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TMI Blog1984 (3) TMI 326X X X X Extracts X X X X X X X X Extracts X X X X ..... ered under the provisions of the Companies Act. The trustees of the gratuity fund filed in this court a suit (being Suit No. 308 of 1977) against the company on the equitable mortgage and prayed for realisation of the security. On December 3, 1977, a decree on admission was obtained in the suit. The decree recorded that the mortgagors (the company) admitted the claim of the mortgagees (the trustees). The decree declared that "under or by virtue of the deposit made on or about February 18, 1966, by the defendants with the plaintiffs of the title deeds of the property described in the plaint and in the schedule hereto the plaintiffs are entitled to the mortgage or charge on the defendants' property described in the schedule hereto." It declared the sum that was due and owing by the mortgagors to the mortgagees "on the security of the said mortgage". It ordered and decreed that upon the mortgagors paying into court on behalf of the mortgagees on or before December 3, 1980, being the date of redemption, the sum so declared to be due and owing, "the plaintiffs do deliver up all deeds, documents and writings of or relating to the property described in the schedule hereto in their pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany prior to its being wound up so that such decree became void as against the liquidator. The learned single judge found that the decree was not a charge created by the company. It was, therefore, not covered by section 125. The rights of the decree-holder flowed from the decree itself. A decree enforcing the mortgage or charge was distinct from the mortgage or charge which it enforced. A decree on a mortgage, especically one obtained prior to the winding up of the company, was, therefore, not governed by section 125. The rights under the mortgage had, as a result of the decree, become crystallised in the decree for sale which had been passed. It might be that the mortgagors' right of redemption was continued up to a period prescribed in the decree and even thereafter until the sale of the mortgage property under statutory provisions, but this did not mean that the decree itself was merely a charge. In the present case, rights under the mortgage had become finalised in the decree for sale which had been validly passed at a time when there was no winding-up petition pending against the company. The mortgage as against the company was valid and a valid decree had been passed pursua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isional liquidator, no suit or other legal proceeding shall be commenced, or, if pending at the date of winding-up order, shall be proceeded with, against the company, except by leave of the court and subject to such terms as the court may impose. An order under section 446 grants the applicant liberty to take legal proceedings against the company in liquidation wherein the applicant's rights or claim will be adjudicated upon. The rights or claim of the applicant are not adjudicated upon in proceedings under section 446. Even where leave is refused, the rights or claim of the applicant is provable in the liquidation proceedings. In our view, therefore, the very basis for the creation of constructive res judicata is absent. The real questions to be decided in this appeal concern the provisions of section 125 of the Companies Act. It reads thus: " Certain charges to be void against liquidator or creditors unless registered. (1) Subject to the provisions of this Part, every charge 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 there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stration, notwithstanding that further proceedings may be necessary to make the charge valid or effectual according to the law of the country in which the property is situate. (7) Where a negotiable instrument has been given to secure the payment of any book debts of a company, the deposit of the instrument for the purpose of securing an advance to the company shall not, for the purposes of this section, be treated as a charge on those book debts. (8) The holding of debentures entitling the holder to a charge on immovable property shall not, for the purposes of this section, be deemed to be an interest in immovable property." The first question is: Is a charge on the company's property which is unregistered under the provisions of the Companies Act void ipso facto upon the winding-up of the company or has the official liquidator to take steps to make it void? It was the submission of Mr. Tulzapurkar that the official liquidator had to take steps to have the unregistered charge declared void as against the company in liquidation. He relied in this context upon the judgment in Independent Automatic Sales Ltd. v. Knowles Foster [1962] 1 WLR 974; [1962] 32 Comp. Cas. 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficial liquidator had to take proceedings to have the unregistered charge declared or made void. In the first place, the application that was heard by Buckley J. was for delivery of the hire-purchase agreements and an account of the moneys received thereunder. It was not an application for making, or declaring, the charge void as against the liquidator for non-registration under section 95. In the second place, having regard to the language of section 125, it is clear that every charge created by a company which is not registered under the provisions of the Companies Act is "void against the liquidator". There is, therefore, no question but that a charge on the company's property which is unregistered under the provisions of the Companies Act is void ipso facto upon the company being ordered to be wound up. Such a charge has no effect upon the company's property once the order of winding-up is made. No steps are required to make or declare it void. The second question that arises in regard to section 125 is this: Does the fact that a decree has been passed against the company upon the unregistered charge before the company is ordered to be wound up make any difference to this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he form prescribed for the purpose. Unless the equity of redemption was so extinguished, a second suit for redemption by the mortgagor, if filed within the period of limitation, was not barred. The Federal Court preferred in this behalf the view of this court in Ramchandra Kolaji v. Hanmanta, AIR 1920 Bom. 29, to the contrary view taken by the Madras High Court. Reference was also made to this court's judgment in Rajaram Vithal v. Ramchandra Pandu, AIR 1948 Bom. 226 [FB]. The court quoted the judgment of the Privy Council in Raghunath Singh v. Hansraj Kunwar [1934] 61 IA 362; AIR 1934 PC 205, to this effect at p. 228 of AIR 1948 Bom.: "The right to redeem is a right conferred upon the mortgagor by enactment, of which he can only be deprived by means and in manner enacted for that purpose, and strictly complied with. In the present case, the only basis for the claim that the right to redeem has been extinguished is section 60; but in their Lordships' view the old decree cannot properly be construed as doing that which it does not purport to do, namely, as extinguishing the right to redeem." The court held that it was clear from this that the right of redemption cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Civil Procedure Code, is clear from the judgment of their Lordships of the Privy Council in Kusum Kumari v. Debi Prosad Dhandhania, AIR 1936 PC 63; 160 IC 285; 62 IA 114. That being so, the moment the final decree is passed, there is no longer any mortgage debt or mortgage money which the mortgagor can pay or tender to the mortgagee." Upon this, it followed that not only was the mortgage debt merged in the decretal debt but also, firstly, that the mortgage security merged in the decree and was replaced by the security of the order for sale, which merger was also in accordance with the ordinary principles of res judicata , the lower mortgage security which the mortgagee necessarily relied upon in his suit for sale merging in the higher security of the resulting decree; and, secondly, the right to redeem conferred by section 60, including the corresponding right of partial redemption thereby conferred, was extinguished by the final decree passed under Order 34, rule 5(3) and the mortgagor received in exchange the right to redeem the whole property by payment of the full decretal debt. The Patna High Court in Ramchandra Bhagat v. Mrs. Eva Mitra, AIR 1960 Patna 378, and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the mortgagee subsequent to the preliminary decree are outside the scope of the preliminary decree: they are analogous to amounts paid to a mortgagee by a mortgagor subsequent to the preliminary decree." The Supreme Court went on to agree with the observation of Clark J. in Chadalavada Satyanarayana v. Alladi Suryanarayana, AIR 1949 Mad. 613 at page 614, inter alia , to the effect that a mortgage suit continued until the final decree was passed and the relationship of a mortgagor and mortgagee continued until then, with the limitation that the observations quoted appeared to the court to be rather wide and comprehensive. Reference may be made to the judgment in Kusum Kumari v. Debi Prosad Dhandhania, AIR 1936 PC 63; 160 IC 285; 63 IA 114, relied upon by the Supreme Court in the case just referred to and by the Punjab and Haryana High Court in the case quoted earlier. The question that arose here was in regard to the quantum upon which interest was payable. On behalf of the mortgagor the complaint was of the allowance of interest on the decretal amount at the rate of 6 per cent. until realisation. On behalf of the mortgagees the complaint was that they had not been al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to cases where there are supervening events which are not covered by the section." (p. 1856) It will be noted that the learned judge of the Kerala High Court relied upon the judgment of the Federal Court in Subrahmanyan Chettiar v. Muttuswami Goundan, AIR 1941 FC 47, in concluding that once the mortgage had merged in the decree, the relationship of the parties was governed by the terms of the decree and the decree creating the charge was not hit by section 125 of the Act. In the Federal Court case, what was in question was a debt under a promissory note and it was held that the liability ceased to be a debt evidenced by or based on the promissory note after it had merged in the decree and become a judgment debt. To recapitulate, it is held by the Federal Court and this court that the right of redemption is an incident of a subsisting mortgage. This court has held that there is no merger of the mortgage security in the decree. To the contrary is the view of the Punjab and Haryana High Court which has held that, because the mortgage debt merges in the decretal debt, "the mortgage security merged in the decree and was replaced by the security of the order for sale". The S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Mr. Tulzapurkar in passing because it appears to us to have no application to the facts before us. It was a case in which a floating charge was created. In execution of the floating charge, specific properties were seized. It was held that, having regard to the legislation concerned, there having being a seizure of specific properties, the charge was no longer a floating charge but attached to the specific properties and was, therefore, not bad. It was contended by Mr. Tulzapurkar that the official liquidator could not go behind the decree unless there be fraud or collusion. In view of the provisions of section 125, the official liquidator is entitled, if not obliged, to place before the executing court his objection based thereon. We do not go into and express no opinion about the question, hypothetical here, whether in circumstances such as these, the official liquidator would be entitled to claim the sale proceeds if the mortgage property had been sold. In this view of the matter, the appeal is allowed, and the impugned judgment and order are set aside. The plaintiffs, their servants and agents are restrained from taking any further steps for sale of the immovable proper ..... 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