Sadanandaswamy, J.:— These two appeals are filed against an order made by the learned company judge on Company Application No. 143/67 and No. 20 of 1968 in Company Petition No. 4 of 1967 in the matter of Sree Yellamma Cotton, Woollen & Silk Mills Company Ltd. (in liquidation)1. The appellant in O.S.A No. 9/68 is the International Cotton Corporation (Private) Ltd., an unsecured creditor; respondent No. 1 is the Bank of Maharashtra Ltd., Poona, which claims to be a secured creditor, and the second respondent is the official liquidator. The Bank of Maharashtra Ltd. filed Company Application No. 143/67 praying for permission to continue to retain its possession of the properties mortgaged to it and to allow it to remain outside the winding-up proceedings and to enforce its rights as mortgagee. The Company Application No. 20/68 was filed by the official liquidator praying for an order declaring that the mortgages and hypothecations by the company of its properties in favour of the bank are invalid and not binding on the company, that the bank has no power of sale of the land and building belonging to the company in liquidation, to direct the bank to deliver possession of the properties of the company to the official liquidator, and for ancillary reliefs.
2. The learned company judge framed the following points for consideration:
“1. Whether the liquidator's Application No. 20 of 1968 is incompetent or unsustainable either because the liquidator should have filed a suit or because the court fee should have been paid on it as for a suit;
2. Is the bank entitled to sell the lands and buildings, machinery, spares and parts mortgaged or hypothecated to it, without the intervention of court?
3. Is the bank_ entitled to retain possession of the said properties, immovable and movable, for the purpose of exercising the right of private sale claimed by it?
4. Are the mortgages and hypothecations claimed by the bank invalid for contravention of the provisions of section 293 of the Companies Act?
3. On the first point he held that the official liquidator's Application No. 20/68 is competent and sustainable, and points Nos. 2, 3 and 4 were decided in favour of the bank. He, accordingly, held that the bank is a mortgagee of the immovable properties and hypothecatee of the movable properties of the company described in exhibits R-8, R-15, R-21, R-31, R-34 and R-39, and that in exercise of the rights and powers conferred upon it by the said documents, it is entitled to take and retain possession of the properties described in the said documents for the purpose of recovering monies due to it by enforcing its security against the said properties, that it has also the power of selling the said properties without the intervention of court for the purpose of recovering the moneys due to it in accordance with the provisions of the Transfer of Property Act and the Contract Act, that the bank will be accountable to the company in liquidation as a mortgagee in possession and if it exercis_es its power of sale without the intervention of court, it will be accountable for the moneys realised by sale in accordance with the terms of section 69 of the Transfer of Property Act. He expressed no opinion as to the exact amount due to the bank and directed the bank to deliver all articles of furniture belonging to the company now in its possession to the official liquidator. It is against that common order in the above two applications that the present appeals have been filed.
4. The Bank of Maharashtra Ltd. has filed cross-objections in O.S.A No. 9/68 against the decision of the learned company judge on point No. 1 above said.
5. We now deal with O.S.A No. 9/68. The first contention urged by Sri Sundaraswamy, the learned counsel for the appellant, is that the power of sale given to the bank under the mortgage deeds is invalid since there is a contravention of section 69(1)(a) of the Transfer of Property Act. His contention is that the mortgage deeds are executed not only by the company in liquidation, but also by its eight directors who are Hindus. In the several documents, the company is described as the mortgagor and the eight directors as the sureties. It is admitted that the properties mortgaged belonged only to the company and none of the properties belonged to any of the directors. The directors, therefore, have been correctly described as sureties and the mortgagor is only the company whose properties constituted the mortgage security. Hence, there is no contravention of the provisions of section 69(1)(a) of the Transfer of Property Act, and this contention of the appellant must be rejected.
6. The next point urged on behalf of the appellant is that the mortgagor under section 69 of the Transfer of Property Act must be a natural person since under clause (1)(a) of that section neither the mortgagor nor the mortgagee may be a Hindu, Muhammadan or Buddhist or a member of any other race, sect, tribe or class, specified in this behalf by the State Government. But we are unable to see how such an inference can be drawn. Section 69(1) refers to the powers of a mortgagee or any person acting in his behalf and the property dealt with in that section is the mortgaged property and what is referred to is the mortgage money. A mortgage is defined under section 58(a) of the Transfer of Property Act as the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt or the performance of an engagement which may give rise to a pecuniary liability. The transferor is called a mortgagor, and the transferee a mortgagee; the principal money and interest of which payment is secured for the time being is called the mortgage money and the instrument by which the transfer is effected is called a mortgage deed. Section 69 forms part of Chapter IV of the Transfer of Property Act. Section 69(1)(a) deals, with an English mortgage and an English mortgage is defined in section 58(e) of the Act. Under the definition there is no prohibition for an incorporated company from being a mortgagor. Hence, we are unable to see how a company can be said to be precluded from being a mortgagor under English mortgage or how the power to sell the mortgaged property becomes invalid in the case of a company executing an English mortgage in favour of the mortgagee. Hence, this contention of the appellant must also be negatived.
7. The next point urged on behalf of the appellant is that the mortgages and hypothecations claimed by the bank are invalid since they contravene the provisions of section 293(1)(a) of the Companies Act. Section 293(1)(a) provides that the board of directors shall not sell, lease or otherwise dispose of the whole, or substantially the whole, of the undertaking of the company without the consent of such public company. It is admitted that no such consent has been taken, but what is pleaded on behalf of respondent No. 1 is that consent of the company has been taken under clause (d) of section 293(1) of the Companies Act. That clause provides that the board of directors shall not borrow moneys after the commencement of this Act, where the moneys to be borrowed, together with the moneys already borrowed by the company, will exceed the aggregate of the paid-up capital of the company and its free reserves without the consent of the company.
8. Section 293(1)(a) of the Companies Act will apply when the whole or substantially the whole of the undertaking of the company is sold, leased or otherwise disposed of. Webster's New Standard Dictionary describes the word “undertaking” as meaning a business or project engaged in. The word “undertaking” has been defined as “any business or any work or project which one engages in or attempts as an enterprise analogous to business or trade”, according to the decision in Madras Gymkhana Club Employees' Union v. Management. The business or undertaking of the company must be distinguished from the properties belonging to the company. In this case, it is only the properties belonging to the company that have been dealt with by the board of directors under the deeds of hypothecation and mortgage in favour of the bank. Hence, the learned company judge was right in holding that no part of the undertaking of the company was disposed of in favour of the bank.
9. It was contended on behalf of the appellant that clause 5(i) of the deed of mortgage (exhibit 15) empowers the bank not merely to take possession of the properties as mortgagee for the purpose of realising its dues from out of the properties expressly given as security but also actually to take over the management of the business of the company, and that therefore the transactions under exhibits R-15 and R-35, which has a similar clause also, have the effect of disposal of the undertaking of the company within the terms of clause (a) of section 253(1). The learned company judge has held this clause to be invalid and that except to the extent of clause 5(i) of exhibit R-15 and the corresponding clause of exhibit R-34 which empowered the bank to take over the management of the business of the company, neither the mortgages nor the hypothecations are invalid for contravention of clause (a) of sub-section (1) of section 213 of the Companies Act, 1956, and that the said offending clauses are invalid and unenforceable. The said clauses in the document are severable. Hence, it cannot be said that they invalidate the transactions themselves. We are in agreement with the learned company judge on this point also, and reject the contention of the appellant.
10. For the reason stated above both the appeals are dismissed. In view of the opinion expressed by us on the abovesaid points, Sri G.S Ullal, the learned counsel for the respondents did not find it necessary to urge the cross-objections in O.S.A No. 9/68. The appellant will pay the costs of respondent No. 1. The costs shall be paid in one set out of the assets of the company. We fix the advocate's fee at Rs. 250.