The main legal point established in the judgment is the interpretation of S. 9 of the Electricity Act in relation to the validity of mortgage debentures and the distinction between specific mortgage and floating charge, which influenced the court's decision on the status of the debenture holders as secured creditors.

Sir John Beaumont.-

These consolidated appeals are from a decree of a Division Bench of the High Court of Judicature at Allahabad, dated 22nd August 1941, and from an earlier decree of a Division Bench of that Court, dated 30th April 1940, both decrees being made in the winding-up of the Lower Ganges and Jumna Electricity Distributing Co., Ltd., (hereinafter called the company).

2. The question which calls for decision is whether certain mortgage debentures issued by the company for the purpose of securing a sum of Rs. 3 lacs with interest, and secured by a debenture trust deed, constitute a valid charge on the undertaking and assets of the company, or whether the charge upon the undertaking intended to be created in favour of the debenture holders is void by reason of the provisions of S. 9, sub-Ss. (2) and (3), Electricity Act IX [9] of 1910 (hereinafter called the Act). These sub-sections are in the following terms :

"9. (2) The licensee shall not at any time assign his licence or transfer his undertaking, or any part thereof, by sale, mortgage, lease, exchange or otherwise without the previous consent in writing of the Provincial Government.

(3) Any agreement relating to any transaction of the nature described in ......... sub-S. (2) unless made with, or subject to, such consent as aforesaid, shall be void."

3. The relevant facts giving rise to this appeal are not in dispute and are as follows. In July 1929, the United Provinces Government, acting under S. 3 (1) of the Act, granted a licence for the distribution and supply of electrical energy within certain specified limits to a firm known as P.L. Jaitly and Co. The licence provided inter alia for the supply of electrical energy in bulk by the Public Works Department (Irrigation Branch) of the said Government to the licensees, and for the assignment of the licence and transfer of the undertaking by the licensees to a company formed, or to be formed, under Indian Companies Act.

4. On 11th February 1930, Messrs. P. L. Jaitly and Co. transferred their licence and interests under the agreement to the company, which was incorporated for the purpose of taking over the licence. It is conceded that the licence was validly assigned to the company, and the supply of electricity by the Government to the company commenced on 1st November 1930, and continued thereafter in accordance with the terms of the said supply agreement.

5. On 7th May 1932, the company made an issue of mortgage debentures for securing the sum of Rs. 3 lacs repayable with interest at the rate of 7¼ per cent. per annum free of income-tax. Before making the said issue the company did not ask for, or obtain, the written consent of the said Provincial Government in accordance with the provisions of S. 9 of the Act. The appellant Lala Manmohan Das is the holder of the bulk of the said debentures.

6. The said debentures were secured by a debenture trust deed Ex. D-4, dated 7th May 1932, and made between the company of the one part and the Central Bank of India Ltd,, and Lala Manmohan Das as trustees of the other part.

7. The trust deed was in common form and nothing turns upon the construction of any particular provision thereof. By such deed the company mortgaged to the trustees specific assets including the benefits arising from the said licence. Clause 6 created a floating charge on all the assets of the company. The security was to be enforceable on the happening of various events including the making of an order for the winding-up of the company. When the security became enforceable the trustees were to have power to enter into possession of the mortgaged properties and to sell the same and the proceeds of sale were to be applied for discharging the amount due on the said debentures.

8. On 19th March 1937, an order was made in the High Court at Allahabad for the winding up of the company.

9. The question as to the validity of the charge in favour of the said debenture holders or their trustees early engaged the attention of