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Issues Involved:
1. Whether a contributory of a company in liquidation can set off a debt due to him from the company against a debt due by him to the company. 2. The discretionary power of the Court under Section 186 of the Companies Act to allow or refuse such set-off. Issue-wise Detailed Analysis: 1. Right of Set-Off for Contributory: The applicant, a contributory of the Benares Bank Ltd., in liquidation, sought to set off his debt to the bank against the amount the bank owed him. The liquidator opposed this, citing Section 229 of the Companies Act, which aligns the rules of company liquidation with those of insolvency, and Section 186, which governs contributions from contributories. The applicant argued that he had a legal right to set off the debt under mutual dealings, a principle recognized in insolvency law and incorporated into company winding up through Section 229. The Privy Council in Hansraj Gupta v. Official Liquidators, Dehradun-Mussoorie Electric Tramway Co. Ltd. clarified that Section 186 creates a special procedure for obtaining payments but does not create new rights, implying that existing rights, such as set-off, should not be abridged. The Court noted that the principle of mutual credits and set-off in bankruptcy law applies to company winding up, as established in English law cases like Mersey Steel Co. v. Naylor Banzon & Co. and In re Asphastic Wood Pavement Co. 2. Discretionary Power of the Court Under Section 186: Section 186(1) of the Companies Act allows the Court to order a contributory to pay any money due to the company, excluding calls on shares. Section 186(2) permits set-off in cases of unlimited companies but is silent on limited companies. The Court emphasized that Section 186 is discretionary, not mandatory, as supported by the Privy Council's interpretation in Hansraj Gupta's case. The Court can refuse to exercise this jurisdiction if it would deprive the contributory of a valid defense available in a regular suit. The Full Bench observed that the right of set-off is a valuable legal right recognized by the Civil Procedure Code and preserved in insolvency and liquidation proceedings. The Court noted that if the legislature intended to deprive contributories of this right, it would have explicitly stated so in the statute. The Court also distinguished the present case from those involving calls on shares or misfeasance, where set-off is not permitted. Conclusion: The Full Bench concluded that the Court has the discretion to allow or refuse an application under Section 186 of the Companies Act. The Court can choose to leave the liquidator to sue the contributory in the ordinary course, where the contributory can maintain his legal defenses, including set-off. The case was remanded to the learned Judge overseeing the liquidation of the Benares Bank Ltd. for disposal according to law, with the question of costs to be decided by that Judge.
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