1980 (4) TMI 238 - HC - Companies Law

Court upholds mortgages, dismisses appeals, denies Supreme Court certificate

The court dismissed both M.F.A. No. 137 of 1977 and M.F.A. No. 469 of 1978, upholding the validity of the mortgages and registration of charges. The sale ... General provisions with respect to memorandum and articles - Effect of memorandum and articles, Charges – Registration of Issues Involved:1. Validity of the mortgage and supplementary mortgage.2. Compliance with Section 125 and Section 292 of the Companies Act.3. Validity of the resolutions passed by the board of directors.4. Effect of non-registration of the supplementary mortgage.5. Validity of the sale order in O.P. No. 54 of 1971 during the pendency of winding-up proceedings.6. Application of Turquand's Rule and indoor management.7. Rights of unsecured creditors in challenging the validity of the mortgage.Detailed Analysis:1. Validity of the Mortgage and Supplementary Mortgage:The appellant contested that the mortgage (Ex. P-2) and the supplementary mortgage (Ex. P-12) were not binding on the mortgagor and co-mortgagor companies as they were not executed with the concurrence of the board of directors. The court found that there were strong circumstances indicating that meetings of the board of directors of both companies were held as stated in Ex. P-3, Ex. P-4, Ex. P-13, and Ex. P-14, and resolutions authorizing the mortgages were passed.2. Compliance with Section 125 and Section 292 of the Companies Act:The appellant argued that the mortgages were void due to non-compliance with Section 125 and Section 292 of the Companies Act. The court noted that the particulars of the charge under Ex. P-2 were filed within the extended time allowed by the court, and the registration of the charge was valid despite the delay. The court also held that the absence of the minutes book did not affect the validity of the resolutions passed by the board of directors.3. Validity of the Resolutions Passed by the Board of Directors:The court found that Ex. P-3, Ex. P-4, Ex. P-13, and Ex. P-14 were prima facie copies of resolutions passed by the mortgagor and co-mortgagor companies, signed by the managing director. The managing director and the guarantors, who were also directors, signed Ex. P-2 and Ex. P-12, and the common seals of both companies were affixed in the presence of directors. The court presumed the regularity of the board meetings and the resolutions passed therein.4. Effect of Non-Registration of the Supplementary Mortgage:The court held that Ex. P-12, although termed a mortgage, secured the machinery of the press and did not require registration as it amounted to a pledge of movable property, which is exempt from registration under Section 125(1)(c) of the Companies Act. The appellant, being a creditor of the co-mortgagor, would benefit from the upholding of Ex. P-12 as it would reduce the liability of the co-mortgagor.5. Validity of the Sale Order in O.P. No. 54 of 1971 During the Pendency of Winding-Up Proceedings:The court held that the order for sale in O.P. No. 54 of 1971, passed following the special procedure under the State Financial Corporations Act, was not affected by the pendency of the winding-up petition (C.P. No. 1 of 1973). The court noted that the proceedings under Section 31(1) of the State Financial Corporations Act commenced before the winding-up proceedings, and thus, the order of sale remained valid.6. Application of Turquand's Rule and Indoor Management:The court applied Turquand's Rule, stating that persons dealing with limited liability companies are not bound to inquire into their indoor management and are protected by the apparent authority of the company's officers. The court found that the Corporation was entitled to rely on the resolutions and the authority of the managing director without probing further into the internal management of the companies.7. Rights of Unsecured Creditors in Challenging the Validity of the Mortgage:The court held that the appellant, being an unsecured creditor, had no locus standi to challenge the validity of the mortgage under Ex. P-2 on the ground of non-compliance with Section 125. The court noted that Section 125, read with Section 141(3), implied that the provision applied to secured debts, and an unsecured creditor could not claim preferential rights over the charge holder.Conclusion:Both M.F.A. No. 137 of 1977 and M.F.A. No. 469 of 1978 were dismissed. The court found no grounds to challenge the validity of the mortgages or the registration of the charges. The sale order in O.P. No. 54 of 1971 was upheld, and the appellant's contentions were rejected. The application for a certificate for appeal to the Supreme Court was also dismissed as the case did not involve a substantial question of law of general importance.