1943 (4) TMI 7 - HC - Companies Law

Summary

Issues Involved:
1. Whether debentures issued by a company charged on the whole of its property, including immovable property, must be registered under the Registration Act.
2. Whether the machinery of the sugar mill was fixed to the soil of the buildings so as to be considered immovable property.

Detailed Analysis:

Issue 1: Registration of Debentures
The primary legal question was whether debentures issued by a company, charged on the whole of its property, including immovable property, must be registered under the Registration Act or if registration under the Companies Act suffices. The debentures in question were issued by East Bengal Sugar Mills Limited and were duly registered under section 109 of the Companies Act but not under the Registration Act (Act XVI of 1908). The debenture-holders claimed a first charge on the proceeds from the sale of the company's undertakings. The liquidator contended that as the debentures were not registered under the Registration Act, they did not affect the immovable property of the company.

The court examined the provisions of both the Companies Act and the Registration Act. Section 109 of the Companies Act stipulates that the holding of debentures entitling the holder to a charge on immovable property shall not be deemed an interest in immovable property. However, section 17(1)(b) of the Registration Act requires registration of non-testamentary instruments that create, declare, assign, limit, or extinguish any right, title, or interest in immovable property. The debentures created a floating charge over the company's property, which could become fixed upon certain events, thus limiting the company's rights to its immovable property.

The court concluded that the debentures should have been registered under the Registration Act because they created a charge on the immovable property. The purpose of the Registration Act is to provide information to people dealing with property about existing encumbrances. Registration under the Companies Act alone was deemed insufficient to protect local persons dealing with the land from unknown charges.

Issue 2: Nature of Machinery as Immovable Property
The secondary issue was whether the machinery of the sugar mill was fixed to the soil of the buildings, making it immovable property. The trial court did not decide on this issue due to its view on the registration of debentures. However, it was noted that whether machinery is considered immovable property is a question of fact that must be determined by the court.

Conclusion:
The appeal was allowed. The applicant, Ramanath Das, was determined to have a first charge on the movable properties and uncalled capital of the company pari passu with other debenture-holders. The trial court was directed to conduct an inquiry to ascertain:
1. The movable properties of the company and their value at the time of the sale.
2. Whether the machinery and plant were movable or immovable property.
3. The proportion of the sale proceeds representing movable and immovable property.

Costs were awarded to the appellants, K. Roy and Brothers, and the liquidator was entitled to costs to be reimbursed from the assets of the movable properties. Ramanath Das was required to return Rs. 25,000 by 13th May 1943.