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1931 Supreme(SC) 55
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD BLANESBURGH, LORD ATKIN, AND SIR GEORGE LOWNDES.
IMPERIAL BANK OF INDIA - Appellant
Versus
BENGAL NATIONAL BANK, IN LIQUIDATION - Respondents
On Appeal from the High Court at Calcutta.
Decided On : May 21. 1931.
Solicitors for appellants :Morgan, Price, Marley & Rugg. Solicitors for respondents: Sanderson, Lee & Co.
A debt is movable property distinct from its security. Non-registration of a charge over immovable property under the Registration Act prevents the holder from claiming the security but does not extinguish the charge over the underlying debt, which remains transferable as movable property.
Headnote:(A) Indian Registration Act, 1908 - Sections 17 and 49 - Indian Companies Act, 1913 - Section 109 - Transfer of Property Act, 1882 - Section 6 - Amending Act II of 1900 - Non-registration of debentures creating a floating charge - Effect on rights over immovable property and debts secured by such property - Where debentures are not registered under the Registration Act, they do not affect immovable property or serve as evidence of transactions affecting such property. (Paras 15, 17)
(B) Debt and Security - Distinction between a debt and the security provided for it - A debt exists as movable property and is not identified with or transformed into the security, whether that security is immovable property or merchandise - A creditor may charge movable assets (debts due to them) even if statutory restrictions prevent the transfer of the security. (Paras 21, 22)
(C) Transfer of Property Act - Definition of "actionable claim" - The exclusion of debts secured by mortgage of immovable property from the definition of "actionable claim" restricts statutory rights on transfer but does not prohibit the transfer of the debt itself as movable property under Section 6. (Paras 23, 24)
Facts of the case:
A borrowing bank obtained loans from a lending bank and executed debentures creating a floating charge on all its assets. These debentures were registered under company law but not under the registration law applicable to immovable property. The borrowing bank had lent money to customers secured by title deeds to immovable property. Following the borrowing bank's suspension of payment and subsequent liquidation, a dispute arose regarding whether the lending bank's charge extended to the debts secured by these title deeds, given a prior decree stating the debentures did not affect immovable property.
Findings of Court:
The lending bank acquired no right, title, or interest in the immovable property comprised in the title deeds and cannot control or enforce such securities. However, the lending bank maintains a charge over the debts due to the borrowing bank, regardless of whether those debts are secured by immovable property.
Issues: Whether the non-registration of debentures under the Registration Act, which precludes a charge over immovable property, also precludes a charge over debts that are secured by such immovable property.
Ratio Decidendi: The court reasoned that debts are movable property and are legally distinct from the security held for them. The statutory requirement for registration of documents affecting immovable property applies to the security, not the debt itself. Furthermore, the exclusion of secured debts from the definition of "actionable claim" in the Transfer of Property Act does not create a disability to transfer the debt; it only limits the specific statutory rights associated with the transfer of actionable claims.
Result: Appeal allowed.
Legal Category Hierarchy
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banking law
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debentures
- floating charges
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debentures
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property law
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registration
- indian registration act
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transfer of property
- actionable claims
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registration
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company law
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winding up
- liquidators
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winding up
Judgement
Appeal (No. 112 of 1930) from an order of the High Court in its appellate jurisdiction (March 13, 1930) affirming an order of the Court in its original jurisdiction (August 26. 1929).
The present appeal arose out of an application to the High Court by the liquidators of the respondent bank for directions having regard to two debentures issued by the respondent to the appellant bank. The questions submitted were as to, among other points, the respective rights of the appellant bank and the general body of the creditors in title deeds deposited with the respondent bank as security for loans and overdrafts, the properties to which the deeds related, and the proceeds thereof.
The material facts appear from the judgment of the Judicial Committee.
In a debenture holders suit brought by the appellant bank and heard by Costello J. it had been admitted on their behalf that in the absence of registration of the debentures under the Indian Registration Act they did not affect any immovable property, and that admission had been embodied in the decree made in the suit on March 26, 1929, by Costello J.
The application for directions was heard by Buckland J. The learned judge held that whether or not the security held by the appellant bank under the debentures was valid and effective as regards the debts, it was not valid and effective as regards any title deeds originally deposited with the respondent bank in cases in which possession of the deeds had not been given to the appellant bank.
An appeal was dismissed by a judgment delivered by Rankin C.J., and concurred in by C. C. Ghose J., which is reported at I. L. R. 58 C. 136. The grounds of the judgment appear fully from that report and appear shortly from the present judgment.
1931. April 16, 17. W. A. Greene K.C. and G. D. McNair for the appellants. It must be conceded by the appellants that the admission embodied in the decree of Lort-Williams J. of March 26, 1929, precludes them from contending that they can claim title deeds deposited with the respondent bank. But for the admission they would contend that as the debentures, which were registered under the Indian Companies Act, gave merely a floating charge, they did not require registration under the Indian Registration Act, especially as to securities not in the hands of the respondents when the debentures were issued. But in any case the absence of registration under that Act does not prevent the appellants from enforcing their security against the book debts, whether secured upon immovable property or not. Having regard to the terms of s. 49 of the Act the debentures could be received in evidence of the charge upon book debts, even though inadmissible upon a claim in respect of the immovable securities Vyravan Chettiar v. Subramanian Chetti . (( 1920) L. R. 47 I. A. 188,) The definition of an " actionable claim," added to the Transfer of Property Act, 1882, by s. 2 of the amending Act II. of 1900, and the amendments of ss. 130-132, do not prevent a debt from being transferred without a transfer of immovable security held for the debt. Each is property, which by s. 6 of the Act of 1882 is transferable, and a debt, dissevered from the immovable security for it, is movable property. If Act II. of 1900 results in a debt for which immovable security has been given being itself immovable property anomalous and inconvenient results would follow. For instance, a transfer of a debt would be invalid if the transferor held, possibly unknown to the transferee, immovable security for all debts owing by the particular creditor. Further, if the debt was unsecured when transferred, would the transfer become unenforceable upon the debtor afterwards giving security ? A transfer of a debt without a transfer of the security does not prejudice the debtor. The transferee, joining the transferor as a party, can sue for the debt, and the debtor would have a right in the suit to have the security realized. So far as Sakihuddin Saha v. Sonaulla Sa
