1984 (3) TMI 326 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the unregistered equitable mortgage under the Companies Act.
2. Applicability of Section 125 of the Companies Act to the unregistered charge.
3. Effect of the decree on the unregistered charge.
4. Constructive res judicata and the official liquidator's ability to contest the unregistered charge.
5. Rights of the decree-holder and the official liquidator.

Issue-wise Detailed Analysis:

1. Validity of the Unregistered Equitable Mortgage:
The company deposited the title deeds of "Kamani House" to create an equitable mortgage, which was not registered under the Companies Act. The trustees of the gratuity fund filed a suit for the realization of the security, resulting in a decree on admission on December 3, 1977. The decree acknowledged the mortgage and declared the amount due. However, the charge was not registered, raising questions about its validity under the Companies Act.

2. Applicability of Section 125 of the Companies Act:
Section 125 states that an unregistered charge is void against the liquidator and creditors. The decree was obtained before the winding-up order, but the charge remained unregistered. The court had to determine if Section 125 applied to a decree based on an unregistered charge. The court concluded that the unregistered charge is void ipso facto upon the winding-up of the company without the need for further steps by the official liquidator.

3. Effect of the Decree on the Unregistered Charge:
The decree declared the mortgage and set a redemption date. The court had to decide if the decree extinguished the unregistered charge or kept it alive. The court found that the decree kept the unregistered charge alive until the redemption date. Since the charge was unregistered, it was void against the official liquidator under Section 125. Therefore, the mortgagees could not execute the decree by selling the property.

4. Constructive Res Judicata and the Official Liquidator's Ability to Contest:
The mortgagees argued that the official liquidator could not contest the unregistered charge due to constructive res judicata, as the plea was not raised during the application for leave under Section 446. The court disagreed, stating that the rights or claims of the applicant are not adjudicated in Section 446 proceedings. Therefore, the principle of constructive res judicata did not apply, allowing the official liquidator to contest the unregistered charge.

5. Rights of the Decree-holder and the Official Liquidator:
The court examined whether the decree-holder's rights under the decree superseded the unregistered charge's invalidity. The court held that the unregistered charge remained void against the official liquidator despite the decree. Consequently, the decree-holder could not enforce the sale of the mortgaged property.

Conclusion:
The appeal was allowed, setting aside the impugned judgment and order. The plaintiffs were restrained from taking further steps to sell "Kamani House" in execution of the decree dated December 3, 1977. The court emphasized that the unregistered charge was void against the official liquidator, and the mortgagees could not execute the decree by selling the property.