1975 (3) TMI 79 - HC - Companies Law

Summary

Issues Involved:
1. Right of set-off in the context of mutual dealings under section 529(1)(c) of the Companies Act, 1956.
2. Applicability of section 46 of the Provincial Insolvency Act to company liquidation proceedings.
3. Priority of payments under section 530 of the Companies Act, 1956.

Issue-Wise Detailed Analysis:

1. Right of Set-off in Mutual Dealings:
The primary issue in these cases is whether the respondents, who owe money to the companies in liquidation under chit fund accounts, can claim a set-off for amounts due to them from the same companies under different chit fund accounts or fixed deposits. The respondents argue that their claims arise out of mutual dealings, allowing them to claim a set-off under section 529(1)(c) of the Companies Act, 1956, read with section 46 of the Provincial Insolvency Act. The official liquidator contends that the respondents must first pay the balances due under the chit fund accounts and then prove their claims for amounts due under other accounts like any other unsecured creditor.

2. Applicability of Section 46 of the Provincial Insolvency Act:
Section 46 of the Provincial Insolvency Act, which is made applicable by section 529 of the Companies Act, states:
"Where there have been mutual dealings between an insolvent and a creditor proving or claiming to prove a debt under this Act, an account shall be taken of what is due from the one party to the other in respect of such mutual dealings, and the sum due from the one party shall be set off against any sum due from the other party, and the balance of the account, and no more, shall be claimed or paid on either side respectively."
The respondents argue that this provision embodies the doctrine of equitable set-off to avoid cross-claims and ensure complete justice. The official liquidator counters that section 46 does not apply when claims arise under different and independent accounts, such as separate chit fund accounts or a chit fund account and a fixed deposit account.

3. Priority of Payments under Section 530 of the Companies Act:
The official liquidator argues that allowing set-off would contravene section 530 of the Companies Act, which prescribes the order of priority for payments in liquidation. The respondents' set-off claims would reduce the assets available for distribution, potentially disadvantaging other unsecured creditors. However, the court finds that section 529, which incorporates section 46 of the Provincial Insolvency Act, does not contravene section 530. The court notes that the assets of the company in liquidation consist only of sums that can be realized, and section 529 recognizes the rights of a debtor under ordinary law.

Conclusion:
The court concludes that the respondents are entitled to plead set-off for amounts due to them from the companies in liquidation under other chit fund accounts or fixed deposits. The court overrules the objections raised by the official liquidator and additional liquidator, holding that the respondents are liable to pay only the balances remaining after giving credit for the sums in respect of which set-off is pleaded. The judgment emphasizes that there is no provision in the Companies Act that takes away the right of set-off under ordinary law, even in the context of liquidation proceedings.