1981 (10) TMI 138 - HC - Companies Law

Summary

Issues:
- Application under section 446(2)(b) of the Companies Act, 1956 for payment in chit transaction.
- Liability of respondents as sureties for repayment.
- Claim of set-off by respondents against their liabilities.
- Interpretation of section 46 of the Provincial Insolvency Act.
- Application allowed in part with set-off granted.

Analysis:

The judgment involves an application under section 446(2)(b) of the Companies Act, 1956, where the official liquidator sought payment from respondents 1, 2, and 3 for the chit transaction with a company in liquidation. Respondent No. 1, as a member of a chit group, received the prize amount but failed to repay the principal amount. Respondents 2 and 3 acted as sureties for respondent 1. The official liquidator claimed the principal and interest due, totaling Rs. 1,998.75. Respondents contested the claim, seeking a set-off for amounts due to them from the company in liquidation.

The main issues for determination were whether respondents 2 and 3 were independent subscribers in their chit groups and if they were entitled to set-off their subscriptions against their liabilities as sureties. The court found that respondents had subscribed in their respective chit groups, totaling Rs. 1,800.50. The court considered the interpretation of section 46 of the Provincial Insolvency Act, which allows for set-off in cases of mutual dealings between an insolvent and a creditor.

The court referenced previous decisions, including the case of Official Liquidator v. V. Lakshmikutty, affirming the application of section 46 in insolvency proceedings with mutual dealings. The court rejected attempts to distinguish previous rulings, emphasizing the broad application of the section to ensure equity. The court also cited decisions from other High Courts supporting the right of sureties to set off their liabilities against amounts due to them.

Ultimately, the court allowed the application in part, granting a set-off for amounts subscribed by respondents in their chit groups. Respondents 2 and 3 were permitted to set off Rs. 1,850.50, with the remaining balance of Rs. 149.50 to be paid to the official liquidator along with interest. The court's decision was based on the principles of mutuality and equity as provided under the relevant legal provisions.