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TMI Blog1938 (8) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... d the point to the Court for determination. To understand the legal issues involved it is very necessary to have a clear idea of the facts, and these are to be gathered from the evidence of the witnesses examined before me and the documents exhibited. It seems clear that early in 1936 the Corporation was in sore need of funds. Mr. Dastur (Ex. 11) at present Manager of the Sind Provincial Co-operative Bank who in 1936 was for some time a director of the Indus Film Corporation Ltd., states: "I was a director of the Indus Film Corporation Ltd. I know Dr. G.L, Dudani. He was Chairman of the Corporation. I know Amiji Valiji Sons. In February 1936 the Corporation wanted money; they had not sufficient liquid assets. I was approached to secure a loan for the Corporation. I was approached by Lalji Mahrotra and Dr. Dudani. The latter used to carry on the business of the Corporation. I approached Moosaji of Amiji Valiji Sons for a loan of Rs. 5,000. He agreed, but wanted security in the form of a lien on the Corporation's property. Dr. Dudani agreed to give the security asked for, but said he would consult the other directors. He must have consulted the directors. The loan was given and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of Rs. 9,500 referred to in the resolution has been explained in the evidence of Mr. Dastur. It consists of the Rs. 5,000 obtained from Amiji Valiji Sons and the sums of Rs. 2,000 and Rs. 2,600 lent to the Corporation by Mr. Dastur himself and Lalji Mahrotra. It would appear from the evidence of Mr. Dastur that Dr. G.L. Dudani was attending to all the business concerns of the Corporation in his capacity as Chairman of the Board of Directors. Dr. Dudani appears to have considered that the lien granted to Amiji Valiji Sons fell under the provisions of section 109, Companies Act, and required to be registered with the Registrar of Joint Stock Companies. On 10th March 1936, he wrote to the Registrar a letter, Ex. 15, which reads: "We are herewith sending you for registration a statement showing the charges incurred by the Corporation." The statement referred to is Ex. 15/1. It refers to the loans of Rs. 5,000 from Amiji Valiji Sons and states that the property charged in respect of this loan is all assets including " machinery, shed, laboratory materials, settings." Ex. 15/4 is the reply sent to the Indus Film Corporation Ltd. by the Registrar of Companies, returning th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one from among themselves as Chairman. He will be the Chairman of the Board of Directors as well as of the Company. He shall hold office for so long as he continues to be a Director and until a new Chairman is appointed." Article 84 reads thus: "The control of the management of the business of the company shall be vested in the Directors, who shall manage through the Managing Agents, the Sind Talkies, Karachi, with whom the company has entered into an agreement and the Directors may exercise all such powers and do all such acts and things as the company is, by its memorandum or otherwise, authorized to exercise and do...,.." Article 89 reads: "The Directors shall duly comply with the provisions of the Companies Act, 1913, or any statutory modification thereof for the time being in force and shall appoint a person who shall be the principal officer of the company for the purpose of discharging the statutory duties mentioned in the Companies Act." By a resolution of the Board of Directors dated 16th February 1935, Ex. 18 in the case, Dr. G.L. Dudani was elected Chairman of the Board of Directors of the Corporation for the first year of the Corporation and Mr. Ramchand Jiwan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs of the Board of Directors at which the resolutions Exs. 16, 16/1, 17, 18, 19 and 20 were passed, Ramchand Jivanlal of the Sind Talkies was present. It would appear, therefore, that whether as a partner in 'The Sind Talkies', the Managing Agents of the Indus Film Corporation Ltd., or as Chairman of the Board of Directors and of the Corporation it was Dr. G.L. Dudani who was carrying on the business of the Corporation at the time when the loan of Rs. 5,000 was taken from Amiji Valiji Sons and for some considerable time thereafter. Now, the points that arise for decision from the rival contentions of the parties are these: (1) Was any charge created in respect of the loan of Rs. 5,000 from Amiji Valiji Sons? (2) Is the charge valid in law? (3) Is it binding on the Corporation? I will deal with these points in the order in which I have stated them. As regards the creation of the charge the learned advocate for the Official Liquidator argues that the language of Ex. 13 clearly shows that at that time the Corporation merely agreed to give a lien at some future date. Thus no lien was in fact created by the document Ex. 13. He has relied on the words: "We hereby declare that you ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted in section 109 only in October 1936. This question has caused me much anxious thought, but after a careful consideration of the matter from every aspect I have come to the conclusion that Ex. 13 creates a floating charge on the assets of the Corporation within the meaning of clause (F) of sub-section 1 of section 109, Companies Act and that not having been registered as required by section 109 it is void against the Official Liquidator. A floating charge has thus been described by Romer L.J. in Houldsworth v. Yorkshire Woolcombers Association Ltd. "The term ' floating' is one that until recently was a mere popular term. It certainly had no distinct legal meaning. It is not a legal term. It has recently been used in more than one statute but when the Courts have to consider whether the charge is a floating one within the meaning of the term as used in the Acts of Parliament, and in particular within the meaning of the Companies Act, 1000, one must, I think, deal with the question of substance to be answered according to the circumstances of each particular case. I certainly do not intend to attempt to give an exact definition of the term ' floating charge' nor am I pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rge is "ambulatory and shifting in its nature, hovering over and so to speak floating with the property which it is intended to affect until some event occurs or some act is done which causes it to settle and fasten on the subject of the charge within its reach and grasp." The latest English case in which the nature and elements of a floating charge have been discussed is the case in Mercantile Bank of India Ltd. v. Chartered Bank of India, Australia and China, and Strauss Co., Ltd. It is a judgment of Porter, J., in the K. B. Dn. The learned Judge was there dealing with a case of money borrowed upon the security of letters of hypothecation relating to goods and produce in the borrowers' godowns. The borrowers were free to deal with the goods and produce in the ordinary course of business and the contents of their godowns changed frequently. Referring to the charge in this case Porter, J., states: "But when one comes to the question of what a floating charge is, in my view, one gets the best description from what was said by a learned Lord Justice. I will not say ' definition' because one learned Lord of Appeal said he need not define the meaning of the phrase, and a le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charge, it was held by a Bench of the High Court that the charge created was not a floating charge; it was a mortgage of specific assets with a licence to the mortgagor to dispose of them in the course of the business subject to prescribed conditions. The facts of this case are entirely distinguishable from those in the case before me and this decision is therefore not helpful. The next case in which the matter of a floating charge has been considered in India is the case in D. Pudumjee Co. v. N.H. Moos, a decision of a Bench of the same learned Judges as decided the case in Bank of Baroda v. H. B. Shivdasani. In this case the respondent N.H. Moos, a receiver in a suit in the Bombay High Court, lent and advanced to F.F. Gordon Ltd., a sum of rupees two lacs. In respect of the loan three documents were executed, a resolution authorizing one Mr. Cunnigham to arrange a loan, a demand pronote for Rs. 2,00,000 and an agreement between the company and the receiver signed by Cunnigham. There was also a letter written by Cunnigham to the receiver stating that he had taken possession of the machinery, presses and all moveable property comprised in the said agreement as the rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sehold and the machineries, engines, boilers, etc., that is to say, the moveables that would be brought on to the premises. With the charge on them, not a single screw could be removed except perhaps for the purpose of being replaced and neither the moveables nor any parts of them could be disposed of by the lessee. The element of fluctuation due to ordinary wear and tear that is present here is widely different from what would be consequent on the power of disposal in the ordinary course of business, which marks the outstanding feature of property subject to a floating charge." After quoting Buckley, L.J.'s remarks in Evans v. Rival Granite Quarries, Ltd. the learned Judge proceeds: "Now, what is the event, on the happening of which, or what is the act or the nature of intervention of the mortgagee, which is required to crystallize the security in the present case? Clearly, no act or intervention on the part of the mortgagee is necessary. What however is said is that until royalty or minimum royalty is due or is in default, the charge will not fasten on the property. This, in our opinion, is not the kind of event contemplated; as soon as the royalty or minimum royalty accr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luctuation was entirely absent. I am therefore of opinion that Ex. 13 constitutes a floating charge of the assets of the Indus Film Corporation, Ltd., falling within the meaning of clause (F) section 108, Companies Act and not having been registered it is void as against the Official Liquidator. In view of my decision the third point for decision which has been set out above does not really arise. If there is no charge valid in law then there is nothing to bind the Corporation. I would however record a finding on this point briefly stating my reasons. Under section 88, Companies Act, a contract on behalf of a company if it is a contract in writing may be made on behalf of the company and signed by any person acting under its authority express or implied. In the present case, the articles of Association of the Corporation are silent on the point. The agreement with the Managing Agents (Ex. 26) does make specific provision for the entering into and execution of contracts, but, as I have said above, there is considerable doubt as to whether the agreement (Ex. 26) had been executed and was in force in February 1930. But even if it was it makes no material difference. According to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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