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TMI Blog1958 (9) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... n the aircraft. In its petition the defendant No. 2 referred to and relied upon two agreements dated July 16, 1950, and also claimed that the aircraft was sold to the defendant No. 2 by the defendant No. 1 on November 20, 1950. The application was disposed of by an order dated March 14, 1951. The order embodies certain terms of settlement agreed to between the plaintiff and the defendant No. 2. Clauses 1 and 2 of the terms of settlement are as follows: "1.Official receiver will be forthwith discharged and he will make over possession to the applicant of the Dakota VT-AZV on counsel's endorsement without the order being drawn up. 2.In the event of the plaintiff in this suit instituting a suit within April 3, 1951, and establishing therein that the transfer of the Dakota aircraft VT-AZV by Indian Overseas Airlines Ltd. to Air Friends who is the applicant in these proceedings is a sham or a fraudulent transaction and/or that the said applicant was not and/or did not become the owner of the said aircraft at the time of the appointment of the receiver in suit No. 4676 of 1950 ( Motilal Kejriwal v. Indian Overseas Airlines Ltd. ) , the said Air Friends will remain liable to and ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s claim. The following issues were raised at the trial of this suit: "1.Did the defendant No. 2 become the owner of Dakota aircraft VT-AZV at the time of the appointment of receiver in suit No. 4676 of 1950? 2.Was the transfer of the Dakota aircraft VT-AZV by defendant No. 1 to defendant No. 2 a sham or fraudulent transaction? 3.Has the plaintiff taken all steps in execution of the decree as provided in the consent order dated March 14, 1951, to realise the decretal amount in suit No. 4676 of 1950? 4.Is the suit maintainable in the event of the plaintiff not establishing any of the facts mentioned in issues Nos. 1, 2 and 3? 5.Is the defendant No. 2 a necessary or proper party to the suit? 6.To what relief, if any, is the plaintiff entitled?" At the trial the defendant No. 2 claimed title to the aircraft both under the agreement dated July 16, 1950, as also by virtue of the transaction of sale of November, 1950. The point was also made clear by Champalal Chandak in his evidence. The learned trial judge Bose J. found that large sums of money were advanced by the defendant No. 2 under the two agreements dated July 16, 1950. He also found that the defendant No. 2 was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing fitted in the aircrafts and for meeting the salaries and remuneration of the staff of the defendant No. 2 and other expenses. The aircraft VT-AZV was released and engines were bought with the aid of the funds so advanced. The aircraft VT-AZV was taken to Bangalore shortly after its release and was fitted with engines so purchased. The financing agreement provided that the aircraft VT-AZV would be employed by the defendant No. 2 for the carriage of passengers and air freight, that the net profits would be shared equally by both the defendants. The agreed terms and conditions of the partnership were embodied in the separate partnership agreement dated July 16, 1950. The partnership agreement was acted upon. The partnership continued from August, 1950, to November, 1950. The aircraft VT-AZV was flown from August 4, 1950, till about November 5, 1950. The evidence of Chandak with regard to the total sum of money advanced by the defendant No. 2 to the defendant No. 1 and with regard to the dues outstanding on November 20, 1950, as also on January 13, 1951, is confused and unsatisfactory. We are, however, satisfied that on November 20, 1950, the dues of the defendant No. 2 exce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financing agreement dated July 16, 1950, created a mortgage of the aircraft VT-AZV in favour of the defendant No. 2. On general principles and even apart from the express terms of the agreement the mortgage of the aircraft transferred the general property in the aircraft to the defendant No. 2. The effect of a mortgage of goods is explained thus in Story's Law of Bailments, 9th edition, article 287, page 256: "A mortgage of goods is, in the common law, distinguished from a mere pawn. By a grant or conveyance of goods in gage or mortgage, the whole legal title passes conditionally to the mortgagee ; and if the goods are not redeemed at the time stipulated, the title becomes absolute at law, although equity will interfere to compel a redemption. But in a pledge, a special property only, as we shall presently see, passes to the pledgee, the general property remaining in the pledgor." In Keith v. Burrows [1876] 1 CPD 722 at 731 , Lindley J. observed : "A mortgage is a transfer of all the mortgagor's interest in the thing mortgaged : but such transfer is not absolute ; it is made only by way of security; or, in other words, it is subject to redemption. Unless, therefore, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purposes of the partnership and the nett profits earned by its employment were to be shared by the partners. It does not appear however that the aircraft was brought into the stock of or became the property of the partnership. The property right in the aircraft acquired by the defendant No. 2 under the financing agreement continued to remain with the defendant No. 2 in spite of the partnership agreement. The mortgage of the aircraft VT-AZV created by the financing agreement dated July 16, 1950, was not registered with the Registrar of Companies. Mr. Bhabra contended that the mortgage was "a mortgage or charge, not being a pledge on any movable property of the company except stock-in-trade" and that therefore in view of section 109(1)( e ) of the Indian Companies Act, 1913, in force at the relevant time the security is void against the plaintiff who is an unsecured creditor of the company. I am unable to accept this contention. Possession of the aircraft was given to the defendant No. 2 by way of security. Though the defendant No. 2 employed the aircraft for purposes of the partnership, the aircraft continued to be in the possession of the defendant No. 2 as contemplated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies of the company. Section 109(1)( e ) specially deals with and enjoins registration of a mortgage or charge on any moveable property of the company. At the same time section 109(1)( e ) excepts from its operation (1) a mortgage or charge which is a pledge and also (2) a mortgage or a charge on stock-in-trade. With respect I am unable to agree with the observations of Chandra Reddy J. in Rajah of Vizianagaram v. Vizianagaram Mining Co. Ltd. [1952] 22 Comp. Cas. 1 that "what is exempted from registration is a pledge of moveable property of the company other than the stock-in-trade." I may add that there is no evidence on the record to show that the aircraft VT-AZV was part of the stock-in-trade of the defendant No. 1. Section 109(1) of the Indian Companies Act, 1913, does not therefore require registration of the mortgage of the aircraft and the mortgage cannot be avoided under that sub-section. It is therefore not necessary to decide the further question whether in the absence of an order of winding up of the company an unsecured creditor having no interest in the mortgaged property can at all avoid a mortgage under section 109(1)( e ). Mr. Bhabra next contended that the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he date of the sale. The respondents' case is that the sale took place on or about November 20, 1950. The appellant's version is that the sale must have taken place sometime in the middle of January, 1951. We are asked by the appellant to hold that the several documents dated November 20, 1950, have been fabricated and brought into existence as a result of a fraudulent conspiracy between defendant No. 1 and defendant No. 2. We asked Mr. Bhabra again and again what motive he could ascribe to the defendants for entering into this fraudulent conspiracy. Mr. Bhabra was unable to assign any motive for this conspiracy. The petition for examination pro interesse suo is dated February 2, 1951. Assuming that there was no sale on November 20, 1950, the defendant No. 2 was on November 24, 1950, in possession of the aircraft as a secured creditor. The dues of defendant No. 2 exceeded Rs. 1,20,000. On proof of the mortgage and the possession and of the indebtedness of defendant No. 1 to defendant No. 2, the defendant No. 2 was entitled to an immediate order of release of the aircraft. The plaintiff could not realise any part of his dues by proceeding against the aircraft. On February 2, 1951, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uential declaration cannot be said to be premature or not maintainable. I am also inclined to think that the parties intended that the plaintiff should not be driven to a third suit for the purpose of obtaining a decree against the defendant No. 2. In my opinion the parties intended that if the plaintiff was successful in establishing the facts mentioned he would be entitled not only to a suitable declaration but also to an order giving him liberty to apply in that very suit for a decree against the defendant No. 2 for the amount which may remain outstanding in respect of the decree in suit No. 4676 of 1950 after he has taken all steps in execution for the realisation of the decretal amount. As the plaintiff has failed to establish the facts mentioned he is not entitled to any relief. In my opinion, the decree for dismissal of the suit must be affirmed for the reasons already given and not on the ground that the plaintiff is not entitled to maintain the suit. The appeal is dismissed. The finding of the learned trial judge that the defendant Air Friends was not the owner of the aircraft VT-AZV on December 24, 1950, is set aside and to that extent the cross-objection is allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The interpretation of section 109 from this point of view follows logically. Registration is necessary for a mortgage or charge on movable property. Exception is expressly and clearly made in favour of (1) pledge and (2) stock-in-trade. The reason for excluding pledge is not far to seek because pledge of movables usually means parting with possession. The argument of the appellant that the finance agreement of July 16, 1950, is void because it was not registered, cannot be sustained because under section 109(1)( e ), it cannot be said that this document is a "mortgage or charge not being a pledge" within the meaning of section 109(1)( e ). A second more important reason is that this Dakota was not the "movable property of the company" within the meaning of section 109(1)( e ) of the Indian Companies Act. Movable property in this context, appears to me to mean the property which belongs to the company. Such property may be the possessory property in the shape of control, custody, possession or management or titular property in the sense of the title or ownership. Now, the company, in this case was the Indian Overseas Airlines Ltd., who had not this Dakota either in its control ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessary where the person entitled to the security has obtained possession of the goods. The transaction now in question may amount to a mortgage, but as there are here all the requirements for a valid pledge, it is also a pledge, and being a pledge, did not require registration." We respectfully agree with this view of the construction of section 109 of the Companies Act. Reliance was also placed by Mr. Bhabra on the Privy Council decision in Ram Narain v. Radha Kishen Moti Lal Chamaria [1930] 57 IA 76; AIR 1930 PC 66 and specially on the observation of Sir Lancelot Sanderson at page 83 where it was said: "Section 109 provides that a mortgage, such as the bank's mortgage of August 10, 1922, shall so far as any security on the company's property or undertaking is thereby conferred, be void against the liquidator and any creditor of the company unless the prescribed particulars are filed with the Registrar within twenty-one days after the date of its creation. It is to be noted that the section does not avoid the mortgage absolutely, but only so far as any security is given thereby on the company's property or undertaking. The effect, therefore, is that if a mortgage is not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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