of authority is warranted under the charter of the company and its articles, then the resultant bargains due to the exercise of such power, actual or ostensible, cannot be disregarded by the company who has had the benefit therefrom : vide Lakshmi Ratan Cotton Mills Co. Ltd. v. J.K. Jute Mills Co. Ltd. No one can approbate and reprobate. The bedrock on which this principle is decided is that of equitable estoppel. The chain of events that led to the innocent lenders particularly such as respondents Nos. 2 to 4, to enter into the bargain are that there was a representation by C.V. Raman that he had the requisite authority, that in fact C.V. Raman has been held out to be the person at the helm of affairs. It is on such ostensible authority of C.V. Raman that the banks and lenders acted.
50. The next contention of Mr. V. Thyagarajan is that there was no resolution as required under Section 292 of the Companies Act, 1956, authorising the borrowing and therefore the creditors cannot claim any right of preference. His case is that the resolutions in exhibits A-18 and A-21 and others are opposed to the spirit and letter of Section 292. I am unable to appreciate this contention. Apparently, he is outweighed with the concept that such resolutions were faked and, therefore, his contention is that they should be deemed to be non-existent and consequentially offending Section 292. Learned counsel himself has dealt with this aspect, namely, that the resolutions are faked and forged, under a different head of his argument. It cannot be said that in this case the provisions of Section 292 of the Companies Act have not been observed. A true and certified copy of a resolution said to have been passed by the board was produced by the managing director who is at the helm of affairs, to the creditors in question and they bona fide acted upon the same. Learned counsel relied upon a catena of decisions to substantiate his contention that if a statutory condition is not complied with, then the act of the company or its agent or delegatee must be deemed to be void ah initio and no rights could flow therefrom. He referred to William Augustus Mahony, Public Officer of the National Bank, Dublin v. Liquidator of the East Holyford Mining Company Limited (1875) L.R. 7 H.L. 869 and indeed would accept the ratio in that case. But reliance is mainly placed upon the oft quoted decision in D'Arcy v. Tamar, Kit Hill and Callington Railway Company. 1867) L.R. 2 Exeq. 158. That was a case in which a special Act of a railway company provided that the quorum of the meeting of the directors could be three. There the company borrowed, but affixed the seal to the document evidencing such borrowing not after securing the authority of the three directors simultaneously, but two having given it on one occasion and the third on a subsequent occasion. It was held in such circumstances that such authority was insufficient, inasmuch as, the directors who gave it had not acted at a board meeting of directors and the bond was therefore not duly executed so as to bind the company. To similar effect was the decision in In re Haycraft Gold Reduction and Mining Company. [1900] 2 Ch. 230. In Pacific Coast Coal Mines Limited v. Arbuthnot [1917] A.C. 607 the learned Law Lords made it clear that if a statutory condition was not complied with by the board, then any act done pursuant thereto was consequentially ultra vires of the company and incapable of being made valid even by acquiesence on the part of the shareholders. Reference was made to a passage in Halsbury's Laws of England, third edition, Volume 6, Simonds edition, at page 431, which runs as follows:
" ...where the act is only within the power of a company on the fulfilment of a statutory condition, persons dealing with a company are bound to ascertain whether the condition has been fulfilled. "
51. But, as already stated by me, the argument proceeds on the assumption that there was no resolution at all and even if there was one it should be considered for all purposes as faked or a non-existent resolution and should be deemed to be non est. The managing director represented that they were passed by the board and certified them to be so.
52. Some of the respondents including respondents Nos. 2, 4 and 5 acted upon those resolutions said to have been passed by the board. These were passed, according to the managing director, at a board meeting and certified by him to be so. Article 100, inter alia, prescribes that the directors shall cause the minutes to be duly entered in books provided for the purpose of all resolutions of the board. Article 101 reads as follows:
" Any such minutes of any meeting of the company or of the directors if purporting to be signed by the chairman of such meeting or by the chairman of the next succeeding meeting shall be conclusive evidence of the matters stated in such minutes. "
53. There is considerable force in the contentions of the counsel for respondents Nos. 2, 4 and 5 that the resolutions cannot be ignored. While accepting the force of the contentions of counsel in this behalf already summarised by me, there is enough material in the case to assume that respondents Nos. 2, 4 and 5 amongst others are entitled to assume that the managing director lawfully exercised all the powers in the regular course of business and they were in accordance with the constitution of the company. As pointed out by Sir John Romilly in Wilson v. West Hartlepool Harbour and Railway Company, (1865) 34 L.J. Ch. 241 ; 46 E.R. 459. :
" Where a company, through their directors, hold out an officer of the company as their agent for a particular purpose and ratify his acts, they cannot afterwards dispute acts done by him within the scope of such agency, "
54. It is no doubt imperative that lenders to an incorporated company should acquaint themselves with the memorandum and articles of the company. They cannot be allowed to plead ignorance of the various limitations under the constitution of the company. But to go still further and vest on the shoulders of such parties a responsibility to delve deep into the " archives of the company " is incompatible with the ordinary terms of accepted mercantile practice. As observed by the learned judges in Pudumjee & Co. v. N.H. Moos A.I.R. 192C Bum. 28, 31 :
" It would hardly conduce to facility of business if outsiders were compelled to search the register and find for themselves whether a person who was permitted to act as a director of the company for some length of time was also its director de jure. "
55. When a person is held out as managing director with authority to act for the board, as was done in this case, of a company and as such an office necessarily involves the exercise of a particular authority and incurrence of liabilities, a normal presumption in favour of the third party arises that such exercise of authority is lawful; any amount of reservation within the four walls of the indoors of the company touching upon such authority cannot be of any avail to the company vis-a-vis such strangers,
56. The above general Rule as it were, is adumbrated in what is terminologically called "Doctrine of Indoor Management" by Lord Hatherley. Gower in his Treatise on Modern Company Law states the Rule as follows :
"But provided that everything appears to be regular so far as this can be checked from the public documents, an outsider dealing with the company is entitled to assume that all internal regulations of the company have been complied with, unless he has knowledge to the contrary or there are suspicious circumstances putting him on inquiry. Omnia praesumuntur rite ac solemniter esse acta. "
57. The resolution authorising to borrow is invariably in the minutes book. The minutes book is not a public document, but relates to a record of events concerning internal management. The creditors cannot have access to the minutes book as such kept by a company under Section 193 of the Companies Act. Section 195 draws a presumption as to its regularity. Section 194 makes such minutes of meetings evidence of the proceedings recorded therein. In this case the managing director purported to produce certified copies of such minutes. No doubt they later turned out to be faked. But they were acted upon and the company was benefited. There were no suspicious circumstances at that time which might have put the creditor on enquiry. The Rule cited by the learned author applies to all the resolutions which the managing director produced. William Augustus, Mahony, Public Officer of the National Bank, Dublin v. Liquidator of the East Holyford Mining Company Limited was a case where there was no resolution at all, but there was a misrepresentation by persons who were characterised by the Law Lords as those who usurped the position of directors (because they do not seem to have been regularly appointed). Even then it was held :
"...When there are persons conducting the affairs of the company in a manner which appears to be perfectly consonant with the articles of association, then those so dealing with them, externally, are not to be affected by any irregularities which may take place in the internal management of the company. "
58. In Duck v. Tower Galvanizing Company Limited [1901] 2 K.B. 314 the principle has been restated thus:
"The rights of a bona fide holder for value of a debenture, which is in proper form and charges all the property of the company as security for the debenture debt, prevail over those of an execution creditor, even where the debenture is issued without authority, no director of the company having been appointed and no resolution to issue debenture passed; provided that the holder had no notice of any irregularity in the issue of the debenture. "
59. Thus, strangers dealing with incorporated companies are not ordinarily expected to know what has transpired inside the doors of the company and cannot embark upon an investigation as to the legality, propriety and regularity of the acts of directors, who are authorised to act and who represent that they have the power to do so. In the instant case, exhibit A-3 which reflects upon the enthusiasm of the directors to revive the company, after all that happened, again fortifies the contention of the learned counsel for respondents Nos. 2, 4 and 5 that all was well and nothing suspicious about the managing director.
60. Mr. V. Thyagarajan however proceeds that even if the acts of the managing director come within the fold of " indoor management ", yet the arrangements entered into by him with third parties are void and unenforceable because such documents are tainted with fraud. Strong reliance was placed on the ratio in Ruben v. Great Fingall Consolidated. [1906] A.C. 439, 444. That was a case where the secretary of the company, who had absolutely no authority to issue shares, fraudulently affixed the seal of the company and forged the signatures of two of the directors. In those circumstances Lord Macnaghten observed;
"The thing put forward as the foundation of their claim is a piece of paper which purports to be a certificate of shares in the company. This paper is false and fraudulent from beginning to end. The representation of the company's seal which appears upon it, though made by the impression of the real seal of the company, is counterfeit, and no better than a forgery. The signatures of the two directors which purport to authenticate the sealing are forgeries pure and simple. Every statement in the document is a lie. The only thing real about it is the signature of the secretary of the company, who was the sole author and perpetrator of the fraud. No one would suggest that this fraudulent certificate could of itself give rise to any right or bind or affect the company in any way. It is not the company's deed, and there is nothing to prevent the company from saying so. "
61. This case is distinguishable. Here the managing director was the real person acting and dealing for the company. P.Ws. 1 and 3 admit that he was at the helm of affairs and was permitted to borrow. The resolutions, copies of which were produced by him, primarily satisfied all the requirements of law and the articles of the company. So the document executed by him either alone or purporting to be with other directors cannot be lightly brushed aside as a waste paper. Even so the decision in Kreditbank Cassel v. Schankers [1927] 1 All E.R. 421 is not apposite because there the entire document was a forgery and brought about by one who had no authority to represent the company. In the instant case, it is not disputed that the managing director signed all the impugned documents. In some of the arrangements, the names of P.W. 2 or D. W. 2 or P.W. 3 or two amongst them appear, but they are not their signatures. In a document, which has been availed of fully by the company and where the company admittedly secured the finances from the respondents on the strength of such documents as is seen from the account books of the company, it would be highly inequitable and metaphysical to allow the company to retain the advantage and eschew the liability. Prolixity in law is reprehended.
62. Acquum et bonum est lex legum (that which is equal and good is the law of laws). The impugned documents cannot be thrown out as void because they are executed by the managing director who had the ostensible authority to do so. The company and the official liquidator have ratified such acts of the managing director and have treated the vehicles as the properties of the company. Unequal treatment cannot be meted out to a creditor by contemporaneously conferring a benefit to the borrower. This is not good ; law should be in accord with justice, equity and good conscience. The observations of the Division Bench in Lakshmi Ratan Cotton Mills Co. Ltd. v. J.K. Jute Mills Co. Ltd. can be usefully quoted :
"Even if the borrowing by the agent of a company is unauthorised, the company would be liable to pay, if it is shown that the money had gone into the coffers of "the company. The lender having not advanced the money as a gift but as a loan, and the borrower having received the benefit of the money, the law implies a promise to repay. On the establishment of these facts a claim on the footing of money had and received would be maintainable. Once, however, the payment is received by the defendant company, the receipt of the money itself is a benefit to the company and the creditor is not concerned with what is done with the money by the company subsequently."
63. Thus viewed I am unable to subscribe to the argument of Sri V. Thyaga-rajan that the documents containing forged signatures of the other directors should be avoided even though they are valid and enforceable by reason of the managing director having principally and firmly executed the same. It is also to be noted that in a majority of cases the signatures of the other directors appear on the document as guarantors. Even if they do find a place in the document as co-executants, such execution by the other directors can be ignored and the document accepted for being enforced on the strength of the signature of the managing director.
64. It was hesitantly argued by the counsel for the third respondent that Chakra Traders is an independent legal entity distinct and separate from the company in liquidation and that therefore any dealings between the respondents and the said Chakra Traders are outside the liquidation proceed" ings. It is to be noted that C.V. Raman was the proprietor of Chakra Traders. But at all material points of time, this was treated as a concern owned by the company and the exhibits do confirm that it was the company which was dealing with all the assets of Chakra Traders. The documents also support the view that Manasuba and Company took over Chakra Traders as a going concern and was owning all its dealings. In fact, no question was put to the witnesses who were directors of the company, on this aspect by any of the counsel for the respondents. On the other hand, the official liquidator owns the dealings of Chakra Traders as those of the company in liquidation and there is no element of controversy over this at his end. All the vehicles of Chakra Traders having been sold by him under orders of this court as the properties of the company. There is abundant documentary evidence to find that Chakra Traders was a name and style under which the company was conducting business. I am unable to see any force in the contention that the vehicles dealt with by Chakra Traders ought to be treated as dealings otherwise than by the company of its property. The assets of Chakra Traders are the assets of Manasuba and Company in liquidation and has to be dealt with as such. Therefore, I am not making distinction in the manner suggested, in this order of mine.
65. One other argument of Sri V. Thyagarajan is that any charge created on the assets, not on the immovable property of an incorporated company, unless registered under Section 132 of the Companies Act of 1956, is void as against the official liquidator. Section 125(1) leaving aside the proviso reads:
" 125(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 conferred 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 twenty one days after the date of its creation."
66. Section 125(4) provides :
" This section applies to the following charges :......
(e) a charge, not being a pledge, on any movable property of the company; ....."
67. Under a hypothecation agreement, the company creates a charge over its movable property. Even so in a re-finance hire-purchase agreement, where the loan is secured on the vehicle which is the subject-matter of the finance agreement, a lien is created on the vehicle, resulting in a charge within the meaning of Section 125(4)(e) of the Companies Act of 1956. Therefore, it is imperative that the document evidencing such a charge has to be registered in either of the above cases. Mr. V. Thyagarajan relied upon In re Kent & Sussex Saw Mills Limited. [1947] Ch. 177 I respectfully adopt the ratio of the decision, which holds that "the letters (in that case) were assignments of book debts to the bank by way of security for the overdraft and not having been registered under the Companies Act, 1929, Section 79(2)(e), were void against the liquidator in the winding-up." Some of the learned counsel relied upon the sale letters executed by the company in favour of the financier in the refinancing hire-purchase agreement and contend that by reason of this letter, the company cannot claim any title to the vehicles. One should be guilty of being astute if this argument is accepted. Shorn of all technical garb and language couching the refinancing hire-purchase agreement, it is purely a transaction resulting in a loan being granted by the creditor on the security of the vehicle. As pointed out by an eminent author " the requirement of the section cannot be evaded by making what is in fact a mortgage or a charge in form an absolute assignment or otherwise adopting a form which does not accord with the real transaction between the parties." The Supreme Court in Sundaram Finance Ltd. v. State of Kerala treats the agreement as a loan transaction but characterises it as a secured loan. Therefore, the loan granted on such a security results in a charge on the security offered. This not having been registered under Section 132 of the Companies Act, 1956, is void and unenforceable.
68. I shall now consider vehiclewar the quantitative and qualitative rights of the respondents as prayed for by the official liquidator in the judge's summons.
69. MSX 7305: Respondents Nos. 2, 3 and 15 are claiming preferential rights over this vehicle. The second respondent rests his claim on the hypo thecation agreement, exhibit A-27, dated May 30, 1960. This charge has been registered with the Registrar of Companies. The 15th respondent claims under a hire-purchase agreement dated January 30, 3961, exhibit A-177.
This is no doubt a fresh hire-purchase agreement which cancelled the earlier finance hire-purchase agreement dated January 27, 1960, under exhibit A-176.
Possibly exhibit A-176 could have come within the Rule of K.L. John and Co.
v. Deputy Commercial Tax Officer as under the said agreement, funds were provided by the financier for purchase of the vehicle. The claim however is based on exhibit A-177 which, prima facie, is a refinancing agreement coming within the mischief of the ratio of Sundaram Finance. Ltd. v. State of Kerala.
As this has not been registered, the claim cannot be sustained. As regards the claim of the third respondent which is based on exhibit A-166 which is a refinancing hire-purchase agreement, the claim has to fail for want of registration under the Companies Act of 1956. Therefore, the only claimant who is entitled to enforce its rights is the 2nd respondent, who will be treated as a preferential creditor by the official liqudator, who shall pay the creditor the net sale proceeds of the vehicle, expenses, charges and costs pro rata worked out for the purpose.
70. MSX 8469 : The claimants who project preferential claims against this vehicle are respondents Nos. 2, 3, 4 and 13. The 2nd respondent relies on exhibit A-27, hypothecation agreement dated May 30, 1960. This is signed by C.V. Raman and the signatures of the other directors are faked. But the agreement of guarantee, exhibit A-28, is signed by Raman. No doubt, the signatures of the other directors in the promissory note and the letters accompanying the same, exhibits A-25, A-26 and A-27, are faked. But C.V. Raman had signed the same, as managing director. In the view already expressed by me, the hypothecation agreement, exhibit A-27, cannot be rejected in toto. As the company had the benefits of the moneys, it is enforceable. The charge having been registered under the Companies Act under Rule 54, it is binding on the company.
71. The 3rd respondent bases his claim on the hire purchase agreement, exhibit A-122, dated July 29, 1960. In the light of my judgment, this secured loan not having been registered with the Registrar of Companies is void. The 3rd respondent can only figure as an ordinary creditor, as the official liquidator does not dispute the borrowing.
72. The 8th respondent rests his claim on exhibit A-54, the hypothecation deed, which charge was registered under the Companies Act of 1956 under exhibit A-58. The 4th respondent is entitled to rank as a preferential creditor.
73. The 13th respondent no doubt originally advanced the purchase price and entered into the hire purchase agreement, exhibit A-161, dated April 25, 1960. But this has been cancelled. The company dealt with this vehicle with others. After cancelling the original financing hire-purchase agreement, a fresh refinancing hire-purchase agreement dated January 30, 1961, was entered into under exhibit A-162. It cannot be said that exhibit A-162 stands in the same footing as exhibit A-161. The later arrangement can only be viewed as a refinancing agreement, as by then the company owned the vehicle. The charge under exhibit A-162 has not been registered under the Companies Act. Therefore, the 13th respondent can rank only as an ordinary creditor, as his debt is admitted.
74. Thus, as regards this vehicle, respondents Nos. 2 and 4 are to be considered as preferential creditors who have a claim over the net sale proceeds of this vehicle in the hands of the official liquidator and the liquidator ought to proceed, in distributing the net sale proceeds between respondents Nos. 2 and 4, on the principle of distributing them pari passu in proportion to the amounts due to the banks on this vehicle on the date of liquidation of the company. The liquidator in arriving at the net sale proceeds is entitled to deduct pro rata all expenses, costs and charges attributable to the vehicle.
75. MSX 8470 : Respondents Nos. 2, 4, 11 and 12 are claiming rights over this vehicle. Respondent No. 12 bases his claim under exhibit A-149, a refinancing hire-purchase agreement. Though respondent No. 12 advanced moneys for the purchase of the vehicle and entered into a financing hire-purchase agraement, exhibit A-155, yet it was cancelled and exhibit A-149 was entered into. The charge under this agreement not having been registered, the claim of respondent No. 12 as preferential creditor ought to fail. Respondent No. 11 bases his claim on the refinancing hire-purchase agreement, exhibit A-143. This has no force because the charge has not been registered under the Companies Act. The claim of the 11th respondent to rank as a preferential creditor falls to the ground. As regards respondents Nos. 2 and 4, they both claim as hypothecatees of the vehicle; the former under exhibit A-27 registered under exhibit R-54 and the latter under exhibit A-54 registered under exhibit A-58. Both are entitled to rank as preferential creditors and the official liquidator will deal with themas such.
76. MSX 8471 : Respondents Nos. 2, 4, 11 and 13 are the claimants over this vehicle. Respondent No. 13 bases his claim under exhibit A-164, a refinancing hire-purchase agreement. Though respondent No. 13 advanced moneys for the purchase of the vehicle and entered into a financing hire-purchase agreement, exhibit A-163, yet it was cancelled and exhibit A-164 was entered into. The charge under this agreement not having been registered, the claim of respondent No. 13 as preferential creditor ought to fail. Respondent No. 11 bases his claim on the refinancing hire-purchase agreement, exhibit A-143. This has no force because the charge has not been registered under the Companies Act. The claim of the 11th respondent to rank as a preferential creditor falls to the ground. As regards respondents Nos. 2 and 4, they both claim as hypothecatees of the vehicle the former under exhibit A-27 registered under exhibit R-54 and the latter under exhibit A-54 registered under exhibit A-58. Both are entitled to rank as preferential creditors and the official liquidator will deal with them as such.
77. MSX 8928: Respondents Nos. 2, 4, 15 and 22 are the claimants over this vehicle. Respondent No. 15 bases his claim under exhibit A-166, a refinancing hire-purchase agreement. Though respondent No. 15 advanced moneys for the purchase of the vehicle and entered into a financing hire purchase agreement, exhibit A-165, yet it was cancelled and exhibit A-166 was entered into. The charge under this agreement not having been registered, the claim of respondent No. 15 as preferential creditor ought to fail. Respondent No. 22 bases his claim on the refinancing hire-purchase agreement, exhibit A-188. This has no force because the charge has not been registered under the Companies Act. The claim of the 22nd respondent to rank as a preferential creditor falls to the ground. As regards respondents Nos. 2 and 4, they both claim as hypothecatees of the vehicle, the former under exhibit A-27 registered under exhibit R-54 and the latter under exhibit A-54 registered under exhibit A-58. Both are entitled to rank as preferential creditors and the official liquidator will deal with them as such.
78. MSX 8929 : Respondents Nos. 2, 4, 12 and 22 are the claimants over this vehicle. Respondent 12 bases his claim under exhibit A-148 a refinancing hire-purchase agreement. Though respondent No. 12 advanced moneys for the purchase of the vehicle and entered into a financing hire purchase agreement, exhibit A-I54, yet it was cancelled and exhibit A-148 was entered into. The charge under this agreement not having been registered the claim of respondent No. 12 as preferential creditor ought to fail. Respondent No. 22 bases his claim on the refinancing hire-purchase agreement, exhibit A-188. This has no force because the charge has not been registered under the Companies Act. The claim of the 22nd respondent to rank as a preferential creditor falls to the ground. As regards respondents Nos. 2 and 4, they both claim as hypothecatees of the vehicle, the former under exhibit A-27 registered under exhibit R-54 and the latter under exhibit A-54 registered under exhibit A-58. Both are entitled to rank as preferential creditors and the official liquidator will deal with them as such.
79. MSX 9159: Respondents Nos. 4, 11 and 13 are the claimants over this vehicle. Respondent No. 13 bases his claim under exhibit A-170, a refinancing hire-purchase agreement. Though respondent No. 13 advanced moneys for the purchase of the vehicle and entered into a financing hire-purchase agreement, exhibit A-169, yet it was cancelled. The subsisting hire-purchase agreement under exhibit A-170 which creates a charge has not been registered under the Companies Act. Hence, his claim to rank as a preferential creditor fails. Respondent No. 11 rests his claim on an unregistered refinancing hire-purchase agreement, exhibit A-143. He cannot therefore claim preference. The net result is that the claim of the 4th respondent as a registered hypothecatee under exhibit A-54 has to be upheld and he will be treated as such by the official liquidator, who shall pay the sale proceeds of the vehicle to the 4th respondent, less expenses, costs and charges, which have to be reckoned pro rata by him.
80. MSX 9411 : Respondents Nos. 2, 4, 13 and 23 are the claimants over this vehicle. Respondent No. 13 bases his claim under exhibit A-168, a refinancing hire-purchase agreement. Though respondent No. 13 advanced moneys for the purchase of the vehicle and entered into a financing hire-purchase agreement, exhibit A-167, yet it was cancelled and exhibit A-168 was entered into. The charge under this agreement not having been registered, the claim of respondent No. 13 as preferential creditor has to fail. Respondent No. 23 bases his claim on the refinancing hire purchase agreement, exhibit A-201. This has no force because the charge has not been registered under the Companies Act. The claim of the 23rd respondent to rank as a preferential creditor falls to the ground. As regards respondents Nos. 2 and 4, they both claim as hypothecatees of the vehicle ; the former under exhibit A-27 registered under exhibit R-54 and the latter under exhibit A-54 registered under exhibit A-58. Both are entitled to rank as preferential creditors and the official liquidator will deal with them as such. MSX 9564: Respondents Nos. 4, 11 and 12 are the claimants over this vehicle. Respondent No. 12 bases his claim under exhibit A-146, a refinancing hire-purchase agreement. Though respondent No. 12 advanced moneys for the purchase of the vehicle and entered into a financing hire-purchase agreement, exhibit A-152, yet it was cancelled. The subsisting hire purchase agreement under exhibit A-146 which creates a charge has not been registered under the Companies Act. Hence his claim to rank as a preferential creditor fails. Respondent No. 11 rests his claim on an unregistered refinancing hire-purchase agreement, exhibit A-137. He cannot therefore claim preference. The net result is that the claim of the 4th respondent as a registered hypothecatce under exhibit A-54 has to be upheld and he will be treated as such by the official liquidator, who shall pay the sale proceeds of the vehicle to the 4th respondent, less expenses, costs and charges, which have to be reckoned pro rata by him.
81. MSX 9566 : Respondents Nos. 4, 11 and 12 are the claimants over this vehicle. Respondent No. 12 bases his claim under exhibit A-146, a refinancing hire-purchase agreement. Though respondent No. 12 advanced moneys for the purchase of the vehicle and entered into a financing hire-purchase agreement, exhibit A-153, yet it was cancelled. The subsisting hire-purchase agreement, exhibit A-l 46, which creates a charge has not been registered under the Companies Act. Hence, his claim to rank as a preferential creditor fails. Respondent No. 11 rests his claim on an unregistered refinancing hire-purchase agreement, exhibit A-137. He cannot therefore claim preference. The net result is that the claim of the 4th respondent as a registered hypothecatee under exhibit A-54 has to be upheld and it will be treated as such by the official liquidator, who shall pay the sale proceeds of the vehicle to the 4th respondent, less expenses, costs and charges, which have to be reckoned pro rata by him.
82. MSX 9835, MSW 719, MSW 720, MSW 2305, MSW 2307, MSW 4134 and MSW 4136 : The claimants in MSX 9835 are respondents Nos. 4, 8 and 14. The 4th respondent rested his claim on the basis of the hypothecation agreement, exhibit A-54, dated September 12, 1960, and the certificate of registration with the Registrar of Companies, exhibit A-58. Ordinarily, his claim has to be accepted. But on the date when the hypothecation agreement was signed by the managing director, the company did not own the vehicle at all. The vehicle was purchased from Sundaram Motors Limited. The price therefor was paid by the 8th respondent. This is seen from exhibit R-3 dated September 15, 1960. What prompted the 4th respondent to accept this vehicle as forming part of the hypotheca is not known. The financing hire-purchase agreement with the 8th respondent is entered into only on September 15, 1960. The normal presumption is that it was only on that day negotiations by the company to own the vehicle were completed. It could not have any semblance to the same before September 15, 1960. This is not a case in which conflicting claims of two persons have to be adjudicated. This is a case in which one person cannot put forward a preferential claim at all over this vehicle. As the 8th respondent advanced the price of the vehicle and obtained a financing hire-purchase agreement, he is deemed to be the owner of the vehicle. Therefore, the 4th respondent's claim as a preferential creditor on the foot of the hypothecation agreement dated September 12, I960, is rejected. For a greater reason the claim of the 14th respondent to the vehicle which is rested on the hire-purchase agreement dated August 18, 1960, is equally untenable. There was no vehicle which could be dealt with by the company on August 18, 1960. The subject-matter of the hire purchase agreement dated August 38, 1960, is said to be the vehicle bearing chassis No. PAB 27387 and Engine No. 600463. This was the subject-matter of the hire-purchase agreement dated September 15, 1960, in favour of the 8th respondent. Therefore, it is mythical as to how a vehicle not even purchased could be the subject-matter of hire-purchase agreement under exhibit A-180 dated August 18, 1960, with the 14th respondent. Even the " C " certificate, as it is commonly called, does not disclose such a transaction. As the 8th respondent advanced the moneys for the purchase of this vehicle, his claim as owner of the vehicle has to be accepted and the amount due to the 8th respondent be paid by the official liquidator from and out of the sale proceeds of the vehicle, less expenses, charges and costs pro rata worked out for the purpose. In this view, the non-registration of the hire purchase agreement in question with the Registrar of Companies under Section 132 of the Act does not matter.
83. MSX 9862: The claimants are respondents Nos. 4, 8, 23 and 24. Respondents Nos. 23 and 24 claim under refinancing hire-purchase agreements, exhibits B-207 and A-212, which are not registered under the Companies Act. Their claim to rank as preferential creditors cannot be accepted. The 8th respondent advanced monies for the purchase of the vehicle. The vehicle was purchased on September 15, 1960. The financing hire-purchase agreements on which reliance is placed by the 8th respondent are exhibits R-2 and A-78. The hypothecation in favour of the 4th respondent is dated September 12, 1960, before the vehicle was purchased by the company. The inclusion of this vehicle in the hypothecation agreement, exhibit A-54, which was registered, cannot vest any right in the hypothecatee because the vehicle was not there. Even so, the 14th respondent is said to have advanced moneys under hire-purchase agreement dated August 18, 1960, on a non-existent vehicle. The 14th respondent's claim as a preferential creditor cannot be envisaged. Therefore, as the 8th respondent advanced the moneys for the purchase of the vehicle his claim as owner of the vehicle has to be accepted and the amount due to the 8th respondent be paid by the official liquidator from and out of the sale proceeds of this vehicle, less expenses, charges and costs pro rata worked out for the purpose of this vehicle.
84. MSW 719 and MSW 720 : The claimants are respondents Nos, 4, 8, 13 and 24. The 24th respondent's claim to rank as preferential creditor is untenable because he rests his claim on the refinancing hire-purchase agreement, exhibit A-212, which was not registered under Section 132 of the Companies Act. The vehicles were negotiated for purchase only on November 9, 1960. The 8th respondent advanced moneys for the purchase of the vehicles and entered into the financing hire-purchase agreement under exhibit A-85 dated January 9, 1960. The 4th respondent claims to have accepted these vehicles as security under the hypothecation agreement, exhibit A-54, dated September 12, 1960. This is impossible. Merely because the vehicles are mentioned in exhibit A-54 cannot make any difference. So the 4th respondent cannot rank as a preferential creditor in so far as these vehicles are concerned. The 13th respondent pretends to have advanced moneys to the company on these vehicles under a hire-purchase agreement exhibits A-171 and A-172, dated August 16, 1960, when the vehicles were not owned by the company at all. As the 8th respondent advanced the moneys for the purchase of these vehicles, his claim as owner of the vehicles has to be accepted and the amount due to the 8th respondent be paid by the official liquidator from and out of the sale proceeds of these vehicles, less expenses, charges and costs pro rata worked out for the purpose of these vehicles.
85. MSW 2305 : The claimants are respondents No. 8, 15 and 24. The 8th respondent advanced moneys to the company for the purchase of this vehicle. The financing hire-purchase agreement entered into is exhibit A-96 dated January 20, 1961. Under this the 8th respondent is to be deemed to be the owner of this vehicle--See K.L. Johar and Co. v. Deputy Commercial Tax Officer . Therefore, the claims of respondents Nos. 15 and 24 to be ranked as preferential creditors based on hire-purchase agreement dated January 30, 1961, under exhibit A-178 and the hire-purchase agreement dated April 24, 1961, under exhibit A-212 respectively cannot be countenanced because the company had no authority to deal with the vehicle at all. The termination of the finance hire-purchase agreement, exhibit A-96, was on June 2, 1961, under exhibit R-46. Therefore, the right of the 8th respondent to rank as the only preferential creditor as regards this vehicle is unassailable. As the 8th respondent advanced the moneys for the purchase of the vehicle his claim as owner of the vehicle has to be accepted and the amount due to the 8th respondent be paid by the official liquidator from and out of the sale proceeds of this vehicle, less expenses, charges and costs pro rata worked out for the purpose of this vehicle.
86. MSW 2307: The claimants are respondents Nos. 8, 14 and 23. The 8th respondent advanced moneys to the company for the purchase of this vehicle. The financing hire-purchase agreement entered into is exhibit A-96 dated January 20, 1961. Under this the 8th respondent is to be deemed to be the owner of this vehicle--See K.L. Johar and Co. v. Deputy Commercial Tax Officer. Therefore, the claims of respondents Nos. 14 and 23 based on hire-purchase agreements dated January 30, 1961, and May 2, 1961, under exhibits A-183 and A-207, when during that period the 8th respondent was the legal owner of the vehicle, cannot be entertained. The hire-purchase agreement, exhibit A-96, was terminated only on June 2, 1961. Therefore, the right of the 8th respondent to claim the net sale proceeds of the vehicle as a preferential creditor cannot be questioned. As the 8th respondent advanced the moneys for the purchase of the vehicle, his claim as owner of the vehicle has to be accepted and the amount due to the 8th respondent be paid by the official liquidator from and out of the sale proceeds of this vehicle, less expenses, charges and costs pro rata worked out for the purpose of this vehicle.
87. MSW 3056 and MSW 3589 : Though there appear to be two claimants asking to be treated as preferential creditors with reference to their dealings with the company in the subject relating to the above vehicles, in reality it is the 9th respondent who is seeking such a relief. Another person, Pushpa Kavur, has not referred to me any document in support of her case, nor was she represented by counsel. I am not considering her claim in the absence of any material. She is not even a party to the proceedings but a counter-affidavit however filed by her is on record.
88. The 9th respondent claims to be the guarantor under the financing hire-purchase agreements, exhibits A-119 and A-120, dated February 24, 1961, executed by the company in favour of the Hindusthan Motor Corporation. This was terminated under exhibit A-123 on May 22, 1961. It is in this letter of termination the 9th respondent has been authorised to follow up the matter. Under the hire-purchase agreement, exhibit A-119, Hindusthan Motor Corporation Limited advanced the moneys to the company to enable them to purchase the vehicles from the 9th respondent. The name of the guarantor as shown in the agreement is one R. S, Rangarajan. But when the deal was put through, this respondent recommended the advance and gave a report, exhibit R-89. Exhibt R-89 refers to exhibit R-87, which is an agreement entered into between this respondent and Hindusthan Motor Corporation Limited. Under exhibit R-87, it was obligatory on the part of this respondent to forward to the Corporation all applications from persons or companies for hire-purchase facilities in respect of motor vehicles sold by the dealer. In consideration of the Corporation sanctioning the applications recommended by the dealer, this respondent undertook to guarantee the due performance and observance by the applicant, called the hirer, of all the conditions in the hire-purchase agreement. Therefore, though this respondent was not eo nomine a guarantor in exhibits A-119 and A-120, yet by reason of the overall guarantee undertaken by them under exhibit R-87, the respondent became virtually a guarantor for the due observance of the hire-purchase conditions by the company in liquidation. As already stated, this respondent recommended the advance. Therefore the Corporation, on the default committed by the company, re-possessed the vehicles and intimated the registering authority that all further steps would be taken by the respondent. It transpires that the vehicles were handed over" to the respondent after seizure by the Corporation. This is seen from exhibit R-90 dated August i 7, 1961. Under this letter, the respondent is called upon to pay a sum of Rs. 43,800 said to be by then due under the hire-purchase agreements. Obviously, this demand is made by the Coporation under the foot of the guarantee under exhibit R-87. Otherwise, their conduct in demanding the amount from this respondent cannot be understood. Even R. W. 1 examined on behalf of the respondent would say that they were obliged under the agreement to pay the amount demanded. The agreement referred to by him is exhibit R-87. This witness produced exhibit R-83, the account book of the respondent which was kept in the regular course of business to prove the payments made by this respondent to Hindusthan Motor Corporation Ltd. consequent upon the failure of the company to respect its obligations. After demanding the amounts due as above, the Corporation gave a power of attorney to this respondent which is extremely general in scope. This power enables this respondent to project the claims in question in his own name and ask the official liquidator to treat him as a preferential creditor. Even apart from the power of attorney, I am satisfied that this respondent guaranteed all payments, if default is committed by the company and in fact they have paid the corporation its dues.
89. The next question is what was the right of the corporation and what could be the right of the respondent who paid off the corporation on behalf of the company which is admittedly the principal debtor. So far as the corporation is concerned, they satisfy the tests in K.L. Johar and Co. v. Deputy Commercial Tax Officer and they were the owners of the vehicle till the hire-purchase agreement was terminated. There is therefore no question of registering any charge with the Registrar of Companies. This respondent as guarantor and having paid the amounts due and payable by the company as debtor is entitled to be subrogated to all the rights to which the creditor is entitled to. Sections 140, 141, 145 and 146 of the Contract Act support this respondent's contention that they ought to be ranked as a preferential creditor. As observed by Eve J. in In re Lamplugh Iron Ore Co. Ltd [1927] I Ch. 308, 312: " when the surety seeks to enforce his remedy he shall be in the same position as if he were the original creditor still unpaid". I, therefore, find that this respondent should be treated as a guarantor who stepped into the shoes of the Corporation and, therefore, he is entitled to recover the net sale proceeds of the vehicle in specie, on the ground that he has stepped into the shoes of the Corporation and entitled to be treated preferentially by the official liquidator. I, therefore, declare that this respondent is to be ranked as preferential creditor. As the 9th respondent has stepped into the shoes of the financier who advanced the moneys for the purchase of the vehicles, his claim in such capacity has to be accepted in full. I therefore direct that the amount reckoned as payable to the 9th respondent be paid by the official liquidator from and out of the sale proceeds of the two vehicles less expenses, charges and costs pro rata worked out for the purpose. I may add that the non-registration of the hire-purchase agreement with the Hindusthan Motor Corporation with the Registrar of Companies under Section 132 of the Companies Act would not make any difference.
90. MSW 4134 and MSW 4136 : The two rival claimants are respondents Nos. 8 and 13. This is yet again a case where the 13th respondent is said to have taken a hire-purchase relating to the vehicles when they were not the properties of the company at all. The vehicles were purchased and immediately subject to a financing hire-purchase agreement, exhibit A-104 dated March 22, 1961. Negotiations for purchase took place in March 1961. Under exhibit A-104 the 8th respondent became and continued to be the owner of the vehicles until it was terminated under exhibit R-52 dated June 2, 1961. In those circumstances the claim of the 13th respondent, that he entered into a hire-purchase agreement under exhibits A-174 and A-175 dated January 30, 1961, over these vehicles is absolutely undiscernable declare that the 8th respondent is the only creditor who should be treated as a preferential creditor in so far as these vehicles are concerned. As the 8th respondent advanced the moneys for the purchase of these vehicles, his claim as owner of the vehicles has to be accepted and the amount due to the 8th respondent be paid by the official liquidator from and out of the sale proceeds of the vehicles, less expenses, charges and costs pro rata worked out for the purpose. In this view the non-registration of the hire-purchase agreement in question with the Registrar of Companies under Section 132 of the Act does not matter.
91. MDF 1136 : There being no other claimant to the vehicle excepting the 2nd respondent, the bank is declared to be entitled to be treated as a preferential creditor and dealt with accordingly by the official liquidator, who shall have the liberty to deduct the expenses, charges and costs pro rata to arrive at the net sale proceeds available for being paid out.
92. MSY 2662 and MSY 9460 : In the first cited vehicle, respondents Nos, 10 and 12 are interested. In the second cited vehicle the 12th respondent is interested. They are motor cars owned by the company. They were subject to refinancing agreements under exhibits A-156, A-150, A-131 and A-151. The charges created under the above agreements were not registered under the Companies Act. Therefore, they are void as against the official liquidator. Respondents Nos. 10 and 12 cannot thus be treated as preferential creditors. They should prove their claim in the ordinary way.
93. The application is ordered accordingly. The official liquidator alone will get his costs and expenses.