1968 (8) TMI 201 - HC - Indian Laws

Summary

Issues Involved:
1. Competence of the liquidator's application.
2. Bank's entitlement to sell properties without court intervention.
3. Bank's right to retain possession of the properties.
4. Validity of the mortgages and hypothecations in light of Section 293 of the Companies Act.

Detailed Analysis:

1. Competence of the Liquidator's Application:
The bank argued that the liquidator should have filed a regular suit instead of an application and that the court fee should be paid as for a suit. The court distinguished this case from the cited ruling in *Official Liquidator v. Muniswamy Achary*, noting that the liquidator was not suing to recover any debt or property but was acting to take possession of the company's properties, which were already deemed to be in the custody of the court by virtue of the winding-up order. The court held that the liquidator is not obliged to file a suit and that the proper proceeding is an application to the winding-up court, with the court fee payable as for an application under Article 11(u) of Schedule II of the Mysore Court-fees and Suits Valuation Act, 1957. This objection was overruled.

2. Bank's Entitlement to Sell Properties Without Court Intervention:
The court examined the terms of the mortgage and hypothecation deeds, particularly focusing on Exhibit R-8 and Exhibit R-15. It was established that the deeds created a hypothecation of movables with the power to convert it into a pledge by taking possession of the hypothecated movables under certain conditions. The court found that the bank, as a secured creditor, had the right to take possession and sell the goods without court intervention, provided the sale was conducted in accordance with the relevant provisions of the Transfer of Property Act and the Contract Act. For immovable properties, the court confirmed that the mortgage deeds were English mortgages, which allowed the bank to sell the properties without court intervention. The bank's right to possession was also upheld as it was an English mortgage, which included the right to immediate possession.

3. Bank's Right to Retain Possession of the Properties:
The court held that the bank was entitled to retain possession of both immovable and movable properties for the purpose of exercising its right of private sale. The bank's right to possession of immovable properties was confirmed as part of the English mortgage, which allowed for immediate possession. For movable properties, the bank's right to retain possession and sell the goods was upheld based on the terms of the hypothecation deeds. However, the bank was directed to deliver all articles of furniture, which were not part of the hypothecated properties, to the official liquidator.

4. Validity of the Mortgages and Hypothecations in Light of Section 293 of the Companies Act:
The court examined whether the transactions violated Section 293(1)(a) or (d) of the Companies Act, which restricts the board of directors from disposing of the whole or substantially the whole of the company's undertaking or borrowing beyond certain limits without the consent of the company in a general meeting. The court found that the transactions did not amount to a disposal of the company's undertaking but were security arrangements for raising funds. However, Clause 5(i) of Exhibit R-15, which allowed the bank to take over the management of the company's business, was found to be invalid as it could be regarded as a disposal of the company's undertaking. This clause was struck down, but the rest of the transaction was upheld as valid and enforceable.

Final Order:
1. The Bank of Maharashtra is entitled to take and retain possession of the properties described in the mortgage and hypothecation deeds for the purpose of recovering the moneys due by enforcing its security against the said properties. The bank has the power to sell the properties without court intervention, subject to the provisions of the Transfer of Property Act and the Contract Act.
2. The court expressed no opinion on the exact amount due to the bank.
3. The bank was directed to deliver all articles of furniture belonging to the company to the official liquidator.
4. Each party was ordered to bear its own costs.

The judgment provides a detailed analysis of the rights and powers of secured creditors in the context of company winding-up proceedings, emphasizing the legal principles governing mortgages, hypothecations, and the role of the liquidator.