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TMI Blog1981 (10) TMI 138X X X X Extracts X X X X X X X X Extracts X X X X ..... nt had with the company in liquidation, viz ., Smitha Chits and Trading Company Limited (hereinafter referred to as "the company " ) . Respondent No. 1, James Edvin, was a member of the chit group DD of the company having Chit No. 19 with the chit value of Rs. 2,000. He was the highest bidder at the auction held for his group on February 21, 1977, and he received the payment of the prize amount on April 5, 1977. On the same day, he executed a promissory note for Rs. 1,500 in favour of the company. Respondent No. 2, David Franklin Soans, and respondent No. 3, N, Basha, joined the 1st respondent, in the execution of the pronote as sureties. 2nd and 3rd respondents also signed on March 8, 1977, surety and security proposal form of the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of objections to the claim and contested the claim. In the statement of objections filed by the 2nd and 3rd respondents they admit the claim transaction relating to the first respondent in chit group DD bearing No. 19 for Rs. 2,000. They also admit that they executed the pronote in respect of the transaction as sureties along with the first respondent. It is stated by them that the 2nd respondent was a member of the chit group DF-1 bearing No. 22 and that he had subscribed Rs. 600 towards that chit till May 25, 1977, and that amount is due and payable by the company in liquidation to him. Similarly, it is stated that respondent No. 3 was a member of two other chits chit group DF bearing No. 49 and chit group DF bearing No. 50 and had su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 including the dividends paid to the subscriber. In Ex. R-3 the last entry is Rs. 550 including the dividends paid to the subscriber. The oral evidence in substance supports the averments in the statement of objections. The official liquidator has not adduced any oral evidence except to get the pronote marked through the respondents. On the pleadings and the evidence as above in the case and having regard to the admissions of the respondent only the following points arise for determination : (1)Whether, the 2nd respondent and the 3rd respondent were independent subscribers in their respective chit groups in the company in liquidation ? and, (2)If they were, whether they are entitled to claim set-off in respect of their subscription ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Provincial Insolvency Act, 1920, was attracted and the sum due by the other party and the balance of the account, and no more, shall be claimed or paid on either side. The Division Bench ruled as such after considering several Indian and English decisions and after distinguishing the decision of the Supreme Court in the case of Union of India v. India Fisheries ( P. ) Ltd. [1965] 35 Comp. Cas. 669; 57 ITR 331 (SC). The decision in Ldkshmi Kuity's case has been affirmed by the Supreme Court. (See Official Liquidator, High Court of Karnataka v Smt. V. Lakshmikutty [1981] 51 Comp. Cas. 566 (SC); [1981] 2 Kar. LJ 289) But S. Vijayashankar, learned counsel for the official liquidator, has attempted to distinguish that decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it. Learned counsel for the official liquidator has pointed out that such a construction as above will give an advantage to the sureties in a chit transaction who are subscribers (creditors) inasmuch as they would have been paid in full without waiting in the queue, while subscribers (also creditors) who are not sureties for some one else, have to wait for pari pasu payment by the official liquidator which may not be the full amount due to them from the insolvent. This cannot be avoided. Subscribers to a chit fund or kuri who offer themselves as sureties take upon themselves an additional risk and liability and, therefore, are entitled to the benefit of section 46 of the Provincial Insolvency Act and further they satisfy the test of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icial liquidator, Venkataramana Rao J. (as he then was) came to the same conclusion." Similarly, in the matter of the Pioneer Bank Ltd., AIR 1951 Cal. 519, Bachawat J. (as he then was) construing section 47 of the Presidency Towns Insolvency Act, 1909, corresponding to section 46 of the Provincial Insolvency Act, held as follows (headnote): "Thus, in bankruptcy and in winding-up of insolvent companies the subject-matter of set-off is wider and unliquidated damages may be set off against a debt.... There is, therefore, no doubt that in bankruptcy and in winding-up of insolvent companies, the surety's liability under a guarantee may be set off against a debt due to the surety by the company." As can be seen from the above, the prepond ..... X X X X Extracts X X X X X X X X Extracts X X X X
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