Judgment
1. This is an appeal preferred by a Co-operative Society registered under the Madras Cooperative Societies Act of 1932 (hereinafter referred to as “the Act”) as it was applicable to the Andhra area at the material time. It is directed against an order passed by the High Court refusing to validate the repayment made to the appellant society by a private limited company being one of its debtors (Respondent 1) subsequent to the date on which a petition for its winding up was presented by one of its creditors. The repayments fell in two categories viz. (1) repayments made between the date of the presentation of the winding up petition and the date of winding-up order, and (2) repayments made after the date of the winding-up order during the interregnum when the winding-up order was stayed by the appeal court which ultimately dismissed the appeal. The payments of the first category amount to Rs 8531.25 paise. The payments made under the second category amount to Rs 53,700.
2. The High Court has taken the view that the appellant Society was not a secured creditor as contended by the appellant. Learned counsel for the appellant has reiterated the contention that the debts in question were mortgage debts and the appellant Society was a secured creditor in respect of those debts. It is, however, an admitted position that the debtor had not executed any mortgage deed or created any charge under any document in respect of the loan advanced to it by the appellant Society. There is therefore no question of the debt being a secured debt under any document creating mortgage or charge. Counsel for the appellant has however argued that even so having regard to the provision contained in Section 22 of the said Act as it stood at the material time, a statutory charge was created in favour of the appellant Society. Now so far as Section 22 is concerned a statutory charge will arise in respect of the share of the interest in the capital of the registered society or the deposits of a member of the society or bonus or profits payable to a member of the society. The debt in question does not fall in any of the three categories as contemplated by Section 22 of the said Act. Therefore, there is no question of any statutory charge being created in favour of the appellant. Counsel for the appellant seeks support from Section 22 of the Act as it was amended in 1964. Since the transactions pertained to the period 1957-60 before the amendment came into force the amended provision which was brought on the statute-book in 1964 cannot be availed of in support of the plea that a statutory charge had been created in favour of the appellant Society when the debt was incurred prior to 1960.
3. Counsel for the appellant next contended that in any view of the matter the High Court should have in exercise of its powers under Section 536(2) of the Indian Companies Act validated the repayments. Insofar as the payments which have been made after the winding-up order was passed, the appeal against the winding-up order having been dismissed, it is futile to contend that any payments made during the interregnum should be validated. There is also no evidence to show that these payments were made in a bona fide manner under a commercial compulsion in the course of transactions necessitated for the running of the business. There is nothing to show that if the payments to the appellant Society were not made the business could not have been run. In fact, the running of the business would result in loss of liquidity and its operations would have been hampered by making these payments. It is not shown that there was any compulsion and the payments were made either in order to save the property from being sold or that there was any commercial compulsion. Under the circumstances, the view taken by the High Court must be confirmed.
4. With regard to the payments made prior to the date of the winding-up order also there is no evidence to show that these payments were made either under compulsion of circumstances in order to save or protect the property of the company or that there was any commercial compulsion to enable it to run its business. The High Court was, therefore, right in refusing to validate these transactions which were not shown to have been made for the benefit of the company. The appeal, therefore, fails and is dismissed with costs. Interim order passed by this Court will stand vacated.