1961 (3) TMI 30 - HC - Companies Law

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

Issues Involved:
1. Registration of the third series of debentures under the Indian Registration Act.
2. Classification of the third series of debentures as secured or unsecured creditors.
3. Applicability of the Indian Registration Act to floating charges.
4. Determination of moveable and immoveable properties under the debentures.

Issue-wise Detailed Analysis:

1. Registration of the Third Series of Debentures under the Indian Registration Act:
The core issue was whether the third series of debentures required registration under the Indian Registration Act, despite being registered under section 109 of the Indian Companies Act, 1913. The court concluded that an ordinary charge created under the Transfer of Property Act is compulsorily registrable under the Indian Registration Act if the amount secured exceeds Rs. 100. The court emphasized that the combined effect of sections 4, 59, and 100 of the Transfer of Property Act makes all charges in respect of immoveable properties compulsorily registrable under the Registration Act. Therefore, the third series of debentures, which created a charge on immoveable property, required registration under section 17(1)(b) of the Indian Registration Act.

2. Classification of the Third Series of Debentures as Secured or Unsecured Creditors:
The appellants argued that the third series of debentures, having been registered under the Companies Act, should be considered secured creditors. However, the court held that the debentures were not registered under the Indian Registration Act, which is necessary for creating a valid charge on immoveable property. Consequently, the debentures were deemed ineffective in creating a charge on immoveable property, rendering the holders of the third series of debentures as ordinary unsecured creditors concerning immoveable property.

3. Applicability of the Indian Registration Act to Floating Charges:
The court discussed the nature of floating charges, which are special charges recognized by the Indian Companies Act. A floating charge remains in a dormant state until a future event, such as the winding up of the company, crystallizes it into a fixed charge on specific property. The court noted that section 109(1)(f) of the Indian Companies Act requires registration of floating charges with the Registrar of Joint Stock Companies. However, this registration does not exempt the charge from compulsory registration under the Indian Registration Act if it involves immoveable property. The court emphasized that the purpose of registration under the Companies Act is to provide a general idea of the company's financial status, while the Registration Act aims to give detailed and reliable information about specific immoveable properties.

4. Determination of Moveable and Immoveable Properties under the Debentures:
The court examined the terms of the debentures, specifically Condition No. 3, which charged the company's undertaking and all its property, present and future. The court clarified that the debentures covered both moveable and immoveable properties. For immoveable property, the court held that the debentures required registration under the Indian Registration Act to be valid. The court distinguished between present immoveable property, which was in the company's ownership at the date of the charge, and future immoveable property, which would come into ownership later. The court did not express an opinion on future immoveable property but focused on present immoveable property, holding that the debentures required registration under section 17(1)(b) of the Indian Registration Act.

The court also addressed the classification of properties as moveable or immoveable. It stated that whether a property affixed to the earth should be treated as immoveable or moveable depends on the manner and intention of affixation. The court left the determination of specific items as moveable or immoveable to the company judge, who would re-determine the matter based on the guidelines provided.

Conclusion:
The appeal was partly allowed. The holders of the third series of debentures were declared secured creditors concerning moveable properties but not immoveable properties in the company's ownership at the date of the debentures' execution or subsequent accretions to those immoveable properties. No order as to costs was made.

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