1991 (12) TMI 223 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the charge deed under Section 125 of the Companies Act, 1956.
2. Applicability of Sections 531 and 531A of the Companies Act, 1956.
3. Burden of proof regarding the validity of the transaction.
4. Errors of law and procedure by the trial court.

Detailed Analysis:

1. Validity of the Charge Deed under Section 125 of the Companies Act, 1956:
The official liquidator sought to declare that the respondent was not entitled to rights under a deed of hypothecation dated July 26, 1973, registered for Rs. 1,40,000 with interest. The deed was presented for registration on August 14, 1973, and registered on March 27, 1974. The winding-up application was presented on March 19, 1974, and the order was made on August 22, 1975. The trial judge found that the presentation of Form No. 8 was defective and re-presented after February 13, 1974, thus violating Section 125 of the Act. The court held that the registration after the winding-up proceeding began rendered the document void against the applicant according to Section 125.

2. Applicability of Sections 531 and 531A of the Companies Act, 1956:
The trial judge considered Sections 531 and 531A, concluding that the transaction was not in the ordinary course of business, lacked good faith, and did not create valuable rights for the creditor. Section 531 was not applicable as the charge was created and presented for registration beyond six months before the winding-up petition. Section 531A could void the charge if it was not in the ordinary course of business or lacked good faith and valuable consideration within one year before the winding-up petition. The trial judge found a close relationship between the creditor and the managing director (husband and wife), which influenced the judgment.

3. Burden of Proof Regarding the Validity of the Transaction:
The trial court shifted the burden of proof onto the creditor, which was deemed incorrect. The initial burden to prove that the transaction was not in the ordinary course of business or lacked good faith lies with the party denying the charge. Sections 91 and 92 of the Evidence Act would make the document itself proof of the disposition unless the initial burden is discharged.

4. Errors of Law and Procedure by the Trial Court:
The appellate court identified two significant errors:
- Misinterpretation of the effect of the certificate of registration under Section 132, which states that it is conclusive evidence of compliance with registration requirements.
- Incorrect shifting of the burden of proof onto the creditor, which should initially lie with the party denying the charge.

Conclusion:
The appellate court found that the trial court's judgment was unsustainable due to errors in law and procedure. The case was remitted to the trial court for fresh hearing and disposal in accordance with the law. The appeals were allowed, and the impugned orders were set aside. No order as to costs was made, but a consolidated hearing fee of Rs. 5,000 was awarded to the counsel for the official liquidator.