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TMI Blog1940 (11) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... n the applicant to pay to him the sum of Rs. 3,822-9-9 due on his overdraft account. The applicant's answer is that he is entitled to satisfy it by setting it off against Rs. 5,000 due from the Bank to him on his deposit account, with the result that the Bank will remain his debtor on this deposit account to the extent of only a little more than a thousand rupees. The rejoinder of the official liquidator is that, under section 229, Companies Act, the applicant is entitled to no such set-off, inasmuch as he is a contributory. At present the matter has only reached a stage in which the official liquidator has intimated by letter that he does not accept the applicant's claim to a set-off. And in form this application is one by the contributory under section 183 (5), Companies Act, complaining of a "decision" of the official liquidator. No 'order' has yet been made by the official liquidator under section 186(1) of the Act. In order to remove any question as to the regularity of these proceedings, the official liquidator has undertaken to file "pro forma" an application under section 186 (1) for an order upon the contributory and I propose to treat this application also as an applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . For this reason and because the question is one of vital and immediate importance, both in the liquidation of the Benares Bank Ltd., and to the winding up administration in general, I shall think it right to refer this case to his Lordship the Chief Justice to be heard before a Full Bench of the Court appointed by him, if he' thinks proper to appoint one. But before making the order of reference, it is right that I should indicate those further authorities and considerations which have, as I think, been omitted to be considered in the case to which I have referred. I propose at once to refer to the case of the Privy Council in Hansraj Gupta v. Official Liqudators, Dehradun Mussoorie Electric Tramway Co. Ltd. [1933] (Comp. Cas. 207) a case which does not seem to have been brought to the learned Judge's notice in Parshottam Das v. Official Liquidator, Gorakhpur Electric Supply Co. Ltd. [1938] (Comp. Cas. 281). In this case Lord Russell or Killown dealt with section 186, Companies Act. He refers to it as a section which: "...creates a special procedure for obtaining payment of monies. It creates no new rights..." and adds: "The power of the Court to order payment is discre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possibly that case needs reconsideration. Nor am I satisfied that, had it been approached in the manner which Lord Russell of Killowen has indicated as the right one, its result would have necessarily been the same. And for my doubts in this respect I propose to give my reasons. It is first necessary to observe that under section 229, Companies Act, the same rules are to be observed and prevail in the winding up of an insolvent company as are for the time being in force under the law of insolvency. This section, in short, imports into the winding up of a company the same rules as in insolvency. The section is in exactly the same words as section 262, English Companies Act, 1929. And under the English section it has never been doubted that the bankruptcy law of mutual credits and set-off applies in company winding up: See Mersey Steel Co. v. Naylor Banzon Co. [1884] (9 A.C. 434); In re Asphastic Wood Pavement Co. [1885] (30 Ch. D. 216); Sovereign Life Assurance Co. v. Dodd [1892] (2 Q.B. 573) and In re Thorone Sons [1914] (2 Ch. 438). The corresponding sections to section 31, English Bankruptcy Act, 1914, allowing mutual set-off and credit are section s 46 and 47, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1938] (Comp. Cas. 281) when properly considered, necessarily affords any authority to the contrary. In re Whitehouse Co. [1878] (9 Ch. D. 595) was decided in 1878 under the Companies Act of 1862. It was a case in which a contributory endeavoured to set-off a debt due to him against calls on shares made on him, partly before and partly after the liquidation. Sir George Jessel, M.R., points out in the earlier part of his judgment and I think it important to notice it for a proper understanding of the case that, apart from the Companies Act, 1862, no common law right of set-off would have applied to the case, because under English law there was no mutuality of debts. The debt due from the contributory on the calls, whether made before or after the winding up, was not a "debt" due to the company. It was merely a "contribution to the assets of the company" assessed and levied by the liquidator under his statutory powers contained in the Act. He says at page 599 "That is a new liability; he is to contribute; it is a new contribution. It is a mistake to call that a debt due to the company. It is no such thing. It is not, as has been supposed, in any shape or way a debt due to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision in In re Whitehouse Co. [1878] (9 Ch. D. 595) is approved, though some of the reasons given by Jessel, M.R., in that case are questioned. Whether the same rule would apply if the liquidator sought to enforce the call by action seems not to have been the subject of express decision; but the call though made and payable before the liquidation, and therefore at one time a debt due to the company, is also enforceable by the liquidator by balance order as a contribution to be made in the winding up for pari passu distribution, and in this aspect is not a subject of set-off in the case of a limited company." The passage appears to me to take very much the same view as is taken by Lord Russell when he says that the rights to be applied in the liquidation may be very different from the rights which ought to be applied if the liquidator brings a suit to enforce his debt in the ordinary course. As Sir George Jessel has pointed out, there was no room for a set-off between calls and a debt because the conditions for a set-off were not present and I think that the same must apply to all the English cases in which it has been sought to set off calls against a debt. I think therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration. I therefore direct that this case be sent to his Lordship the Chief Justice in order that he may, if he thinks proper, either constitute a Bench of two or more Judges, or appoint a second Judge to sit with me, to consider the following important question which, in my view, arises in this case: "Whether, having regard to the observations made by their Lordships of the Privy Council in Hansraj Gupta v. Official Liquidators, Dehradun-Mussoorie Electric Tramway Co., Ltd. [1933] (A.L.J. 175 at p. 186) and in a case in which the contributory of a company in compulsory or voluntary liquidation, would, or might, but for the liquidation, have an accrued legal right to set-off a debt due to him from the company against a debt due by him to the company (other than in respect of calls on shares), the Court exercising jurisdiction in the winding up ought to refuse an application by the official liquidators or liquidator as the case may be under section 186, Companies Act, and leave the official liquidators or liquidator to sue the contributory in the ordinary course; and, in particular, whether the application of the official liquidator of the Benares Bank Ltd., in this present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payable by him or the estate by virtue of any call in pursuance of this Act. (2) The Court in making such an order may, in the case of an unlimited company, allow to the contributory by way of set-off any money due to him or to the estate which he represents from the company on any independent dealing or contract with the company, but not any money due to him as a member of the company in respect of any dividend or profit; and may, in the case of a limited company, make to any director whose liability is unlimited or to his estate the like allowance: Provided that, in the case of any company, whether limited or unlimited, when all the creditors are paid in full, any money due on any account whatever to a contributory from the company may be allowed to him by way of set-off against any subsequent call." It was contended for the liquidator that in view of the provisions of section 186 in the case of a limited company and the Benares Bank is a limited company the Court has no power to allow a set-off in favour of a contributory. Whether the Court may or may not allow a set-off in favour of a contributory in such an application is a question upon which we do not consider we are c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company may owe them money. That is the meaning which has been attributed to that section, although it dose not say so in so many words; but that is the result of the authorities upon it. If an ordinary contributory, perfectly innocent. is deprived of the right of set-off which he would have had in an action, what is to be said as to a director, manager, or any other officer of a company who has misapplied money. Is it to be supposed that the framers of the statute who have deprived an ordinary innocent contributory of the right he would otherwise have had of set-off against the company if he had brought an action, could have intended to give such a benefit to the persons who have committed what is described in section 165 as an offence ? I think if we wanted an additional argument to show that no such set-off was intended by the legislature, we have it in the construction which has been put on section 101." The set-off claimed in that case was claimed by a director against whom proceedings for misfeasance had been taken under section 165, Companies Act. The reference to section 101 therefore in the passage above quoted is obiter; it is a dictum nevertheless which clearly supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o base a claim for payment. It creates no new rights. (3) The power of the Court to order payment is discretionary. It may refuse to act under the section, leaving the liquidator to sue in the name of the company and it will readily take that course in any case in which it is made apparent that the respondent under this procedure, if continued, would be deprived of some defence or answer open to him in a suit for the same moneys." It is true that the facts in the case just referred to differ somewhat from the facts of the present case. The observations of the Board may be obiter; nevertheless, the Board did in fact interpret section 186 and their interpretation must be followed in this Court. Learned counsel for the liquidator relied on the decision in Parshottam Das v. Official Liquidator, Gorakhpur Electric Supply Co., Ltd. [1938] (8 Comp. Cas. 281). This is the decision of a single Judge of this Court and directly supports the liquidator's contention. The observations of the Privy Council above referred to however were not brought to the notice of the learned Judge and his decision can no longer be considered good law. The question referred to this Bench for decision is in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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