9911796707
TMI Blog1967 (11) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... s also sought a relief for determination of the rights of priority inter se between such respondents, as according to him, amongst the respondents one or the other of them claims that he is entitled to be paid the entire amount due and payable to him in priority to others who might have a preferential right to ask for the sale proceeds now in the hands of the official liquidator. Tn so far as the latter prayer of the official liquidator for determination of the rights inter se between the respondents is concerned, it is completely outside the scope of this court as a company court. Even if it were to be held ultimately that the respondents' claim to be declared as preferential creditors is well-founded, the forum in which the issues that might arise as between the respondents themselves as to who amongst them have to be preferred in the matter of such payment of the sale proceeds now in the hands of the official liquidator, notwithstanding the fact that it is justiciable, cannot be agitated in a summary proceeding like the one that is being enquired into by this court under the Companies Act, 1956. As such rights of preference inter se amongst the respondents have to be deter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inanciers or banks. One thing, however, is clear and conspicuous that apart from one vehicle which was hypothecated in favour of the Pandyan Bank, bearing No. MDF 1136, all other vehicles have been subjected to either a hypothecation agreement or a hire-purchase agreement in favour of more than one respondent to this application. Apparently, this was done by the managing director, Mr. C.V. Raman, in perpetration of a fraud practised by him consistenly against the creditors and incidentally against the company as well. One thing, however, emerges from the events that happened. The vehicles purchased by the managing director by securing the finances from one or the other of the respondents herein, or the money secured on hypothecation of such vehicles or on a hire-purchase agreement which is in commercial parlance called refinancing agreement, were secured for the benefit of the company and both vehicles and the money so obtained by the managing director were utilised for the company and for the benefit of the company. It is in such conspectus of events that the merits of the applicant and the respondents have to be considered in this case. In the report of the official liquidator, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch creditors who is entitled in preference to be paid a portion of the sale proceeds in the hands of the official liquidator is a civil claim which has to be necessarily adjudicated by civil courts. The company court which is vested with jurisdiction to deal with affairs relating to the winding up of a company cannot be said to have been invested with such jurisdiction either expressly or by necessary implication. To assume such jurisdiction would necessarily mean that civil and justiciable rights of parties, who are outside the scope of the winding up of the company can secure relief from this court in a summary manner without paying the necessary court fee and without following the usual common law procedure as to the ascertainment and adjudication of civil rights. I am, therefore, refraining from addressing myself to this question which the official liquidator seeks the company court to determine. But, in the circumstances of this case, the above principle is inapplicable and has to give way to render justice and to avoid multiplicity of actions. The several interested parties, including the Commissioner of Police, as already stated, have filed their respective counters to the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... othecation deed. The two other lorries mentioned in exhibit A-27 were later registered as MSX 8928 and MSX 8929. This hypothecation has been duly notified with the Registrar of Companies as a registrable charge under section 125 of the Companies Act. Mr. V. S. Subrahmanyam, learned counsel for the ^nd respondent, on the strength of such a registration of the charge and since the transactions are bona fide transactions in that they are not tainted in any manner known to law, contended that the bank is entitled to be treated by the official liquidator as a preferential creditor and cannot be directed to be ranked along with ordinary creditors. He cited before me many decisions, all to the effect that the bank is a hypothecatee and therefore is a mortgagee of the lorries or vehicles concerned and its right to enforce the equitable charge over the vehicles cannot be defeated by supervening liquidation. He referred in particular to exhibit A-3 and sought to add that by reason of the subsequent conduct of the directors, no possible attack can be made against the transactions of the company through the managing director and in fact the company is equitably estopped from questioning the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he objects of the company and the articles of the company and it is not obliged in law to know anything more about the company. In view of the copies of the resolutions produced by the managing director to the effect that he had the authority to borrow and hypothecate the lorries in question, it cannot be said that the bank in any way acted in an unreasonable or imprudent manner so as to divest it of its legal, legitimate and equitable right to recover the moneys as a charge-holder, from the official liquidator. Exhibit A-21 is the resolution which the 2nd respondent has produced as the one which the managing director has forwarded to it while applying for the loan on the hypothecation. The complaint of the official liquidator that such a resolution is non-existent is a matter which cannot be investigated and which could not have been investigated by the 2nd respondent on its own volition, and the bank out of necessity relied upon the representations of the managing director in so far as this resolution is concerned. Learned counsel has classified the decisions cited by him under the following heads : ( a ) the managing director should be deemed to have had ostensible authority to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eements over vehicles which the company owned and possessed. This system of financing is what is known as the refinancing agreement, the concept and details connected with which I shall presently advert. On the strength of such refinancing hire-purchase agreements the respondent claims as preferential creditors The 3rd respondent, inter alia , would state that as regards MSX 8469, a hire-purchase agreement was executed by the company on July 29, 1960, under exhibit A-112 and the registering authorities under the Motor Vehicles Act were informed about such a hire-purchase agreement and an endorsement to that effect is said to have been made by the traffic office consequent upon such an intimation. The intimation from the company to the registering authority is exhibit A-114 and the confirmation of the endorsement in the certificate of registration by the traffic authorities is seer, from exhibit A-115. For the vehicle MSX 7305, which is also one dealt with by the company with the 3rd respondent, the hypothecation agreement is under exhibit A-116 dated January 23, 1961. One other factor which appears from the voluminous records filed in this case is that in so far as these two vehic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rlier in point of time to that projected by this respondent. Mr. C. Vasudevan, learned counsel appearing for respondents Nos. 3, 11 and 23, concedes that the equitable charge or lien created under the refinancing hire-purchase agreements was not registered with the Registrar of Companies under section 125 read with section 132 of the Companies Act of 1956. He referred to a passage in paragraph 889 of Halsbury's Laws of England, Simonds edition, volume 6. He took me through the various clauses in exibit A-112 which is a pattern of the refinancing hire-purchase agreements in the series in question and submitted that on the strength of the sale letter executed by the company in favour of the respondents contemporaneously with the hire-purchase agreements, it would take out the transaction from the mischief of a refinancing agreement and would in effect be a financing agreement and therefore the non-intimation of such charge to the Registrar of Companies would not deprive the respondents of their rights as preferential creditors. He relied on Manchester, Sheffield, and Lincolnshire Railway Company v. North Central Wagon Company [1888] 13 App. Cas. 554 , and contended that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned counsel for the 2nd respondent. He would also add that the bank acquainted itself with the memorandum of association and the articles and were bona fide satisfied that the managing director had real or in any event ostensible authority to so borrow. His contention is that the company virtually delegated its powers to the managing director. As the resolutions passed by the board of directors are creatures of indoor management, he had neither the occasion nor the necessity to probe into the regularity or legality of such resolutions in the light of article 100 of the articles of the company. He added that the bank had no right to pry into the company's archives. He referred in particular to paragraphs 2, 5, 26 and 29 of the memorandum, to substantiate his contention. He contends that the copy of the resolution as forwarded by the company through its managing director having come from proper custody, the presumption as to its genuineness and its sanction arises as a matter of course and that no investigation by the official liquidator can be undertaken independent of and de hors the content and context of such resolutions. He relied upon the dictum in In the matter of Amb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to come from the financier, the intention at all material times that subsisted between the parties was that property in the vehicles is not to pass to the customer but to the financier and the former was only to hire the vehicle from the financier. He referred to exbitit R-75, the printed book filed in Sundaram Finance Ltd. s case ( supra ) and particularly to pages 209, 218 and 219 to show that the vehicles involved in the transaction in question are new vehicles for which a substantial portion of the purchase price was provided for by the financier. He brought out the distinction between hire-purchase agreements entered into under rules 82( a ) and 82( b ) of the Madras Motor Vehicles Rules and stated that the hire-purchase agreements in question with the respondents come within the scope of rule 82( a ). His contention is that even though in some cases the financier may not send the cheque direct to the dealer, yet if the dealer knows that it is a hire-purchase agreement within the meaning of rule 82( a ) of the Madras Motor Vehicles Rules and the money of the financier went for the purchase of the vehicle through the hands of the customer with notice of such hire-purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sinclair v. Brougham [1914] AC 398 and In re Diplock : Diplock v. Wintle [1948] Ch. 405 ; [1918] 2 All ER 318. The passage in Halsbury's Laws of England, third edition, volume 6 paragraph 888 was also pressed for the purpose and ultimately the submission was made that the funds in the hands of the official liquidator can be separated and earmarked for the benefit of the body of preferential creditors, as against such funds if any available, for the benefit of the general body of creditors. The official liquidator being a public body cannot unjustly enrich himself ignoring the rights of parties. Allied with the above contention was the answer given by the learned counsel regarding the formidable objection of the official liquidator that if the respondents' claim were to be treated as a secured loan, then it ought to fail for want of registration under section 125 read with section 132 of the Companies Act. The main contention of Mr. Thiruvenkatachariar is that under rule 6 of the Companies (Central Government's) General Rules and Forms, 1956, it is only every instrument or deed creating or evidencing a charge that has to be registered with the Registrar of Companies. Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fact that in some of the hire-purchase agreements two other directors or one amongst them signed as a guarantor would not take away the legal effect of the document. His contention is that if indeed the guarantor's signature is ultimately discovered to be a forgery, it is for the creditor to set it aside. This is not the case here. Even otherwise the document is distinctive in the sense that it is separable and so separated the document creates an actionable and an enforceable claim in favour of the financier ; whatever may be said in such circumstances of executed contracts cannot apply to executory contracts. The fraud, if any, was discovered after the instrument was acted upon and therefore these respondents' rights as preferential creditors cannot in any way be disturbed in view of the guarantor's signature only being a forgery. In conclusion, the learned counsel stated that this court can adjudicate upon the rights of preferential creditors inter se, which is the subject-matter of Application No. 132 of 1966. He invited my attention to section 446(2)( b ). The effect of this argument is that the non-obstante parenthesis in clause (2) of this section enables this court to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regular suit which involved a contest between two persons both of whom were similarly placed. This is not, however, the case here. Viewed in the context of events which has led to the official liquidator to take out this application for determination of the rights of each of the respondents to this application, I am unable to accept the contention of the learned counsel that in such proceedings the company court can delegate to itself the powers of a civil court and enter upon the enquiry as to who amongst themselves should rank in priority over the others. Application No. 132 of 1966 is therefore dismissed, but there will be no order as to costs. To repeat again, the principle stated by me is not strictly applicable to the facts of the instant case as in the ultimate analysis only two respondents out of the many before me are adjudged by me as preferential creditors ranking in the same plane and it is in the interests of justice that their rights should be finally decided in these proceedings to avoid procrastination and prolonging in general and multiplicity of actions in particular. The 9th respondent's case is a peculiar one. No doubt, the two lorries in question, MSW 3056 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take possession of the two vehicles in question which were the subject-matter of the above hire-purchase agreement and generally to take all steps to realise the amounts due under the aforesaid hire-purchase agreement. It is contended on the strength of this power of attorney and on the fact of actual payment of the dues to Hindusthan Motor Corporation, that this res respondent has stepped into the shoes of the financier and the hire-purchase agreement in question being financial agreement, it is entitled to be treated as preferential creditor. One other person by name Pushpa Kavur, who is not a party to these proceedings, is said to be interested in these vehicles. The 10th respondent, besides filing the counter, did not make any independent submission. His case is that MSY 2662 was under a hire-purchase agreement with him. This hire-purchase agreement is exhibited as exhibit A-131 and is obviously a refinancing agreement creating a secured loan which has not been registered with the Registrar of Companies. Mr. Ranganatha Sastri, appearing for respondents Nos. 12 to 15, also claims that his clients should be ranked as preferential creditors. In so far as the 12th respondent i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated as preferential creditors. Regarding the 21st respondent, no one appeared and he has not interested himself in this enquiry. Mr. Ramaswami, learned counsel appearing for the 22nd respondent, stated that his client is concerned with two vehicles which are the subject-matter of a refinancing arrangement. His case is that the endorsement in the "C" certificate showing the hire-purchase agreement in favour of his client is sufficient for him to claim as a preferential creditor. He invited my attention to the usual sale letter executed by the company (which in this case is Chakra Traders) in favour of his client and states that that is sufficient to establish that the property in the vehicles in question passed to the 22nd respondent and that, notwithstanding the non-registration of the charge under section 125 read with section 132 of the Companies Act, it is valid and enforceable. It is in this behalf he states that he should be ranked as a preferential creditor. Mr. G. Subrahmanyam, appearing for the 24th respondent, says that his client is concerned with four vehicles, MSX 9862, MSW 719, MSW 720 and MSW 2305. This is a case of refinancing. The hire-purchase agreement is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as a party to this judge's summons has filed a counter affidavit representing herself to be the 25th respondent, but no attempt has been made before me to substantiate her case. The 24th respondent has claimed interest in four vehicles. His counter-affidavit discloses that amounts were advanced under refinancing hire-purchase agreements. The charge created thereunder has not been registered with the Registrar of Companies. This respondent, however, did not attempt to substantiate his case further in the course of arguments. Sri V. Thyagarajan, learned counsel for the petitioner, when he opened the case, filed all the documents relevant for the enquiry with particular reference to each of the respondents herein. The useful data prepared by the official liquidator and a summary sheet thereto was of considerable assistance to the court. Those documents had to be necessarily marked so as to have a full and complete picture of the events connected with each of the dealings of the company with the respective creditors and also for the purpose of appreciating the chronology of events. In spite of the voluminous record that has been filed and meticulously referred to before me in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble only to cases where the financier in the first type of hire-purchase agreements advanced the totally of the purchase price and paid the same to the dealer. If it could be normally established that the funds made available under the financing hire-purchase agreement was responsible for the acquisition of the goods by the company, then it would not matter whether a part of the price of such goods came from the funds of the company. Continuing his argument, the learned counsel would state that, inasmuch as the company has also provided a part of its funds to build the body to make the vehicle complete and road-worthy as a lorry, such portion of the funds so expended by the company has to be excluded and the necessary equities between the financier and the company have to be allocated. This argument does not appeal to me. When a person obtained an advance over the base of the goods and if such a base is improved upon by the borrower conscious of such a charge in favour of the creditor who was responsible for the purchase of that base, the borrower cannot later set up a case that the amounts spent by him for putting up a body over the unfinished base and for other improvements have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e two-fold. One is entered into between the financier and the customer (who are respectively described as owner and hirer in the hire purchase agreement) in a case where the customer secures a new vehicle from a dealer but is unable to pay the price therefore to the dealer. To secure accommodation he straightaway approaches the financier, who purchases the vehicle from the dealer, through the instrumentality of the customer and in return enters into a hire-purchase agreement with the customer, providing therein a right to the customer to become the owner after payment of all dues to the financier or on paying a nominal price as agreed to. Besides other usual terms, the vehicle has to be registered in the name of the financier as owner, and a right of seizure of the vehicle in case of default of the customer is also provided. But to satisfy the provisions of the Motor Vehicles Act, the certificate of registration, is kept in the name of the customer. In the second form of hire-purchase agreement, usually adopted, the customer is the indisputable owner of the vehicle and it is so registered in his name under the Motor Vehicles Act. He requests the financier to grant a loan on the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the finance hire-purchase agreement) and the second type of hire-purchase agreement (hereinafter referred to as the refinance hire-purchase agreement) has been well brought out by the Supreme Court in Sundaram Finance Ltd. s case ( supra ) thus: "The agreement, ignoring variations of detail, broadly takes one or the other of two forms: (1) When the owner is unwilling to look to the purchaser of goods to recover the balance of the price, and the financier who pays the balance of the price undertakes the recovery. In this form, goods, are purchased by the financier from the dealer, and the financier obtains a hire-purchase agreement from the customer under which the latter becomes the owner of the goods on payment of all the instalments of the stipulated hire and exercising his option to purchase the goods on payment of a nominal price. The decision of this court in K. L. Johar Company v. Deputy Commercial Tax Officer [1966] 17 STC 489, 500 dealt with a transaction of this character. (2) In the other form of transactions, goods are purchased by the customer, who in consideration of executing a hire-purchase agreement and allied documents remains in possession of the good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods hands to a bank indorsed railway receipts relating thereto as security for an advance (even without a formal letter of hypothecation), there is constituted, in the absence of evidence to the contrary, an equitable charge upon the goods which is binding between the owner and the bank. In Pramatha Nath Talukdar v. Maharaja Probirendra M. Tagore AIR 1966 Cal, 405, Mallick J. observed as follows: "By hypothecation no interest or property is transferred to the hypothecatee. Hypothecatee has nothing more than an equitable charge to have his claim realised by the sale of goods hypothecated. By a charge no interest in the property is transferred. The only right acquired by the charge-holder is the right to be paid out of the property charged". In Md. Sultan v. Firm of Rampratap Kannyalal AIR 196 A.P. 201, the court observed : "... In the absence of specific rules applicable to any matter, the principle recognised in the various Civil Courts Acts is that the courts should decide according to justice, equity and good conscience which is considered to be equivalent to the English law wherever such law is applicable to Indian conditions. It is only under this principle that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords "secured creditor". But the Provincial Insolvency Act, 1920, defines a "secured creditor" so as to mean a person holding a mortgage, charge or lien on the property of the debtor or any part thereof as a security for a debt due to him from the debtor. Stroud in his Judicial Dictionary says that though a lien is a security, yet the former word is much too narrow to comprise all that may be apprehended under the law. It would thus appear that not only a hypothecatee but also the financier under the re-financing hire-purchase agreement being a person who has lent moneys by way of a loan on a security is also a secured creditor. I am fortified by the view expressed by the Supreme Court in Sundaram s case ( supra ) . Mr. V.K. Thiruvenkatachari, though not necessarily for his case, has argued this point. His case is that if in a refinancing hire-purchasing agreement the vehicle is seized, the financier became a pledgee and the official liquidator is bound to redeem the pledge ; but as in the instant case the hypothec has been sold by consent, the official liquidator is bound to respect the rights of the pledgee-financier, by paying off the dues owing to him. No doubt, the righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the above discussion, the following points emerge : ( a ) In the case of a financing hire-purchase agreement, the financier being the owner is entitled to be treated as a preferential creditor by the official liquidator and no question of conflict of his interests with the other creditors even though secured will arise, ( b ) In the case of refinancing hire-purchase agreement, the financier is no doubt a secured creditor. But his rights are subject to sections 125 and 132 of the Companies Act, 1956, and if he is able to surpass and hurdle the same, he would be entitled to be treated as a preferential creditor by the official liquidator, ( c ) A hypothecatee is a secured creditor and has to be treated as such subject however to the provisions of sections 125 and 132 of the Companies Act, 1956. ( d ) All creditors having an enforceable charge, legal or equitable, over the movables of the company, have a right to trace such lien even over the sale proceeds of the hypotheca, if indeed the movable property has been so converted. The next phase of the argument of Sri V. Thyagarajan is that even assuming the creditor is a preferential creditor, section 292 of the Companies Act, 1956, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity. By functioning as such, the company secured the benefit of the advances from the respondents. The classical passage of Lopes L.J. in Biggerstaff v. Rowatt's Wharf Limited [1896] 2 Ch. 93, 104 may be usefully quoted : "...a company is bound by the acts of persons who take upon themselves, with the knowledge of the directors, to act for the company, provided such persons act within the limits of their apparent authority; and that strangers dealing bona fide with such persons, have a right to assume that they have been duly appointed". It is unnecessary to multiply authorities. The cardinal principle appears to be that if a company allows its affairs to be managed by one and such functional exercise of authority is warranted under the charter of the company and its articles, then the resultant bargains due to the exercise of such power, actual or ostensible, cannot be disregarded by the company who has had the benefit therefrom : vide Lakshmi Ratan Cotton Mills Co. Ltd. v. J . K. Jute Mills Co. Ltd. [1957] 27 Comp. Cas. 660 ; AIR 1957 All. 311. No one can approbate and reprobate. The bedrock on which this principle is decided is that of equitable estoppel. The cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and the third on a subsequent occasion. It was held in such circumstances that such authority was insufficient, inasmuch as, the directors who gave it had not acted at a board meeting of directors and the bond was therefore not duly executed so as to bind the company. To similar effect was the decision in In re Haycraft Gold Reduction and Mining Company [1900] 2 Ch. 230. In Pacific Coast Coal Mines Limited v. Arbuthnot [1917] AC 607 the learned Law Lords made it clear that if a statutory condition was not complied with by the board, then any act done pursuant thereto was consequentially ultra vires of the company and incapable of being made valid even by acquiesence on the part of the shareholders. Reference was made to a passage in Halsbury's Laws of England, third edition, Volume 6, Simonds edition, at page 431, which runs as follows: "...where the act is only within the power of a company on the fulfilment of a statutory condition, persons dealing with a company are bound to ascertain whether the condition has been fulfilled". But, as already stated by me, the argument proceeds on the assumption that there was no resolution at all and even if there was one it shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and find for themselves whether a person who was permitted to act as a director of the company for some length of time was also its director de jure". When a person is held out as managing director with authority to act for the board, as was done in this case, of a company and as such an office necessarily involves the exercise of a particular authority and incurrence of liabilities, a normal presumption in favour of the third party arises that such exercise of authority is lawful; any amount of reservation within the four walls of the indoors of the company touching upon such authority cannot be of any avail to the company vis-a-vis such strangers. The above general rule as it were, is adumbrated in what is terminolo-gically called "Doctrine of Indoor Management" by Lord Hatherley. Gower in his Treatise on Modern Company Law states the rule as follows : "But provided that everything appears to be regular so far as this can be checked from the public documents, an outsider dealing with the company is entitled to assume that all internal regulations of the company have been complied with, unless he has knowledge to the contrary or there are suspicious circumstances putti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve the power to do so. In the instant case, exhibit A-3 which reflects upon the enthusiasm of the directors to revive the company, after all that happened, again fortifies the contention of the learn- ed counsel for respondents Nos. 2, 4 and 5 that all was well and nothing suspicious about the managing director. Mr. V. Thyagarajan however proceeds that even if the acts of the managing director come within the fold of "indoor management", yet the arrangements entered into by him with third parties are void and unenforceable because such documents are tainted with fraud. Strong reliance was placed on the ratio in Ruben v. Great Fingall Consolidated. [1906] AC 439, 444. That was a case where the secretary of the company, who had absolutely no authority to issue shares, fraudulently affixed the seal of the company and forged the signatures of two of the directors. In those circumstances Lord Macnaghten observed: "The thing put forward as the foundation of their claim is a piece of paper which purports to be a certificate of shares in the company. This paper is false and fraudulent from beginning to end. The representation of the company's seal which appears upon it, though ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This is not good; law should be in accord with justice, equity and good conscience. The observations of the Division Bench in Lakshmi Ratan Cotton Mills Co. Ltd. v. J . K. Jute Mills Co. Ltd. [1957] 27 Camp. Cas. 660. 671; AIR 1957 All. 311 can be usefully quoted : "Even if the borrowing by the agent of a company is unauthorised, the company would be liable to pay, if it is shown that the money had gone into the coffers of the company. The lender having not advanced the money as a gift but as a loan, and the borrower having received the benefit of the money, the law implies a promise to repay. On the establishment of these facts a claim on the footing of money had and received would be maintainable. Once, however, the payment is received by the defendant company, the receipt of the money itself is a benefit to the company and the creditor is not concerned with what is done with the money by the company subsequently". Thus viewed I am unable to subscribe to the argument of Sri V. Thyaga-rajan that the documents containing forged signatures of the other directors should be avoided even though they are valid and enforceable by reason of the managing director having principal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e created on or after the 1st day of April, 1914, by a company and being a charge to which this section applies shall, so far as any security on the company's property or undertaking is conferred thereby, be void against the liquidator and any creditor of the company, unless the prescribed particulars of the charge, together with the instrument, if any, by which the charge is created or evidenced, or a copy thereof verified in the prescribed manner, are filed with the Registrar for registration in the manner required by this Act within twenty one days after the date of its creation". Section 125(4) provides : "This section applies to the following charges :..................... ( e ) a charge, not being a pledge, on any movable property of the company;.............". Under a hypothecation agreement, the company creates a charge over its movable property. Even so in a re-finance hire-purchase agreement, where the loan is secured on the vehicle which is the subject-matter of the finance agreement, a lien is created on the vehicle, resulting in a charge within the meaning of section 125(4)( e ) of the Companies Act of 1956. Therefore, it is imperative that the document evidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided by the financier for purchar3 of the vehicle. The claim however is based on exhibit A-177 which, prima facie , is a refinancing agreement coming within the mischief of the ratio of Sundaram Finance Ltd s case ( supra ). As this has not been registered, the claim cannot be sustained. As regards the claim of the third respondent which is based on exhibit A-166 which is a refinancing hire-purchase agreement, the claim has to fail for want of registration under the Companies Act of 1956. Therefore, the only claimant wno is entitled to enforce its rights is the 2nd respondent, who will be treated as a preferential creditor by the official liqudator, who shall pay the creditor the net sale proceeds of the vehicle, expenses, charges and costs pro rata worked out for the purpose. MSX 8469 : The claimants who project preferential claims against this vehicle are respondents Nos. 2, 3, 4 and 13. The 2nd respondent relies on exhibit A-27, hypothecation agreement dated May 30, 1960. This is signed by C. V. Raman and the signatures of the other directors are faked. But the agreement of guarantee, exhibit A-28, is signed by Raman. No doubt, the signatures of the other directors in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondents Nos. 2, 4, 11 and 12 are claiming rights over this vehicle. Respondent No. 12 bases his claim under exhibit A-149, a refinancing hire-purchase agreement. Though respondent No. 12 advanced moneys for the purchase of the vehicle and entered into a financing hire-purchase agreement, exhibit A-155, yet it was cancelled and exhibit A-149 was entered into. The charge under this agreement not having been registered, the claim of respondent No. 12 as preferential creditor ought to fail. Respondent No. 11 bases his claim on the refinancing hire-purchase agreement, exhibit A-143. This has no force because the charge has not been registered under the Companies Act. The claim of the 11th respondent to rank as a preferential creditor falls to the ground. As regards respondents Nos. 2 and 4, they both claim as hypothecatees of the vehicle; the former under exhibit A-27 registered under exhibit R-54 and the latter under exhibit A-54 registered under exhibit A-58. Both are entitled to rank as preferential creditors and the official liquidator will deal with them as such. MSX 8471 : Respondents Nos. 2, 4, 11 and 13 are the claimants over this vehicle. Respondent No. 13 bases his clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s cancelled and exhibit A-148 was entered into. The charge under this agreement not having been registered the claim of respondent No. 12 as preferential creditor ought to fail. Respondent No. 22 bases his claim on the refinancing hire-purchase agreement, exhibit A-188. This has no force because the charge has not been registered under the Companies Act. The claim of the 22nd respondent to rank as a preferential creditor falls to the ground. As regards respondents Nos. 2 and 4, they both claim as hypothecatees of the vehicle, the former under exhibit A-27 registered under exhibit R-54 and the latter under exhibit A-54 registered under exhibit A-58. Both are entitled to rank as preferential creditors and the official liquidator will deal with them as such. MSX 9159 : Respondents Nos. 4, 11 and 13 are the claimants over this vehicle. Respondent No. 13 bases his claim under exhibit A-l70, a refinancing hire-purchase agreement. Though respondent No. 13 advanced moneys for the purchase of the vehicle and entered into a financing hire-purchase agreement, exhibit A-169, yet it was cancelled. The subsisting hire-purchase agreement under exhibit A-170 which creates a charge has not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered hypothecatee under exhibit A-54 has to be upheld and he will be treated as such by the official liquidator, who shall pay the sale proceeds of the vehicle to the 4th respondent, less expenses, costs and charges, which have to be reckoned pro rata by him. MSX 9566 : Respondents Nos. 4, 11 and 12 are the claimants over this vehicle. Respondent No. 12 bases his claim under exhibit A-146, a refinancing hire-purchase agreement. Though respondent No. 12 advanced moneys for the purchase of the vehicle and entered into a financing hire-purchase agreement, exhibit A-153, yet it was cancelled. The subsisting hire-purchase agreement, exhibit A-146, which creates a charge has not been registered under the Companies Act. Hence, his claim to rank as a preferential creditor fails. Respondent No. 11 rests his claim on an unregistered refinancing hire-purchase agreement, exhibit A-137. He cannot therefore claim preference. The net result is that the claim of the 4th respondent as a registered hypothecatee under exhibit A-54 has to be upheld and it will be treated as such by the official liquidator, who shall pay the sale proceeds of the vehicle to the 4th respondent, less expenses, cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction. As the 8th respondent advanced the moneys for the purchase of this vehicle, his claim as owner of the vehicle has to be accepted and the amount due to the 8th respondent be paid by the official liquidator from and out of the sale proceeds of the vehicle, less expenses, charges and costs pro rata worked out for the purpose. In this view, the non-registration of the hire purchase agreement in question with the Registrar of Companies under section 132 of the Act does not matter. MSX 9862 : The claimants are respondents Nos. 4, 3, 23 and 24. Respondents Nos. 23 and 24 claim under refinancing hire-purchase agreements, exhibits B-207 and A-212, which are not registered under the Companies Act. Their claim to rank as preferential creditors cannot be accepted. The 8th respondent advanced monies for the purchase of the vehicle. The vehicle was purchased on September 15, 1960. The financing hire-purchase agreements on which reliance is placed by the 8th respondent are exhibits R-2 and A-78. The hypothecation in favour of the 4th respondent is dated September 12, 1960, before the vehicle was purchased by the company. The inclusion of this vehicle in the hypothecation agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 8th respondent is to be deemed to be the owner of this vehicle See K. L. Johar s case ( supra ). Therefore, the claims of respondents Nos. 15 and 24 to be ranked as preferential creditors based on hire-purchase agreement dated January 30, 1961, under exhibit A-178 and the hire-purchase agreement dated April 24, 1961, under exhibit A-212 respectively cannot be countenanced Because the company had no authority to deal with the vehicle at all. The termination of the finance hire-purchase agreement, exhibit A-96, was on June 2, 1961, under exhibit R-46. Therefore, the right of the 8th respondent to rank as the only preferential creditor as regards this vehicle is unassailable. As the 8th respondent advanced the moneys for the purchase of the vehicle his claim as owner of the vehicle has to be accepted and the amount due to the 8th respondent be paid by the official liquidator from and out of the sale proceeds of this vehicle, less expenses, charges and costs pro rata worked out for the purpose of this vehicle. MSW 2307 : The claimants are respondents Nos. 8, 14 and 23. The 8th respondent advanced moneys to the company for the purchase of this vehicle. The financing hire-p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to between this respondent and Hindusthan Motor Corporation Limited. Under exhibit R-87, it was obligatory on the part of this respondent to forward to the Corporation all applications from persons or companies for hire-purchase facilities in respect of motor vehicles sold by the dealer. In consideration of the Corporation sanctioning the applications recommended by the dealer, this respondent undertook to guarantee the due performance and observance by the applicant, called the hirer, of all the conditions in the hire-purchase agreement. Therefore, though this respondent was not eo nomine a guarantor in exhibits A-l 19 and A-120, yet by reason of the overall guarantee undertaken by them under exhibit R-87, the respondent became virtually a guarantor for the due observance of the hire-purchase conditions by the company in liquidation. As already stated, this respondent recommended the advance. Therefore the Corporation, on the default committed by the company, re-possessed the vehicles and intimated the registering authority that all further steps would be taken by the respondent. It transpires that the vehicles were handed over to the respondent after seizure by the Corporation. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be treated as a guarantor who stepped into the shoes of the Corporation and, therefore, he is entitled to recover the net sale proceeds of the vehicle in specie, on the ground that he has stepped into the shoes of the Corporation and entitled to be treated preferentially by the official liquidator. I, therefore, declare that this respondent is to be ranked as preferential creditor. As the 9th respondent has stepped into the shoes of the financier who advanced the moneys for the purchase of the vehicles, his claim in such capacity has to be accepted in full. I therefore direct that the amount reckoned as payable to the 9th respondent be paid by the official liquidator from and out of the sale proceeds of the two vehicles less expenses, charges and costs pro rata worked out for the purpose. I may add that the non-registration of the hire-purchase agreement with the Hindusthan Motor Corporation with the Registrar of Companies under section 132 of the Companies Act would not make any difference. MSW 4134 and MSW 4136: The two rival claimants are respondents Nos. 8 and 13. This is yet again a case where the 13th respondent is said to have taken a hire-purchase relating to the v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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