9911796707
TMI Blog1967 (11) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... payable to him in priority to others who might have a preferential right to ask for the sale proceeds now in the hands of the official liquidator. Tn so far as the latter prayer of the official liquidator for determination of the rights inter se between the respondents is concerned, it is completely outside the scope of this court as a company court. Even if it were to be held ultimately that the respondents' claim to be declared as preferential creditors is well-founded, the forum in which the issues that might arise as between the respondents themselves as to who amongst them have to be preferred in the matter of such payment of the sale proceeds now in the hands of the official liquidator, notwithstanding the fact that it is justiciable, cannot be agitated in a summary proceeding like the one that is being enquired into by this court under the Companies Act, 1956. As such rights of preference inter se amongst the respondents have to be determined in another forum and not by this court as a company court, I am not persuaded to consider this aspect of the prayer in the judge's summons. In the instant case however in the ultimate analysis of the facts, the general proposition set o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r a hire-purchase agreement in favour of more than one respondent to this application. Apparently, this was done by the managing director, Mr. C.V. Raman, in perpetration of a fraud practised by him consistenly against the creditors and incidentally against the company as well. One thing, however, emerges from the events that happened. The vehicles purchased by the managing director by securing the finances from one or the other of the respondents herein, or the money secured on hypothecation of such vehicles or on a hire-purchase agreement which is in commercial parlance called refinancing agreement, were secured for the benefit of the company and both vehicles and the money so obtained by the managing director were utilised for the company and for the benefit of the company. It is in such conspectus of events that the merits of the applicant and the respondents have to be considered in this case. In the report of the official liquidator, his case is put forward thus. The company was wound up by an order of this court on August 11, 1961. The petition itself was filed by two of the directors of the company. It. is also averred in the petition that the managing director was charged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to deal with affairs relating to the winding up of a company cannot be said to have been invested with such jurisdiction either expressly or by necessary implication. To assume such jurisdiction would necessarily mean that civil and justiciable rights of parties, who are outside the scope of the winding up of the company can secure relief from this court in a summary manner without paying the necessary court fee and without following the usual common law procedure as to the ascertainment and adjudication of civil rights. I am, therefore, refraining from addressing myself to this question which the official liquidator seeks the company court to determine. But, in the circumstances of this case, the above principle is inapplicable and has to give way to render justice and to avoid multiplicity of actions. The several interested parties, including the Commissioner of Police, as already stated, have filed their respective counters to the report of the official liquidator. The 2nd respondent states that 8 vehicles amongst the list of vehicles furnished by the official liquidator were the subject matter of a hypothecation dated May 30, 1960, under exhibit A-27. As the hypothecation c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . S. Subrahmanyam, learned counsel for the ^nd respondent, on the strength of such a registration of the charge and since the transactions are bona fide transactions in that they are not tainted in any manner known to law, contended that the bank is entitled to be treated by the official liquidator as a preferential creditor and cannot be directed to be ranked along with ordinary creditors. He cited before me many decisions, all to the effect that the bank is a hypothecatee and therefore is a mortgagee of the lorries or vehicles concerned and its right to enforce the equitable charge over the vehicles cannot be defeated by supervening liquidation. He referred in particular to exhibit A-3 and sought to add that by reason of the subsequent conduct of the directors, no possible attack can be made against the transactions of the company through the managing director and in fact the company is equitably estopped from questioning the priority rights of the 2nd respondent. Mr. V.S. Subrah-manyam also maintains that the company is estopped from saying that the managing director is not a person who is not authorised to borrow and tv make all the dealings which he had with the 2nd respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hecate the lorries in question, it cannot be said that the bank in any way acted in an unreasonable or imprudent manner so as to divest it of its legal, legitimate and equitable right to recover the moneys as a charge-holder, from the official liquidator. Exhibit A-21 is the resolution which the 2nd respondent has produced as the one which the managing director has forwarded to it while applying for the loan on the hypothecation. The complaint of the official liquidator that such a resolution is non-existent is a matter which cannot be investigated and which could not have been investigated by the 2nd respondent on its own volition, and the bank out of necessity relied upon the representations of the managing director in so far as this resolution is concerned. Learned counsel has classified the decisions cited by him under the following heads : (a) the managing director should be deemed to have had ostensible authority to deal with the property of the company and the bank having acted upon such authority which is either actual or ostensible must be deemed to be a bona fide creditor ; (b) an irregularity in the exercise of such powers by a person ostensibly acting on behalf of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t claims as preferential creditors The 3rd respondent, inter alia, would state that as regards MSX 8469, a hire-purchase agreement was executed by the company on July 29, 1960, under exhibit A-112 and the registering authorities under the Motor Vehicles Act were informed about such a hire-purchase agreement and an endorsement to that effect is said to have been made by the traffic office consequent upon such an intimation. The intimation from the company to the registering authority is exhibit A-114 and the confirmation of the endorsement in the certificate of registration by the traffic authorities is seer, from exhibit A-115. For the vehicle MSX 7305, which is also one dealt with by the company with the 3rd respondent, the hypothecation agreement is under exhibit A-116 dated January 23, 1961. One other factor which appears from the voluminous records filed in this case is that in so far as these two vehicles are concerned, they were dealt with by the company earlier and finances secured from others and it is said that in so far as MSX 8469 was concerned, there were no prior encumbrances. But as regards MSX 7305 there were such encumbrances. The 11th respondent claims to have such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Companies under section 125 read with section 132 of the Companies Act of 1956. He referred to a passage in paragraph 889 of Halsbury's Laws of England, Simonds edition, volume 6. He took me through the various clauses in exibit A-112 which is a pattern of the refinancing hire-purchase agreements in the series in question and submitted that on the strength of the sale letter executed by the company in favour of the respondents contemporaneously with the hire-purchase agreements, it would take out the transaction from the mischief of a refinancing agreement and would in effect be a financing agreement and therefore the non-intimation of such charge to the Registrar of Companies would not deprive the respondents of their rights as preferential creditors. He relied on Manchester, Sheffield, and Lincolnshire Railway Company v. North Central Wagon Company [1888] 13 App. Cas. 554, and contended that the reality of the transaction has to be looked into. One other contention raised by the learned counsel was that Chakra Traders, which was originally a sole proprietary concern, dealt with the 23rd respondent and that therefore the company in liquidation cannot be said to be the owner or a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally delegated its powers to the managing director. As the resolutions passed by the board of directors are creatures of indoor management, he had neither the occasion nor the necessity to probe into the regularity or legality of such resolutions in the light of article 100 of the articles of the company. He added that the bank had no right to pry into the company's archives. He referred in particular to paragraphs 2, 5, 26 and 29 of the memorandum, to substantiate his contention. He contends that the copy of the resolution as forwarded by the company through its managing director having come from proper custody, the presumption as to its genuineness and its sanction arises as a matter of course and that no investigation by the official liquidator can be undertaken independent of and de hors the content and context of such resolutions. He relied upon the dictum in In the matter of Ambrose Summers, an Insolvent [1896] ILR 23 Cal. 592 in support of his argument. At all material times the bank believed that C. V. Raman was at the helm of affairs, had the power to borrow for purposes of business expansion and that the moneys were taken from the bank for purposes of securing assets to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Finance Ltd.'s case (supra) and particularly to pages 209, 218 and 219 to show that the vehicles involved in the transaction in question are new vehicles for which a substantial portion of the purchase price was provided for by the financier. He brought out the distinction between hire-purchase agreements entered into under rules 82(a) and 82(b) of the Madras Motor Vehicles Rules and stated that the hire-purchase agreements in question with the respondents come within the scope of rule 82(a). His contention is that even though in some cases the financier may not send the cheque direct to the dealer, yet if the dealer knows that it is a hire-purchase agreement within the meaning of rule 82(a) of the Madras Motor Vehicles Rules and the money of the financier went for the purchase of the vehicle through the hands of the customer with notice of such hire-purchase agreement, then the dealer is obliged to deal with it by acknowledging the hire-purchase agreement under rule 82(a) read with Form E referred to above. His alternative case was, though it was not quite essential for his purpose, that assuming that the transaction was only a secured loan, the charge need not be registered as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arked for the benefit of the body of preferential creditors, as against such funds if any available, for the benefit of the general body of creditors. The official liquidator being a public body cannot unjustly enrich himself ignoring the rights of parties. Allied with the above contention was the answer given by the learned counsel regarding the formidable objection of the official liquidator that if the respondents' claim were to be treated as a secured loan, then it ought to fail for want of registration under section 125 read with section 132 of the Companies Act. The main contention of Mr. Thiruvenkatachariar is that under rule 6 of the Companies (Central Government's) General Rules and Forms, 1956, it is only every instrument or deed creating or evidencing a charge that has to be registered with the Registrar of Companies. According to him, the instrument of hire-purchase in question not being an instrument executed by the person having title to the vehicle in question but being an agreement between the financier who is the real owner of the property and the company who is the hirer, does not come within the grip and mischief of sections 125 and 132 of the Companies Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stinctive in the sense that it is separable and so separated the document creates an actionable and an enforceable claim in favour of the financier ; whatever may be said in such circumstances of executed contracts cannot apply to executory contracts. The fraud, if any, was discovered after the instrument was acted upon and therefore these respondents' rights as preferential creditors cannot in any way be disturbed in view of the guarantor's signature only being a forgery. In conclusion, the learned counsel stated that this court can adjudicate upon the rights of preferential creditors inter se, which is the subject-matter of Application No. 132 of 1966. He invited my attention to section 446(2)(b). The effect of this argument is that the non-obstante parenthesis in clause (2) of this section enables this court to investigate the claims inter se as between preferential creditors and therefore he requests that the claims of the respondents inter se who are similarly placed can be enquired and adjudicated upon. I have expressed to the contrary even in the beginning. Section 446(2)(b) is only concerned with any claim made by or against the company. In the instant case, claims were ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings the company court can delegate to itself the powers of a civil court and enter upon the enquiry as to who amongst themselves should rank in priority over the others. Application No. 132 of 1966 is therefore dismissed, but there will be no order as to costs. To repeat again, the principle stated by me is not strictly applicable to the facts of the instant case as in the ultimate analysis only two respondents out of the many before me are adjudged by me as preferential creditors ranking in the same plane and it is in the interests of justice that their rights should be finally decided in these proceedings to avoid procrastination and prolonging in general and multiplicity of actions in particular. The 9th respondent's case is a peculiar one. No doubt, the two lorries in question, MSW 3056 and MSW 3589, were in the possession of this respondent at the time of seizure. These lorries were sold by this respondent as new lorries in March, 1961, to Chakra Traders, who, according to this respondent, were acting for Manasuba and Company Private Limited. But the financing agreement was entered into with Hindusthan Motor Corporation in respect of MSW 3056 under exhibit A-1 19 and in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto the shoes of the financier and the hire-purchase agreement in question being financial agreement, it is entitled to be treated as preferential creditor. One other person by name Pushpa Kavur, who is not a party to these proceedings, is said to be interested in these vehicles. The 10th respondent, besides filing the counter, did not make any independent submission. His case is that MSY 2662 was under a hire-purchase agreement with him. This hire-purchase agreement is exhibited as exhibit A-131 and is obviously a refinancing agreement creating a secured loan which has not been registered with the Registrar of Companies. Mr. Ranganatha Sastri, appearing for respondents Nos. 12 to 15, also claims that his clients should be ranked as preferential creditors. In so far as the 12th respondent is concerned, six vehicles are involved. All the six vehicles are the subject matter of refinancing hire-purchase agreement. They are evidenced by exhibits A-146 to A-151. The charge or the lien created under the hire-purchase agreements are not registered under the Companies Act. So far as the 13th respondent is concerned, eight vehicles are involved and they are said to be subject to hire-purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of his client is sufficient for him to claim as a preferential creditor. He invited my attention to the usual sale letter executed by the company (which in this case is Chakra Traders) in favour of his client and states that that is sufficient to establish that the property in the vehicles in question passed to the 22nd respondent and that, notwithstanding the non-registration of the charge under section 125 read with section 132 of the Companies Act, it is valid and enforceable. It is in this behalf he states that he should be ranked as a preferential creditor. Mr. G. Subrahmanyam, appearing for the 24th respondent, says that his client is concerned with four vehicles, MSX 9862, MSW 719, MSW 720 and MSW 2305. This is a case of refinancing. The hire-purchase agreement is dated April 24, 1961, and exhibited as exhibit A-212. The borrower was Chakra Traders, represented to be a sole proprietary concern of the managing director of the company. As in other cases, a sale letter, exhibit A-213, in respect of the four vehicles is taken in favour of this respondent from Chakra Traders. Timely intimation is given to the Regional Transport Authority under the Motor Vehicles Act, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istrar of Companies. This respondent, however, did not attempt to substantiate his case further in the course of arguments. Sri V. Thyagarajan, learned counsel for the petitioner, when he opened the case, filed all the documents relevant for the enquiry with particular reference to each of the respondents herein. The useful data prepared by the official liquidator and a summary sheet thereto was of considerable assistance to the court. Those documents had to be necessarily marked so as to have a full and complete picture of the events connected with each of the dealings of the company with the respective creditors and also for the purpose of appreciating the chronology of events. In spite of the voluminous record that has been filed and meticulously referred to before me in these proceedings, in the ultimate analysis the important documents only need be adverted to appreciate the real controversy between the parties. To illustrate, in the case of the creditors who lent moneys on hire-purchase agreements, whether at the financing stage or at the refinancing stage, the documents that require consideration are the hire purchase agreements, the resolutions of the company which were ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company. Continuing his argument, the learned counsel would state that, inasmuch as the company has also provided a part of its funds to build the body to make the vehicle complete and road-worthy as a lorry, such portion of the funds so expended by the company has to be excluded and the necessary equities between the financier and the company have to be allocated. This argument does not appeal to me. When a person obtained an advance over the base of the goods and if such a base is improved upon by the borrower conscious of such a charge in favour of the creditor who was responsible for the purchase of that base, the borrower cannot later set up a case that the amounts spent by him for putting up a body over the unfinished base and for other improvements have to be separated from the totality of the value of the vehicle and the rights ascertained. Not only the borrower is estopped from contending in the manner as above, but there is absolutely no equity in favour of the borrower to put up such a contention as when he sought to improve the base he was conscious that it would get itself affixed and planted over the base and that the finished product would still be available to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turn enters into a hire-purchase agreement with the customer, providing therein a right to the customer to become the owner after payment of all dues to the financier or on paying a nominal price as agreed to. Besides other usual terms, the vehicle has to be registered in the name of the financier as owner, and a right of seizure of the vehicle in case of default of the customer is also provided. But to satisfy the provisions of the Motor Vehicles Act, the certificate of registration, is kept in the name of the customer. In the second form of hire-purchase agreement, usually adopted, the customer is the indisputable owner of the vehicle and it is so registered in his name under the Motor Vehicles Act. He requests the financier to grant a loan on the security of the vehicle. This is granted and a hire-purchase agreement is entered into. The terms, inter alia, of this type of agreement provides that on payment of the entire hire as contemplated in the agreement and in some cases on paying a nominal price, the customer (called hirer again) becomes the sole owner. There is also the right of retaking the vehicle on default of the hirer in any manner as stipulated. Ordinarily, the claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier who pays the balance of the price undertakes the recovery. In this form, goods, are purchased by the financier from the dealer, and the financier obtains a hire-purchase agreement from the customer under which the latter becomes the owner of the goods on payment of all the instalments of the stipulated hire and exercising his option to purchase the goods on payment of a nominal price. The decision of this court in K. L. Johar & Company v. Deputy Commercial Tax Officer [1966] 17 STC 489, 500 dealt with a transaction of this character. (2) In the other form of transactions, goods are purchased by the customer, who in consideration of executing a hire-purchase agreement and allied documents remains in possession of the goods, subject to liability to pay the amount paid by the financier on his behalf to the owner or dealer, and the financier obtains a hire-purchase agreement which gives him a licence to seize the goods in the event of failure by the customer to abide by the conditions of the hire-purchase agreement". There is therefore considerable force in the contention of Mr. V. K. Thiru-venkatachari that in all cases where financing hire-purchasing agreements are involved, suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... catee has nothing more than an equitable charge to have his claim realised by the sale of goods hypothecated. By a charge no interest in the property is transferred. The only right acquired by the charge-holder is the right to be paid out of the property charged". In Md. Sultan v. Firm of Rampratap Kannyalal AIR 196 A.P. 201, the court observed : "... In the absence of specific rules applicable to any matter, the principle recognised in the various Civil Courts Acts is that the courts should decide according to justice, equity and good conscience which is considered to be equivalent to the English law wherever such law is applicable to Indian conditions. It is only under this principle that the hypothecation or mortgage of movable property, although not specifically provided for in the Contract Act, are valid and a decree can be passed in enforcement of such transactions". Thus, a hypothecation of moveables is permitted by law and even though the possession of the hypotheca is with the hypothecator, the hypothecatee has an equitable and enforceable charge over the movables mortgaged. Can such a charge be traced by the hypothecatee against the sale proceeds of the hypotheca if it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncing hire-purchase agreement being a person who has lent moneys by way of a loan on a security is also a secured creditor. I am fortified by the view expressed by the Supreme Court in Sundaram's case (supra). Mr. V.K. Thiruvenkatachari, though not necessarily for his case, has argued this point. His case is that if in a refinancing hire-purchasing agreement the vehicle is seized, the financier became a pledgee and the official liquidator is bound to redeem the pledge ; but as in the instant case the hypothec has been sold by consent, the official liquidator is bound to respect the rights of the pledgee-financier, by paying off the dues owing to him. No doubt, the right to seize the vehicle is peculiar to a hire-purchase contract. This licence to seize the vehicle in case of default is an extraordinary right not available at common law but provided for in the document of hire-purchase and which is a peculiar concept by itself. By an overt act of his and on his own volition a financing company or a creditor under a hire-purchase agreement can seize a vehicle without intervention of law. This right provided for in the hire-purchase agreement has a special signification. It establish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and hurdle the same, he would be entitled to be treated as a preferential creditor by the official liquidator, (c) A hypothecatee is a secured creditor and has to be treated as such subject however to the provisions of sections 125 and 132 of the Companies Act, 1956. (d) All creditors having an enforceable charge, legal or equitable, over the movables of the company, have a right to trace such lien even over the sale proceeds of the hypotheca, if indeed the movable property has been so converted. The next phase of the argument of Sri V. Thyagarajan is that even assuming the creditor is a preferential creditor, section 292 of the Companies Act, 1956, is a mandatory provision and the non-observance of the strict inhibitions contained therein by a creditor of the company, would deprive him of his rights and privileges and his claim as against the company as a preferential creditor or otherwise cannot be countenanced. Section 292 deals with powers to be exercised by the board only at meetings. Section 292(1)(d) provides that the board of directors shall have the power to take loans on behalf of the company and it shall do so only by means of resolutions passed at meetings of the board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essary to multiply authorities. The cardinal principle appears to be that if a company allows its affairs to be managed by one and such functional exercise of authority is warranted under the charter of the company and its articles, then the resultant bargains due to the exercise of such power, actual or ostensible, cannot be disregarded by the company who has had the benefit therefrom : vide Lakshmi Ratan Cotton Mills Co. Ltd. v. J. K. Jute Mills Co. Ltd. [1957] 27 Comp. Cas. 660 ; AIR 1957 All. 311. No one can approbate and reprobate. The bedrock on which this principle is decided is that of equitable estoppel. The chain of events that led to the innocent lenders particularly such as respondents Nos. 2 to 4, to enter into the bargain are that there was a representation by C. V. Raman that he had the requisite authority, that in fact C. V. Raman has been held out to be the person at the helm of affairs. It is on such ostensible authority of C. V. Raman that the banks and lenders acted. The next contention of Mr. V. Thyagarajan is that there was no resolution as required under section 292 of the Companies Act, 1956, authorising the borrowing and therefore the creditors cannot clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entially ultra vires of the company and incapable of being made valid even by acquiesence on the part of the shareholders. Reference was made to a passage in Halsbury's Laws of England, third edition, Volume 6, Simonds edition, at page 431, which runs as follows: "...where the act is only within the power of a company on the fulfilment of a statutory condition, persons dealing with a company are bound to ascertain whether the condition has been fulfilled". But, as already stated by me, the argument proceeds on the assumption that there was no resolution at all and even if there was one it should be considered for all purposes as faked or a non-existent resolution and should be deemed to be non est. The managing director represented that they were passed by the board and certified them to be so. Some of the respondents including respondents Nos. 2, 4 and 5 acted upon those resolutions said to have been passed by the board. These were passed, according to the managing director, at a board meeting and certified by him to be so. Article 100, inter alia, prescribes that the directors shall cause the minutes to be duly entered in books provided for the purpose of all resolutions of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avail to the company vis-a-vis such strangers. The above general rule as it were, is adumbrated in what is terminolo-gically called "Doctrine of Indoor Management" by Lord Hatherley. Gower in his Treatise on Modern Company Law states the rule as follows : "But provided that everything appears to be regular so far as this can be checked from the public documents, an outsider dealing with the company is entitled to assume that all internal regulations of the company have been complied with, unless he has knowledge to the contrary or there are suspicious circumstances putting him on inquiry. Omnia praesumuniur rite ac solemniter esse acta." The resolution authorising to borrow is invariably in the minutes book. The minutes book is not a public document, but relates to a record of events concerning internal management. The creditors cannot have access to the minutes book as such kept by a company under section 193 of the Companies Act. Section 195 draws a presumption as to its regularity. Section 194 makes such minutes of meetings evidence of the proceedings recorded therein. In this case the managing director purported to produce certified copies of such minutes. No doubt they lat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Consolidated. [1906] AC 439, 444. That was a case where the secretary of the company, who had absolutely no authority to issue shares, fraudulently affixed the seal of the company and forged the signatures of two of the directors. In those circumstances Lord Macnaghten observed: "The thing put forward as the foundation of their claim is a piece of paper which purports to be a certificate of shares in the company. This paper is false and fraudulent from beginning to end. The representation of the company's seal which appears upon it, though made by the impression of the real seal of the company, is counterfeit, and no better than a forgery. The signatures of the two directors which purport to authenticate the sealing are forgeries pure and simple. Every statement in the document is a lie. The only thing real about it is the signature of the secretary of the company, who was the sole author and perpetrator of the fraud. No one would suggest that this fraudulent certificate could of itself give rise to any right or bind or affect the company in any way. It is not the company's deed, and there is nothing to prevent the company from saying so". This case is distinguishable. Here the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of money had and received would be maintainable. Once, however, the payment is received by the defendant company, the receipt of the money itself is a benefit to the company and the creditor is not concerned with what is done with the money by the company subsequently". Thus viewed I am unable to subscribe to the argument of Sri V. Thyaga-rajan that the documents containing forged signatures of the other directors should be avoided even though they are valid and enforceable by reason of the managing director having principally and firmly executed the same. It is also to be noted that in a majority of cases the signatures of the other directors appear on the document as guarantors. Even if they do find a place in the document as co-executants, such execution by the other directors can be ignored and the document accepted for being enforced on the strength of the signature of the managing director. It was hesitantly argued by the counsel for the third respondent that Chakra Traders is an independent legal entity distinct and separate from the company in liquidation and that therefore any dealings between the respondents and the said Chakra Traders are outside the liquidation pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .................... (e) a charge, not being a pledge, on any movable property of the company;.............". Under a hypothecation agreement, the company creates a charge over its movable property. Even so in a re-finance hire-purchase agreement, where the loan is secured on the vehicle which is the subject-matter of the finance agreement, a lien is created on the vehicle, resulting in a charge within the meaning of section 125(4)(e) of the Companies Act of 1956. Therefore, it is imperative that the document evidencing such a charge has to be registered in either of the above cases. Mr. V. Thyagarajan relied upon In re Kent & Sussex Saw Mills Limited [1947] Ch. 177. I respectfully adopt the ratio of the decision, which holds that "the letters (in that case) were assignments of book debts to the bank by way of security for the overdraft and not having been registered under the Companies Act, 1929, section 79(2)(e), were void against the liquidator in the winding-up". Some of the learned counsel relied upon the sale letters executed by the company in favour of the financier in the refinancing hire-purchase agreement and contend that by reason of this letter, the company cannot cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceeds of the vehicle, expenses, charges and costs pro rata worked out for the purpose. MSX 8469 : The claimants who project preferential claims against this vehicle are respondents Nos. 2, 3, 4 and 13. The 2nd respondent relies on exhibit A-27, hypothecation agreement dated May 30, 1960. This is signed by C. V. Raman and the signatures of the other directors are faked. But the agreement of guarantee, exhibit A-28, is signed by Raman. No doubt, the signatures of the other directors in the promissory note and the letters accompanying the same, exhibits A-25, A-26 and A-27, are faked. But C. V. Raman had signed the same, as managing director. In the view already expressed by me, the hypothecation agreement, exhibit A-27, cannot be rejected in toto. As the company had the benefits of the moneys, it is enforceable. The charge having been registered under the Companies Act under rule 54, it is binding on the company. The 3rd respondent bases his claim on the hire purchase agreement, exhibit A-122, dated July 29, 1960. In the light of my judgment, this secured loan not having been registered with the Registrar of Companies is void. The 3rd respondent can only figure as an ordinary cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a preferential creditor falls to the ground. As regards respondents Nos. 2 and 4, they both claim as hypothecatees of the vehicle; the former under exhibit A-27 registered under exhibit R-54 and the latter under exhibit A-54 registered under exhibit A-58. Both are entitled to rank as preferential creditors and the official liquidator will deal with them as such. MSX 8471 : Respondents Nos. 2, 4, 11 and 13 are the claimants over this vehicle. Respondent No. 13 bases his claim under exhibit A-164, a refinancing hire-purchase agreement. Though respondent No. 13 advanced moneys for the purchase of the vehicle and entered into a financing hire-purchase agreement, exhibit A-163, yet it was cancelled and exhibit A-164 was entered into. The charge under this agreement not having been registered, the claim of respondent No. 13 as preferential creditor ought to fail. Respondent No. 11 bases his claim on the refinancing hire-purchase agreement, exhibit A-143. This has no force because the charge has not been registered under the Companies Act. The claim of the 11th respondent to rank as a preferential creditor falls to the ground. As regards respondents Nos. 2 and 4, they both claim as hyp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liquidator will deal with them as such. MSX 9159 : Respondents Nos. 4, 11 and 13 are the claimants over this vehicle. Respondent No. 13 bases his claim under exhibit A-l70, a refinancing hire-purchase agreement. Though respondent No. 13 advanced moneys for the purchase of the vehicle and entered into a financing hire-purchase agreement, exhibit A-169, yet it was cancelled. The subsisting hire-purchase agreement under exhibit A-170 which creates a charge has not been registered under the Companies Act. Hence, his claim to rank as a preferential creditor fails. Respondent No. 11 rests his claim on an unregistered refinancing hire-purchase agreement, exhibit A-143. He cannot therefore claim preference. The net result is that the claim of the 4th respondent as a registered hypothecatee under exhibit A-54 has to be upheld and he will be treated as such by the official liquidator, who shall pay the sale proceeds of the vehicle to the 4th respondent, less expenses, costs and charges, which have to be reckoned pro rata by him. MSX 9411 : Respondents Nos. 2, 4, 13 and 23 are the claimants over this vehicle. Respondent No. 13 bases his claim under exhibit A-168, a refinancing hire-purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim to rank as a preferential creditor fails. Respondent No. 11 rests his claim on an unregistered refinancing hire-purchase agreement, exhibit A-137. He cannot therefore claim preference. The net result is that the claim of the 4th respondent as a registered hypothecatee under exhibit A-54 has to be upheld and it will be treated as such by the official liquidator, who shall pay the sale proceeds of the vehicle to the 4th respondent, less expenses, costs and charges, which have to be reckoned pro rata by him. MSX 9835, MSW 719, MSW 720, MSW 2305, MSW 2307, MSW 4134 and MSW 4136 : The claimants in MSX 9835 are respondents Nos. 4, 8 and 14. The 4th respondent rested his claim on the basis of the hypothecation agreement, exhibit A-54, dated September 12, 1960, and the certificate of registration with the Registrar of Companies, exhibit A-58. Ordinarily, his claim has to be accepted. But on the date when the hypothecation agreement was signed by the managing director, the company did not own the vehicle at all. The vehicle was purchased from Sundaram Motors Limited. The price there for was paid by the 8th respondent. This is seen from exhibit R-3 dated September 15, 1960. What prompt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... editors cannot be accepted. The 8th respondent advanced monies for the purchase of the vehicle. The vehicle was purchased on September 15, 1960. The financing hire-purchase agreements on which reliance is placed by the 8th respondent are exhibits R-2 and A-78. The hypothecation in favour of the 4th respondent is dated September 12, 1960, before the vehicle was purchased by the company. The inclusion of this vehicle in the hypothecation agreement, exhibit A-54, which was registered, cannot vest any right in the hypothecatee because the vehicle was not there. Even so, the 14th respondent is said to have advanced moneys under hire-purchase agreement dated August 18,1960, on a non-existent vehicle. The 14th respondent's claim as a preferential creditor cannot be envisaged. Therefore, as the 8th respondent advanced the moneys for the purchase of the vehicle his claim as owner of the vehicle has to be accepted and the amount due to the 8th respondent be paid by the official liquidator from and out of the sale proceeds of this vehicle, less expenses, charges and costs pro rata worked out for the purpose of this vehicle. MSW 719 and MSW 720 : The claimants are respondents Nos. 4, 8, 13 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim as owner of the vehicle has to be accepted and the amount due to the 8th respondent be paid by the official liquidator from and out of the sale proceeds of this vehicle, less expenses, charges and costs pro rata worked out for the purpose of this vehicle. MSW 2307 : The claimants are respondents Nos. 8, 14 and 23. The 8th respondent advanced moneys to the company for the purchase of this vehicle. The financing hire-purchase agreement entered into is exhibit A-96 dated January 20, 1961. Under this the 8th respondent is to be deemed to be the owner of this vehicle-See K.L. Johar & Co.'s case (supra) . Therefore, the claims of respondents Nos. 14 and 23 based on hire-purchase agreements dated January 30, 1961, and May 2, 1961, under exhibits A-183 and A-207, when during that period the 8th respondent was the legal owner of the vehicle, cannot be entertained. The hire-purchase agreement, exhibit A-96, was terminated only on June 2, 1961. Therefore, the right of the 8th respondent to claim the net sale proceeds of the vehicle as a preferential creditor cannot be questioned. As the 8th respondent advanced the moneys for the purchase of the vehicle, his claim as owner of the vehicle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he hire-purchase conditions by the company in liquidation. As already stated, this respondent recommended the advance. Therefore the Corporation, on the default committed by the company, re-possessed the vehicles and intimated the registering authority that all further steps would be taken by the respondent. It transpires that the vehicles were handed over to the respondent after seizure by the Corporation. This is seen from exhibit R-90 dated August 17, 1961. Under this letter, the respondent is called upon to pay a sum of Rs. 43,800 said to be by then due under the hire-purchase agreements. Obviously, this demand is made by the Corporation under the foot of the guarantee under exhibit R-87. Otherwise, their conduct in demanding the amount from this respondent cannot be understood. Even R. W. 1 examined on behalf of the respondent would say that they were obliged under the agreement to pay the amount demanded. The agreement referred to by him is exhibit R-87. This witness produced exhibit R-83, the account book of the respondent which was kept in the regular course of business to prove the payments made by this respondent to Hindusthan Motor Corporation Ltd. consequent upon the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . I may add that the non-registration of the hire-purchase agreement with the Hindusthan Motor Corporation with the Registrar of Companies under section 132 of the Companies Act would not make any difference. MSW 4134 and MSW 4136: The two rival claimants are respondents Nos. 8 and 13. This is yet again a case where the 13th respondent is said to have taken a hire-purchase relating to the vehicles when they were not the properties of the company at all. The vehicles were purchased and immediately subject to a financing hire-purchase agreement, exhibit A-104 dated March 22, 1961. Negotiations for purchase took place in March 1961. Under exhibit A-104 the 8th respondent became and continued to be the owner of the vehicles until it was terminated under exhibit R-52 dated June 2, 1961. In those circumstances the claim of the 13th respondent, that he entered into a hire-purchase agreement under exhibits A-174 and A-175 dated January 30, 1961, over these vehicles is absolutely undiscernable. I declare that the 8th respondent is the only creditor who should be treated as a preferential creditor in so far as these vehicles are concerned. As the 8th respondent advanced the moneys for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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