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Saturday, April 19, 2014

Sections 529 and 529A of the Company Act - Charge/Mortgage/Undertaking - in a previous litigation between appellant and company, the company gave an undertaking not to dispose of it's assets for supply of Gas - company petition filed by the appellant - official liquidator appointed -with permission one item was sold at public auction- workers claimed as per Sections 529 and 529A of the Company Act - High court rejected the objection of ONGC and allowed the claim of workers as by virtue of judgement , ONGC can not claimed as secured creditor - ONGC claimed as secured creditor by virtue of the undertakings- Apex court also dismissed the civil appeal and held that In the face of the directions given by this Court in the case of Oil and Natural Gas (supra) wherein this Court had directed that the ONGC is at liberty to take immediate steps to recover the charges due from the respondents in the light of the judgment. This Court did not direct that in view of the undertaking dated 27th May, 1987 the respondents have created enforceable charge in favour of ONGC. Furthermore, it is a matter of record that even the ONGC did not consider itself to be a secured creditor. At the time when the Ambica Mills Co. Ltd. came under the jurisdiction of the Official Liquidator, none of the two options adverted to earlier was exercised by ONGC. The plea of being a secured creditor is clearly an afterthought. Therefore, in our opinion, the judgments rendered by the learned Single Judge and the Division Bench of the Gujarat High Court do not call for any interference. The civil appeals are accordingly dismissed. = Oil and Natural Gas Corporation Ltd. …Appellant VERSUS Official Liquidator of M/s. Ambica Mills Company Ltd. & Ors. ...Respondents = 2014 (April.Part ) http://judis.nic.in/supremecourt/filename=41421

   Sections 529 and 529A of the Company Act - Charge/Mortgage/Undertaking - in a previous litigation between appellant and company, the company gave an undertaking not to dispose of it's assets for supply of Gas - company petition filed by the appellant - official liquidator appointed -with permission one item was sold at public auction- workers  claimed  as per Sections 529 and 529A of the Company Act - High court rejected the objection of  ONGC and allowed the claim of workers  as by virtue of judgement , ONGC  can not claimed as secured creditor - ONGC claimed as secured creditor by virtue of the undertakings- Apex court also dismissed the civil appeal and held that In the face of the directions given  by  this Court in the case of Oil and Natural Gas (supra) wherein this Court had directed that the ONGC is at liberty to take immediate steps to recover the charges due from the respondents in the  light  of  the judgment. This Court did not direct that in view of the undertaking dated 27th May,  1987  the  respondents  have  created  enforceable charge in favour of ONGC. Furthermore, it is  a  matter  of  record that even the  ONGC  did  not  consider  itself  to  be  a  secured creditor. At the time when the Ambica Mills Co. Ltd. came under the jurisdiction of the Official Liquidator, none of  the  two  options adverted to earlier was exercised by ONGC.   The plea  of  being  a secured creditor is clearly an  afterthought.   Therefore,  in  our opinion, the judgments rendered by the learned Single Judge and the Division Bench of the Gujarat  High  Court  do  not  call  for  any interference.  The  civil  appeals   are   accordingly   dismissed. =

The record also shows that ONGC moved Company  Application  No.445  of
      2000 in Company Petition No.121 of 1995 by way of judges  summons,  in
      which directions were sought that outstanding amounts of the  ONGC  be
      paid by the company in liquidation. 
Further, an injunction  be  issued
      restraining the  company  in  liquidation  its  agents,  officers  and
      servants from making any payment/disbursement in any manner, of any of
      the sale proceeds that are available from the sale of  assets  of  the
      company in liquidation. 
Further an injunction was  sought  restraining
      Ambica Mills from creating any charge alienation  and  discharging  of
      the immoveable assets of the company in liquidation. 
This  application
      was heard at length by the learned Single Judge and dismissed with the
      following observations :-

           “2.16A      ONGC therefore cannot claim any  preferential  right
                       on the basis of the order of 17.10.1997  in  priority
                       to the secured creditors and the workmen taking  into
                       consideration        the        provisions         of
                       Sections 529 and 529A of the Act.  Such  preferential
                       claim, if falling under Section 530 of the Act  would
                       follow  the  claims  of  Secured  Creditors  and  the
                       Workmen under Sections 529 & 529A of the Act. In case
                       the claim of ONGC is not proved  to  be  preferential
                       under Section 530 of the  Act  they  would  therefore
                       fall for consideration along with all other claims of
                       other creditors as ONGC, on  its  own  saying,  is  a
                       decree holder.


           2.16B In view of what is stated  hereinbefore  this  application
                       cannot be granted at this stage, i.e.  before  claims
                       of Secured Creditors and workmen are processed  under
                       Sections 529 and 529A of the Act. Despite categorical
                       statement at the Bar, under instructions,  that  ONGC
                       did not want to lodge any claim before  the  Official
                       Liquidator, it will be open  to  ONGC  to  lodge  its
                       claim  in  accordance   with   law   and   seek   its
                       satisfaction when claims of other  Creditors  of  the
                       Company in liquidation are taken up for consideration
                       for distribution of the funds which may be  available
                       at  that  time.  
The   application   is   accordingly
                       rejected. Notice is discharged.”





    16. Aggrieved by the aforesaid directions, ONGC filed O.J. Appeal No.51
        of 2004. On 18th October,  2004,  the  Division  Bench  stayed  the
        judgment of the learned Single Judge subject to disbursement of the
        workers at the rate of Rs.2500/-  each  worker  as  agreed  by  the
        parties. The aforesaid appeal has been dismissed by the High  Court
        by the judgment dated 16th January, 2006 giving rise to the present
        appeal.=

 A
        reading of the order dated 15th April, 1987 clearly shows  that  it
        firstly gives the direction to the ONGC to continue the  supply  of
        gas at the rate of Rs.1000/- for 1000 cubic meter. Such a direction
        would  be  implemented  only  upon  an  undertaking  given  by  the
        respondents that they will not  charge  encumber  or  alienate  any
        asset except with the leave of this Court. A further direction  was
        that the immoveable assets included in the  respective  undertaking
        will be made available for discharging the  respective  liabilities
        of the respondent company. The undertaking given by the company  in
        liquidation in this case was as under :
           “3. I state that Respondent No.10 Company undertakes  that  none
           of immovable assets of the company will be further  charged  and
           encumbered hereafter with effect from 15.04.1987, i.e. from  the
           date of order of this Hon’ble Court except  with  the  leave  of
           this Hon’ble Court.


           4. I state that Respondent NO.10 Company further undertakes  not
           to alienate any of its immovable assets hereinafter with  effect
           from 15.04.1987 except with the leave  of  this  Hon’ble  Court.
           The  Respondent  No.10  Company  further  undertakes   to   make
           available all its immovable assets in the event  of  discharging
           the liabilities which may arise on  account  of  the  difference
           between the price at which all the Gas  being  supplied  to  the
           company  during  the  pendency  of  the  proceedings   in   this
           connection and the price which may be determined by this Hon’ble
           court while disposing of the present Appeals finally.


    23. A perusal of the aforesaid undertaking shows that Ambica Mills  has
        not identified any particular immovable assets which would be  made
        available  in  discharging  the  liabilities  in  favour   of   the
        appellant. Therefore,  we  have  no  hesitation  in  rejecting  the
        submission of  Mr.Kuhad  that  the  interim  order  read  with  the
        undertaking expressed an intention to create an enforceable  charge
        of any particular asset of the company in liquidation.


    24. We are of the opinion that the judgment in the case of Praga  Tools
        Ltd. Vs. Official Liquidator of Bengal Engineering Company (P) Ltd.
        (1984) 56 Comp. Cas.214 (Cal) would also not be applicable  to  the
        facts and circumstances of this case. Mr. Kuhad has relied  on  the
        following observations:

           “The fallacy in the argument of Mr. Mookherjee, in my  view,  is
           that after the passing of the order of S.K. Roy Chowdhury J. (as
           his Lordship then was), dated August 1, 1978, the position  with
           regard  to  the  security   assumed   a   completely   different
           complexion. By that order, as  I  have  already  indicated,  the
           claim of the  petitioning-creditor  was  settled  at  a  certain
           amount. A mode for payment of that  money  was  indicated.  Then
           there is a default clause. That default clause contained a  twin
           option either of initiating a fresh winding up proceeding or  of
           executing the balance as a decree of court. It is  only  in  the
           event of an  option  being  exercised  in  favour  of  the  last
           contingency, viz., in the event of the execution as a decree  of
           court, that the security which was  furnished  pursuant  to  the
           order of R.M. Dutta J. would be a  security  for  the  applicant
           company for the satisfaction of the  decree  and  would  be  the
           security for the decree until the decretal dues were paid. Thus,
           the benefit of the security in so far as the  applicant  company
           is concerned is entirely  the  creature  of  the  order  of  Roy
           Chowdhury J. dated August 1, 1978. This can, in my view,  by  no
           stretch of  imagination,  be  called  a  charge  created  "by  a
           company" within the meaning of Section 125 of the Companies Act,
           1956, requiring registration under the above section.


           It would follow, therefore, from  what  I  have  said  that  the
           question as to whether the security as originally furnished  was
           registered under Section125 of the Companies Act, 1956, or  not,
           would be totally irrelevant for the purpose of  determining  the
           right of the applicant company after the order of Roy  Chowdhury
           J., dated August 1, 1978.”





    25. The aforesaid observations, in our opinion, would not be applicable
        on the facts and circumstances of this case, as no charge have been
        created in favour of ONGC by any  of  the  orders  passed  by  this
        Court.
    26. Mr. Kuhad has submitted  that  the  respondents  have  specifically
        agreed to make the assets available for discharging  the  liability
        of the ONGC, this, according to Mr. Paras Kuhad, was tantamount  to
        creating an  enforceable  charge.  We  are  unable  to  accept  the
        aforesaid submission. In the face of the directions given  by  this
        Court in the case of Oil and Natural Gas (supra) wherein this Court
        had directed that the ONGC is at liberty to take immediate steps to
        recover the charges due from the respondents in the  light  of  the
        judgment. This Court did not direct that in view of the undertaking
        dated 27th May,  1987  the  respondents  have  created  enforceable
        charge in favour of ONGC. Furthermore, it is  a  matter  of  record
        that even the  ONGC  did  not  consider  itself  to  be  a  secured
        creditor. At the time when the Ambica Mills Co. Ltd. came under the
        jurisdiction of the Official Liquidator, none of  the  two  options
        adverted to earlier was exercised by ONGC.   The plea  of  being  a
        secured creditor is clearly an  afterthought.   Therefore,  in  our
        opinion, the judgments rendered by the learned Single Judge and the
        Division Bench of the Gujarat  High  Court  do  not  call  for  any
        interference.  The  civil  appeals   are   accordingly   dismissed.
 2014 (April.Part ) http://judis.nic.in/supremecourt/filename=41421  
SURINDER SINGH NIJJAR, A.K. SIKRI

                                        REPORTABLE


                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION




                       CIVIL APPEAL NO. 1746  OF 2006




      Oil and Natural Gas Corporation Ltd.           …Appellant


                                   VERSUS


      Official Liquidator of M/s. Ambica Mills
      Company Ltd. & Ors.                             ...Respondents




                                    WITH




                        CIVIL APPEAL NO. 1747 OF 2006


                                    WITH


                        CIVIL APPEAL NO. 1748 OF 2006


                                    WITH


                        CIVIL APPEAL NO. 1749 OF 2006


                                    WITH


                        CIVIL APPEAL NO. 1750 OF 2006


                                    WITH


                        CIVIL APPEAL NO. 1751 OF 2006










                               J U D G M E N T




      SURINDER SINGH NIJJAR, J.
   1. The appellant, Oil and Natural Gas Corporation  Ltd.  is  a  statutory
      corporation  constituted  by  and  under  the  Oil  and  Natural   Gas
      Commission Act, (Central Act, 43 of  1959).  In  1967,  the  appellant
      commenced supply of natural  gas  to  the  industries  in  and  around
      Vadodra. The Federation of Gujarat  Mills  and  Industries  agreed  to
      purchase the gas supplied by ONGC at Rs.100/- per unit.

   2. The industries subscribing to the gas supplied by the appellant formed
      an  association  in  1978  called  “The  Association  of  Natural  Gas
      Consuming  Industries  of  Gujarat”  (hereinafter   referred   to   as
      ‘Association’). Respondent- Ambica Mills Co. Ltd.  is  one  among  the
      members of the said Association. The  supply  of  gas  to  the  member
      industries was based on individual contracts entered into with each of
      the concerns.  The appellant and the members of the  said  Association
      entered into an agreement for supply of  natural  gas.  The  agreement
      provided the price payable for supply of gas and the rate of  interest
      in the event of failure to pay the stipulated prices.

   3. On 30th March, 1979, the contractual period of the aforesaid  contract
      expired. After the expiry of the contract, a new  contract  stipulated
      prices for supply that were prevalent at the time  of  the  respective
      contracts. The then levied price for supply of gas  was  Rs.504/-  per
      unit.

   4. The Association formed a  Society  registered  under  the  Cooperative
      Societies Act. The Association filed Special Civil Application No. 833
      of 1979, before the Gujarat High Court praying  to  issue  appropriate
      writ  directing  the   directing  the  Respondent  therein  (Appellant
      herein) to supply the break up and data on the basis  of  which  price
      structure was arrived at by ONGC, for supply of the gas etc.

   5. The Gujarat High Court by an interim order dated 30th March,  1979  in
      the said Application, directed the Appellant herein to continue supply
      of gas at the old rate, i.e., Rs.504/- per 1000 cubic meter.  On  29th
      December, 1982, the High Court modified the  aforesaid  interim  order
      and directed the Appellant to supply gas to the member  industries  of
      the Association at Rs.1000/- per 1000 cubic meter.

   6. On 30th July, 1983 the said Civil Application was  partly  allowed  by
      the Division Bench setting aside the price demanded by  the  Appellant
      herein, leaving it open to deal with the question of price fixation in
      any one of the three modes suggested in Para 36 of the judgment in the
      case of Association of Natural Gas Consuming Industries of  Gujarat  &
      Ors. Vs. ONGC & Anr. reported in 24 (2) GLR 1437.

   7. The Appellant preferred an appeal being C.A.  No.  8530-8540  of  1983
      against the aforesaid order. On 15th April, 1987, this Court passed an
      interim order directing that the members of the Association  including
      the Respondent shall be supplied gas at the rate of Rs.1000/- per 1000
      cubic metres subject to an undertaking that the respondent  shall  not
      charge, encumber or alienate except with the leave of this  Court  any
      of the immovable assets.

   8. Pursuant to the order dated 15th April, 1987, an undertaking was given
      by Ambica Mills Co. Ltd.  thereby  making  available  their  immovable
      assets for discharge of its respective liability on 27th May, 1987.

   9. Appellant filed Company Petition No. 66 of 1983 seeking winding up  of
      Respondent No. 1- Ambica Mills Co. Ltd.

  10. C.A. No. 8530-8540 of 1983 was finally decided by this Court  and  the
      judgment was delivered in the same matter on 4th May,  1990  (reported
      in 1990 Suppl. SCC 397). This Court, as regards  the  price  fixation,
      had set aside the direction given by the High Court in Para 36 of  the
      judgment                            dated  30th  July,  1983.  It  was
      observed that the ONGC would be at liberty to take immediate steps  to
      recover the charges due from the respondents therein, in the light  of
      this judgment.
  11. Soon after the aforesaid  judgment,  ONGC  filed  an  application  for
      certain directions and modifications of the aforesaid  judgment.  When
      the matter was taken up for hearing on  8th  December,  1992,  learned
      senior counsel appearing on behalf of the Association  submitted  that
      the members  of  the  Association  will  make  some  more  substantial
      payments to ONGC by the end of the month, and particulars  of  payment
      so made would be submitted in the Court  on  or  before  8th  January,
      1993. On 6th April, 1993, when the matter was taken  up  again  on  an
      application filed by  the  ONGC  complaining  of  non-payment  by  the
      members of the Association, this Court observed that the liability  of
      the members of the Association to make the payment of amounts due from
      them to the ONGC was beyond controversy and cannot be disputed. In the
      aforesaid order, it was further observed that the principal amount due
      from Ambica Mills Co. Ltd. as on 31st March, 1993 in respect of period
      1st April, 1979 to 21st January,  1987,  as  shown  in  the  statement
      furnished by ONGC, is Rs. 1.58 crores and interest thereon amounted to
      Rs.4.96 crores. Ambica Mills Co. Ltd. admitted the  principal  amount.
      The interest calculated would be accepted subject to verification.  At
      the relevant time, reference relating to Ambica Mills Co.  Ltd.  under
      the Sick Industrial Companies (Special Provisions)  Act,  1985  (SICA)
      was already pending before the  Board  for  Industrial  and  Financial
      Reconstruction (BIFR). Upon consideration of the matter, this Court on
      29th April, 1993 granted the prayer of ONGC that it would be  entitled
      to take steps for disconnecting the supply  of  gas  in  case  of  non
      payment of the amounts due. This Court  directed  that  the  principal
      amount must be paid within a period of 5 years latest by  31st  March,
      1998. So far as Ambica Mills is concerned, the statement was  made  by
      the learned senior counsel appearing for them that the  respondent  is
      prepared to sell the vacant land at Vatwa in  Ahmedabad  in  order  to
      discharge the due of ONGC  in  the  present  case.  Ambica  Mills  was
      granted liberty by this Court to make prayer to that effect before the
      BIFR and to obtain suitable directions. It was also observed that  the
      entire dues of the ONGC shall be first paid  out  of  the  total  sale
      price and the balance, if any, remaining thereafter shall be available
      for utilisation in any other manner directed by the BIFR.  It  appears
      that in the meantime BIFR recommended that Ambica Mills  be  put  into
      liquidation. This recommendation  of  the  BIFR  came  up  before  the
      Gujarat High Court along with other winding up on 17th October,  1997,
      when the High Court appointed a provisional liquidator.

  12. Soon thereafter, it appears that the  Company  Application  No.445  of
      2000 in official liquidator report No. 44 of 1999 in Company  Petition
      No.121 of 1995 was filed in the Gujarat High Court seeking  directions
      for payment of the amounts due to ONGC by the Ambica Mills (company in
      liquidation). On 17th January, 1997, the High Court ordered winding up
      of M/s.  Ambica  Mills  Co.  Ltd.  and  the  official  liquidator  was
      appointed as the liquidator of the company.  Thereafter  the  official
      liquidator filed an application before this Court in  respect  of  the
      disposal  of  the  properties  of  the  company  in  liquidation   and
      disbursement of the amounts realised. This Court by order  dated  17th
      October, 1997 directed as follows :-
           “That out of the assets of the company  under  liquidation,  the
           dues of ONGC Limited are required to be paid off first  and  the
           question of making any payment to any other creditor can realise
           only out of the surplus if any remaining after the fill dues  of
           the  ONGC  Limited  have  been  paid  off.  The  High  Court  is
           therefore, to proceed with the matter in this manner.
           I.As stand disposed off.”


  13. It is the case of the ONGC that it is in receipt  of  a  letter  dated
      28th September, 1999 from the official liquidator wherein it has  been
      stated  that  Plot  No.307IPS-16  of  Ambica  Mills  (in  liquidation)
      property was disposed of for Rs.90.11 lakhs and the initial instalment
      of Rs.22.52 lakhs had already been deposited by the purchaser  of  the
      said plot. A prayer was made for release of the  aforesaid  amount  to
      ONGC.

  14. It appears that respondent No.10-Textile  Labour  Association,  Bhadra
      sought review of the order dated 17th October, 1997 by  filing  Review
      Petition Nos.1193-1203 of 2001 in I.A.No.168-178/1997 in  C.A.No.8530-
      40 of 1983. The aforesaid review petitions were decided by this  Court
      on 12th April, 2004 and it was directed that claims of ONGC will  have
      to be worked out in accordance with  Sections  529  and  529A  of  the
      Companies Act as well. The submissions made on behalf of ONGC that the
      mandamus issued by this Court earlier that ONGC must be paid up  first
      from any sale of the assets  of  the  company  in  liquidation,  would
      prevail even if the statutory provisions contained in Sections 529 and
      529A of the Companies Act, were rejected.  The aforesaid  judgment  of
      this Court is reported at 2004 (9) SCC 741.

  15. The record also shows that ONGC moved Company  Application  No.445  of
      2000 in Company Petition No.121 of 1995 by way of judges  summons,  in
      which directions were sought that outstanding amounts of the  ONGC  be
      paid by the company in liquidation. Further, an injunction  be  issued
      restraining the  company  in  liquidation  its  agents,  officers  and
      servants from making any payment/disbursement in any manner, of any of
      the sale proceeds that are available from the sale of  assets  of  the
      company in liquidation. Further an injunction was  sought  restraining
      Ambica Mills from creating any charge alienation  and  discharging  of
      the immoveable assets of the company in liquidation. This  application
      was heard at length by the learned Single Judge and dismissed with the
      following observations :-

           “2.16A      ONGC therefore cannot claim any  preferential  right
                       on the basis of the order of 17.10.1997  in  priority
                       to the secured creditors and the workmen taking  into
                       consideration        the        provisions         of
                       Sections 529 and 529A of the Act.  Such  preferential
                       claim, if falling under Section 530 of the Act  would
                       follow  the  claims  of  Secured  Creditors  and  the
                       Workmen under Sections 529 & 529A of the Act. In case
                       the claim of ONGC is not proved  to  be  preferential
                       under Section 530 of the  Act  they  would  therefore
                       fall for consideration along with all other claims of
                       other creditors as ONGC, on  its  own  saying,  is  a
                       decree holder.


           2.16B In view of what is stated  hereinbefore  this  application
                       cannot be granted at this stage, i.e.  before  claims
                       of Secured Creditors and workmen are processed  under
                       Sections 529 and 529A of the Act. Despite categorical
                       statement at the Bar, under instructions,  that  ONGC
                       did not want to lodge any claim before  the  Official
                       Liquidator, it will be open  to  ONGC  to  lodge  its
                       claim  in  accordance   with   law   and   seek   its
                       satisfaction when claims of other  Creditors  of  the
                       Company in liquidation are taken up for consideration
                       for distribution of the funds which may be  available
                       at  that  time.  The   application   is   accordingly
                       rejected. Notice is discharged.”





    16. Aggrieved by the aforesaid directions, ONGC filed O.J. Appeal No.51
        of 2004. On 18th October,  2004,  the  Division  Bench  stayed  the
        judgment of the learned Single Judge subject to disbursement of the
        workers at the rate of Rs.2500/-  each  worker  as  agreed  by  the
        parties. The aforesaid appeal has been dismissed by the High  Court
        by the judgment dated 16th January, 2006 giving rise to the present
        appeal.


  17. We have perused the entire record and heard the learned senior counsel
      for the parties at length.

  18. Mr. Paras Kuhad, appearing for the appellant submitted that  the  High
      Court had committed an error in concluding that the  appellant  cannot
      claim any preferential right on the basis of the order passed on  17th
      October, 1997. According to Mr. Kuhad, the second error  committed  by
      the High Court is that it has wrongly concluded that no  security  was
      created in favour of the appellant on the basis of the  interim  order
      passed by this Court on 15th April, 1987 and the undertaking furnished
      by the company in liquidation Ambica Mills Co. Ltd.  pursuant  to  the
      order of this Court. The third error  committed  by  the  High  Court,
      according to Mr. Kuhad, is  in  holding  that  no  security  has  been
      created in favour of the appellant as no charges have been  registered
      under Section 125 of the Companies Act, 1956. Mr. Kuhad has  submitted
      that the undertaking dated 27th May, 1987 is a superimposition on  the
      priorities as given in Sections 529 and 529A of the Companies Act.  In
      support of his submission, learned senior  counsel  has  relied  on  a
      number of judgments which we shall notice presently.

  19. Learned counsel for the respondents has submitted that the genesis  of
      the civil appeal is  the  interim  order                   dated  15th
      April, 1987. It is submitted that the aforesaid order is in the nature
      of  an  injunctive  order  whereby  the  company  in  liquidation  was
      directed, not to charge encumber or alienate any of its assets  except
      with the leave of this Court,  including  the  assets  listed  in  the
      respective undertakings. The second part of the  injunction  was  that
      the  respondents  will  make  their  immovable  assets  available  for
      discharging the respective liabilities to the  ONGC.  The  undertaking
      filed by Ambica Mills Co. Ltd. was that “none of immovable  assets  of
      the company will be further charged and  encumbered  hereinafter  with
      effect from 15th April, 1987, except with the leave of this Court.” It
      is the submission of the respondents that in the aforesaid undertaking
      no specific details and particulars of any immovable assets were given
      or provided. Therefore, the aforesaid undertaking does  not  make  the
      appellant a secured creditor of Ambica Mills Co. Ltd.  It  is  pointed
      out by the learned counsel that even in the judgment  dated  4th  May,
      1990 of this Court in Oil  and  Natural  Gas  Commission  &  Anr.  Vs.
      Association of Natural Gas Consuming  Industries  of  Gujarat  &  Ors.
      reported at 1990 (Supp) SCC 397 did not hold that the order dated 15th
      April, 1987 or the undertaking dated 27th  May,  1987  have  conferred
      upon the appellant status of  a  secured  creditor.  This  Court  only
      directed that the ONGC will be at liberty to take immediate  steps  to
      recover the dues from the respondent in the  light  of  the  judgment.
      Similarly no charge was created by this Court while passing the  order
      dated 6th April, 1993. Explaining the order dated 17th October,  1987,
      it is submitted by the learned counsel for  the  respondent  that  the
      order only directed that in case of sale of the assets of the  company
      in liquidation, the dues of the ONGC shall be paid off first. But this
      order was subsequently reviewed on 12th April, 2004 directing that the
      order dated 17th October, 1997 would have to be read  subject  to  the
      provisions of Sections 529 and 529A of the Companies  Act.  Therefore,
      the  secured  creditors  had  two  options,  either  to  realise   its
      securities outside the winding up proceedings  or  to  relinquish  its
      security for the general  benefit  of  all  and  prove  its  claim  by
      participating in the liquidation proceedings. The appellant never gave
      any option knowing perfectly well it was not a secured  creditor.  The
      judgments relied upon  by  the  appellants  have  been  sought  to  be
      distinguished by the learned counsel for the respondents.

  20. We have considered the submissions made by the learned counsel for the
      parties. In our opinion, the appellant cannot  claim  that  the  order
      dated 15th April, 1987 created an enforceable charge on the assets  of
      the company in liquidation. We are of the  opinion  that  the  learned
      counsel for the respondents are quite right in their submissions  that
      an  injunction  was  issued  only  to  ensure  that  the  company   in
      liquidation does not further encumber or create charges in  favour  of
      third parties over the assets of the company in  liquidation.  In  our
      opinion, neither the interim order dated  15th  April,  1987  nor  the
      undertaking given pursuant thereto can be said to be a charge  on  the
      assets of the company in liquidation. This Court in the case of Indian
      Bank Vs. Official Liquidator, Chemmeens Exports  (P)  Ltd.  &  Ors.[1]
      whilst considering the provisions contained  in  Section  125  of  the
      Companies Act has observed as follows :-
           “6. Since the preliminary decree is assailed as being void under
           Section 125 of the Act, it would be useful to read here the said
           provision, insofar as it is relevant for our purposes. It reads:


              “125. Certain  charges  to  be  void  against  liquidator  or
              creditors unless registered.—(1) Subject to the provisions of
              this Part, every charge created on or after the  Ist  day  of
              April, 1914, by a company and being a charge  to  which  this
              section  applies  shall,  so  far  as  any  security  on  the
              company’s property or undertaking is  conferred  thereby,  be
              void against the liquidator and any creditor of the  company,
              unless the prescribed particulars  of  the  charge,  together
              with the instrument, if any, by which the charge  is  created
              or evidenced, or a copy thereof verified  in  the  prescribed
              manner, are filed with the Registrar for registration in  the
              manner required by this Act within thirty days after the date
              of its creation:


           Provided that  the  Registrar  may  allow  the  particulars  and
           instrument of copy as aforesaid to be filed within  thirty  days
           next following the expiry of the said period of thirty  days  on
           payment of such additional  fee  not  exceeding  ten  times  the
           amount of fee specified in  Schedule  X  as  the  Registrar  may
           determine, if the company satisfies the Registrar  that  it  had
           sufficient cause for not filing the particulars  and  instrument
           or copy within that period.


           (2) Nothing in sub-section (1) shall prejudice any  contract  or
           obligation for the repayment of the money secured by the charge.


           (3) When a charge becomes void under  this  section,  the  money
           secured thereby shall immediately become payable.


           (4) This section applies to the following charges:


                 (a)   a charge for the purpose of  securing  any  issue  of
                       debentures;
                 (b)   a charge on uncalled share capital of the company;
                 (c)   a charge on any immovable property, wherever situate,
                       or any interest therein;
                 (d)   a charge on any book debts of the company;
                 (e)   a  charge,  not  being  a  pledge,  on  any  moveable
                       property of the company;
                 (f)   a floating charge on the undertaking or any  property
                       of the company including stock-in-trade;
                 (g)   a charge on calls made but not paid;
                 (h)   a charge on a ship or any share in a ship;
                 (i)   a charge on goodwill, on a patent or a licence  under
                       a patent, on a trade mark, or on  a  copyright  or  a
                       licence under a copyright.
             (5) to (8)      *     *    *”


           7. On a plain reading of sub-section (1) it becomes  clear  that
           if a company creates a charge of the nature enumerated  in  sub-
           section (4), after 1-4-1914 on its properties, and fails to have
           the charge together with instrument, if any, by which the charge
           is created, registered  with  the  Registrar  of  the  Companies
           within thirty days, it shall be void against the liquidator  and
           any creditor of the company. This, however, is  subject  to  the
           provisions of Part  V  of  the  Act.  The  proviso  enables  the
           Registrar to relax the period of limitation of  thirty  days  on
           payment of specified additional fees, on  being  satisfied  that
           there has been sufficient cause for not filing  the  particulars
           and instrument or a copy thereof within  the  specified  period.
           Sub-sections (2) and (3) deal with repayment of money secured by
           the charge. Sub-section (2) provides that the provision of  sub-
           section (1) shall not prejudice the contract or  obligation  for
           repayment of money secured by the  charge  and  sub-section  (3)
           says that when a charge becomes void  under  that  section,  the
           money secured shall become  payable  immediately.  Though  as  a
           consequence of non-registration of charge under Part  V  of  the
           Act, a creditor may not be able to enforce  the  charge  against
           the properties of the company as a secured creditor in the event
           of liquidation of the company as the charge becomes void against
           the liquidator and the creditor, yet  he  will  be  entitled  to
           recover the debt  due  by  the  company  on  a  par  with  other
           unsecured creditors. It is also evident that Section 125 applies
           to every charge created by the company on or after 1-4-1914. But
           where the charge is by operation of law  or  is  created  by  an
           order or decree of the court, Section 125 has no application.”


    21. The observations made in paragraph 7, in our opinion, is a complete
        answer to the submission made by   Mr.  Paras  Kuhad.  Clearly  the
        appellant is only entitled to recover the dues at  par  with  other
        unsecured creditors. In our opinion, the order  dated  15th  April,
        1987, was only in  the  nature  of  restraint  on  the  Company  in
        liquidation not to further encumber any of its assets.  It did  not
        have the effect of creating a charge.  Mr. Kuhad in support of  his
        submission that the interim order dated 15th April, 1987 has to  be
        treated as a mandate of the Court, has relied on J.K. (Bombay)  (P)
        Ltd. Vs. New Kaiser-I-Hind Spinning and Weaving Co. Ltd.[2]  In the
        aforesaid judgment, undoubtedly it is held that “no particular form
        of words is necessary to create a charge and all that is  necessary
        is that there must be a clear intention to make a property security
        for payment of money in praesenti.”  The aforesaid observations  of
        this Court ought not to be read out of context.  The  judgments  of
        this Court are not to be read as statutory instruments.  The  ratio
        of the judgment has to be culled out, keeping in view the facts and
        circumstances involved in a particular case. The facts in that case
        are noticed in paragraph 26 from wherein the aforesaid three  lines
        have been extracted by   Mr. Kuhad in support of his submission. We
        quote the relevant part of paragraph 26 of the  aforesaid  judgment
        which is as under:
           “26……. It  was  argued  that  where  an  agreement  specifies  a
           property out of which a debt is to be  payable  and  is  coupled
           with an intention to subject such  property  to  a  charge,  the
           property becomes subject to a charge in praesenti even though  a
           regular mortgage is to be executed at some future date. Such  an
           intention, the learned Attorney-General argued, was demonstrated
           by the agreement that (1) the debts  were  to  be  paid  out  of
           profits and (2) the engagement by the company not to  deal  with
           its assets. The distinction between a charge and a  mortgage  is
           clear. While in the case of a charge there  is  no  transfer  of
           property or any interest therein, but only  the  creation  of  a
           right of payment out  of  the  specified  property,  a  mortgage
           effectuates transfer of property  or  an  interest  therein.  No
           particular form of words is necessary to create a charge and all
           that is necessary is that there must be  a  clear  intention  to
           make a property security for payment of money in  praesenti.  In
           Jewan Lal Daga v. Nilmani Chaudhuri,  a case relied on  by  him,
           the question was one  relating  to  an  agreement  to  mortgage.
           Following on the agreement, a draft mortgage was prepared  which
           was approved by the respondent's solicitors, the  mortgage  deed
           was engrossed and  even  the  stamp  for  it  was  paid  by  the
           respondent. The question was whether specific performance of the
           agreement compelling the  respondent  to  execute  the  mortgage
           could be granted before accounts between the parties  were  made
           up and the amount due  thereunder  was  ascertained.  The  Privy
           Council disagreeing with the High Court held that that could  be
           done and observed that " there was a  valid  agreement  charging
           the property with whatever sum was actually due......and that  a
           proper mortgage ought to be executed to carry out these  terms."
           In  Khajeh  Suleman  Quadir  v. Salimullah certain  deeds   were
           executed purporting to  make  wakfs  of  certain  properties  in
           favour of the  members  of  a  Mahomedan  family  and  then  for
           charitable purposes. Later on, agreements were  executed,  under
           one of which the members of the family  agreed  that  allowances
           fixed under the wakfs should be paid out of the income to  named
           persons of the family and upon their death to their  heirs,  and
           under the other agreement the mutawalli agreed that he  and  the
           future mutawallis would pay the said allowances. The wakfs  were
           held invalid as creating a perpetual succession of estates.  The
           question was whether the agreements to pay allowances also  fell
           along with them. The Privy Council held that they did not,  that
           they were valid and enforceable and that the  direction  in  the
           agreements to pay the  allowances  out  of  the  income  of  the
           settled properties showed an intention to create  a  charge.  In
           both these decisions the Board came to the conclusion that there
           was a clear intention on the part of the  parties  to  create  a
           charge in praesenti.  The  argument  of  the  learned  Attorney-
           General was that if an agreement indicated  a  property  out  of
           which a debt is to be paid and an intention to subject it  to  a
           charge in praesenti, the court must  find  the  charge.  Certain
           other decisions were also brought to our notice but  it  is  not
           necessary to burden this judgment with them because in each case
           the question which the court  would  have  to  decide  would  be
           whether  the  agreement  in  question  creates   a   charge   in
           praesenti.:………”


    22. The aforesaid  observations  would  indicate  that  the  court  was
        examining the submissions made by the learned Attorney General. The
        effort of the Attorney General was to persuade this Court,  on  the
        cases mentioned in  the  aforesaid  paragraph  that  there  was  an
        agreement which established an intention  to  create  a  charge.  A
        reading of the order dated 15th April, 1987 clearly shows  that  it
        firstly gives the direction to the ONGC to continue the  supply  of
        gas at the rate of Rs.1000/- for 1000 cubic meter. Such a direction
        would  be  implemented  only  upon  an  undertaking  given  by  the
        respondents that they will not  charge  encumber  or  alienate  any
        asset except with the leave of this Court. A further direction  was
        that the immoveable assets included in the  respective  undertaking
        will be made available for discharging the  respective  liabilities
        of the respondent company. The undertaking given by the company  in
        liquidation in this case was as under :
           “3. I state that Respondent No.10 Company undertakes  that  none
           of immovable assets of the company will be further  charged  and
           encumbered hereafter with effect from 15.04.1987, i.e. from  the
           date of order of this Hon’ble Court except  with  the  leave  of
           this Hon’ble Court.


           4. I state that Respondent NO.10 Company further undertakes  not
           to alienate any of its immovable assets hereinafter with  effect
           from 15.04.1987 except with the leave  of  this  Hon’ble  Court.
           The  Respondent  No.10  Company  further  undertakes   to   make
           available all its immovable assets in the event  of  discharging
           the liabilities which may arise on  account  of  the  difference
           between the price at which all the Gas  being  supplied  to  the
           company  during  the  pendency  of  the  proceedings   in   this
           connection and the price which may be determined by this Hon’ble
           court while disposing of the present Appeals finally.


    23. A perusal of the aforesaid undertaking shows that Ambica Mills  has
        not identified any particular immovable assets which would be  made
        available  in  discharging  the  liabilities  in  favour   of   the
        appellant. Therefore,  we  have  no  hesitation  in  rejecting  the
        submission of  Mr.Kuhad  that  the  interim  order  read  with  the
        undertaking expressed an intention to create an enforceable  charge
        of any particular asset of the company in liquidation.


    24. We are of the opinion that the judgment in the case of Praga  Tools
        Ltd. Vs. Official Liquidator of Bengal Engineering Company (P) Ltd.
        (1984) 56 Comp. Cas.214 (Cal) would also not be applicable  to  the
        facts and circumstances of this case. Mr. Kuhad has relied  on  the
        following observations:

           “The fallacy in the argument of Mr. Mookherjee, in my  view,  is
           that after the passing of the order of S.K. Roy Chowdhury J. (as
           his Lordship then was), dated August 1, 1978, the position  with
           regard  to  the  security   assumed   a   completely   different
           complexion. By that order, as  I  have  already  indicated,  the
           claim of the  petitioning-creditor  was  settled  at  a  certain
           amount. A mode for payment of that  money  was  indicated.  Then
           there is a default clause. That default clause contained a  twin
           option either of initiating a fresh winding up proceeding or  of
           executing the balance as a decree of court. It is  only  in  the
           event of an  option  being  exercised  in  favour  of  the  last
           contingency, viz., in the event of the execution as a decree  of
           court, that the security which was  furnished  pursuant  to  the
           order of R.M. Dutta J. would be a  security  for  the  applicant
           company for the satisfaction of the  decree  and  would  be  the
           security for the decree until the decretal dues were paid. Thus,
           the benefit of the security in so far as the  applicant  company
           is concerned is entirely  the  creature  of  the  order  of  Roy
           Chowdhury J. dated August 1, 1978. This can, in my view,  by  no
           stretch of  imagination,  be  called  a  charge  created  "by  a
           company" within the meaning of Section 125 of the Companies Act,
           1956, requiring registration under the above section.


           It would follow, therefore, from  what  I  have  said  that  the
           question as to whether the security as originally furnished  was
           registered under Section125 of the Companies Act, 1956, or  not,
           would be totally irrelevant for the purpose of  determining  the
           right of the applicant company after the order of Roy  Chowdhury
           J., dated August 1, 1978.”





    25. The aforesaid observations, in our opinion, would not be applicable
        on the facts and circumstances of this case, as no charge have been
        created in favour of ONGC by any  of  the  orders  passed  by  this
        Court.
    26. Mr. Kuhad has submitted  that  the  respondents  have  specifically
        agreed to make the assets available for discharging  the  liability
        of the ONGC, this, according to Mr. Paras Kuhad, was tantamount  to
        creating an  enforceable  charge.  We  are  unable  to  accept  the
        aforesaid submission. In the face of the directions given  by  this
        Court in the case of Oil and Natural Gas (supra) wherein this Court
        had directed that the ONGC is at liberty to take immediate steps to
        recover the charges due from the respondents in the  light  of  the
        judgment. This Court did not direct that in view of the undertaking
        dated 27th May,  1987  the  respondents  have  created  enforceable
        charge in favour of ONGC. Furthermore, it is  a  matter  of  record
        that even the  ONGC  did  not  consider  itself  to  be  a  secured
        creditor. At the time when the Ambica Mills Co. Ltd. came under the
        jurisdiction of the Official Liquidator, none of  the  two  options
        adverted to earlier was exercised by ONGC.   The plea  of  being  a
        secured creditor is clearly an  afterthought.   Therefore,  in  our
        opinion, the judgments rendered by the learned Single Judge and the
        Division Bench of the Gujarat  High  Court  do  not  call  for  any
        interference.  The  civil  appeals   are   accordingly   dismissed.




                                                             ……………………………….J.
                                                     [Surinder Singh Nijjar]


                                                            ………………………………..J.
                                                                 [A.K.Sikri]


      New Delhi;
      April 17, 2014.

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[1]    (1998) 5 SCC 401
[2]    (1969) 2 SCR 866

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