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of <h1>Validity of charge upheld in film corporation's liquidation, fraud claims dismissed, directors required to pay, appeal dismissed.</h1> <h3>Kodak Ltd. Versus Sreenivasan</h3> The court upheld the validity of the charge created by Ex. D in the liquidation proceedings of a film corporation, finding it legitimate as it was made ... Restrictions on commencement of business and Winding up – Fraudulent preference Issues:1. Validity of the charge created by Ex. D.2. Whether the charge or transfer was fraudulent.3. Entitlement of the company to borrow money.Detailed Analysis:1. Validity of the charge created by Ex. D:The judgment revolves around the validity of the charge created by Ex. D in the liquidation proceedings of a film corporation. The company faced financial challenges and sought to raise money on the security of its assets. The resolution passed authorized the Managing Agent to raise money not exceeding Rs. 25,000. The claimant, Mr. Sreenivasan, advanced various sums of money to the company based on the promise of a charge deed to be executed. The Trial Judge held the charge to be valid as it was created when the company was solvent and the money was paid in consideration of the promise to charge the property. The judgment extensively analyzes the correspondence between the company's officials and Mr. Sreenivasan, highlighting the circumstances of the loans and the intentions behind the charge. The court found no suspicious circumstances indicating that the loans were made under conditions other than those agreed upon.2. Fraudulent nature of the charge or transfer:The judgment addresses the argument that the charge or transfer was fraudulent, aiming to defeat the company's creditors, making it void under section 231 of the Companies Act. However, the court found no evidence, oral or documentary, suggesting fraud in the transaction. Referring to a legal precedent, the court distinguished a case involving fraudulent creation of a charge to protect the company's credit from the situation at hand where the delay in executing the charge deed was due to uncertainty regarding the total amount to be advanced. The court concluded that the transaction was not fraudulent and upheld the validity of the charge created by Ex. D.3. Entitlement of the company to borrow money:An additional issue raised was the company's entitlement to borrow money, considering that one of the directors had not paid the money due on application and allotment. While this point was not raised before the lower court, the judgment delves into the legal provisions under section 103 of the Companies Act. It clarifies that the certificate issued by the Registrar, indicating the company's entitlement to commence business, also extends to borrowing money. The court emphasized that the qualifications for commencing business and borrowing money are the same, requiring all directors to have paid the necessary amounts. The judgment dismissed the objection regarding the company's entitlement to borrow money, affirming that the certificate from the Registrar serves as conclusive evidence for creditors.In conclusion, the judgment dismisses the appeal, upholding the validity of the charge created by Ex. D, rejecting claims of fraud, and affirming the company's entitlement to borrow money based on the Registrar's certificate. The Official Liquidator is awarded costs from the estate, concluding the legal proceedings related to the liquidation of the film corporation.
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