TMI Blog2001 (12) TMI 804X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Heard Arvind P. Datar, the learned senior counsel appearing for the applicant in both the applications and N. Kirubakaran, learned counsel appearing for the second respondent in both the applications. 4. This Court ordered notice to the respondent on 25-1-2001, returnable by 2-2-2001. The respondent entered appearance and took time to file the counter and the counter was filed on 29-11-2001. With the consent of the counsel for either side, the applications were taken up for final disposal. 5. This Court appointed the official liquidator as the provisional liquidator in C.P. No. 496 of 2000 with effect from 21-8-2000. According to the applicant, as seen from the books of account, the second respondent has borrowed from the applicant-company in liquidation various amounts from 15-6-1995, onwards repayable with interest at 22.5 per cent per annum. The second respondent also made repayments from time to time, which have been given credit to. The statement of account has been filed as Annexure A to the application. As per the statement, the second respondent is due and liable to pay Rs. 81,34,336 as on 31-12-2000. 6. According to the applicant, the said balance has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the second respondent-company which stood at Rs. 3,388.25 lakhs as on 31-3-1996, has been completely eroded and the company has negative net worth of Rs. 4,962.03 lakhs. All the fixed assets of the second respondent-company except vehicles acquired under hire-purchase agreement amounting to Rs. 23.85 lakhs are mortgaged with ICICI Ltd., a financial institution as security for various loans received by the company amounting to Rs. 4,236.26 lakhs as on 31-3-2001. The cash and balance position has worsened since 31-3-2001. 10. The second respondent further pleads that due to severe cash shortage, the financial institutions have precluded the second respondent from paying any of the unsecured loans/intercorporate deposits or interest thereon without their prior approval or before completely discharging their obligation and this is one of special conditions imposed by ICICI Ltd. Any additional liability now will completely jeopardise the present financial position of the company, which is highly unstable and the business will come to a complete standstill. 11. It is further pleaded that the second respondent is honestly trying to meet its liabilities of everyone including the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " 13. To begin with, it is essential to take up the first point for consideration. According to the applicant-company (in liquidation), the second respondent owes a sum of Rs. 81,34,336 as on 31-12-2000, as per the books of account maintained. By letter dated 15-5-1999, and 24-3-1999, by the second respondent-company, it had admitted its liability to the applicant-company. Admittedly the second respondent borrowed money from the company (in liquidation). It is an independent transaction between the petitioner-company and the second respondent-company. The second respondent-company had confirmed the liability as seen from its letter dated 15-5-1999. It is not as if the second respondent had denied the borrowal of the loan from the applicant-company (in liquidation). The contents of Annexure A statement of accounts enclosed to the application are not being controverted at all. The learned counsel for the administrator relied upon the letters dated 15-5-1999 and 24-3-1999. The letter dated 15-5-1999, is a confirmation of balance as on 31-3-1999, written by the second respondent-company addressed to the petitioner-company. The letter reads thus : "Dear Sirs, In connection with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount is negligible viz., Rs. 9 lakhs. ****** 10. I state that if ICICI Ltd. agree to waive the special condition obtained from us, we will immediately mobilise resources as fast as possible and start paying monthly instalments within two months from the waiver by ICICI Ltd., in twelve monthly instalments. ****** 12. It is, therefore, prayed that this court may be pleased to permit the respondent to pay the outstanding amount to the applicant in twelve monthly instalments commencing from a date to be fixed within two months from the date of waiver of conditions received from ICICI Ltd. and pass such further order or orders as this court may deem fit and proper in the circumstances of the case and render justice." 16. Thus, on the very admission not only in the two confirmation letters extracted above, but also the admission in the counter, the second respondent is liable to pay the amount as claimed by the applicant in this application and the second respondent is bound to discharge the said liability to the applicant. The claim of the applicant against the second respondent is well-founded and the applicant is entitled to a direction under section 446(2) of the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... secured creditors and to debts provable and to the valuation of annuities and future and contingent liabilities as are in force for the time being under the law of insolvency with respect to the estates of persons adjudged insolvent; and all persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company may come in under the winding up, and make such claims against the company as they respectively are entitled to by virtue of this section. The effect of these statutory provisions, is, inter alia, that an unsecured creditor must prove his debts and all unsecured debts are to be paid pari passu ...." (p. 334) 21. In Official Liquidator, High Court of Karnataka v. Smt. V. Lakshmikutty [1981] 51 Comp. Cas. 566; the Apex Court, while interpreting sections 529 and 530 of the Companies Act, 1956, held thus (p. 570) : "...Section 529 provides that in the winding up of an insolvent company, the same rules shall prevail and be observed with regard to the provable debts as are in force for the time being under the law of insolvency with respect to the estate of persons adjudged insolvent. This provision brings in the applicabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from the other party, and the balance of the account, and no more, shall be claimed or paid on either side respectively : Provided that a person shall not be entitled under this section to claim the benefits of any set off against the property of an insolvent in any case where he had at the time of giving credit to the insolvent notice of the presentation of any insolvency petition by or against him." 25. By no stretch of imagination, could the dealings between the applicant and Sical be considered to be a mutual dealing nor will they fall under section 47 of the Presidency-Towns Insolvency Act. Sical being an unsecured debtor has to put forward its claim in the line of priority of debts as it is an unsecured debtor as provided under section 49 of the Presidency-Towns Insolvency Act. Sical, not being a secured creditor to the applicant (in liquidation) cannot seek for preference. However, we are not concerned with the said position of this case. 26. The learned administrator relied upon the pronouncement of Jagannadhadas, CJ. in H. Naik, Official Liquidator, Puri Bank v. Panchanon Das, AIR 1954 Ori. 7, wherein it has been held that only in a case of mutual dealing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limited company who, as a creditor of the company, cannot, in winding up, set off his debt against a call made on him by the liquidator, until the creditors have been paid in full. There is no question of the mortgagor being a contributory. The amount due to him became payable under a contract with the fund by which he had to keep up the payment of the instalments for a period of 84 months at the end of which the fund in its turn promised to pay to the person who entered into the contract not only the amount he paid but also some bonus and this amount undoubtedly became payable at the end of the 84th month. That amount is a debt due to the mortgagor from the fund. The fund is now claiming an amount due to it under a mortgage. These two amounts can be set off and I see no objection for adjusting the one against the other as pointed out by the decision in Mylapore Permanent Benefit Fund Ltd. v. Arogiaswami Pillai AIR 1981 Mad. 995(A) at page 1006. The view taken therefore by the lower court is correct and the second appeal is dismissed with costs." (p. 611) 29. Thus, it is the settled law that the right to set off is permissible only in respect of the claims that exist betw ..... X X X X Extracts X X X X X X X X Extracts X X X X
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