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Sections 529 and 529A of the Company Act – Charge/Mortgage/Undertaking – in a previous litigation between appellant and company, the company gave an undertaking not to dispose of it’s assets for supply of Gas – company petition filed by the appellant – official liquidator appointed -with permission one item was sold at public auction- workers claimed as per Sections 529 and 529A of the Company Act – High court rejected the objection of ONGC and allowed the claim of workers as by virtue of judgement , ONGC can not claimed as secured creditor – ONGC claimed as secured creditor by virtue of the undertakings- Apex court also dismissed the civil appeal and held that In the face of the directions given by this Court in the case of Oil and Natural Gas (supra) wherein this Court had directed that the ONGC is at liberty to take immediate steps to recover the charges due from the respondents in the light of the judgment. This Court did not direct that in view of the undertaking dated 27th May, 1987 the respondents have created enforceable charge in favour of ONGC. Furthermore, it is a matter of record that even the ONGC did not consider itself to be a secured creditor. At the time when the Ambica Mills Co. Ltd. came under the jurisdiction of the Official Liquidator, none of the two options adverted to earlier was exercised by ONGC. The plea of being a secured creditor is clearly an afterthought. Therefore, in our opinion, the judgments rendered by the learned Single Judge and the Division Bench of the Gujarat High Court do not call for any interference. The civil appeals are accordingly dismissed. = Oil and Natural Gas Corporation Ltd. …Appellant VERSUS Official Liquidator of M/s. Ambica Mills Company Ltd. & Ors. …Respondents = 2014 (April.Part ) http://judis.nic.in/supremecourt/filename=41421

Sections 529 and 529A of the Company Act – Charge/Mortgage/Undertaking – in a previous litigation between appellant and company, the company gave an undertaking not to dispose of it’s assets for supply of Gas – company petition filed by the appellant – official liquidator appointed -with permission one item was sold at public auction- workers  claimed  as per Sections 529 and 529A of the Company Act – High court rejected the objection of  ONGC and allowed the claim of workers  as by virtue of judgement , ONGC  can not claimed as secured creditor – ONGC claimed as secured creditor by virtue of the undertakings- Apex court also dismissed the civil appeal and held that In the face of the directions given  by  this Court in the case of Oil and Natural Gas (supra) wherein this Court had directed that the ONGC is at liberty to take immediate steps to recover the charges due from the respondents in the  light  of  the judgment. This Court did not direct that in view of the undertaking dated 27th May,  1987  the  respondents  have  created  enforceable charge in favour of ONGC. Furthermore, it is  a  matter  of  record that even the  ONGC  did  not  consider  itself  to  be  a  secured creditor. At the time when the Ambica Mills Co. Ltd. came under the jurisdiction of the Official Liquidator, none of  the  two  options adverted to earlier was exercised by ONGC.   The plea  of  being  a secured creditor is clearly an  afterthought.   Therefore,  in  our opinion, the judgments rendered by the learned Single Judge and the Division Bench of the Gujarat  High  Court  do  not  call  for  any interference.  The  civil  appeals   are   accordingly   dismissed. =


The record also shows that ONGC moved Company  Application  No.445  of

      2000 in Company Petition No.121 of 1995 by way of judges  summons,  in

      which directions were sought that outstanding amounts of the  ONGC  be

      paid by the company in liquidation. 

Further, an injunction  be  issued

      restraining the  company  in  liquidation  its  agents,  officers  and

      servants from making any payment/disbursement in any manner, of any of

      the sale proceeds that are available from the sale of  assets  of  the

      company in liquidation. 

Further an injunction was  sought  restraining

      Ambica Mills from creating any charge alienation  and  discharging  of

      the immoveable assets of the company in liquidation. 

This  application

      was heard at length by the learned Single Judge and dismissed with the

      following observations :-


           “2.16A      ONGC therefore cannot claim any  preferential  right

                       on the basis of the order of 17.10.1997  in  priority

                       to the secured creditors and the workmen taking  into

                       consideration        the        provisions         of

                       Sections 529 and 529A of the Act.  Such  preferential

                       claim, if falling under Section 530 of the Act  would

                       follow  the  claims  of  Secured  Creditors  and  the

                       Workmen under Sections 529 & 529A of the Act. In case

                       the claim of ONGC is not proved  to  be  preferential

                       under Section 530 of the  Act  they  would  therefore

                       fall for consideration along with all other claims of

                       other creditors as ONGC, on  its  own  saying,  is  a

                       decree holder.



           2.16B In view of what is stated  hereinbefore  this  application

                       cannot be granted at this stage, i.e.  before  claims

                       of Secured Creditors and workmen are processed  under

                       Sections 529 and 529A of the Act. Despite categorical

                       statement at the Bar, under instructions,  that  ONGC

                       did not want to lodge any claim before  the  Official

                       Liquidator, it will be open  to  ONGC  to  lodge  its

                       claim  in  accordance   with   law   and   seek   its

                       satisfaction when claims of other  Creditors  of  the

                       Company in liquidation are taken up for consideration

                       for distribution of the funds which may be  available

                       at  that  time.  

The   application   is   accordingly

                       rejected. Notice is discharged.”






    16. Aggrieved by the aforesaid directions, ONGC filed O.J. Appeal No.51

        of 2004. On 18th October,  2004,  the  Division  Bench  stayed  the

        judgment of the learned Single Judge subject to disbursement of the

        workers at the rate of Rs.2500/-  each  worker  as  agreed  by  the

        parties. The aforesaid appeal has been dismissed by the High  Court

        by the judgment dated 16th January, 2006 giving rise to the present

        appeal.=

 

 A

        reading of the order dated 15th April, 1987 clearly shows  that  it

        firstly gives the direction to the ONGC to continue the  supply  of

        gas at the rate of Rs.1000/- for 1000 cubic meter. Such a direction

        would  be  implemented  only  upon  an  undertaking  given  by  the

        respondents that they will not  charge  encumber  or  alienate  any

        asset except with the leave of this Court. A further direction  was

        that the immoveable assets included in the  respective  undertaking

        will be made available for discharging the  respective  liabilities

        of the respondent company. The undertaking given by the company  in

        liquidation in this case was as under :

           “3. I state that Respondent No.10 Company undertakes  that  none

           of immovable assets of the company will be further  charged  and

           encumbered hereafter with effect from 15.04.1987, i.e. from  the

           date of order of this Hon’ble Court except  with  the  leave  of

           this Hon’ble Court.



           4. I state that Respondent NO.10 Company further undertakes  not

           to alienate any of its immovable assets hereinafter with  effect

           from 15.04.1987 except with the leave  of  this  Hon’ble  Court.

           The  Respondent  No.10  Company  further  undertakes   to   make

           available all its immovable assets in the event  of  discharging

           the liabilities which may arise on  account  of  the  difference

           between the price at which all the Gas  being  supplied  to  the

           company  during  the  pendency  of  the  proceedings   in   this

           connection and the price which may be determined by this Hon’ble

           court while disposing of the present Appeals finally.



    23. A perusal of the aforesaid undertaking shows that Ambica Mills  has

        not identified any particular immovable assets which would be  made

        available  in  discharging  the  liabilities  in  favour   of   the

        appellant. Therefore,  we  have  no  hesitation  in  rejecting  the

        submission of  Mr.Kuhad  that  the  interim  order  read  with  the

        undertaking expressed an intention to create an enforceable  charge

        of any particular asset of the company in liquidation.



    24. We are of the opinion that the judgment in the case of Praga  Tools

        Ltd. Vs. Official Liquidator of Bengal Engineering Company (P) Ltd.

        (1984) 56 Comp. Cas.214 (Cal) would also not be applicable  to  the

        facts and circumstances of this case. Mr. Kuhad has relied  on  the

        following observations:


           “The fallacy in the argument of Mr. Mookherjee, in my  view,  is

           that after the passing of the order of S.K. Roy Chowdhury J. (as

           his Lordship then was), dated August 1, 1978, the position  with

           regard  to  the  security   assumed   a   completely   different

           complexion. By that order, as  I  have  already  indicated,  the

           claim of the  petitioning-creditor  was  settled  at  a  certain

           amount. A mode for payment of that  money  was  indicated.  Then

           there is a default clause. That default clause contained a  twin

           option either of initiating a fresh winding up proceeding or  of

           executing the balance as a decree of court. It is  only  in  the

           event of an  option  being  exercised  in  favour  of  the  last

           contingency, viz., in the event of the execution as a decree  of

           court, that the security which was  furnished  pursuant  to  the

           order of R.M. Dutta J. would be a  security  for  the  applicant

           company for the satisfaction of the  decree  and  would  be  the

           security for the decree until the decretal dues were paid. Thus,

           the benefit of the security in so far as the  applicant  company

           is concerned is entirely  the  creature  of  the  order  of  Roy

           Chowdhury J. dated August 1, 1978. This can, in my view,  by  no

           stretch of  imagination,  be  called  a  charge  created  “by  a

           company” within the meaning of Section 125 of the Companies Act,

           1956, requiring registration under the above section.



           It would follow, therefore, from  what  I  have  said  that  the

           question as to whether the security as originally furnished  was

           registered under Section125 of the Companies Act, 1956, or  not,

           would be totally irrelevant for the purpose of  determining  the

           right of the applicant company after the order of Roy  Chowdhury

           J., dated August 1, 1978.”






    25. The aforesaid observations, in our opinion, would not be applicable

        on the facts and circumstances of this case, as no charge have been

        created in favour of ONGC by any  of  the  orders  passed  by  this

        Court.

    26. Mr. Kuhad has submitted  that  the  respondents  have  specifically

        agreed to make the assets available for discharging  the  liability

        of the ONGC, this, according to Mr. Paras Kuhad, was tantamount  to

        creating an  enforceable  charge.  We  are  unable  to  accept  the

        aforesaid submission. In the face of the directions given  by  this

        Court in the case of Oil and Natural Gas (supra) wherein this Court

        had directed that the ONGC is at liberty to take immediate steps to

        recover the charges due from the respondents in the  light  of  the

        judgment. This Court did not direct that in view of the undertaking

        dated 27th May,  1987  the  respondents  have  created  enforceable

        charge in favour of ONGC. Furthermore, it is  a  matter  of  record

        that even the  ONGC  did  not  consider  itself  to  be  a  secured

        creditor. At the time when the Ambica Mills Co. Ltd. came under the

        jurisdiction of the Official Liquidator, none of  the  two  options

        adverted to earlier was exercised by ONGC.   The plea  of  being  a

        secured creditor is clearly an  afterthought.   Therefore,  in  our

        opinion, the judgments rendered by the learned Single Judge and the

        Division Bench of the Gujarat  High  Court  do  not  call  for  any

        interference.  The  civil  appeals   are   accordingly   dismissed.

 2014 (April.Part ) http://judis.nic.in/supremecourt/filename=41421  

SURINDER SINGH NIJJAR, A.K. SIKRI

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 1746 OF 2006
Oil and Natural Gas Corporation Ltd. …Appellant
VERSUS
Official Liquidator of M/s. Ambica Mills
Company Ltd. & Ors. …Respondents
WITH
CIVIL APPEAL NO. 1747 OF 2006
WITH
CIVIL APPEAL NO. 1748 OF 2006
WITH
CIVIL APPEAL NO. 1749 OF 2006
WITH
CIVIL APPEAL NO. 1750 OF 2006
WITH
CIVIL APPEAL NO. 1751 OF 2006

 

 
J U D G M E N T
SURINDER SINGH NIJJAR, J.
1. The appellant, Oil and Natural Gas Corporation Ltd. is a statutory
corporation constituted by and under the Oil and Natural Gas
Commission Act, (Central Act, 43 of 1959). In 1967, the appellant
commenced supply of natural gas to the industries in and around
Vadodra. The Federation of Gujarat Mills and Industries agreed to
purchase the gas supplied by ONGC at Rs.100/- per unit.

2. The industries subscribing to the gas supplied by the appellant formed
an association in 1978 called “The Association of Natural Gas
Consuming Industries of Gujarat” (hereinafter referred to as
‘Association’). Respondent- Ambica Mills Co. Ltd. is one among the
members of the said Association. The supply of gas to the member
industries was based on individual contracts entered into with each of
the concerns. The appellant and the members of the said Association
entered into an agreement for supply of natural gas. The agreement
provided the price payable for supply of gas and the rate of interest
in the event of failure to pay the stipulated prices.

3. On 30th March, 1979, the contractual period of the aforesaid contract
expired. After the expiry of the contract, a new contract stipulated
prices for supply that were prevalent at the time of the respective
contracts. The then levied price for supply of gas was Rs.504/- per
unit.

4. The Association formed a Society registered under the Cooperative
Societies Act. The Association filed Special Civil Application No. 833
of 1979, before the Gujarat High Court praying to issue appropriate
writ directing the directing the Respondent therein (Appellant
herein) to supply the break up and data on the basis of which price
structure was arrived at by ONGC, for supply of the gas etc.

5. The Gujarat High Court by an interim order dated 30th March, 1979 in
the said Application, directed the Appellant herein to continue supply
of gas at the old rate, i.e., Rs.504/- per 1000 cubic meter. On 29th
December, 1982, the High Court modified the aforesaid interim order
and directed the Appellant to supply gas to the member industries of
the Association at Rs.1000/- per 1000 cubic meter.

6. On 30th July, 1983 the said Civil Application was partly allowed by
the Division Bench setting aside the price demanded by the Appellant
herein, leaving it open to deal with the question of price fixation in
any one of the three modes suggested in Para 36 of the judgment in the
case of Association of Natural Gas Consuming Industries of Gujarat &
Ors. Vs. ONGC & Anr. reported in 24 (2) GLR 1437.

7. The Appellant preferred an appeal being C.A. No. 8530-8540 of 1983
against the aforesaid order. On 15th April, 1987, this Court passed an
interim order directing that the members of the Association including
the Respondent shall be supplied gas at the rate of Rs.1000/- per 1000
cubic metres subject to an undertaking that the respondent shall not
charge, encumber or alienate except with the leave of this Court any
of the immovable assets.

8. Pursuant to the order dated 15th April, 1987, an undertaking was given
by Ambica Mills Co. Ltd. thereby making available their immovable
assets for discharge of its respective liability on 27th May, 1987.

9. Appellant filed Company Petition No. 66 of 1983 seeking winding up of
Respondent No. 1- Ambica Mills Co. Ltd.

10. C.A. No. 8530-8540 of 1983 was finally decided by this Court and the
judgment was delivered in the same matter on 4th May, 1990 (reported
in 1990 Suppl. SCC 397). This Court, as regards the price fixation,
had set aside the direction given by the High Court in Para 36 of the
judgment dated 30th July, 1983. It was
observed that the ONGC would be at liberty to take immediate steps to
recover the charges due from the respondents therein, in the light of
this judgment.
11. Soon after the aforesaid judgment, ONGC filed an application for
certain directions and modifications of the aforesaid judgment. When
the matter was taken up for hearing on 8th December, 1992, learned
senior counsel appearing on behalf of the Association submitted that
the members of the Association will make some more substantial
payments to ONGC by the end of the month, and particulars of payment
so made would be submitted in the Court on or before 8th January,
1993. On 6th April, 1993, when the matter was taken up again on an
application filed by the ONGC complaining of non-payment by the
members of the Association, this Court observed that the liability of
the members of the Association to make the payment of amounts due from
them to the ONGC was beyond controversy and cannot be disputed. In the
aforesaid order, it was further observed that the principal amount due
from Ambica Mills Co. Ltd. as on 31st March, 1993 in respect of period
1st April, 1979 to 21st January, 1987, as shown in the statement
furnished by ONGC, is Rs. 1.58 crores and interest thereon amounted to
Rs.4.96 crores. Ambica Mills Co. Ltd. admitted the principal amount.
The interest calculated would be accepted subject to verification. At
the relevant time, reference relating to Ambica Mills Co. Ltd. under
the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA)
was already pending before the Board for Industrial and Financial
Reconstruction (BIFR). Upon consideration of the matter, this Court on
29th April, 1993 granted the prayer of ONGC that it would be entitled
to take steps for disconnecting the supply of gas in case of non
payment of the amounts due. This Court directed that the principal
amount must be paid within a period of 5 years latest by 31st March,
1998. So far as Ambica Mills is concerned, the statement was made by
the learned senior counsel appearing for them that the respondent is
prepared to sell the vacant land at Vatwa in Ahmedabad in order to
discharge the due of ONGC in the present case. Ambica Mills was
granted liberty by this Court to make prayer to that effect before the
BIFR and to obtain suitable directions. It was also observed that the
entire dues of the ONGC shall be first paid out of the total sale
price and the balance, if any, remaining thereafter shall be available
for utilisation in any other manner directed by the BIFR. It appears
that in the meantime BIFR recommended that Ambica Mills be put into
liquidation. This recommendation of the BIFR came up before the
Gujarat High Court along with other winding up on 17th October, 1997,
when the High Court appointed a provisional liquidator.

12. Soon thereafter, it appears that the Company Application No.445 of
2000 in official liquidator report No. 44 of 1999 in Company Petition
No.121 of 1995 was filed in the Gujarat High Court seeking directions
for payment of the amounts due to ONGC by the Ambica Mills (company in
liquidation). On 17th January, 1997, the High Court ordered winding up
of M/s. Ambica Mills Co. Ltd. and the official liquidator was
appointed as the liquidator of the company. Thereafter the official
liquidator filed an application before this Court in respect of the
disposal of the properties of the company in liquidation and
disbursement of the amounts realised. This Court by order dated 17th
October, 1997 directed as follows :-
“That out of the assets of the company under liquidation, the
dues of ONGC Limited are required to be paid off first and the
question of making any payment to any other creditor can realise
only out of the surplus if any remaining after the fill dues of
the ONGC Limited have been paid off. The High Court is
therefore, to proceed with the matter in this manner.
I.As stand disposed off.”
13. It is the case of the ONGC that it is in receipt of a letter dated
28th September, 1999 from the official liquidator wherein it has been
stated that Plot No.307IPS-16 of Ambica Mills (in liquidation)
property was disposed of for Rs.90.11 lakhs and the initial instalment
of Rs.22.52 lakhs had already been deposited by the purchaser of the
said plot. A prayer was made for release of the aforesaid amount to
ONGC.

14. It appears that respondent No.10-Textile Labour Association, Bhadra
sought review of the order dated 17th October, 1997 by filing Review
Petition Nos.1193-1203 of 2001 in I.A.No.168-178/1997 in C.A.No.8530-
40 of 1983. The aforesaid review petitions were decided by this Court
on 12th April, 2004 and it was directed that claims of ONGC will have
to be worked out in accordance with Sections 529 and 529A of the
Companies Act as well. The submissions made on behalf of ONGC that the
mandamus issued by this Court earlier that ONGC must be paid up first
from any sale of the assets of the company in liquidation, would
prevail even if the statutory provisions contained in Sections 529 and
529A of the Companies Act, were rejected. The aforesaid judgment of
this Court is reported at 2004 (9) SCC 741.

15. The record also shows that ONGC moved Company Application No.445 of
2000 in Company Petition No.121 of 1995 by way of judges summons, in
which directions were sought that outstanding amounts of the ONGC be
paid by the company in liquidation. Further, an injunction be issued
restraining the company in liquidation its agents, officers and
servants from making any payment/disbursement in any manner, of any of
the sale proceeds that are available from the sale of assets of the
company in liquidation. Further an injunction was sought restraining
Ambica Mills from creating any charge alienation and discharging of
the immoveable assets of the company in liquidation. This application
was heard at length by the learned Single Judge and dismissed with the
following observations :-

“2.16A ONGC therefore cannot claim any preferential right
on the basis of the order of 17.10.1997 in priority
to the secured creditors and the workmen taking into
consideration the provisions of
Sections 529 and 529A of the Act. Such preferential
claim, if falling under Section 530 of the Act would
follow the claims of Secured Creditors and the
Workmen under Sections 529 & 529A of the Act. In case
the claim of ONGC is not proved to be preferential
under Section 530 of the Act they would therefore
fall for consideration along with all other claims of
other creditors as ONGC, on its own saying, is a
decree holder.
2.16B In view of what is stated hereinbefore this application
cannot be granted at this stage, i.e. before claims
of Secured Creditors and workmen are processed under
Sections 529 and 529A of the Act. Despite categorical
statement at the Bar, under instructions, that ONGC
did not want to lodge any claim before the Official
Liquidator, it will be open to ONGC to lodge its
claim in accordance with law and seek its
satisfaction when claims of other Creditors of the
Company in liquidation are taken up for consideration
for distribution of the funds which may be available
at that time. The application is accordingly
rejected. Notice is discharged.”

 

 

16. Aggrieved by the aforesaid directions, ONGC filed O.J. Appeal No.51
of 2004. On 18th October, 2004, the Division Bench stayed the
judgment of the learned Single Judge subject to disbursement of the
workers at the rate of Rs.2500/- each worker as agreed by the
parties. The aforesaid appeal has been dismissed by the High Court
by the judgment dated 16th January, 2006 giving rise to the present
appeal.
17. We have perused the entire record and heard the learned senior counsel
for the parties at length.

18. Mr. Paras Kuhad, appearing for the appellant submitted that the High
Court had committed an error in concluding that the appellant cannot
claim any preferential right on the basis of the order passed on 17th
October, 1997. According to Mr. Kuhad, the second error committed by
the High Court is that it has wrongly concluded that no security was
created in favour of the appellant on the basis of the interim order
passed by this Court on 15th April, 1987 and the undertaking furnished
by the company in liquidation Ambica Mills Co. Ltd. pursuant to the
order of this Court. The third error committed by the High Court,
according to Mr. Kuhad, is in holding that no security has been
created in favour of the appellant as no charges have been registered
under Section 125 of the Companies Act, 1956. Mr. Kuhad has submitted
that the undertaking dated 27th May, 1987 is a superimposition on the
priorities as given in Sections 529 and 529A of the Companies Act. In
support of his submission, learned senior counsel has relied on a
number of judgments which we shall notice presently.

19. Learned counsel for the respondents has submitted that the genesis of
the civil appeal is the interim order dated 15th
April, 1987. It is submitted that the aforesaid order is in the nature
of an injunctive order whereby the company in liquidation was
directed, not to charge encumber or alienate any of its assets except
with the leave of this Court, including the assets listed in the
respective undertakings. The second part of the injunction was that
the respondents will make their immovable assets available for
discharging the respective liabilities to the ONGC. The undertaking
filed by Ambica Mills Co. Ltd. was that “none of immovable assets of
the company will be further charged and encumbered hereinafter with
effect from 15th April, 1987, except with the leave of this Court.” It
is the submission of the respondents that in the aforesaid undertaking
no specific details and particulars of any immovable assets were given
or provided. Therefore, the aforesaid undertaking does not make the
appellant a secured creditor of Ambica Mills Co. Ltd. It is pointed
out by the learned counsel that even in the judgment dated 4th May,
1990 of this Court in Oil and Natural Gas Commission & Anr. Vs.
Association of Natural Gas Consuming Industries of Gujarat & Ors.
reported at 1990 (Supp) SCC 397 did not hold that the order dated 15th
April, 1987 or the undertaking dated 27th May, 1987 have conferred
upon the appellant status of a secured creditor. This Court only
directed that the ONGC will be at liberty to take immediate steps to
recover the dues from the respondent in the light of the judgment.
Similarly no charge was created by this Court while passing the order
dated 6th April, 1993. Explaining the order dated 17th October, 1987,
it is submitted by the learned counsel for the respondent that the
order only directed that in case of sale of the assets of the company
in liquidation, the dues of the ONGC shall be paid off first. But this
order was subsequently reviewed on 12th April, 2004 directing that the
order dated 17th October, 1997 would have to be read subject to the
provisions of Sections 529 and 529A of the Companies Act. Therefore,
the secured creditors had two options, either to realise its
securities outside the winding up proceedings or to relinquish its
security for the general benefit of all and prove its claim by
participating in the liquidation proceedings. The appellant never gave
any option knowing perfectly well it was not a secured creditor. The
judgments relied upon by the appellants have been sought to be
distinguished by the learned counsel for the respondents.

20. We have considered the submissions made by the learned counsel for the
parties. In our opinion, the appellant cannot claim that the order
dated 15th April, 1987 created an enforceable charge on the assets of
the company in liquidation. We are of the opinion that the learned
counsel for the respondents are quite right in their submissions that
an injunction was issued only to ensure that the company in
liquidation does not further encumber or create charges in favour of
third parties over the assets of the company in liquidation. In our
opinion, neither the interim order dated 15th April, 1987 nor the
undertaking given pursuant thereto can be said to be a charge on the
assets of the company in liquidation. This Court in the case of Indian
Bank Vs. Official Liquidator, Chemmeens Exports (P) Ltd. & Ors.[1]
whilst considering the provisions contained in Section 125 of the
Companies Act has observed as follows :-
“6. Since the preliminary decree is assailed as being void under
Section 125 of the Act, it would be useful to read here the said
provision, insofar as it is relevant for our purposes. It reads:
“125. Certain charges to be void against liquidator or
creditors unless registered.—(1) Subject to the provisions of
this Part, every charge created on or after the Ist day of
April, 1914, by a company and being a charge 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:
Provided that the Registrar may allow the particulars and
instrument of copy as aforesaid to be filed within thirty days
next following the expiry of the said period of thirty days on
payment of such additional fee not exceeding ten times the
amount of fee specified in Schedule X as the Registrar may
determine, if the company satisfies the Registrar that it had
sufficient cause for not filing the particulars and instrument
or copy within that period.
(2) Nothing in sub-section (1) shall prejudice any contract or
obligation for the repayment of the money secured by the charge.
(3) When a charge becomes void under this section, the money
secured thereby shall immediately become payable.
(4) This section applies to the following charges:
(a) a charge for the purpose of securing any issue of
debentures;
(b) a charge on uncalled share capital of the company;
(c) a charge on any immovable property, wherever situate,
or any interest therein;
(d) a charge on any book debts of the company;
(e) a charge, not being a pledge, on any moveable
property of the company;
(f) a floating charge on the undertaking or any property
of the company including stock-in-trade;
(g) a charge on calls made but not paid;
(h) a charge on a ship or any share in a ship;
(i) a charge on goodwill, on a patent or a licence under
a patent, on a trade mark, or on a copyright or a
licence under a copyright.
(5) to (8) * * *”
7. On a plain reading of sub-section (1) it becomes clear that
if a company creates a charge of the nature enumerated in sub-
section (4), after 1-4-1914 on its properties, and fails to have
the charge together with instrument, if any, by which the charge
is created, registered with the Registrar of the Companies
within thirty days, it shall be void against the liquidator and
any creditor of the company. This, however, is subject to the
provisions of Part V of the Act. The proviso enables the
Registrar to relax the period of limitation of thirty days on
payment of specified additional fees, on being satisfied that
there has been sufficient cause for not filing the particulars
and instrument or a copy thereof within the specified period.
Sub-sections (2) and (3) deal with repayment of money secured by
the charge. Sub-section (2) provides that the provision of sub-
section (1) shall not prejudice the contract or obligation for
repayment of money secured by the charge and sub-section (3)
says that when a charge becomes void under that section, the
money secured shall become payable immediately. Though as a
consequence of non-registration of charge under Part V of the
Act, a creditor may not be able to enforce the charge against
the properties of the company as a secured creditor in the event
of liquidation of the company as the charge becomes void against
the liquidator and the creditor, yet he will be entitled to
recover the debt due by the company on a par with other
unsecured creditors. It is also evident that Section 125 applies
to every charge created by the company on or after 1-4-1914. But
where the charge is by operation of law or is created by an
order or decree of the court, Section 125 has no application.”
21. The observations made in paragraph 7, in our opinion, is a complete
answer to the submission made by Mr. Paras Kuhad. Clearly the
appellant is only entitled to recover the dues at par with other
unsecured creditors. In our opinion, the order dated 15th April,
1987, was only in the nature of restraint on the Company in
liquidation not to further encumber any of its assets. It did not
have the effect of creating a charge. Mr. Kuhad in support of his
submission that the interim order dated 15th April, 1987 has to be
treated as a mandate of the Court, has relied on J.K. (Bombay) (P)
Ltd. Vs. New Kaiser-I-Hind Spinning and Weaving Co. Ltd.[2] In the
aforesaid judgment, undoubtedly it is held that “no particular form
of words is necessary to create a charge and all that is necessary
is that there must be a clear intention to make a property security
for payment of money in praesenti.” The aforesaid observations of
this Court ought not to be read out of context. The judgments of
this Court are not to be read as statutory instruments. The ratio
of the judgment has to be culled out, keeping in view the facts and
circumstances involved in a particular case. The facts in that case
are noticed in paragraph 26 from wherein the aforesaid three lines
have been extracted by Mr. Kuhad in support of his submission. We
quote the relevant part of paragraph 26 of the aforesaid judgment
which is as under:
“26……. It was argued that where an agreement specifies a
property out of which a debt is to be payable and is coupled
with an intention to subject such property to a charge, the
property becomes subject to a charge in praesenti even though a
regular mortgage is to be executed at some future date. Such an
intention, the learned Attorney-General argued, was demonstrated
by the agreement that (1) the debts were to be paid out of
profits and (2) the engagement by the company not to deal with
its assets. The distinction between a charge and a mortgage is
clear. While in the case of a charge there is no transfer of
property or any interest therein, but only the creation of a
right of payment out of the specified property, a mortgage
effectuates transfer of property or an interest therein. No
particular form of words is necessary to create a charge and all
that is necessary is that there must be a clear intention to
make a property security for payment of money in praesenti. In
Jewan Lal Daga v. Nilmani Chaudhuri,  a case relied on by him,
the question was one relating to an agreement to mortgage.
Following on the agreement, a draft mortgage was prepared which
was approved by the respondent’s solicitors, the mortgage deed
was engrossed and even the stamp for it was paid by the
respondent. The question was whether specific performance of the
agreement compelling the respondent to execute the mortgage
could be granted before accounts between the parties were made
up and the amount due thereunder was ascertained. The Privy
Council disagreeing with the High Court held that that could be
done and observed that ” there was a valid agreement charging
the property with whatever sum was actually due……and that a
proper mortgage ought to be executed to carry out these terms.”
In Khajeh Suleman Quadir v. Salimullah certain deeds were
executed purporting to make wakfs of certain properties in
favour of the members of a Mahomedan family and then for
charitable purposes. Later on, agreements were executed, under
one of which the members of the family agreed that allowances
fixed under the wakfs should be paid out of the income to named
persons of the family and upon their death to their heirs, and
under the other agreement the mutawalli agreed that he and the
future mutawallis would pay the said allowances. The wakfs were
held invalid as creating a perpetual succession of estates. The
question was whether the agreements to pay allowances also fell
along with them. The Privy Council held that they did not, that
they were valid and enforceable and that the direction in the
agreements to pay the allowances out of the income of the
settled properties showed an intention to create a charge. In
both these decisions the Board came to the conclusion that there
was a clear intention on the part of the parties to create a
charge in praesenti. The argument of the learned Attorney-
General was that if an agreement indicated a property out of
which a debt is to be paid and an intention to subject it to a
charge in praesenti, the court must find the charge. Certain
other decisions were also brought to our notice but it is not
necessary to burden this judgment with them because in each case
the question which the court would have to decide would be
whether the agreement in question creates a charge in
praesenti.:………”
22. The aforesaid observations would indicate that the court was
examining the submissions made by the learned Attorney General. The
effort of the Attorney General was to persuade this Court, on the
cases mentioned in the aforesaid paragraph that there was an
agreement which established an intention to create a charge. A
reading of the order dated 15th April, 1987 clearly shows that it
firstly gives the direction to the ONGC to continue the supply of
gas at the rate of Rs.1000/- for 1000 cubic meter. Such a direction
would be implemented only upon an undertaking given by the
respondents that they will not charge encumber or alienate any
asset except with the leave of this Court. A further direction was
that the immoveable assets included in the respective undertaking
will be made available for discharging the respective liabilities
of the respondent company. The undertaking given by the company in
liquidation in this case was as under :
“3. I state that Respondent No.10 Company undertakes that none
of immovable assets of the company will be further charged and
encumbered hereafter with effect from 15.04.1987, i.e. from the
date of order of this Hon’ble Court except with the leave of
this Hon’ble Court.
4. I state that Respondent NO.10 Company further undertakes not
to alienate any of its immovable assets hereinafter with effect
from 15.04.1987 except with the leave of this Hon’ble Court.
The Respondent No.10 Company further undertakes to make
available all its immovable assets in the event of discharging
the liabilities which may arise on account of the difference
between the price at which all the Gas being supplied to the
company during the pendency of the proceedings in this
connection and the price which may be determined by this Hon’ble
court while disposing of the present Appeals finally.
23. A perusal of the aforesaid undertaking shows that Ambica Mills has
not identified any particular immovable assets which would be made
available in discharging the liabilities in favour of the
appellant. Therefore, we have no hesitation in rejecting the
submission of Mr.Kuhad that the interim order read with the
undertaking expressed an intention to create an enforceable charge
of any particular asset of the company in liquidation.
24. We are of the opinion that the judgment in the case of Praga Tools
Ltd. Vs. Official Liquidator of Bengal Engineering Company (P) Ltd.
(1984) 56 Comp. Cas.214 (Cal) would also not be applicable to the
facts and circumstances of this case. Mr. Kuhad has relied on the
following observations:

“The fallacy in the argument of Mr. Mookherjee, in my view, is
that after the passing of the order of S.K. Roy Chowdhury J. (as
his Lordship then was), dated August 1, 1978, the position with
regard to the security assumed a completely different
complexion. By that order, as I have already indicated, the
claim of the petitioning-creditor was settled at a certain
amount. A mode for payment of that money was indicated. Then
there is a default clause. That default clause contained a twin
option either of initiating a fresh winding up proceeding or of
executing the balance as a decree of court. It is only in the
event of an option being exercised in favour of the last
contingency, viz., in the event of the execution as a decree of
court, that the security which was furnished pursuant to the
order of R.M. Dutta J. would be a security for the applicant
company for the satisfaction of the decree and would be the
security for the decree until the decretal dues were paid. Thus,
the benefit of the security in so far as the applicant company
is concerned is entirely the creature of the order of Roy
Chowdhury J. dated August 1, 1978. This can, in my view, by no
stretch of imagination, be called a charge created “by a
company” within the meaning of Section 125 of the Companies Act,
1956, requiring registration under the above section.
It would follow, therefore, from what I have said that the
question as to whether the security as originally furnished was
registered under Section125 of the Companies Act, 1956, or not,
would be totally irrelevant for the purpose of determining the
right of the applicant company after the order of Roy Chowdhury
J., dated August 1, 1978.”

 

 

25. The aforesaid observations, in our opinion, would not be applicable
on the facts and circumstances of this case, as no charge have been
created in favour of ONGC by any of the orders passed by this
Court.
26. Mr. Kuhad has submitted that the respondents have specifically
agreed to make the assets available for discharging the liability
of the ONGC, this, according to Mr. Paras Kuhad, was tantamount to
creating an enforceable charge. We are unable to accept the
aforesaid submission. In the face of the directions given by this
Court in the case of Oil and Natural Gas (supra) wherein this Court
had directed that the ONGC is at liberty to take immediate steps to
recover the charges due from the respondents in the light of the
judgment. This Court did not direct that in view of the undertaking
dated 27th May, 1987 the respondents have created enforceable
charge in favour of ONGC. Furthermore, it is a matter of record
that even the ONGC did not consider itself to be a secured
creditor. At the time when the Ambica Mills Co. Ltd. came under the
jurisdiction of the Official Liquidator, none of the two options
adverted to earlier was exercised by ONGC. The plea of being a
secured creditor is clearly an afterthought. Therefore, in our
opinion, the judgments rendered by the learned Single Judge and the
Division Bench of the Gujarat High Court do not call for any
interference. The civil appeals are accordingly dismissed.
……………………………….J.
[Surinder Singh Nijjar]
………………………………..J.
[A.K.Sikri]
New Delhi;
April 17, 2014.

———————–
[1] (1998) 5 SCC 401
[2] (1969) 2 SCR 866

———————–
27

 

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