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Judgment
Sadasivam, J.—Applications by the creditor M. M. Meyyappa Chettiar to set aside the orders of the second respondent Official Assignee
admitting the claims of the first respondent Messrs. Jayanthi Films Madurai (Private) Ltd., Messrs. Jayanthi Films, Madurai (Private) Ltd. made
four claims before the Official Assignee for a total sum of Rs. 2,42,177-03 nP, made up of--Rs. 1,71,150-45 nP. in respect of which the company
has obtained a decree in C.S. No. 4 of 1961, on the file of this Court against Messrs. Jubilee Films (Private) Ltd., and the son and widow of
Venkatesam Pillai the Managing Director of Messrs. Jubilee Films (Private) Ltd. Rs. 34,500 reserved in the said suit as not having been realised
from M. V. V. Nath in respect of Hindi Dubbing Rights Agreement, Rs. 35,526-58 nP. due under the distribution agreements with Jubilee Films
(Private) Ltd. for (1907) 2 K. B. Dn. 23 at 30 Madurai, Ramnad, Tinnevelly and Kanyakumari Districts and (2) Tanjore, Tiruchirapalli and
Karaikkal Districts and Rs. 1000, reserved in the said suit C.S. No. 4 of 1961 as not having been realised from Thiruthandavam""& Co. Messrs.
Jayanthi Films (Private) Ltd. based their claim mainly on the financial agreement dated 24th February 1960 under which the insolvent Venkatesam
Pillai stood as guarantor for all the obligations and liability of Jubilee Films (Private) Ltd., under the agreement. The learned Advocate for the
applicants relied on the following passage in the decision in Inre, Van Laun, ex parte Chatterton (1):
The Trustee''s right and duty when examining a proof for the purpose of admitting or rejecting it is to require some satisfactory evidence that the
debt on which the proof is founded is a real debt. No judgment recovered against the bankrupt, no covenant given by or account stated with him,
can deprive the trustee of this right
and contended that in spite of the decree and judgment in C.S. No. 4 of 1961, on the file of this Court, the Official Assignee is bound to
independently consider the claims made against the estate of the insolvent. The learned Advocate for Messrs. Jayanthi Films (Private) Ltd. did not
dispute this proposition. In fact, the Official Assignee Sri P. Sivaramakrishniah, who is an experienced Officer, has considered the claims made
against the estate of the insolvent Venkatesam Pillai and admitted the claims of Messrs. Jayanthi Films (Private) Ltd. after considering the
objections of the applicant as evident from the orders sought to be set aside.
Sri K. Rajah Aiyar, appearing for the applicants, urged that the only point for consideration in these applications is the objection raised by him
that under the financial agreement dated 24th February, 1960, on the basis of which Jayanthi Films (Private) Ltd. had made the claims as a creditor
to the estate of Venkatesam Pillai, a charge right is created within the meaning of S. 125 of the Companies Act and the same is invalid for want of
registration and hence the liability of Venkatesam Pillai as guarantor is discharged by virtue of Ss. 139 and 141 of the Contract Act. He relied on
the decision in The Bank of India, Ltd. Vs. Rustom Fakirji Cowasjee, in support of the above contention. It is clear from that case that if as a
matter of fact and law there was an encumbrance, it should have been registered under the Companies Act and that S. 109, Companies Act of
1913 renders certain mortgages and charges on moveable property of a company void against the liquidator unless particulars relating to the same
are filed with the Registrar of Companies as prescribed under the Act. It was observed in that case that if there was a charge created in favour of
the bank, the subsequent conduct of the bank would have discharged the surety. But this point was held to be not of much importance in that case
as in fact no charge was created in that case at any time. Thus the observations made in the above derision are merely obiter. S. 139 of the
Contract Act could be invoked by a surety only if he is able to show that the creditor has done any act which is inconsistent with his rights or omits
to do any duty and thereby impairs his remedy against the principal debtor. If a charge requires registration and no valid charge has been created
by reason of non-registration, it could not be said that there was a charge right which was originally available and which subsequently got impaired
on account of any act of the creditor. It is true that if the creditor had agreed with the surety that he would secure the debt advanced by him by
procuring a charge and fails to do so and thereby impairs the rights of the surety to proceed against the debtor on the basis of the promised charge,
the surety would have a cause of action under S. 139 of the Contract Act. This is clear from the following passage from Chitty on Contracts:
If there is a contract, express or implied, that the creditor shall acquire of preserve any right against the debtor, and the creditor deprives himself of
the right which he has stipulated to acquire, or does anything to release any right which he has, that discharges the surely; but where there is no
such contract, and he only has a right to perfect what he has in his hand, which he does not do, that does not release the surety unless he can show
that be has received some injury in consequence of the creditor''s conduct
Under Condition 8 of the financial agreement dated 24th February 1960 the guarantor Venkatesam Pillai has undertaken joint and several
liability for the payment of the entire amount due to the financiers and for the fulfilment of all the obligations of the producers under that agreement.
Under the terms of the agreement the producers have agreed to give security for the picture ""Parthipan Kanavu"". Even under S. 134 of the
Companies Act, it is the primary duty of the company to register the charge. It is true that if the company fails to do so, it is open to any person
entitled to the charge, namely, a creditor, 40 have the charge registered and recover the amount of any fees from the company. Hence Venkatesam
Pillai, who has guaranteed the said obligation of the producers, cannot take advantage of his own wrong in not having registered the charge and
plead that he is discharged of all the liability as guarantor.
It could not be also said in this case that any charge right created under the financial agreement dated 24th February 1960 was in any way
impaired by reason of non-registration under S. 125 of the Companies Act. It should be noted that the non-registration of the charge would render
it void only as against the liquidator or the creditors. The Jayanthi Films (Pte) Ltd., filed C.S. No. 4 of 1961 and got a decree. Messrs. Jubilee
Films (Pte) Ltd., went into liquidation and the Official Liquidator held that the charge created by the Jubilee Films (Pte.) Ltd., under the financial
agreement was really in the nature of a pledge and not a charge which had to be registered under S. 125 of the Companies Act and that it had
been properly enforced. The Jayanthi Films (Pte) Ltd., completely worked out their rights under the charge or pledge and the charge has become
practically valueless according to them. In fact the Official Assignee has valued the same at Rs. 20,000 and deducted it from the claim of the
Jayanthi Films (Pte.) Ltd. Hence it could not be said that the remedy of Venkatesam Pillai, if any, in respect of the charge created under the
financial agreement has been impaired. Thus, there is no scope for the applicants to claim any relief by virtue of Ss. 139 and 141 of the Contract
Act.
Sri K. Rajah Aiyar conceded that he has no case, if the rights created by Jubilee Films (Pte.) Ltd. in favour of Jayanthi Films (Pte.) Ltd., is really
a pledge and not a charge. Messrs. Jubilee Films (Pte.) Ltd., sent a communication to A. V. M. Studios asking them to keep the negative of the
picture ""Parthipan Kanavu"" for and on behalf of Messrs. Jayanthi Films (Pte.) Ltd., and in that letter they have stated that by virtue of the financial
agreement they have pledged the negatives of Jayanthi Films (Pte.) Ltd., and authorised them to take the necessary prints, deliverable for the
several areas. A. V. M. Studios confirmed these instructions and wrote to Messrs. Jayanthi Films (Pte.) Ltd, stating that they agree to hold the
negatives of ""Parthipan Kanavu"" which were then with them and which may subsequently come into their hands in terms of the letter sent by Jubilee
Films (Pte.) Ltd. Even prior to the liquidation proceedings, the Jayanthi Films (Pte.) Ltd., got the negative of the entire picture ""Parthipan Kanavu"".
I have already referred to the fact that even the Liquidator has held that the rights created by Jubilee Films (Pte.) Ltd., in favour of Jayanthi Films
(Pte) Ltd, under the financial agreement is really a pledge. It is clear from Mulla''s Indian Contract Act, 8th Edn., page 599, that though delivery is
necessary to complete a pledge, it may be actual or constructive. Thus, the acknowledgment by A. V. M. Studios that they would hold the
negatives of the picture ""Parthipan Kanavu"" for and on behalf of the Jayanthi Films (Pte.) Ltd., is constructive delivery of the negatives of the
picture produced so far. Subsequently the film was completed and the Jayanthi Films (Pte.) Ltd., got the complete negatives of the film. In the case
in Tansukhrai M. Karundia Vs. The Official Liquidator, Andhra Paper Mills Co., Ltd., (in liqn.), , a creditor was given possession of the items of
moveables pledged to him and it was provided that as and when other moveable properties come into his possession, they also stand pledged to
him and the security itself was expressly stated to be a continuing one. The debtor company in that case was allowed to run the business with the
moveables, but it was only as an agent of the creditor under an irrevocable power of attorney. It was held that it cannot be said that this is a mere
floating charge coming under C1 (f) of S. 109 of the Old Companies Act, and the non-registration of the deed cannot invalidate the security.
Having regard to the principles of the decision in the above case, I find that the rights created in favour of Jayanthi Films (Pte.) Ltd., under the
financial agreement, is really a pledge of the negatives of the picture ""Parthipan Kanavu"" and that it is not invalid by reason of non-registration under
S. 125 of the Companies Act.
Though Sri K. Rajah Aiyar stated that. the only point for consideration in these applications is about the discharge of Venkatesam Pillai as
guarantor by reason of non-registration of the charge under S. 125 of the Companies Act, his junior, who continued the arguments the next day,
put forward one or two further contentions, which were not even taken in the grounds of appeal. Thus, the junior of Sri K. Rajah Aiyar argued that
the claims farming the subject-matter of Applns. Nos. 163 to 165 of 1963 did not arise under the financial agreement dated 24th February, 1900
and hence there could be no claim against the insolvent Venkatesam Pillai as guarantor. It is clear from the order of the Official Assignee that there
is no reference or discussion about this objection. In fact, in the order discussing the first claim it is clearly stated that the Advocate for the
applicants confined his arguments to only one objection, namely, the discharge of the guarantor Venkates am Pillai by virtue of Ss. 139 and 141 of
the Contract Act by reason of the charge under S. 125 of the Companies Act. Prima facie, the contention of the applicants is unsustainable. But it
is unnecessary to go into it in detail as it has not been taken either before the Official Assignee or even in the grounds of appeal, The claim for Rs.
1,71,150-- 45 nP. is admittedly one arising under the financial agreement. In suing for that amount in C.S. No. 4 of 1961 on the file of this Court,
Jayanthi Films (Private) Ltd. has reserved the claims for Rs. 34,500 and Rs. 1000 as they did not realise the said amounts from M.V.V. Nath and
Thiruthandavam and Co. But for this reservation, the said amounts would have been claimed in C.S. No. 4 of 1961 of the file of this Court as a
claim arising under the financial agreement. It is true that so far as the claim for Rs. 35,526--58 nP. is concerned, it is one which arose under the
distribution agreements entered into by Jayanthi Films (Private) Ltd. and Jubilee Films (Private) Ltd., for the areas (1) Madurai, Ramnad,
Tirunelveli and Kanyakumari Districts and (2) Tanjore, Tiruchirapalli and Karaikkal Districts. On 19th March, 1959 Messrs. Jayanthi Films
(Private) Ltd. sent a letter to Venkatesam Filial in respect of the distribution agreement entered into by them with Jubilee Films (Private) Ltd.
agreeing to pay some surplus amounts directly to Venkatesam Pillai and in consideration of the same Venkatesam Pillai wrote a letter on the same
date to Jayanthi Films (Pte.) Ltd., undertaking to fulfil all the terms and conditions of the above mentioned agreements. Thus, there is an
independent guarantee by Venkatesam Pillai in respect of the claim for Rs. 35,526--58 nP, and it is not merely based on the distribution
agreements. In fact even in the plaint in C.S. No. 4 of 1961 there is a specific averment that the plaintiff Jayanthi Films (Pte) Ltd., is not including in
the plaint the amounts due to them on the footing of the distribution agreements in respect of the picture ""Parthipan Kanavu"". If the applicants had
pressed the objection before the Official Assignee, sufficient evidence would have been adduced by the Jayanthi Films (Pte) Ltd., in support of
those claims against the estate of Vekatesam Pillai.
The learned Advocate for the applicants contended that the amounts stipulated in the financial agreement by way of commission really works out
at an exorbitant rate of interest. He also contended that the interest allowed at 24 per cent per annum is usurious. There was no plea before the
Official Assignee or in the grounds of appeal that the interest claimed by the Jayanthi Films (Pte) Ltd., is usurious under the Usurious Loans Act. In
paragraph 11 of the plaint in C.S. No. 4 of 1961 on the file of this Court Jayanthi Films (Pte) Ltd., have stated though under the agreement they
are entitled to be paid at the rate of Rs. 10 per month or proportionately from 25th May,.1960, they are restricting their claim to a sum of Rs.
35,619--10 nP. as upto 31st January, 1961, which works out at 2 per cent per month. Jayanthi Films (Private) Ltd. has claimed only at less than
contract rate, namely, 2 per cent per month and future interest at 6 per cent per annum from the date of the plaint. The only plea taken in the
grounds in these applications is that the Official Assignee should not have allowed interest, a contention which is obviously without substance.
Having regard to the above facts, I do not think that I would be justified in re-opening the accounts to find out whether the interest charged at two
per cent per month is usurious. For the foregoing reasons Applns. Nos. 115 and 163 to 166 of 1963 are liable to be dismissed and they are
hereby dismissed with costs. Having regard to the amounts involved and the time taken, I fix the Advocate''s fee at Rs. 250 (separate fee in each
claim).