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M.V. Sastry, Masulipatam Vs. Murlidhar Jhun Jhun Wala (P) Ltd., Madras - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtAndhra Pradesh High Court
Decided On
Case NumberO.S.A. No. 12 of 1961
Judge
Reported inAIR1964AP88
ActsCompanies Act, 1956 - Sections 460, 460(6) and 529; Provincial Insolvency Act, 1920 - Sections 46; Code of Civil Procedure (CPC) - Order 8, Rule 6
AppellantM.V. Sastry, Masulipatam
RespondentMurlidhar Jhun Jhun Wala (P) Ltd., Madras
Appellant AdvocateO. Chinnappa Reddy, Adv.
Respondent AdvocateT.S. Narasinga Rao, Adv.
DispositionAppeal allowed
Excerpt:
.....act, 1920 - appellant purchased a insolvent company through auction - respondent (creditor) claimed debt owed by company - claim partly allowed by official liquidator - appeal preferred - court observed respondent already indebted towards company - held, respondent's claim will be set off to extent of indebtedness. - motor vehicles act (59 of 1988)section 149 (2): [v. gopala gowda & jawad rahim, jj] insurers entitlement to defend the action joint appeal by insured and insurer - held, the language employed in enacting sub-section (2) of section 149 appears to be plain and simple and there is no ambiguity in it. it shows that when an insurer is impleaded and has been given notice of the case, it is entitled to defend the action only on grounds enumerated in sub-section (2) of..........were purchased by the appellant for a sum of rs. 3,01,000/- subject to the liabilities.3. the official liquidator issued a general notice calling upon the creditors of the company to prove their claims, if any. pursuant to this notice, the respondent, a constituent of the company and who had a running account with the company, preferred a claim for a sum of rs. 20,648-15-0. the official liquidator, by his order dated 15-7-1960, allowed his claim to the extent of rs 10.662-14-0 rejecting the rest of the claim.4. the appellant took out an application in this court under section 460(6) of the companies act and rule 164 of the company rules to vacate the order of the official' liquidator on the ground that the claim of the respondent should not have been accepted when he owed a large.....
Judgment:

Chandra Reddy, C.J.

1. This appeal is directed against the judgment of our learned brother, Satyanarayana Raju J., in Company application No. 89 of 1960 in O. P. 11 of 1956.

2. The material facts may be shortly stated. The company called the East Coast Transport and Shipping Company (hereinafter referred to as 'the company') started in the year 1937 was carrying on stevedoring business at Masulipatam Port. By an order made by this Court in O. P. No. 11 of 1956 on 8-2-1957 this company was directed to be wound up under the provisions of the Companies Act, 1956. In the public auction held on 24-1-1959, all the assets and good-will of the company were purchased by the appellant for a sum of Rs. 3,01,000/- subject to the liabilities.

3. The Official Liquidator issued a general notice calling upon the creditors of the company to prove their claims, if any. Pursuant to this notice, the respondent, a constituent of the company and who had a running account with the company, preferred a claim for a sum of Rs. 20,648-15-0. The Official Liquidator, by his order dated 15-7-1960, allowed his claim to the extent of Rs 10.662-14-0 rejecting the rest of the claim.

4. The appellant took out an application in this Court under Section 460(6) of the Companies Act and Rule 164 of the Company Rules to vacate the order of the Official' Liquidator on the ground that the claim of the respondent should not have been accepted when he owed a large sum of more than, Rs. 20,000/- to the company which ought to have been adjusted towards the debt due to him.

5. The learned Judge disallowed the application in the view that the appellant was not entitled to gave the debt due to the company set off against the claim of the respondent, as it was then barred by lime. It is the order of our learned brother that is under appeal now.

6. In this appeal, it is urged by Sri Chinnappa Reddy, learned counsel for the appellant, that the learned Judge should have given effect to the plea of set-off, as the debt against the respondent was alive when he preferred his claim and the fact that by the time the application was heard by the learned Judge the debt was barred was not quite relevant, the material time being the date when the claim was presented by the respondent.

7. We think that effect has to be given to this contention. It may be mentioned here that the Official Liquidator issued notice to the respondent calling upon him to pay a sum of Rs. 27,942-8-9 which was due by him to the company as per the company's books of account. Along with this notice, a detailed statement of account was sent to the respondent. A reply was sent by the respondent on 9-3-1957 stating that a suitable reply would be sent later on and on 29-3-1957 he gave a detailed reply in which he disputed some of the items totalling Rs. 7,305/- but not the rest. He further claimed that he was entitled to get credit for items other than those allowed in the statement sent to him. The Official Liquidator did not take any action for the collection or the amount due to the company. The respondent preferred the present claim which was accepted by the Official Liquidator to the extent mentioned above,

8. It has to be mentioned here that the respondent has not challenged the order of the Official Liquidator in so far as he has rejected his claim for the balance. We have, therefore, to proceed on the footing that the sum due and payable to the respondent was Rs. 10,662-14-0. As remarked above, the Official liquidator demanded a sum of Rs. 27,9427879 and exception was taken by the respondent only to a few items aggregating Rs. 7,305/-in addition to his making a counter claim. That counter claim has now been found to be Rs. 10,662714/-. The short question that calls for decision in this appeal is whether the respondent should be allowed to recover this amount without being made liable to pay the debt due by him to the company. In the consideration of this question it has to be borne in mind that the dealings between the parties started in 1956 and ended in February 1957. As such, the whole of the debt due by the respondent to the company was alive and no part of it was barred by time when the respondent made the claim before the Liquidator. It is not also disputed that there were mutual dealings between the parties running over a period of about one year. In that situation, could it be said that the appellant was not entitled to have the amount due to him adjusted against the respondent's claim? it is true that the appellant did not appear before the Official Liquidator to claim this relief. But that does not make any difference in the determination of the question whether the respondent was justified in making the claim when he owed a larger sum to the appellant. It is not also out of place to mention that the appellant had not become the purchaser of the assets and the good-will of the company when the claim was made and it was only about two years later that he acquired the interest of the company. That, however, is not quite material in the consideration of the question whether the respondent could recover the debt due to him when he himself was indebted to the appellant a larger sum.

8a. In this connection, it is worth noticing Order 8, Rule 6 C. P. C., which recognises the right of the defendant to have the debt due to him set off against the plaintiff's demand. Rule 6 postulates:

'Where in a suit for the recovery of money the defendant claims to set off against the plaintiff's demand any ascertained sum of money legally recoverable by him from, the plaintiff, not exceeding the pecuniary limits of the jurisdiction of the Court, and both parties fill the same character as they fill in the plaintiff's suit, the defendant may, at the first hearing of the suit, but not afterwards unless permitted by the Court, present a written statement containing the particulars of the debt sought to be set off.

2. The written statement shall have the same effect as a plaint in a cross-suit so as to enable the Court to pronounce a final judgment in respect both of the original claim and of the set-off, but this shall not affect the lien, upon the amount decreed, of any pleadar in respect of the costs payable to him under the decree.

3. The rules relating to a written statement by a defendant apply to a written statement in answer to claim of set-off.'

9. This provision of lay confers upon the defendant not only the right to have the debt due by him wiped out or reduced but also enables him to make a counterclaim against the plaintiff. The defendant can make a counter claim by giving particulars of it in the written statement. It can only be made at the time of the filing of the written statement by furnishing particulars of it. So, this is a larger right given to the defendant than the one to have his debt wiped, out or reduced, independent of this provision, the defendant has a right to plead a set-off against the plaintiff's demand provided his claim against the plaintiff was not dead at the time the action was laid by the plaintiff and it does not exceed the plaintiff's claim. In such a case, the question of limitation has to be decided with reference to the date on which action has been brought and not with reference to the date when the claim for set-off is made. It is only in cases where a counter claim is made by the defendant against the plaintiff, i.e., when the defendant's demand exceeds that of the plaintiff, the point of limitation has to be determined with reference to the date on which the counter-claim is made. But if by adjustment the plain-tiff's claim is to be wiped out or reduced then, is already stated, it is the date of the claim of the plaintiff that is determinative of the question. To put it differently, if the set-off claimed is only in defence then it is the date of the claim made by the plaintiff that is relevant. If, on the other hand, the defendant makes a counter-claim against the plaintiff, the governing date is the date of the counter-claim.

10. This general principle is now well recognised by decisions of various Courts. This is the doctrine of Warasimha Rao v. Zamindar of Tiruvur, ILR 42 Mad 873: (AIR 1920 Mad 819). It was ruled there that if the defendant's claim was not barred at the date of the suit, he was entitled to plead that there was a sum in the plaintiffs hands which the latter was bound to apply in satisfaction of his demand but he could not get a decree against the plaintiff for any sum due to him in excess of the plaintiff's claim if on the date he made his claim it was time-barred. In the same trend of thought is the judgment of the Calcutta High Court in Harendra Nath v. Sourindra Nath, ILR 1942 (2) Cal 485 : (AIR 1942 Cal 559). It was inter alia remarked by Witter J., who spoke for the Court, that as the set-off was merely defensive--an answer to the plaintiff's claim -- on principle the relevant enquiry would be whether it was a dead claim at the data of the plaintiff's suit.

11. The plaintiff cannot be allowed to leave out of account the amount due to the defendant and recover the whole of the debt due to him by the defendant. An account will have to be taken of what is due by the one to the other in respect of dealings and the balance alone should be claimed and no more. This rule is based upon equity and justice, the object being to do substantial justice to the parties and to prevent injustice which would result if the claim of a person, who is a debtor to the other in respect of the same account, should be allowed without his being made to pay what he owes to the other. Therefore, the general principles cast a duty on the plaintiff to deduct from his demand the debt which is due from him to the defendant provided it was legally recoverable from him, i.e., either it was not dead or otherwise irrecoverable.

12. Apart from this general principle which applies to all persons in the position of creditor and debtor, there are statutory provisions which are applicable to claims provable against the bankrupt company. Section 529 of the Companies Act, 1956 extends the law of insolvency with respect to the estates of persons adjudged insolvent to the winding up of Insolvent companies in regard to provable debts. That section enacts :

'(1) In the winding up of an insolvent company,the same rules shall- prevail and be observed with regardto-

(a) debts provable;

(b) the valuation of annuities and future and contingent liabilities; and

(c) the respective rights of secured and unsecured creditors; as are in force for the time being under the law of insolvency with respect to the estates of persons adjudged insolvent.

(2) 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 make by virtue of this Section.'

13. It is Section 46 of the Provincial Insolvency Act, 1920 that deals with mutual dealings between an insolvent and a creditor claiming to prove his debt under that Act. That section postulates:

'Where there have been mutual dealings between an insolvent and 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.'

14. It is clear from this section that it is imperative on the part of the creditor to claim only the balance of the account in regard to the mutual dealings between them. He is under a duty to set off any sum due from him to the insolvent against his demand. As we have already stated, tills principle is based upon equitable considerations. It would indeed be inequitable if a creditor, who is indebted to the insolvent or the bankrupt company at the time of insolvency or liquidation, is permitted to destroy the debt due by him to the insolvent or the company while recovering the debt due in him. This section also places the Official Liquidator or the Official Receiver under a duty not to pay anything more than what is due to a creditor after setting off any amount dire by hint to the Insolvent or the bankrupt company. Thus, the obligation of the creditor in regard to mutual dealings is crystallized in this statutory provision.

15. Therefore, even assuming that the general principles governing mutual dealings and set-off are inapplicable to a case where the fiduciary relationship does not exist between the parties as argued by the learned counsel for the respondent, Section 46 of the Provincial Insolvency Act read with Section 529 of the Companies Act. 1956 compels a creditor like the respondent to set off against any sum alleged to be due by him to the company. It may also be mentioned here that there does not seem to be any basis for the contention that the general equitable principle is confined only to cases where fiduciary relationship exists between the parties and that the decision in ILR 42 Mad 873 : (AIR 1920 Mad 819) does not lend any countenance to this theory. However, as we have already stated, the provisions of law quoted above leave no room for doubt as to the obligation and duty of the creditor in this behalf.

16. We do not think that we can give any weight to the contention of the learned counsel for the respondent that the appellant had waived his right to claim a set-off.' There is no material from which such an inference could be drawn. The mere fact that the appellant had not intervened after he became the purchaser of the assets and good-will of the company subject to the liabilities in the claim proceeding would not amount to a waiver of any right of his. That apart, as we have already stated, it was a duly cast upon the respondent by Section 46 of the Provincial Insolvency Act to deduct all the amounts due by him which would have the effect of wiping out his claim before he could seek to recover anything due to him from the company, whether the appellant has asked for set-off or not. We are, therefore, unable to subscribe to the preposition that the appellant having waived his right to plead the set-off, he should not be allowed to claim it subsequently. It follows that the appellant is entitled to have the debt due to him from the respondent adjusted against the letter's claim.

17. The only question that remains, therefore, is whether on this discussion we should now reject the claim of the respondent or direct further investigation into the matter by the Official Liquidator. It is argued on behalf of the appellant that there is nothing further to be done by the Liquidator, since the objection of the respondent to the statement of account sent by the Liquidator in February 1957 related only to a few items amounting to Rs. 7,305-6-0 which means that he admitted his indebtedness to the company to the tune of about Rs. 20,000/- while making a counter-claim against the company which has now been found to be Rs. 10,662-14-0 and consequently nothing is due and payable by the appellant to the respondent and instead the respondent has to pay a sum of about Rs. 10,000/- to the appellant. On the other hand, it is submitted by Sri T. S. Narasingarao, learned counsel for the respondent, that since either the Official Liquidator or the learned Judge, who heard the application under Section 460(6) of the Companies Act, has not gone into the accounts and adjudicated upon them, it is desirable that the matter is looked into by the Official Liquidator, in the light of the principle enunciated by us. Whatever might be the force of the argument based upon notice sent by the Official Liquidator in February 1957 and the reply sent by the respondent, as the matter has not been finally decided, we think It desirable that this is enquired into by the Official Liquidator. It is unnecessary to state that the respondent cannot recover any sum due to him in excess of his demand in any proceedings since his counter-claim is long ago barred.

18. In the result, we set aside the order of the Official Liquidator as confirmed by our learned brother, and remand the matter to the Official Liquidator for disposal in the light of what has been stated above. The costs of this appeal will abide the result.


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