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Judgment
Sanjib Banerjee, J.—The appellant seeks to have its charge in respect of the immovable properties of the company in liquidation recorded in the records maintained by the Registrar of Companies. The appellant applied before the Company Law Board u/s 141 of the Companies Act, 1956 and is here assailing the order of dismissal (2000) 100 CompCas 150 (CLB) thereof. The Company Law Board exercises the Central Government''s powers u/s 141 of the Act. The two questions of law that have been raised in this appeal limited to legal issues are, as to whether belated registration of a charge can be permitted in respect of any asset of a company which has been directed to be wound up, and, whether a charge comes to be created only upon the formal execution of a document and not on the company''s undertaking to the creditor to create a charge. For the reasons that would appear hereinafter, the second question need not be answered if the first question is answered against the appellant.
The appeal has been pending for some time. There is an interim order subsisting, restraining the official liquidator from making disbursements pending the disposal of this appeal. Some of the workmen of the company in liquidation have brought the subsisting order in these proceedings to the notice of the court whereupon the appeal has been taken up. Such workmen laboured under the mistaken apprehension that upon the appeal being set down for immediate hearing at their instance, they would be heard, but the workmen were not allowed to address. A.C.O. No. 166 of 2007 is dismissed without any order to costs.
The facts, mostly according to the petition before the Company Law Board, may be noticed in brief.
The appellant made available to the company prior to its liquidation two loans of Rs. 22 lakhs and Rs. 72 lakhs against the company creating a charge of its moveable properties and a mortgage of some of its immovable properties. Such loans were disbursed by or about the year 1986 and the company acknowledged in its balance-sheet for the year ended March 31, 1986, that the loans advanced by the appellant were secured by the first mortgage of the immovable properties of the company. At a general meeting of the company held on January 29, 1986, the consent of the shareholders was obtained in accordance with Section 293(1)(a) of the Act for creating a mortgage and/or charge of all the immovable and moveable properties of the company.
The company went into liquidation on June 26, 1991. The company''s assets were sold for a sum of Rs. 3,61,50,000. The appellant first filed a suit for recovery of its dues against the company in liquidation with leave u/s 446 of the Companies Act and then had such proceedings transferred to the appropriate Debts Recovery Tribunal following the enactment of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The appellant obtained a certificate in such proceedings. The appellant applied before the official liquidator for payment. The official liquidator acknowledged the charge in respect of the movable properties and settled the claim and offered to make payment pro rata on such count but held the appellant to be an unsecured creditor in respect of the balance claim. As is usually the case in companies that go into liquidation in this country, the proceeds from the sale of the assets of companies in liquidation are hardly enough to meet the claims of the secured and the preferred creditors in terms of Sections 529A and 530 of the Act, so was the case here. The official liquidator has not disregarded the appellant''s claim founded on the certificate that it obtained from the Debts Recovery Tribunal, but merely conveyed to the appellant that in the first rung of creditors entitled to receive payment on a priority basis, only such part of the appellant''s claim as was covered by the charge over the movable properties, would be considered.
The appellant preferred an appeal to the company court from the decision of the official liquidator to the extent the official liquidator considered that the claims of the workmen would sit alongside the appellant''s claim in the adjudication of priorities. The basis of such challenge is that the company''s assets were sold as a going concern and the workmen''s claims would, in such an event, not rank pari passu with the claims of the other secured creditors. But such issue is irrelevant in the present case. In respect of the other part of the official liquidator''s order, of not considering the appellant to be a secured creditor as far as the immovable properties of the company in liquidation were concerned, the appellant applied u/s 141 of the Act for enlargement of time for its charge in respect thereof to be registered.
The principal issue that arises is whether upon a company going into liquidation, a creditor whose charge has not been registered can apply for registration afresh. Such matter was not directly alluded to by the Company Law Board and in the order impugned, two issues were framed as follows:
(a) Whether the transactions covered by the loan agreements dated March 28, 1981 and July 10, 1986, attract the provisions of Section 125 of the Act?
(b) If so, whether sufficient cause or justification is shown by the petitioner to condone the delay in filing the particulars of charges u/s 141 of the Act?
The Company Law Board answered the first issue against the appellant whereupon it was not necessary to address the second issue.
The one question which appears to be of utmost importance in the facts of the case is whether an application of the kind permitted u/s 141 of the Act can be received after an order of winding up of the concerned company is made. Section 125 of the Act does not, in the absence of registration, make the charge or the security created or agreed to be created, void. Section 125 lists several types of charges (and by Section 124 of the Act a mortgage for the purpose of the provisions is deemed to be included in the definition of a charge) that require registration. Upon a charge not being registered, neither is the company absolved of its liability in respect of the credit facility received nor is the company permitted to disown the charge. Section 125 makes the charge void against the official liquidator and against other creditors of the company. The official liquidator comes in only upon a company going into liquidation.
If it were to be held that an application u/s 141 could be received for registration of a charge in respect of any asset of a company in liquidation and for time to be enlarged therefore to a date beyond the order of winding up, Section 125 and the condition that it seeks to impose on the creditor would not be merely diluted, but completely obliterated. It is on such fundamental premise that counsel was called upon to address.
Several decisions, ranging from the distinction between a mortgage and a charge to circumstances in which the discretion u/s 141 may be exercised and the extent of conditions that may be imposed, have been cited but none, till the very end, on the only question of importance that arises. Counsel for the appellant has fairly referred to the decision reported in Resinoid and Mica Products Ltd. In re [1982] 3 All ER 677, which throws some light on the matter though it does not go so far as to hold as an absolute proposition that an application for registration of a charge cannot altogether be entertained at the liquidation stage.
Immediately upon an order of winding up being made the rights of creditors crystallise. In terms of Section 529A of the Act workmen get elevated to the status of secured creditors. A post-facto registration of a charge would entail not only a smaller piece of the pie for the other secured creditors but also reduce the amounts that can be disbursed to the workmen out of the realised assets of the company in liquidation. To allow a creditor to climb on to the register at such stage would be akin to an insurance policy being received for an insurance against the incident upon the happening of such incident.
It would, however, be permissible for the rectification of a charge or the modification of the extent of a charge, at the liquidation stage but that presupposes the charge being already registered. There is a huge distinction between the modification of an already registered charge and the attempt to have an unregistered charge freshly registered. Section 141 and the discretion found therein cannot be carried so far as to allow a creditor to undo the effect of Section 125by which the charge created or agreed to be created in his favour by the company can be avoided by the official liquidator and the other creditors of the company. It would also appear from the decisions of the English courts under the provisions of both the 1948 Act and the 1985 Act in England which are in pari materia with Sections 125 and 141 of the Act of 1956 applicable in this country, that the condition ordinarily imposed for allowing subsequent registration is that it would be open to the other creditors who had entered into transactions with the company during the interregnum, to disregard such registration. The English decisions cited in this appeal other than the Resinoid and Mica Products Ltd. In re case [1982] 3 All ER 677, show that there is a discretion at large that may be exercised upon an application for enlargement of time for registration being made, subject to the time-tested conditions that are generally imposed in such matters. The decisions reported at Braemar Investments Ltd. In re [1988] BCLC 556, Kris Cruisers Ltd. In re [1948] 2 All ER 1105 (Ch.D.) and Mechanisations (Eaglescliffe) Ltd. In re [1965] 35 Comp Cas 478 enunciate the law and cover instances even when the company faces imminent liquidation, but none of the cases relates to a company that has already been wound up. Even in the Resinoid and Mica Products Ltd. In re case [1982] 3 All ER 677, the first application was made before the company went into liquidation and the application was heard after the company had been wound up.
The appellant contends that since a part of the charge in its favour was registered and has been recognised by the official liquidator, this is a matter of rectification or enlarging the extent of the charge rather than fresh registration of a charge. But the appellant cannot be heard to make out this case, never mind that this is an appeal limited to questions of law, in view of its averment in paragraph 21 of the petition before the Company Law Board:
The applicant states that despite acknowledging that the loan has been secured by movable and immovable assets for the dues of the applicant, and having confirmed the creation of the charge over its immovable properties by virtue of a letter of undertaking on the basis of which the loans were disbursed to the company, the company failed to register the charges in respect of the immovable properties with respondent No. 2. Moreover, the company had admitted its liability in respect of the sums due and payable to the applicant as well as the charge over its immovable properties in its annual report for the year 1985-86.
In challenging the ground that weighed with the Company Law Board in rejecting the petition, the appellant has placed the decisions reported at Bapurao Dajiba v. Narayan Govind Kale AIR 1950 Nag 117 and Jewan Lal Daga v. Nilmani Chaudhuri AIR 1928 PC 80. In the Nagpur case, the expression "act of parties" and "operation of law" appearing in Section 100 of the Transfer of Property Act have been elucidated upon in the context of the distinction between a charge and a mortgage. In the Privy Council case, it was held that even though the loan amount had not been fixed, a creditor''s prayer for execution of a mortgage may be entertained. However, in view of the principal issue noticed in this appeal, it is not necessary to consider as to whether there was a charge over its immovable properties created by the company prior to its liquidation in favour of the appellant.
The order of the (2000) 100 CompCas 150 is maintained, but for altogether different reasons. The reasons given by the Company Law Board in support of the order of rejecting are not approved. The appeal and connected applications are dismissed. The interim order is vacated.
In view of the fair stand taken on behalf of the appellant, there will be no order as to costs.
Urgent photostat certified copies of this judgment, if applied for, be issued to the parties upon compliance with requisite formalities.