1939 (8) TMI 21 - HC - Companies Law

Summary

Issues:
- Whether Defendants Nos. 1-5 are entitled to claim a set off against the money due on a mortgage bond based on an assignment made just before the implementation of a scheme under section 153 of the Indian Companies Act.
- Whether the scheme sanctioned by the Court stands in the way of Defendants Nos. 1-5 claiming a set off in the present case.

Analysis:

The judgment involves an appeal by Defendants Nos. 1-5 against a suit for recovery of money due on a mortgage bond. The Defendants contended that the Plaintiff was bound to set off a sum assigned to them against the mortgage debt. The lower Appellate Court reversed the trial court's decision, holding that the Defendants could not claim the set off due to the timing and nature of the assignment. The key issue revolves around whether the Defendants are entitled to claim a set off under the scheme approved under section 153 of the Indian Companies Act.

The Appellants argued that the assignment in their favor was valid and should allow for a set off, irrespective of the motive behind the assignment. They also contended that as a separate class of creditors, the scheme should not bind them. However, the Court found that the Defendants did not constitute a separate class and were bound by the scheme. The Court emphasized that the Defendants acquired the interest with knowledge of the ongoing scheme, indicating an attempt to avoid the scheme rather than genuine mutual dealings.

The Court rejected the argument that the Defendants' status as debtors and creditors allowed them to avoid the scheme's terms. It distinguished this case from situations involving mutual dealings in insolvency proceedings, where set off claims are recognized. The Court held that the Defendants, by acquiring the interest of a creditor after notice of the scheme, could not evade the scheme's applicability. Therefore, the Court affirmed the lower Appellate Court's decision, dismissing the appeal.

In conclusion, the judgment clarifies that the Defendants, despite their dual status as debtors and creditors, are bound by the terms of the scheme approved under section 153 of the Indian Companies Act. The timing and nature of the assignment, along with the Defendants' knowledge of the ongoing scheme, were crucial factors in determining the applicability of the set off claim. The judgment highlights the importance of upholding the terms of approved schemes in legal proceedings involving creditors and debtors.