The applicant, the official liquidator, filed an application in the district court asking for a declaration that the floating, charge given to the Bank of Baroda by the Company was invalid as having been granted within three months of the commencement of the winding up.
The court turned to the only issue left to determine.
Sec 332 of 2013 Act:
The issue – Whether the instrument creating the charge in dispute created a floating chart or a specific charge?
Terms of the instrument creating charge
The bank was in charge of its liquid assets. It took possession of the company’s stock.
A company, whenever it wanted to take any goods out of the godowns, would have had to obtain the consent of the Bank's clerk, and anyone coming on to the Company's premises would be able to observe that it had not free access to its godowns.
In certain events, the Bank was to be at liberty to sell or dispose of the goods pledged.
The court held that there was a mortgage of specific assets, with a license to the mortgagor to dispose of them in the course of its business subject to prescribed conditions. A floating security is not a specific mortgage of the assets, plus a license to the mortgagor to dispose of them in the course of his business.