1967 (11) TMI 50 - HC - Companies Law

General provisions with respect to memorandum and articles - Effect of memorandum and articles, Charges Registration of, Directors Power of, Winding up Suits stayed on winding-up order, Debts of all descriptions to be admitted to proof and Overriding preferential payments

Summary

Issues Involved:
1. Determination of preferential rights over sale proceeds.
2. Rights of priority inter se between respondents.
3. Validity and enforceability of hypothecation and hire-purchase agreements.
4. Application of Section 292 of the Companies Act, 1956.
5. Registration of charges under Sections 125 and 132 of the Companies Act, 1956.
6. Ostensible authority and equitable estoppel.
7. Ratification of unauthorized acts by the official liquidator.
8. Rights of guarantors and subrogation.

Detailed Analysis:

1. Determination of Preferential Rights over Sale Proceeds
The court addressed the claims of various respondents who asserted preferential rights over the sale proceeds of vehicles belonging to the company in liquidation. The official liquidator sought directions for determining the quality and quantity of these rights. The court noted that vehicles were sold to avoid further damage and to secure the best possible price, and the proceeds were now in the liquidator's custody.

2. Rights of Priority Inter Se Between Respondents
The court held that the determination of rights inter se among respondents claiming priority was outside its scope as a company court. Such rights must be adjudicated in a civil court. However, to avoid multiplicity of actions, the court decided to address the issue in the interest of justice.

3. Validity and Enforceability of Hypothecation and Hire-Purchase Agreements
The court examined the nature of hypothecation and hire-purchase agreements, distinguishing between financing and refinancing hire-purchase agreements. It was held that a hypothecation creates an equitable charge, enforceable against the sale proceeds. Financing hire-purchase agreements were deemed to vest ownership in the financier, while refinancing agreements created a secured loan requiring registration under the Companies Act.

4. Application of Section 292 of the Companies Act, 1956
The court found that there was a delegation of authority by the board to the managing director, satisfying Section 292. The court emphasized that lenders dealing with the company were entitled to assume compliance with internal regulations unless there were suspicious circumstances.

5. Registration of Charges Under Sections 125 and 132 of the Companies Act, 1956
The court held that charges created under hypothecation and refinancing hire-purchase agreements must be registered to be enforceable against the official liquidator. Unregistered charges were deemed void.

6. Ostensible Authority and Equitable Estoppel
The court applied the doctrine of ostensible authority, holding that the managing director's actions, which were within his apparent authority and benefited the company, could not be disregarded. The company was estopped from denying the authority of the managing director, who had been held out as having the power to act on its behalf.

7. Ratification of Unauthorized Acts by the Official Liquidator
The court noted that the official liquidator had ratified the acts of the managing director by treating the vehicles as company assets. Under Section 199 of the Contract Act, ratification of an unauthorized act ratifies the whole transaction.

8. Rights of Guarantors and Subrogation
The court recognized the rights of guarantors who had paid off the debts of the company. Such guarantors were entitled to be subrogated to the rights of the original creditors and treated as preferential creditors.

Conclusion
The court provided a detailed determination of the rights of various respondents, distinguishing between those entitled to preferential treatment and those who were not. The official liquidator was directed to distribute the sale proceeds accordingly, deducting expenses, charges, and costs pro rata. The application was ordered with the official liquidator entitled to costs and expenses.