Dr. L.P. Prabhu v. NONE

M.F.A. No. 401/20012company including the appellant had executed personal guaranteebonds and stood as sureties for the said loan. On account of thefailure of the company to pay back the dues in proper time by 1981the Canara Bank had expressed its inability to make further advancesfor the functioning of the company. It is the case of the appellantthat in view of the above, he advanced Rs.18,38,852.58 to thecompany and the company cleared the liabilities of the Canara Bank.According to him, he paid the same as per board resolution andminutes of the discussions of the company dated 20.4.1981 will provethe same. Two resolutions passed in the above meeting are asfollows:"RESOLVED unanimously that Dr.L.P.Prabhube and is hereby authorised to borrow moneyfrom him or from his relatives in the name ofMittal Steel Re-Rolling and Allied IndustriesLimited in order to redeem mortgage debts of theCompany to the Canara Bank and Dr.L.P. Prabhube suborrogated to the position of the CanaraBank on redumption of the mortgage debt of theCompany in full to the Canara Bank.RESOLVED unanimously further that Dr. L.P.Prabhu be and is hereby empowered to providerequired funds to the Company either by himselfor by his group to liquidate the mortgagee debtsof the Company to the Canara Bank and Dr. L.P.Prabhu be subrogated to the position of theCanara Bank on redemption of the mortgage debtof the Company in full to the Canara Bank." M.F.A. No. 401/20013But, mortgage was not redeemed by the appellant on the basis of theresolution and the resolution was not acted upon. There were twogroups in the directors of the company. Appellant's group was called'P' group and other group was called 'A' group. There was anagreement on 4.5.1981 regarding selling of shares of 'A' group to 'P'group and 'P' group settling the dues to Canara Bank. Clause 3 (a) ofthe above agreement reads as follows:"3. The 'A' group will transfer theirshareholdings in the company to the 'P' group ortheir nominees, only if the following conditionsare satisfied by the 'P' group in the manner andwithin the time stipulated hereunder, the timebeing the essence of this contract.(a) The 'P' group will provide or otherwisearrange enough funds for the company, and payand settle all the liabilities to the Canara Bank asexisting at the time of settlement. Suchsettlement shall be made on or before30.6.1981."Therefore, resolution dated 20.4.1981 was not acted upon, but, insettlement of disputes between the two groups, it was agreed thatappellant's group will provide enough funds to the company and payoff the liabilities to the Canara Bank as existing on the date ofsettlement. Accordingly, 'P' group advanced money to the companyand company paid off the settlement and charge created on theproperty of the company was released by the Canara Bank. On M.F.A. No. 401/200144.6.1981, an application was submitted by the company to theSyndicate Bank, Thrissur for financial help and the entire assets ofthe company was hypothecated to Syndicate Bank for obtaining freshloan. Title deeds of the company were deposited as security for theloan by letter dated 21.10.1981. In the above letter it is clearlystated that titles of the properties are clear and are not encumbered.There was no mention of first charge in favour of the appellant. Therewas a declaration signed by all the directors of the company includingthe appellant in the above letter dated 21.10.1981 (Annexure 'A'produced by the appellant himself) wherein it is stated as follows:"I/We hereby declare that the saidproperties are not subject to but are free fromcharge, alienation or encumbrance of any kindwhatsoever except those that are disclosedaccording to the documents submitted to youherewith. I/We further agree that I/We shall notlet the properties offered as security suffer anyencumbrance hereafter if loan is sanctioned tome/us until they are freed from your charge."Such a declaration was signed for getting overdraft and financialassistance from the Syndicate Bank by pledging and hypothecatingall immovable properties as security. Execution certificate to showthat assets were free of any charge was also produced. It wasfollowed by another letter from the company dated 21.10.1981 to thefollowing effect: M.F.A. No. 401/20015"We hereby confirm that the change in theDirector Board has been informed to the Registrarof Companies and also the assets of the companyare free from charge."3. We also note that after clearing the liabilities ofCanara Bank charge on machineries and raw materials etc. in favourof Canara Bank and complete satisfaction of charge in respect of theassets of the company was certified and the release of charge wasregistered with the Registrar of Companies. ROC was obtained undersection 138 of the Companies Act. The above ROC was alsoproduced before Syndicate Bank showing that assets of the companyare free of encumbrance. So, the Syndicate Bank acted on the sameand advanced money and created fresh charge on the entire assetsof the company. The charge on the assets of the company to theSyndicate Bank was also registered with the Registrar of Companiesand ROC was obtained. But, with regard to the alleged chargecreated in favour of the appellant was not registered with theRegistrar of Companies and alleged subrogation now claimed by theappellant was not brought to the notice of the Syndicate Bank.Another agreement was executed by two different groups of directorson 18.2.1983. The above agreement shows that both groups agreedto give up some amounts standing to their respective credit in the M.F.A. No. 401/20016back of the company. Amounts due to the appellant by the companywas agreed to be only Rs.13,60,000/-. So, after the agreement, inview of clauses 11 and 12 of the agreement, the company is only adebtor to the appellant to the extent of Rs.13,60,000/- to the Prabhugroup (appellant's group). Clause 11 and latter part of clause 12 ofthe agreement are as follows:"(11) It is agreed by both the parties thatif any amounts are standing in the books ofaccount of both Messrs Premier Steels PrivateLimited and Messrs Mittal Steel Re-Rolling andAllied Industries Limited to the credit of theother, much dues or amounts shall be waived ortaken as given up by the respective parties."(12) ........................The creditor statusof the Second party in the books of accounts ofMittal Steel Re-Rolling and Allied IndustriesLimited will be maintained for the aforesaidamount of Rs.13,60,000/- (Rupees Thirteenlakhs and sixty thousand only) till theobligations are discharged fully and finally bythe First Party as per the agreement."4. On 23.8.1986, winding up notice was issued by theappellant and his brother for winding up of the company stating thatan amount of Rs.10,00,000/- is due from the company to them. Inthe notice dated 23.8.1986 for winding up of the company undersection 431 1 (a), only an amount of Rs.10,00,000/- was allegedlydue from the company to the appellant and his brother. They had no M.F.A. No. 401/20017case that the above was a secured debt or that they are subrogatedto the position of prior mortgagee. On 22.12.1986, winding uppetition was filed by the appellant and his brother wherein it wasstated that they gave an advance of Rs.18,38,852/- to the companywhich is again reduced to Rs.13,60,000/- by agreement and again toRs.10,00,000/- by supplementary agreement. Therefore, on the dateof winding up petition only amount due to the appellant and hisbrother as per the claim was only Rs.10,00,000/- and he had no claimthat the above debt was charged on the assets of the company. Inthe winding up petition, appellant has no case that appellant is asecured creditor.5. A suit, O.S. No.525 of 1987, was filed by theSyndicate Bank, secured creditors, for recovery of the amounts dueto it. Decree was passed and steps were in progress for recovery ofthe above amount through Debt Recovery Tribunal. Company petitiondated 22.12.1986 filed before the Company Court by the appellantand his brother is numbered as C.P. No.2 of 1987 for winding up. Theabove petition was allowed by the company court on 8.2.1988. Inthe winding up petition also, claim was limited to Rs.10,00,000/= andthere was no contention that appellant was a secured creditor. Forthe first time on 7th October, 1991, a claim was submitted to the M.F.A. No. 401/20018Official Liquidator by the appellant that he is a secured creditor whostepped into the prior mortgagee, Canara Bank because he satisfiedthe amount due to the Canara Bank and he was subrogated to itsposition. He submitted clarifications to the query made by theLiquidator. An adjudicated award was passed by the OfficialLiquidator dismissing the claim of the appellant and an appeal wasfiled before the company court under section 460 (6) of theCompanies Act. Contention of the appellant is that since he beingthe sureties to the Canara Bank redeemed the mortgage to CanaraBank, a secured creditor, he is subrogated to the position of theCanara Bank by operation of law and the properties mortgaged to theCanara Bank stands mortgaged to the appellant. Further, it is thecontention of the appellant that he wanted to adduce evidencebefore the company court and filed an application to that effect. Thecompany court did not pass any order on that, but, passed theimpugned order dismissing his appeal. The learned counsel for thebank submitted that the appellant himself has filed the winding uppetition. In the statement, he has no case that he was subrogated tothe position to the Canara Bank and he has got first charge over theproperties and assets of the company by the Syndicate Bank wouldnot have accepted this property as security for granting a huge loan M.F.A. No. 401/20019to the company if there was a prior charge. Alleged modification ofthe charge in respect of the appellant was not registered as providedunder section 135 of the Companies Act. Because of the declarationby the directors of the company indicating the appellant that theproperty was free of encumbrance and because of the release ofcharge by the Canara Bank and issuance of ROC to that effect andregistration of fresh ROC in favour of Syndicate Bank, contention ofsubrogation was not accepted by the official liquidator. It wassubmitted by the Official Liquidator that before rejecting the claim,appellant was asked for particulars and after hearing him andconsidering his reply, the adjudicated order was passed afterperusing the entire documents relied on by the appellant. He has nocase that he wanted to adduce further evidence. What was filedbefore the company court is only an appeal. In appeal, hiscontentions were rejected on the basis of admitted facts anddocuments. Further, since winding up petition was pending, theentire records were in the company court. In the nature of theproceedings, we are of the opinion that no prejudice is caused by notallowing further evidence before the company court in the appealproceedings. No additional documents or evidenced was adduced inthe appeal also other than the documents available before the M.F.A. No. 401/200110company court and the matter was decided by the company court onthe basis of the undisputed facts. Hence, we see no ground in thecontention that he was denied an opportunity to adduce evidence.Appellant miserably failed to evidence that any prejudice has beencaused to him by not allowing further evidence in appellate stage orhe has a further right to adduce at the appellate stage.6. The learned Company Judge after going through thedocumentary evidence and contentions based on admitted factsfound that it is not a case where appellant directly paid the amountas a co-surety to the Canara Bank and subrogated to the position byoperation of law under first paragraph of section 92 of the T.P. Act.There was no registered deed crediting mortgage in favour ofappellant as provided under paragraph 3 of section 92. But, theappellant advanced money to the company. The company paid theamount due to the bank using the money advanced by theappellant's group. No modification of charge was mentioned infavour of the appellant. Fresh charge was registered againstSyndicate Bank for obtaining fresh loan. At that time also, he was inthe board of directors of the company. At the time when winding upapplication was filed in 1987, he has no case that there is a chargefor the property. So, he was not subrogated to the position of the M.F.A. No. 401/200111Canara Bank. Further amount due to him from the company is onlyRs.10,00,000/- as on the date of filing of the winding up application,as stated by him in the winding up application. From his conduct, heis estopped from contending that he is having a prior and supercharge through the Syndicate Bank over the property of thecompany.On these set of undisputed facts, the learned CompanyJudge held as follows: "14. As found above, the alleged chargeacquired by the appellant by advancing amountsto the company for discharging the liability hasnot been kept alive. The conduct of the appellantshows that when the documents weresubsequently deposited with the Syndicate Bank,the appellant did not intend to keep alive anysuch charge. On the other hand, the charge infavour of the Canara Bank was shown asextinguished by the report to the Registrar ofCompanies. The appellant is also estopped frommaking a claim for a first charge over theSyndicate Bank."7. It is contended before us that since he has paid up allthe amount due to the prior mortgagee, Canara Bank, he issubrogated to the position of the mortgagee, he is entitled to all therights of the mortgage including the charge over the property inquestion. It is further submitted that since he is entitled tosubrogation to the position of Canara Bank to create a charge in hisfavour, no separate deed is necessary or registration of charges M.F.A. No. 401/200112(ROC) under the Companies Act in his favour as he is subrogated tothe position of the mortgagee by operation of law as provided underparagraph 1 or 2 of section 92 of the Transfer of Properties Act andrule of estoppel is not applicable in this case. 8. To understand the nature of arguments, we quotebelow section 92 of the Transfer of Property Act:"92. Subrogation:- Any of the personsreferred to in section 91 (other than themortgagor) and any co-mortgagor shall, onredeeming property subject to the mortgage,have, so far as regards redemption, foreclosure orsale of such property, the same rights as themortgagee whose mortgage he redeems mayhave against the mortgagor or any othermortgagee.The right conferred by this section is calledthe right of subrogation, and a person acquiringthe same is said to be subrogated to the rights ofthe mortgagee whose mortgage he redeemed.A person who has advanced to a mortgagormoney with which the mortgage has beenredeemed shall be subrogated to the rights of themortgagee whose mortgage has been redeemed,if the mortgagor has by a registered instrumentagreed that such persons shall be so subrogated.Nothing in this section shall be deemed toconfer a right of subrogation on any personunless the mortgage in respect of which the rightis claimed has been redeemed in full." M.F.A. No. 401/200113The above section 92 has got four paragraphs. First two paragraphsare regarding subrogation by operation of law. As regardsredemption, foreclosure or sale of the property, the co-mortgagor orpersons mentioned in section 91 of the Act will step into the shoes ofthe mortgagee if he redeems the properties subjected to themortgage. Third paragraph is applicable to not only the co-mortgagee or persons mentioned in section 91 like sureties ormortgagors, but also to any person who is advancing money to themortgagor to redeem the property. But, he will get the right ofsubrogation only if a registered document is executed with themortgagor subrogating the rights. This is more or less like anassignment or delegation of mortgage by another registered deed. 9. Subrogation is a doctrine primarily of equityjurisprudence. The word 'subrogate' is defined in the Chambers 20thCentury Dictionary as 'to substitute'. The meaning of the word'subrogation' in legal parlance is explained in Dixon on 'Subrogation'as follows:" 'Subrogation' is the substitution ofanother person in the place of a creditor towhose rights he succeeds in relation to the debt.Personal subrogation is of two sorts, (1)conventional, and (2) legal. The differencebetween them in regard to the effects ofsubrogation in general results only from the M.F.A. No. 401/200114modifications of rights which are constituted byexpress agreement. Subrogation differs fromdelegation in this respect, that it is thesubstitution of a new creditor; whereasdelegation introduces a new debtor in the placeof the former, who is discharged. Subrogationdiffers from a transfer or assignment of a debt,and from delegation, in the circumstance that itdoes not, necessarily, depend upon the creditor,but may be made independently of him. It is,properly speaking, but a fictitious cession madeto one who has a right to offer payment; it is nota true cession nor sale of a debt, but such as isconceded by law and may have effect byoperation of law and the act of the debtor, evenwithout the consent of the creditor from whomthe debt proceeds."The law on the subject as laid down by the decisions of English andAmerican courts was summarised by Sheldon in his treatise on 'Lawof Subrogation' as follows:"Subrogation is a doctrine primarily ofequity jurisprudence....... It is a substitution,ordinarily the substitution of another person inthe place of a creditor, so that the person inwhose favour it is exercised succeeds to therights of the creditor in relation to the debt. It isbroad enough to include every instance in whichone party pays a debt for which another isprimarily answerable, and which, in equity andgood conscience, should have been dischargedby the latter...... It is a legal fiction, by force ofwhich an obligation extinguished by a paymentmade by a third person is treated as stillsubsisting for the benefit of this third person,who is thus substituted to the rights, remedies,and securities of another. Subrogation is anexercise of the equitable powers of the Court, to M.F.A. No. 401/200115relieve a meritorious creditor, who mightotherwise be subjected to loss by his fundsbeing applied to pay another's debt ..........Subrogation to the rights of a creditor differsfrom an assignment of the debt, in that thelatter assumes the continued existence of thedebt, while the former follows only upon itspayment. Before the right of subrogationaccrues, the legal obligation resting upon theultimate debtor must be discharged ...... Andthe party for whose benefit the doctrine ofsubrogation is exercised can acquire no greater;rights than those of the party for whom he issubstituted; if the latter had not a right ofrecovery, the former can acquire none."These principles were accepted by the Supreme Court in Ganeshi Lalv. Joti Pershad (AIR 1953 SC 1) at paragraph 9 of the judgment. TheApex Court held as follows:"If we remember that the doctrine ofsubrogation which means substitution of oneperson in place of another and giving him therights of the latter is essentially an equitabledoctrine in its origin and application, and if weexamine the reason behind it, the answer to thequestion which we have to decide in this appealis not difficult. Equity insists on the ultimatepayment of a debt by one who in justice andgood conscience is bound to pay it, and it is wellrecognised that where there are several jointdebtors, the person making the payment is aprincipal debtor as regards the part of theliability he is to discharge and a surety inrespect of the shares of the rest of debtors.Such being the legal position as among the co-mortgagors, if one of them redeem a mortgageover the property which belongs jointly tohimself and the rest, equity confers on him a M.F.A. No. 401/200116right to reimburse himself for the amount spentin excess by him in the matter of redemption; hecan call upon the co-mortgagors to contributetowards the excess which he has paid over hisown share. This proposition is postulated inseveral authorities.The position is therefore well establishedthat the doctrine of subrogation is only a ruleevolved by equity by which a surety paying adebt of the principal debtor, or a co-mortgagorwho is compelled to pay more than his share ofthe common debt, is allowed to stand in theplace of the original creditor and have thebenefit of the securities which the creditor had ,for the limited purpose of obtainingreimbursement from the persons whose liabilityhe has discharged. It is undoubtedly of theessence of this doctrine that the benefit of theequity can be availed of only by one who hasactually performed the obligations of anotherand has thereby become entitled to a right ofreimbursement, for the protection of which rightalone the security will be treated as kept alivefor his benefit by a legal fiction. Hence, unlessthere has been a payment by a party indischarge of the obligation of another andconsequently a right to reimbursement hasaccrued to him, there cannot be any scope at allfor his invoking the equitable principle ofsubrogation."This decision was followed by the Kerala high Court in KunjayammaKasrtaiyayani Amma v. Kunchali Karthiyayani Madakkavil Veedu andothers (AIR 1970 Kerala 289). The court was considering a casearising from Travancore area during the time when Transfer ofProperty Act was not extended. A Division Bench of this Court in M.F.A. No. 401/200117Krishna Menon Bhaskara Menon and others v. Madhavan (AIR 1976Kerala 62) followed the same. Same view was expressed by theMadras High Court in A.N. Ranaganatha Naidu v. Senthamarai (AIR1979 Mad 20). In Hodgson v. Shaw (40 ER 70) Lord Brougham said:"The rule is undoubted, and it is onefounded on the plainest principles of naturalreason and justice, that the surety paying off adebt shall stand in the place of the creditor, andhave all the rights which he has, for the purposeof obtaining his reimbursement."Principles of subrogation is contained in section 69 of the ContractAct also, but, the position was statutorily accepted under section 92of the Transfer of Property Act with regard to the mortgage of theproperty. 10. Here, we are now concerned only with section 92 ofthe Transfer of Property Act and not on general principles ofsubrogation. The Full Bench of the Allahabad High Court in Hira Singhand others v. Jaising and others (AIR 1937 Allahabad 588) observedas follows:"The foundation of the right of subrogationis the well-known equitable principle ofreimbursement now embodied in S. 69, ContractAct, that a person who is interested in thepayment of money which another is bound bylaw to pay, and who therefore pays it, is entitledto be reimbursed by the other. But the ContractAct confers a personal right only whereas a right M.F.A. No. 401/200118of subrogation involves an equitable charge onthe property. When subrogation exists theprevious encumbrance that is paid off is not atall extinguished but is kept alive and its benefittransferred to the person who has paid it off.Before the Transfer of Property Act of 1882,their Lordships of the Privy Council applied theEnglish equitable rule of intention to amortgagee paying off a prior mortgage unlesshe was bound by his contract to make thepayment. In Mohesh Lal v. Mohant Bawan Das(9 Cal. 961), their Lordships laid down that: "Whether a mortgage, paid off, hasbeen kept alive or extinguished dependsupon the intention of the parties, the merefact that it has been paid off not decidingthe question whether or not it has beenextinguished. Express declaration ofintention will cause either the one result orthe other, and in the absence of suchexpression, the intention may be inferredeither one way or the other."But, after considering the provisions of the Transfer of Property Act, itwas held that paragraphs 1 and 3 of section 92 of the Transfer ofProperty Act do not overlap and they are mutually exclusive. Basicdifference underlining in these paragraphs is that paragraph 1 refersto a person redeeming the property by payment to the third party.Paragraph 1 clearly deals with subrogation whereas paragraph 3 issome sort of assignment for which a registered agreement isnecessary. Paragraph 1 is applicable only to persons referred to insection 91 and co-mortgagors whereas paragraph 3 is applicable to M.F.A. No. 401/200119all persons who advances money to the mortgagor to redeem themortgage. Under paragraph 1 is subrogated to the position ofmortgagee by operation of law whereas in paragraph 3, a person isconferred with the right of mortgagee only if the mortgagor executesa registered instrument agreeing for subrogation. In paragraph 1, co-surety or co-mortgagor, as the case may be, redeems the mortgagorwhich is under paragraph 3, the person gets the subrogation rights ofmortgagee if he advances money for the mortgagor to redeem themortgage.11. Now, the question is whether the transaction inquestion comes under paragraph 1 or paragraph 3. Admittedly, theappellant did not pay the amount directly to the mortgagee (CanaraBank) and redeem the mortgage. He advanced the amount to thecompany. It is the company which wiped off the debt. Therefore, itis very clear that the transaction will come only under paragraph 3and not under paragraph 1. Appellant, though a co-surety, onlyadvanced the money to the company. Intention is also manifest bythe subsequent acts. Even though there was a board resolutionallowing him to pay off the debt and subrogating him to his position,that board resolution dated 20.4.1981 was not acted upon. But,subsequently, appellant's group advanced money to the company on M.F.A. No. 401/200120the basis of agreement dated 4.5.1981 and company paid off theamount to the Canara Bank to redeem the mortgage. The amountdue to him from the company is also mentioned in the subsequentagreement. The company is an independent entity. By the aboveact, he became an ordinary debtor to the company as no mortgage orhypothecation of common assets were made in favour of theappellant. It is all the more clear that charge was released by themortgagee Canara Bank. Thereafter, he did not keep the originaltitle deeds with him. There was also no indication that he retainedthe charge. The company, in which he was the board member, byboard resolution decided to mortgage the same property to SyndicateBank and documents of title were submitted to mortgagee bank forcrediting equitable hypothecation. He or the company in which he isa director did not claim or inform the Bank that he has got a chargeor prior mortgage over the property. Therefore, it is clear that thecharge in respect of the company's property with the Canara Bankwas not kept alive or subrogated in favour of the appellant. He didnot redeem the mortgage, but, the company redeemed themortgage and he was not subrogated by operation of law to theposition of the original mortgagee, the Canara Bank. We agreewith the company court holding that paragraph 1 of section 92 of the M.F.A. No. 401/200121Transfer of Property Act is not applicable in this case. In the absenceof a registered agreement he also cannot be subrogated to theposition of a mortgagee under paragraph 3 of section 92 of theTransfer of Property Act. 12. In this connection, we also refer to the provisions ofsections 124 to 145 (Part V of the Companies Act regardingregistration of charges). Section 124 explains that the expression'charge' used in part V so as to include a mortgage. Section 125provides that if charge is created over the property of the company,it should be registered with the Registrar of Companies within 30days of the creation of the charge and the charge becomes voidagainst the liquidator or creditor unless registered in the prescribedmanner. Section 125 (1) reads as follows:"125. Certain charges to be void againstliquidator or creditors unless registered:- (1)Subject to the provisions of this Part, everycharge created on or after the 1st day of April,1914, by a company and being a charge towhich this section applies shall, so far as anysecurity on the company's property orundertaking is conferred thereby, be voidagainst the liquidator and any creditor of thecompany, unless the prescribed particulars ofthe charge, together with the instrument, if any,by which the charge is created or evidenced, ora copy thereof verified in the prescribedmanner, are filed with the registrar for M.F.A. No. 401/200122registration in the manner required by this Actwithin thirty days after the date of its creation:"Registrar is bound to enter the particulars in the register and registeris open to inspection by public under section 130 (3). Certificate ofregistration should be given under section 132 by the Registrar whichshall be the conclusive evidence of charge. Section 135 specificallystates that if there is any modification of charge, that also should beregistered as provided under section 125. Sections 135 and 136 readas follows:"135. Provisions of Part to apply tomodification of charges:- Whenever the termsor conditions, or the extent or operation, of anycharge registered under this Part are or ismodified, it shall be the duty of the company tosend to the Registrar the particulars of suchmodification, and the provisions of this Part as toregistration of a charge shall apply to suchmodification of the charge.136. Copy of instrument creating chargeto be kept by company at registered office:-Every company shall cause a copy of everyinstrument creating any charge requiringregistration under this Part to be kept at theregistered office of the company:"The Company is also bound to keep a register showing the details ofcharge under section 143. When the property was charged to theCanara Bank, the charge was registered under section 125 and ROC M.F.A. No. 401/200123was obtained from the Registrar under section 132. When the chargewas released by the Canara Bank, that was also registered and ROCwas issued to show that there was no charge and charge wasreleased. If, by operation of law, charge was transferred to theappellant, appellant and the company ought to have taken steps tomodify the registration under section 135, but, that was not done.When the ROC showing the release of charge in respect of CanaraBank was produced to obtain loan from Syndicate Bank, that chargeto the Syndicate Bank was registered and ROC was issued.Unregistered charges or modification of charges are not binding onthe liquidator or creditors. If, by operation of law, he has steppedinto the shoes of mortgagee, there was no necessity to release thecharge in favour of Canara Bank for which ROC was obtained,instead, only modification of charge was necessary under section 135if appellant stepped into the shoes of the mortgagee. That was notdone. Charge in respect of Canara Bank was released and freshcharge was created in favour of Syndicate Bank. When SyndicateBank agreed to advance money, there was no ROC showing anycharge in respect of the appellant. No such charge was shown in theregister kept by the registrar of companies or in the company and M.F.A. No. 401/200124automatic modification of charge was not informed to the Registrar.When charge in respect of Canara Bank was released and ROC wasover, there was no charge executed on the property so as to reject orfor modification. As far as creditors and liquidator are concerned,they are bound only by the registered charge and even if, byoperation of law, appellant became subrogated to the position ofCanara Bank as no modification of charge was registered. The abovealleged charge is void against the liquidator and creditors. Thatshows that by the conduct of the appellant, it can be seen that hewas not subrogated to the position of Canara Bank. Conduct of theappellant in not taking steps for registration of charges in his favouralso shows that appellant only advanced some money to thecompany and company redeemed the mortgagee Canara Bank in notfor subrogating the appellant to the position of mortgagor. In thisconnection, we also refer to the decision of the Supreme Court inBraham Parkash v. Manbir Singh (AIR 1963 SC 1607). Charge createdby the court decree need not be registered (Indian Bank v. OfficialLiquidator, Chemmeens Exports (P) Ltd. and ors. - ((1998)5 SCC 401).We are now concerned with the case where the company is underliquidation and the question is even if there is a charge created in M.F.A. No. 401/200125favour of the appellant by automatic subrogation, will it bind tosecured creditors or liquidator in the absence of registration undersection 125 read with section 135? Answer is in the negative in viewof clear statutory provision. In any way, we have already found thateven otherwise appellant is not subrogated to the position of CanaraBank. Department also clarified by letter No.8/14 135/65 CLU dated14.4.1981 that even if terms or conditions of charge are modified byoperation of law, the provisions of section 135 will apply. At the timeof liquidation, the only charge registered was in respect of SyndicateBank and not to the appellant and there was no charge registered infavour of the appellant and Canara Bank in whose position appellantclaims to be subrogated and, therefore, liquidator and creditors canignore an alleged charge created in favour of the appellant bysubrogation (even if one is creditor) and he can only claim anunsecured creditor for the amount due from the company. 13. Let us assume that the appellant was subrogated tothe position of earlier mortgagee canara Bank and charge in favourof Canara Bank is vested in favour of the appellant by operation oflaw despite release of ROC registered by the Canara Bank and non-registration of charge in his favour or non-modification of ROC. Then,appellant is estopped from contending that he has got first charge M.F.A. No. 401/200126on the property which is subrogated to the Syndicate Bank in view ofthe principles of estoppel. The company, in which he was a directoron the basis of the board resolution, decided to mortgage the entirecompany property to Syndicate Bank and thereafter fresh loanarrangement was made to the Syndicate Bank on the basis of theundertaking of the company in which he was a director that theproperty is free of charge. He or the company did not inform theSyndicate Bank that there is a prior charge in favour of the appellant.Even if Syndicate Bank, as an ordinary prudent financial institution,wanted to verify about the charge, in the absence of ROC in favour ofthe appellant and necessary entries in the register of the companycould not have found that there is charge in favour of the appellant.The company in which the appellant was the director informed theSyndicate Bank that there was no charge whatsoever in respect ofthe property of the company. They produced original title deeds,non-encumbrance certificate, ROC showing release of charge fromthe Canara Bank etc. and Syndicate Bank was led to believe thatproperty offered for mortgage was free from all types ofencumbrance whatsoever. While submitting all the records toSyndicate Bank, all the directors including the appellant declared thatthe property of the company were free from all charges or M.F.A. No. 401/200127encumbrance and there was suppression of information regardingcharge in favour of the appellant company.14. Syndicate Bank advanced money to the company.Therefore, directors of the company wanted the approval by thisdeclaration for persuading the Syndicate Bank to believe thatproperty of the bank is free from all the liabilities and encumbrance.Therefore, company or a director of the company cannot be allowedto say that he or any of the directors of the company has got a priorand latter charge over the property mortgaged to Syndicate Bank. Therefore, on the principles made under section 115 of theEvidence Act also, he cannot claim that he has got charge over theproperty. Appellant is estopped from taking such a stand and section115 of the Evidence Act is applicable to appellant on the facts of thiscase. The rule of estoppel is based on equity and good conscience,viz., that it would be most inequitable and unjust to a person that ifanother by a representation made, or by conduct amounting torepresentation, has induced him to act as he would not otherwisehave done, the person who made the representation should beallowed to deny or repudiate the effect of his former statement, tothe loss and injury of the person who acted on it. The learnedCompany Judge has discussed the issue correctly and we see no M.F.A. No. 401/200128ground to interfere in the impugned judgment of the company court.Appeal is dismissed. J.B.Koshy Judge K. Hema Judge vaa M.F.A. No. 401/200129 J.B. KOSHY ANDK.HEMA ,JJ.-------------------------------------M.F.A. No. 401 of 2001 ------------------------------------- JudgmentDated:30th January, 2008