1966 (5) TMI 50 - HC - Companies Law

Issues Involved:
1. Whether the letter of authority constituted a charge on the book-debts of the company.
2. Whether the charge was void under section 95 of the Companies Act, 1948.
3. The nature of the company's right under the E.C.G. policy.
4. Whether the letter of authority represented an assignment by way of charge or an absolute assignment.

Issue-Wise Detailed Analysis:

1. Whether the letter of authority constituted a charge on the book-debts of the company:

The plaintiffs sought a declaration that the letter of authority dated January 23, 1961, constituted a charge on the book-debts of the company. The court examined the evidence provided by four chartered accountants. The key point of contention was whether the E.C.G. policy should be entered as a book-debt in the company's books. The court accepted the evidence of the defendants' accountants, who testified that such a policy would not be entered as a book-debt in practice, even after the liability was accepted and the amount ascertained. The court concluded that the E.C.G. policy did not constitute a book-debt at the date of the letter of authority.

2. Whether the charge was void under section 95 of the Companies Act, 1948:

Section 95 requires registration of a charge on book-debts within 21 days of its creation. The court held that to determine if a charge is on book-debts, one must look at the items of property at the date of the charge's creation. Since the E.C.G. policy did not encompass any book-debt at the date of the letter of authority, it did not fall within the scope of section 95. The plaintiffs' argument that a contract requires registration if it may result in a book-debt was rejected. The court emphasized that the contract must comprehend a book-debt at the date of the charge for section 95 to apply.

3. The nature of the company's right under the E.C.G. policy:

The court considered the nature of the company's right under the E.C.G. policy at various stages: before the contingency occurred, after the contingency but before liability was accepted, and after liability was accepted and the amount ascertained. It was found that in practice, the E.C.G. policy would not be entered as a book-debt at any of these stages. The court concluded that the right under the E.C.G. policy did not constitute a book-debt at any relevant time.

4. Whether the letter of authority represented an assignment by way of charge or an absolute assignment:

Although the primary issue was resolved, the court also addressed whether the letter of authority was an assignment by way of charge or an absolute assignment. The defendants argued that it was an absolute assignment, which would exempt it from section 95. The court, however, found that the letter of authority clearly represented an assignment by way of charge. Despite this finding, the court's primary conclusion that the charge did not involve book-debts rendered this issue moot.

Conclusion:

The court dismissed the action, concluding that the letter of authority did not constitute a charge on book-debts under section 95 of the Companies Act, 1948. Consequently, the charge was not void under this section. The first defendant was ordered to pay the plaintiff's costs, with the liquidator's costs being costs in the liquidation.

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