1969 (4) TMI 57 - HC - Companies Law

Court upholds bank's right to sell mortgaged properties without intervention

The court dismissed both appeals, affirming the competency of the liquidator's application to challenge the validity of mortgages and hypothecations by ... Company – Incorporation of and Directors – Power of Issues:1. Competency of the liquidator's application2. Bank's entitlement to sell mortgaged properties without court intervention3. Bank's entitlement to retain possession for private sale4. Validity of mortgages and hypothecations under Companies ActCompetency of the liquidator's application:The judgment involved two appeals against an order by the company judge regarding Company Application No. 143/67 and No. 20 of 1968. The official liquidator filed Company Application No. 20/68 seeking a declaration that mortgages and hypothecations by the company in favor of the bank are invalid. The company judge held that the liquidator's application was competent and sustainable, allowing further consideration of the issues.Bank's entitlement to sell mortgaged properties:The key issue was whether the bank could sell mortgaged properties without court intervention. The company judge ruled in favor of the bank, stating that it was entitled to retain possession and sell the properties described in the documents without court involvement. The bank was deemed a mortgagee of immovable properties and hypothecatee of movable properties, with the right to enforce its security and recover monies due.Validity of mortgages under Transfer of Property Act:The appellant argued that the power of sale given to the bank under the mortgage deeds was invalid due to alleged contravention of section 69(1)(a) of the Transfer of Property Act. However, the court rejected this contention, emphasizing that the mortgagor was the company, not the directors, and that a company could be a mortgagor under an English mortgage.Validity of mortgages under Companies Act:Another issue raised was the validity of mortgages and hypothecations under section 293(1)(a) of the Companies Act. The court held that the transactions did not dispose of the company's undertaking, as only properties were dealt with, not the business itself. The clauses empowering the bank to take over management were deemed invalid, but they did not invalidate the transactions.In conclusion, both appeals were dismissed, with costs to be paid by the appellant to respondent No. 1. The judgment provided detailed analysis on the legal aspects of mortgages, security rights, and compliance with the Companies Act, ensuring clarity on the rights and obligations of the parties involved in the dispute.