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TMI Blog1980 (4) TMI 238X X X X Extracts X X X X X X X X Extracts X X X X ..... charges mentioned by the Registrar of Companies by cancelling the registration of the charge created by the mortgage dated February 11, 1970, executed by the Malayala Rajyam Private Ltd., and the Sree Rama Vilasam Press Publications (Private) Ltd., hereinafter referred to as the mortgagor and the co-mortgagor respectively. That petition was dismissed M.F.A. No. 469 of 1978 is against the said order of dismissal. The Sree Rama Vilasam Press and Publications (Private) Ltd., was incorporated under the Indian Companies Act, 1913, with its registered office in S.R.V. Buildings, Main Road, Quilon. As per its memorandum of association it was competent to guarantee any loan advanced to any other company as might to be considered necessary to carry on or advance its business. The mortgagor-company incorporated under the Companies Act, 1956, and having its. registered office in the same S.R.V. Buildings was formed by the co-mortgagor company as a sister concern to carry on a part of its business, with the assets transferred by it. Some time in December, 1969, the mortgagor company applied to the first respondent, Kerala State Financial Corporation, hereinafter referred to as "the Corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agor company. Exhibit P-3 and Ex. P-4 are stated to be copies of the resolutions of the co-mortgagor company and the mortgagor company respectively, certified by Sri N. Chandrasekharan Nair, the common managing director. In due course, Ex. P-2 mortgage was executed by Sri Chandrasekharan Nair as managing director, representing the mortgagor and the mortgagee companies. Sri Chandrasekharan Nair, Sri N. Madhavan Nair Sri K. Ambujakshi Amma also joined in the document in their personal capacities as guarantors. The common seals of both the mortgagor and the mortgage companies were also affixed in the mortgage deed as directed in Ex. P-3 and Ex. P-4. An amount of Rs. 4,00,000 being the first instalment of the loan was paid on February 10, 1970, to meet part of the price of the Plamag Rotary Press. The amount remaining was to be paid to meet the balance cost of the said machinery including the transportation and erection charges only after the Plamag Rotary Press was brought to the mortgaged site and installed, after the Corporation was satisfied on valuation through its technical advisor that the press was worth not less than Rs. 10,00,000 in the erected condition and after the mortg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. It appears that the particulars of Ex. P-2 were filed by the co-mortgagor company only by June 19,1970. A petition was filed under section 141 of the Companies Act by the co-mortgagor to condone delay in furnishing the particulars. This petition was allowed on November 30, 1970. The charge was registered by the Registrar on October 10, 1972, as is seen from Ex. P-5 extract from the register of charges. The supplementary mortgage under Ex. P-12 remained unregistered. In the meanwhile, there was default on the part of the mortgagor company to pay up the debt as provided in Ex. P-2 and Ex. P-12. The Corporation initiated proceedings O.P. No. 54 of 1971, before the District Court, Quilon, as provided in sections 29, 30 and 31 of the State Financial Corporations Act, 1951, for realisation of the amounts due by sale of the properties secured and from the guarantors personally, impleading the mortgagor company, the co-mortgagor company and the gurantors. None of the parties opposed the claim. The petition was allowed on 30th January, 1973, limiting future interest at 6 per cent. per annum. It so happened that due to labour disputes and financial strain there was hindrance to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal. The auction purchaser company has got itself impleaded as the fourth respondent in the appeal. Confirmation of the sale of other properties of the mortgagor and co-mortgagor companies stands stayed till the disposal of the appeal as per the order in C.M.P. No. 16138 of 1978. The main contention of the appellant is that the mortgage Ex. P-2, and the supplementary mortgage, Ex. P-12, are not binding on either the mortgagor company or the co-mortgagor company since they were not executed with the concurrence of the board of directors. The co-mortgagor company was not benefited by the mortgage. The loans were granted in violation of section 292 of the Companies Act. The board of directors of the Sree Rama Vilasam Press and Publications (Private) Ltd., the co-mortgagor had no occasion to meet and pass the resolutions evidenced by Ex. P-4 and Ex. P-14 and, therefore, the execution of the mortgage deeds Ex. P-2 and Ex. P-2 was an unauthorised act on the part of the managing director and as such the two transactions are not binding on the co-mortgagor company or its creditors. It has to be noted at this stage that the original minutes books containing the proceedings of the me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duced and there was no meeting of the board of directors authorising the managing director to borrow funds from the Corporation during the period he was a director. However, he admitted in cross-examination that he was removed from managing directorship at a meeting of the board of directors held in October, 1971. He himself did not attend that meeting. He also admitted that there were meetings of the board of directors of the co-mortgagor company during the period when he was the managing director. The minutes of those meetings were not recorded in the minutes books produced in the case. The witness would say that the minutes of those meetings were recorded in sheets of paper signed by the directors present and delivered to Chandrasekharan Nair who was keeping minutes book. The latter portion of his evidence belies his earlier case that there were no meetings of the board of directors since November 20, 1968, It is noted that Ex. R-1, minutes book, contains a number of instances where the typed sheets of papers containing minutes of the board of directors are pasted in the book. Therefore, the possibility of the meetings of the board of directors of the co-mortgagor company being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding the passing of the resolution contemplated in section 292. In cases where formal resolutions are not insisted upon, decisions need not in all cases be recorded in writing; they can be inferred from conduct [see H.L. Bolton ( Engineering ) Co. Ltd. v. T.J. Graham Sons Ltd. [1956] 3 All ER 624 (CA)]. "In the absence of a minute other evidence can be given ; and if the book of a company shows a record of a transaction, as, for instance, the forfeiture of share, which would not be valid without a resolution of the directors, the court will, in the absence of other evidence, presume that such a resolution has been passed" ( Halsbury's Laws of England, 4th Edn., Vol. 7, para. 533). In the present case Ex. P-3, Ex. P-4, Ex. P-13 and Ex. P-14 are prima facie, copies of resolutions stated to have been passed by the mortgagor and the co-mortgagor companies. They contain the signature of Chandrasekharan Nair, who was the managing director of both the companies nobody has a case that Chandrasekharan Nair was not the managing director or that he has not signed in the above documents. Section 54 of the Companies Act directs that a document or proceeding requiring authenticatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er or a stranger to the company to act upon the resolution and lend money to the company subject to the limitations mentioned in the resolution. An authenticated copy of the resolution signed by the managing director is in the ordinary course sufficient evidence to show that there has been a delegation to the managing director. The question in the present case is whether the Corporation was right in acting upon the ostensible authority apparent from the copies of the resolutions produced before it and whether it was incumbent on the Corporation to probe further and see if such a resolution had in fact been passed at a meeting of the board of directors and whether the concerned meeting was properly convened. The leading case where the principles involved are discussed and which is often referred to in subsequent decisions is the English case, Royal British Bank v. Turquand [1856] 6 E B 327. Turqu-and was the official manager of a company incorporated under the Act of 1844. A bond under the seal of the company, signed by two directors and the secretary was given by the company to the plaintiff-bank to secure its drawings on current account. In an action based on the bond th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m or articles of association ; and a party to a transaction so decided on shall not be bound to enquire as to the capacity of the company to enter into it or as to any such limitation on the powers of the directors, and shall be presumed to-have acted in good faith unless the contrary is proved". The Turquand's rule has been approved and followed by Varadaraja lyengar J., in Varkey Souriar v. Keraleeya Banking Co. Ltd. [1957] 27 Comp. Cas. 591, 594 ; AIR 1957 Ker. 97, in the following passage: "Coming to the alternative ground, it is no doubt true that where a company is regulated by a memorandum and articles registered in some public office, persons dealing with the company are bound to read the registered documents and to see that the proposed dealing is not inconsistent therewith but they are not bound to do more. They need not enquire into the regularity of the internal proceedings what :Lord Hatherley called ' indoor management'. See Roya1British Bank v. Turquand [1856] 6 E B 327, Ram Buran Singh v. Mufassi1Bank Ltd., AIR 1925 All 206(2), Dehra Dun Mussoorie Electric Tramway Co. Ltd. v. Jagmandar Das [1931] 1 Comp. Cas. 227 ; AIR 1932 All. 141, T.R. Prat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oks of account of the bank. It is not practical to expect the customer to go to the Accountant and the cashier and ascertain from them whether the signatures in the deposit receipt purporting to be theirs are really affixed by them". It is also advantageous to refer to the case Mahony v. East Holy ford Mining Co. [1875] LR 7 HL 869. Therein the company's bank made payments based on a formal copy of a resolution of the board authorising payments of cheques signed by any two of three named "directors" and countersigned by the named "secretary". The copy was itself signed by the secretary. It came out subsequently that neither the directors nor the secretary had ever been formally appointed. According to the articles, the directors were to be nominated by the subscribers to the memorandum and the cheques were to be signed in such manner as the board might determine. It was held that since the bank had received formal notice in the ordinary way of the board's decision, it was not bound to enquire further. Lord Hatherley said: "When there are persons conducting the affairs of the company in a manner which appears to be perfectly consonant with the articles of association, then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the managing director is authorised to authenticate documents of the two companies. Ex. P-2 and Ex. P-12 were executed by the managing director in conformity with the terms of the resolutions, Ex. P-3, Ex. P-4, Ex. P-13 and Ex. P-14. Persons interested in the company have joined in the deeds as guarantors. The common seal of the concerned company has been affixed in the documents in the presence of one of its directors. The resolutions, copies of which were produced, satisfied the requirements of law. There is no allegation of fraud or collusion. There is also no case that the boards of directors of the companies acted beyond their powers in passing the resolution or in incurring the debts. Under such circumstances, if the Corporation was to demand the minutes books of the companies it would amount to probing into the internal management of the companies, which it was not bound to do. If the Corporation was not bound to look into the minutes books, neither is the court expected to draw an adverse inference based on the non-production of the minutes book. The non-availability of the minutes book in this case is, therefore, not a ground for holding that there was no resolution o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10, 1972. In the meanwhile, C.P. No. 3 of 1972 was filed on March 20, 1972, by a creditor of the co-mortgagor company for winding up of that company, which was followed by C.P. No. 1 of 1973 filed on January 1, 1973, by another petitioner. The appellant subsequently got himself substituted in the place of the petitioner in C.P. No. 1 of 1973. The appellant would contend that since the registration was effected at a time when winding up proceedings were pending, the registration is invalid and the Ex. P-2 mortgage would not get precedence over the other debts of the co-mortgagor company. The appellant has also a case that O.P. No. 58 of 1970, stated to be the petition for extending the period for filing the particulars of the charge under Ex. P-2 was in fact a petition for condoning the delay in filing the release of a charge in favour of the Syndicate Bank in respect of a mortgage of Rs. 50,000 and that there was no application for enlarging the time for registration of the charge in favour of the Corporation. It was also contended that the registration of the charge in favour of the Corporation offended section 536(2) of the Companies Act. C.P. No. 6 of 1977 was filed by him for r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to the court to consider the effect, of giving extension, on the creditors of the company before deciding whether extension should be allowed, In re Dinshaw Co. Ltd. [1936] 6 Comp. Cas. 434 ; AIR 1937 Oudh 62). There is also no weight in the contention that delay in registering the charge by entering it in the register of charges would affect its validity or would render it void. The argument overlooks the fact that the period fixed in section 125 is for the filing of the particulars of the charge and not for the registration of it. The delay in registration contemplated in section 141 of the Act is the delay due to the omission to file the particulars in time. This is evident from the fact that section 125 does not prescribe a period within which the Registrar is to register the charge or make entries in the register of charges. Therefore, the delay in registering the charges even after the court condoned the delay in filing the particulars and extended the time till May 19, 1970, the date of filing the particulars, may not affect the validity and the binding nature of the mortgages on the companies. According to the scheme of the provisions relating to the registrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany. The provision contained in section 125, that the charge sought to be registered, would be void against any creditor of the company unless the particulars are filed within the period prescribed, may not have any application to the case of an unsecured creditor. No doubt, the word "creditor" is wide enough to include an unsecured creditor also. But section 125 has to be taken in conjunction with section 141(3). The latter provision, as it stood on the relevant date, reads: "Where the court extends the time for the registration of a charge, the order shall not prejudice any rights acquired in respect of the property concerned before the charge is actually registered". The section necessarily implies that it has application only to cases of debts, which have reference to property, namely, secured debts. In other words, an unsecured creditor has no right to challenge the validity of a charge or to claim that he has preferential right over the charge holder on the ground that he incurred the liability prior to the registration of the charge. On behalf of the appellant reliance was placed on the decision in the matter of Sathgram Coa1Company Ltd. [1936] 40 CWN 1171. One of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the liability of the co-mortgagor, of which the appellant is a creditor, will stand reduced. It would appear that though Ex. P-12 mentions the word "mortgage" what is secured under the document is the machinery of the press. Under section 2(26) of the General Clauses Act machinery would become immovable property only if it is embedded to earth or attached to what is so embedded. There is no evidence that the Plamag Press got fastened up or embedded at any place. Evidence if at all is otherwise. Under the terms of Ex. P-2, the documents of title relating to the press were to be surrendered to the Corporation. The said documents have been in the possession of the Corporation. The company court held that the machinery was in the premises mortgaged to the Corporation and that the Corporation was in legal possession of the article and security was by way of pledge. The above findings were not seriously challenged before us. What remains to be considered is whether the order for sale in O.P. No. 54 of 1971 is binding on the co-mortgagor company. Exhibit P-18, a certified copy of the order, shows that the co-mortgagor was a party to the proceedings. The order was passed on 30th Januar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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