1. This is a rule obtained under Section 25, Provincial Small Cause Courts Act of 1887, in respect of a judgment and decree obtained by Wilfred John Younie and others against Messrs. N. Banerjee & Co., in the Small Cause Court of the second subordinate Judge of Howrah. The suit was brought by the plaintiffs to recover a sum of Rs. 668-7-0 for the price of goods sold and delivered by the plaintiffs to the defendants. Messrs. John King & Co., Ltd. carried on business as engineers and shipbuilders at Howrah. The defendants, Messrs. N. Banerjee & Co. are a firm of contractors who supplied goods which were used by Messrs. John King & Co., Ltd. There had been dealings between Messrs. John King & Co., Ltd. and Messrs. Banerjee & Co.; at times the company supplied goods to Messrs. Banerjee & Co. and at other times Messrs. Banerjee & Co. supplied goods to the company.
2. On 7th May 1934 the company, which was incorporated under the Companies Act and was registered in Calcutta, owed money to the National Bank of India. On that date the company executed a deed in favour of the National Bank of India Ltd. The purpose of that deed was to secure the then indebtedness of the company to the Bank and all future indebtedness. The deed in question transferred or purported to transfer to the bank the land, buildings, plant, machinery and stores which were then upon, or thereafter to be brought upon, the premises of the company as security for the debt owing or thereafter to be incurred. The provisions of the deed are numerous but I need only mention the following : The company covenanted to carry on its business in a proper and efficient way and replace the stores and supplies sold by equivalent amounts of the same commodity. The bank permitted and authorized the company to sell and deal with its moveable stores and stocks in the ordinary way. There was a provision that if the moneys owing at any time should not be paid after due demand, the license given to the company by the bank to trade in the ordinary way should be deemed to be withdrawn. The deed itself appears in the main, to have had the effect of creating what is known in English law as a floating charge over the assets of the company. There was provision for the appointment of a receiver by the bank on the happening of certain events and such receiver was to be deemed the agent of the company. Further such receiver was to have the powers given to a receiver under Section 69A, T. P. Act. The deed itself was registered with the Registrar of Joint Stock Companies, Bengal, on 8th May 1934, and therefore by reason of Section 109 (2), Companies Act, 1913, those who bought from the company must be deemed to have had notice of the deed and its contents.
3. Trading, as I have described, took place between the company and Messrs. Banerjee & Co., and on 19th July 1938, Messrs. Banerjee & Co. owed the company Rs. 2629 in respect of goods supplied and, at the same time, the company owed Messrs. Banerjee & Co. Rs. 4939 also in respect of goods supplied. On that date-19th July 1988-Messrs. Younie, Toft and Crooks took possession of the assets of the company as receivers on behalf of the bank. That came about by reason of the indebtedness of the Company to the bank and the execution by both the bank and the company of a deed dated 16th July 1938, whereby pursuant to the original deed the bank appointed Mr. Younie, Mr. Toft and Mr. Crooks as receivers under the original deed on behalf of the bank and the company agreed to such appointment. On 27th July 1938 a letter was written by the receivers to Messrs. N. Banerjee & Co. stating that they had been appointed receivers and taken possession of the assets of the company on 19th July 1938. The letter further stated:
We would draw your attention to your outstanding account of Rs. 2629-14-9...All payments should be made to us c/o Messrs. Price, Waterhouse, Peat & Go., Calcutta.
4. On 15th August 1938 there was a letter written to Messrs. Banerjee & Co., by a director of the company enclosing a notice received from the receivers in possession. In the notice it was stated:
We, Messrs. W. 3. Younie, W. Toft and G.E. Crooks took possession of the assets of the company on 19th July 1938 as receivers on behalf of a secured creditor and cannot accept liability in respect of any unsecured debts outstanding at the time of our appointment.
5. On 12th September 1938, the receivers, that is the plaintiffs in the suit, wrote to Messrs. Banerjee & Co. a letter in which they said...'we find that prior to our appointment you owed John King & Co., Ltd. Rs. 2629-14-9 made up of' amounts which are set' out in detail in the letter. The letter went on-'and John King & Co. owed you Rs. 4939-14-0 made up of' amounts which are set out in detail. The letter then proceeded:
The amount of Rs. 2629-14-9 may be offset against Rs. 4939-14-0 leaving a balance of Rs. 2309-15-3 due to you prior to our appointment for which as receivers we cannot accept liability. The following are the transactions with you in our own right as receivers. Our bills total Rs. 994-10-3. Your bills total Rs. 230-6-3 showing a balance due to us of Rs. 764-4-0 for which we shall be obliged if you will forward your cheque.
6. The plaintiffs receivers do not claim payment of Rs. 2629-14-9 in respect of goods which the company had supplied previous to the appointment of the receivers because that is offset by a larger claim which Messrs. Banerjee & Co. had then and still have against the company. But they do claim and have claimed in the suit the price of goods sold and delivered by them, the receivers, after the date of their appointment which on adjustment proves to be the sum of Rs. 668-7-0. It was in respect of this latter sum that the suit was brought and judgment was given in favour of the receivers. Messrs. Banerjee & Co. obtained this rule and contended that because a balance of Rs. 2300 or so was owing by the company at the time the receivers took possession this sum is liable to be set off against what they owe to the receivers on account of goods supplied after they took possession, and therefore that the claim should have been dismissed. The learned Judge negatived Messrs. Banerjee & Co.'s contention and gave judgment in favour of the receivers for Rupees 668-7-0.
7. The question for decision is whether the set-off asserted by Messrs. Banerjee & Co. is available. Immediately before the receivers took possession the position was that on balance the company owed Messrs. Banerjee & Co. Rs. 2300. Although the company was carrying on business by agreement with and under permission from the bank it was, like any other company trading with a mortgage debenture hanging over it, the principal. When the receivers took possession of the company's assets, those assets vested in the receivers who carried on by the direction of the bank; the position changed and the company was no longer supplying the goods -the receivers were. Under the deed appointing them, and also under the provisions of Section 69A, T.P. Act, the receivers were deemed to be agents of the company, although they were appointed by, and accounting to, the bank. The plaintiffs in this suit claim Rs. 668-7-0 for goods supplied by them, it may be as agents of the company to the defendants. The defendants contend that the company owes them Rs. 2300 for goods supplied and assert a set-off equal to the Rs. 668-7-0 claimed by the plaintiffs. The rule as to the availability of a set-off is given in Order 8, Rule 6, Civil P. C:
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 recoverabls 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.
8. It seems to me the Rs. 668-7-0 (part of the Rs. 2300) which the defendants here seek to let-off against the plaintiffs' claim for a like sum is not an 'ascertained sum of money legally recoverable by the defendant from the plaintiff'-it is recoverable from the plaintiffs' principal who is not a party to the suit. Further, both parties do not fill the same character as they do in the plaintiffs' suit; the defendants' cross claim is against the company, not against the receivers. Consequently the set-off claimed by the defendants cannot be made. This conclusion is in agreement with the English law on the subject: see Atkyns v. Amber (1796) 2 Esp 491, Isberg v. Bowden (1853) 8 Ex 852, Manley & Sons Ltd. v. Berkett (1912) 2 K B 329 and Jarvis v. Chappie (1815) 2 Chit 387 cited in Halsbury's Laws of England, Edn. 2, Vol. 29 'Set off and Counter claim' p. 492 which epitomises the law as follows:
If the defendant is sued by the agent he cannot set off a debt due from the principal, unless it can be shown that the agent has assented to such a set off.
9. There is no such assent by the plaintiffs in this case. For these reasons I am of the opinion that the judgment and decree which have been appealed from are correct and that this rule must be discharged with costs the hearing fee being assessed at two gold mohurs.
B.K. Mukherjea, J.
10. I agree. This is a rule obtained under Section 25, Provincial Small Cause Courts Act, and is directed against a judgment of the subordinate Judge, second Court of Howrah (exercising the powers of a Small Cause Court) decreeing the plaintiffs' suit for recovery of a sum of Rs. 668 odd annas against the defendants petitioners. The material facts are not in dispute and may be shortly stated as follows : There was an indenture of mortgage made on 7th May 1934 between Messrs. John King & Co., a firm of Engineers, Contractors and Ship Builders on the one hand and the National Bank of India on the other, by which the former who had taken an advance on their overdraft account with the latter to the extent of rupees eight lacs odd mortgaged their properties and stock-in-trade and also the outstandings and book debts of the firm to secure the said advance. This indenture of mortgage entitled the mortgagee bank to appoint, under certain circumstances, a receiver or receivers of the income of the mortgaged properties in terms of Section 69A, T. P. Act. In pursuance of the above provisions the plaintiffs were appointed receivers of the mortgaged property by an indenture dated 16th July 1938, and it was registered on 11th August following. The receivers were vested inter alia with the powers to manage and carry on the business and to fulfil all existing contracts and also to enter into new contracts with the consent of the Bank. The petitioners-defendants are a firm of traders who have been carrying on business with Messrs. John King & Co., from a considerable time past, and at the date when the receivers were appointed the accounts showed that Messrs. John King & Co., were indebted to them to the extent of over Rs. 2000. After the receivers were appointed, the petitioners placed certain orders with the company, and it is not disputed that in pursuance of the said orders goods were supplied to them by the plaintiffs receivers for which a sum of Rs. 667 odd was due by the defendants. It is for the recovery of this sum of money that the present suit was instituted. The defendants, as I have already said, do not dispute that goods were sold and delivered to them in compliance with the orders which they placed with the company. But their defence in substance was that as John King & Co., owed to them a much larger sum of money, they were entitled to set off this amount against the debts due by them and that if accounts are taken on this footing nothing would be recoverable by the plaintiffs from them. The subordinate Judge rejected this defence and decreed the plaintiffs' suit. It is against this decree that the present rule has been obtained.
11. The whole controversy centres round the point as to whether the money admittedly due by Messrs. John King & Co., to the defendants was legally recoverable by the latter from the present plaintiffs and if that question is answered in the affirmative the plaintiffs' suit undoubtedly fails. Mr. Roy who appears for the defendants petitioners has contended before us that under the terms of the mortgage bond as well as under S.69A, T. P. Act, the receivers were agents of the mortgagor and if they sought to recover a sum of money as agents of Messrs. John King & Co., a claim to a set-off which could be asserted against the company could very well be asserted against the receivers also. The contention, though plausible at first sight, seems to me to be without substance. A receiver appointed under S.69A, T. P. Act, is undoubtedly an agent of the mortgagor as laid down in Clause (3) of that section. The effect of that is that the mortgagee is not liable in respect of any default committed by the receiver and the sole responsibility for acts and omissions on the part of the receiver rests on the mortgagor alone. But that does not entitle the receiver to pay out of the funds in his hands an unsecured creditor of the mortgagor and place him in front of the mortgagee after the mortgagee had got a receiver appointed to realize the security over the undertaking. There are elaborate provisions in Sub-section (8) of Section 69A which lay down the way in which the money received by the receiver is to be applied by him and these provisions have been, bodily incorporated in the indenture of appointment. In my opinion they do not show that the receiver was given an express authority to pay any debt due by the mortgagor before the dues of the mortgagee Bank were satisfied.
12. Mr. Roy concedes in a way that Section 69A by itself might not empower the receiver to pay, but he argues that the express provision in the deed which entitled the receivers to carry on business as before carried with it an implied authority to that effect. I do not think I can accept this contention as correct. It is admitted that there was no existing contract in pursuance of which goods were supplied to the defendants by the receiver. It was a new contract, pure and simple, between the receivers on the one hand and the defendants on the other, and it cannot be said that the receivers were not entitled to sue on the same, unless they were prepared to meet the liability which the company itself had incurred in respect of transactions which took place prior to the date of their appointment. I am not for one moment suggesting that the company, after the receivers were appointed, was a different entity from what it was before. As the mortgagee found it convenient to keep the company alive it must be held that the same entity still continued but the fact of the receivers being placed in possession of the business must fundamentally alter the position of those who were entitled to enforce their rights against the mortgagor company. The receivers, in my opinion, have all the rights and liabilities arising out of the new transactions into which they had entered and they are not in any way affected by any equity which might be enforced against the original mortgagor. On these considerations, I agree with my Lord, the Chief Justice that this rule must be discharged.