9911796707
TMI Blog2008 (1) TMI 622X X X X Extracts X X X X X X X X Extracts X X X X ..... availed of financial facilities from Canara Bank, Wadakkanchery, to a limit of Rs. 75 laksh out of which an amount of Rs. 22 lakhs and odd was outstanding as payable in July, 1981. The entire assets of the company including the land and machinery were mortgaged to the Canara Bank and directors of the company including the appellant had executed personal guarantee bonds and stood as sureties for the said loan. On account of the failure of the company to pay back the dues in proper time by 1981 the Canara Bank had expressed its inability to make further advances for the functioning of the company. It is the case of the appellant that in view of the above, he advanced Rs. 18,38,852 ,58 to the company and the company cleared the liabilities of the Canara Bank. According to him, he paid the same as per board resolution and minutes of the discussions of the company dated April 20, 1981, will prove the same. Two resolutions passed in the above meeting are as follows: "Resolved unanimously that Dr. L. P. Prabhu be and is hereby authorised to borrow money from him or from his relatives in the name of Mittal Steel Re-Rolling and Allied Industries Ltd., in order to redeem mortgage debts of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst charge in favour of the appellant. There was a declaration signed by all the directors of the company including the appellant in the above letter dated October 21, 1981 (annexure "A" produced by the appellant himself) wherein it is stated as follows: "I/We hereby declare that the said properties are not subject to but are free from charge, alienation or encumbrance of any kind whatsoever except those that are disclosed according to the documents submitted to you herewith. I/We further agree that I/We shall not let the properties offered as security suffer any encumbrance hereafter if the loan is sanctioned to me/us until they are freed from your charge." Such a declaration was signed for getting overdraft and financial assistance from the Syndicate Bank by pledging and hypothecating all the immovable properties as security. Execution certificate to show that assets were free of any charge was also produced. It was followed by another letter from the company dated October 21, 1981, to the following effect: "We hereby confirm that the change in the director board has been informed to the Registrar of Companies and also the assets of the company are free from charge." We also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the company to them. In the notice dated August 23,1986, for winding up of the company under section 431(l)(a), only an amount of Rs. 10,00,000 was allegedly due from the company to the appellant and his brother. They had no case that the above was a secured debt or that they are subrogated to the position of prior mortgagee. On December 22, 1986, winding up petition was filed by the appellant and his brother wherein it was stated that they gave an advance of Rs. 18,38,852 to the company which is again reduced to Rs. 13,60,000 by agreement and again to Rs. 10,00,000 by supplementary agreement. Therefore, on the date of winding up petition only amount due to the appellant and his brother as per the claim was only Rs. 10,00,000 and he had no claim that the above debt was charged on the assets of the company. In the winding up petition, the appellant has no case that appellant is a secured creditor. A suit, O.S. No. 525 of 1987,was filed by the Syndicate Bank, secured creators, for recovery of the amounts due to it. Decree was passed and steps were in progress for recovery of the above amount through the Debts Recovery Tribunal. The company petition dated December 22, 1986, filed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the claim, the appellant was asked for the particulars and after hearing him and considering his reply, the adjudicated order was passed after perusing the entire documents relied on by the appellant. He has no case that he wanted to adduce further evidence. What was filed before the company court is only an appeal. In appeal, his contentions were rejected on the basis of admitted facts and documents. Further, since winding up petition was pending, the entire records were in the company court. In the nature of the proceedings, we are of the opinion that no prejudice is caused by not allowing further evidence before the company court in the appeal proceedings. No additional documents or evidenced was adduced in the appeal also other than the documents available before the company court and the matter was decided by the company court on the basis of the undisputed facts. Hence, we see no ground in the contention that he was denied an opportunity to adduce evidence. The appellant miserably failed to evidence that any prejudice has been caused to him by not allowing further evidence in appellate stage or he has a further right to adduce at the appellate stage. The learned company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his favour as he is subrogated to the position of the mortgagee by operation of law as provided under paragraph 1 or 2 of section 92 of the Transfer of Property Act, 1882 and rule of estoppel is not applicable in this case. To understand the nature of arguments, we quote below section 92 of the Transfer of Property Act, 1882: "92. Subrogation.-Any of the persons referred to in section 91 (other than the mortgagor) and any co-mortgagor shall, on redeeming property subject to the mortgage, have, so far as regards redemption, foreclosure or sale of such property, the same rights as the mortgagee whose mortgage he redeems may have against the mortgagor or any other mortgagee. The right conferred by this section is called the right of subrogation, and a person acquiring the same is said to be subrogated to the rights of the mortgagee whose mortgage he redeemed. A person who has advanced to a mortgagor money with which the mortgage has been redeemed shall be subrogated to the rights of the mortgagee whose mortgage has been redeemed, if the mortgagor has by a registered instrument agreed that such persons shall be so subrogated. Nothing in this section shall be deemed to confer a ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a doctrine primarily of equity jurisprudence ... It is a substitution, ordinarily the substitution of another person in the place of a creditor, so that the person in whose favour it is exercised succeeds to the rights of the creditor in relation to the debt. It is broad enough to include every instance in which one party pays a debt for which another is primarily answerable, and which, in equity and good conscience, should have been discharged by the latter ... It is a legal fiction, by force of which an obligation extinguished by a payment made by a third person is treated as still subsisting for the benefit of this third person, who is thus substituted to the rights, remedies, and securities of another. Subrogation is an exercise of the equitable powers of the court, to relieve a meritorious creditor, who might otherwise be subjected to loss by his funds being applied to pay another's debt... Subrogation to the rights of a creditor differs from an assignment of the debt, in that the latter assumes the continued existence of the debt, while the former follows only upon its payment. Before the right of subrogation accrues, the legal obligation resting upon the ultimate debtor m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss there has been a payment by a party in discharge of the obligation of another and consequently a right to reimbursement has accrued to him, there cannot be any scope at all for his invoking the equitable principle of subrogation." (page 295 of AIR 1970 Ker) This decision was followed by the Kerala High Court in Kunjayamma Kartaiyayani Amma v. Kunchali Karthiyayani Madakkavil Veedu, AIR 1970 Ker. 289. The court was considering a case arising from Travancore area during the time when the Transfer of Property Act was not extended. A Division Bench of this court in Krishna Menon Bhaskara Menon v. Madhavan, AIR 1976 Ker 62 followed the same. Same view was expressed by the Madras High Court in A.N. Ranganatha Naidu v. Senthamarai, AIR 1979 Mad. 26. In Hodgson v. Shaw (40 ER 70) Lord Brougham said (page 64 of AIR 1976 Ker.): "The rule is undoubted, and it is one founded on the plainest principles of natural reason and justice, that the surety paying off a debt shall stand in the place of the creditor, and have all the rights which he has, for the purpose of obtaining his reimbursement." The principles of subrogation is contained in section 69 of the Indian Contract Act also, but, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r paragraph 1 is subrogated to the position of mortgagee by operation of law whereas in paragraph 3, a person is conferred with the right of mortgagee only if the mortgagor executes a registered instrument agreeing for subrogation. In paragraph 1, co-surety or co-mortgagor, as the case may be, redeems the mortgagor which is under paragraph 3, the person gets the subrogation rights of mortgagee if he advances money for the mortgagor to redeem the mortgage. Now, the question is whether the transaction in question comes under paragraph 1 or paragraph 3. Admittedly, the appellant did not pay the amount directly to the mortgagee (Canara Bank) and redeem the mortgage. He advanced the amount to the company. It is the company which wiped off the debt. Therefore, it is very clear that the transaction will come only under paragraph 3 and not under paragraph l. The appellant, though a co-surety, only advanced the money to the company. Intention is also manifest by the subsequent acts. Even though there was a board resolution allowing him to pay off the debt and subrogating him to his position, that board resolution dated April 20, 1981, was not acted upon. But, subsequently, the appellant's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 thirty days after the date of its creation." Registrar is bound to enter the particulars in the register and register is open to inspection by public under section 130(3). The certificate of registration should be given under section 132 by the Registrar which shall be the conclusive evidence of charge. Section 135 specifically states that if there is any modification of charge, that also should be registered as provided under section 125. Sections 135 and 136 read as follows : "135. Provisions of Part to apply to modification of charges.- Whenever the terms or conditions, or the extent or operation, of any charge registered under this Part are or is modified, it shall be the duty of the company to send to the Registrar the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peration of law, the appellant became subrogated to the position of Canara Bank as no modification of charge was registered. The above alleged charge is void against the liquidator and creditors. That shows that by the conduct of the appellant, it can be seen that he was not subrogated to the position of Canara Bank. The conduct of the appellant in not taking steps for registration of charges in his favour also shows that appellant only advanced some money to the company and company redeemed the mortgagee Canara Bank in not for subrogating the appellant to the position of mortgagor. In this connection, we also refer to the decision of the Supreme Court in Braham Parkash v. Manbir Singh, AIR 1963 SC 1607. The charge created by the court decree need not be registered (Indian Bank v. Official Liquidator, Chemmeens Exports P. Ltd. [1998] 93 Comp. Cas. 76; [1998] 5 SCC 401). We are now concerned with the case where the company is under liquidation and the question is even if there is a charge created in favour of the appellant by automatic subrogation, will it bind to secured creditors or liquidator in the absence of registration under section 125 read with section 135? Answer is in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Canara Bank, etc., and the Syndicate Bank was led to believe that property offered for mortgage was free from all types of encumbrance whatsoever. While submitting all the records to Syndicate Bank, all the directors including the appellant declared that the property of the company were free from all charges or encumbrance and there was suppression of information regarding charge in favour of the appellant-company. The Syndicate Bank advanced money to the company. Therefore, directors of the company wanted the approval by this declaration for persuading the Syndicate Bank to believe that property of the bank is free from all the liabilities and encumbrance. Therefore, company or a director of the company cannot be allowed to say that he or any of the directors of the company has got a prior and latter charge over the property mortgaged to Syndicate Bank. Therefore, on the principles made under section 115 of the Indian Evidence Act also, he cannot claim that he has got charge over the property .The appellant is estopped from taking such a stand and section 115 of the Indian Evidence Act is applicable to the appellant on the facts of this case. The rule of estoppel is based on eq ..... X X X X Extracts X X X X X X X X Extracts X X X X
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