Lala Ram Narain vs Radha Kishen Moti Lal Chamaria on 12 December, 1929

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Bombay High Court
Lala Ram Narain vs Radha Kishen Moti Lal Chamaria on 12 December, 1929
Equivalent citations: (1930) 32 BOMLR 544
Author: L Sanderson
Bench: Atkin, J Wallis, L Sanderson

JUDGMENT

Lancelot Sanderson, J.

1. This is an appeal by the plaintiffs against a judgment and decree of the Chief Court of Oudh, dated November 29, 1926, which partly affirmed and partly reversed a judgment and decree of the Subordinate Judge of Unao.

2. The plaintiffs are the representatives of Bilas Rai Hardat Rai, a mercantile firm of Nayaganj, Cawnpore. The defendants were the Pioneer Mills, Ltd., and the respondent firm Eadha Kishen Moti Lal Ohamaria.

3. The Pioneer Mills, Ltd., (hereinafter called the company), was registered under the Indian Companies Act, 1913, and carried on the business of sugar manufacturers ; the factory was at Unao and the head office was in Calcutta.

4. Radha Kishen Moti Lal Chamaria (hereinafter called the defendant firm) carried on their business in Calcutta.

5. The main question in this appeal is whether a mortgage dated August 31, 1922, executed by the company in favour of the defendant firm, ever took effect as a valid security, the plaintiff’s alleging that there was no consideration in respect thereof.

6. The learned Subordinate Judge found in favour of the plaintiffs on this issue.

7. The plaintiffs’ suit was for the recovery of four lacs of rupees principal and Es. 18,666 interest on a mortgage dated August 10, 1922, executed by the company in favour of Bilas Rai Hardat Rai.

8. The learned Subordinate Judge made a decree in favour of the plaintiffs for the sum of Rs. 2,68,000 and interest thereon, and directed that the plaintiffs should withdraw that amount from the monies held in deposit by the Imperial Bank of Calcutta. The company was in liquidation and the said monies in deposit represented the proceeds of the sale of the company’s assets.

9. The defendant firm appealed to the Chief Court of Oudh : the plaintiffs also appealed against that part of the Subordinate Judge’s decree which disallowed a portion of the plaintiffs’ claim on their mortgage.

10. Both appeals were allowed by the Chief Court, and it was directed that the plaintiffs’ claim –

be and is hereby decreed for Rs. 4,18,666-10-0 (Rupees four lakhs eighteen thousand six hundred and sixty-six and annas ten) only with 8 per cent, per annum interest from March 15, 1923, till realization against the Liquidators, defendant No. 1, subject to the prior incumbrancs in favour of Radha Kishen Motilal Chamaria, defendant No. 2, under the deed of mortgage dated August 31, 1922.

11. No question arises in this appeal as to the amount due to the plaintiffs on their mortgage. The appeal is against that part of the decree which directed that the plaintiffs’ claim should be subject to the prior incumbrance in favour of the defendant firm under the mortgage of August 31, 1922.

12. It appears that the liquidation of the company was in consequence of an application made by the company on April 9, 1923, to the High Court at Calcutta, which made an order on June 4, 1923, for the winding up of the company. The company and the liquidators are not parties to this appeal.

13. The material facts are as follows :-

On August 10, 1922, the company executed a mortgage in favour of the plaintiff’s to secure a sum of four lacs and interest at 8 per cent, per annum. The property comprised in the mortgage was the sugar refinery at Unao and the distillery, including engines, machinery, buildings and lands, considered to be part and parcel of the said sugar refinery and distillery.

14. It was stipulated that the mortgage should be treated as a second mortgage against the sugar mills (which it was agreed meant the refinery), and as a first mortgage against the distillery.

15. The above-mentioned mortgage was not registered in pursuance of the provisions of the Indian Companies Act of J913 until November 21, 1922. The time for registration was extended by an order of the High Court at Calcutta dated November 14, 1922, for three weeks from the date of the order.

16. On the same day, viz., August 10, 1922, the company executed a mortgage in favour of the Tata Industrial Bank, Ltd. (hereinafter called the bank). It recited that the bank had agreed to open a cash credit loan account to the extent of five lacs of rupees, and in consideration of the advances to be made and as security for the repayment of all monies from time to time owing to the bank in respect of the said account, the company pledged and hypothecated to the bank all the stocks of gum, sugar, molasses, coal, gunny bags and other articles from time to time on the premises of the company’s refinery at Unao or at any other place which might be used as a godown. In further consideration of the said advances the company mortgaged the immovable property and machinery mentioned in Parts I and II of Schedule B, the whole of which were declared to be free from incumbrances.

17. The premises thus mortgaged were the refinery and the machinery attached thereto. It was on these premises that the plaintiffs held a second mortgage.

18. The bank’s mortgage contained a provision that the company should always maintain a margin of twenty five per cent, between the sum owing to the bank and the open market value of the stocks thereby pledged, and a further provision that if the company when called upon to maintain such margin, failed to do so within fourteen days after notice in writing, it should be lawful for the bank to sell and dispose of by public auction or private sale all or any part of their stocks thereinbefore mentioned.

19. The above-mentioned mortgage in favour of the bank was not registered under the Companies Act until December 22, 1922. The time for registration had been extended by an order of the High Court at Calcutta dated December 6 for three weeks from the date of the order.

20. It will be necessary to refer to the terms of this order in detail when another part of this case comes to be considered.

21. [Their Lordships, after dealing at length with matters not material for the purposes of this report, proceeded.] There is, however, a further matter to be considered. The learned counsel for the plaintiffs argued that, although the defendant firm by means of the assignment became entitled to the security held by the bank, which included a mortgage over the refinery, the plaintiffs’ mortgage, which was on both the refinery and the distillery, had priority over the bank’s mortgage, even though the two mortgages were executed on the same day, viz., August 10, 1922, and the terms of the plaintiffs’ mortgage expressly stated that the plaintiffs’ mortgage should be treated as a second mortgage against the sugar mills, i. e., the refinery. The basis of the learned counsel’s argument was that whereas the plaintiffs’ mortgage was registered in pursuance of the Indian Companies Act of 1913 on November 21, 1922, the bank’s mortgage was not registered until December 22, 1922, and that the order of the High Court of Calcutta of December 6, 1922, by which the time for registering the bank’s mortgage was extended, provided that the order should be without prejudice to the rights of any mortgagee accrued in the meantime.

22. It was argued that by registering their mortgage on November 21, 1922, the plaintiffs acquired a right which they did not possess before, and consequently that such right could not be prejudiced by the subsequent order of the High Court or by the registration of the bank’s mortgage in pursuance of the said order.

23. The order of the High Court was made under Section 120 of the Indian Companies Act. The reference to Section 109 in the order is an obvious mistake.

24. [After reproducing Sections 109 and 120 of the Indian Companies Act, 1913, their Lordships proceeded:]

25. By the terms of Section 120 the Court, when extending the time for registration, has a discretion to impose such terms and conditions as it thinks just and expedient, and the material words of the order in this case are ” without prejudice to the rights of any mortgagee accrued in the meantime.”

26. The phraseology of the order is not very precise, but their Lordships assume that “in the meantime” must be taken to mean the period between the date when the bank’s mortgage should have been registered and the date of actual registration. This period would cover November 21, 1922, when the plaintiffs’ mortgage was registered.

27. Section 109 provides that a mortgage, such as the bank’s mortgage of August 10, 1922, shall so far as any security on the company’s property or undertaking is thereby conferred, be void against the liquidator and any creditor of the company unless the prescribed particulars are filed with the Registrar within twenty-one days after the date of its creation.

28. It is to be noted that the section does not avoid the mortgage absolutely, but only so far as any security is given thereby on the company’s property or undertaking.

29. The effect, therefore, is that if a mortgage is not registered it is valid as an admission of debt, but as against a creditor or the liquidator it could not be said that a valid charge on the company’s property had been created.

30. But it is provided by Section 120 that the Court may extend the time for registration in a proper case, as was in fact done in this case. What, then, was the effect of the registration of the bank’s mortgage within the extorted time ?

31. In their Lordships’ opinion, the Court having extended the time for registration, and the mortgage having been registered within that time, the mortgage was constituted a valid charge ah initio, i. e., from the date of its execution, viz., August 10, 1922, subject only to such conditions as were imposed by the Court in the order which extended the time.

32. If that be so, the bank’s mortgage on registration became a valid charge on the refinery as from August 10, 1922, and the-plaintiffs’ mortgage of August 10, 1922, which also was registered within the time extended by the High Court, became a valid charge from August 10, 1922, on the refinery and the distillery ; but on the face of the plaintiffs’ mortgage it was only a second charge upon the refinery.

33. But it was said on behalf of the plaintiffs that a right to enforce their mortgage had accrued to them on the registration of the mortgage on November 21, 1922, and by the order of the Court such right was not to be prejudiced. The right which the plaintiffs had to enforce their mortgage against the property of the company depended not only upon the registration, but also on the terms of the mortgage itself, and the right which they had to enforce in respect of the refinery was a second charge only. The order of the Court of December 21, 1922, that it should be without prejudice to the ” rights of any mortgagee accrued in the meantime,” in their Lordships’ opinion, could not have been intended to convert the plaintiffs’ second charge upon the refinery into a first charge thereon.

34. The learned Counsel for the plaintiff-appellants, in support of his argument, referred to the decision in Monolithic Building Company, In re. Tacon v. The Company [1915] I Ch. 843, which decided that Section 93 of the Companies (Consolidation) Act, 1908, avoids an unregistered mortgage as against a subsequent registered incumbrancer, even though he had express notice of the prior mortgage at the time when he took his own security.

35. The facts of the present case are materially different from the facts of the cited case, especially by reason of the fact that the plaintiffs’ mortgage contains an express term that it is a second charge on the refinery. Further, the learned Judges who decided the cited case seem to have dealt with it ” in reference to the difference of position between a registered secured creditor and a prior unregistered secured creditor.” See judgment of Cozans Hardy M. R., at page 662, and the effect of the subsequent registration of the prior creditor’s security within the time extended by the Court does not seem to have been considered.

36. Their Lordships are of opinion that there is nothing in the order of the High Court of December 6, 1922, which interfered with the priority of the bank’s mortgage upon the refinery over the plaintiffs’ mortgage therein.

37. Their Lordships, therefore, are of opinion that the appeal should be allowed on the ground that there was no consideration for the mortgage of August 31, 1922, in favour of the defendant firm, but they are further of opinion that the bank’s mortgage of August 10, 1922, which was assigned to the defendant firm, has priority over the plaintiffs’ mortgage in respect of the property comprised in the mortgage so assigned to the defendant firm.

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