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2013 (11) TMI 493 - HC - Companies LawHypothecation of assets - Whether on account of the hypothecation of the goods of EHPL in its favour PICUP can be said to be a secured creditor - Held that:- Although the hypothecation as a legal concept is not explicitly recognized under the ICA, the said legislation is not exhaustive of all possible arrangements that the financial institutions may have in securing the moneys advanced by them. Section 29 of the SFC Act recognizes the hypothecation as a possible means of enforcing liability - Consequently, it is futile for ETC to contend that only because hypothecation does not form part of a species of pledge under Sections 172 to 179 of the ICA, it cannot be legally enforced by PICUP. It is apparent on the facts of the present case that the DOH referred to above, makes it explicit that the constructive possession of the goods remained throughout with the PICUP; that EHPL was holding the goods only as an agent of PICUP; the effective control of the goods always remained with PICUP and the constructive possession could be converted into the actual possession by PICUP. More importantly, it is made explicit both in the CLA as well as DOH that prior permission of PICUP had to be taken if any attempt was made to sell any part of the goods at any time. That there was a charge created in favour of PICUP in respect of the goods is evident from the fact that EHPL itself registered the charge with ROC under Forms 8 and 13. Both the Agreement and the DOH made it clear that PICUP was a secured creditor and could enforce the hypothecation in its favour by bringing the said goods to sale - Decided in favour of petitioner. Effect of the proceedings under the SFC Act - Held that:- ETC was aware of the charge on the goods in favour of PICUP even on the date of Agreement - Agreement between ETC and EHPL having been entered without prior clearance of PICUP is not binding on PICUP - plant and machinery of EHPL were sold by it without the permission of PICUP. Therefore the sale, which was in violation of the CLA, the DOH and Clause 3 of the Agreement, was not valid - Decided against petitioner. Even if ETC paid Rs. 29.15 lacs to EHPL for purchasing its plant and machinery it cannot seek to recover the said sum from PICUP. ETC is at best in the position of an unsecured creditor of EHPL in the winding up proceedings - ETC by appointing its watch and ward security did not actually take physical possession of the goods. Constructive possession thereof was already with PICUP. EHPL never parted with physical possession of the goods. EHPL was holding the goods as an agent of PICUP. Therefore, the question of ETC being forcibly deprived of possession of the goods by PICUP by misusing its position did not arise - given the clear wording of the clauses of the CLA and DOH, there was no need for PICUP to approach a Court designated under the SFC Act for enforcement of the hypothecation in its favour - property in the goods did not pass to ETC and it did not become the owner thereof prior to PICUP enforcing the hypothecation - sum paid by ETC to EHPL or to PICUP on behalf of EHPL should be treated as sums advanced to EHPL by ETC as an unsecured creditor. Issue No.14 is answered by holding that the payment of Rs. 3.30 lacs by ETC to PICUP was on behalf of EHPL consistent with ETC being an unsecured creditor of EHPL. Given the negative fund position of EHPL, and there being no assets of EHPL available for recovery, the question of ETC being entitled to recover the sum of Rs. 29.15 lacs much less any loss of profit does not arise.
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