1. This is an appeal under the Letters Patent against the order of Allsop J. in an application by the official liquidators of the Lower Ganges Jumna Electricity Distributing Co. Ltd., (in liquidation). The official liquidators in their application invited instructions in regard to the ranking of certain creditors of the company who claimed to be debenture-holders. On 1st February 1931 the Board of Directors of the Company passed a resolution to issue debentures. On 7th May 1932 the Company executed a debenture trust deed and in pursuance of that trust deed debenture bonds were subsequently issued. The issue of the debentures was underwritten by the Central Bank of India. The amount of the debentures issued was three lacs. The appellant L. Manmohan Das, who was the Director of the Company, acquired from the Central Bank about 2½ lacs of these debentures. The Central Bank, it is stated, still holds about Rs. 11,000 worth of debentures. In the winding up proceedings the debenture-holders claimed preferential right to payment out of the assets of the company. The learned Judge who disposed of the application has held that the debentures are invalid and that the debenture-holders are not entitled to rank as secured creditors. The direction which he gives is as follows:
The official liquidators will not give preference to the debenture-holders but will pay them their share of the assets on account of the debt due to them.
2. The learned Judge held that the debentures were invalid inasmuch as the company did not obtain the sanction of the Government to their issue in terms of Section 9, Sub-section (2), Electricity Act of 1910, This provision enjoins that the person holding a licence to sell electricity under the Act shall not at any time assign his licence or transfer his undertaking, or any part thereof, by sale, mortgage, lease, exchange or otherwise without the previous consent in writing of the Provincial Government.
3. It is a matter of admission that the company did not obtain the Provincial Government's permission to issue debentures. It was contended however that the debenture trust deed, whilst it might be invalid so far as it purported to convey the company's property to trustees or debenture-holders, or so far as it purported to create a mortgage over these properties in favour of the debenture-holders, yet it was valid and did operate so as to create a valid charge over these properties. This argument was repelled by the learned Judge who held that a charge was a transfer within the meaning of Section 9, Sub-section (2), Electricity Act. In the course of his judgment the learned Judge observes:
I should think, therefore that a charge, if it is not an immediate transfer, is at least an agreement to transfer when certain contingencies arise. The arguments which apply to charges in immovable property would apply by analogy to charges on other assets. The result is that the creation of a charge is an agreement to transfer property and as such in my judgment, it is void if the property is an undertaking to which the provisions of the electricity act apply.
4. The learned Judge further repelled an argument advanced on behalf of the debenture-holders to the effect that Section 9, Electricity Act, did not apply to the issue of debentures since in fact the licence to distribute electricity had not been transferred to the company. A further contention that the company was not a licensee within the meaning of Section 9, Electricity Act, was also rejected. The appellant in appeal advanced the same arguments in support of the validity of the debentures which ware considered by the learned Judge against whose order this appeal is directed. In the view that we take of this case it is immaterial whether the license which was originally granted to Messrs. P.L. Jaitly & Co., was transferred to the Lower Ganges Jumna Electricity Distributing Co. Ltd. Nevertheless since the issue has been raised and since we have heard arguments on behalf of the parties interested, we consider that it is our duty to pronounce judicially thereon. The Lower Ganges Jumna Electricity Distributing Co. Ltd., was formed for the purpose of acquiring and working license held by Messrs. P.L. Jaitly & Co. Article 3, Sub-section (1), of the Memorandum of Association of the company is as follows:
To acquire from the firm of Messrs. P.L. Jaitly & Co., a license called 'The Bulandshahr and Aligarh Districts Electric License, 1929' granted by the Government of the United Provinces of Agra and Oudh to the said firm of Messrs. P.L. Jaitly & Co., and their assigns under the provisions of Section 3(1), Electricity Act, 1910, for the distribution of electrical energy within the districts of Bulandshahr and Aligarh excluding the towns of Khurja and Aligarh.
5. It is not disputed that the transfer of the license to the company was not in fact effected by means of a registered instrument. Indeed it does not appear that there is a single document on the record which could be regarded as in itself a transfer of the license of Messrs. P.L. Jaitly & Co., to the Lower Ganges Jumna Electricity Distributing Co. It was contended that no transfer had been effected since the license could only be transferred by means of a registered instrument in view of the terms of Section 54, T.P. Act. This contention is in our judgment unsound. Section 54 is one of the sections of chap. iii, t.p. act. This chapter is headed," Of Sales of Immovable Property." Sale in the Section is defined as a transfer of ownership in exchange for a price paid or promised or part-paid or part-promised. Such sale, the Section provides in the case of tangible property of the value of Rs. 100 and upwards or in the case of a reversion or other intangible thing, can be made only by a registered instrument.
6. As already observed Section 54 deals with sales of immovable property. It is apparent in our opinion that the "other intangible thing" referred to in the Section is intended to embrace those imponderables which are related to immovable property such as, for example, a reversionary right. There is nothing in the Section or Act to justify the conclusion that all licenses which are intangible things can only be transferred by a registered instrument. Section 6, T.P. Act, provides:
Property of any kind may be transferred except as otherwise provided by this Act or by any other law for the time being in force.
7. Section 9 of the Act enjoins:
A transfer of property can be made without writing in every case in which the writing is not expressly required by law.
8. There is no law which expressly enjoins that the transfer of a license to sell Electricity can be effected only by written or registered document: see Shri Thakurji v. Dwarika Ram (1935) 22 AIR Pat 492 and Savitri Devi v. Dwarka Prasad (1939) 26 AIR All 305. In this view of the law the Court has to consider whether there are facts and circumstances sufficient to prove that the license held by Messrs. P.L. Jaitly & Co., was in fact transferred by that company to the Lower Ganges Jumna Electricity Co. Ltd. (After examining certain documents his Lordship proceeded.) The evidence that the license was in fact transferred is overwhelming and we hold accordingly. It was maintained for the appellant that even if the license had been transferred to the company the company was not a licensee within the meaning of Section 9, Sub-section (2), Electricity Act, and therefore was not required to take the sanction of the Government before transferring or mortgaging any part of the undertaking. There is no force in this contention. "Licensee" is defined in the Act: "Any person licensed under part II to supply energy." Clearly a person to whom a license has been transferred with the consent of the Government, and who is in fact under that license selling electricity, is a person licensed under part II to supply energy. The position therefore, at the time of the execution of the debenture trust deed was that the Lower Ganges Jumna Electricity Distributing Co. Ltd., was a licensee under the Electricity Act and was prohibited by the provisions of section 9 from transferring any part of its undertaking without the consent of the Government. The debenture trust deed transfers the whole undertaking including the license to trustees for the debenture-holders. It also purports to create a mortgage over the entire property then existing and future of the company. It further purports to create a charge over that property. So far as the deed is intended to operate as transfer of the properties to the trustees for the debenture-holders it is void in view of the provisions of Section 9, Sub-section (3). Similarly, it is void in so far as it purports to create a mortgage. Section 58, T.P. Act, defines a mortgage as a transfer of an interest in specific immovable property for the purpose of securing payment of the money advanced or to be advanced by way of loan.
9. It was maintained however that the debenture trust deed was valid in so far as it purported to create a charge. It was alleged that an omnibus deed of this sort might be invalid in regard to some of its provisions and yet valid in regard to others. In support of this contention reliance was placed on the decision of the Privy Council in the case in Bank of Australasia v. Thomas Chaplin Breillat (1846) 6 Moore PC 152 at page 201. In that case the Board was considering certain acts of the Directors which it was contended were ultra vires. In the course of their judgment it is observed:
Then, if the money was borrowed bona fide by the Directors, for the purposes of the partnership and within the limits of their authority, and was advanced bona fide by the appellants for those purposes, and applied to the legitimate purposes of the partnership, all of which facts, for the reasons already alleged, we consider as proved, can the liability to repay the money be discharged, because to the engagement to repay are adjected other engagements by the Directors, some of which we will assume to have been ultra vires? From Bigot's case, 6 Coke's Rep 26. to the latest authorities, it has always been held that when there are contained in the same instrument distinct engagements by which a party binds himself to do certain acts, some of which ate legal, and some illegal, at common law, the performance of those which are legal may be enforced, though the performance of those which are illegal cannot.
10. On the authority of this decision we hold that provided a charge is not a transfer as the learned Judge whose decision is challenged in appeal, has held, the debenture trust deed which includes specific provisions creating a charge, and the debenture bonds issued in pursuance of the same create a valid charge on the property which entitles the appellant and other debenture holders to rank as secured creditors in the winding up of the company. Section 9, Sub-section (2), Electricity Act, prohibits clearly the transfer of the undertaking or any part thereof by the license-holders. In our judgment in no sense of the term can a charge be regarded as a transfer either in praesenti or in future. The debtor does not transfer the property to the charge holder or any interest in the property. It was contended that the policy of the Act is clear, namely, to prevent license-holders burdening their property with secured debts. We do not agree that this was the policy of the Government. Be that as it may, the provision refers to transfers "by sale, mortgage, lease, exchange or otherwise." In our view this provision ought to be strictly construed and not in such a manner as to hamper business transactions of companies engaged in the important work of supplying the public with electricity. There is no warrant in our judgment for going beyond the plain words of the section. "Charge" is defined in Section 100, T.P. Act, as follows:
Where immovable property of one person is by act of parties or by operation of law made security for the payment of money to another and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property.
11. "Charge" is less than a mortgage. A mortgage is something less than the transfer of property and it appears that had the Legislature intended to prevent an electrical undertaking charging its property in order to raise money for the purpose of carrying on its business it would have made specific provision to that effect. In the result we hold that while the debenture trust deed of 7th May 1932 so far as it is intended to operate as a conveyance to the trustees for the debenture-holders and so far as it is intended to create a mortgage over the property is invalid, the deed validly creates a charge over the property covered by the deed. We further hold that the debenture bonds also create a charge over that property and that the debenture-holders are entitled to be ranked as "secured creditors," the debt of the company being secured over the said property. It is necessary to refer briefly to the argument advanced on behalf of Messrs. P.L. Jaitly & Co., to the effect that the debenture deed was invalid for any purpose in respect that the debenture-holders had not advanced the money agreed to be advanced in consideration of the execution of the deed. As already observed the deed provided for the issue of three lacs of debentures and the Central Bank underwrote the entire issue. It is abundantly clear that the Central Bank did in fact disburse this amount of money on the execution of the deed according to the instructions of the Lower Ganges-Jumna Electricity Distributing Co. Ltd. In the liquidators' report is included a copy of the letter from the company written by Messrs. P.L. Jaitly & Co., Managing Agents, directing the payment of three lacs of rupees to certain persons. On the back of this letter there is the endorsement:
Received rupees three lacs only from the Central Bank of India, Ltd., Lucknow, as per details on the face.
For Lower Ganges-Jumna Electricity Distributing Co. Ltd.
for P.L. Jaitly & Co., (Sd.) P.L. Jaitly & Co., Managing Agents.
12. It is also clear from the liquidators' report that the payments referred to in the above letter were entered as having been made in the books of the company which were under the control of the Managing Agents, Messrs. P.L. Jaitly & Co. The argument that the debentures are bad because no consideration passed must fail. It was contended for Messrs. P.L. Jaitly & Co., that the debenture-holders were not entitled to have their debentures declared valid in the winding up proceedings. There is no force in this argument. The liquidators sought the instructions of the Court as to how these debenture-holders should be ranked. This they were entitled to do. It was further contended that L. Manmohan Das was not entitled to prefer this appeal in respect that he was an unregistered debenture-holder and did not appear as trustee for the debenture-holders. There is no force in this argument as the transfer of the property of the company to the trustees, as we have held, is invalid. It is not in dispute that L. Manmohan Das does in fact hold debenture bonds which were transferred to him by the Central Bank. He is therefore a creditor of the company and entitled to maintain this appeal. In the result we set aside the direction of the learned Judge whose order is challenged that the liquidators will not give preference to the debenture-holders but will pay them their share of the assets on account of the debt due to them. We hold that the debenture-holders have a charge over the assets and property covered by the debenture trust deed of 7th May 1932 and as such are secured creditors and entitled to preferential ranking. The appellant is entitled to his costs out of the assets of the company.