1982 (12) TMI 150 - HC - Companies Law

Summary

Issues Involved
1. Amount due to the State Bank of Mysore from the company in liquidation.
2. Whether the amount due to the applicant-bank is secured by a mortgage by deposit of title deeds or by hypothecation or pledge of its movable properties.
3. Whether the applicant-bank has surrendered or relinquished its security at any stage of the winding-up proceedings.

Issue-Wise Detailed Analysis

1. Amount Due to the State Bank of Mysore from the Company in Liquidation

The bank claimed amounts under a medium-term loan and cash credit facility, which were secured by hypothecation and mortgage. The court examined the evidence provided by the bank, including promissory notes, deeds of hypothecation, and mortgage documents. The bank's claim included unpaid interest treated as principal, which the court found potentially usurious. The exact amount due was complicated by discrepancies in the valuation of the company's assets and the extent of land covered by the mortgage.

The court directed the official liquidator to pay a provisional sum of Rs. 50 lakhs to the bank and to adjudicate the exact amount due, considering the contractual rate of interest up to the filing of the winding-up petition and a statutory rate thereafter. The official liquidator was instructed to set apart the value of unsecured land and handle objections in the adjudication proceedings.

2. Security of the Amount Due: Mortgage by Deposit of Title Deeds or Hypothecation

The bank provided evidence of hypothecation of plant, machinery, and movables, and the creation of a mortgage by deposit of title deeds for immovable properties. The court accepted the bank's evidence, including documents and witness testimonies, confirming the bank's status as a secured creditor. The court overruled objections regarding the admissibility of certain documents, holding that the plant and machinery were not permanently embedded in the earth and thus constituted movable property.

The court also addressed objections that some documents were not title deeds but merely evidence of ownership. It ruled that any document showing evidence of title suffices to create a mortgage by deposit of title deeds. The court concluded that the bank had proved its security and status as a secured creditor.

3. Surrender or Relinquishment of Security by the Bank

The respondents contended that the bank had abandoned its security by participating in the winding-up proceedings and filing an affidavit of proof of debt. The court examined the bank's conduct and found no intentional relinquishment or abandonment of security. The bank consistently asserted its rights as a secured creditor and cooperated with the official liquidator to facilitate the sale of the company's assets, subject to receiving payment on a preferential basis.

The court cited several legal precedents supporting the bank's position, concluding that the bank had not waived, surrendered, or relinquished its security. The bank's participation in the winding-up proceedings was deemed to be in aid of the liquidation process without compromising its secured status.

Directions to the Official Liquidator

1. Pay Rs. 50 lakhs to the bank provisionally, subject to adjustments after proper calculations.
2. Adjudicate the exact amount due to the bank, considering the contractual and statutory interest rates.
3. Set apart the value of unsecured land and handle it separately from the secured assets.
4. Allow appeals on the issue of usurious interest if no agreement is reached.
5. Reserve the right to claim repayment of any excess amount found after adjudication.
6. Complete the adjudication within three months and address all objections in the proceedings.

Conclusion

The court allowed the bank's application, recognizing its secured creditor status and directing the official liquidator to make provisional payments and adjudicate the exact amount due. The bank's security was upheld, and the official liquidator was tasked with resolving any outstanding issues within a specified timeframe.