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Saradha Finance v/s Alsa Investments (P.) Ltd.

    CP NO. 315/614/SRB OF 2001

    Decided On, 07 February 2002

    At, Company Law Board Southern Region Bench Chennai

    By, K.K. BALU
    By, MEMBER

    K. Sasisekar for the Petitioner. V. Ramachandran for the Respondent.

Judgment Text

1. This is a petition filed under section 614(1) of the Companies Act, 1956 (?the Act?) against Alsa Investments (P.) Ltd. (?the first respondent-company?), its directors and the Registrar of Companies seeking the following reliefs:

(a) to direct the respondents 1 to 4 to execute and register Form Nos. 8 and 13; and

(b) to direct the fifth respondent to take on record Form Nos. 8 and 13 to be executed and filed by the respondents 1 to 4.

2. According to Shri K. Sasisekar, advocate appearing for the petitioner, the petitioner had extended certain credit facilities on 23-7-1996 in favour of one Alsa Housing & Construction Ltd. (?the borrower?), a public limited company and a group company of the first respondent-company, in consideration of which the first respondent-company had offered its immovable property by way of equitable mortgage by deposit of title deeds on 22-7-1996 as collateral security. The first respondent-company having had created charge over its immovable property securing the claim of the petitioner ought to have filed the particulars of charge, in accordance with the provisions of section 125 of the Act within a period of 30 days after the date of its creation. In spite of repeated demands, the first respondent-company failed to file the particulars of charge with the fifth respondent. Hence the petition.

3. Shri V. Ramachandran, senior advocate appearing for the first respondent-company, reiterating the averments made in the reply, has submitted that the petitioner cannot seek any of the remedies sought in the petition for the following among other reasons:

(i) The petitioner is neither a creditor of the first respondent-company nor is the petitioner a shareholder of the first respondent-company.

(iii) The first respondent-company did not borrow any money from the petitioner. The first respondent-company by offering security, which is in dispute, cannot make it a debtor to the petitioner.

(iv) The borrower neither borrowed any money from the petitioner nor the first respondent-company derived any benefit.

(v) The first respondent-company did not offer its property by way of equitable mortgage by deposit of title deeds. No charge was created by the first respondent-company over its immovable property. There is no obligation to register such a non-existing charge.

(vi) There is no subsisting agreement or arrangement, whereby the first respondent-company has offered title deeds of its property as a security for the facility said to have been availed of by the borrower.

(vii) The first respondent-company being a company cannot offer its property as security without any valid resolution passed at a meeting of the shareholders or the board of directors, which is absent in the present case. The deposit of title deeds, even, if any, without these legal requirements, is not valid in law.

(viii) Section 614 does not deal with registering the charge with the Registrar of Companies.

(ix) The CLB cannot adjudicate upon the disputed claims, which would require evidence to be adduced in respect of such claims.

4. Shri K. Sasisekar in his reply has pointed out that the letter dated 22-7-1996 (at page 31 of the petition) of the borrower addressed to the petitioner will show that the first respondent-company had deposited the title deeds relating to its immovable property with the petitioner securing the claim of the petitioner. The letter dated 12-11-1999 (at page 41 of the petition) of the borrower acknowledges the liability. In regard to the absence of resolutions, Shri Sasisekar submitted that it is purely an internal management of the first respondent-company and that the petitioner being a stranger dealing with the first respondent-company has the right to assume as against the first respondent-company that all the requirements of internal management have been duly complied with, as has been held in Nellai Rolling Mills (P.) Ltd. v. Southern India Central Benefit Fund (P.) Ltd. AIR 1986 Mad. 370. He further pointed out that the first respondent-company can offer its immovable property as security for a third party-borrower for which he relied upon Wallis & Simmonds (Builders) Ltd., In re [1974] 1 All ER 561, wherein it has been held that the presumption that deposit of title deeds to secure a debt created by a charge on the land applied even though the debt was owed not by the depositor, but by a third party. It is for these reasons, Shri Sasisekar sought for the reliefs made in the petition.

5. After considering the pleadings and submissions, both oral and written, made on behalf of the petitioner as well as the first respondent-company, the issues that arise for my consideration are whether the respondents 1 to 4 should be directed to execute Form Nos. 8 and 13 and whether the fifth respondent should be directed to take on record Form Nos. 8 and 13.

6. Sections 614, 125 and 134 of the Act assume relevance in deciding the contentious issues. Section 614 deals with enforcement of the duty of a company to submit returns and documents to the Registrar. This enables the Registrar as well as member or creditor of a company which has not filed with or delivered to the Registrar any document required to be filed or delivered under the Act, to give notice to the company calling upon it to make good its default within 14 days, failing which the Registrar or any member or creditor may approach the CLB for direction to the company and its officers to make good the default within such time as may be specified by the CLB.

Section 125 deals with consequence of non-registration of charge. Accordingly, non-registration of a charge will make it void as against the liquidator and any creditor of the company. It will make the charge holder an unsecured creditor. However, section 125 does not deal with registration of charge. The duty of registration is enjoined by section 134, according to which, it is the duty of a company to file with the Registrar for registration the particulars of every charge created by the company, failure of which attracts penalty of up to Rs. 10,000 under section 142 of the Act. To put it in a nutshell, section 134 read with section 142 will clearly show that a company has the primary responsibility to file the particulars of every charge created on its property in favour of any creditor. Against this legal position, it is now to be seen whether the first respondent-company should execute Form Nos. 8 and 13, as sought for by the petitioner. While it is the contention of the petitioner that the borrower had availed of credit facilities on 23-7-1996 against security of the immovable property belonging to the first respondent-company, it is contended by the first respondent-company that the petitioner neither extended any credit facility nor first respondent-company created charge on its immovable property securing the claim of the petitioner and that the letters dated 22-7-1996 and 12-11-1999 (pages 31 and 41 of the petition) of the borrower do not evidence the deposit of title deeds by the first respondent-company. As per the report of the Official Liquidator, the borrower being a private limited company is under liquidation as per the order dated 25-9-2000 of the High Court of Madras made in CP No. 339 of 1999. The borrower is not a party in

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the present proceedings. The transaction with the borrower as well as the transaction with the first-respondent-company in regard to creation of charge are disputed. The disputed claims cannot be adjudicated upon on the basis of the affidavits and counter affidavits filed by the parties. Moreover, the CLB will not go into the validity of mortgage in the present proceedings, as has been held in number of cases by the CLB. I am not, therefore, inclined to grant any relief made in the petition. The company is at liberty to enforce its right in a competent court of law for appropriate relief. In the circumstances, there is no need to go into merits of the other contentions raised on behalf of either of the parties. 7. With the above directions, the petition stands disposed of. 8. No order as to cost.