Case Note & Summary
The petitioner, Pearl Engineering Polymers Ltd., a company engaged in polyester chips manufacturing, had borrowed funds from respondent No.4 (AFIC) by way of External Commercial Borrowings (ECB). The borrowing was in compliance with the Foreign Exchange Management (Borrowing or lending in foreign exchange) Regulations, 2000. The petitioner company was registered with BIFR due to industrial sickness, and the proceedings concluded with an amended Loan Agreement dated 24 November 2003 with AFIC. The petitioner defaulted in repayment, and AFIC assigned the debt to respondent No.1 (Deutsche Bank AG). Respondent No.1 filed an application for registration of charge under Section 125 of the Companies Act, 1956 with the Registrar of Companies (respondent No.2). The petitioner opposed the registration, but the Regional Director (respondent No.3) allowed the registration. The petitioner challenged this order by way of a writ petition under Article 226 of the Constitution. The court considered two main issues: whether the registration of charge requires the consent of the borrower, and whether the writ petition is maintainable in view of the alternative remedy of appeal under Section 10F of the Companies Act, 1956. The court held that the registration of charge is a statutory right of the charge holder and does not require the borrower's consent. The court also held that the petitioner has an efficacious alternative remedy of appeal under Section 10F, and therefore the writ petition is not maintainable. The court dismissed the petition on the ground of alternative remedy without going into the merits of the case.
Headnote
A) Company Law - Registration of Charge - Section 125 Companies Act, 1956 - Consent of Borrower - The registration of a charge under Section 125 of the Companies Act, 1956 is a statutory right of the charge holder and does not require the consent of the borrower company. The court held that the charge holder is entitled to register the charge even after the repayment period, as the registration is for the purpose of giving notice to third parties and does not affect the validity of the charge as between the parties. (Paras 10-12)
B) Company Law - Alternative Remedy - Section 10F Companies Act, 1956 - Maintainability of Writ Petition - The court held that the petitioner has an efficacious alternative remedy of appeal under Section 10F of the Companies Act, 1956 against the order of the Regional Director. Therefore, the writ petition under Article 226 of the Constitution is not maintainable. The court dismissed the petition on this ground without going into the merits. (Paras 13-15)
Issue of Consideration
Whether the registration of a charge by a creditor under Section 125 of the Companies Act, 1956 requires the consent of the borrower company, and whether the writ petition is maintainable in view of the alternative remedy of appeal under Section 10F of the Companies Act, 1956.
Final Decision
The court dismissed the writ petition on the ground that the petitioner has an efficacious alternative remedy of appeal under Section 10F of the Companies Act, 1956 against the order of the Regional Director. The court did not go into the merits of the case.
Law Points
- Registration of charge under Section 125 of Companies Act
- 1956 does not require consent of borrower
- Charge holder has right to register charge even after repayment period
- Remedy of appeal under Section 10F of Companies Act
- 1956 is available against order of Regional Director
- Writ petition not maintainable when alternative remedy exists
Case Details
2018 LawText (BOM) (03) 82
WRIT PETITION NO. 280 OF 2016
Mr. Arun Khosla a/w Mr. Prakash Panjabi i/by Prakash Panjabi & Co. for the Petitioner; Dr. Birendra Saraf a/w Mr. Nimay Dave, Mr. Rashid Boatwala, Mr. Vijayendra Purohit i/by M/s. Manilal Kher Ambalal & Co. for Respondent No.1; Mr. Dhanesh R. Shah a/w Mr. H. V. Mehta for Respondent Nos. 2 and 3
Pearl Engineering Polymers Ltd.
Deutsche Bank AG, London; The Registrar of Companies, Maharashtra; The Regional Director, Western Region, Mumbai; Asian Finance and Investments Corp. Ltd. (AFIC)
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Nature of Litigation
Writ petition under Article 226 of the Constitution challenging the order of the Regional Director allowing registration of charge under Section 125 of the Companies Act, 1956.
Remedy Sought
The petitioner sought quashing of the order dated 30th September 2015 passed by the Regional Director, Western Region, Mumbai, allowing the registration of charge in favor of respondent No.1.
Filing Reason
The petitioner company defaulted in repayment of a loan taken from respondent No.4, which was assigned to respondent No.1. Respondent No.1 applied for registration of charge under Section 125 of the Companies Act, 1956, which was opposed by the petitioner. The Regional Director allowed the registration, leading to the writ petition.
Previous Decisions
The Regional Director, Western Region, Mumbai, by order dated 30th September 2015, allowed the application for registration of charge filed by respondent No.1.
Issues
Whether the registration of a charge under Section 125 of the Companies Act, 1956 requires the consent of the borrower company?
Whether the writ petition is maintainable in view of the alternative remedy of appeal under Section 10F of the Companies Act, 1956?
Submissions/Arguments
Petitioner argued that the registration of charge without its consent is illegal and that the charge was not valid as the debt was time-barred.
Respondent No.1 argued that the registration of charge is a statutory right of the charge holder and does not require the borrower's consent, and that the petitioner has an alternative remedy of appeal under Section 10F of the Companies Act.
Ratio Decidendi
The registration of a charge under Section 125 of the Companies Act, 1956 is a statutory right of the charge holder and does not require the consent of the borrower company. However, the court did not decide this issue on merits as it dismissed the petition on the ground of alternative remedy. The ratio is that a writ petition under Article 226 is not maintainable when an alternative remedy of appeal under Section 10F of the Companies Act is available.
Judgment Excerpts
The registration of a charge under Section 125 of the Companies Act, 1956 is a statutory right of the charge holder and does not require the consent of the borrower company.
The petitioner has an efficacious alternative remedy of appeal under Section 10F of the Companies Act, 1956 against the order of the Regional Director. Therefore, the writ petition is not maintainable.
Procedural History
The petitioner company borrowed from respondent No.4, which was assigned to respondent No.1. Respondent No.1 applied for registration of charge under Section 125 of the Companies Act, 1956. The petitioner opposed the application. The Regional Director, by order dated 30th September 2015, allowed the registration. The petitioner filed a writ petition under Article 226 of the Constitution challenging that order. The High Court dismissed the petition on 5th March 2018.
Acts & Sections
- Companies Act, 1956: 125, 10F
- Foreign Exchange Management (Borrowing or lending in foreign exchange) Regulations, 2000:
- Constitution of India: 226
