Floating charge consideration includes later advances made on the faith of the security, with running-account credits applied to earliest debits.
Section 322 of the Companies Act, 1948 was construed to include subsequent cash advances made by a bank on the faith of an existing floating charge, even without an express obligation to advance further funds. The phrase "in consideration for" was read broadly, so later overdraft continuations could fall within the statutory exception. In a running bank account, post-charge credits were also appropriated in the ordinary way to the earliest outstanding debits unless a contrary appropriation was shown. On that basis, pre-charge indebtedness was reduced first, and the floating charge remained valid to the extent supported by the subsequent advances.
Issues: (i) Whether cash subsequently advanced by the bank to continue the company's overdraft, after creation of the floating charge, was cash paid to the company "in consideration for" the charge within section 322 of the Companies Act, 1948. (ii) Whether post-charge credits to the company's bank accounts were to be appropriated against pre-charge indebtedness so as to reduce the amount protected by the floating charge.
Issue (i): Whether cash subsequently advanced by the bank to continue the company's overdraft, after creation of the floating charge, was cash paid to the company "in consideration for" the charge within section 322 of the Companies Act, 1948.
Analysis: The phrase "in consideration for" was not read in its technical contractual sense. The statutory exception was construed as extending to subsequent payments made because the charge existed and in reliance upon it, even though the bank assumed no express obligation to make further advances. The Court treated the continued operation of the account on the faith of the security as sufficient factual consideration for the later cash payments.
Conclusion: The subsequent advances fell within the exception and were validly supported by the floating charge.
Issue (ii): Whether post-charge credits to the company's bank accounts were to be appropriated against pre-charge indebtedness so as to reduce the amount protected by the floating charge.
Analysis: Applying the ordinary rule of appropriation in a running account, the credits were first appropriated to the earliest outstanding debits, namely the pre-charge indebtedness. The existence of multiple accounts and inter-account transfers did not displace that principle, and the bank was not required to treat later receipts as repaying only post-charge drawings.
Conclusion: The post-charge payments did not exhaust the security beyond the extent found by the Court, and a substantial balance remained validly charged.
Final Conclusion: The floating charge was valid to the extent of cash subsequently paid to the company within the statutory exception, and the appeal against the order upholding that position failed.
Ratio Decidendi: For section 322 of the Companies Act, 1948, "cash paid ... in consideration for the charge" includes subsequent advances made on the faith of an existing floating charge, and credits in a continuing bank account are appropriated in the ordinary way to the earliest outstanding debits unless a contrary appropriation is shown.
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