TANSUKHRAI M KARUNDIA Vs. OFFICIAL LIQUIDATOR ANDHRA PAPER MILLS CO LTD

JUDGEMENT

(1.) This is an application to vary the order of the Official Liquidator of the Andhra Paper Mills Co. Ltd. (in liquidation) disallowing the claim of the applicant to have a charge over the movable assets of the company for a sum of Rs. 1,01,172-15-2. The liquidator admitted that the amount claimed was due, but he disallowed the claim to rank as secured creditor on the ground that the document creating the security was not registered with the Assistant Registrar of Joint Stock Companies, Cocanada, as required by Section 109 of the Indian Companies Act. This order further states that in any event, the amount of Rs. 34,000 included in the claim representing payment made on 15th July 1947 to Messrs. Natwarlal Shamaldas and Co., cannot be treated as a secured debt. No grounds for the same are however mentioned in the order.

(2.) The applicant Tansukhrai M. Karundia claims to have advanced the aforesaid sums in circumstances set out below. The Andhra Paper Mills would appear to have issued debentures to the extent of eleven lakhs. By about 1945 interest on the same had accumulated to another six lakhs. The company having made default in payment under the terms of the debenture document, the debenture trustees had taken possession, but they were themselves unable to work the concern. They seem to have delivered over the premises again to the Mills on certain conditions, which were not fulfilled and the trustees again entered into possession of the debenture premises on the 14th February 1947. Certain proposals would appear to have been made by the trustees to the Board of Directors as to the terms upon which moneys could be borrowed for running the concern and at the suggestion of the trustees the company had agreed to execute deeds giving a lien or charge to any person who might be found by the debenture trustees to be willing to advance funds. A resolution to this effect was passed on 10th March 1947 (Ex. P. 1) and on the same day a draft agreement between the company and the company's banker and treasurer was also approved by them (Ex. P. 2). In pursuance of the draft so approved, Ex. P. 3 was executed on the 21st March 1947 between the company and the applicant, therein referred to as the treasurer. It is under this document that the applicant claims to have advanced moneys from time to time to the company and now claims to have a security over the properties mentioned in the document for the balance of the amounts due to him. In view of the contentions urged regarding the invalidity of the document, as against the liquidator, it is necessary to set out its main terms, which are as follows :

(3.) The question for decision is whether the document, Ex. P. 3, is void against the liquidator for the reason that it has not been registered with the Assistant Registrar of Joint Stock Companies as required by Section 109. The applicant's advocate contends that this document created a pledge on the movable properties of the company and does not require registration under Section 109 (1) (c). Although the order of the Official Liquidator does not refer to any particular clause of Section 109, in the counter affidavit filed by him in this application, it is stated that the document requires registration, as the applicant claims a charge on the stock-in-trade of the company. The learned advocate for the applicant conceded that a pledge on stock-in-trade would require registration, but he submitted that he was willing to give up his claim for security over stock-in-trade and was content with a declaration that he is entitled to have his security over all the properties covered by the document, Ex. P. 3, other than stock-in-trade. In the argument before me however, the advocate for the liquidator took a different line and contended that the entire document is void against the liquidator for the reason that it amounted to creating a floating charge and hence required registration under Clause (f). He relied on the decision of the Judicial Committee in 'Imperial Bank of India v. Bengal National Bank', 59 Cal 377 and that of the High Court of Allahabad in 'Babu Nandan Lal v. Parsottam Sahu', ILR (1942) A11119. As pointed out by Buckley L. J. in 'Evans v. Rival Granite Quarries Ltd.', (1910) 2 K B 979 at page 999, a floating security is not a specific security; it is only one which affects the assets included in it, which are mortgaged in such a way that the mortgagor can deal with them without the concurrence of the mortgagee. "A floating security is not a specific mortgage of the assets, plus a license to the mortgagor to dispose of them in the course of his business, but is a floating mortgage applying to every item comprised in the security but not specifically affecting any item until some event occurs or some act on the part of the mortgagee is done which causes it to crystallise into a fixed security." In the present case it will be noted that the applicant was given possession of the items pledged to him. As and when other movable properties come into his possession, they also stand pledged to him. The security itself is expressly stated to be a continuing one. On default of payment when demanded; he is given the right to have the properties in his possession sold by public or private auction and apply the net proceeds in liquidation of the amounts due to him. No doubt, the company is allowed to run its business, but it is only run by him as an agent under an irrevocable power-of-attorney. This scheme was devised apparently to ensure his possession of the properties delivered to him and also his continued possession of all the movable properties covered by the document. These characteristic features are sufficient to negative the contention that this is a mere floating charge coming under Clause (f) of Section 109. As pointed out by Rankin C. J. in 'Jones & Co. v. Ranjit Roy', 54 Cal 513, the element of possession, which is contemplated by the deed and which was actually given, is an important factor, which stands in the way of the document being regarded as creating a purely equitable charge of a character coming fairly within the description of a floating charge. The decision in 'Bank of Baroda v. Shivdasani', 50 Bom 547 is also in point. In the present case, the possession of the movable properties should be taken to be with the applicant in his capacity as pledgee and not merely and solely as an agent of the company. I am of opinion, therefore, that Clause (f) is not applicable and that the document does not require registration, as a floating charge.