Company mortgages remain valid where security over assets does not amount to disposal of the undertaking; severable management clauses fail.

An incorporated company could validly be treated as a mortgagor under an English mortgage, and nothing in the Transfer of Property Act excluded it from creating a mortgage with a statutory power of sale. The security over the company's assets therefore remained effective. Section 293(1)(a) of the Companies Act, 1956 was not attracted because the mortgages and hypothecations secured company property and did not amount to a sale, lease, or disposal of the company's undertaking. The clauses allowing the bank to take over management were treated as severable and invalid only to that extent, leaving the security documents otherwise effective.

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Issues: (i) Whether a company executing an English mortgage can validly be treated as a mortgagor so as to attract the power of sale under section 69 of the Transfer of Property Act. (ii) Whether the mortgages and hypothecations in favour of the bank were invalid for want of consent under section 293(1)(a) of the Companies Act, 1956, and whether the impugned management clauses affected the validity of the whole transaction.

Issue (i): Whether a company executing an English mortgage can validly be treated as a mortgagor so as to attract the power of sale under section 69 of the Transfer of Property Act.

Analysis: The security documents showed the company as mortgagor and the directors as sureties. The mortgaged assets belonged to the company alone. Nothing in section 69 or in the definition of mortgage under sections 58(a) and 58(e) of the Transfer of Property Act excluded an incorporated company from being a mortgagor. The statutory power of sale attached to the mortgagee in respect of the mortgaged property, and the company's corporate character did not invalidate the security or the power conferred by the mortgage deeds.

Conclusion: The company could validly be the mortgagor, and the bank's power of sale under the mortgage was not invalid on that ground.

Issue (ii): Whether the mortgages and hypothecations in favour of the bank were invalid for want of consent under section 293(1)(a) of the Companies Act, 1956, and whether the impugned management clauses affected the validity of the whole transaction.

Analysis: Section 293(1)(a) is concerned with sale, lease, or other disposal of the whole or substantially the whole of the undertaking of the company, whereas the deeds dealt only with the company's properties as security. That did not amount to disposal of the undertaking. The clauses empowering the bank to take over management were treated as offending and severable clauses; their invalidity did not vitiate the mortgages or hypothecations as a whole. The transactions were therefore not hit by section 293(1)(a).

Conclusion: The mortgages and hypothecations were not invalid under section 293 of the Companies Act, 1956, and the offending management clauses were severable.

Final Conclusion: The bank's security rights were upheld, the challenge to the mortgage and hypothecation documents failed, and the appeals were dismissed.

Ratio Decidendi: A company may validly create an English mortgage, and where a security arrangement relates only to the company's properties and not to a disposal of its undertaking, section 293 of the Companies Act, 1956 is not violated; any offending and severable management clause does not invalidate the entire transaction.

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