TMI Blog1975 (3) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... companies in liquidation in all these cases were carrying on chit fund business. In the course of their business they had allowed the respondents to draw monies in some of the chit fund accounts against promotes executed by them on the understanding that if the respondents paid all the chit instalments regularly as agreed to by them, the promissory notes would not be enforced against them. Before all the instalments were paid by the respondents the companies went into liquidation. In the course of the winding-up proceedings the official liquidator and the additional liquidator applied to the court on behalf of the companies in question for the issue of a direction to the respondents to pay the balances due by them under the respective chit fund accounts. One of the contentions raised by the respondents in these cases is that they are entitled to claim a set-off to the extent of sums paid by them to the concerned companies under other chit fund accounts or by way of fixed deposits. Since a common question of law has arisen in these cases as to the right of set-off put forward by the respondents, they are heard together and the question of law is decided by this common order. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay the entire amount due under it and to ask him to receive less than what is due to him from the company under other accounts with the company along with other unsecured creditors. This submission is met on behalf of the official liquidator by stating that the provisions of section 46 of the Provincial Insolvency Act are not applicable when the claims arise under two different and independent accounts such as two different chit fund accounts though of the same subscriber or under a chit fund account and a fixed deposit account, because the claims are not then mutual. It is further argued that in view of section 530 of the Act which prescribes the priority of payments, it would not be open to a person who has borrowed money from the company to claim a set-off in respect of the entire amount due to him under another head when another unsecured creditor who has not borrowed has to receive proportionately less than what is actually due to him when the assets of the company are insufficient to pay the whole amount after meeting prior charges. Reliance was placed by the parties on several decisions of English and Indian courts in support of their respective stands. In Naoroji v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elling the goods belonging to the company in liquidation should pay the price realised by him by selling the goods and also return the unsold goods. The defendant pleaded that he was entitled to set off the sums which the company owed him by way of commission on sales and retention fund, which the company held in his behalf. The liquidator stated that the defendant should prove his claims like any other unsecured creditor and that the dividend might not be as much as six pence in the pound. Rejecting the claim of the liquidator, Lord Denning observed: "Counsel for the company also argued that the agreement expressly provided that there was to be no set-off. The agent was to ' pay over all moneys received by him ' on Monday of each week ; his commission ' shall in no case be deductible by the agent from moneys received by him '; and the 'agent shall not utilise his retention fund to off-set any moneys collected by him'. I cannot accept this contention either, for the simple Season that the parties cannot contract out of the statute. Where there are mutual dealings, the statute says that 'the balance of the account and no more shall be claimed or paid on either side'. That is an ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovable, valuation of annuities and future and contingent liabilities (section 317). This section incorporates into the winding-up of companies section 31 of the Bankruptcy Act, 1914, which allows set-off where there have been mutual credits, mutual debts or other mutual dealings. Where, therefore, at the commencement of the winding-up A has a money claim against the company, and the company has a money claim against A, one claim can be .set off against the other ; an account must be taken and the balance only can be proved for." Now, turning to the Indian cases, I shall first refer to the decision of this court Paschal Nazareth v. Denis Lobo AIR 1958 Mys 126. In Maugalore town a chit fund was being run by an individual. The defendant was a member of the chit fund. He executed a promissory note in favour of the chit fund for a sum of Rs. 500 as security for due payment of the future instalments of a chit purchased by him. The proprietor of the chit fund having been adjudged an insolvent, the official receiver took charge of his estate. Thereafter, the official receiver assigned the pronote executed by the defendant in favour of the plaintiff who filed the suit to recover the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State Government could claim priority for its debts otherwise than under section 530(1)( a ) of the Act. It was of the opinion that section 64 of the Provincial Insolvency Act could not be relied upon by the State Government in support of its claim for priority as it was inconsistent with section 530(1) of the Act. The court, however, was not called upon to decide whether a set-off could be pleaded by an unsecured creditor or not. But it was argued that the observation made therein to the effect that the words "the respective rights of secured and unsecured creditors" in section 529 could mean merely the rights of the class of secured creditors on the one hand as against the class of unsecured creditors on the other or the rights of secured creditors inter se and of unsecured creditors inter se militated against the contention that the unsecured creditor could plead a set-off relying upon section 46 of the Provincial Insolvency Act. The above observation which was made in the context of the question which the court was called upon to decide in that case would not be of any assistance to decide the question which has arisen in these cases. Moreover, as stated earlier, both th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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