9911796707
TMI Blog1964 (1) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... he company. The properties, which were subject to this charge, were practically the only tangible assets available in the winding up for liquidation of the debts due against the company. During the course of winding up, the learned company judge, by an order dated April 4, 1959, which was passed with the consent of the appellant, directed that the assets of the mill be sold by public auction free from all encumbrances. The order further stated that: "The claim of debenture holders was admitted who consented to the sale being held free of charge provided the amount received by the sale was given to them first." The mills were on April 12, 1962, sold for Rs. 4,16,000 free of the charge created by the debentures held by the appellant. On May 24, 1962, the appellant made an application to the learned company judge praying that the official liquidator be directed to pay the amount of the second series of debentures together with interest on execution of an indemnity bond, or in the alternative to deposit the entire amount of the second series of debentures with interest in fixed deposit with a bank. The application stated that the charged properties having been sold free from encumb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him as an ordinary creditor of the company. The learned company judge on October 18, 1962, held that the objector is to be treated as an ordinary creditor of the company and that the creditors mentioned in lists IV and VI of the official liquidator, being covered by section 230, Indian Companies Act, 19T3, have a priority over him. The official liquidator was, accordingly, authorised to pay the preferential creditors. Aggrieved, the objector has filed Special Appeal No. 826 of 1962. The main contention is that section 230, Indian Companies Act, 1913, is not applicable. Three questions arise for determination in these appeals. Firstly, whether the appellant continues to be a secured creditor ; secondly, whether he is entitled to payment and, lastly, whether section 230, Indian Companies Act, 1913, is applicable. The question at the threshold is as to the status of the appellant. This question can be examined from two points of view. Firstly, whether the sale of the charged properties, free of encumbrance, changed the status of the appellant; and, secondly, whether the loss of the scrips affects his status as a secured creditor. Under the doctrine of substituted security, if th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the company's register of debenture holders as the holder of the debentures of the second series. He has paid consideration for them. His status as a secured creditor of the company will not depend on his continued possession of the scrips. We are of the opinion that the appellant continues to be a secured creditor of the company. The second question is whether the appellant is entitled to payment. The finding of the learned company judge that the debenture scrips have been stolen or taken away from the appellant and that he is not in a position to produce and deliver them up, has not been challenged before us. Normally, satisfaction by payment can only be had by delivery of the scrips to the official liquidator. Thereby the creditor gives an effective discharge. The question to be determined is whether this rule should be insisted upon in case of a creditor who has lost his scrips or whether the law recognizes some other way of obtaining an effective discharge. Section 229, Indian Companies Act, 1913, makes the rules of the law of insolvency applicable to the rights of secured and unsecured creditors in winding up. It is a basic principle of law of insolvency that a cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , learned counsel for the appellant, has stated that the appellant is prepared to execute an indemnity bond and to furnish a guarantee from a scheduled bank. Under the circumstances, the appellant is entitled to payment. The last question relates to the applicability of section 230, Indian Companies Act, 1913. Section 230(1), Indian Companies Act, 1913, enumerates various kinds of debts due from the company in liquidation. Sub-section 2( b ) of the aforesaid section is as follows: "230. 2( b ) The foregoing debts shall.... so far as the assets of the company available for payment of general creditors are insufficient to meet them, have priority over the claims of holders of debentures under any floating charge created by the company, and be paid accordingly out of any property comprised in or subject to that charge. " It is thus clear that the debts mentioned in section 230(1) have a right of preferential payment as against the claims of the holders of debentures under any floating charge created by the company; and that those debts can be paid out of property which is subject to the floating charge. The debts mentioned in lists IV and VI of the official liquidator have, with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the holder of the charge. In the instant case, the debentures of the second series issued by the company mentioned that they have been issued subject to the condition that they will rank as second mortgage upon the charged property of the company and that "the said charge shall constitute a floating security only, not binding on any sale or other dealing in the ordinary course of business by the company with the assets or property comprised in the charge." The debenture trust deed under which the debentures held by the appellant were issued, in paragraph 4, states that " the trustee shall stand possessed of mortgage premises upon trust to permit the company to carry on the business therewith and to deal with and dispose of the same in the ordinary course of the company's business and to pay dividends out of profits . . . . "A perusal of the debenture trust deed, as also the form of debenture annexed thereto, does not disclose that the charge sought to be created was either fixed on any property of the company or that in its nature it was different from a floating charge as ordinarily understood. In our opinion, the appellant holds debentures creating a floating charge simpli ..... X X X X Extracts X X X X X X X X Extracts X X X X
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