Tek Chand, J.
1. My order dated October 23, 1961, in this case (since reported in AIR 1968 Punj 190) may be treated as a part of this judgment. The preliminary issues in both the petitions (C. O. 16 and C. O. 28 of 1960) were decided by me by that order in favour of the petitioner and now the evidence on the remaining issues has been recorded and by this order I will dispose of the issues on merits namely, issues 4, 5, 6 and 7 in C. O. 16 of 1960 and issues 6, 7, and 8 in C. O. 28 of 1960, both sets of issues being similar. Issue No. 7 in C. O. 16 of 1960 and issue No. 8 in C. O. 28 of 1960 are no longer controversial as the counsel for respondents 2 and 9, daring the course of arguments, admitted that their clients were share-holders of the company.
2. I may now take up issue No. 4 in C. O. 16 which is in identical language as issue No. 5 in the connected case. The case of the respondents is that no list of contributories was settled by the joint liquidators and no notice was received from them prior to the settlement of the lists enclosed with the petition. If was maintained that the settlement of the various lists of the contributories was made contrary to law and procedure as oo opportunity. was given to the respondents to contend before the liquidators that their names ought not to have been placed in the list or to contend that the assets of the company were sum-dent to meet the existing liabilities.
Shri Jai Krishna Suri one of the voluntary liquidators, as P. W. 1 stated that' he had brought the register containing the minutes of the extraordinary meeting at which a resolution for voluntary winding up of the company and also another resolution appointing him and Shri Harnam Das Bhasin as voluntary liquidators were passed. He also sent copies of the resolutions of the extraordinary meeting to the Registrar and produced a certificate of registration of these resolutions granted by, the Registrar which is marked as Exhibit P. 3.
These resolutions were also got published in the Gazette of India dated 29th of March 1958, vide Exhibit P. 4 and also in the 'Hind Sama-char', an Urdu daily of Jullundur, vide Exhibit P. 5. A notice was issued to the contributories for settling the list and it was published in the 'Hind Samachar' dated 13th of November, 1958, vide Exhibit P. 7. He stated that he had complied with all the formalities as required by the Registrar, under Sections 500 and 501 of the Companies Act. Call of Rs. 2/:- per share (petition No. 28 of 1960) was made on 1381 of October 1939.
The objection which has been raised under this issue is that the notices were sent under certificate of posting and not by prepaid post. Rule 181 of the Companies (Court) Rules, 1959, issued by the Supreme Court under Section 643 (1) and (2) ol the Companies Act, 1956, requires the liquidator to give notice of the filing of the provisional list to every person included in the provisional list containing the requisite particulars mentioned in form No. 77 by 'prepaid letter post under certi-ficate of posting' to every person included in the list at the address mentioned therein so as to reach him in the ordinary course of post not later than 14 days before the date fixed for settlement. It is not denied that this rule has been complied with.
It is however, maintained on behalf of the respondents that the notice of settlement to contributories as required by Rule 184 was not sent by 'prepaid registered post' but under postal certificate. In this case both the notices were sent under postal certificate. The question is whether the omission to send notice in accordance with Rule 184 under prepaid registered post is fatal. No respondent has appeared as his witness and there is no denial on the record that no (sic) notice was, in fact, received. In view of this fact the omission to give notice by registered post cannot be treated as non-compliance with a mandatory provision. Had it been established that no notice had been received, in fact, there might have been some force in the contention raised by the respondents. I am, therefore, satisfied that there has been substantial compliance with the procedure laid down in the rules and the list of contributories as drawn up suffers from no defect,
3. The next question is whether the several claims against the company as referred to in annexure 'D' to the petition are admissible and if so to what extent. Annexure 'D' is a list of creditor showing the amounts due to them. There are thirteen items in all. Items 1 to 4 deal with the claims of the staff including claim of Rs. 6,473-76 nP. which is made by Shri J. K. Suri who was the Managing Agent and Director of the company and who is now one of the voluntary liquidators. This claim has been contested. Item No. 8 is the claim of Punjab State, Department of industries, for Rs. 5,000/- and item No. g is rent of Rs. 1200/-said to be due to the landlord, Shri Gurbachan Singh. The other claims are of certain share-holders and others which have not been challenged.
Out of these three items the claim made by Shri Suri has been contested and it is contended that he is not entitled to receive anything. The case as set up by Shri Suri is that under para 2 of the managing agency agreement, Exhibit P. W. 1/95. the company shall pay to the managing agents, inter alia, office allowance till the company starts work and up to fifty maunds of milk supply per day at the rate of Rs. 350/- per mensem. Mr. Suri in his statement as P. W. 1 stated that he has claimed his remuneration at Rs. 350/-for the period from July 1956, to June 1957 and also from July 1957, to January 1958 and this comes to Rs. 6,473/-.
This demand has been made for the first time after the company went into liquidation. He said that his claim for recovery of this amount was placed before the general meeting of the creditors without any creditor raising any objection. He stated that for the year 1953-54 his remuneration amounted to Rs. 5,950/- but he took only Rs. 200/- and voluntarily gave up his claim for the balance and he did so in the interest of the company. Similarly in the second year he accepted Rs. 200/- and gave up the rest of his claim. On his behalf it is contended that from the fact that he voluntarily gave up bulk of his claim in the previous years it cannot follow that he is not entitled to the claim that he has made. As stated above the claim ia in accordance with the terms of the managing agency agreement.
On behalf of the respondents it is maintained that Shri Suri did not devote himself to the business of the Company entirely and that no work of the company was in progress and, therefore, nothing should be paid to him. In the alternative they contended that his claim in view of the financial difficulties of the company and in equity be reduced. Section 529 recognises the application of insolvency rules in winding up of insolvent companies. An objection' was raised that this claim has not been proved in accordance with Section 49 of the Provincial insolvency Act which requires that a debt may be proved by delivering or sending by post in a registered letter to the Court an affidavit verifying the debt. J find no merit in this contention. Proof by means of affidavit is one of the ways for proving a debt. It does not mean that the debt cannot otherwise be proved by an equally satisfactory mode, as for example by the agreement transacted between the parties.
Another objection that was raised by the respondents in this connection is on the basis of Section 198 and Section 348 of the Companies Act, 1956. These sections provide for the maximum managerial remuneration which must not exceed Rs. 50,000/- where a company has made no profits or inadequate, profits. As no profits had been made, the learned counsel for the respondents said that the managing agent did not deserve any payment.
Mr. Anand Mohan Suri on behalf of the company drew my attention to Sub-section (3) of Section 198 and 'section 353 of the Companies Act. Proviso to Section 353 lays down that minimum remuneration payable in pursuance of Section 198 may be paid to the managing agent in such suitable instalments as may be specified, inter alia, in the managing agency agreement executed by the company. I cannot accept the view that there is any legal bar to the managing agent's claim of remuneration as made by him. I, however, do feel that in view of the fact that no work of the company was going on for the period for which remuneration is being claimed, his remuneration should be substantially reduced. There is some merit in this contention. In my view, remuneration may be claimed by Shri Suri at the rate of Rs. 175/- per mensem and not at the rate of Rs. 350/- per mensem for the period from July 1956 to January 1958 as claimed by him.
4. Another argument which I may consider while dealing with this issue is that Rs. 75o/-could not be set off by Shri Suri against the contribution due from him pn account of the unpaid call of Rs. 1.50 nP. per share. According to an-nexure 'A/1' attached with C. O. 16 of 1960 on the basis of Rs. 1.50 nP. per share a sum of Rs, 750/- is due on the call made by the liquidators. Mr. Suri has adjusted the amount of Rs. 750/-against credits due to him. It is maintained on behalf of the respondents that no set-off by way of such an adjustment can be allowed in respect of unpaid calls. There is force in this contention. A contributory cannot in a winding up set off a debt owing to him by the company against a call whether made before or after the winding up. This rule also applies to the case of a voluntary winding up. The following is the statement of law as given in Palmer's Company Precedents, 17th edition, Para a, page 363 :-
'Whether the company be solvent or insolvent, a contributory of a limited company cannot set off a debt due from the company to him against calls due from him, and it makes no difference whether the calls are made before or after the commencement of the winding up.'
See also Halsbury's Laws of England, third edition, volume 6, page 648, para 1275. Jn in re. Para-guassu Steam Tramroad Co., (1872) 8 Ch A 254, it was held that in winding up a company debts cannot be set off against calls. In that case a contractor was not allowed to set off the amount due to him from the company under his agreement as damages. Mr. Anand Mohan Suri, learned counsel for the petitioner, has drawn my attention to the case of Brighton Arcade Co., Ltd. v. Dowling, (1868) 3 C. P. 175, for the proposition that an action by the liquidator of a limited company being voluntarily wound up against a contributory for calls, the defendant may set off a debt due to him from the company. This decision was disapproved of in the former authority in (1872) 8 Ch. A 254.
5. in the case in re, Overend, Gurney, and Co., Grissell's case, (1866) 1 Ch. A 528, it was held that a share-holder in a limited company, who was also a creditor of the company under a contract, was not, in the event of the company being wound up, entitled to set off the debt due to him against the calls, nor to set off against the calls a dividend which might hereafter come to him. Similar is the law in India. In a Full Bench decision of the Allahabad High Court in In re, Benares Bank Ltd., AIR 1940 All 544, the question under reference was :
'Whether, having regard to the observations made by their Lordships of the Privy Council in Hansraj Gupta v. Dehra Dun Mussoorie Electric Tramway Co., Ltd., 1933 All LJ 175 at p. 186 : (AIR 1933 PC 63 at p. 65} and in a case in which the contributory of a company in compulsory or voluntary liquidation, would, or might, but for the liquidation, have an accrued legal right to set off a debt due to him from the company against a debt due by him to the company (other than in respect of calls on shares), the Court exercising jurisdiction in the winding up ought to refuse an application' by the official liquidators or liquidator as the case may be under S. 186, Companies Act, and leave the official liquidators or liquidator to sue the contributory in the ordinary course; and, in particular, whether the application of the official liquidator of the Benares Bank Ltd., in this present case ought to be so refused. Distinguishing the decision in (1866) 1 Ch. A 528 referred to above, and other cases deciding the same principle, the Full Bench observed :
'The decisions in these cases however do not touch the question which we have to decide. These decisions establish the principle that in a case of a call upon a contributory in respect of his shares or in the case of a claim against a director in respect of misfeasance no set-off may be permitted as against the liquidator. In the cases referred to the rights of a contributory to set off in a claim by the liquidator in respect of an ordinary debt due by the contributory to the company were not in issue.'
Again, in J. C. Chandiok v. Pearey Lal, AIR 1942 All 136, while drawing distinction between indebtedness as a contributory in respect of calls and debts which are of a purely commercial nature, it was observed that the Court will not allow a person to whom the company is indebted to set off that indebtedness against what is due from him as a contributory in respect of calls. But a set-off would be allowed where the debts were of a purely commercial nature. Referencg may also be made to H. M. Ebrahim Sait v. South India industrials Ltd., AIR 1938 Mad 962, which contains observations to similar effect. In these circumstances, no adjustment by way of set-off can be allowed to Shri Suri, the Managing Agent, against the calls made on him as a contributory.
6. The next item which has been questioned is the claim of Rs. 5,000/- made by the Punjab State. The quantum is not in question, but objection is raised to a claim of priority which has been asserted on behalf of the State. As this is a subject-matter of a separate petition made by the Government in C. O. 39 of 1961, the objection raised on this score can better be disposed of when that case comes up.
The last item which has been objected to is the sum of Rs. 1,200/- owed to Gurbachan Singh landlord. It is proved from the statement of Shri Suri, Managing Agent and voluntary liquidator, that this sum is due to the landlord who obtained an eviction order on the ground of nonpayment of rent. He admitted in cross-examination that there was no rent-deed executed, but that is not the sine qua son for allowing the claim.
It was also alleged that the premises ought to have been vacated by the company earlier and the respondents contend that the liability is of the voluntary liquidators who on account of their negligence and mismanagement did not vacate tha premises after it had been realised that the company could do no business. Whatever the effect of such an argument may be when advanced in misfeasance proceedings, the claim of the landlord cannot be rejected on this ground. I will treat this claim as duly proved especially when not a single respondent has come forward to make a statement in this Court and has led no other evidence either in support of their case or in rebuttal of the case as set out by the petitioner.
7. The result of the above discussion is that the claim of Shri Jai Krishan Suri, Managing Agent and Director, of Rs. 6, 473.76 nP. is reduced as indicated above. The sum of Rs. 750/- which is claimed by him by way of set-off on account of his contribution for the unpaid call of Rs. 1.50 nP per share is also rejected. He must pay this call like any other contributory.
8. The next question is whether the call of Rs. 1.50 nP. per share is justified in the circum-stances of the case. It is a wise rule that in mak-ing a call the Court may take into consideration the probability that some of the contributones may partly or wholly fail to pay the call. I have reduced the claim of Shri Suri in respect of his remuneration and I have allowed him at the rate of Rs. 175/- per mensem instead of Rs. 350/- per mensem as claimed by him for the period specified in his claim. I have also disallowed him set-off on account of the amount of the second call of Rs. 1.50 nP per share. In these circumstances, a call of Re. 1/- and not of Rs. 1.50 nP. per share is justified in C. O. 16 of 1960. The call of Rs. 2/-per share made in C. O. 28 of 1960 is justified. Accordingly I pass payment order in C. O. 16 of 1960 for the amounts shown against each contributory (calls by liquidators) with future interest at 6 per cent per annum in the schedule attached (not printed here) which will form a part of this order.
9. I also pass payment order in C. O. 28 of 1960 for the amounts shown against each contributory with future interest at 6 per cent per annum as per schedule attached which will form a part of the order in these cases. The company shall be entitled to Rs. 150/- in each case as costs.