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The Mylapore Permanent Benefit Fund Limited in Liquidation by Its Liquidators A. V Enkatarayaliah and anr. Vs. T. Arogiaswami Pillay - Court Judgment

LegalCrystal Citation
SubjectCompany;Civil
CourtChennai
Decided On
Judge
Reported in(1917)ILR40Mad1004
AppellantThe Mylapore Permanent Benefit Fund Limited in Liquidation by Its Liquidators A. V Enkatarayaliah an
RespondentT. Arogiaswami Pillay
Cases ReferredBrighton Arcade Company v. Dowling
Excerpt:
set-off - limited company--right of shareholder to appropriate paid-up calls towards debt due from him to company--joint stock companies, friendly societies and building societies--distinction between as to rule of set-off. - - and the argument against the allowance of a set-off, addressed to the court on behalf of the official liquidators, is extremely strong that, if a debt due from the company to one of its members should happen to be exactly equal to the call made upon him, he would in this way be paid twenty shillings in the pound upon his debt, while the other creditors might, perhaps, receive a small dividend, or even nothing at all. this is exemplified in the 101st section, where a set-off upon an independent contract is allowed to the member of an unlimited company against a..........april 1914. the fund went into liquidation in may 1914.2. the case for the plaintiff was that the calls paid by his vendor must be deducted from, the amount of the loan originally advanced, and that he should be entitled to redeem the property on payment of the balance. the fund contended that the paid up calls should not go in reduction of the debt due and that the entire amount of the mortgage-debt should be paid before redemption. the learned city civil judge holding that the subscriptions paid should be given credit to the plaintiff, has decreed redemption on payment of the balance. the fund has appealed.3. the learned judge has mainly relied upon brownlie v. russell (1883) 8 a.c. 235 for his conclusion. that is a case of a building society. lord selborne points out that building.....
Judgment:

Seshagiri Ayyar, J.

1. The vendor of the plaintiff took five stares in the defendants Fund (The Mylapore Permanent Benefit Fund) in July 1910. In August following, he borrowed from the Fund Rs. 500 and executed a deed of mortgage in respect of the suit property in his own behalf and on behalf of his minor sons, as their guardian. Under the rules of the Fund, he had to pay Rs. 5 a month as shareholder, and was entitled to Rs. 500 at the end of eighty-four months. There are provisions in the rules for payment of penal interest in case the subscription was not regularly paid. Under the deed of mortgage, he and his sons were liable to pay interest at a particular rate every month The document contains provisions for the payment of a higher rate in case interest was not regularly paid. The plaintiff's vendor paid the subscription on his shares, and the interest on the mortgage till August 1913. The plaintiff purchased the equity of redemption of the property mortgaged to the Fund in April 1914. The Fund went into liquidation in May 1914.

2. The case for the plaintiff was that the calls paid by his vendor must be deducted from, the amount of the loan originally advanced, and that he should be entitled to redeem the property on payment of the balance. The Fund contended that the paid up calls should not go in reduction of the debt due and that the entire amount of the mortgage-debt should be paid before redemption. The learned City Civil Judge holding that the subscriptions paid should be given credit to the plaintiff, has decreed redemption on payment of the balance. The Fund has appealed.

3. The learned Judge has mainly relied upon Brownlie v. Russell (1883) 8 A.C. 235 for his conclusion. That is a case of a Building Society. Lord Selborne points out that building societies are different from joint stock companies and friendly societies and that the liability of contributories in such cases is wholly regulated by the contract and by the special rules of the society. Rule 12 which is printed at page 237 makes it clear that the loans advanced to members should be liquidated by monthly payments. That is a distinct provision that such payments ought to be applied towards the debt advanced to the member. There was a similar provision in the case of the society referred to in the judgment of the House of Lords in Josh v. North British Building Society (1886) 11 A.C. 489.

4. In the present case, the rules do not-provide for the appropriation of the monthly subscriptions towards the loan On the contrary, the provision is for the settlement of the account after the calls have matured at the end of the eighty-fourth month and for the payment of the balance. No doubt, there is nothing to prevent the redemption of the mortgage at an earlier date; but if it was left outstanding, the adjustment of the two claims can only be made at the end of the eighty-fourth month.

5. Mr. 6. Krishnaswami Ayyar referred to the fact that the sons also joined in the execution of the mortgage and undertook to pay the calls. We do not think this makes any difference. We have seen from the accounts kept by the Fund that the subscription as such was paid only by the father as shareholder.

6. These being the facts, the law is clear. It was held in In re Overend, Gurney & Co., Grissell's Case (1866) L.E., 1 Ch. App., 528 that when a society goes into liquidation, the contributory or the shareholder is not entitled to set off the paid-up calls or the calls that he may be required to pay as a contributory against the debt due from him. Lord Chelmsford, L.C., stated the law upon this point thus:

And the argument against the allowance of a set-off, addressed to the Court on behalf of the official liquidators, is extremely strong that, if a debt due from the company to one of its members should happen to be exactly equal to the call made upon him, he would in this way be paid twenty shillings in the pound upon his debt, while the other creditors might, perhaps, receive a small dividend, or even nothing at all.

The case of a member of a, limited company is different from that of a member of a company of unlimited liability as to set-off. This is exemplified in the 101st section, where a set-off upon an independent contract is allowed to the member of an unlimited company against a call, although the creditors have not been paid evidently because he is liable to contribute to any amount until all the liabilities of the company are satisfied, and, therefore, it signifies nothing to the creditors whether a set-off is allowed or not. But with respect to a member of a company with limited liability, if a set-off were allowed against a call, it would have the effect of withdrawing altogether from the creditors part of the funds applicable to the payment of their debts.

7. As this is a Fund with limited liability, the shareholder under this ruling is not entitled to any set-off. In Black & Co'.s Case, In re Paraguassu Steam Tramroad Company (1872) L.R.8Ch. App., 254 at p. 261, Lord Selborne, L.C., approved of the dictum of Lord Chelmsford and explained the principles on which the refusal to allow a set-off is based:

I think it right, rather in consequence of what was said by the Court of Common Pleas in Brighton Arcade Company v. Dowling (1868) L.R. 3 C.P. 175 than for any other reason, to observe that I entertain no doubt whatever that In re Overend, Gurney & Co., Grissell's Case (1866) L.R. 1 Ch. App. 528, was decided on the soundest principles. What is the ordinary law of set-off? It is What in the civil law was called compensation, and simply means this: that when you have got two cross demands of a nature substantially the same, and due to and from A and B in the same right, that is to say, when the one is a creditor in his own right and debtor also in his own right to the other, the one debt may be set off against the other at the option of the party from whom payment is demanded, But it is essential in such cases that the rights should be substantially, the same. If they were apparently the same at law but different in equity, set-off would not be allowed here; nor do I suppose that, in the present state of the law, it would be allowed at common law either. But here the rights are substantially different, the moment that the winding up takes place, the whole administration is carried on with a view to the payment of the debts of the creditors, and in the first instance to payment pari passu... and the hand which receives the calls necessarily receives them as a statutory trustee for the equal and rateable payment of all the creditors. The result of this contention, that one particular creditor may pay himself in full by retaining his own calls and not paying them, would, in effect, be to give him a preference, and to exonerate him from his obligation as a shareholder to contribute towards the payment of the debts of the other creditors. That appears to me to be utterly opposed to the whole principle of the law of set-off, and to all the provisions of the Act which bear on the subject.

8. We have made these lengthy quotations as no reported Indian case on this subject has been brought to our notice, and as it is desirable that the law on the subject should be made clear. These decisions were followed in In re Hiram Maxim Lamp Company (1903) 1 Ch., 70; see also Lindley on Companies, Sixth Edition, pages 1022 and 1027: what applies to a set-off in Court is equally applicable to an attempted appropriation by the plaintiff by way of set-off before he sues for redemption.

9. The above statement of the law governs all joint stock companies and friendly societies: We must, therefore, hold that the plaintiff is bound to pay the entire debt secured by the mortgage before he can redeem the property. We must modify the decree of the City Civil Judge as above indicated. Time for payment will be extended by three months from this date. Each party will bear his own costs throughout. The memo randum of objection is also dismissed. No costs.


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