Case Law Companies Act Official Liquidator of High Court of Karnataka Vs Smt V Lakshmikutty

Case Law Companies Act

Official Liquidator of High Court of Karnataka Vs

Smt V Lakshmikutty

 

DATE OF JUDGMENT 12/12/1980

 

BENCH: BHAGWATI, P.N.

BENCH: BHAGWATI, P.N. SEN, A.P. (J)

 

CITATION: 1981 AIR 1483  1981 SCR  (2) 349 1981 SCC  (3)   32

CITATOR INFO : RF 1991 SC1806  (10)

 

ACT: Companies Act, 1956-Sections 529 and 530-Scope of -Party having  mutual dealings with a Company in liquidation- If entitled to set off debts against credits.

HEADNOTE: The respondent  claimed that  since there were  mutual dealings between  her and  the  company  in liquidation  an account should  be taken  in respect of such mutual dealings and only  that amount should be payable or receivable by her which is  due at  the foot of such account. She claimed that she was  entitled to  the benefit  of the  rule  enacted  in section 46 of the Provincial Insolvency Act. The High Court upheld her contention. Dismissing the  special leave  petition by the Official Liquidator ^ HELD: (1) In view  of the provisions of section 529 of the Companies  Act, 1956  the rule  enacted in section 46 of the Provincial  Insolvency Act with regard to debts provable by a  creditor against  the insolvent  must equally apply in regard to  debts provable  against a  company in winding up. [350 F] (2) Although  section  530  provides  for  preferential payments, that provision cannot in any way detract from full effect being  given to  section 529 which enacts that in the winding up  of an  insolvent company,  the same  rules shall prevail and be observed with regard to provable debts as are in force for the time being under the law of insolvency with respect to  the estate  of persons  adjudged insolvent.  The only way  in which sections 529 and 530 can be reconciled is by reading  them together so as to provide that whenever any creditor seeks  to prove  his debt  against the  company  in liquidation, the rule  enacted in  section  46  of  the Provincial Insolvency  Act should apply and only that amount which is  ultimately found  due from  him at the foot of the account in  respect of mutual dealings should be recoverable from him  and not  that the  amount due  from him  should be recovered fully while the amount due to him from the company in liquidation should rank in payment after the preferential claims provided under section 530.[350H] Gore Brown on Companies, 43rd Ed. at page 34-14. National Westminster  Bank Ltd  v. Halesowen  Presswork and Assemblies Ltd. [1972]1 All E. R. 641 at 659 and Re City Life Assurance Co. Ltd. [1925] All E. R. 453 at 457 referred to. 350

JUDGMENT: CIVIL  APPELLATE  JURISDICTION:  Petition  for  Special Leave to Appeal No. 5844 of 1980. From the  Judgment and  Order  dated  1-2-1979  of       the Karnataka High Court in O.S.A. No. 5 of 1975. Y. S. Chitale and P. R. Ramases for the Petitioner. NEMO for the Respondent. The Order of the Court was delivered by BHAGWATI, J.-  We think that the view taken by the High Court is  the correct view on the interpretation of sections 529 and 530 of the Companies Act, 1956. Section 529 provides that in  the winding  up of  an insolvent  company, the same rules shall prevail and  be observed  with  regard  to  the provable debts  as are  in force to the time being under the law of  insolvency with  respect to  the estate  of persons adjudged   insolvent. This provision   brings   in   the applicability of section 46 of the Provincial Insolvency Act which reads: “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.” This rule enacted in section 46 of the Provincial Insolvency Act with  regard to the debts provable by a creditor against the insolvent  must, therefore,

likewise apply in regard to debts  provable   against   a   company   in   winding   up. Consequently,  when  the  respondent  in  the  present  case claimed  to   prove  her   debt  against   the  company   in liquidation, she  was entitled  to the  benefit of  the rule enacted in  Section 46  of the Provincial Insolvency Act and she  could   legitimately  claim   that  since   there  were admittedly mutual  dealings between  her and  the company in liquidation, an  account should  be taken in respect of such mutual dealings  and only  that amount  should be payable or receivable by her which is due at the foot of such account.

It is  true that  section 530 provides for preferential payments, but  that provision cannot in any way detract from full effect  being given to section 529 and in fact the only way in  which these  two sections  can be  reconciled is  by reading them  together so  as to  provide that  whenever any creditor seeks  to prove  his debt  against the  company  in liquidation,  the   rule  enacted   in  Section  46  of  the Provincial Insolvency Act 351 should apply  and only that amount which is ultimately found due from him at the foot of the account in respect of mutual dealings should  be recoverable  from him  and not  that the amount due  from him  should be  recovered fully  while  the amount due  to him  from the  company in  liquidation should rank in payment after the preferential claims provided under S. 530.  We find  that the  same view  has been taken by the English Courts  on the  interpretation of  the corresponding provisions of  the English Companies Act, 1948 and since our Companies Act  is modelled  largely on the English Companies Act 1948,  we do  not see  any reason  why we  should take a different view,  particularly when  that view  appears to be fair and  just. We  may, point  out that  Gore Browne in his book on  Company Law,  43rd Ed  at page  34-14 also confirms this view: “Indeed, all  claims provable  in the winding up may be the  subject of  set-off,   provided  that  there  is mutuality.” Moreover, we  find that  the observations  of the  House  of Lords  in   National  Westminster  Bank  Ltd.

V. Halesowen Presswork &  Assemblies Ltd. are also to the same effect. We may also usefully refer  to the  observations of Sir Ernest Pollock, M. R. in re. City Life Assurance Co. Ltd. where the learned Master  of the  Rolls after referring to section 207 of the  Companies Act,  1908 (s.  317 of  the Companies Act, 1948) which  corresponds to  section 529  of Companies  Act, 1956 and  section 31  of  the  Bankruptcy  Act,  1914  which corresponds to  section 46 of the Provincial Insolvency Act, says: “It is  to be    observed that  s. 31  of Bankruptcy Act, 1914, is definite in its terms that where there is a mutual  credit, mutual debt or other mutual dealings, the sums  are to  be set  off and the balance  of  the account and  no more shall be claimed or paid on either side respectively. It is not merely permissive, it is a direct statutory enactment that the balance only is to be claimed in bankruptcy.” We are  in agreement  with these observations and affirm the view taken  by the  Karnataka High  Court  in  the  judgment sought to  be appealed  against. We accordingly dismiss the special leave  petition on  merits after condoning the delay in filing it. P.B.R.

Petition dismissed. 352

 

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