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1998 (5) TMI 342 - SC - Companies LawWhether the unregistered charge created by the mortgagor was kept alive or extinguished or replaced by an order of sale created by the decree; if upon a construction of the decree the Court found that the unregistered charge was kept alive? Held that - Appeal allowed. On the construction of the decree as already held that the charge was kept alive till 28-8-1982 and thereafter in default of payment of decree amount the sale order would take effect. In this case admittedly the decree amount was not paid before 28-8-1982 as such the matter had passed from the domain of contract to the realm of the judgment. The official liquidator filed application on 21-3-1983 seeking to declare the decree as void. By that date what was operative in the decree was not a mere unregistered charge but an order for sale of mortgaged property for realisation of decree amount. The preliminary decree cannot therefore be said to be void and inoperative. Thus the Division Bench ought not to have held that the preliminary decree passed by the Competent Court on 25-5-1980 was void and un-enforceable and accordingly we set aside the order under appeal dated 29-1-1986 by allowing the appeal with costs.
Issues Involved:
1. Validity of the charge created by the company in liquidation in favor of the Indian Bank. 2. Applicability of Section 125 of the Companies Act, 1956, to the preliminary decree. 3. The effect of the preliminary decree on the rights of the Official Liquidator and creditors. 4. The principle of res judicata in the context of the preliminary decree. 5. The jurisdiction of the Company Court under Section 446 of the Companies Act, 1956. Issue-wise Detailed Analysis: 1. Validity of the Charge Created by the Company in Liquidation in Favor of the Indian Bank: The Official Liquidator filed an application seeking a declaration that the charge created by the company in liquidation in favor of the Indian Bank was void due to non-registration under Section 125 of the Companies Act, 1956. The Division Bench held that the charge was void under Section 125 and not enforceable against the Official Liquidator and the creditors of the company. 2. Applicability of Section 125 of the Companies Act, 1956, to the Preliminary Decree: Section 125 mandates that every charge created by a company must be registered with the Registrar of Companies within thirty days of its creation, failing which the charge is void against the liquidator and any creditor of the company. The Court held that Section 125 applies to every charge created by the company after April 1, 1914. However, it does not apply to charges created by operation of law or by an order or decree of the Court. 3. The Effect of the Preliminary Decree on the Rights of the Official Liquidator and Creditors: The preliminary decree passed by the Court on May 28, 1982, in favor of the Indian Bank, allowed the bank to realize the decreed amount by selling the company's property if the amount was not deposited by August 28, 1982. The Official Liquidator did not appeal against this decree, which attained finality. The Court held that the preliminary decree had moved the matter from the domain of contract to that of judgment, and the rights of the parties were governed by the decree. 4. The Principle of Res Judicata in the Context of the Preliminary Decree: The bank argued that the decree had become final and operated as res judicata, preventing the Official Liquidator from challenging it. However, the Division Bench held that the preliminary decree did not operate as res judicata because the charge was void under Section 125. The Supreme Court, however, noted that the preliminary decree should be binding on the Official Liquidator, as no appeal was filed against it. 5. The Jurisdiction of the Company Court under Section 446 of the Companies Act, 1956: Section 446 empowers the Company Court to entertain or dispose of any suit or proceeding by or against the company, any claim made by or against the company, any application under Section 391, and any question of priorities or other questions arising in the course of winding up. The Court clarified that Section 446 does not confer the power to declare a decree of a competent court void. The Official Liquidator's application to declare the decree void was therefore not maintainable. Conclusion: The Supreme Court held that the Division Bench erred in declaring the preliminary decree void and unenforceable. The preliminary decree had attained finality and was binding on the Official Liquidator. The appeal was allowed, and the order of the Division Bench dated January 29, 1986, was set aside.
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