1968 (7) TMI 45 - HC - Companies Law

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

Issues Involved
1. Jurisdiction of the Subordinate Judge's Court, Rajahmundry.
2. Validity and enforceability of the mortgage deed under Section 125 of the Companies Act.
3. Bona fide purchaser for value without notice and applicability of the mortgage debt.
4. Limitation period for filing the suit.

Issue-wise Detailed Analysis

1. Jurisdiction of the Subordinate Judge's Court, Rajahmundry
The appellants contended that the Subordinate Judge's Court, Rajahmundry, had no jurisdiction to entertain the suit, arguing that only the District Court had such jurisdiction under Section 10 of the Indian Companies Act, 1956. The court noted that the suit was filed to enforce the mortgage by sale of the mortgaged properties under Order 34, Rule 1, CPC. It clarified that the High Court or the District Court, where jurisdiction has been transferred, is the court having jurisdiction under the Companies Act to deal with matters provided for by the Act. However, this does not extend to suits on contracts or mortgage bonds executed by companies. The court concluded that the Subordinate Judge's Court at Rajahmundry, being a court of original jurisdiction with unlimited jurisdiction, could entertain the suit. Hence, this contention was rejected.

2. Validity and Enforceability of the Mortgage Deed under Section 125 of the Companies Act
The appellants argued that the mortgage deed, Ext. A-9, was void and unenforceable under Section 125 of the Companies Act as it was not registered. The court examined Section 125, which states that an unregistered charge is void against the liquidator and any creditor of the company but remains valid against the company while it is a going concern. The court cited precedents, including *Aung Ban Zeya v. Chettiar Firm* and *Bharamar Lal v. Promode Ranjan*, to support the view that non-registration does not invalidate the mortgage against the company when it is a going concern. Since the mortgaged property was sold in execution of a money decree before the company went into liquidation, the mortgage remained valid against the purchaser. Thus, the mortgage was not a nullity, and this contention was also rejected.

3. Bona Fide Purchaser for Value Without Notice
The appellants contended that Kotha Suryanarayana, the predecessor-in-title of defendants 2 to 7, was a bona fide purchaser for value without notice of the mortgage debt. The court found that there was no valid sale in favor of Kotha Suryanarayana as no registered sale deed existed, and the purported agreement did not convey any title. The court concluded that the 1st defendant retained legal title and possession of the suit property, and any possession by defendants 2 to 7 was on behalf of the 1st defendant. Therefore, the plea of bona fide purchase without notice was rejected.

4. Limitation Period for Filing the Suit
The appellants argued that the suit was barred by limitation as it was filed beyond 12 years from the date of default in paying the first year's interest. The court examined the terms of Ext. A-9, which provided that the principal and interest would become immediately payable upon default, with a 30-day grace period. The first year's interest was due on June 5, 1949, and the right to enforce the security accrued on July 5, 1949. The suit, filed on March 20, 1961, was within the 12-year limitation period. The court also considered other clauses that provided for enforcement upon execution or distress levied on the mortgaged premises, which occurred in 1950, allowing for a suit to be filed by January 2, 1962. Additionally, the court referenced *Lasa Din v. Mt. Gulab Kunwar*, which held that the mortgagor could not take advantage of his own default to argue that the mortgage money became immediately due. The suit was thus found to be within the limitation period.

Conclusion
All contentions raised by the appellants were rejected. The court upheld the judgment and decree of the Subordinate Judge, Rajahmundry, and dismissed the appeal with costs. The decree allowed the plaintiffs to take further proceedings against the 1st defendant if any part of the plaint schedule property did not exist.

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