S.T. Patil And Ors. vs Registrar Of Companies - Corporate Guarantee, Security Interest

 Company Law Board (1997.05.13) in S.T. Patil And Ors. vs. Registrar Of Companies, held that corporate guarantee is not a charge over any specific assets of the company;

# 5. When the matter came up for hearing, notice was ordered by this Bench to the company. In response to the notice served upon the company, it has raised objections to the registration of the charges. It is contended on behalf of the company that the deeds of guarantee executed by the company as well as the Jawalkar group are not valid documents creating charge over any of the assets of the company. The said documents are not valid in law, as they are not duly stamped. Nor do they create charge over any specific assets of the company.  

#  8. I have considered the pleadings and heard the arguments of learned counsel for the petitioners and the company. The issues that arise for consideration are : 

• (a) Whether the transaction covered under the deeds of guarantee and commitment dated July 7, 1988, is registrable under Section 125 of the Act ?

• (b) If so, whether the petitioners have given sufficient justification for condoning the delay in filing the particulars of charge. 

# 11. In this case, the petitioners are seeking extension of time for registration of the particulars of charge covered by the following deeds dated July 7, 1988. 

(a) Deed of guarantee executed by the company through its chairman and managing director and one of the directors (annexure "J") undertaking not to transfer or mortgage or hypothecate or alienate by any other means the company's assets till discharge of the liabilities. 

(b) Deed of guarantee executed by the newly constituted board of directors and shareholders of the company undertaking to clear all the liabilities of the company and relieve the erstwhile chairman, managing director, director and other shareholders from the liabilities (annexure "K") and 

(c) Deed of guarantee executed by the chairman and managing director of the company in his official as well as individual capacity undertaking not to mortgage or sell the company's assets or the shares till settlement of the entire dues (annexure "L"). 

# 12. It is clear from the deeds of guarantee that the undertaking was not to encumber the company's assets till closure of the liabilities due to the petitioners. None of the deeds of guarantee created a charge on the company's assets. The learned principal civil judge, Jamakhandi in O. S. No. 40/1991/LQs had upheld execution of the aforesaid deeds undertaking not to transfer shares or by any means encumber the company's assets.

In this context, the decision in Heathstar Properties Ltd. (No. 2), In re [1966] 36 Comp Cas 768 ; [1966] 2 Comp LJ 246 (Ch D) relied upon by counsel for the petitioners, has no relevance for the issue before this Bench. It may be worthwhile to quote the words of the learned judge (Plowman J.) in the said decision at page 777 which run as follows :

•  "If the case were one which the document sought to be registered could not in any circumstances be described as a charge, the position might be different. . ."

# 15. Thus, considering all facts and circumstances mentioned in the petition and the legal position as explained above, I am of the view that the transaction covered by the deeds of guarantee dated July 7, 1988, (annexures "J", "K" and "L") is not a registrable charge under the provisions of Section 125 of the Act.

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Whether a holder of Corporate Guarantee / counter guarantee or indemnity is a secured creditor ?