Company mortgage by deposit of title deeds can fall within charge-control rules, making the security and consideration unenforceable.

A company mortgage created by memorandum and deposit of title deeds was treated as an operative instrument creating a charge, so it fell within Rule 94A of the Defence of India Rules and required Central Government consent; absent consent, the transaction was prohibited. Because the mortgage was unlawful, the lender could not enforce the security or recover the consideration advanced. The mortgage was also registrable under Section 109 of the Indian Companies Act, 1913, and non-registration meant it was void against the liquidator and creditors. The governing principle is that a company mortgage may be caught by a rule controlling charges, and an illegal security transaction is unenforceable.

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Issues: (i) Whether a mortgage created by a company through a memorandum and deposit of title deeds fell within Rule 94A of the Defence of India Rules and required the consent of the Central Government; (ii) whether the transaction and the consideration paid for it were unenforceable as illegal; (iii) whether non-registration under Section 109 of the Indian Companies Act, 1913 rendered the mortgage void against the liquidator and creditors.

Issue (i): Whether a mortgage created by a company through a memorandum and deposit of title deeds fell within Rule 94A of the Defence of India Rules and required the consent of the Central Government.

Analysis: The memorandum was treated as the operative instrument of the mortgage and not as a mere record of an antecedent deposit. The expression "instruments creating a charge or lien on the assets of the company" was construed broadly, and the word "charge" was held to include a mortgage in its generic sense. The ejusdem generis argument was rejected because the listed categories in Rule 94A(1)(a) did not form a single genus. The term "issue" was also construed in an extended sense so as to cover such mortgage transactions.

Conclusion: The mortgage fell within Rule 94A and was hit by the rule for want of Central Government consent.

Issue (ii): Whether the transaction and the consideration paid for it were unenforceable as illegal.

Analysis: Once the mortgage was found to be prohibited by Rule 94A, the transaction was tainted with illegality. The rule also prohibited giving or accepting consideration for such securities. Applying the principle that no action lies on an illegal transaction, the Court held that the lender could not enforce rights under the instrument or recover the consideration advanced.

Conclusion: The transaction and the consideration were irrecoverable and unenforceable against the respondent.

Issue (iii): Whether non-registration under Section 109 of the Indian Companies Act, 1913 rendered the mortgage void against the liquidator and creditors.

Analysis: As the mortgage was created by the company in respect of its property, it was registrable. The absence of proper registration meant that, even apart from illegality under Rule 94A, the security could not prevail against the liquidator and creditors.

Conclusion: The mortgage was void against the liquidator and creditors for non-registration.

Final Conclusion: The appeal failed on the central questions of legality and registration, and the dismissal of the suit was upheld.

Ratio Decidendi: A mortgage created by a company by instrument can fall within a rule controlling capital issues where the rule uses the expression "instruments creating a charge," and an illegal security transaction cannot be enforced or used to recover the consideration advanced.

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