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Issues Involved:
1. Whether the documents impugned in the application violate section 531 and/or 531A of the Companies Act? 2. Whether the respondents were creditors of the company and if so for what amount? 3. Whether the mortgages relied on by the respondents were validly created in accordance with law? 4. To what relief is the applicant entitled? 5. Costs? Issue-Wise Detailed Analysis: 1. Violation of Section 531 and/or 531A of the Companies Act: The court examined the scope of sections 531 and 531A. Section 531 avoids payments, transfers, charges, etc., made by a company in favor of some creditors within six months before the commencement of winding-up if such actions were made with a view to give those creditors preference over others. Section 531A provides that any transfer of property or goods made by a company otherwise than in the ordinary course of business within one year before the commencement of winding-up will be void against the liquidator. The court found that the equitable mortgages were created within the six-month period specified in section 531, to secure debts remaining unsecured since at least April 1972. The company was unable to pay its debts in August 1973 when the mortgages were created, and the properties mortgaged bore a significant proportion to the residue, insufficient to meet other creditors' debts. There was no threat or pressure, and the absence of anything in the company's records to evidence the creation of the mortgages or even the borrowing of the amounts, taken along with the admitted close relationship between the lenders and the borrower, indicated a dominant motive to prefer the respondents. Therefore, fraudulent preference was made out, and the transactions were not bona fide or in the ordinary course of business. 2. Respondents as Creditors and Amount Owed: The liquidator admitted that Victory was a creditor of the company to the tune of Rs. 52,735 as per the sundry creditors' ledger for the year ending December 31, 1972, and the 2nd respondent was a creditor for Rs. 70,809.45. The court held that it was unnecessary to determine the exact amounts due since the liabilities would remain as provable unsecured debts if the transaction was avoided. The respondents were creditors of the company at the relevant time. 3. Validity of Mortgages Creation: The liquidator contended that there was no board decision to seek such a huge loan and that the company's articles of association required general body concurrence for loans exceeding the paid-up capital. However, the court found that the board had decided to receive deposits from others whenever necessary and the general body had authorized the directors to borrow funds in excess of the paid-up capital. Therefore, the action was intra vires at the time the security was given. The liquidator also argued that there was no valid return filed under section 125 and that the registration itself was invalid. However, the court held that the Registrar's certificate under section 132 was conclusive evidence that all statutory requirements had been complied with, and the memoranda evidencing deposits of title deeds were not compulsorily registrable. Thus, the mortgages were otherwise validly created. 4. Relief Entitled to the Applicant: The court concluded that fraudulent preference was made out, and the transactions were not bona fide or in the ordinary course of business. Therefore, the relief prayed for by the applicant was granted, and it was ordered that the two mortgages in question are invalid and void against the official liquidator. 5. Costs: The judgment does not explicitly address the issue of costs, implying that the usual rules regarding costs would apply. Conclusion: The court held that the two mortgages created by the company in favor of the respondents were invalid and void against the official liquidator due to fraudulent preference and not being made in the ordinary course of business. The respondents were creditors of the company at the relevant time, and the mortgages were otherwise validly created, but the dominant motive to prefer the respondents rendered the transactions void.
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