JUDGMENT
S.R. Nayak, J.
1. This appeal is preferred by the Management of Mangalore Chemicals & Fertilizers Limited under Section 10F of the Companies Act, 1956, for short, “the Act”, challenging the order dated 27-8-2003 passed by the Company Law Board (CLB), Southern Region Bench, Chennai, represented by its Chairman, the 1st respondent herein, disposing of the appellant’s Company Petition No. 468/141/SRB/2003 filed before them, without granting the relief sought under Section 141 of the Act for condoning delay in the matter of filing satisfaction of charge under Section 138 of the Act.
2. The facts of the case, in brief, are – The appellant-company was incorporated on 18-7-1966 under the Act. It was originally under the management of the Government of Karnataka and was taken over by the present management (UB group) in 1990 under a Rehabilitation Package formulated by the Government of Karnataka, financial institutions and banks. It is stated that the package could not be implemented in its entirety in view of the fact that certain financial assistance, contemplated under the rehabilitation scheme, was not extended. In the circumstances, on 25-6-1991, the company entered into a Joint Hypothecation Agreement with a Consortium of 10 Banks including Syndicate Bank, the 2nd respondent herein. Under the Hypothecation Agreement, a common charge against the appellant-company’s stock-in-trade, goods, merchandise etc., was created in favour of the Consortium including Syndicate Bank for a sum of Rs. 13425.78 lakhs. On 27-9-1991, a charge was registered under the Act with the Registrar of Companies, Bangalore (ROC). In terms of the Agreement, the State Bank of India which is a lead bank, retains 5 per cent of the sale proceeds of fertilizers sold by the appellant-company for payment to consortium lenders consisting of 10 banks, including Syndicate Bank, commencing from the year 1994 and, at that rate, the outstanding amount due was Rs. 134.25 crores.
3. In August, 1994, the appellant-company was declared sick under the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter called ‘SICA’) and was referred to Board for Industrial and Financial Reconstruction (BIFR). The BIFR, after several hearings, meetings and negotiations between all parties, sanctioned a rehabilitation scheme. The draft rehabilitation scheme was circulated to all concerned including the Banks and was also published in the dailies on 27-4-2000 and 28-4-2000 inviting objections/suggestions, if any. The final scheme was sanctioned by BIFR on 1-12-2000. The rehabilitation scheme inter alia provided that consortium banks including Syndicate Bank will accept Rs. 114 crores from the Company towards Term Loans and Working Capital Term Loans vide Clause 3(B). This amount represented payment towards debts covered by the charge created on 27-9-1991. According to the appellant-company, it paid/discharged Rs. 114 crores and became entitled to get a satisfaction of charge from the ten consortium banks. All the consortium banks, except Syndicate Bank, issued memo of satisfaction of charge, on receipt of their respective amounts under the scheme.
4. State Bank of India, Lead Bank, issued a letter that all dues under the Hypothecation Agreement stood discharged. The Management of the Syndicate Bank, however, refused to issue memo of satisfaction of charge on the ground that an application for recovery, T.A. No. 300 of 1997 filed by Allahabad Bank against Syndicate Bank and the appellant-company is pending before the Debts Recovery Tribunal, Chennai (DRT) and that unless the said application was withdrawn, they would not issue memo of satisfaction of charge.
5. In December, 2001 appellant-company obtained Forms 13 and 17 signed by 9 out of 10 consortium banks for the purpose of filing satisfaction of charge with ROC. On 12-12-2001, the appellants filed application before BIFR for direction to Syndicate Bank to sign Forms 13 and 17. Of course, in the said application, further direction was also sought against Allahabad Bank to accept Rs. 439.42 lakhs from the appellant-company as per BIFR scheme in terms of Clause 3G(ii)(b) and discharge the guarantees given by Syndicate Bank, upon which TA 300 of 1997 had been filed. On 23-1-2002, BIFR declined to pass orders on the ground that such orders would amount to modification of the scheme. Under the circumstance, on 25-2-2002, the appellants filed Forms 17 and 13 before ROC and required him to record satisfaction of charge. On 4-3-2002, the ROC pointed out the delay in filing application for recording satisfaction of charge and directed the appellant to seek condonation of delay from the Company Law Board (CLB). While so directing the appellants, the ROC also pointed out that out of 10 banks, Syndicate Bank has not countersigned Forms 17 and 13 and requested the appellants to take necessary steps for rectifying the above defect.
6. The appellants filed Application in TA 300 of 1997 before the DRT for. a direction to Allahabad Bank to accept Rs. 439.42 crores in full settlement of Allahabad Bank’s claim against Syndicate Bank and the appellants. On 25-9-2002, DRT directed the appellant to deposit Rs. 439.42 crores into an escrow account with Allahabad Bank. Accordingly, on 11-10-2002, the appellant deposited Rs. 439.42 crores into an escrow account with Allahabad Bank. On 16-12-2002, BIFR passed orders taking appellants out of SICA, leaving open the dispute among appellants, Syndicate Bank and Allahabad Bank to be resolved by DRT.
7. Appellants, failing to get relief from BIFR or DRT, filed Company Petition No. 468/141/SRB/2003 before CLB for condonation of delay in filing satisfaction of charge before ROC. The appellants while seeking condonation of delay in filing satisfaction of charge before ROC, also sought for a direction from the CLB to ROC to register the satisfaction of charge without the signature of the Syndicate Bank. In support of the prayer for condoning the delay in filing satisfaction of charge, the appellants have stated thus:
“VII. The delay in filing the satisfaction of charge was occasioned due to the reasons that,
(1) Debt Recovery Tribunal, Chennai ordered on 25-9-2002 for the petitioner to deposit Rs. 439.42 lakhs with Allahabad Bank. The deposit of this amount on 10-10-2002 with Allahabad Bank, ensured the petitioner’s compliance of one of the related conditions of the BIFR Sanctioned Scheme.
(2) BIFR vide its orders dated 16-12-2002 closed the proceedings against the petitioner and directed that the dispute between Allahabad Bank, the Respondent and the petitioner will be settled by Debt Recovery Tribunal, Chennai.
(3) Though, as per the BIFR Sanctioned Scheme, the petitioner has to ensure withdrawal of the pending case filed by Allahabad Bank against the Respondent Bank and the petitioner, for the reasons mentioned above, the petitioner has no role to play in that case as Allahabad Bank is aggrieved against the Respondent and wants to pursue the case against the Respondent.
VIII. The delay in filing the satisfaction of charge has occurred due to reasons beyond the control of the petitioner and without any mala fide/ wilful intention on the part, of the petitioner or any of its directors.”
8. The application was opposed by Syndicate Bank by filing statement of objections. In the statement of objections, with regard to the condonation of delay in filing the application for recording satisfaction of discharge, the only contention of the Syndicate Bank is–
“The delay in filing the satisfaction of charge has occurred on account of the default on the part of the petitioner company to carry out its obligations and thus wilful and deliberate.”
Except the above, not a word is said by the Syndicate Bank in its pleading to oppose the prayer of the appellants to condone the delay in filing satisfaction of charge before ROC.
9. The CLB, nevertheless, rejected the prayer of the appellants for condonation of delay by its order dated 27-8-2003 which is impugned in this appeal.
10. We have heard Sri P. Chidambaram, learned Senior counsel for the appellants and Sri K. Radhesh Prabhu, learned counsel for Syndicate Bank and Sri Shashikantha, learned Addl. Central Government Standing counsel for ROC.
11. Sri Chidambaram would contend that by passing the impugned order, the CLB has committed an apparent illegality and error of jurisdiction. Sri Chidambaram would submit that as there was delay in filing satisfaction of charge before ROC, as directed by ROC himself, appellants filed application for condonation of delay in filing satisfaction of charge before the CLB. The only issue before CLB was whether the appellants have shown sufficient cause for condoning delay or not in filing satisfaction of charge before ROC; the CLB instead of considering the application for condonation of delay on merit, exceeded its jurisdiction by going into merits of the matter and in directing the appellants to approach competent forum, if so advised, for modification of the conditions stipulated in the order dated 1-12-2000 of BIFR and then to approach CLB for condonation of delay and extension of time for filing the particulars of satisfaction of the charge. Sri Chidambaram would also contend that the view of CLB that if it were to condone delay in filing satisfaction of charge before ROC, it would tantamount to modifying the scheme sanctioned by the BIFR on 1-12-2000, is misconceived and incorrect.
12. Sri Radhesh Prabhu, learned counsel for Syndicate Bank, on the other hand, would contend that the intimation given by the appellant under Section 138 of the Act itself is misconceived and not maintainable for the appellants have not paid or satisfied the charge created under Section 125 of the Act in full. According to Sri Radhesh Prabhu, only if a company pays or satisfies in full any charge relating to such company, that company can file intimation under Section 138 of the Act requesting the ROC to record his satisfaction envisaged under Section 138 of the Act and not otherwise. Sri Radhesh Prabhu would contest the correctness of the claim of the appellants that they have discharged all dues relating to lease transactions under the scheme sanctioned by BIFR. Sri Prabhu would submit that the charge as created under the joint Hypothecation deed includes the liability of the appellant-company to lending guarantee banks. The crux of the argument of Sri Radhesh Prabhu is that a company can give intimation to the ROC of payment for satisfaction of any charge relating to the company under Section 138 of the Act only if payment or satisfaction is in full and not otherwise, and, therefore the view taken by the CLB that if it were to condone the delay in filing satisfaction of charge before ROC, it would tantamount to modifying or meddling with the scheme sanctioned by the BIFR on 1-12-2000, is justified and correct. Sri Radhesh Prabhu would submit that the appellants have not complied with their obligation under the scheme sanctioned by the BIFR on 1-12-2000 in full and in fact they have defaulted in complying with the terms of the sanctioned scheme, Sri Radhesh Prabhu would also point out that the recovery proceedings initiated by Allahabad Bank in TA No. 300 of 1997 are still pending before the DRT and, unless those recovery proceedings are disposed of by determining the claims and counter-claims of the parties, the intimation now sought to be lodged before the ROC under Section 138 seeking the satisfaction under Section 139 of the Act is totally misconceived and not maintainable.
13. Having heard the learned counsel for the parties, the only question that arises for decision is whether the impugned order of the CLB is legal and justified or, in passing that order, the CLB has exceeded jurisdiction vested in it.
14. It is appropriate to first notice the relevant statutory provisions which have bearing on the decision-making. Section 125 provides for certain charges to be void against liquidator or creditors unless registered. Sections 138 and 141 of the Act which are more relevant for our purpose, read as follows:
“138. Company to report satisfaction and procedure thereafter.–(1) The company shall give intimation to the Registrar of the payment or satisfaction, in full, of any charge relating to the company and requiring registration under this Part, within thirty days from the date of such payment or satisfaction.
(2) The Registrar shall, on receipt of such intimation, cause a notice to be sent to the holder of the charge calling upon him to show cause within a time (not exceeding fourteen days) specified in such notice, why payment or satisfaction should not be recorded as intimated to the Registrar.
(3) If no cause is shown, the Registrar shall order that a memorandum of satisfaction shall be entered in the register of charges.
(4) If cause is shown, the Registrar shall record a note to that effect in the Register, and shall inform the company that he has done so.
(5) Nothing in this section shall be deemed to affect the power of the Registrar to make an entry in the register of charges under Section 139 otherwise than on receipt of an intimation from the company.
141. Rectification by Company Law Board of register of charges.–(1) The Company Law Board, on being satisfied–
(a) that the omission to file with the Registrar the particulars of any charge created by a company or of any charge subject to which any property has been acquired by the company or of any modification of any such charge or of any issue of debentures of a series, or that the omission to register any charge within the time required by this Part, or that the omission to give intimation to the Registrar of the payment or satisfaction of a charge, within the time required by this Part, or that the omission or mis-statement of any particular with respect to any such charge, modification or issue of debentures of a series or with respect to any memorandum of satisfaction or other entry made in pursuance of Section 138 or 139, was accidental or due to inadvertence or to some other sufficient cause or is not of a nature of prejudice the position of creditors or shareholders of the company; or
(b) that on other grounds it is just and equitable to grant relief;
may, on the application of the company or any person interested and on such terms and conditions as seem to the Company Law Board just and expedient, direct that the time for the filing of the particulars or for the registration of the charge or for the giving of intimation of payment or satisfaction shall be extended or, as the case may, require, that the omission or mis-statement shall be rectified.
(2) The Company Law Board may make such order as to the costs of an application under Sub-section (1) as it thinks fit.
(3) Where the Company Law Board 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.”
Under Section 138, the intimation envisaged has to be filed by the Company within 30 days from the date of payment or satisfaction. In the instant case, admittedly, there was delay of 706 days in filing the intimation. From a careful reading of the provisions of Sub-section (1) of Section 138 and Sub-section (1) of Section 141 conjointly, it is quite clear that if intimation of the payment or satisfaction of the charge was not filed within the prescribed time of 30 days, the ROC cannot receive the intimation filed beyond the prescribed time, unless the sanction of the CLB is obtained under Section 141 of the Act as the power to do so has been specifically vested in the CLB and not in the ROC. The Appellants, as directed by the ROC himself, made an application before CLB under Section 141 seeking condonation of delay in filing satisfaction of charge before ROC and seeking extension of time to file satisfaction of charge. The provisions of Clause (a) of Sub-section (1) of Section 141, make it clear that the power vested in the CLB under Section 141 is a discretionary power and that discretion has to be exercised by CLB judiciously and having due regard to facts and circumstances of each case and explanation offered before it by a company and then to form an opinion on the question whether the company has made out that it could not file intimation within the stipulated time due to ‘inadvertance’ or ‘some other sufficient cause’. We do not think the provisions of Section 141 arm the CLB to go into the merits of the charge or satisfaction of the charge in part or in full. That power is specifically vested on the ROC under Section 138 of the Act. In a sense, Section 138 is a code in itself with regard to recording of satisfaction of charge, Section 138 prescribes a detailed procedure to be followed by ROC before he directs that a memorandum of satisfaction be entered in the register of charges, and, if cause is shown not to register satisfaction, to inform the concerned company in this regard. Sub-section (2) of Section 138 provides for audi alteram partem rule. The ROC is obliged to issue notice to holder of charge calling upon him to show-cause why payment of satisfaction of charge should not be recorded as intimated to him under Sub-section (1) by the company, before he decides on such intimation and makes appropriate order either under Sub-section (3) or Sub-section (4) of Section 138, as the case may be.
15. If we keep the gamut of powers specially vested in ROC and CLB under Sections 138 and 141 respectively, we find considerable force in the contention of Sri Chidambaram that in passing the impugned order the CLB has exceeded its jurisdiction and went astray from its legitimate domain of power under Section 141, CLB ought to have considered the cause shown by the company in paras VII and VIII and whether that cause could be considered to be a ‘sufficient cause’ within the meaning of that phrase for condonation of delay and extending time to file intimation under Section 138 before ROC. Instead of doing that, CLB undertook to review the merits of claim and counter-claim with regard to whether the company has satisfied or paid in full the charge created by the appellant-company under Section 125 of the Act.
16. We may derive support for our opinion from the decision in the case of Heathstar Properties Ltd., In re [1966] 36 Comp. Cas. 768 (Ch.D.). In that case, a similar question regarding validity of charge arose for consideration and the court held, with reference to Section 101 of the English Companies Act, which more or less contains the same provision as Section 141 of the Act, thus:
“…There is no reference there to the Court being satisfied as to the validity of the charge, and it would have been very simple to insert such a reference if it had been intended. What Section 101 does is to give the Court power in certain circumstances to substitute its own time-limit for the time-limit in Section 95, but apart from that it leaves Section 95 to operate as if the application to register had been made in time.” (p. 776)
Further, in Chaudhary Builders (P.) Ltd. v. Sanghi Bros. (Indore) Ltd. [2001] 107 Comp. Cas. 466 (MP), the appellant-company therein, on February 15, 1990, executed a deed of assignment of certain immovable property in favour of the respondent, but did not file the particulars of the charge with the Registrar of Companies. The respondent on May 15, 1990, filed the particulars under Section 125 of the Act with the ROC, who asked it to move the CLB for condonation of delay. The respondent on April 16, 1992, filed an application before the CLB for condonation of delay and for grant of extension of time up to May 15, 1990. The Appellant-company raised objections including that the deed of assignment did not create any charge. However, the appellant-company did not raise any specific objection with regard to condonation of delay prayed for by the respondent. The CLB, on hearing the parties, allowed the application of the respondent, condoned the delay and granted extension of time. Validity of that order was called in question before the Madhya Pradesh High Court. The Madhya Pradesh High Court, while dismissing the appeal held thus:
“It appears that appellant-company had missed to resist the condonation issue and had more concentrated on issues revolving round the validity or otherwise of the terms of the assignment deed dated February 15, 1990.
There is nothing to show that the company had taken any serious objection to condonation of delay on the ground that the Board order suffered from some infirmity or was perverse in any way. Moreover, it is not for us in this appeal to substitute our satisfaction for that of the Board in such matters, more so when the Board order is supported by the due satisfaction and reasoning…” (p. 468)
We are in respectful agreement with the view taken by the Division Bench of the Madhya Pradesh High Court in the above case.
17. From the impugned judgment, we find that the CLB has not appreciated the cause shown by the appellants in paras VII and VIII extracted above. Therefore, we think that it is appropriate that the matter should be remanded to the CLB for disposal of the application of the appellants for condonation of delay and extension of time afresh, in the light of this judgment.
18. In the result and for the foregoing reasons, we allow the appeal, however with no order as to costs, and set aside the impugned order and remand the proceedings to the CLB with a direction to dispose of the application filed by the appellants under Section 141 of the Act for condonation of delay and for extending the time for filing intimation envisaged under Section 138 of the Act, in accordance with law. We direct that any observation made by the CLB in the impugned order shall not influence the mind of ROC in taking a decision on intimation filed under Section 138(1) of the Act in the event of CLB condoning the delay and extending time to file intimation of satisfaction of charge.