Case: Indian Bank Vs. The Official Liquidator, Chemmeens Exports (P) Ltd. &amp; Ors

2. It will be necessary to notice the facts giving rise to this appeal for a proper appreciation of the questions raised before us. The Indian Bank advanced certain amounts to M/s. Chemmeens Exports Pvt. Ltd. which was secured by an equitable mortgage by deposit of title deeds of the debtor company with the Bank. Thereafter, winding up proceedings were initiated against the debtor-company and on March 1, 1979 and winding up order was passed in Company Petition No. 18 of 1978. The bank sought leave of the Company Court to file a suit for recovery of the debt amount in a sum of Rs. 29,50,609.58 due to it. The permission having been granted by the Company Court on 7.12.1979., the Indian Bank filed the said suit, O.S. No. 169/80 in the Subordinate Judges Court, Cochin, against the debtor company in liquidation which was represented by the Official Liquidator, duly impleading the Directors of the Company. The Official Liquidator filed written statement and contested the suit taking, inter alia, the plea that the charge against the properties of the company not having been registered under Section 125 of the Act, was void. On 28.5.1982, in the said suit the Court passed a preliminary decree in favour of the Bank. No appeal was filed by the Official Liquidator against the said decree.3. However, on March 21, 1983, the Official Liquidator filed an application being C.M.A. No. 11 of 1983 before the Company Court for the reliefs indicated above. The bank resisted the application on the ground that the decree passed by the Court had become final and operates as res judicata. The learned Company Judge referred the case to a Division Bench expressing the view that the question was not free from doubt. By the impugned order of January 29, 1986, the Division Bench held that the preliminary decree passed in the suit did not operate as res judicata; that on account of non-registration of the charge it was void under Section 125 of the Act and that plea could be raised by the Official Liquidator as such and also on behalf of the body of the creditors in the application and also declared that the preliminary decree passed on the basis of the charge created by the company in favour of the bank against the land, buildings and machinery of the company, as set out in the preliminary decree, was void against the Official Liquidator and the creditors of the company and that the same was not enforceable against the assets of the company.

Court's reasoning:
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 Ist day of April, 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 par with other unsecured creditors. It is also evident that Section 125 applies to every charge created by the company on or after the Ist day of April, 1914. But where the charge is by operation of law or is created by an order or decree of the court, Section 125 has noto the facts of this case, on the construction of the decree we have already held that the charge was kept alive till August 28, 1982 and thereafter in default of payment of decree amount the sale order would take effect. In this case, admittedly the decree amount was not paid before August 28, 1982, as such the matter had pased from the domain of contract to the realm of the judgment. The official liquidator filed application on March 21, 1983 seeking to declare the decree as void. By that date what was operative in the decree was not a mere unregistered charge but an order for sale of mortgaged property for realisation of decree amount. The preliminary decree cannot therefore be said to be void andthe above reasons we hold that the Division Bench ought not to have held that the preliminary decree passed by the competent court on May 25, 1980 was void and un-enforceable