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Judgment
Misra J.
O.S.A. Nos. 186 and 196 of 1984 have common issues and O.S.A. Nos. 197 of 1984 and 13 of 1985 arise out of consequential or further
reliefs that have been denied or granted. Since they have a common feature, they have been ordered to be placed together for hearing.
Accordingly, they have been heard together and are being disposed of by a common judgment.
The main facts, however, are that the official liquidator representing the company in liquidation took out summons under sections 460(4), 531,
531A and 536 read with section 634 of the Companies Act, 1956 (hereinafter referred to as ""the Act"") to declare that the respondent (appellant in
O.S.A. Nos. 196 and 197 of 1984 and 13 of 1985) is not entitled to any rights or benefits accruing to her under the deed of hypothecation dated
July 26, 1973, registered with the Registrar of Companies for a sum of Rs. 1,40,000 with interest thereon.
The date of the impugned document is July 26, 1973. A creditor of the company came forward with an application in C.A. No. 128 of 1974,
for winding up of the company u/s 392(2) of the Act. That application was presented on March 19, 1974. The order of winding up was made on
August 22, 1975. The deed dated July 26, 1973, however, was presented before the Registrar of Companies u/s 125 of the Act on August 14,
1973. It was registered on March 27, 1974.
As against the move of the official liquidator, the appellant/creditor took out a petition for a declaration that the charge was valid. Shanmukham
J., who heard the applications, held as follows :
In this case, the impugned document is dated July 26, 1973. It was presented for registration on August 14, 1973, as is obvious from the date-
seal of the Registrar of Companies. It is seen from the evidence of AW-2, the Registrar of Companies, that as Form No. 8 as presented on August
14, 1973, was defective, it was returned. The evidence is not clear as to when it was returned and as to when it was re-presented. One thing is
fairly established that the re-presentation of the said Form No. 8 must be after February 13, 1974. It is seen from exhibit A-161 that though the
said document Form No. 8 marked as exhibit A-160 did not bear the date when it is purported to have been signed by Babu Janardhanam, the
managing director of the company, the same contains the signature of the said managing director bearing the date February 13, 1974. I have
already pointed out that the date of presentation as borne out from the seal of the Registrar of Companies is August 14, 1973. Hence, there is no
difficulty in finding that the representation in Form No. 8 must be only after February 13, 1974. Exhibit A-161, the certificate issued by the
Registrar of Companies u/s 125, points out that the certificate was issued on March 27, 1974. I had earlier referred to the fact that C.A. No. 128
of 1974, by a creditor for winding up of the company was presented on March 19, 1974, and that the winding up order was made on August 22,
1975. The law is well-settled that the winding up order will date back to the institution of winding up proceeding. Thus, it is borne out from the
records that the registration is after the order of winding up, i.e., March 19, 1974. The date of representation is very material in the instant case,
because if the representation is after March 19, 1974, it would not be valid as per the ratio laid down by the Supreme Court referred to above, as
the application would be deemed to have been validly presented as prescribed u/s 125 of the Act after March 19, 1974, on which date as earlier
pointed out, the winding up order would be deemed to have taken effect. It is significant to note that the date of registration is long after March 19,
1974. What is material in my considered view is that there should be a proper presentation of Form No. 8 as prescribed u/s 125, but not the
actual date of registration particularly because in this case, the registration was after March 19, 1974. I had already indicated that Form No. 8 at
the time of its presentation on August 14, 1973, was defective and, therefore, there was no compliance with section 125 of the Act. In other
words, there is no valid presentation of the impugned document for registration u/s 125. As long as there is no attempt made by the respondent to
prove the date of representation, I am forced to hold that it is most likely the some was represented after the creditor presented C.A. No. 128 of
1974, for winding up. The burden is certainly on the respondent to place evidence in proof of the date of representation, because the registration is
after March 19, 1974. From the foregoing circumstances, there is no escape from the conclusion that exhibit A-160 is void as against the applicant
according to the plain mandate found in section 125.
Having held as above, the learned trial judge has considered the objection as to the genuineness of the transaction under sections 531 and 531A
of the Act and found that it was not a transfer in the ordinary course of its business by the company, that it lacked good faith and valuable
consideration and that It created no valuable right in favour of the creditor.
Part V of the Act contains provisions as to registration of charges. Section 125 in that part provides as follows :
(1) Subject to the provisions of this part, every charge created on or after the 1st day of April, 1914, by a company and being a charge to which
this section applies shall, so for as any security of 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 or copy as aforesaid to be tiled within seven days next following the expiry of
the said period of thirty days it 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 debenture;
(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 movable 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) In the case of a charge created out of India and comprising solely property situate outside India, thirty days after the date on which the
instrument creating or evidencing the charge or a copy thereof, could, received in India, shall be substituted for thirty days after the date of the
creation of the charges, as the time within which the particulars and instrument or copy are to be filed with the Registrar.
(6) Where a charge is created in India but comprises property outside India, the instrument creating or purporting to create the charge under this
section or a copy thereof verified in the prescribed manner, may be filed for registration, notwithstanding that further proceedings may be necessary
to make the charge valid or effectual according to the law of the country in which the property is situate.
(7) Where a negotiable instrument has been given to secure the payment of any book debts of a company, the deposit of the instrument for the
purpose of securing an advance to the company shall not, for the purposes of this section, be treated as a charge on those book debts.
(8) The holding of debentures entitling the holder to a charge on immovable property shall not, for the purposes of this section, be deemed to be an
interest in immovable property.
This section is followed by certain provisions as to the date of notice of charge and particulars with respect to certain types of charges, etc., and
section 132 provides as follows :
The Registrar shall give a certificate under his hand of the registration of any charge registered in pursuance of this part, stating the amount thereby
secured; and the certificate shall be conclusive evidence that the requirements of this part as to registration have been complied with.
The provision in section 125 thus requires that 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 the
Act within thirty days after the date of its creation if the charge is created on or after April 1, 1914. This section fixes the period for the filing of the
particulars of the charge and not for the registration of it. This does not prescribe a period within which the Registrar is to register the charge or
make entries in the register of charges. The proviso therein empowers the Registrar to extend the time for filing the particulars, etc. Section 132
makes the certificate of registration conclusive evidence of the fact that the requirements of registration have been complied with.
It is well-settled that law is divided into two broad categories of substantive law and procedural law. Broadly stated, whereas the substantive
law defines duties and liabilities, the procedural law deals with application of substantive law in particular cases. The law of evidence is a part of the
law of procedure, as it deals with the question as to what facts may and what may not prove, what sort of evidence may or may not be given. In
Izhar Ahmad Khan Vs. Union of India (UOI), , a detailed study of the question as to what may constitute an irrebuttable presumption as a rule of
substantive law and what may constitute an irrebuttable presumption as a rule of procedural law has been made. The Supreme Court has taken
notice of the study of this branch of law in England, quoted from ""A History of English Law"" by Holdsworth, Wigmore on Evidence, Phipson on
Evidence, Stephen''s Digest of the Law of Evidence; Dicey''s Conflict of Laws and Thayer''s A Preliminary Treatise on Evidence at the Common
Law as well as case law and pointed out (at page 1062) :
Thus the rule of rebuttable presumption adds statutory force to the natural and inherent probative value of fact A in relation to the proof of the
existence of fact B and in adding this statutory value to the probative force of fact A, the rule, it is conceded, makes a provision within the scope
and function of the law of evidence. If that is so, how does it make a difference in principle if the rule adds conclusive strength to the probative
value of the said fact A, in relation to the proof of the existence of fact B ? In regard to the category of facts in respect of which an irrebuttable
presumption is prescribed by a rule of evidence the position is that the inherent probative value of fact A in that behalf is very great and it is very
likely that when it is proved in a judicial proceeding, the judicial mind would normally attach great importance to it in relation to the proof of fact B.
The rule steps in with regard to such facts and provides that the judicial mind should attach to the said fact conclusiveness in the matter of its
probative value. It would be noticed that as in the case of a rebuttable presumption, so in the case of an irrebuttable presumption, the rule purports
to assist the judicial mind in appreciating the existence of facts. In one case the probative value is statutorily strengthened but yet left open to
rebuttal and in the other case, it is statutorily strengthened and placed beyond the pale of rebuttal. Considered from this point of view, it seems
rather difficult to accept the theory that whereas a rebuttable presumption is within the domain of the law of evidence, an irrebuttable presumption
is outside the domain of that law and forms part of the substantive law.
Having so stated the law, the Supreme Court has then pointed out (at page 1063) :
In deciding the question as to whether a rule about irrebuttable presumptions is a rule of evidence or not, it seems to us that the proper approach
to adopt would be to consider whether fact A from the proof of which a presumption is required to be drawn about the existence of fact B, is
inherently relevant in the matter of proving fact B and has inherently any probative or persuasive value in that behalf or not. If fact A is inherently
relevant in proving the existence of fact B and to any rational mind it would bear a probative or persuasive value in the matter of proving the
existence of fact B, then a rule prescribing either a rebuttable presumption or an irrebuttable presumption in that behalf would be a rule of evidence.
On the other hand, it tact A is inherently not relevant in proving the existence of fact B or has no probative value in that behalf and yet a rule is
made prescribing for a rebuttable or an irrebuttable presumption in that connection, that rule would be a rule of substantive law and not a rule of
evidence. Therefore, in dealing with the question as to whether a given rule prescribing a conclusive presumption is a rule of evidence or not, we
cannot adopt the view that all rules prescribing irrebuttable presumptions are rules of substantive law. We can answer the question only after
examining the rule and its impact on the proof of facts A and B. If this is the proper test, it would become necessary to enquire whether obtaining a
passport from a foreign Government is or is not inherently relevant in proving the voluntary acquisition of the citizenship of that foreign State.
The Supreme Court has expressed similar views in Raja Anand Brahma Shah Vs. State of Uttar Pradesh and Others, , and in Lilavati Bai Vs.
The State of Bombay, . In the case of Smt. Somavanti and Others Vs. The State of Punjab and Others, , the Supreme Court has pointed out that
there is no difference between the expression ""conclusive proof"" and ""conclusive evidence"" in these words (at page 159) :
A distinction is sought to be made between ''conclusive proof'' and ''conclusive evidence'' and it is contended that where a law declares that a fact
shall be conclusive proof of another, the court is precluded from considering other evidence once such fact is established. Therefore, where the law
makes a fact conclusive proof of another the fact stands proved and the court must proceed on that basis. But, the argument proceeds, where the
law does not go that far and makes a fact only ''conclusive evidence'' as to the existence of another fact, other evidence as to the existence of the
other fact is not shut out. In support of the argument reliance is placed on section 4 of the Evidence Act which in its third paragraph defines
''conclusive proof'' ....
The paragraph thus provides that further evidence is barred where, under the Evidence Act, one fact is regarded as proof of another. But it says
nothing about what other laws may provide. There are a number of laws which make certain facts conclusive evidence of other facts ....
Since evidence means and includes all statements which the court permits or requires to be made, when the law says that a particular kind of
evidence would be conclusive as to the existence of a particular fact, it implies that that fact can be proved either by that evidence or by some
other evidence which the court permits or requires to be advanced. Where such other evidence is adduced, it would be open to the court to
consider whether, upon that evidence, the fact exists or not. Where, on the other hand, evidence which is made conclusive is adduced, the court
has no option but to hold that the fact exists. If that were not so, it would be meaningless to call a particular piece of evidence as conclusive
evidence. Once the law says that certain evidence is conclusive, it shuts out any other evidence which would detract from the conclusiveness of that
evidence. In substance, therefore, there is no difference between conclusive evidence and conclusive proof. Statutes may use the expression
conclusive proof"" where the object is to make a fact non-justiciable. But the Legislature may use some other expression such as ""conclusive
evidence"" for achieving the same result. There is thus no difference between the effect of the expression ""conclusive evidence"" from that of
conclusive proof"" the aim of both being to give finality to the establishment of the existence of a fact from proof of another.
This aspect of the law has been discussed in some detail in a Full Bench judgment of the Patna High Court in Kalka Kuar v. State of Bihar :
1990(1)BLJR51 by one of us, who was a member of the said Bench, and it has been pointed out that conclusive proof of a fact is one thing and
conclusive proof of existence of a right is another thing.
Thus, from what has been noticed above, it has to be held that once the certificate of registration is granted, section 132 states that it is
conclusive evidence of the fact that the requirements of registration have been complied with. This conclusion of ours is supported by a Division
Bench of the Kerala High Court in Siva Sankara Panicker v. Kerala Financial Corporation [1980] 50 Comp Cas 817 (see also Eric Holmes
(Property) Ltd., In re [1965] 35 Comp Cas 811; [1965] 2 All ER 333 .
From the scheme of the law as above, we have every reason to hold that the only onus the charge-holder had to discharge was to send the
particulars, etc., within the stipulated period to the Registrar. The registration of the charge is within the jurisdiction of the Registrar and in case he
makes delay in doing so the charge-holder cannot be held responsible.
A learned single judge of the Punjab and Haryana High Court, in the case of State Bank of India v. Haryana Rubber Industries [1986] 60
Comp Cas 472 has taken the same view in this regard in these words (at page 476) :
This matter is not res integra. A similar case came up before me in Company Petitions Nos. 34 and 35 of 1981 (Haryana Financial Corporation v.
Depro Foods Pvt. Ltd.) decided on December 3, 1981. After noticing the relevant provisions of the Companies Act, it was observed by me that
the filing of particulars of the charge together with the instrument or copy thereof within 30 days after the date of creation of the charge is necessary
and not registration of the charge with the Registrar. The reason is that the registration of the charge is within the jurisdiction of the Registrar and in
case he makes delay in doing so, the charge-holder cannot be held responsible. The Registrar has also been given power to allow the charge-
holder to send the particulars, etc., within seven days after the expiry of the limitation period if he satisfies that he could not file the same for
sufficient cause within the prescribed period. After the particulars, etc., have been filed, then the responsibility of the registration of the charge shifts
on to the Registrar. It is further observed that thus a charge-holder is absolved of his duty as soon as he filed particulars of the charge, etc., with
the Registrar. Consequently, I hold that all the abovesaid three loans are deemed to be registered.
The learned judge decided as above while considering a case in which particulars as required u/s 125 of the Act were filed with the Registrar
but the Registrar did not register the document.
From the same scheme, this, we have to hold that, when the requirements of Part V of the Act as to registration have been complied with, it
will be conclusive evidence of the fact that the charge-holder had presented the document to the Registrar for registration in the manner required by
the Act within the stipulated time. This will create a strong presumption in favour of the document being valid and not void.
In the instant case, the document was already registered. Thus it should be deemed to have been presented on August 14, 1973. The facts of
this case, however, show that the charge deed was presented before the Registrar on August 14, 1973, and registered on March 27, 1974. The
winding-up order was made on August 22, 1975. The application for the winding-up of the company, however, was presented on March 19,
1974. This will thus make the winding-up effective from March 19, 1974. The charge document was registered after the winding-up proceeding
had started. This, however, will not show that the document is void, for it was effective from July 26, 1973, that is to say, the creation of the
charge, as well as on August 14, 1973, when it was presented for registration, that is to say, prior to the winding-up application.
The next question is with respect to the provisions in sections 531 and 531A of the Act. Section 531 says,
Any transfer of property, movable or immovable, delivery of goods, payment, execution or other act relating to property made, taken or done by
or against a company within six months before the commencement of its winding-up which, had it been made, taken or done by or against an
individual within three months before the presentation of an insolvency petition on which he is adjudged insolvent, would be deemed in his
insolvency a fraudulent preference, shall in the event of the company being wound up, be deemed a fraudulent preference of its creditors and be
invalid accordingly :
Provided that, in relation to things made, taken or done before the commencement of this Act, this sub-section shall have effect with the
substitution, for the reference to six months, of a reference to three months.
(2) For the purposes of sub-section (1), the presentation of a petition for winding up in the case of a winding up by or subject to the supervision of
the court, and the passing of a resolution for winding up in the case of a voluntary winding up, shall be deemed to correspond to the act of
insolvency in the case of an individual.
Since the charge document was created on July 26, 1973, and presented for registration on August 14, 1973, it was beyond six months of the
filing of the petition for winding-up which was presented on March 19, 1974. Section 531 thus may not be attracted at all.
Section 531A, inserted by Act 65 of 1960 in the Act, reads as follows :
Any transfer of property, movable or immovable, or any delivery of goods, made by a company, not being a transfer or delivery made in the
ordinary course of its business or in favour of a purchaser or encumbrancer in good faith and for valuable consideration, if made within a period of
one year before the presentation of a petition for winding up by or subject to the supervision of the court or the passing of a resolution for voluntary
winding up of the company, shall be void against the liquidator.
Thus, a charge document may not be void u/s 125. Yet, it could be void u/s 531A. But this, however, requires that,
(1) transfer or delivery is not made by the company in the ordinary course of its business; or
(2) in favour of a purchaser or encumbrancer in good faith and for valuable consideration; and
(3) the transaction falls within a period of one year before the date of the presentation of the petition for winding up; or
(4) for the supervision of the court or the passing of a resolution for voluntary winding-up of the company.
The learned trial judge has correctly held on the facts of this case that, if the impugned charge deed is not void u/s 125 of the Act, it can still be
found to be void u/s 531A. There is a noticeable proximity or relationship between the creditor and the managing director of the company. They
are wife and husband. Yet, her name was not included in the list of creditors filed by the managing director with the liquidator. That precisely was
the grievance of the creditor and that is why she had to move the court to enforce her charge. This, however, has not been accepted for the
reasons of the findings of fact recorded by the learned trial judge, who has concluded that :
(1) transactions were not done in ordinary course of business,
(2) and that they smacked of lack of good faith;
All through, however, one fact that remained present in the mind of the learned judge was that the creditor was the wife of the managing
director and yet, the managing director had not included her name in the list of creditors. This lurking suspicion weighed so much, a glance through
the judgment shows that it caused obvious shifting of the onus of proof upon the creditor instead of that being upon the person who denied the
charge. It will need no deeper investigation of the principles of law stated above that section 531A has put the initial burden upon the person who
denies the charge to establish that the transaction was not made in the ordinary course of business of the company or that it lacked good faith. It is
only when this initial onus is discharged, that it will shift upon the creditor. Otherwise, sections 91 and 92 of the Evidence Act would make the
document itself a proof of the disposition.
Ordinarily, a court of appeal does not interfere with the findings of fact of the trial court, unless it finds that the findings are unreasonable or
vitiated for the reason of an error of law, procedure or omission of a kind that rendered the finding perverse or unreasonable. The appellate court
shall not substitute its own views on the evidence and facts for the views of the trial court. If the view taken by the trial court is one that can be
taken by a reasonable person, the appellate court shall desist from interference. In the instant case, we have noticed two serious errors of law in
considering the effect of the certificate of registration on the one hand and the shifting of onus of proof upon the creditor on the other. These two
errors, in our opinion, have rendered the judgment of the trial court unsustainable.
For the above reasons, we are inclined to interfere with the judgment, but have decided not to enter into the facts ourselves but remit the case
to the trial court for fresh hearing lest the parties are denied their right of appeal on the facts.
In the result, the appeals are allowed. The impugned orders dated September 14, 1984, in Company Applications Nos. 1710 of 1979, 1414
of 1981 and 772 of 1983, in C.P. No. 8 of 1972, are set aside. The case is remitted to the trial court for rehearing and disposal in accordance
with law. On the facts of this case, however, there shall be no order as to costs.
In the instant case, since we have received valuable assistance from learned counsel appearing for the official liquidator as well as learned
senior counsel appearing for the appellants, we are inclined to order for a consolidated hearing fee of Rs. 5,000 in favour of counsel for the official
liquidator.