1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION CHAMBER SUMMONS NO. 1622 OF 2007 IN SUIT NO. 1689 OF 2003 WITH COURT RECEIVER'S REPORT DATED 12.11.2007 Bank of Baroda .. Plaintiffs Versus The Official Liquidator of Alpic Finance Limited(InLiquidation) ..Defendants. Versus Rasi ElectrodesLtd. & Ors. ..Applicants Ms.Sowmya Srikrishna i/b.M/s.Little & Co. for the Plaintiff. Mr.Jaydeep Mitra i/b.M/s.D'lima & Associates for the Applicants. Mr.Rane, representative of the Court Receiver present. CORAM : S.J. VAZIFDAR, J. DATE : 27TH MARCH, 2008. ORAL JUDGEMENT : This Chamber Summons has been taken out by the applicants who are not parties to the suit. The applicants have 2 sought an order directing that the action on the part of the Court receiver in taking physical possession of the property in dispute is contrary to an order dated 13.4.2006 passed by this court and is therefore null and void and not binding on the applicants. In fact what the applicants actually seek is an order setting aside the order dated 13.4.2006 on the ground that the applicants were in actual physical possession of the said property pursuant to their having purchased the same as more particularly stated hereafter. It was agreed by the parties that the prayer in the chamber summons would be so construed and that it is not necessary for the applicants to amend the prayer to this effect. 2. The suit is filed by the plaintiff as a trustee for the holders of the bonds issued by the defendants inter-alia to recover as sum of about Rs. 45 crores with interest thereon. For the purpose of this chamber summons it is necessary only to note that the plaintiff has also sought a declaration that the said amounts are secured by a mortgage in favour of the plaintiff of various immovable and movable properties including the property which is the subject matter of the above chamber summons namely land admeasuring 3 about 3.70 acres in the village Puzhal, Ambattur Taluk,Tiruvallur District, Tamil Nadu State (hereinafter referred to as the said property). 3. The said property was charged in favour of the plaintiff by any Indenture of Trust and Mortgage dated 11.6.1999 executed between the defendant and the plaintiff. The said charge was registered on 14.6.1999 under section 125 of the Companies Act. As this fact was not admitted I had by an order dated 14.3.2008 directed the Registrar of Companies to produce the records of the defendant in this regard which he did. The records were inspected by all the parties and the fact of the registration under section 125 of the Companies Act was admitted by all the counsel. On 10.8.1999 the indenture of trust and mortgage dated 11.6.1999 was registered under the provisions of the Registration Act . 4. The Small Industrial Development Bank of India had filed a winding up petition against the defendant being Company Petitioned no 853 of 2000 and had taken out a Company Application (lodging) no 842 of 2001. By an order dated 30.11.2001 the Learned Judge had appointed a Provisional 4 Liquidator. The learned judge recorded a statement on behalf of the respondent/defendant that the defendant would not dispose of any of its immovable properties save and except in the ordinary course of usual business of the company. In view of the said statement the learned judge stayed the order of the appointment of the official liquidator as a provisional liquidator for a period of six weeks. In an appeal against the said order the Division Bench by an order dated 31.1.2002 set-aside the order dated 30.11.2001 on the limited ground that the defendant should be given an opportunity of being heard in accordance with the provisions of the Companies Act and therefore did not make any observations on the merits of the matter. The Division Bench however directed that the statement referred to in the said order dated 30.11.2001 would remain operative till the disposal of the Judges Summons. The said company application after being remanded was finally disposed of by an order dated 2.8.2002 passed by me . By the said order I made the company application absolute in terms of prayer clauses (a) and (b). 5. The applicant' s case is that on 1.6.2004 the defendant 5 passed a resolution for disposing of the said property. A public notice was issued on 10.10.2004 calling for objections to the sale of the said property. By an alleged sale deed dated 30.11.2004 the defendant sold the said property to one A.P. Anburaj and one S. Subramani for a consideration of Rs. 39,00,000. By a registered sale deed dated the 22.12.2004 the said Anburaj and S.Subramani in turn allegedly sold the said property to the applicants for a total consideration of Rs 61,05,000 and put the applicants in possession thereof. 6. By an order dated 12.7.2005 in Notice of Motion no 3503 of 2003 taken out by the plaintiff in the above suit the learned judge granted an injunction in terms of prayer (b.) restraining the defendant from alienating, and encumbering, selling, transferring, disposing of, creating third-party rights in or otherwise dealing with any or all of the mortgaged and hypothecated properties including the said property. By a further order dated 19.7.2005 in the said notice of motion the Court Receiver was appointed as the receiver of the properties of the defendant including the said property. By yet another order dated 13.4.2006 the plaintiffs said notice of 6 motion no 3503 of 2003 was made absolute by appointing the court receiver inter alia in respect of the said property with a direction to the court receiver to take possession of the said property with the help of the police, if necessary. 7. On 18.6.2007 the court receiver took physical possession of the said property from the applicant. The applicants alleged that at that time they furnished the court receiver with copies of all the relevant documents in their possession. The applicants by a letter dated 20.6.2007 objected to the court receiver's action. The applicants further alleged that they were shocked to come across a public notice dated 25.9.2007 in the New Indian Express, Chennai advertising the sale of the said property. 8. The Applicants therefore filed the present Chamber Summons on 28.9.2007. On 9.10.2007 the applicant submitted an application for urgent ad-interim reliefs By an order dated 9.10.2007 I directed that the sale of the said property shall be subject to final orders in this chamber summons. The chamber summons and the application for confirmation of sale if any, were 7 directed to be heard together. The applicants agreed to act as the agents of the court receiver only for the limited purpose of protecting the said property. 9. The Court Receiver invited bids inter-alia in respect of the said property. Fifty bids in sealed envelopes for the said property was received by the office of the court receiver. The bidders were invited to raise their bids. The offer given by one M.Soundara Pandiyan in the sum of rupees 1,70, 00, 000 was found to be the highest and was accepted by the Court Receiver subject to the confirmation of the sale by the court. The auction purchaser deposited the entire amount. 10. The court receiver thereafter filed a report being Court Receiver's Report no 371 of 2007 seeking directions as to the steps to be taken in respect of the said offer. By an order dated 29.11.2007 I considered inter-alia the said offer in respect of the said property. I recorded that the highest bidder had raised his bid to Rs 3,25,00,000. I also granted liberty to the other bidders to raise their bids if they so desired. No such improved offers have been received thus far. The court receivers report in respect of the 8 said property was kept pending. 11. Mrs. Srikrishna, the learned counsel appearing on behalf of the plaintiff, submitted that the sale of the land by the defendant to the first purchaser on 30.11.2004 was void ab initio as the same had been made after the commencement of the winding up of the defendant. In this regard she relied upon section 536 of the Companies Act which reads as under : - “536. Avoidance of transfers., etc., after commencement of winding up.—( 1) In the case of a voluntary winding up, any transfer of shares in the company, not being a transfer made to or with the sanction of the liquidator, and any alteration in the status of the members of the company, made after the commencement of the winding up, shall be void. (2) In the case of a winding up by [the Tribunal], any disposition of the property (including actionable claims) of the company, and any transfer of shares in the company or alteration in the status of its members, made after the commencement of the winding up, shall, unless the [Tribunal] otherwise orders, be void.” 12. It is true that no application has been made by the 9 applicants to have the transactions validated. That by itself however would not have entitled the plaintiff to succeed at this stage. If that was the only contention, the sale could have been sanctioned subject however to any orders that may be passed in an application under section 536 of the Companies Act if made by the applicants. 13. Mrs. Srikrishna then submitted that even assuming that the transfer by the defendant to the first purchasers and by the first purchasers to the applicants was valid the said transfers would be subject to the prior mortgage created on 11.6.1999 by the defendant in favour of the plaintiff. She submitted that on creation of the mortgage the plaintiff acquired an interest in the property and that the defendant mortgagee was left only with the equity of redemption with respect to the said property. Accordingly, it was submitted that the defendant retained only the right to redeem the mortgage by paying the mortgage debt and no other right and that therefore all that the defendant could have transferred in favour of any third party was the equity of redemption and nothing more. The defendant who retained only the right to redeem the mortgage 10 and nothing more could not transfer more than what it had. In other words according to the plaintiff the applicants acquired only the right to redeem the said mortgage by paying the mortgage debt and they could not have acquired any right higher than what the defendant itself had. 14. There is no dispute that the mortgage in favour of the plaintiff was registered under the provisions of the Registration Act. The registration however was admittedly effected only in Mumbai. The property is situated in the state of Tamil Nadu. This however was permissible prior to the omission of sub-section (2) to section 30 of the Registration Act. Section 30 of the Registration Act prior to its amendment by Act 48 of 2001read as under : - “(2) [The Registrar of a district in which a Presidency-town is included and the Registrar of the Delhi district] may receive and register any part of [India] of the property to which the document relates.” 15. Sub-section(2) was however omitted by Act 48 of 2001. Admittedly however the mortgage was created and registered prior to the omission of sub-section 2 of section 30 of the Registration Act. As stated earlier the indenture of trust and mortgage dated 11 11.6.1999 was registered on 10.8.1999. There is nothing in the amending act which suggests that it is retrospective. Thus the registration of the document in Mumbai is not affected, much less invalidated by the amending Act 48 of 2001. 16. It is necessary to state that on behalf of the plaintiff Mrs Srikrishna stated that the matter may proceed on the basis that the applicants did not have actual notice of the mortgage or of the registration thereof in Mumbai. She however contended that the applicant had constructive notice of both, the mortgage as well as the registration thereof effected under the Registration Act as well as under the Companies Act. Indeed constructive notice of the registration of the said mortgage in Mumbai cannot be imputed to the applicant in view of the provisions of section 3 of the Transfer of Property Act the relevant portion whereof reads and under : - “Interpretation clause.—I n this Act, unless there is something repugnant in the subject or context,— ................................................................. ................................................................. “a person is said to have notice” of a fact when he actually knows that fact, or when but for wilful abstention from an enquiry or search which he ought to have made, or gross negligence, he 12 would have known it. Explanation I.—W here any transaction relating to immovable property is required by law to be and has been effected by a registered instrument, any person acquiring such property or any part of, or share or interest in, such property shall be deemed to have notice of such instrument as from the date of registration or, where the property is not all situated in one sub-district, or where the registered instrument has been registered under sub-section (2) of Section 30 of the Indian Registration Act, 1908 (XVI of 1908) from the earliest date on which any memorandum of such registered instrument has been filed by any Sub-Registrar within whose sub- district any part of the property which is being acquired, or of the property wherein a share or interest is being acquired, is situated: Provided that— (1) the instrument has been registered and its registration completed in the manner prescribed by the Indian Registration Act, 1908 (XVI of 1908) and the rules made thereunder, (2) the instrument of memorandum has been duly entered or filed, as the case may be, in books kept under Section 51 of that Act, and (3) the particulars regarding the transaction to which the instrument relates have been correctly entered in the indexes kept under Section 55 of that Act.” 17. The fact however remains that the mortgage in favour of the plaintiff had been validly effected in Mumbai. Mr Rao, the learned counsel appearing on behalf of the applicants, did not 13 contend that even assuming that the registration of the mortgage in favour of the plaintiff had been validly effected in Mumbai the applicants rights cannot be affected in view of the applicant not having actual notice thereof. Thus even proceeding on the basis that the applicants did not have actual notice of the plaintiff's mortgage it would have to be held in favour of the plaintiff's that the mortgage in their favour cannot be affected by the sale of the property by the defendant to the first purchasers and accordingly by the first purchasers to the applicants. In that event it must necessarily follow that all that the applicant and the first purchasers acquired was the equity of redemption and nothing more. The sale therefore by the defendant to the first purchasers and accordingly by the first purchasers in turn to the applicants cannot affect the rights of the plaintiff's. The applicants have at the highest acquired the equity of redemption which they are entitled to enforce at any time and even now prior to the confirmation by the Court of the sale effected by the court receiver. For this purpose I intend giving the applicants sufficient time. 18. Faced with this Mr.Rao submitted that the mortgage itself 14 has not as yet been held to be valid and enforceable in view of the fact that the above suit is still pending. There is however nothing to indicate that the mortgage is not valid. The mere fact that the suit is pending would not justify the grant of relief in favour of the applicants. The applicants have chosen the present remedy under order 40 rule 1 (2) of the CPC for enforcement of their rights. It was for them to show even for this purpose that the mortgage created in favour of the plaintiff is not valid. The applicants have failed to indicate anything in this regard. An order for the sale of the property could have been passed even if the applicant had been a party to the suit. At the highest even if the suit is dismissed for any reason including for default the applicants would be entitled to the sale proceeds which when realised will be deposited in court with a suitable order for investment thereof. In that event the applicants would always be at liberty to enforce their rights if any against the sale proceeds or even otherwise. 19. Moreover, as stated above the plaintiff registered the charge in respect of the said mortgage under section 125 of the Companies Act on 14.6.1999 i.e. prior to the alleged sale by the 15 defendant to the first purchaser. The effect thereof is contained in section 126 of the Companies Act which reads as under: -- “126. Date of notice of charge.— Where any charge on any property of a company required to be registered under Section 125 has been so registered, any person acquiring such property or any part thereof, or any share or interest therein, shall be deemed to have notice of the charge as from the date of such registration. 20. As rightly submitted by Mrs. Srikrishna had the applicants been diligent and acted prudently by investigating the title to the said property, which they were bound to do, the applicants would have discovered the mortgage in favour of the plaintiff. It is pertinent to note that the conveyance in favour of the applicants was executed on 22.12.2004 i.e. 22 days after the conveyance by the defendant in favour of the first purchasers sale deed 30.11.2004. The conveyance in the applicants favour expressly refers to the transaction between the defendant by name and the first purchasers. In these circumstances at least the applicants ought to have verified the title of the first purchaser and the right of the defendants to have sold the property. By virtue of 16 the provisions of section 126 of the Companies Act the applicants are deemed to have had notice of the plaintiff's mortgage. The applicants cannot therefore be considered to be bona-fide purchasers without notice. 21. There was no effective answer to this on behalf of the applicants except to state that the plaintiffs had not established their mortgage. I have already dealt with this aspect and will be protecting the rights of the applicants if any in the event of the suit being dismissed or the mortgage for any other reason not being enforced or enforceable. 22. Mr Rao submitted that the provisions of section 125 and 126 of the Companies Act cannot affect the applicants as they were subsequent purchasers to wit they had not purchased the property from the defendant. The submission is unfounded. Section 125 is not limited in its scope only to a purchaser directly from the company. If such a view were to be accepted it would leave the door open to fraud being committed. The easiest thing to do then would be for the company to sell the property to a purchaser and to have that purchaser in turn sell the same to 17 another purchaser and so on. The entire purpose of section 125 could thus easily be defeated. 23. A purchaser is bound to make all reasonable enquiries as to the title of his vendor. This would necessarily involve his ascertaining the title of his vendors vendor and so on. Once it is obvious that the title of the property vested at some stage in a company any prudent purchaser must enquire whether the company itself had the authority and power to sell the property. If the company had created a mortgage in respect of the property in favour of a third-party and such mortgage or charge is registered under section 125 the effect of section 126 would operate even on subsequent purchasers. 24. I must clarify that it was not contended on behalf of the Applicants that although they had or may be deemed to have notice of the charge they did not in fact and cannot be deemed to have notice of the terms thereof. I therefore express no opinion on this aspect. 25. Mrs.Srikrishna raised various other points in support of her contention that the sale by the defendant to the first purchaser 18 and the sale by the first purchaser to the applicants were void. The submissions were based on the ground of non-compliance with the provisions of section 32 A of the Registration Act and section 48 of the Companies Act. She further submitted that the said sales were contrary to and in violation of the orders of this court dated 30.11.2001 and were therefore void. 26. Considering the view that I have taken namely that even assuming that the said sales were valid they are subject to and do not affect the plaintiffs rights under the said mortgage I do not consider it necessary to deal with these submissions. Suffice it to state that the said submissions were strongly urged by Mrs. Srikrishna both during the hearing as well as in the written submissions tendered by her. 27. In the circumstances the Chamber Summons is dismissed. It is however clarified that in the event of this suit being dismissed or in the event of the plaintiff's mortgage not being enforced for any reason whatsoever the rights, if any, of the applicants are kept open both in respect of the sale proceeds if any as well as in respect of the property. Further the applicant is at 19 liberty to redeem the mortgage as permissible in law. For this purpose although the sale in favour of the said auction purchaser is confirmed the order shall come into effect only on 16.7.2008. This order is itself also stayed till 16.7.2008.