Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 3
PETITIONER:
OFFICIAL LIQUIDATOR OF HIGH COURT OF KARNATAKA
Vs.
RESPONDENT:
SMT. V. LAKSHMIKUTTY
DATE OF JUDGMENT12/12/1980
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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 3
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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 3
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