Official Liquidator v. Sri Krishna Deo (1959) 29 Com Cases 476: AIR 1959 All 247

Estimated Reading Time: 10 minutes

Introduction

A company’s borrowings are often supported by protections, on the strength of which credits are given by the banks and monetary organizations. The security is given for getting advances or debentures via contract on the resources of the company when the Charge is made. The Companies Act, 2013 covers the arrangements identifying with enrollment, alteration, satisfaction of Charges, results of disappointment in enlistment, and postponement in enrollment.

The primary reason for enrollment of a Charge is to pull out to the Registrar of Companies (“RoC”) and to individuals who plan to propel cash to the company about the encumbrance made on the resources of the company. The planned loan specialist may assess the list of Charges and structures on the Ministry of Corporate Affairs entryway.

In this case the court held that machinery fixed to their bases with bolts and nuts although easily removable are not movable property when they have been set up with the definite object of running an oil mill and not with intention of being removed after a temporary use.

Facts of the case

  1. This Company was ordered to be ended on 11-5-1956. In the wake of examining the resources and liabilities of the Company the Liquidator found that it had three arrangements of debentures. The primary arrangement of debentures were allotted to 8-4-1948 for an all out amount of Rs. 1,50,000/- . A Debenture Trust Deed was executed and registered with the Registrar, Joint Stock Companies, Lucknow and furthermore in the office of the Sub-Registrar, Lucknow under the Indian Registration Act.
  2. The second arrangement of Debentures was given on 23-6-1950 for an amount of Rs. 100,000/- . For this arrangement likewise a debenture Trust Deed was executed and it was registered with the Registrar, Joint Stock Companies Lucknow, just as in the office of the Sub-Registrar, Lucknow under the Indian Registration Act. By a resolution dated the 23rd March, 1952 the Board of Directors who were dealing with the undertakings of the Company gave a third arrangement of debentures for Rs. 4.50.000/ – and an advisory group was named to allot these debentures.
  3. In compatibility of the above resolution the board of trustees on the seventh of April 1952, allotted debentures bonds nos. 1 to 4 for Rs. 2,000/ – and four bonds nos. 5 to 8 for Rs. 3,000/-. No Debenture Trust Deed was executed for this arrangement and there was no enrollment in the office of the Sub-Registrar under the Indian Registration Act.
  4. The Company anyway seems to have registered with the Registrar Joint Stock Companies the points of interest of this third arrangement of debentures on the eighteenth of April 1952, under Section 109 of the Indian Companies Act 1913 and it further created the impression that a printed type of the debentures of this arrangement alongside the condition under which they were given was likewise recorded in the Office of the Registrar of companies. here being no Trust Deed identifying with this third arrangement of debentures, every debenture allotted to every individual was asserted to be an alternate transaction and the Official Liquidator argued  that each such transaction ought to have been registered inside 21 days of the date on which the debenture was given. The holders of the third arrangement of debentures were subsequently supposed to be unstable loan bosses and qualified for no preference.
  5. Notice was given of this request and the appeal was made against both in the interest of the Company just as for these debenture holders. It was fought that enlistment under Section 109 of the Companies Act was everything necessary under the law and as the issue of debentures was proposed to make just a drifting charge on every one of the resources of the Company commonly no enrollment under the Registration Act was either vital or practicable.
  6. In this association, it was additionally asked that the plant and the apparatus of the Company, at any rate the major and more significant piece of it was versatile property inside the importance of the law and regardless of whether the third arrangement of debentures were not registered under the Registration Ac,t such plant and hardware being portable property could be held to be under a charge most definitely.

Issue

Two questions thus arise for consideration-

  1. The first is whether registration under the Registration Act is essential to create a charge on the assets of a Company.
  2. The second is whether the plant and machinery of the Company or any part thereof is movable property.

Contentions

As the notice was given of this request and the appeal was made against both in the interest of the Company just as for these debenture holders. It is fought that enlistment under Section 109 of the Companies Act is everything necessary under the law and as the issue of debentures was proposed to make just a drifting charge on every one of the resources of the Company commonly no enrollment under the Registration Act was either vital or practicable.

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In this” association it was argued that the plant and the apparatus of the Company, at any rate the major and more significant piece of it was versatile property inside the importance of the law and regardless of whether the third arrangement of debentures were not registered under the Registration Act such plant and hardware being portable property could be held to be under a charge most definitel.Two questions thus arise for consideration. The first is whether registration under the Registration Act is essential to create a charge on the assets of a Company and the second is as to whether the plant and machinery of the Company or any part thereof is movable property. Section 109 of the Indian Companies Act 1913 requires that every mortgage or charge created by a Company should be registered with the Registrar of Companies.

This is necessary whether the mortgage or charge is for the purpose of securing any issue of debenture or whether it is a mortgage or charge on the uncalled share capital of the Company or any immovable property or interest therein or is a floating charge on the undertaking of the Company generally.The provision says that where necessary particulars of the mortgage or charge are not filed with the registrar for registration in the manner prescribed, within 21 days of the date of its creation the mortgage or charge would be void and inoperative as such.

Proviso (iv) to this section says that the holding of debentures entitling the holder to a charge on immovable property shall not be deemed to be an interest in immovable property. Learned counsel for the debenture holders contended that the provisions of Section 109 and proviso (iv) referred to above, indicate that while registration with the Registrar of Companies is intended to give notice to all who may bo concerned with the charge created, it is clear that the holding of Debentures under which the charge is said to have been created is not to be considered as having an interest in immovable property. The Debenture creating any interest in the immoveable property is not a transfer within the meaning of Section 17 of the Registration Act and therefore registration under that Act is not necessary.

Summary of the case and Judgment

The reason for the enlistment of debentures, charges and home loans under the Companies Act is to pull out to people managing the Company of the encumbrances on the properties of the Company. This encumbrance might be found by a hunt of the Registry of where the Company is registered or by legitimate enquiries in the office of the Registrar of Companies. Yet, a Company may have an enormous number of branches arranged at better places and there might be ardent property relating to these branches.

On the off chance that any such immoveable property is expected to be hypothecated or moved, the individual who is to acknowledge such hypothecation or move should know whether that specific property is or isn’t dependent upon any encumbrance. To gather the essential data he may make a review at the Registration Office of where the Company has its administrative center. In the event that there is no trust deed registered in regard to a progression of debentures he can’t get any data from such examination.

Likewise, enquiries were made at the office of the Registrar of Companies. Yet, in light of the fact that the specifics needed to be registered under Section 109 are of too broad a character, so exceptionally far as the subtleties of the properties are concerned, he is probably going to have no idea of encumbrances on the property with which he is going to bargain. On the off chance that there is no enlistment under the Indian Registration Act of the debentures given indicating the properties suspected to be hampered, there will be no data accessible from the Registration Office of where the property is arranged.

Consequently without enrollment under the arrangements of the Indian Registration Act such an individual can’t get any data of the charge that may be guaranteed by a debenture holder.

I’m thusly of assessment that the enrollment of the debentures under Section 109 of the Companies Act doesn’t satisfactorily educate any individual who may need to manage a specific ardent property of the Company. One of the objects of enrollment is to furnish data to people managing the property so as to forestall extortion. Derbyshire C. J. in Roy and Rros. v. Ramnath Das AIR 1945 Cal 37 saw that the Registration Act is proposed to bear the cost of caution to individuals in the region where the land is arranged as respects the charges influencing that land so they may not endure absence of information.

Also Read  OFFICIAL LIQUIDATOR, U. P. OIL MILLS CO. LTD. v JAMNA PRASAD

Of different objects of enlistment one is to give gravity of structure and lawful significance to specific classes of reports and another is to sustain archives which may subsequently be of lawful significance and the universally useful gives off an impression of being to guarantee a record of the rights and obligations identifying with immovable properties. It is hard to hold that the enlistment of an overall portrayal of the property charged under Section 109 read with Section 110 of the Companies Act has a similar impact as the enrollment under the Registration Act.

Section 17(1)(b) of the Indian Registration Act needs to be registered non-testamentary instruments which imply or work to make, pronounce, dole out, restrict or stifle, regardless of whether in present or in future any right, title or interest, whether vested or unexpected, of the worth of 100 rupees and upwards, to or in immoveable property.  For the situation alluded to over, the issue of a debenture restricts the right of a Company to its property and makes from the second it is executed a coasting charge over the entire of the Company’s property immoveable and portable and that the gliding charge may get fixed on the occurrence of one of the occasions referenced in the states of the debentures, the issue of debentures is a transformation of the right of the Company to its immovable property dependent upon the incident of one of the occasions determined in the condition.

Alluding to Section 100 of the Transfer of Property Act which depicts a charge the learned Boss Justice held that the issue of a debenture implies to make a charge on the property of a Company. The arrangements of Section 17(1)(b) are required and it is thus certain that the three arrangements of debentures which were not registered under the Indian Registration Act neglected to make a charge on the immovable properties of the Company.

The other inquiry of  whether the plant and apparatus of the Company are mobile or steady properties doesn’t concede to much conversation. Advocate of this Court was delegated a Commissioner to investigate the premises of the Company and to determine whether the machinery and plant having a place with the Company were fixed and were things appended to the earth or forever secured to anything which was connected to the earth as referenced in Section 2(6) of the Indian Registration Act. Also, another report presented in the court states is a cautious and point by point report containing upwards of 44 photos. He had given as exact a depiction of the hardware and the plant set up in the premises as could be conceivable. In fact the report was so thorough and gave the facts so unmistakably that the gatherings thought that it was superfluous to lead proof and the report was of impressive help to the Court.

Analysis

From this case it is clearly understood that the plant and the machinery of the Company are either installed in the earth or they are for all time affixed to things connected to the earth. It is argued that most pieces of the apparatus are fixed to their bases with fasteners and nuts and they can be eliminated by eliminating the nuts. It is in this manner that such apparatuses can be moved away by eliminating the nuts ought to be held to be versatile property.

A comparable inquiry went up for thought to the House of Lords in Reynolds v. Ashby and Son, 1904 A C 466. Machines were fixed to substantial beds in the floor of the factory by screws and nuts and could  have been eliminated without injury to the structure or the beds. Ruler Lindley noted:

“The reason for which the machines were acquired and fixed appears to me unquestionable; it was too finished and utilizes the structure as a factory. The facts confirm that the machines could be taken out if fundamental, yet the substantial beds and bolts arranged for thistle negated any thought of treating the machines when fixed as mobile belongings.”

Conclusion

It can be concluded in this case that it is obvious from the Commissioner’s report that the machines are forever affixed to things joined to the earth. They were set up there with the unequivocal expectation of running the Oil Mills and not with being removed after transitory use. the court had accordingly no wavering in holding that the plant and apparatus of the Company wasn’t moveable property.

 outcome the Official Liquidator was entitled to the statement petitioned for. It was therefore declared that the holders of the third arrangement of debentures were not banks of the Company however were just unstable loan bosses.

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