Mortgage decree and unregistered charge: court-held rights under the decree prevailed against liquidator and creditors.

Section 125 of the Companies Act, 1956 voids unregistered company charges against a liquidator and creditors, but a decree of a competent court passed in a mortgage suit instituted with leave under section 446 stands on a different footing. Where the preliminary decree kept the mortgage security alive only until a fixed date for payment and then provided for sale on default, the parties' rights thereafter were governed by the decree, not merely the underlying unregistered charge. In that situation, the mortgage merged in the decree and the decree was not void or unenforceable against the official liquidator or creditors.

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Issues: Whether a preliminary decree passed in a mortgage suit, based on an unregistered charge created by a company, was void and unenforceable against the official liquidator and creditors under section 125 of the Companies Act, 1956.

Analysis: Section 125 renders void, against the liquidator and creditors, charges of the specified classes created by a company unless registered, but a decree of a competent court stands on a different footing where the suit has been instituted with leave of the company court under section 446. A company court cannot declare such a decree void under section 446. The effect of the preliminary decree depended on its terms. The decree in question kept the mortgage security alive only up to the date fixed for payment and thereafter provided for sale of the property in default. Once the decree amount was not paid by that date, the rights of the parties were governed by the decree and not merely by the underlying contract. In that situation, the decree was no longer a simple unregistered charge and the principle that a mortgage merges in the decree applied.

Conclusion: The preliminary decree was not void or unenforceable against the official liquidator and creditors, and the objection based on non-registration failed.

Final Conclusion: The appeal was allowed, and the order of the Division Bench holding the decree void was set aside.

Ratio Decidendi: Where a mortgage suit decree, construed on its terms, supersedes the unregistered charge or keeps it alive only until a fixed date and thereafter operates as a decree for sale, section 125 does not render the decree void against the liquidator or creditors.

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