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TMI Blog1988 (3) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... cent should not be disallowed on the interest paid. The plea of the assessee was that the provisions of section 40A(8) are not attracted as the loan is a trading loan taken from time to time since 1957 as the said concern is a financial firm. Further, the said loan was secured earlier by the personal guarantee of the Directors and later by the hypothecation of stocks. In support of this claim, the Board's resolution dated7th Nov., 1980as also the letter from Hongkong and Shangai Bank that they had no objection for creation of second charge and also that letter from the auditor for the reason of depicting the loan as unsecured on the balance-sheet. 2.1 The claim of the assessee was rejected primarily for the reason that the said concern was not a company and secondly, since in the balance-sheet, it was shown as unsecured. 3. In the appeal before the CIT (Appeals), the assessee pleaded the same arguments but not with failure as, according to the CIT (Appeals), that since two of the Directors were authorised to complete documentation for creation of charge and its registration with the concerned authorities, he concluded that no charge, in fact, was created. He was also impressed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... needed to be done, while in fact the Act does not require or call upon the assessee to do more than but file the Form No. 8 along with the resolution within 30 days of passing of the resolution. 3.1 Since the company's assets stood hypothecated with Mercantile Bank Ltd., which is now known as Hongkong and Shanghai Bank, a no objection certificate was also issued by them which is dated 24th of January, 1984. 3.2 The plea of the assessee was that as regards the company, the charge becomes effective from the date of passing of the resolution and gets further conformed from the day of filing of Form No. 8 with the Registrar of Companies. He accordingly pleaded that in addition to all this the assessee was not expected to do anything else and it is bound by its resolution. Referring to the decision of Punjab Haryana High Court in the case of State Bank ofIndiav. Haryana Rubber Industries (P.) Ltd. (sic) which order is dated 14th December, 1984, he submitted that the failure of the Registrar not to register the charge created by the assessee by filing of Form No. 8, does not affect the charge so created and its validity and it is deemed that the charge is registered. Referring to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so obtained would not be termed as a 'deposit' within the meaning of sub-clause (ix) to Explanation (b) of sec. 40A(8). With this background we would examine the provisions of sec. 40A(8). This section provides for disallowing of interest in respect of any deposit received by it to the extent of 15 per cent of such interest. The term 'deposit' has been defined in Explanation (b) to means any deposit of money with, and includes, any money borrowed by, a company, but does not include any amount received by the company, sub-clause (ix) of this Explanation reads as under : " (ix) as a loan from any person where the loan is secured by the creation of a mortgage, charge or pledge of any assets of the company (such loan being hereafter in this sub-clause referred to as the relevant loan) and the amount of the relevant loan, together with the amount of any other prior debt of such debts, is not more than seventy-five per cent of the price that such assets would ordinarily fetch on sale in the open market on the date of creation of the mortgage, charge or pledge for the relevant loan; " It would, therefore, be necessary to satisfy the requirements of sub-clause (ix) to Explanation (b) t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particulars and instrument or copy within that period. (2) Nothing in sub-section (1) shall prejudice any contract or obligation for the repayment of the money secured by the charge. (3) When a charge becomes void under this section, the money secured thereby shall immediately become payable. (4) This section applies to the following charges ; (a) a charge for the purpose of securing any issue of debentures ; (b) a charge on uncalled share capital of the company ; (c) a charge on any immovable property, wherever situate, or any interest therein ; (d) a charge on any book debts of the company ; (e) a charge, not being a pledge, on any movable property of the company ; (f) a floating charge on the undertaking or any property of the company including stock-in-trade ; (g) a charge on calls made but not paid ; (h) a charge on a ship or any share in a ship ; (i) a charge on goodwill, on a patent or a licence under a patent, on a trade mark, or on a copyright, or a licence under a copy right. (5) In the case of a charge created out of India, and comprising solely property situate outside India, thirty days after the date on which the instrument creating or evide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, therefore, it implies that the provisions of the agreement between any two parties would be basically governed by the provisions of law of contract. This means that the party requesting for the charge makes an offer to the company whose assets are the subject-matter of the charge, and such offer when accepted by the company, the contract would get concluded. Once the contract gets so concluded, both the parties would be governed by the provisions of such an agreement. 6.5 This section further requires the evidence in regard to creation of a charge. This would mean, the request on the company followed by its acceptance, which evidence is the ratification of the contract by the company in the shape of resolution passed by the Board of Directors. It also requires that the evidence, such as the resolution should clearly specify the subject-matter of the charge, the extent of the charge, the purpose for which the charge is created and in whose favour the charge is so created. All these evidences have to be so incorporated in the resolution passed by the Board of Directors and a copy of the resolution is to be filed with the Registrar of Companies within a period of thirty days of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was created as per the agreement that was reached with the party to whom the assets of the company would be undercharged. It would also specify the instrument by which the charge is created, the amount secured by the charge and the amount owing on the security of the charge along with the particulars of various properties so charged. It has also to specify the extent to which the charge shall be operative. 6.7 Section 125 specifies that a charge which is in the shape of security of company's properties or undertaking which is conferred on another party, shall be void against the liquidator and any creditor of the company unless the prescribed particulars of the charge together with the instrument creating the charge are duly verified or filed with the Registrar of Companies within thirty days from the date of creation of such charge. Section 134 specifies the duties that is cast on the company in relation to charge so created which has to file the particulars of the charge along with the evidence thereof in the prescribed forms within thirty days of the creation of such charge. Thereafter the duty shifts to the Registrar of Companies to issue the certificate of registration on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditioners, complete airconditioners and all movable machinery, plants, instruments, book debts are all hypothecated to us. In November 1981 in order to secure loans taken by Fedders Lloyd Corporation Pvt. Ltd. from M/s Pandit Kanahya Lal Punj, the Company desired to create a second charge in favour of M/s. Pandit Kanahya Lal Punj. On an assessment of assets including stocks, the Bank had expressed no objection to the creation of a second charge on the assets and stocks in favour of M/s Pandit Kanahya Lal Punj. This is to inform that the Bank shall have no objection to the second charge being created in favour of M/s. Pandit Kanahya Lal Punj retrospectively with effect from 1957. " The reading of the above indicates--- (a) M/s Pandit Kanahya Lal Punj, who had advanced a loan, had requested for the creation of a charge on the assets of the assessee-company in its favour ; (b) the assessee-company had accepted the offer which is evidenced by the resolution of the Board of Directors dated 7th of November, 1981 ; (c) the fact of second charge on the assets also bears the approval of the Bank which is evidenced by the letter dated24th January, 1984. 9. As required under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the charge in Form No. 8 which has been so filed by the company before the expiry of the time limit prescribed under the Companies Act and the Act does not prescribe for any other documentation. Therefore, as far as the company is concerned, it had complied fully with the provisions of the Companies Act and there remained nothing to be done by the company in regard to the creation of the charge on its assets in favour of M/s Pandit Kanhaya Lal Punj. 11. We have already observed the effect of non-registration by the Registrar in the shape of non-issue of certificate of registration in favour of the assessee-company. According to the requirements of sec. 125, once the required particulars of a charge are filed with the Registrar of Companies, as contained in sec. 125, the company would be totally bound by its own action, which is on the basis of the request made on it by M/s Pt. Kanhaya Lal Punj and so accepted by it. As per sec. 125, the charge does not become void or that the debt does not become irrecoverable except for the probable consequence of security becoming void as against the liquidator and any creditor which would also happen only if the prescribed particulars are not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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