1938 (8) TMI 17 - HC - Companies Law

Payments of certain debts out of assets subject to floating charge in priority to claims under the charge and Winding up Overriding preferential payments

Summary

Issues:
1. Whether the claim for the sum due under an agreement dated December 2, 1934, is trust money or the applicants are merely ordinary creditors.
2. Whether the applicants are preferential creditors or chargees in respect of the sum claimed.
3. Whether the agreement created a second charge on the machinery and other goods of the company and the effect of non-registration of this charge.

Analysis:
1. The applicants, Messrs. Maheshwari Brothers, entered into an agreement with a company, appointing them as selling agents for a year and requiring a security deposit of Rs. 50,000. The applicants demanded a refund upon the agreement's expiry, leading to a winding-up order against the company. The court held that the relationship was that of creditor and debtor, not trustee and cestui qui trust, as established in a precedent. The court rejected the argument that the deposit constituted trust money, emphasizing the absence of a specific trust direction in the agreement.

2. The applicants claimed to be preferential creditors or chargees for the sum due. The court analyzed a clause in the agreement stating the security money would be the second charge on the company's machinery and goods. The court determined that the charge created was a floating charge, requiring registration. Since the charge was not registered, it was held void against the liquidators under the Indian Companies Act, 1913. The court applied tests to establish the charge as floating, making it invalid due to non-registration.

3. The court addressed the argument that the charge was void against the liquidators due to being a charge on immovable property, which might include machinery. However, the court found it inconclusive whether the machinery in question qualified as immovable property. Despite this uncertainty, the court's findings on other points were sufficient to dismiss the application. The court ruled that the liquidators were not entitled to costs, considering the circumstances of the case where no notice was served on the opposing creditor.