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corporate law query!!!!!

umesh vyas (B.Com., LL.B., A.C.S. ) (210 Points)

03 January 2011

XYZ Co. Limited. borrowed a sum of Rs.20 Lakh from a bank on the mortgage of entire assets of the companyand on execution of personal guarantee by all itd directors, who stood as surities for the loan. after one year, the company went into liquidation. for paying off bank loan, on passing a board resolution, the directors advanced money to the company to discharged the liability toward the bank loan. however no action for satisfaction of charge against the property of the company with the ROC was taken. directors claimed that they were subrogated to the position of mortganee bank on paying off the debt and thus wanted to claim money in priority to others. PLEASE DECIDE WITH CASE LAW IF ANY.

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2 Replies

ankit jain (CS trainee) (152 Points)
Replied 04 January 2011

Dear Umesh,

In my opinion, Director can not do so. Because they have discharged the liability of the company through a Board resolution in the meeting in the capacity of Director. Directors have the duty to file Form 17 for satisaction of charge but they didnt then, with the fine they must have to file form 17. They can't be subrogatted at the place of mortgagee. Sorry i dont have any case law for this because of having no softwares for searching the case law.

If i am wrong pls make me correct.

Thanks in advance

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umesh vyas (B.Com., LL.B., A.C.S. ) (210 Points)
Replied 05 January 2011

Dear Mr. Ankit, U R Right , directors can not be subrogated accouring to me also, its a case of liquidation, in that case, all the powers of board vest to liquidator and all assets of the company vest to liquidator. bank can not be paid in this way after liquidation. remedy for bank is either to slale assets and recover its money and pay back to liquidator if excess sale proceed remains OR bANK MAY GO THROUGH LIQUIDATOR TO RECOVER ITS MONEY. THIS IS according to my knowledge. but recently I have gone through a case of apex court in which stated that surity will be subrogated to the right of the creditors against principal debtor, though such right against insolvent debtor may not be of much use "the very objective of guarantee is defeated if the creditor is asked to postpone his remedies against surity. (Bank of Bihar Ltd. v. Damodar Prasad, AIR 1969 SC 297:(1969) 1 SCR 620,623;, but according to me , its case of individual insolvent person. so far as company liquidation is concern mine and your vies are more justifiable. I am putting stress on right of liquidation which is vested to him on company's liquidation. (THIS IS Qn. Asked in Dec.2010 C.S. Professional Programme Exm. Paper 7, Qn. 4 (b). , so if possible please through more light . I have given ans. in exam that subrogation is not possible. plz. give your views.