M.H. Kania, J.
1. This appeal raises an interesting question regarding adjustments permitted in winding up in respect of dividends under the provisions of the Companies Act, 1956.
2. The respondent No. 3, the Official Liquidator of Kamani Brothers Pvt. Ltd. (in liquidation), took out a Judge's Summons by way of Company Application No. 122 of 1983 praying mainly that the appellants (Kamani Metals & Alloys Ltd.), who were the respondents to the Judge's Summons should be ordered and decreed to pay to the Official Liquidator the sum of Rs. 8,40,147/- together with interest as set out in prayer (a) of the Judge's Summons as well as further dividends as set out in prayer (b) of the Judge's Summons. The contributories who were appearing before us had appeared before the learned Trial Judge also at the hearing of the Judge's Summons. The appeal is directed against the order of Mehta, J. making the said Judge's Summons absolute and directing Kamani Metals & Alloys Ltd. to pay to the respondent No. 3, a sum of Rs. 8,40,147/- with interest as claimed in the Judge's Summons as well as to pay to him further dividends as and when declared, For the sake of convenience, we propose to refer to the appellants, Kamani Metals & Alloys Ltd. as 'Kamani Metals' and to Kamani Brothers Pvt. Ltd. which is in liquidation as 'Kamani Brothers'.
3. The relevant facts, lie within a fairly narrow compass. By an order of this Court dated August 3, 1979, Kamani Brothers were ordered to be wound-up and the Official Liquidator. High Court was appointed as the Liquidator of Kamani Brothers with all powers under Section 457 of the Companies Act, 1956, save and except in respect of sale of immovable property. Kamani Brothers held 2,96,648 equity shares of the face value of Rs. 10/- each of Kamani Metals which is known as K.M.A. Ltd. and which was formerly known as 'Kamani Metals and Alloys Ltd.' Out of the said 2,96,648 equity shares,. 84,750 equity shares were deposited by Kamani Brothers with Inkemex India Ltd. as security for a loan of Rs, 20,00,000/-. These 84,750 equity shares have been sold by the Commissioner for Taking Accounts of this Court pursuant to an order of this Court under a certificate dated February 21, 1980. Kamani Metals declared dividend on their shares for the years 1978, 1979, 1980 and 1981. Kamani Brothers became entitled to the payment of dividend declared by Kamani Metal;; For the year ending December 31, 1978, Kamani Brothers were entitled to the dividend in respect of 2,96,648 shares and in the succeeding three years, namely, the years ending December 31, 1979, December 31, 1980 and December 31, 1981 they were entitled to dividend on 2,11,898 shares. The total amount of dividend for these years due to Kamani Brothers comes to Rs. 8,40,147/-. On July 21, 1978, the Income-tax Department had issued a notice under the provisions of Section 226 of the Income-tax Act, 1961 attaching the income as well as shares of Kamani Brothers for the payment of a sum of Rs. 46,79,622/- which was claimed by the Income-tax Department from Kamani Brothers. Thereafter, on September 29, 1963, a notice was received by Kamani Metals in this connection and pursuant to enquiries made by them, they found that the income-tax outstandings claimed by the income-tax department from Kamani Brothers amounted to Rs. 23,00,000/- and odd. It is common ground that this notice of attachment has not yet been set aside or withdrawn. By its letter dated August 24, 1979, Kamani Metals informed the Official Liquidator about the said notice received by Kamani Metals from the income-tax department. By the said letter, Kamani Metals stated that Kamani Metals had adjusted the dividend amount of Rs. 2,32,677.20 which was the dividend due on the shares held by Kamani Brothers for the financial year ended December 31, 1978 since Kamani Brothers owed a large amount to Kamani Metals. Similarly, subsequent intimations have been, given by Kamani Metals to the Official Liquidator claiming adjustment of the remaining dividends, namely, the dividends for the succeeding years upto and including the financial year ending December 31, 1981. It is again common ground that the adjustment claimed by Kamani Metals is in respect of unliquidated damages arising out of an alleged breach of contract committed by Kamani Brothers, The main question which arises is as to whether Kamani Metals are entitled to make the adjustments claimed by them or whether they are bound to pay the dividends to the Official Liquidator. One other fact in this connection may also be noted, namely, that these dividends have been declared after the order for winding-up of Kamani Brothers was passed and the Official Liquidator (respondent No. 3) was appointed as the Liquidator of Kamani Brothers. The learned Trial Judge, relying mainly on the decision of a learned Single Judge of the Calcutta High Court in the matter of The Pioneer Bank Ltd. & B.N. De : AIR1951Cal519 took the view that a set-off or adjustment could be claimed only against a debt or in respect of a claim which was existing at the date of the order of liquidation. In the present case, the dividends accrued to Kamani Brothers, the company in liquidation, after the date of winding-up order, and hence no set-off as claimed by Kamani Metals was available to them. The learned Judge accepted the arguments of Mr. Zaiwalla appearing for some of the contributories and Mr. Nain who appeared for the Official Liquidator before the learned Trial Judge that once an order of winding-up was passed, any claim accruing thereafter to the company (in winding-up) could not be set-off by the debtor of the company in liquidation. In the present case, the dividend accrued admittedly after the order of winding-up was passed, and hence the set-off claimed by Kamani Metals was not permissible. It is the correctness of these conclusions that is sought to be assailed before us by the appellants.
4. The submission of Mr. Chagla, learned Counsel for the appellants, Kamani Metals, is that it is settled law that a set-off can be claimed in respect of a claim for unliquidated damages for breach of contract. It was pointed out by him that when the set-off was actually claimed by Kamani Metals, the aforesaid dividends had become payable. It was submitted by him that, although the dividends became payable after the order of winding-up was made, the claim of Kamani Brothers to the dividends arose out of an obligation which existed earlier. That obligation arose from the ownership of shares of Kamani Metals by Kamani Brothers. It was urged by him that the aforesaid articles of association of Kamani Metals constituted a contract between the share-holders of that company and the company itself, and that on the purchase of the shares of Kamani Metals by Kamani Brothers and on the name of Kamani Brothers being entered in the register of share-holders of Kamani Metals as holders of those shares, the liability or obligation arose on the part of Kamani Metals to pay to Kamani Brothers a dividend on these shares when dividend was declared.
5. The submission of Mr. Nain as well as of Mr. Chinai and Mr. Subramanian who supported him was that the dividends in question had admittedly been declared only after the order for winding-up of Kamani Brothers was made, It was submitted by them that the cut-off line for ascertaining the debts and liabilities of the company in liquidation must be drawn as on the date when the winding-up order was made. It was submitted by him that the liability to pay the dividend arose, not really from the ownership of the shares or' the shares being registered in the name of Kamani Brothers, but from the declaration of dividend by Kamani Metals. It was pointed out by him that even if Kamani Metals had made profits but had not chosen to declare any dividend, then no liability could have arisen on Kamani Metals to pay any dividend on the shares. Mr. Nain drew our attention to the fact that the legal position in respect of vesting of property under the law of insolvency and the company law is somewhat different. In insolvency, on an order of adjudication being passed, the property of the insolvent vests in the Official Assignee, whereas, under the provisions of the Companies Act, it is only the management of the company in liquidation which vests in the Official Liquidator. But it is common ground that this difference is not in any way material for determining the questions arising before us.
6. It was contended by Mr. Chinoy that apart from the aforesaid submissions of Mr. Nain, no set-off was permissible in the present case as once the dividend was declared, the company which declared the dividend was merely a trustee holding the amount of the dividend to be paid to the respective share-holders, and hence the amount of dividend payable to any share-holder should be treated as an amount held for a specific purpose, and could not be the subject-matter of a set-off. It was further urged by Mr. Chinoy that in view of certain provisions of the Companies Act, 1956, to which we shall refer later, no sot-off was permissible in the case of dividends payable to a company in winding-up.
7. In order to determine the question raised, it will be useful to take note of certain provisions of law and statements of law made by recognised authorities on the Law of Insolvency and Companies Act, The provisions relating to winding-up of a company are contained in Chapter II, Part VII of the Companies Act. The provisions of Sub-section (2) of Section 441 of the Companies Act show that in the case of a compulsory winding-up the winding-up shall be deemed to commence at the time of the presentation of the petition for winding-up. The Chapter with which we are more directly concerned is Chapter V of Part VII of the Companies Act which contains inter alia the provisions relating to proof and ranking of claims in winding-up. Section 528 of the Companies Act deals with debts to be admitted to proof and runs as follows:
In every winding up (subject, in the case of insolvent companies, to the application in accordance with the provisions of this Act of the law of insolvency), all debts payable on a contingency, and all claims against the company, present or future, certain or - contingent, ascertained or sounding only in damages, shall be admissible to proof against the company, a just estimate being made, so far as possible, of the value of such debts or claims as may be subject to contingency, or may sound only in damages, or for some other reason may not bear a certain value.
Section 529 deals with application of insolvency rules in winding up of insolvent companies. The relevant portion of Section 529 runs as follows:
(1) In the winding up of an insolvent company, the same rules shall prevail and be observed with regard to -
(a) debts provable;
(b) the valuation of annuities and future and contingent liabilities; and
as are in force for the time being under the law of insolvency with respect to the estates of persons adjudged insolvent. The relevant portion of Section 46 of the Presidency-Towns Insolvency Act runs as follows: '46. DEBTS PROVABLE IN INSOLVENCY.-
(1) Demands in the nature of unliquidated damages arising otherwise than by reason of a contract or breach of trust shall not be provable in insolvency.
(2) A person having notice of the presentation of any insolvency petition by or against the debtor shall not prove for any debt or liability contracted by the debtor subsequently to the date of his so having notice.
(3) Save as provided by Sub-sections (/) and (2), all debts and liabilities, present or future, certain or contingent, to which the debtor is subject when he is adjudged an insolvent or to which he may become subject before his discharge by reason of any obligation incurred before the date of such adjudication, shall be deemed to be debts provable in insolvency.
(4) An estimate shall be made by the Official Assignee of the value of any debt or liability provable as aforesaid which by reason of its being subject to any contingency or contingencies, or for any other reason, does not bear a certain value;
Provided that, if in his opinion the value of the debt or liability is incapable of being fairly estimated, he shall issue a certificate to that effect, and thereupon the debt or liability shall be deemed to be a debt not provable in insolvency.
Explanation to this section is not material for our purposes. Section 47, dealing with mutual dealings and set-off, runs as follows:
47. MUTUAL DEALINGS AND SET-OFF- Where there have been mutual dealings between an insolvent and a creditor proving or claiming to prove a debt under this Act, an account shall be taken of what is due from the one party to the other in respect of such mutual dealings, and the sum due from the one party shall be set-off against any sum due 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.
The corresponding provisions of the Provincial Insolvency Act are Sections 45 and 46 respectively. There are certain other provisions of the Companies Act which will have to be considered in connection with the argument of Mr. Chinoy that in view of those provisions, no set-off was permissible in the case of dividends under the provisions of the Companies Act. We propose to refer to those sections later.
8. In order to consider the position regarding the claim to set-off under Section 529 of the Companies Act, we have to consider and interpret the provisions of Sections 46 and 47 of the Presidency-Towns Insolvency Act, which we have pointed out, correspond to Sections 45 and 46 of the provincial Insolvency Act, because, in terms, the rules of insolvency are made applicable in winding up of an insolvent company by reason of the provisions of Sub-section (1) of Section 529 of the Companies Act. We think, it would be proper at this stage to refer to certain decisions which have dealt with the aforesaid question raised before us. In Efficient Financiers (P) Ltd., In re. Official Liquidator, High Court of Karnatak v. Smt. B. Lakshmikutty : 1975(2)KarLJ123 it was held by a learned Single Judge of the Karnatak High Court that where the liquidator of a company in liquidation files a suit against a subscriber to a chit conducted by the company to recover the balance due under a promissory note, it is open to the defendant under Section 529(l}(c) of the Companies Act, 1956, read with Section 46 of the Provincial Insolvency Act, to plead by way of set-off the amounts due which he is entitled to recover from the company in question under the chit fund accounts or fixed deposits with the company and the defendant is liable to pay only the balance remaining after taking credit for the sums in respect of which set-off is claimed. This decision was upheld by a Division Bench of the Karnatak High Court and the decision of the Division Bench in turn was confirmed by the Supreme Court. The decision of the Division Bench of the Karnatak High Court and the decision of the Supreme Court confirming the same are reported in The Official Liquidator Kant, H.C. v. V. Lakshmikutty : 2SCR349 . This decision of the Supreme Court lays down that in view of the provisions of Section 529 read with Section 46 of the Provincial Insolvency Act or Section 47 of the Presidency-Towns Insolvency Act, set-off can be claimed in winding up proceedings. However, it is not directly applicable to the question before us, because, in that decision, no controversy was raised regarding the question as to whether there is any date upto which set-off was permissible or whether there was any cut-oil line for ascertaining the debts and liabilities of the company in winding up or the claims of the company in winding up against which that liability could be set-off. In the matter of The Pioneer Bank Ltd. & B.N. De (supra), Baehawat, J. (as he then was) held that the right of set-off given by the bankruptcy law is wider than that given by the general law. The bankruptcy Acts generally enlarge the scope of the subject-matter of the plea of set-off. It was held that the Presidency Towns Insolvency Act does not state on what date the right of set-off is to be ascertained. Section 46 of the Act, however, shows that all debts and liabilities to which the debtor is subject when he is adjudged an insolvent may be proved. The dividing line, therefore, in the case of a proof of debt is the date of adjudication. The learned Judge in coming to this conclusion relied on the decision in Daintrey's case to which we shall presently refer. The relevant facts in the case before Baehawat, J., very briefly stated, were that the application for set-off was made by Smt. Annapurna Badrinarain Banerji, and it was for directing the Official Liquidator of the Pioneer Bank to set-off the debt due to Badrinarain from the bank under six fixed deposit receipts against the debt due to the bank from the appellant - Anna,-puma. Annapurna borrowed large amounts of money from the bank on an over-draft account and was personally indebted to bank. Her husband Badrinarain was a guarantor for the whole amount. The said fixed deposit receipts as well as a policy with which we are not concerned, were handed over to the bank as security for the debt owed by Annapurna to the bank. The date of the last fixed deposit receipt was May 20, 1948 and the bank was ordered to be wound up on July 12, 1949, It was held by the learned Judge that if there are mutual dealings between the surety and the bank and the company in liquidation, such dealings must be set-off against each other under Section 529 of the Companies Act read with Section 47 of the Presidency-Towns Insolvency Act. It appears from the statements in paragraphs 22 and 23 of the report that out of the fixed deposit receipts, only one receipt became due and payable after the date of the petition for winding and even that receipt had matured and become due and payable by the time the order of winding up was made, with the result that as on the date of the order of winding up, all the receipts had become due and payable. In these circumstances, it was held that Badrinarain was entitled to set-oil the amounts due to him under the said fixed deposit receipts against the claim of the bank against him as the guarantor and only the balance of the amount claimed by the bank was payable by Badrinarain to the Official Liquidator of the bank. In Sir Mulla's standard work on Law of Insolvency in India (third edition-1977), the law in this connection has been stated thus (paragraph 420 page 332):
With the exceptions mentioned in the section and the exception of debts which are not provable by the general policy of the law, all debts and liabilities, present or future, certain or contingent, to which the debtor is subject at the date of the order of adjudication, or to which he may become subject before his discharge by reason of any obligation incurred before the date of the order of adjudication, are provable in insolvency...
The material statement in paragraph 456 (page 358) runs as follows:
The expression 'mutual dealings' is very wide. It includes the case where two persons owe each other debts presently payable and the case where a debt is immediately due from one party but due at a future date from the other. It also includes the case where a person owes a debt to another, but has a claim against the other for unliquidated damages for breach of contract. Under Section 46 it is imperative on the part of the creditor to claim only the balance of the account in regard to the mutual dealings between him and the insolvent. He is under a duty to set off any sum due from him to the insolvent against his demand...
Paragraph 463 (page 361) runs thus:
The date of order of adjudication is the time for ascertaining what mutual debts, credits and dealings were existing between the insolvent and other persons.
Since the relevant statutory provisions in this connection are similar in the relevant English Acts as well as Indian Acts, it would not be out of place to refer to certain English decisions. In fact, the learned Single Judge of the Calcutta High Court as well as Sir Dinsha Mulla have both relied substantially on English decisions. The leading English case in this connection is In re. Daintrey. Ex parte Mant (1900) 1 Q.B. 546. This case is generally referred to as 'Daintrey's case'. The relevant facts in that case were that Daintrey, a solicitor, being indebted to Mant, another solicitor in a sum of .86 on December 24, 1892, committed an act of bankruptcy of which Mant had no notice. On December 31, 1892, Daintrey sold his business to Mant, under an agreement which fixed as the price a portion of the profits expected to be earned for three years from the business sold. Thereupon Mant took possession of and carried on the business. On January 17, 1893, a receiving order was made against Daintrey, but no profits had then been earned from the business. At the end of the three years a sum of .300 was found to be due from Mant to Daintrey under the agreement as the price of the business, and this sum Mant paid to Daintrey's trustee in bankruptcy after deducting .86 due from Daintrey to Mant. The trustee, however,' objected that Mant could not set off the .86 against the 300, that he must pay the .300 in full and be satisfied with a dividend on the debt Of .86. The county court judge allowed the objection, and an appeal by Mant to the Division Court comprising of Wright and Bigham JJ. was dismissed, but the Division Court differred in its opinion. The matter went to the Court of Appeal which upheld that the dealings between Mant and Daintrey were 'mutual dealings' within Section 38 of the Bankruptcy Act, 1883, and that Mant was therefore entitled to set off the .86 due to him from Daintrey against the .300 due from him to Daintrey. The appellate court also held that the date of the receiving order, and not that of the act of bankruptcy was the proper date at which to ascertain what those dealings were, so as to be capable of being made the subject of set-off under the section. Wright J. first considered the question as to what is the date with reference to which the account is to be taken under the section and the set-off made. After an exhaustive consideration of the relevant statutory provisions and several decisions, he observed that if the relevant provisions were considered without reference to authority, according to him, they ought to be understood as fixing the date with reference to which the account is to be taken for the purposes of set-off at the date of the receiving order. He further observed that if a line were to be drawn at different times for the two purposes of proof and set-off, the result might be unjust. He found that there was no case which was contrary to this view, and hence that was the correct view. He held that a liability to do so or pay something in future will suffice, although the time for doing or paying it has not arrived. However, he took the view that in the case before him, as on the day of the receiving order, there was no existing liability on the part of Mant at all, but merely a contract under which there was a possibility of liability contingent upon things being done which Mant had not by the contract bound himself to do, and contingent on those things, if done, resulting in a profit. It was observed by him that unlike the case of a debtor where there was a provision for estimating a contingent liability, there was no corresponding provision compelling valuation of a past or a contingent liability of another person to the bankrupt, and in view of this, he rejected the claim to set-off made by Mant. Bigham J., the other learned Judge on the Division Court agreed with Wright J. on the question of the cut-off date or line, but in respect of actual claim to set-off he took the view that the dealings between Daintrey and Mant were mutual, that is, they were in the same right and between a debtor against whom a receiving order had been made, and a creditor claiming to prove a debt under the receiving order. It was enough, he said, that there existed at the commencement of the liquidation a debt on the one hand and a liability, which in due course could mature into a debt, on the other. Based on this conclusion, he upheld the claim of Mant to set-off. On appeal, Lindley M.R. upheld the view of Wright J. (with which Bigham J. had agreed) that the date of the receiving order, and not the date of the commencement of the bankruptcy, was the time for ascertaining what mutual debts, credits, and dealings were existing between the debtor and other persons. He, however, agreed with Bigham J. regarding the liability of Mant, and held that, looking at the agreement between Mant and Daintrey, he failed to see that at the date of the receiving order there was nothing payable under the agreement as found by Wright J. Lindley M.R. took the view that under the circumstances, when that agreement was executed, it was clear that very considerable sums would become payable under it. Based on these conclusions, he upheld the view of Bigham J. and upheld the claim of Mant to set-off, Romer L.J. in his concurring judgment observed that for Mant to obtain the advantage of mutual credit clause, it was not necessary that the money payable under the agreement should be immediately payable to the bankrupt at the date of the receiving order. It was held that it was quite sufficient if the account can be taken when the set-off arises. The third learned Judge constituting the Court of Appeal, namely, Sir F.H. Jeune P, concurred with the judgment of Lindley M.R. On the actual question of set-off, therefore, the view of Bigham J. was upheld by the Court of Appeal. In re. National Benefit Assurance Co. Ltd. (1924) All. E.R. 426 a policy-holder in a life assurance company had mortgaged his policy with the company which mortgage was still in existence at the time of the winding up of the company. A question arose whether, in ascertaining the sum payable by the policy-holder to the company, the policy-holder ought to be credited with the amount at which the policy had been valued under the Assurance Companies Act, 1909, and it was held that the policy-holder ought to be credited with that amount and was entitled to set it off against his mortgage debt. Eve, J. pointed out that in Daimtrey's case (supra), there was an existing debt due from the debtor at the date of the receiving order and the act of bankruptcy on which it was founded, whereas in the case before him, the claim did not come into existence until the winding up order was made and the company thereby declared its inability to perform the contract - facts which indicate the grounds on which policy-holders have been held liable in a winding up to pay premiums accruing due between the presentation of the petition and the making of the winding up order. The learned Judge took the view that the operation of the mutual dealings section was not excluded by the distinction on the facts in Daintrey's case (supra) from the facts of the case before him. On examination of the authorities, Eve, J. observed (at p. 428):
It is, I think, demonstrated by these authorities that to bring the mutual dealings section into operation it is not necessary that there should be mutual debts existing at the date of the winding up -that being, according to Dainirey's case, the material date; it is sufficient if there are contractual obligations the breach of which may give rise to a claim for damages provable in the winding-up.
The aforesaid decision was approved by the Court of Appeal in In re. City Life Assurance Co. Ltd. Grindfield's case, Stephenson's case (1926) 1 Ch. D. 191. This is clear from the decision of the Court of Appeal in Grindfield's case. We may point out that although several other decisions in connection with the aforesaid controversy have been cited to us, we do not think that any useful purpose will be served by referring to them or trying to distinguish them, because they are not directly applicable to the case before us and, from the point of view of Kamani Metals, the appellants before us, the decision that can be regarded as the best decision in support of their case is that of Eve, J. and that decision only goes to the length of laying down that where there is a contractual obligation existing at the time of the winding-up order which constitutes the cut-off line, even though the liability under that obligation may arise later, it could yet be made the subject of set-off. As we have pointed out it is the undisputed position in law that even a claim for unliquidated damages on a breach of contract can be set-off against the claim made by the Official Liquidator provided the other conditions 'which we have discussed above are satisfied.
9. Even accepting the view of Eve, J. in In Re National Benefit Assurance Co, Ltd. (supra), the most that could be said is that where there was a contractual obligation in existence on the date constituting the cut-off line, the liabilities arising later from that obligation could be made the subject of set-off. We may here refer to one incidental matter. There was some controversy before us regarding whether the cut-off line should be drawn as on the date of the order for winding-up or as on the date of the presentation of the petition for winding-up. Mr. Chinoy in this connection drew our attention to the provisions of Section 441 of the Companies Act to which we have already referred. As we have pointed out, according to Sub-section (2) of that section, in the case of a compulsory winding-up, the winding-up by the Court shall be deemed to commence at the time of the presentation of the petition for winding-up. This might suggest that the cut-off line should be correctly drawn at the date of the presentation of the petition. But we find that, for considering a claim of set-off under the provisions of Sections 528 and 529 of the Companies Act read with Sections 46 and 47 of the Presidency-Towns Insolvency Act or the corresponding provisions of Provincial Insolvency Act, there is some difficulty in accepting that date as the cut-off line. Section 47 of the Presidency-Towns Insolvency Act which deals with mutual dealings and set-off specifically provides that a person shall not be entitled under that section to claim the benefit 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. If the cut-off line was intended by the law-makers to be drawn at the date of the presentation of the insolvency petition, we fail to see why such an express provision was necessary at all and it would be altogether redundant. However, for this case, we do not wish to go into the question as to which of the said two dates constitutes the cut-off line, because whether the cut-off line is drawn as on the date of the presentation of the winding-up petition or date of the receiving order, it makes no difference whatsoever. In either case, the claim for unliquidated damages made by Kamani Metals arose before the cut-off line and the dividends against which the said claim for damages is sought to be set-off were declared admittedly after the cut-off line. The question, therefore, which we are really concerned with is whether the liability of Kamani Metals to pay these dividends to Kamani Brothers arose by reason of any contractual obligation or even any other obligation which existed before the cut-off line which we propose to assume is the date of the winding-up order. It is true that these shares were acquired by Kamani Brothers before the date of the winding-up order and Kamani Brothers were registered as holders of these shares in the books of Kamani Metals prior to the date of the winding-up order. The question still arises is as to whether the dividends can be said to arise out of the ownership or the registered ownership of these shares. We will also assume, for the purpose of argument, that the Articles of the Association of Kamani Metals constitute a contract between that concern and its shareholders. Even then, in our opinion, in view of the provisions of the Companies Act, as far as dividends are concerned, until there is a declaration of a dividend by a company at a general meeting of the members of the company, there is no liability on the part of the company to pay any dividend to any registered share-holders. The liability of a company to pay dividends cannot be said to be a liability which arises out of the acquisition of its shares by a particular party or the registration of those shares in his name. After those acts, there must be an act with distinct legal consequences, namely, the declaration of dividend by the company before the liability to pay a dividend can arise. Until that declaration is made, no share-holder has a right to claim a dividend from the company nor has the company any liability to pay any such dividend. Even if a profit is made, there is no liability on a company, particularly, a public limited company to pay any dividend. It is said that, to sustain a claim to set-off the liability must arise out of an obligation incurred earlier, though it may arise on certain contingencies or at a future time; but as we have pointed out, it cannot be said in this case that the obligation to pay a dividend arose on the acquisition of shares of Karnani Metals or the registration of these shares in the name of the share-holders, namely, Kamani Brothers, because, before such an obligation could arise, the dividend had to be declared. The making of profits by the company from which dividend could, be declared might be regarded as a contingency, as contemplated in the case of Daintrey or in the case f Re. National Benefit Assurance Co, Ltd. (supra), but the declaration of a dividend by the company, Kamani Metals, can in no sense be regarded as a mere contingency like the making of profits in the Daintrey's case. In that case, once the profit was made by Mant, there was nothing further required, and under the agreement between Daintrey and Mant, a liability straightaway arose against Mant to pay a share of the profits to Daintrey as provided in the agreement. In the present case, the situation is altogether different.
10. In our opinion, therefore, it is not possible to take the view that Kamani Metals are entitled to set-off their claim for unliquidated damages on alleged breach of contract against the dividends they are liable to pay to the official Liquidator of Kamani Brothers.
11. In view of what we have held earlier, the appeal must fail, and it is not necessary for us to consider any of the other points raised. However, since some other points were canvassed at some length, we propose to refer to those points. It was submitted by Mr. Chinoy that, even assuming that a set-off was permissible against the dividends payable by Kamani Metals under the provisions of Section 529 of the Companies Act read with the provisions of Sections 46 and 47 of the Presidency-Towns Insolvency Act, yet such a set-off should not be permitted as once the dividend was declared the company declaring the dividend was in the position of a trustee, and the share-holders to whom the dividends were payable were the beneficiaries, with the result that the amount of the dividends payable to the share-holders could be regarded as a trust amount specifically set apart and not subject to any claim for any set-off by the company. In this connection, he placed reliance on the decision in Elgood v. Harris (1896) 2 Q.B. 491. It was also submitted by him that, in any event, no set-off was permissible in view of the provisions of Section 237 of the Companies Act read with Section 205A of that Act. Since we are not deciding these questions, we do not propose to set out these provisions. Briefly stated, Section 207 of that Act provides for a penalty where a dividend declared by a company is not posted within 42 days from the date of declaration, to any share-holder entitled to the payment of the dividend and so on. It must be borne in mind, however, there is a proviso to this section which says that no offence under the main provisions of Section 207 shall be deemed to have been committed inter alia where the dividend has been lawfully adjusted by the company against any sum due to it from the share-holder. This is clear from Clause (d) of the proviso to Section 207. The question 'Which 'would then again arise is whether Kamani Metals were lawfully entitled to set-off the dividend payable by them against their claim for unliquidated damage. Section 205A deals with the manner in which unpaid dividends have to be dealt with and, very briefly stated, provide that, where within the period referred to therein a dividend has not been paid or warrant in respect thereof posted, it has to be transferred to a special account to be opened by the company and the amounts in that account are held for the benefit of the shareholder, to whom the dividend was payable. Further provisions of that section show that after a lapse of a period of three years, unpaid dividends have to be transferred to the general account of the Central Government, but the claims of the respective share-holders to the dividends payable to them are preserved against the Central Government. As we have already observed, we do not propose to determine those; contentions. We may, however, state that in view of the specific provision for set-off contained in Section 47 of the Presidency-Towns Insolvency Act and in view of the provisions of Section 529 of the Companies Act, which provides for application of insolvency rules in winding-up of insolvent companies, in our view, prima facie, the question which has really to be determined is whether the company in question, namely, Kamani Metals was entitled to the set-off claimed by them.
12. As far as the operative order is concerned, we may point out that it appears to be an undisputed position that at present there are pending notices under Section 226 of the Income-tax Act, 1961 served on Kamani Metals attaching the amounts payable by them to Kamani Brothers and that attachment is for an amount much larger than the amount of dividends claimed by the Official Liquidator. Hence, till that notice is withdrawn or cancelled or set aside or declared to be void by a competent authority or court, no question arises of any payment being made by Kamani Metals towards these dividends to the Official Liquidator of Kamani Brothers. We are informed that pursuant to the operative order passed by the learned Trial Judge, certain amounts have been deposited by Kamani Metals, the appellants herein, in Court. The said amounts to be retained in Court till the eventuality set out herein. As far as further dividends are concerned, the same will also be deposited by Kamani Metals in Court. The dividends which have already been declared by Kamani Metals to be deposited in Court by September 25, 1985. In respect of future dividends, the same to be deposited in Court within two months of the respective dates of declarations. The amounts deposited pursuant to this order to be invested in fixed deposits in a Nationalised Bank by the Prothonotary & Senior Master of this Court in consultation with the parties. As far as the question of the Official Liquidator being entitled to withdraw these amounts is concerned, no such 'withdrawal will be permitted until notices under Section 226 of the Income-tax Act referred to earlier are withdrawn or cancelled or set aside or declared to be void as set out earlier and such withdrawal to be permitted only on an application to the Court after notice to the parties or their advocates. Save and except the aforesaid, no other order in the appeal. In order to obviate the possibility of Kamani Metals being declared as assessees in default, it is directed that a copy of the operative part of this order, certified to be true by the Prothonotary & Senior Master, be sent by registered post to the Income-tax Officer concerned. Looking to all facts and circumstance's of the case, there will be no order as to costs.