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TMI Blog1956 (4) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... as to take all the electrical energy it required from the Electric Supply Corporation. This energy was to be delivered by the Electric Supply Corporation at the switchboard of the Tramway Company, located at its tramway depot in Egmore. The energy was to be delivered as "direct current" at a pressure of 500 volts (at no load) to 550 volts (at full load). The entire energy supplied was to be charged as a whole, at a tapering rate, the rate becoming lower as the quantity of the current taken became higher. There was a clause providing for revision of the rates at the instance of either party, after the expiration of every period of 7 years from the date of the agreement, by three months' notice in writing. An engineer appointed by the President of the Institution of Electrical Engineers in England was to determine what the revised rate, if any, should be. The agreement was not to be determined by the Tramway Company or the Electric Supply Corporation, the intention of the parties being that the benefit thereof, subject to the rights, duties and obligations of the parties respectively, should be annexed to, and constitute part of the respective undertakings of the Tramway Company an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectricity concern at the end of 42 years from 21st August, 1905, and at the end of every ten years thereafter. In 1945, the State Government notified the Electric Supply Corporation of their intention to exercise the option of purchase given to them by clause 10 of Exhibit P 2. In anticipation of such taking over, the Chief Engineer to the Government of Madras wrote a letter, Exhibit P 4, to the Tramway Company, as well as to other consumers. It stated: "The terms and conditions in the agreement now existing between you and the Madras Electric Supply Corporation Ltd. for supply of electricity will be examined by Government after 29th August, 1947. Pending final decision of Government and the execution of a fresh agreement, the existing agreement between you and the Madras Electricity Supply Corporation Ltd. will be deemed to continue to be in force." A reply was requested. The Madras Tramway Company sent the following reply, Exhibit P 4 ( a ): "We hereby signify our acceptance of the agreement specified in paragraph 2 of your letter quoted above in regard to the provisional continuance of the agreements dated as above with the M.E.S.C. Ltd. for supply of electricity." The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, 1948, and the second on 17th February, 1949. Mr. Elphic, for the Tramway Company, accepted Rs. 328 per panel per mensem regarding the operation charges, but wanted the rent to be reduced to Rs. 75 per month for each of the three panels. Regarding the other two matters, namely, separate charging for the energy supplied to each of the three sub-stations, and conversion charges, there was no agreement. The Tramway Company would not agree to the increase of Rs. 30,000 to Rs. 46,000 per mensem involved by all these additions, as it would mean an addition of 53 per cent. to what they were paying under the old agreements. In the end, the Tramway Company officials demurred to any additional charge whatsoever over the old rates, though they said that even if additional charges were legally leviable from them they would never exceed Rs. 4,659 per month. They contended that it was unfair to treat the three sub-stations separately regarding the energy supplied, as if they were three different tramway companies and that it was also unfair to charge them for conversion of energy contrary to the previous practice, and to charge them panel rent and labour charges when they had not been charged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excess. On 26th April, 1952, the Tramway Company filed C.S. No. 191 of 1952 on the original side of this court against the State of Madras, claiming Rs. 1,41,432-3-10 from the Government, said to represent the excess paid by it for the period from September, 1950, to August, 1951, under protest, and subsequent interest. For the third period, namely, 1st September, 1951, to 31st July, 1952, though the bills were sent to them at the enhanced rates, the Tramway Company paid only at the lower rates as per the agreements with the Madras Electric Supply Corporation before the Government purchased it. For the period from 1st August, 1952, the Tramway Company did not make any payment at all, at the old rates, or at the new rates, on the ground that it had filed a suit regarding the admissible rates, and was awaiting the decree of court. The Government filed C.S. No. 368 of 1953 on the original side of this court against the Madras Tramway Company on 30th October, 1953, for recovering Rs. 9,26,186-2-3, the alleged arrears due, with subsequent interest and costs, and for a declaration that it was entitled to a first charge over the assets of the first defendant and to priority in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hown as excess payments in paragraph 22 of the plaint and were the said amounts wrongly collected by the defendant from the plaintiff? 3.Is the consent of the plaintiff not necessary for the introduction of modified conditions as alleged in paragraphs 6 and 7 of the written statements? 4.Is the plaintiff entitled to a refund of the plaint-mentioned amount with interest as claimed therein? 5Is the plaintiff estopped from questioning the rates approved by the Government as alleged in paragraph 11 of the written statement? 6.To what relief is the plaintiff entitled? In C.S. No. 368 of 1953 the following issues were framed: 1.Is the first defendant liable to pay for the electrical energy supplied in accordance with the revised bills with penal surcharge and rent as shown in the second schedule to the plaint? 2.Is the electrical energy supplied to be charged for in accordance with, and are the rights and liabilities between the plaintiff and the first defendant governed by, the agreements between the Madras Electric Supply Corporation Ltd. and the plaintiff and the long course of conduct between the first defendant and the said Corporation as alleged in paragraph 5 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C. S. No. 191 of 1952, and issue 2 in C. S. No. 368 of 1953, which were in substance the same and were the most important issues in the two suits, he found that the Tramway Company was liable to pay the Madras Government for the current it consumed at the rates specified in the agreements between it and the Electric Supply Corporation, whose successor was the Madras State, and that in addition, the company was bound to pay the Government charges at Rs. 1,284 per month for the housing and operation of the traction panels. On issue 1 in C.S. No. 368 of 1953, and issue 5 in C.S. No. 191 of 1952, he found that the Tramway Company was not estopped from questioning the new and enhanced rates approved by the Government, and that it was not liable to pay, as per the revised bills, the penal surcharge and rent. On issue 4 in C.S. No. 368 of 1953, he found that the Tramway Company was not liable to pay the whole or any part of the enhanced charges on the principle of quantum meruit, or under section 70 of the Indian Contract Act, or on any principle analogous to section 70 of the Indian Contract Act. On issues 7 and 8 in C.S. No. 368 of 1953, he found that the State of Madras was not entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 368 of 1953, he found that the Tramway Company was not liable to pay any penal surcharge, but only interest at five per cent. per annum, as provided for in the agreements. On issue 6 in C.S. No. 368 of 1953, he found that the Government would be entitled to a decree for the amounts due to them under the original agreements plus the rent and operation charges for the three traction panels. Issue 9 in C.S. No. 368 of 1953 was not pressed by Mr. Nambiar. In the end, he gave the Government a decree for Rs. 3,41,317-2-9 against the first defendant, the Tramway Company, and made the decree amount subject to the claims of the debenture holders against that company, and directed the third defendant, the official receiver liquidator, to pay the amount with interest at 6 per cent. per annum from 30th October, 1953, the date of the plaint, till the date of payment, subject to such priority, and directed the State of Madras and the Tramway Company to give and take proportionate costs. On issue 2 in C.S. No. 191 of 1952, he found that the Tramway Company was not liable to pay the Government the enhanced charges, and that the Tramway Company was entitled to recover the excess paid less the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 4th August, 1947, to the Tramway Company, and the order in Exhibit P 22 dated 9th September, 1950. We cannot agree. There is absolutely no doubt that the Madras State had merely exercised its option, under section 7 of the Indian Electricity Act of 1910, to purchase the undertaking of the Madras Electric Supply Corporation. The State did not get the undertaking under the statute, but only the right to purchase the undertaking. In other words, it was a purchaser and a transferee from the Madras Electric Supply Corporation and was bound by all the obligations of the Madras Electric Supply Corporation under its existing contract. Section 7(3)( a ) of the Electricity Act itself says "where a purchase has been effected under sub-section (1) or sub-section (2)," making it plain that it is only under the purchase that the State gets title to its undertaking, and not under the statute itself. In paragraph 3 of the written statement in C.S. No. 368 of 1953, the Tramway Company definitely asserted that the Madras Electric Supply Corporation had executed and registered in favour of the State a deed of conveyance conveying and assigning to the State its properties. That allegation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n liquidation, according to counsel on all sides. It was represented to us by the learned Advocate-General, as well as by Mr. O.T.G. Nambiar for the debenture holders of the Tramway Company, that the entire realisable assets of the Tramway Company in liquidation would not exceed 8 or 9 lakhs, and that the company's debts due to the debenture holders, aggregating 130,000, or more than 17 lakhs of rupees, would exceed the entire assets, if the debenture holders were given the first priority, and the workers and the State of Madras would get nothing in that event except to the extent the preference and priorities under section 230 of the Companies Act would help them, if that matter is left open. The learned Advocate-General next contended that though the Madras State did not expressly cancel the agreements entered into with the Madras Tramway Company by the Madras Electric Supply Corporation an implied cancellation of the old agreements could be inferred by the irresistible inference drawn from the letters, Exhibits P 4 and P 4( a ), and the G.O. in Exhibit P 22 and urged that after the issue of the G. 0. in Exhibit P 22 on 9th September, 1950, the old agreements regarding the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Company would have decided to stop the trams, if the electricity was cut off, and might not have used animals or other forms of mechanical power to propel the trams. It is clear from the Chief Engineer's letters. Exhibit P 5 dated 10th May, 1948, and Exhibit P 8 dated 26th May, 1948, requesting the Tramway Company to give its concurrence to the terms of a draft agreement, before it was formally drawn up, that he and the State were fully aware that its concurrence to the new terms was essential before a fresh agreement could be substituted. The next contention of the learned Advocate-General was that the Madras State took the old agreements as terminated from 9th September, 1950, the date of Exhibit P 22, and that the Tramway Company acquiesced in it. We cannot agree. The fact that the phrase used in the order was "should be terminated" and not "is terminated" and that a fresh agreement was directed to be entered into, will show that the Madras State did not consider that the old agreements were terminated on 9th September, 1950, the date of the order. The mere fact that, under the old agreements, the State had the right to apply for a revision of rates on the expiry of ever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amway Company required even more electrical energy. We cannot agree. As Balakrishna Aiyar J. has observed, there can be no question of estoppel based on a mere intention or promise regarding the future. Lord Denman in Pickard v. Sears 45 ER 538 has stated the principle of estoppel as follows: "Where one, by his words or conduct, willfully causes another to believe the existence of a certain state of things and induces him to act on that belief, so as to alter his own previous position, the former is concluded from averring against the latter a different state of things as existing at the same time." That principle was amplified and restated by Lord Selborne in Citizen's Bank of Louisiana v. First National of Bank New Orleans [1873] LR 6 HL Cas. 352, 360 , in these terms: "The foundation of that doctrine, which is a very important one, and certainly not one likely to be departed from, is this, that if a man dealing with another for value makes statements to him as to the existing facts, which being stated would affect the contract and without reliance upon which or without the statement of which the party would not enter into the contract and which being otherwi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hem, if anything was to be imposed on them extra, for fear of three times that sum named by the Chief Engineer being imposed on them, will not bring about estoppel of any kind. Nor will their payment of the bills with the new rates for the period from 1st September, 1950, to 31st August, 1951, bring about any estoppel, as those payments were made under protest through the company's solicitors and reserving the right of the company to recover the excess and was followed by the filing of the suit, C.S. No. 191 of 1952, for recovering the excess. The ruling of the Court of Appeal in Lyle Mtller v. A Lewis and Co. ( Westminster ) Ltd. [1956] 1 All ER 247 , relied on by the Advocate-General, will not help him in the facts of this case. There, the payment of royalties to the plaintiff, as per an agreement in writing, was made willingly for two years without any protest, and then sought to be stopped on the ground that the lighters and refills did not embody the plaintiff's invention, and, so, it was held that estoppel would operate. But, here, the payment of the bills with new charges was not made willingly or as per any agreement, but under protest and with a reservation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f giving the Madras State any increase whatever on the principle of quantum meruit, or under section 70 of the Indian Contract Act, which cannot be brought into operation at all. It follows from our observations above that the agreements between the Electric Supply Corporation and the Madras Tramway Company remained in full force and effect for the periods covered by the suits, and that the claims of the parties must be settled on that basis, except regarding the rent and operation charges of the traction panels to the extent allowed by Balakrishna Aiyar J. So the amounts decreed by Balakrishna Aiyar J. in both the suits were correct, and we confirm them. The learned Advocate-General urged next that, even so, Balakrishna Aiyar J. should have directed the decree amounts to be set off against each other, as the suits were intimately connected together, and the claims and counter claims related to the same matter, and should have allowed the State of Madras to set off the amount decreed in favour of the Tramway Company in C.S. No. 191 of 1952 against the amount decreed to the State against the Tramway Company in C.S. No. 368 of 1953. Though Mr. O.T.G. Nambiar objected to this at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decree in C.S. No. 191 of 1952 to the effect that the amount decreed thereunder to the Tramway Company could be set off by the State of Madras towards its decree in C.S. No. 368 of 1953, and by adding a clause in the decree in C.S. No. 368 of 1953 to the effect that the State could adjust and set off the decree in C.S. No. 191 of 1952 towards the amount due to it under this decree. The learned Advocate-General did not contend, and indeed he could not, that the amount due to the Government should have priority over the debenture holders or secured creditors as a Crown debt. Balakrishna Aiyar J. was right in negativing this contention raised before him. The learned Advocate-General urged that Balakrishna Aiyar J. was not justified in discussing in these suits the priority of the decree amount of the State in C.S. No. 368 of 1953 over all other unsecured creditors, as that is a matter not arising in these suits and has to be gone into and decided by the official liquidator and the court dealing with the liquidation proceedings. He, therefore, wanted the matter to be reserved for being agitated in future. Mr. O.T.G. Nambiar had no serious objection to this, though he pointed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets of the Tramway Company under the mortgages Exhibits D 10, D 11, etc . As remarked by Palmer, Ashburner and other leading writers on company law, a class of securities known as "floating charge" has been created by limited companies within recent times. A charge by a company on its general "undertaking" constitutes a floating charge. Such a charge is an equitable charge on the assets, for the time being, of the company as a going concern. It attaches to the subject charged in the varying conditions in which it happens to be from time to time. It gives an immediate equitable charge on the assets, subject to the right of the company in the ordinary course and for the purposes of its business, but not otherwise, to dispose of the assets as though the charge did not exist. It is of the essence of such a charge that it remains dormant until the undertaking charged ceases to be a going concern, or until the person intervenes in whose favour the charge is created. He may intervene whenever he pleases after default, but his right to intervene may be suspended by agreement. The priority of mortgages and charges made subsequently under such a power is a question of construction. There m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween the parties themselves, unless possession is actually taken; in equity it is not disputed that the moment the property comes into existence the agreement operates upon it." The reason for these rulings is that equity would treat as done what ought to be done, and, therefore, would enforce a contract regarding after-acquired properties, ignoring the absence of formal sale deeds etc . In In re Panama New Zealand and Australian Royal Mail Co. [1870] 5 Ch. App. 318 , Lord Justice Giffard held that the debenture holders acquired a charge upon all the property of the company, present and future, when the company had charged the "undertaking" in their favour, and that the debenture holders were entitled to be paid out of the property of the company in priority to the general creditors and that even if the company had not stopped, but had made default, the debenture holders could step in and seize the assets of the company and realise the security. In In re Florence Land and Public Works Co.: ex parte Moor [1878] 10 Ch. D. 530 , Jessel M.R. held that despite the charge on the property in favour of the debenture holders the power of the directors to dispose of any part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peak 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." In In re Lloyd's Furniture Palace Ltd.: Evans v. The Co. [1925] 1 Ch. 853 , it has been held that the claim of the debenture holders does not become voidable when the company goes into liquidation and can be enforced against the liquidator in liquidation proceedings. It was held in Government Stock and Other Securities Investment Co. v. Manila Railway Co. [1897] AC 81 by the House of Lords, that the security for the debentures remained as floating security till the debenture holders took some steps to enforce it and prevented the company from dealing with its property, and that the debenture holders were not entitled to an injunction restraining the company from paying interest to the bondholders. In Evans v. Rival Granite Quarries Ltd. [1910] 2 KB 979 , it was held that the demand by the debenture holder would not be of any use against the judgment debtor under a garnishee order, for there was no equity in a debenture holder whose security was a floating charge ari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i v. P.R. Mukherjee [1953] SCR 31 , and in R. v. Industrial Disputes Tribunal [1954] 2 All ER 730 , the word "undertaking" with reference to a company has been given a very wide meaning arid made to include all present and future properties. In In re Panama, New Zealand and Australian Royal Mail Co. [1870] 5 Ch. App. 318 , it has been held to include all the properties of the company, present and future. Even a trustee's savings bank account was included in it by R. v. Industrial Disputes Tribunal [1954] 2 All ER 730 . In Halsbury's Laws of England, 3rd Edn., Volume 6, it has been stated that a specific legal mortgage or equitable charge given by a company can be enforced in the same manner as similar securities given by an individual. A debenture-holder may obtain the appointment of a receiver, or receiver and manager and crystallise the floating security. When a floating security upon all the property or assets of the company is thus crystallised or fixed, it constitutes a charge upon all the property or assets then belonging to the company. It has priority over any subsequent equitable charges and over unsecured creditors and over moneys advanced to the liqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n held to be invalid in many of the States in U.S.A. He had to concede that "floating security" has been referred to in section 230 (2) of the Companies Act and in some other sections of the Act. Mr. O.T.G. Nambiar pointed out that "floating security" in favour of debenture holders has been recognised as valid in India by several decisions. We agree. In Nallaperumal Pillai v. Krishna Aiyangar [1915] 30 IC 286 , it has been held by a Bench of this court consisting of Sir John Wallis C.J. and Tyabji J. as early as 1915, that a floating security is valid in India, that the company's right to carry on business did not come to an end automatically on the happening of the default, but continued until the debenture holder intervened to show his desire that it should cease, as by applying for a receiver ; that the charges created by the company after default and before the seizure of the assets by the receiver were not void ; and that the floating security remained dormant and could not become fixed or crystallised until the company ceased to be a going concern, or until the debenture holder intervened. It however stated that a charge created in favour of the officers of a company cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in seisin of the liquidation proceedings, only with regard to the movables. He urged that with regard to the immovable properties, present or future, included in such floating charge, there would be no charge in favour of the debenture holders in the absence of registration under the Registration Act and also under section 109 of the Companies Act, since the rules of equity in England would not be applicable in their entirety in India. He pointed out that in Annada Mohan Roy v. Gour Mohan Mullick [1923] 50 LA. 239 , the Privy Council has held that a contract by a Hindu to sell immovable property to which he is then only a reversionary heir, expectant upon the death of a widow in possession, and to transfer it upon possession accruing to him, is void. That is so. The Privy Council held that section 6( a ) of the Transfer of Property Act, forbidding the transfer of expectancies, would be futile if a contract of the above description was made enforceable in India. Of course, this ruling goes quite contrary to the ruling in In re Lind: Industrials Finance Syndicate Ltd. v. Lind [1915] 2 Ch 345 , which held such transfer of expectancy to be valid in England. The reason fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly agree with those observations. Before Balakrishna Aiyar J. it was admitted on behalf of the Tramway Company that registration under the Registration Act was necessary in respect of immovable properties in order to make the charge in favour of the debenture holders valid. The learned Judge has observed: "It is incontrovertible that a floating charge in relation to immovable property must be registered under the Indian Registration Act." It was also conceded before the learned Judge that regarding the Mylapore immovable properties of the Tramway Company, covered by Exhibit D 11, they were only registered under the Indian Registration Act, but not under the Indian Companies Act; and on behalf of the Tramway Company it was not disputed that, as it was not registered under the Indian Companies Act, it would be void as a special mortgage. But it was contended on behalf of the debenture holders that by reason of Exhibit D 9, the trust deed executed by the Tramway Company in favour of the Beaver Trust Ltd., a floating charge was created over the Mylapore properties also, and that this floating charge fastened on the property on nth April, 1953, when the receiver stepped in and too ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture holders valid and enforceable. In P. Venkatapathi Raju v. Venkatasubadrayamma [1918] 47 IC 563 , a Bench of this court, consisting of Ayling and Seshagiri Aiyar, JJ., held that non-registration of the security would only deprive the promisee of his right in the immovable property and would not affect his rights in the movable property, thus showing clearly that regarding immovable properties registration under the Registration Act was essential in order to create a valid security. In appeal, in Subhadramma v. Venkatapathi Raju [1924] ILR 48 Mad. 230 , the Privy Council did not dissent from this observation, obviously because it was settled law. Mr. O.T.G. Nambiar relied on the rulings in Gayadin v. Kashi Gir [1907] ILR 29 All. 163 , but had to concede, after looking into it, that there was a registered mortgage in that case, and that the ruling would, therefore, not help him. He then fell back on the English rules of equity, as laid down in Holroyd v. Marshall [1862] 10 HL Cas. 191 , and other cases, and urged that all English rules of equity would apply to India also. We have already stated our opinion to the contrary, and have cited some rulings i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Tramway Company, not registered under the Companies Act, by urging that they should be deemed to be registered under the Companies Act by the debenture deed, Exhibit D 9, having been registered. This will not help him, as these immovable properties were not the properties of the company at the time of the registration of the debenture deed, Exhibit D 10 dated 26th March, 1925, or of Exhibit D 9 dated 13th February, 1947. These properties were acquired after 1947, that is, after Exhibit D 9 and Exhibit D 10, and, under the ruling in Annada Mohan Roy v. Gour Mohan Mullick 1923] 50 IA 239 , such transfer of an after-acquired immovable property will be futile under the Transfer of Property Act. Registration both under the Registration Act and the Companies Act would be required after the acquisition of the immovable properties by the company. The decision of the Federal Court in Governor-General in Council v. Shiromani Sugar Mills [1946] 16 Comp. Cas. 71 , shows how even the Crown or the State is bound by the provisions of the Companies Act. The Rundalls Road properties did not require registration under the Companies Act, as that was not prescribed at that time (bef ..... X X X X Extracts X X X X X X X X Extracts X X X X
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