K ROY AND BROS Vs. RAMANATH DAS

JUDGEMENT

(1.) This is an appeal from an order made by McNair J. on 13 January 1943. The order was in terms of prayer (a) of the summons which was to this effect: That the Official Liquidator may be directed to pay to the applicant in pari passu with other debenture holders but in priority to other creditors whether secured or unsecured out of the sale proceeds in his hands as well as out of money realised for uncalled capital of the company and other realisations the sum of Rs. 99875-3- 9 with further interest at 5 per cent, up to the date of payment being the sum due on the 151 debentures issued by the company in his favour.

(2.) The legal question in the case is whether debentures issued by a company charged on the whole of its property which includes immovable property must be registered under the Registration Act or whether registration under the provisions relating to the registration of debentures of companies is sufficient. The facts which led up to this application are shortly these. The East Bengal Sugar Mills Limited was a company formed to build, equip and operate a Sugar Mill at Dacca in East Bengal. The Appellants, K. Roy and Brothers are building contractors and they built the Mill for the company. They were not paid, for their work and the materials with the result that they eventually went to arbitration and secured an award for their debt. Whilst the Mill was being built the company in order to equip it arranged to buy machinery from abroad and to pay for the machinery borrowed money on debentures issued to various persons. The applicant, Ramanath Das, was a director and one of the managing agents of the company. He took up 151 of these debentures, each of them for Rs. 500 and paid for them. With the money realised from the issue of these debentures the company paid for the machinery it had installed. The debentures were duly registered under Section 109, Companies Act, but they were never registered under the provisions of the Registration Act (Act 16) of 1908. The company after working for a time got into financial difficulties and a winding up order was made by this Court. The debenture-holders did not appoint a receiver under their debentures. The Official Liquidator appointed by the Court has taken possession of the land, buildings, plant, machinery and utensils of the company and sold them to a purchaser who has transferred the undertaking to another company known as the Kaligunge Sugar Mills Limited.

(3.) The debenture-holders claim that they are entitled to a first charge on the whole of the money received from the sale of the old -company's undertakings. The liquidator has informed them that he considers that as their debentures were not registered under the Registration Act, it does not affect the immovable property of the company and that the debenture-holders are only entitled to be paid their debt out of the moveable assets of the company. McNair J. decided that the debentures did not need to be registered under the Registration Act and that therefore there was a good charge upon the whole of the company's assets and the proceeds thereof and he made an order in terms of prayer (a) as referred to above. Messrs K. Roy and Brothers have appealed against that and they claim that the debentures ought to have been registered under the Registration Act. As they have not been registered the debenture-holders are only entitled to what may be obtained from the sale of the moveables and that they as creditors will be entitled to a share in the immovables and their proceeds. The debentures themselves are in the form which was at one time common in England. (See Palmers Company Precedents, Part, Debentures, 15 Edn. at pp. 272 to 274.) Clause 3 of the debenture which is headed "Mortgage Debenture" provides as follows: The company doth hereby as beneficial owner, charge with such payments (that is principal and interest at 61/2 per cent.) its undertaking and all its property whatsoever or wheresoever both present and future including its uncalled capital for the time being.