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TMI Blog1950 (11) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... was terminated. The amount claimed in the suit is made up of Rs 2,39,354-15-6 the balance alleged to be due from the defendant to the plaintiff company in respect of the value of stocks of paper delivered to the defendant after giving credit to the payments made by the defendant from time to time and interest at six per cent. per annum from the date of the termination of the agency, namely 8th February, 1947. As the suit has been filed under Order VII of the Original Side Rules, the defendant took out an application (No. 3037 of 1949) for the grant of leave to appear and defend the suit. In the affidavit filed in support of this application by a partner of the defendant firm, the proposed defence was set out. The defence is adequately summarised by the Master before whom the application came up in the first instance. It comprised several claims by the defendant against the plaintiff company including claims for damages, the total amount of which was pleaded in reduction and discharge of the claim made by the plaintiff. The plaintiff opposed the application. In the counter affidavit filed by the Official Liquidator the merits of the several claims made by the defendant were not trav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch he considered to be matters to be decided by court. He was convinced that some at least of the items of claims put forward by the defendant would constitute pleas in defence requiring investigation as they could not be held to be sham or illusory. The Official Liquidator preferred an appeal against the order of the Master. The appeal was heard and dismissed by Rajagopalan, J. Before the learned Judge the main, if not the only, point urged on behalf of the company was that as the several claims made by the defendant were in the nature of set-off and counter claims, leave of the learned Judge dealing with the winding up should have been obtained by the defendant under section 171 of the Indian Companies Act and without such leave the defendant could not be permitted to plead any set-off or counter claim. It was argued before him that a set-off or counter claim was really a suit which would come within the scope of the language of section 171. On the other hand the defendant contended that leave was not necessary to raise any plea of set-off or counter claim in defence to the suit and even if such leave was necessary it could be obtained later. The learned Judge did not decide any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argument briefly is this. A set-off or a cross claim is really a suit. Court fee has to be paid in respect of it and when the written statement contains a set-off or counter claim it will really amount to a plaint in a cross suit. Therefore, section 171 would apply. In support of this contention, he invited our attention to a passage in Palmer's Company Law (19th edition) at page 404: " the object of the winding up provisions of the Companies Act, 1862, said Lindley, L.J., in Re Oak Pits Colliery Co. [1882] 21 Ch. D. 322 at 329 ' is to put all unsecured creditors upon an equality and to pay them pari passu'. To accomplish this it was indispensable that proceedings against the company by way of action, execution, distress or other process should be suspended ; otherwise the winding up would resolve itself into a scramble for the assets. Accordingly the Act of 1862 gave the court jurisdiction in various cases to restrain proceedings. Now by section 226 of the Act of 1948 the court can, after presentation of the petition, restrain proceedings and by Sections 227 and 231, on a winding up order being made, or a provisional liquidator appointed proceedings are automatically stayed and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fendants. The defendants delivered their defence and set up by way of counter claim that the plaintiffs had committed a breach of the contract and claimed a large amount as damages. The plaintiffs by their reply raised the objection that the defendants had not obtained leave under the Companies Act to make or prosecute a set-off or counter claim and that under the Act they were not entitled to recover in respect of the counter claim or to extinguish the plaintiffs' claim by a set-off. Lord Coleridge gave judgment for the plaintiffs on the merits, but did not deal with the objection raised on the ground that leave had not been obtained. Before the Court of Appeal the objection was again raised. Charles Russel, Q.C., for the plaintiffs argued thus : "Then under section 87 of the Companies Act, 1862, no proceeding can be taken against a company which is being wound up, except with the leave of the court. Now a counter claim is a fresh action." Jessel, M.R., repelled this argument with the following observation : "It is in the nature of a defence. A defendant sued by a company must be entitled to raise any defence without leave." The Court of Appeal allowed the appeal and reversed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e his right, if any, gone into and determined by filing a counter claim or claiming a set-off in that suit and he cannot have such right, if any, on his part to be agitated by means of an application like the present one." It was not even suggested in the course of the argument that the several claims made by the defendant are unsubstantial and unfounded. It was not said by Mr. Narasimha Aiyar that if there was no legal impediment in the way of the defendant setting off these claims there would be no triable issues in the suit. In fact, two of the claims have been partly allowed by the Official Liquidator. As we have held that section 171 does not apply and therefore leave of the Judge dealing with the winding up was not necessary for the defendant to set up any claims in the nature of set-off or counter claim, it follows that the Master and the learned Judge were right in granting the defendant leave to defend. The appeal is therefore dismissed with costs. By consent the appellant will have two weeks time from today to file the written statement. He will pay Rs. 17-8-0 as costs of the defendant. Viswanatha Sastri, J.-I entirely agree with the judgment of my Lord and add a few w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unliquidated damages to be set-off against the claim of the Official Liquidator to recover a debt or other sum of money due to the company : Mersey Steel and Iron Co. v. Naylor, Benzon and Co.; Peat v. Jones and Co.; Jack v. Pepling; Re City Equitable Fire Insurance Co. Where such a set-off is claimed and established, there is in substance a deduction from one demand for money of another cross demand between the same parties with the result that the claim of the Official Liquidator stands liquidated in whole or in part as the case might be. The right of set-off is a ground of defence and is required by Order VIII rule 6, of the Civil Procedure Code to be pleaded as part of the written statement of the defendant. If established it is an answer to the plaintiff's claim wholly or pro tanto as the case might be. The defendant, if entitled to a set-off, is not liable to make satisfaction of the claim made against him or so much of it as equals the amount which he is entitled to set-off. If a set-off equal to the plaintiff's claim is established it is an absolute defence entitling the defendant to a decree of dismissal of the suit. The processual law provides that the written statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lants defending themselves against the consequences of the judgment by the ordinary means of an appeal to this House ". The House of Lords held that an appeal from a decision in which the company was originally the plaintiff was not a proceeding against the company within the meaning of section 87 of the English Companies Act of 1882. The principle of the case last mentioned has been followed by the Lahore High Court in Jiwandas v. Peoples Bank and Simla Banking and Industrial Co. Ltd. v, Indo Swiss Trading Co., by the Patna High Court in Benares Bank v. Sashibushan, and by Raghava Rao, J., in this Court in Palghat Wariar Bank Ltd. v. Padmanabhan, the only dissenting note being struck by Braund, J., in Raj Kumar Singh v. Benares Bank. A defendant pleading a set-off in defence is not commencing or proceeding with a suit or other legal proceeding against the company within the meaning of section 171 of the Companies Act and the leave of the company Judge is not required to entitle him to resist or defend a suit filed by the Official Liquidator by pleading a set-off in his written statement. Here the claims advanced by the Official Liquidator and the defendant against each other are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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