Prior mortgage priority over Government security affirmed where later State loan remained subject to existing encumbrances.

A prior debenture mortgage and specific charge over a company's land, buildings, plant and machinery ranked ahead of a later Government mortgage securing a loan under the Madras State Aid to Industries Act, 1923. The court applied the rule that successive interests in the same immovable property are subject to prior rights, and that later accretions such as buildings and machinery fixed to the land pass with the mortgaged property. The State Aid Act also preserved existing encumbrances, so the Government security could not displace the earlier debenture-holders' charge. Section 230 of the Indian Companies Act, 1913, did not create priority for the Government because the loan was not a revenue, tax, cess or rate.

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Issues: Whether the debenture-holders' prior mortgage and specific charge over the company's land, buildings, plant and machinery had priority over the Government's later mortgage securing a loan advanced under the Madras State Aid to Industries Act, 1923.

Analysis: The debenture trust deed created a specific mortgage over the scheduled land and an additional floating security over the company's undertaking and other property. Under the Transfer of Property Act, successive transfers of the same immovable property are subject to prior rights, and accession to mortgaged land, including later-erected buildings and machinery fixed to the earth, enures to the mortgagee's benefit. The State Aid to Industries Act also provided that Government loans are secured subject to existing encumbrances, so the Government mortgage could not override earlier security. Section 230 of the Indian Companies Act, 1913, did not assist the Government because the loan was not a revenue, tax, cess or rate. On the terms of the instruments and the governing law, the Government's security was subordinate to the debenture-holders' prior charge.

Conclusion: The debenture-holders were entitled to be paid in priority over the Government from the sale proceeds; the Government had no preferential claim ahead of the prior mortgage security.

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