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1981 Supreme(Del) 68
High Court Of Delhi
SUSHIL PRASAD - Appellant
Versus
VINOD MOTORS PRIVATE LIMITED - Respondent
Company 97 of 1978
Decided On : 02/20/1981
B.N.NAYAR, S.Jain
A charge can be created orally and is not compulsorily registerable under the Registration Act. The validity of a charge depends on the conduct of the parties and can be established even without a registered document.
Headnote:
COMPANY LAW - CHARGE - REGISTRATION - EFFECT OF NON-REGISTRATION - CREATION OF CHARGE - ORAL AGREEMENT - VALIDITY - FRAUDULENT PREFERENCE - SECTION 531A OF THE COMPANIES ACT - SECTION 53 OF THE PROVINCIAL INSOLVENCY ACT, 1920.
Fact of the Case:
The petitioner, along with his father and brother, agreed to sell their property to clear the dues of the Central Bank of India from the Company in liquidation. The Company agreed to create a mortgage or charge of its property in favor of the petitioner and his father and brother for the money paid. A power of attorney was issued to the Central Bank of India to realize the sale proceeds and pay off the Company's debt. The Company passed a resolution authorizing the creation of a mortgage and the execution of an agreement with the petitioner and his father and brother. The property was sold, and the balance amount of the sale proceeds was appropriated by the Bank, making the petitioner a creditor of the Company. An agreement was entered into between the Company and the petitioner, reciting that the petitioner had agreed to give a loan to the Company on the condition that a charge of its assets and properties would be created in his favor. The charge was created in favor of the petitioner of the Company's immovable property, but it was not registered under the Indian Registration Act. A winding-up petition was filed against the Company, and the Official Liquidator admitted the petitioner's claim as an ordinary claim, as the charge was not registered.
Finding of the Court:
The court held that a charge is not compulsorily registerable under the Registration Act and can be created orally. The document creating the charge in the present case was inadmissible in evidence due to non-registration, but the charge was validly created orally based on the conduct of the parties, including resolutions passed by the Company and the registration of the charge with the Registrar of Companies. The court also held that the charge was not hit by the provisions of section 531A of the Companies Act or section 53 of the Provincial Insolvency Act, 1920, as it was created in good faith and for valuable consideration.
Issues: 1. Whether a charge is compulsorily registerable under the Registration Act? 2. Whether a charge can be created orally? 3. Whether the charge in the present case was validly created? 4. Whether the charge was hit by the provisions of section 531A of the Companies Act or section 53 of the Provincial Insolvency Act, 1920?
Ratio Decidendi: 1. A charge is not compulsorily registerable under the Registration Act. 2. A charge can be created orally. 3. The charge in the present case was validly created orally based on the conduct of the parties, including resolutions passed by the Company and the registration of the charge with the Registrar of Companies. 4. The charge was not hit by the provisions of section 531A of the Companies Act or section 53 of the Provincial Insolvency Act, 1920, as it was created in good faith and for valuable consideration.
Final Decision: The court allowed the petitioner's application and held that the petitioner was a secured creditor and had a charge in respect of the property.
( 1 ) THE short question which comes up for consideration in this case is as to whether the petitioner is a secured creditor or not.
( 2 ) THE Company in liquidation belonged to the family of the petitioner. It ran into financial difficulties. Large sums of money were owed by the Company to the Central Bank of India.
( 3 ) THE case of the petitioner is that he, along with his father and brother, was the owner of the property known as Swiss Hotel, Delhi. In order to see that the dues of the Central Bank of India from the Company in liquidation were cleared, the petitioner and his father and brother agreed to sell the said Swiss Hotel, Delhi to M/s. Oberoi Hotels (India) Pvt Ltd. The money which was to be realised from that was to be utilised for paying off the Central Bank of India for and on behalf of the said Company. According to the petitioner the Company had agreed that the money which is so paid would result in a mortgage or a charge being created by the Company of its property at Indore in favour of the petitioner and his father and brother. According to the petitioner, with a view to give effect to the aforesaid scheme, the petitioner and his father and brother issued a power of attorney dated 18th April, 1966 in favour of the Central Bank of India. By this power of attorney the Central Bank of India were, inter alia, entitled to realise from M/s. Oberoi Hotels (India) Pvt. Ltd. , the intending parchasers of Swiss Hotel, the balance amount of sale price payable by them. The Central Bank was further authorised that out of the sale proceeds so received by them the debt due to the Bank from the Company would first be liquidated. The balance amount was to be placed to the credit of the joint account of the petitioner and his father and brother. On that very day i. e. on 18th April, 1966 a letter was also written to Oberoi Hotels (India) Pvt. Ltd. to the effect that the balance amount of sale price payable by them should be paid to Central Bank of India. On 19th April, 1966 the Board of Directors of the Company passed a resolution in which it was, inter alia, stated as follows :-
"shri Radha Kishan informed the house that the agreement between himself and with lots of pursuation Shri Sushil Parshad and Shri Satish Parshad the shareholders of the company who have also agreed to sign the agreement with the bank that they shall give the balance of the sale proceeds of their property Swiss Hotel to the Central Bank to clear the debts of the Company, has been signed yesterday.
"mr. Satish Parshad and Mr. Sushil Parshad have after great persuasion agreed to this and have only agreed if the Company mortgages the assets of the company with them.
IT was unanimously decided that the mortgage as agreed to be made and any of the directors was authorised to sign the agreement with Shri Sushil Parshad and Shri Satish Parshad and do the needful to fulfil the requirements of mortgage and register same with the Registrar of Companies.
( 4 ) IT is an admitted case that thereafter the property Swiss Hotel was sold and the balance amount of the sale proceeds realised by the Bank and the said Bank appropriated to itself the amount which was due from the said Company. The effect of this was that the petitioner, in place of the Bank, became a creditor of the Company. On 19th December, 1967 an agreement was entered into between the Company and the petitioner. In the said agreement it was recited that the petitioner had agreed to give loan to the Company on the condition that the Company would create a charge of its assets and properties in favour of the petitioner and in consideration of such advances. It was further stated that, whereas loans had been advanced, the Company had not carried out its obligation as a regular charge had not been created. The said document purported, thereafter, to create a charge in favour of the petitioner of the Company s immovable property known as House No. 20/2, Manorama Ganj, Indore. The said charge was
