Decided on November 12,1970



- (1.) THE application taken out by the official liquidator, who is in charge of the properties, assets, etc. , of Messrs. Gannon Dunkerely and co. Ltd. , which is in liquidator, relates to a mortgage executed by the company in favour of Messrs. Bharatpur Princesses'Trust, Mysore, the first respondent herein (who may be hereafter referred for the sake of brevity as "mortgages" ). THE company had put up an incomplete construction in premises No. 19, Cathedral Road , Madras. For the purpose of completing the construction, the company, by a resolution dated 4th September, 1961, decided to borrow a sum of Rs. 3, 50, 000 from the mortgagees. Accordingly, a mortgage was executed on 19th April, 1962, stipulating certain terms which will be adverted to in greater detail presently. THE rate of interest stipulated was 8 per cent. THE sum of Rs. 3, 50, 000 was agreed to be paid in instalments. Rs. 75, 000 was agreed to be paid after the execution and registration of the document. THE balance was agreed to be paid in six monthly instalements, each to be made on the production of a certificate of an architect certifying that the works valued at more than 50% had been carried out during the month immediately preceding the date of the certificate. THE principles was agreed to be paid on or before 31st March, 1965, that is, a period of three years was fixed for payment. THE mortgagees were given the right of bring be property to sale out of court under section 69 of the Transfer of property Act. It is not dispute that all the instalements payable under the terms of the agreement were duly paid by the mortgagees.
(2.) THE company committed breach of the stipulation made in the document regarding payment of the principles money. But the company and the mortgagees entered into an agreement, by which the company agreed to pay 9 1/2 % interest per annum form April 1, 1965, and to execute a supplemental mortgage deed duly registered embodying this term. THE mortgagees, for their part, agreed to extend the time for repayment of the loan by another period of three years. Though no such document was executed, interest was paid at the enhanced rate from April 1, 1965. This modification as regards the rate of interest was not filed with the Registrar of Companies. In December, 1969, the advocate for the mortgagees called upon the official liquidator to pay the principle amount the interest. This demand not having been complied with, the mortgagees instructed the auctioneers'the second respondent, to bring the property to sale by virtue of the power given to them under section 69 of the Transfer of property Act. In the notice published by the auctioneers it was described that the property proposed to be sold consisted of land and building including electric and sanitary fitting, fixtures, etc. THEre are wooden partitions in the building. Besides, there are motor-car shed and another hut called Missen hut, the roof of which is galvanised iron sheet put in a arch fashion. THEre are also lights and fans and other fittings. After coming to know about the proposed auction, the official liquidator took out this application praying for the following reliefs : (i) Restraining Messrs. Murray and Co. , the auctioneers, from conducting the public auction proposed to be held on September 27, 1970, of land and building at No. 19, Cathedral Road , Madras -6. (ii) Issuing suitable directions to exclude the assets, viz. , 1. Wooden partitions in the building; 2. motor pumpset together with its accessories; 3. Missen hut; 4. motor-car shed; 5. lights and fans with fitting, other than permanent fittings, from the mortgaged property. (iii) Directing the mortgagees to amend the Tamil Version of the auction notice so as to be in conformity with the schedule of property mentioned in the mortgage deed. (iv) That the mortgagees are not entitled to the enhanced rate of interest of 9 1/2 % from April 1, 1965, as no agreement was property executed and registered both under the Indian Registration Act, 1908, and the companies Act, 1956, for the enhanced rate and directing that the interest at the enhanced rate already paid should be adjusted toward that amount due from the company. THE contention of the official liquidator is that the wooden partitions, Missen hut, motor-car shed, etc. , do not form part of the hypotheca and should, therefore, be excluded. His further contention is that as no agreement regarding the enhanced rate of interest from 8% to 9 1/2 % was executed and registered under the Indian Registration Act and under the companies Act, the mortgagees should be directed to adjust the excess payment of interest towards the amount due under the document calculating interest only at 8%. THE mortgagees oppose this application contending that, under the terms of the mortgage deed, they are entitled to bring to sale the entire building including improvements, accessions and accretions, that what has been paid by way of enhanced interest was in consideration of the mortgagees agreeing to give extension of time for repayment of the mortgage amount, that though the subsequent agreement was not registered, payments made by the company have been duly appropriate in terms of the agreement and that, as such, what had been appropriated is not liable to be reopened. Two questions arise for determination and they are : 1. Are the mortgagees liable to adjust the excess payment of interest at 9 1/2 % per annum towards the mortgage amount by calculating interest at 8 % per annum as stipulated in the mortgage deed " and 2. Whether wooden partitions, motor pump-set, Missen hut, motor-car shed and lights and fans other than permanent fitting are to be excluded from the property to be sold for the realisation of the mortgage amount. The facts are not in dispute. Under the terms of the mortgage deed, the principles amount became payable by 31st March, 1965. The mortgage amount was not paid as per the aforesaid stipulation. The mortgagor company wanted a further period of three years for payment of the principles amount. The mortgagees agreed to that request subject to the mortgagor company paying the enhanced interest at 9 1/2 % per annum as against 8% stipulated in the mortgage deed. This was agreed to by the mortgagor company. Both the mortgagor company and the mortgagees further stipulated that a duly registered mortgage deed embodying the aforesaid agreement should be executed. But such a document could not be executed, as one of the trustees by name, V. P. Menon, passed away and for some reason or other the document could not be executed even subsequently. But nevertheless the mortgagor company paid interest at 9 1/2% and the same was appropriate by the mortgagees. It is not is dispute that the agreement by which the rate of interest was raised from 8 to 9 1 per cent. per annum was required to be reduced to a form of instrument and such an instrument was required to be registered so as to give effect to the agreement so that the mortgagees could proceed against the hypotheca for the realisation of the amount due as per the agreement. Inasmuch as such a document has not been executed and registered, the mortgagees are now content to receive interest only 8% per annum. As a matter of fact, that is the basis upon which the amount was mentioned by the mortgagee's advocate in making a demand upon the official liquidator for payment of the amount. The point in controversy is about the amount that has been already paid and appropriated. The contention of the official liquidator is that, inasmuch as the agreement was not registered, the transaction it void ab initio so far as he and the other creditors of the company in liquidation are concerned. In support of this argument, he relied upon section 125 of the Companies Act. According to this every charge created on or after 1st of April, 1914, by a company and being a charge to which that section applies shall, so far as any security on the company's property or undertaking is conferred thereby, be void against the liquidator and any creditor of the company, unless the prescribed particulars of the charge, together with the instrument, if any, by which the charge is created or evidence, or a copy thereof verified in the prescribed manner, are filed with the Registrar for registration in the manner required by the Act within the time specified. Inasmuch as no document was executed, much less registered, this requirement has not been complied with in the instant case. The argument of the official liquidator is that the charge is not only void so far as the future is concerned but is void from the inception. His argument is that on that basis what has been paid under the void transaction is liable to be adjusted by reopening the transaction. I am unable to accept this argument. The language of section 125 does not give room for the argument that the charge that does not satisfy the requirements of section 125 is void for all purposes. The language is clear in showing that it is void as against the liquidator and any creditor and any creditor of the company. That means, it cannot be contended that it is void from the inception. That question arose in Tyagarajan v. Official Liquidator whether, as in the instant case, in unregistered charge is void even as against the company. A Bench of this court held that section 125 of the Companies Act rendered unregistered charges created by a company void against the liquidator and the creditors of the company, that such an unregistered charge was not void for all purposes, and that such an agreement would be binding on the company itself so long as it was a going concern. In the instant case, the company paid interest at the enhanced rate of 9 1/2 % per annum after getting an extension of time for payment of the principal money. There was adequate consideration for this payment of the enhanced rate of interest. On the part of the mortgagees there was consideration for granting an extension of time for payment of the principles money having regard to the fact that the mortgagor company agreed to pay the enhanced interests. As I have already pointed out, the parties expressly stipulated that a document should be duly executed and registered, and only in pursuance of this agreement, the mortgagor company made payment of interest at the enhanced rate and the same was duly appropriated. If the company had not gone into liquidation, it would have been open to the mortgagees to sue the mortgagor company for the execution of a document by means of a suit for specific performance. It would not have been open to the company to resist that claim on the mere plea that the charge was not registered and that section 125 of the Companies Act was not complied with. The learned official liquidator conceded this position. But, he, however, said that different considerations would arise on account of the supervening liquidation. I am unable to find any point of distinction on account of the fact that the company had now since gone into liquidation. All the payments made at the enhanced rate of interest were prior to the liquidation of the company. When these payments were made, they were made in pursuance of a lawful agreement. This is not a case f payment made under a mistake or under circumstances such as fraud, misrepresentation or coercion which would not doubt invalidate the transaction. The parties were ad idem when such payment were made and, therefore, I am unable to accept the contention that the official liquidator is entitled to ignore the transaction and ask the mortgagees to reopen the payment already made and make a fresh appropriation by calculating interest at 8% as per the terms of the mortgage deed by giving credit to the excess payment toward the amount that may be due by such calculation. In this view, I hold that the official liquidator is not entitled to ask for readjustment of the excess payment of interest at 9% per annum. In asking for the exclusion of certain items from the property to be sold for he realisation of the mortgage amount, the official liquidator contends that those items cannot be called immovable property within the meaning of the Transfer of Property Act and that, therefore, such items should be excluded. Immovable property is defined in section 3 of the General Clauses Act, 1897, as including land, benefits to arise out of land and things attached to the earth. Section 3 of the Transfer of Property Act excludes from immovable property standing timber, growing crops or grass. The terms "attached to the earth" is defined as (a) rooted in the earth, (b) imbedded in the earth or (c) attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached. In narayan Sa v. Balaguruswami Nadar, the question arose whether pipes, stills and vats in a distillery building would come within the scope of section 8 of the transfer of Property Act. It was held that in the case of sale of house the primary consideration in determining whether certain items claimed as fixtures under section 8 of the Transfer of Property Act is whether the articles are provided for the permanent use of the house and whether they are articles which are necessary or which are provided for the more beneficial enjoyment of the property, and that the term "fixtures" does not include machinery brought into the house for the purpose of carrying on business. In Perumal naicker v. Ramaswami Kone, the question considered was whether an engine mounted on a cement and fastened to it by nuts and bolts is immovable property within the meaning of section 3 of the Transfer of Property Act. It was held that it was not because an engine cannot be used expect by fixing it to the earth and that, therefore, it cannot be said that the intention, as disclosed by the fixtures, was to make it a permanent part of the earth and so it was immovable property. The question whether anything imbedded to the earth or attached to the earth is for the permanent beneficial enjoyment of that to which it is attached or not is one that has got to be decided according to the circumstances of each case. Regard must be had to the nature of the attachment by which the property is fastened to the ground and also to the circumstances in which it came to be fixed, the title of the person fixing it in the immovable property and the object for which it is fixed, That principle, which was laid down by Wadsworth j. in Subramanian Firm v. Chidambaram Servai was followed by a Bench of this court in Mohammed Ibrahim v. Northern Circars Fibre Trading. In the light of the foregoing principles the point raised by the official liquidator should be examined. According to him, the wooden partitions are only movable property as not having been permanently fixed to the building. It is also his contention that the car-shed and a hut called missen hut cannot be said to have been permanently put up for the beneficial enjoyment of the property. To disprove this claim, the mortgagees produced a number of photographs taken of the relevant portions of the building showing the shed, partition walls and the motor shed consisting of corrugated sheets resting on cement posts which are fixed to the earth. At one end of the shed is a room enclosed by walls with a door and window. On one side it is open for ingress and egress for cars and the other side is closed by a wall. The rafters are embedded on the wall and upon the rafters rests the roof. The Missen hut consists of a curve shaped roof made up of corrugated iron sheets. The roof rests on a small wall on either side in which is embedded a wooden rafter to which the roof is nailed. The small wall is intended to prevent rain water splashing into the shed. The wooden partitions inside the rooms rest on walls up to a particular height. Above them are also walls. There is the wooden frame fixed in between the walls up and down. It is not liable to be removed and it is not intended to be removed. Thus, having regard to the nature of these constructions, I do not think that they are temporary constructions not intended for the beneficial enjoyment of the main building. In this connection, it may also be noted that there is no other car-shed except the shed in question for the main building. As already pointed out, at the time when the mortgage deed was executed, the construction was incomplete and the amount itself was borrowed only for the purpose of completing the construction, which was agreed to be paid in instalments on the production of the certificate of the architect. The parties have taken care to incorporate necessary recitals to include future constructions also so as to constitute a hypotheca. The following are the relevant portions in the mortgage deed which bear out that fact : "whereas pursuant to the above resolution, the mortgagors approached the mortgagees for a loan of Rs. 3, 50, 000 only offering as security the land and the unfinished superstructure thereon and accession thereto in the form of further additions to the existing unfinished superstructure, etc. , and more particularly described in the Schedule hereunder. . . . . . The mortgagors do hereby grant, convey, confirm and transfer by way of a simple mortgage all that piece or parcel of land bearing no. 1/12, St. George's Cathedral Road, Madras-6, together with the unfinished superstructure thereon and all the accession by way of future constructions, more particularly described in the schedule hereunder together with all additions, improvements and accessions thereto and to the land, to have and to hold the same unto the mortgagees on terms and conditions hereinafter set forth. " * In my view, the foregoing passages in the mortgage deed furnish effective answer to the claim of the official liquidator. It is not merely accretions and additions to the superstructure that would constitute the hypotheca, but ball improvements to the building and to the land also would constitute the hypotheca. Even if any improvement is of a temporary nature, it would undoubtedly be an improvement so as to make it a part of the hypotheca. The intention of the parties in making such a clear and unambiguous stipulation was on account of the fact that at the time of the execution of the mortgage there was only an unfinished superstructure and the parties could not have comprehended what additions and improvements were going to be made to the incomplete superstructure, for the completion of which a sum of Rs. 3, 50, 000 was borrowed. As I have already pointed out, the nature of the constructions which the official liquidator wants to be excluded from the hypotheca cannot be said to be temporary, but are definitely additions, improvements and accessions falling squarely within the terms of the mortgage deed. These items cannot, therefore, be excluded from the hypotheca to be sold for the purpose of realising the mortgage amount. In the result, the application fails and is dismissed. There will be no order as to costs.;

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