Decided on January 22,1963


Referred Judgements :-



- (1.)Defendants 3 to 5 are the appellants. The suit was for recovery of the amount due from defendants 1 and 2 by sale of the plaint schedule properties, and for directing defendants 3 to 5 to deposit Rs. 40,000/- or such other sum as may be found to have been realised by them by sale of the movables scheduled in the plaint. Plaintiff is a public limited company having its registered office at Calicut. It went into voluntary liquidation on 13-7-1952, and Sri S. Paramasivan was appointed as liquidator and he has filed the suit on behalf of the company. The 1st defendant in the case is a private company registered under the Indian Companies Act having its registered office in Calicut. 2nd defendant is the Managing Director thereof. The 1st defendant borrowed from the plaintiff money as per hundies dated 13-6-1952, 20-6-1952 & 1-7-1952 aggregating to a total of Rs. 55,000/-. There after the 1st defendant requested the plaintiff for further accommodation by way of loan for a sum of Rs. 50,000/-. The plaintiff company evinced its reluctance to advance any further amount unless the 1st defendant was prepared to give sufficient security for the same. The 1st defendant agreed to the proposal of the plaintiff for giving security. The securities so agreed to be given were a promissory note by the 2nd defendant on behalf of the 1st defendant for Rs. 35,000/- and a hundi for Rs. 15,000/- by the 1st defendant as also by the 2nd defendant in his personal capacity. Besides this the 1st defendant also agreed to pledge the shares held by it in the Premier Hosiery Works Ltd., by executing transfer forms as collateral security for the entire amount due to the plaintiff company inclusive of the subsisting debt of Rs. 55,000/-. It was also agreed that the 2nd defendant would give by way of equitable mortgage the title deeds relating to certain immovable properties belonging to him and would also pledge to the plaintiff the shares owned by him in the 1st defendant company as well as in Premier Hosiery Works Ltd. Over and above this, the 1st defendant also agreed to hypothecate all the movable properties including plants, machinery, looms, furniture, fittings etc. as security for the loan. This offer was accepted and the plaintiff company agreed to make a further advance of Rs. 50,000/-. The 1st defendant company accordingly pledged with the plaintiff the shares owned by it in Premier Hosiery Works Ltd., on 2-7-1952. The C schedule in the plaint consists of shares held by the 1st defendant in the Premier Hosiery Works Ltd. The 1st defendant executed a hypothecation bond in respect of the movables belonging to it on 25-7-1952. The movables constitute B schedule items in the plaint. The hypothecation bond was registered with the Assistant Registrar of Joint Stock Companies under the provisions of the Indian Companies Act. In addition to the above securities the 2nd defendant deposited with the plaintiff title deeds relating to one item of immovable property belonging to him and this is included in the A schedule in the plaint. He also deposited the title deed of another property situate in Madras with the plaintiff by way of equitable mortgage. The 2nd defendant also pledged with the plaintiff the shares owned by him in the 1st defendant company & in the Premier Hosiery Works & these are shown in the D schedule in the plaint. On the strength of these securities the plaintiff advanced Rs. 50,000/- to the 1st defendant on 2-7-1952. This suit was instituted by the plaintiff claiming to recover an amount of Rs. 58,645/- and interest from defendants 1 and 2. In the plaint there was a prayer to sell A, B, C and D schedule items and for recovery from the sale proceeds of the amount claimed. It is not necessary for us to state the other details mentioned in the plaint for the purpose of deciding this appeal.
(2.)Defendants 3 to 5 were impleaded by I. A. No. 201957 and the reason why they were impleaded was that the Collector of Malabar had attached the B Schedule movables & had sold them and credited the proceeds to the account of the 1st defendant for amount due from it by way of arrears of provident fund contribution. The plaintiff challenged the right of the Collector of Malabar to attach and sell these movable properties. The third defendant is the Union of India represented by the Secretary, Ministry of Labour, New Delhi, the 4th defendant is the State of Kerala, represented by the Collector of Kozhikode, and the 5th defendant is the Regional Provident Fund Commissioner, Kerala State, Trivandrum. It was at the instance of the 5th defendant that the Collector of Malabar attached the movables and sold them. The plaintiff had intimated the Collector of Malabar as per letter dated 22-7-1954 that it was entitled to recover the amount due to it in priority as the movables were hypothecated to it. The plaintiff had also intimated the Regional Provident Fund Commissioner at Madras, about its priority. The Collector of Malabar sent a communication to the plaintiff on 27-7-1954 stating that the said movables had been attached for recovery of the amount due by way of arrears of provident fund contribution payable by the 1st defendant under S.11 of the Employees Provident Funds Act 1952 and claimed that the amount so due was a first charge. The plaintiff company on receipt of this communication sent a further letter to the Collector of Malabar on 7-8-1954 pointing out that S.11 had no application to the facts of the case and stating that the plaintiff company was a secured creditor of the 1st defendant so far as the movables were concerned and that it was entitled to priority. This claim of the plaintiff was rejected by the Collector of Malabar and also by the Regional Provident Fund Commissioner, Madras. A notice was, therefore, issued by the plaintiff on 1-9-1955 both to the Collector and the Central Government intimating that the plaintiff will be constrained to file a suit to enforce its claim. In the meanwhile the movables attached were sold and an amount of Rs. 40,000/- was realised. The claim of the Collector of Malabar and the Regional Provident Fund Commissioner, that there was a first charge on the movables for the amount due from the 1st defendant under S.11 was subsequently abandoned. The plaintiff therefore claimed that the Regional Provident Fund Commissioner was not entitled to any priority and claimed to recover the sale proceeds from the Collector of Malabar and the Regional Provident Fund Commissioner of Madras. As the Regional Provident Fund Commissioner was an officer of the Union of India acting under the direct control of the Union of India; the Union Government was also sought to be made liable for the claim of the plaintiff. After having issued notice under S.80 of the Civil Procedure Code to the Union of India, the Provident Fund Commissioner, the Collector of Malabar, and to the State of Madras, the suit was amended by impleading these supplemental defendants.
(3.)The main contentions put forward by defendants 3 to 5 were that the suit was bad for mis joinder, that there was no cause of action for the plaintiff against these defendants, that there was collusion between the plaintiff and defendants 1 and 2 to defeat the claim of defendants 3 to 5 for arrears of provident fund contribution and that it was with an idea to defeat their claim that the hypothecation dated 25-7-1952 was executed by the 1st defendant charging all the movables belonging to it. They also impeached the validity of the agreement entered into by the 2nd defendant on behalf of the 1st defendant on the ground that the 2nd defendant had no authority to enter into the agreement. They further contended that the plaintiff could not get any right over the movables as the claim of the State was paramount, that the movables included in B schedule were not identical with the movables included in the hypothecation bond dated 25-7-1952, that the plaintiff was not entitled to a first charge, that the attachment and sale were under the orders of the 4th defendant on the request of the 5th defendant for the realisation of the amount due to the 3rd defendant as arrears of provident fund contribution payable by the 1st defendant company, and that they were valid and binding on the plaintiff. They also claimed priority for the amount as it is due by way of provident fund contribution.

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