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TMI Blog1968 (7) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... empts were made to have the bond registered with the Registrar of Joint Stock Companies under section 109 of that Act, the bond was also not registered. The plaintiffs' case is that the plaintiffs, who are fourteen in number, are the legal representatives of late Rangarao (hereinafter referred to as the mortgagee) and they have agreed that by virtue of a registered partition deed, the 1st plaintiff alone became entitled to the money due under this deed, and prayed for a decree in his favour and, if that is not possible, in favour of all the plaintiffs. As per the terms of the bond, the interest has to be paid every year and the principal shall be repayable on or before June 5, 1954, and in default of payment of interest in any year, the entire principal money as well as the interest accrued shall become immediately payable and security become enforceable after the expiry of 30 days from such due date. The company having committed default in payment of even the first year's interest (which was due by June 5, 1949), the entire principal and interest became payable by July 5, 1949. One Boda Venkataratnam obtained a decree against the company in O.S. No. 39/49 on the file of the Dist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bject to the mortgage, the 1st defendant is not liable to discharge the same. The properties purchased by the 1st defendant having been delivered through court to Kameswararao, the remedy of the plaintiffs is only to proceed against Kotha Suryanarayana, who, it was contended, was a bona fide purchaser for value without notice of the mortgage. The 1st defendant did not undertake to discharge the mortgage liability. He did not sell any of the items of the machinery mortgaged under Ext. A-9 nor realised any substantial sums thereby and that he is not a trustee nor personally liable. He never gave any personal undertaking to discharge the mortgage debt. Some of the mortgaged properties were subject to the first charge in favour of one Chauhan as stated in the deed itself. As the mortgage deed was not registered under the Companies Act, the amount thereunder became immediately payable under the provisions thereof and the suit is barred by limitation. Defendants 2 to 7 were impleaded as parties to the suit on 16th February, 1962, by an order on LA. No. 789/61. They substantially adopted the contentions of the 1st defendant and also raised the plea of limitation. It was averred that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue of debentures. ( ii )The several clauses in Ext. A-9 provided only for redemption of the debentures and for payment of the interest due thereunder but not for payment of interest or principal under the mortgage deed, and as the mortgage debt became immediately payable and the suit filed beyond 12 years from June 5, 1948, is barred by limitation. We shall now consider the validity of all these contentions. The first contention of the appellants is that it is only the District Court, Rajahmundry, that had the jurisdiction to entertain the suit, but not the Subordinate Judge's Court. In order to appreciate this contention, it may be relevant to note that the suit was filed, as is evident from paragraph 14 of the plaint, to enforce the mortgage by sale of the mortgaged properties under Order 34, rule 1, C.P.C., and for recovery of the suit amount of Rs. 60,000 with interest at 5 1/2 per annum and costs by sale of the mortgaged properties or a sufficient part thereof. The suit was filed only against the 1st defendant purchaser of the suit properties, subject to the mortgage debt. By way of abundant caution, defendants 2 to 7 were also impleaded as the 1st defendant contended th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t within the particular period. Sub-section (2) lays down that: "Nothing in sub-section (1) shall prejudice any contract or obligation for the repayment of the money secured by the charge." Sub-section (3) provides that : "When a charge becomes void under this section, the money secured thereby shall immediately become payable." According to sub-section (4), this section applies to the following charges: ( a )a charge for the purpose of securing any issue of debentures ; ( b )a charge on uncalled share capital of the company ; ( c )a charge on any immovable property, wherever situate, or any interest therein; ( d )a charge on any book debts of the company ; ( e )a charge, not being a pledge, on any movable property of the company ; ( f )a floating charge on the undertaking or any property of the com pany including stock-in-trade ; ( g )a charge on calls made but not paid ; ( h )a charge on a ship or any share in a ship ; ( i )a charge on goodwill, on a patent or a licence under a patent, on a trade mark, or on a copyright or a licence under a copyright. Sub-section (8) provides that the holding of debentures entitling the holder to a charge on immovable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the liquidator as successor of the company. In Aung Ban Zeya v. Chettiar Firm AIR 1927 Rang. 288, the suit was filed for recovery of a sum of money as being due on a mortgage of the company's mill and other properties. The mortgagors admitted the debt and the mortgage but pleaded that the mortgagees were not entitled to a mortgage decree because under section 109 of the Indian Companies Act of 1933, the security on the company's property was void against the liquidator or any creditor of the company, since the prescribed particulars of the mortgage and a copy thereof were not filed with the Registrar. That contention was rejected by the trial court on the ground that there was no question in that case of any claim by a liquidator or any creditor of the company, and gave the respondents a mortgage decree. On appeal the same contention was repeated and a Bench of the Rangoon High Court rejected that contention summarily. An application for leave to the Privy Council was rejected by the Bench of that High Court quoting with approval the observations of the Master of the Rolls and Phillimore L.J. in In re Monolithic Building Company, Tacon v. The Company [1915] 1 Ch. 643: which c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gage invalid and a nullity. The effect of the section is that if the mortgage is not registered, the liquidator is not to take notice of it as a mortgage. The debt will survive and it will be treated on a par with other debts. The property which is the subject matter of the security will be available as the assets of the company to the liquidator for payment to the creditors. The creditors in liquidation will not be affected by the mortgage. This section does not take away the right of the company to deal with its property. If the company can validly deal with its property, any transfer made by the company will be binding on the company. If the company mortgages certain property, any person who subsequently purchases the property from the company will take it subject to the mortgage and section 109 is no bar to the mortgagee enforcing his mortgage as against the transferee of the company simply because it has not been registered under section 109. In the present case there is no evidence to show that the company has gone in liquidation. It is not the liquidator who in the course of the liquidation proceeding is contending that the mortgage is not binding on him. It is the credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the matter, we shall decide that question also. There is no substance in the contention, as we have held that the right to obtain debentures is not the only right conferred on the plaintiff. In our judgment, Ext. A-9 created both a specific as well as a floating charge, and the right to obtain debentures, and the mere fact that the debentures were not issued, would not take away the rights, otherwise conferred on the mortgagee. We shall now consider the plea of limitation. In doing so, it may be helpful to dispose of this contention in relation to defendants 2 to 7 first. As already stated, their plea was that they were impleaded as defendants on 16th February, 1962. According to Ext. A-9 both the principal and interest become due on the date of the default in paying the first year's interest on 5th June, 1949, and the suit should have been filed against them within 12 years, i.e. , on or before June 5,1961 and since they have been impleaded on February16,1962, the suit is barred by limitation. This contention is on the assumption that defendants Nos. 2 to 7 were the purchasers of a portion of the mortgage property. The trial judge found issue No. 3, viz. , "Whether the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2 to 7 are in possession of the mortgaged property, it is only on behalf of the 1st defendant. It, therefore, follows that the plea of limitation has to be considered only from the standpoint of the 1st defendant. In the written statement of the 1st defendant, he pleaded that inasmuch as Ext. A-9 was not registered under section 125 of the Companies Act, it became void and the money secured became immediately payable. But, as already stated, the contention of Sri K.B. Krishnamurthy, now, is different, viz ., that there is no clause in Ext. A-9 creating a fixed charge and all the clauses only provide for a floating charge. His further contention is that none of the clauses contemplated the payment of interest or the principal advanced under Ext. A-9, apart from the redemption of the debentures. For appreciating this contention, it is necessary to construe the several terms of Ext. A-9. Before doing so, it may be as well to state briefly what preceded the execution of Ext. A-9. By a resolution dated December 2, 1947, (Ext. A-1) the company had first authorised the managing agents to raise a loan to the extent of Rs. 50,000 on the first charge of the assets of the company and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment of interest thereon for the time being accrued and payable in the manner appearing therein, and that the mortgagee had consented to the terms therein. Ext. A-9 states that 'debenture-holder' means the said mortgagee, Sri Rangarao, his heirs or his legal representatives or administrators for the time being. The important recital is that the company granted and assigned to the mortgagee as security for the debentures all and singular the lands and premises described in the first schedule annexed thereto, with all buildings annexed to or erected thereon or on some part thereof and all trees, fences, hedges, ditches, ways, sewers, drains, water courses, liberties, privileges, etc., and to the security of the mortgagee for the purpose therein mentioned and concerning the same. The company also assigned as security to the mortgagee the machinery, plant, engines, boilers, mill, etc., set out in the second schedule which now are or shall from time to time during the continuance of this security be in or upon or about the premises to hold the same premises unto the mortgagee as security. It also recites that there was a first charge in favour of one H.V. Chauhan, in respect of some o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill during the continuance of this security pay such registered holder interest on the said principal sum of Rs. 60,000 or such less amount as is unpaid at the rate of 7 per cent, per annum subject to deduction of income-tax by annual payments on the 5th day of June in every year. To this document were attached three schedules as already referred to. The first schedule consists of land, site, factory office, buildings, etc. The second and third schedules described the machinery. It is needless to point out that the machinery described in schedules 2 and 3 were those in existence on the date of the mortgage, and were embedded in or attached to the earth and therefore formed part of the factory itself and immovable property, along with the site and buildings. Clause IX of Ext. A-9, already referred to, created a first charge for the repayment of Rs. 60,000 advanced by the mortgagee on the properties described in schedules 1 and 2 and a second charge on the property described in schedule 3. In addition to the said first charge the document also created a charge on the items mentioned in clauses III to V and a floating charge on the machinery which may be brought in future on the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e terms. The undisputed fact is that the entire sum of Rs. 60,030 was advanced by Rangarao to the company, and a fixed charge, apart from the floating charge, was created as security for the discharge of that mortgage debt. It is against this background that we have to construe the clauses in Ext. A-9 in this context. Clause X already referred to provides that the principal money as well as the interest accrued and payable up to date shall immediately become payable and the security hereby constituted shall after the expiry of 30 days of grace from such due date become enforceable, if the company makes default in the payment of interest on the stipulated date in any year. In order to ascertain the stipulated date, reference has to be made to clause XIV( b ) which provides that the company will during the continuance of this security pay such registered holder interest on the said principal sum of Rs. 60,000 or such less amount as is unpaid at the rate of 7 per cent, per annum on the 5th day of June in every year. According to these two clauses, the first year's interest became payable on 5th June, 1949, and admittedly that was not paid. The company had 30 days of grace and hence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is ample to stand by their investment for the full term of the mortgage. If on the default of the mortgagor in other words, by the breach of his contract the mortgage money becomes immediately 'due' it is clear that the intention of the parties is defeated and that what was agreed to by them as an option in the mortgagees is in effect converted into an option in the mortgagor. For if the latter after the deed has been duly executed and registered finds that he can make a better bargain elsewhere, he has only to break his contract by refusing to pay the interest and co instanti, as Lord Blanesburgh says, he is entitled to redeem. If the principal money is 'due' and the stipulated term has gone out of the contract it follows in their Lordships' opinion that the mortgagor can claim to repay it, as was recognized by Vazir Hasan J. in his judgment in the Chief Court. Their Lordships think that this is an impossible result. They are not prepared to hold that the mortgagor could in this way take advantage of his own default: they do not think that upon such default he would have the right to redeem and in their opinion the mortgage money does not 'become due' within the meaning of artic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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