1938 (8) TMI 18 - Commissioner - Companies Law

Payments of certain debts out of assets subject to floating charge in priority to claims under the charge

Summary

Issues Involved:
1. Was any charge created in respect of the loan of Rs. 5,000 from Amiji Valiji & Sons?
2. Is the charge valid in law?
3. Is it binding on the Corporation?

Issue-wise Detailed Analysis:

1. Creation of Charge:
The primary issue was whether a charge was created in respect of the loan of Rs. 5,000 from Amiji Valiji & Sons. The learned advocate for the Official Liquidator argued that the language of Exhibit 13 indicated that the Corporation merely agreed to give a lien at some future date, thus no lien was created by the document. However, the court disagreed, stating that Exhibit 13 created and intended to create an immediate charge. The court relied on the clear and definite evidence of Mr. Dastur, a respectable gentleman and former Director of the Indus Film Corporation Ltd., and concluded that a charge was indeed created in respect of Amiji Valiji's loan of Rs. 5,000, with Exhibit 13 being that charge.

2. Validity of the Charge:
The validity of the charge was contested under section 109 of the Companies Act, which requires certain mortgages and charges to be registered with the Registrar of Joint Stock Companies within 21 days after the date of creation. Exhibit 13 was not registered as required. The court had to determine whether the document constituted a floating charge on the property of the Corporation, falling under clause (F) of sub-section 1 of section 109. After careful consideration, the court concluded that Exhibit 13 created a floating charge on the assets of the Corporation, which was not registered, rendering it void against the Official Liquidator. The court referenced several English and Indian cases to support this conclusion, noting that the assets charged were of a fluctuating nature and the Corporation was not restrained from carrying on its business, characteristics of a floating charge.

3. Binding Nature on the Corporation:
Given the decision on the validity of the charge, the issue of whether it was binding on the Corporation did not arise. However, the court briefly addressed this point. Under section 88 of the Companies Act, a contract on behalf of a company may be made and signed by any person acting under its authority, express or implied. The court found that Dr. Dudani, as Chairman of the Corporation, had either express or implied authority to execute Exhibit 13. The court referenced various resolutions and the presence of key figures at board meetings to support this conclusion. Despite this, the charge was invalid due to non-registration, thus the decision favored the Official Liquidator.

Conclusion:
The court held that while a charge was created in respect of the loan, it was invalid due to non-registration under section 109 of the Companies Act. Consequently, the charge was not binding on the Corporation. The court did not award costs against Amiji Valiji & Sons, attributing the failure to register the charge to the Indus Film Corporation Ltd.