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Judgment
Kumara Pillal, J.—The Plaintiff is the Appellant. The suit is on a hypothecation bond, Ex. A, dated 4-2-1121 executed by Defendants 2 and 3 on behalf of Defendant 1, St. Joseph''s Tile Works Ltd., Palai, In favour of the Palai Central Bank Ltd. The bank assigned the hypothecation bond in favour of the Plaintiff under Ex. D dated 12-7-1950. Defendant 2 was the Managing Director of Defendant 1 company and Defendant 3 was the Secretary.
Defendants 2 and 3 undertook personal liability also for the amount covered by Ex. A. The apothecia consisted of properties included in plaint A schedule and also future accretions to those properties, i.e., a building and machineries which are included in plaint B schedule. The amount due under the hypothecation bond as on 30-6-50 was Rs. 23455-7-0.
Including interest on that amount till date of suit, the total amount claimed in the suit was Rs. 23838-9-0. The Plaintiff asked for a decree for this amount and future interest charged on olaint A and B schedule properties and also against Defendants 1, 2 and 3. Defendants 4 and 5 were impleaded as persons having some interest in the plaint schedule properties.
Defendants 1 and 5 contested the suit. The, written statement on behalf of Defendant 1 was filed by the Managing Director. He contended, that the hypothecation bond was not executed by Defendants 2 and 3 for and on behalf of Defendant 1 company, that they were not competent to, execute the bond on behalf of the company, that the company was forbidden by law from charging its assets, that the charge on the future assets of the company was invalid in law and that the Plaintiff was not entitled to get* any relief against the company.
Defendant 5 contended that he was in possession of the plaint schedule properties as per a lease arrangement entered into between himself and Defendant 1 company on 16-8-50. that the hypothecation bond executed by the company was in contravention of the law that was in force on'' the date of the document, that the Plaintiff was not entitled to claim any relief on the basis of itand that the Plaintiff''s rights if any under the document were subject to his rights under the lease deed.
On the question whether the hypothecation bond was executed by Defendants 2 and 3 for and on behalf of Defendant l and whether they were competent to execute the same the finding of the Court below was in favour of the Plaintiff. It was held that the bond was executed by Defendants 2 and 3 for and on behalf of Defendant 1 company and that the Board of Directors of the company had authorised them to execute the bond.
But it was held that the execution of the hypo the action bond was in contravention of R. 94-B of!, the Defence of Travancore Rules as amended by Notification ROC No. 1131/42/Legis., dated 17-7-1944 and that therefore the contract embodied in the document was illegal and unenforceable'' in: law. It was also held that the charge created under the hypothecation bond was not registered as required by the Travancore Companies Act and that it could not therefore affect the rights of Defendant 5 under the lease deed (Ex. IV). The provision in Ex. A charging the future assets of the company was held to be valid.
Defendants 2 and 3 who had undertaken personal liability for the amount covered by Ex. A. were held to be personally liable for the same. The amount due to the Plaintiff as on 30-G-1U50 was found to be Rs. 23387-2-10. The Plaintiff was given a decree for this amount with interest at B per cent, per annum from 30-6-1950 to be realised from Defendants 2 and 3 who were also held liable for the costs of the suit. The suit was dismissed with costs as against Defendants 1 and 5.
The two points urged in the appeal are that the Court below went wrong in holding that the plaint hypothecation bond (Ex. A) contravened Rule 94B. of the Defence of Travancore Rules and that even if the Plaintiff is not entitled to get a. decree charged on the plaint schedule properties he is entitled to get a decree against Defendant 1 company.
The relevant provision of Rule 94B of the Defence of Travancore Rules as amended by Notification ROC No. 1131/42/Legis., dated 17-7-1944 is the following:
94B (1) For the purpose of this Rule, (a) security shall mean the following instrument issued or to be issued by or for the benefit of a company, viz., (i) shares, stocks and bonds, (ii) debentures, (iii) other instruments creating a charge or lien on the assets of the company, and (iv) instruments acknowledging loan to, or indebtedness of, the company and guaranteed by a third party or entered into jointly with a third party;
(b) a person shall be deemed to make an issue of capital who issues any securities whether for cash or otherwise.
(2) (a) No company, whether incorporated in Travancore or not shall, except with the consent of the Government, (i) make an issue of capital in Travancore;
(ii) make in Travancore any public offer of securities for sale;
(iii) renew or postpone the date of maturity or repayment of any security maturing for payment in Travancore.
(b) The Government may on application make an order according recognition to an issue of capital made or to be made outside Travancore by a company not incorporated in Travancore.
(3) The Government may qualify any consent or recognition accorded by it under Sub-rule (2) with such conditions whether for. immediate or future fulfillment, as it may think fit to impose, and where a company acts in pursuance of such consent or recognition, it shall comply with the terms of any condition so imposed.
Sub-rule (10) provides that if any person contravenes the provisions of the Rule he shall be punishable with imprisonment for a term which may-extend to five years or with fine or with both.
According to the. Appellant, the execution of the hypothecation bond, Ex. A, by Defendant 1 company does not amount to an issue of capital by," the company while according to the Respondents the hypothecation bond comes within the category of ''other instruments creating a charge or lien on the assets of the company'' and is therefore a security coming within the ambit of the Rule:
The question for decision is whether the execution of a hypothecation bond by a company in favour of a person charging the assets of the company amounts to an issue of capital within the meaning of R. 94B. According to sub-r. (b) of Rule 94B(1) a person shall be deemed to make an issue of capital "who issues any securities whether for cash or otherwise". Therefore if the execution of a hypothecation bond amounts to issuing of securities it will come within the ambit of the Rule.
So, the only question for consideration is whether the execution of the hypothecation bond (Ex. A) amounts to an issuing of securities as defined In sub-r. (l)(a) of R. 94B.
Two arguments were advanced by learned Counsel for the Appellant in support of his contention that the execution of a hypothecation bond by a company in favour of a person charging the assets of the company will not amount to issuing of securities. The first argument is that the ''execution'' of an instrument creating a charge is not the same as ''issuing'' an instrument creating a charge.
The second argument is that the ''other instruments'' mentioned in sub-Rule. (l)(a)(iii) must be ejusdem generis with ''shares, stocks and bonds'' mentioned in sub-r. (l)(a)(i) and debentures'' mentioned in sub-r. (l)(a)(ii).
The first argument is based on the meaning of the word ''issue'' as used in sub-rule. The word ''issue'' has got various meanings. We are only concerned with the meaning of the word as used in the sub-rule. There can be no doubt that-the word is used in the sub-rule as a mercantile term. The word ''issue'' is defined thus in Black''s Law Dictionary, Edn. 2, page 657;
Issue, v. To send forth to emit to promulgate as an officer issues orders, process issues from a Court. To put into circulation; as, the treasury issues notes
At page 658 the meaning of the word ''issue'' in ''business law'' (mercantile law) is given as follows:
A class or series of bonds, debentures, etc., comprising all that are emitted at one and the same time.
In Stroud''s Judicial Dictionary, Edn. 3, Vol. 2, page 1520, it is stated that the term ''to issue securities'' is a mercantile term. There can be no doubt that the expression ''issues any securities'' in R. B4B (l)(b) is used in the sense in which it is used in mercantile language. Quoting from Kent (Commentaries) Vol. I, page 462, Craies says thus in his book on ''Statute-Law Edn. 4, page 155:
If technical words are used in a statute they are to be taken in a technical sense unless it clearly appears from the context, or other parts of instrument that the words were intended to be applied differently from their ordinary or their legal acceptation.
It cannot be disputed that the word issued is used in Rule 94B 0) (a) in the same sense in the case of all the four categories of instruments mentioned in that sub-rule. Obviously it is not used in the sense of ''executed'' in the case of the first two categories of documents, viz., (i) shares, stocks and bonds; and (ii) debentures. It is used in the sense of ''put into the money market''. It must be in the same sense that the word is used in l-elation to the third and fourth categories of instruments mentioned in the Sub-rule. In Cox v. Hakes, (1890) 15 ACC 506 (A), Lord Herschell said:
It cannot, I think, be denied that for the purpose of construing any enactment, it is right to look, not only at the provision immediately under construction, but at any others found in connection with it which may throw light upon it, and afford an indication that general words employed in it were not intended to be applied without some limitation." - Craies on statute Law Edn. 4, pages 163-164
In the Indian Companies Act the word issue is used in many sections in relation to prospectus, shares and debentures (vide Sections 92, 93, 96, 97. 98, 101, 103, 104 and 105). But in no place is it used as denoting the execution of a simple hypothecation bond or mortgage by the company. The word used in Section 109 in relation to a mortgage or charge is created and not ''issued Every mortgage or charge created after the commencement of this Act............." We therefore hold that the word ''issued is not used in Rule 94B(l)(a) in relation to the third and fourth categories of instruments in the sense of executed'' or ''created'' but in the same sense in which it is used in relation to shares stocks, bonds and debentures.
The second argument is that the expression ''other instruments creating a charge or lien on the assets of the company'' used in Rule 94B(l)(a) should be confined to instruments of the kind mentioned in the preceding clause, viz., ''shares, stocks, bonds'' and ''debentures according to the rule of ejusdem generis.
The rule is that where there are general words] following particular and specific words the general words must be confined to things of the same kind as those specified. See Lord Campbell in R. v. Edmendson, (1859) 28 LJMC 213 (B). The rule is thus explained by Maxwell:
The general word which follows particular and specific words of the same nature as itself takes its meaning from them, and is presumed to be restricted to the same genus as those words.
(Maxwell on Interpretation of Statutes, Edn. 10, page 337).
In Attorney General v. Brown, (1920) 1 KB 773 (C). the words ''any other goods'' in Section 43, Customs Laws Consolidation Act, 1876, which provided that
the importation of arms, ammunition, gun powder or any other goods may be prohibited by Proclamation or Order-in-Council
were interpreted as relating only to goods of a like character or description as those specifically mentioned in the section and not to other goods of an entirely different description.
Similarly, in R. v. Portugal, (1886) 16 QBD 487 (D), the words ''other agent'' in Section 75, Larceny Act, 1861, which made it a misdemeanor for any ''banker, merchant, broker, attorney, or other agent'' to convert to his own use any valuable security entrusted to him for any spec the purpose, were interpreted as hot including an ordinary agent who might from time to time be entrusted with valuable securities but only persons whose occupation was similar to those specifically enumerated in the section. The expression ''other securities'' used in S. 12, Judgments Act, 1838 (1 and 2 Vict. c. 110) came up for interpretation In re Rollason, (1887) 34 Ch Dn 495 (E). North J. said:
When'' I say it is a security, do not think it is within 1 & 2 Vict. c. 110. Section 12, which, I think, means only securities ejusdem generis, as the securities particularly mentioned in the section. And I doubt whether the section can be held to apply to goods in pledge.
If this rule of interpretation is accepted the expression ''other instruments'' in R. 94B (l)(a) can apply only to instruments of the same kind as shares, stocks, bonds and debentures and not to ordinary hypothecation bonds or mortgages. It has also to be noted that the word used in Rule 94B (l)(b) is not ''security'' but ''securities''. "A person shall be deemed to make an issue of capital who issues any securities whether for cash or otherwise.
Rule 94B was made by Government under the rule-making power conferred on Government u/s 2(2)(xxii) of the Defence of Travancore Proclamation, 1115. under that section Government was empowered to make Rules
controlling the use or disposal of, or dealings in coin, bullion, securities or foreign exchange.
It cannot be said that the execution of a hypothecation bond or a mortgage deed will come Within the meaning of the expression ''use or disposal'' of ''securities'' mentioned in the Sub-section." If the execution of a hypothecation bond by the company in favour of a person will come within the purview of Rule 94B the Rule will be ultra vires of the powers of Government.
A reference to the Rules passed by the Government of India under the Capital Issues (Continuance of Control) Act, 29 of 1947 will also go to show that Section 3 of that Act which corresponds to Rule 94B(2) of the Defence of Travancore Rules is not intended to apply to the execution of ordinary mortgages or hypothecation deeds by a company.
The rules contain elaborate provisions relating to the particulars to be contained in the implications for the sanction of Government to issue of capital by a company. In the case of cash issues the company is not required to mention the names of the persons in whose favour the securities are issued. This will go to show that the provision is not intended to apply to the execution of ordinary hypothecation bonds or mort-gages by the company in favour of a person. Rule 9 relating to the particulars to be furnished regarding each issues provides:
Exact amount of shares, debentures and any other security which it is desired to issue at this stage for cash, distinguishing between ordinary,, preference, and Defendant shares and giving the-nominal value and issue price of each, and describing voting rights of each class of shares.
Premium and entrance fee to be included in. issue price. In the case of debentures, state clearly whether these are to be issued at par, premium. or discount and state period of redemption, state also if it is intended to raise any loan by hypothecation of the assets. If the shares are to be issued at a premium state reasons there for.
For existing companies whose shares are quoted on any stock exchange, state the rates at which-shares of the same class, as that proposed to be issued have recently been transferred, also state the-rate of dividend paid on the shares for the preceding five years.
It is clear from this that the expression ''other instruments used in the Rule denotes instruments of the same kind as shares, and debentures. It is also clear that the raising of a loan by the company by hypothecating its assets in favour of a person is distinct from issuing securities.
The object of Rule 94B seems to be to control dealings in securities by companies and thereby induce the public to invest their money in Government securities like War bonds, and thus help ordinary working of companies by restricting their power to raise money from a private party by executing a hypothecation bond or mortgage.
For the reasons given above we hold that the execution of the hypothecation bond, Ex. A, by Defendant 1 company does not amount to issuing of securities by the company within the meaning of R. 94B(l)(b) and to making an issue of capital'' under Rule 94B(2)(a)(i).
It follows that the contract evidenced by Ex. A is not an illegal contract and that it "is enforceable in law The Plaintiff is therefore entitled to get a decree charged on the assets of Defendant 1 company. In this view of the case it is not necessary to consider the effect of the repeal of the Defence of Travancore Proclamation in March 1950 so far as the plaint transaction is concerned.
It was also argued by learned Counsel for the Plaintiff that even if the charge created under Ex. A is unenforceable in law there is no reason why the Plaintiff should not be given a decree against Defendant 1 company.
Rule 94B only prohibits the issuing of instruments creating a charge or lien on the assets of the company. It does not prohibit the company from borrowing money without creating a charge or lien on its assets. Therefore illegality can, in any case, attach only to the creation of charge-on the assets of the company and not to the borrowing of money. One is separable from the other. Out of the sum of Rs. 15.000/- for which Ex. A was executed by the company Rs. 4401-4-0 was amount already due to the bank from the company.
The balance amount of Rs. 10,598-12-0 was paid by the bank as ready cash. Exhibit B resolution authorised the managing director to raise a loan not exceeding Rs. 25,000 for the purpose of completing the work of the factory of the company.
It was in pursuance of this resolution that Defendants 2 and 3 borrowed money from the bank by executing Ex. A.
There can therefore be no doubt that this is an amount which the company is bound to repay.
So long as Rule 94B did not prohibit the company from borrowing money there is no reason why the company should not be asked to repay the amount. It is well settled that in the case of a mortgage suit, the fact that the payment of the money is collaterally secured by the mortgage of property does not affect the personal liability of the mortgagor to repay the mortgage amount which is liability independent of the security under the mortgage.
In - ''Ramnarain Singh v. Adindranath AIR 1916 PC 119 (F) their Lordships of the Judicial Committee observed:
It must be borne in mind that a loan prima .facie involves such a personal liability, that such liability is not displaced by the mere fact that security is given for the repayment of the loan with interest, but that the nature and terms of such security may negative any personal liability on the part of the borrower.
there is nothing in Ex. A to show that the liability of the company was negatived under the terms of the document. This liability of the company is independent of the charge created under the document on the properties of the company, and even if the charge cannot be enforced by reason of the fact that it was created in violation of R. 94B there is no reason why the company''s liability to repay the amount borrowed should not be enforced and a decree given t0 the Plaintiff against the Co.
If there be in the same deed certain covenants which are against law, and others which are not, the deed, although void as to the former is good as to the rest, provided they are severable.
(Chitty on Contracts, 1955 Edn. page 4C9).
When a contract contains a number of promises some lawful, others unlawful, the orthodox view is that if it is impossible to sever the lawful from the unlawful promises, the contract is altogether void; but that if they are severable, then, whether the illegality is created by statute or by common law, the bad may be rejected and the .good retained.
(Cheshire and Foot on Law of contract, Edn. 3, page 318).
Where a contract comprises several promises some of which are legal and others illegal, and there is no illegality in the consideration, the promises which are in themselves legal are not contaminated by the illegality of the others and can toe enforced, unless the promises are inseparable from and dependent upon one another.
(Hals bury''s Laws of England, Edn. 3, Vol. 8, page 148).
As stated already, the obligation of the company to" repay the amount borrowed under Ex. A can-hot be said to be inseparable from the charge created under the document. It follows that, in any case, the Plaintiff is entitled to get a decree against Defendant 1 company. This question however loses its importance in view of our finding that there is no illegality attached to the charge created under Ex. A.
The further question for decision is whether the charge created under Ex. A will Sect the rights of Defendant 5 under the lease deed, Ex. IV, executed by the company in his favour on 16-8-1950.
under Section 142, Travancore Companies Act every mortgage or charge created on the immovable property of a company shall, so far as the security Is concerned, be void against any creditor of the company unless the particulars of the mortgage or charge are filed with the Registrar of Joint Stock Companies within 21 days alter the date of its creation.
It is admitted that the charge under the hypothecation (Ex. A) was not registered as required by Section 142 within the prescribed time. On 14-8-1950 the Plaintiff filed a petition in the District Court, of Kottayam u/s 154, Travancore Companies Act for extending the time for registering the hypothecation bond. Bur. that petition was not pressed by the Plaintiff and was therefore dismissed on 18-1-1951.
Although D. W. 1 swears that the charge was subsequently registered no record is produced in the case to show that it was registered and if so when. In the circumstances the charge create under Ex. A cannot affect the rights of Defendant 5 under Ex. IV.
In the result the Plaintiff is given a decree for Rs. 23387-2-10 with interest thereon at 9 per cent, per annum from 30-6-1950 charged on the plaint schedule properties subject to the rights of Defendant 5 under Ex. IV lease deed, and also against Defendants 1, 2 and 3, with costs in bath the Courts. Interest on costs at 6 per cent per annum. The Defendants will bear their respective costs in both the Courts. The judgment and decree of the Court below are modified and the appeal is allowed to the extent mentioned above.