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Pioneer Bank Ltd. v. B.N. De
Factual and Procedural Background
This is an application by Sm. Annapurna Badrinarain Banerji seeking an order directing the Official Liquidator of the Pioneer Bank to set off amounts due to Badrinarain under six Fixed Deposit Receipts (FDRs) against a debt claimed by the Bank from the applicants. No objection was taken to the form or maintainability of the petition. The Bank agreed that the court might adjudicate the set-off issue.
Facts as stated in the opinion (all dates and facts are taken from the judgment):
- Annapurna had large overdrafts from the Bank and was personally indebted to it; Badrinarain was a guarantor.
- The petition contained conflicting statements about the nature of the guarantee, but counsel for the applicant formally admitted that Badrinarain guaranteed personally the full debt of Annapurna.
- As further security Badrinarain endorsed a Life Insurance Policy and made over six Fixed Deposit receipts; he also executed letters of lien authorising the Bank to adjust the FDR amounts against the debt and agreed that the Bank would have a lien on the FDRs until adjustment.
- The Fixed Deposit receipts represented substantial sums payable by the Bank to Badrinarain. The last FDR was dated 20-5-1948.
- The petition for winding up the Bank was presented on 3-1-1949. Before that date all FDRs had matured except one which matured on 20-5-1949.
- The Bank was ordered to be wound up on 12-7-1949.
- The applicants also sought an order directing the liquidator to compromise on certain terms, but the liquidator was not agreeable to those terms.
Legal Issues Presented
- Whether, in the winding up of an insolvent company, the bankruptcy law as incorporated into the Companies Act (Section 229) permits a guarantor to set off debts due to him from the company against his liability as guarantor.
- If set-off is available in winding up, what is the relevant date for ascertaining the right of set-off — in particular, whether the date of the order for winding up is the dividing line.
- Whether the fact that one of the debts (an FDR) matured after presentation of the winding-up petition, but before the winding-up order, affects the right of set-off.
- How the character of the guarantee (joint, joint & several, or a contract of indemnity/engagement for default of a third party) affects the availability of set-off.
- Whether the liquidator can be ordered to compromise on terms to which the liquidator does not agree.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For (as stated in the opinion) | Application by the Court (how the judgment used or relied on it) |
|---|---|---|
| Morley v. Inglish, (1837) 4 Bing (N.C) 58 | Historic English rule that a defendant who is creditor to a third party (for whom plaintiff was guarantor) could not set off that third party's debt against the plaintiff's claim. | Used to show the former English position that a guarantee was treated as contingent/unliquidated and not subject to set-off in ordinary actions. |
| Crawford v. Stirling, 4 Esp. 207 | Lord Ellenborough's reasoning that a guarantee is a contract of indemnity and is contingent on the default of the principal; therefore unliquidated until the principal's liability is ascertained. | Cited as authority for the historical view that guarantees gave rise to contingent liabilities not amenable to set-off in ordinary actions. |
| Halsbury's Laws of England, vol. 16, Article 89, p. 86 | States the modern view: surety's liability under a guarantee may be subject of set-off or counterclaim (and conversely). | Quoted to show that under modern procedural rules the surety's liability may be set off or counter-claimed. |
| Fletcher v. Dyche, (1787) 2 T.B 32 | Illustration of the principle that a joint & several debt is a separate debt of both debtors. | Used to support the proposition that a joint & several debt may be set off against a separate debt because it is in effect a separate debt of each debtor. |
| Owen v. Wilkinson, (1858) 5 C.B (N.S) 526 | Similar support for treatment of joint & several debts as separate obligations enabling set-off. | Referenced to substantiate the legal distinction between joint, several and separate debts in set-off analysis. |
| Re Travancore National and Quillon Bank Ltd., A.I.R (28) 1941 Mad. 654 | Authority in India holding that a surety can set off a separate claim against the creditor in winding up; the court in this opinion preferred this decision. | Followed and relied on by the court to support the conclusion that the guarantor here could set off debts due to him against his liability under the guarantee in the winding up context. |
| Trimbak v. Bamchandra, 45 Bom. 1219 | A decision to which the court contrasted Re Travancore; it was less preferred by the present court. | Mentioned as a decision less persuasive than Re Travancore; the court expressly preferred Re Travancore. |
| Alliance Bank of Simla v. Mohanlal, 8 Lah. 105 | Another decision contrasted with Re Travancore. | Not preferred; cited to note divergent authorities on set-off questions. |
| Simla Banking Go v. Bhagwan Kuar, A.I.R (15) 1928 Lah. 316 | Rule that if a bank is liable under a fixed deposit payable to either A or B, the bank cannot set off a separate debt due from A in a suit by B (absent other considerations as in S.K. Panikar). | Used to illustrate limits on a bank's right to set-off when obligations are payable to joint depositors or survivorship arrangements. |
| S.K. Panikar v. Travancore National & Quilon Bank Ltd., A.I.R (29) 1942 Mad. 351 | Authority cited in the context of when a deposit standing in names of A & B is really the property of one person for the purpose of set-off. | Referenced as an exception in which the bank might be able to set off even where deposit stands in names of two persons. |
| Sovereign Life Assurance Co. v. Dodd, (1892) 2 Q.B 573 | Bankruptcy Acts widen the scope of the subject-matter of set-off. | Quoted to support the general proposition that bankruptcy law enlarges set-off rights compared with ordinary law. |
| Re Daintrey, (1900) 1 Q.B 546 | Reasoning that the dividing line for what cross claims can be set off should be the same as the line for what debts are provable — the date of adjudication (receiving order). | Relied on by the court to adopt the dividing line for set-off as the date of adjudication; applied analogously to winding up — the date of the winding-up order. |
| Re National Benefit Assurance Co., (1924) 2 Ch D. 339 | English authority that in winding up the dividing line for set-off is the date of the winding-up order. | Applied by analogy to the winding up of a company in India to fix the relevant date for set-off as the date of the winding-up order. |
| Re Deveze; Ex parte Barnett, (1874) 9 Ch A. 293 | Authority that set-off under insolvency statute is equivalent to payment; a creditor proving causes satisfaction of his debt to the extent of set-off. | Used to explain the statutory effect of set-off under insolvency provisions. |
| In re Pennington & Owen, Ltd., (1925) Ch. 825 | Statement that ordinarily a joint debt & a separate debt cannot be set off against each other in bankruptcy/winding up. | Quoted to show ordinary limitations on set-off between joint and separate debts in insolvency contexts. |
| Story, Equity Jurisprudence 1442 | Equitable principle: surety entitled to call upon principal debtor to exonerate him; equitable considerations may require allowing set-off. | Invoked to support equitable reasons why a surety may require a separate claim of the principal debtor to be set off. |
| Becherbaise v. Lewis, (1872) 7 C.P 372 | Example of equitable approach in surety-principal relationships. | Supported the point that equitable considerations allow the surety to insist on set-off of principal's separate claim. |
| Ex parte Hanson, (1811) 18 ves. Jur. 232 | Equity observation that a joint debt functioning as security for a separate debt requires allowance of what has been received on the separate account before resorting to the joint security. | Quoted to justify equitable limitations on creditor's resort to joint securities without accounting for separate receipts. |
| Ex parte Stephens, (1805) 11 ves. 24 | Authority showing that liability under a joint & several promise could be set off against a separate debt. | Used to demonstrate that when a guarantee is joint & several the surety may set off his separate debts. |
| Middleton v. Pollock, (1875) 20 Eq. 515 | Explanation, as cited, that joint & several liability can be treated so as to enable set-off of separate debts in equity. | Referred to for the proposition that joint & several promises may be subject to set-off. |
| Rowlett, Principal and Surety, Edn. 2, p. 139 | Textual support for the proposition that joint & several promises may be set off against separate debts. | Used as textual authority supporting the legal position on joint & several liabilities. |
| New Bank of India v. Banwarilal, (1949) comp cas. 236 | Decision following the Re Travancore line that a surety may set off separate claims in winding up. | Cited as a follow-up decision consistent with the conclusion reached by the court in the present case. |
| Re: Travancore National Bank Subsidiary Co., Ltd., A.I.R (27) 1940 Mad. 266 | Another decision to the same effect as Re Travancore (supporting set-off by surety). | Referenced by the court as supporting the view that set-off by surety is permissible in winding up. |
| Sir Dinshaw Mulla's Law of Insolvency, Article 470, p. 308 | Textual authority that unliquidated damages may be set off in bankruptcy and winding up. | Quoted to support the proposition that bankruptcy/winding up brings within set-off ambit items not ordinarily set-off in ordinary actions. |
| Jefjery v. Official Assignee of Rangoon, 6 Rang. 46 | Case cited as an example where unliquidated matters were considered in set-off in insolvency. | Referenced as part of the body of authorities showing broader set-off in insolvency contexts. |
| Jack v. Kippling, (1878) 9 Q.B.D 113 | Another authority for allowing a wider set-off in insolvency. | Used to bolster the view that set-off in bankruptcy/winding up is broader than in ordinary law. |
| Ex parte Prescote, (1753) 1 Atk. 230 | Authority that a future debt payable may be set off. | Cited to support the proposition that a debt not yet payable on the date of winding up may nevertheless be set off. |
| Smith v. Wood, (1929) 1 Ch. 14 | Authority that where B charges a debt due to him from C in favour of A without incurring personal liability, B may in some respects be a surety. | Cited in discussion of whether assignment/charge of a third-party debt creates suretyship effects; court declined to decide a related point in the present case. |
| Jagjibandas Jethalal v. King Hamilton & Co., 55 Bom. 677 | Indian authority in the context of charging a debt due to B in favour of A and characterization as surety-like for some purposes. | Referenced in relation to the question of whether assignment of a third-party debt creates suretyship consequences; court did not decide the point here. |
| Re Travancore National & Quilon Bank Ltd., A.I.R (28) 1941 Mad. 622 | Another citation to the Travancore National authorities (different citation form appears in the text). | Mentioned in a context where the court said it was unnecessary to decide a particular nuanced point and therefore expressed no opinion. |
Court's Reasoning and Analysis
The court's reasoning proceeds in a sequence of legal propositions tied to the facts:
- Statutory framework: The court began by noting that the Bank is insolvent and wound up; Section 229 of the Companies Act imports the bankruptcy law on mutual dealings and set-off into the scheme of winding up. Accordingly, the wider set-off rules applicable in bankruptcy apply.
- Survival of pre-winding-up set-off rights: If a defendant had a right to set-off before winding up, that right is not destroyed by winding up; the set-off remains a plea in bar and a partial defence to the company's claim.
- Character of guarantees and historical context: The court reviewed historical English authorities which treated guarantees as contracts of indemnity giving rise to contingent/unliquidated liabilities (Crawford v. Stirling; Morley v. Inglish) and contrasted that with modern authorities and procedural rules (Halsbury) and bankruptcy law which allow a wider scope of set-off.
- Joint, several and separate debts: The court analysed distinctions between joint, several and separate debts, noting that ordinarily a joint and a several debt cannot be set off against each other, but that a joint & several debt can be a separate debt of each debtor and thus capable of set-off against separate debts. The Contract Act (Section 43) was cited for the proposition that in India a joint promise creates a joint & several obligation unless contracted otherwise.
- Equitable considerations for sureties: The court explained that where the guarantee takes the form of a joint promise (or joint & several promise) the surety may demand set-off because equity permits the surety to call upon the principal debtor to exonerate him. Texts and cases (Story, Becherbaise, Ex parte Hanson) were relied upon to show this equitable basis.
- Effect of insolvency/wider set-off: The court emphasised that in bankruptcy and winding up the subject matter of set-off is wider — unliquidated damages and contingent claims may be set off (citing Sir Dinshaw Mulla's text and authorities). Consequently, the surety's liability under a guarantee may be set off against debts due to the surety in winding up.
- Relevant date for ascertainment of set-off: The court adopted the principle (Re Daintrey; Re National Benefit Assurance Co.) that the dividing line for what may be set off is the date of adjudication — in corporate winding up, the date of the order for winding up. The court held that the right of proof and set-off must be ascertained as at the date of the winding-up order (subject to earlier stoppage by notice of presentation of petition).
- Application to the facts: On the date of the winding-up order (12-7-1949) Badrinarayan Banerjee was personally liable as guarantor for Annapurna's debt, and at the same time the Bank owed him amounts under the fixed deposit receipts. There were thus mutual dealings between Badrinarayan and the Bank, making set-off under Section 229 (read with Section 47 of the Presidency Towns Insolvency Act) applicable.
- Maturity of deposits: The court specifically held that the fact one FDR matured after presentation of the winding-up petition was immaterial; the dividing line is the date of the winding-up order and the debt fell due before that date. More generally, the court reiterated that a debt payable in future may be set off.
- Compromise request: The petitioners asked the court to direct the liquidator to compromise on certain terms; the court refused to make such an order because the liquidator was not agreeable to compromise on those terms. However, parties subsequently agreed on payment terms and the court permitted the liquidator to compromise on the agreed terms.
- Costs and fees: Having considered the circumstances, the court directed that the applicants bear and pay their own costs of the application, allowed the liquidator liberty to retain the costs from assets, and allowed fees to Mr. T. Banerjee as if he were an advocate.
Holding and Implications
Holding:
Badrinarayan Banerjee is entitled to set off the amounts due to him under the several fixed deposit receipts mentioned in the petition against the claim of the Bank against him as guarantor; only the balance remaining after such set-off, and no more, shall be payable by Badrinarayan to the Bank.
Additional orders and immediate practical consequences (direct effects on the parties):
- The principal debtor, Sm. Annapurna, remains liable to pay any balance resulting from that set-off.
- The petitioners' request for an order directing the liquidator to compromise on the specified terms was refused because the liquidator did not agree to those terms.
- The court directed that the applicants shall pay their own costs of the application; the liquidator may retain the costs of the application out of the Bank's assets; and the court allowed fees to Mr. T. Banerjee as if he were an Advocate.
- By agreement between the parties (and with leave given to the liquidator), the balance due on such set-off was to be paid by Sm. Annapurna and Badrinarayan: Rs. 6,000 payable on the day, and the remainder by monthly installments of Rs. 500 starting 7-4-1951; no interest would be charged if paid punctually; default would render the whole remaining balance immediately due and payable and the liquidator entitled to realize it forthwith.
Implications for wider law:
- The decision applies statutory principles (Section 229 Companies Act read with Section 47 Presidency Towns Insolvency Act) and existing precedents to permit set-off by a guarantor in the winding up of an insolvent company when mutual dealings existed at the relevant date (the winding-up order).
- The opinion does not purport to lay down a novel principle beyond applying and preferring existing authorities (notably the Re Travancore decisions) to the facts before it; it therefore addresses the application of established statutory and equitable rules to the case rather than announcing a new legal doctrine.
Disposition
Ordered accordingly. The court declared the right of set-off in favor of Badrinarayan Banerjee as above, refused the specific compromise order sought against the liquidator, directed the cost consequences as stated, and permitted the agreed payment arrangement and compromise by the liquidator on those terms.
JUDGMENT
1. This is appln. by Sm. Annapurna Badrinarain Banerji for an order directing the Official Liquidator of the Pioneer Bank to set off the debt due to Badrinarain from the Bank under six fixed deposit receipts against a debt due to the Bank from the appcts. No objection is taken to the form of the prayer or to the maintainability of the petn. & I have been expressly invited by Mr. T. Banerjee who appeared on behalf of the Bank to adjudicate on the question of set off on this appln. It is common case that Annapurna borrowed large sums of money from the Bank on an overdraft account & is indebted to the Bank personally. Badrinarain is a guarantor. The petn. contains conflicting statements with regard to the nature of the guarantee. Mr. Lahiri appearing on behalf of the appct. has however formally admitted & it is now common case that Badrinarain guaranteed personally the entire amount of the debt due from Annapurna & as further security for the debt endorsed a Life Insurance Policy & also made over six Fixed Deposit receipts. Badrinarain executed letters of lien authorizing the Bank to adjust the amount of the Fixed Deposit receipts against the debt due from Annapurna & until such adjustment it was agreed that the Bank would have a lien on the Fixed Deposit receipts. Under the Fixed Deposit receipts large sums of money are due to Badrinarain from the Bank on account of deposits made by him. The last of the fixed deposit receipts is dated 20-5-1948. The petn. for winding up was presented on 3-1-1949 before which date all the fixed deposit receipts matured except one which matured on 20-5-1949. The bank was ordered to be wound up on 12-7-1949.
2. Certain interesting questions as to set-off arise in this case. The Co. is in winding up & is insolvent & therefore, by Section 229 of the Companies Act, the bankruptcy law as to mutual dealings & set-off is imported into the scheme of the winding-up.
3. If the deft, to an action by the Co. in liquidation had a right to set-off before the winding up, the right is not destroyed by the winding up. The set-off will still be a plea in bar & a defence pro tanto to the pltf's claim.
4. Formerly in England in an action for debt by the pltf. who had guaranteed a debt payable to the deft, by a third party the deft, could not set-off the amount of the debt of such third party, Morley v. Inglish, (1837) 4 Bing (N.C) 58. This case approved of Crawford v. Stirling, 4 Esp. 207, where Lord Ellenborough gave the reason thus:
“He thought there was no foundation for the set-off claimed, as the sum claimed was unliquidated damages: That a guarantee was a contract of indemnity; it was to make good the default of another party, for whom the guarantee was given: That was not an absolute debt by the pltf. to the deft, but an engagement for the deficiency of Kirkpatrick only; it could therefore only be known to what extent the pltf. was liable, when it was ascertained how much was paid by Kirkpatrick's estate. This was therefore uncertain & unliquidated till that fact was known.”
5. The language of the Rules of the S.C O. 19 R. 3 is very wide & there is opinion to the effect that now the liability of a surety under a guarantee may be set off. Halsbury's Laws of England, vol. 16, Article 89, p. 86 states thus:
“The surety's liability under a guarantee may be made the subject of a set-off or counterclaim by the creditor in an action brought against him by the surety; & conversely, the surety, when sued on the guarantee, may raise a set-off or counter-claim against the creditor.”
6. It is also settled law that a joint debt & a several debt cannot be set off against each other. This is also acknowledged to be the law in India. See illustrations (f) & (g) to O. 8, r. 6 of the CPC. A joint & several debt may, however, be set off against a separate debt: Halsbury's Laws of England, Vol. 29, Article 696, Fletcher v. Dyche, (1787) 2 T.B 32; Owen v. Wilkinson, (1858) 5 C.B (N.S) 526. A joint & several debt is a separate debt of both the debtors.
7. In India (in the absence of a contract to the contrary, a joint promise creates a joint & several obligation: Section 43 of the Contract Act. If A sues B & C who are jointly & severally liable, B can set off a debt due to him separately from A. On this point with respect I prefer the decision in Re Travancore National and Quillon Bank Ltd., A.I.R (28) 1941 Mad. 654, to the decisions in Trimbak v. Bamchandra, 45 Bom. 1219 & Alliance Bank of Simla v. Mohanlal, 8 Lah. 105. On the other hand, if A & B sue C for the recovery of a debt due from C to A & B, C cannot set off a debt due to him from A alone. Under Section 45 of the Contract Act, the claim of A & B is joint & to allow C to plead set, off in such a case will be to enable G to obtain payment from B who is in no way indebted to C.
8. Similarly, if a Bank is liable under a fixed deposit receipt payable to either A or B or survivor in a suit for recovery of the deposit by B the Bank cannot set off a separate debt due from A to the Bank (Simla Banking Go v. Bhagwan Kuar, A.I.R (15) 1928 Lah. 316) unless the deposit though standing in the name of A & B is really & truly the property of S.K. Panikar v. Travancore National & Quilon Bank Ltd., A.I.R (29) 1942 Mad. 351.
9. The right of set-off given by the bankruptcy law is wider than that given by the general law. The Bankruptcy Acts generally enlarge the scope of the subject-matter of the plea of set-off: see Sovereign Life Assurance Co. v. Dodd, (1892) 2 Q.B 573 at p. 578.
10. The right of set off in the case of insolvency in Presidency Towns is given by Section 47 of the Presidency Towns Insolvency Act, which reads thus:
“Where there have been mutual dealings between an insolvent & a creditor proving or claiming to prove a debt under this Act, an account shall be taken of what is due by the one party to the other in respect of such mutual dealings & the sum due from one party shall be set off against any sum due from the other party & the balance of the account & no more shall be paid or claimed by either side respectively.
Provided that a person shall not be entitled under this section to claim the benefits of any set off against the property of an insolvent in any case where he had at the time of giving credit to the insolvent notice of the presentation of any insolvency petn. by or against him.”
11. By Section 229 of the Companies Act, this section is imported into the winding-up of an insolvent company.
12. The Presidency Towns Insolvency Act does not state on what date the right of set off is to be ascertained. Section 46 of that Act, however, shows that all debts & liabilities to which the debtor is subject when he is adjudged an insolvent may be proved. The dividing line, therefore, in the case of a proof of debt is the date of adjudication.
13. Wright J., in Re Daintrey, (1900) 1 Q.B 546 at p. 555 gives cogent reason why the same dividing line should be taken for the purpose of ascertainment of the date of set-off. He says thus:
“Prima facie it would seem that the line which is drawn for defining what debts are to be provable in the bankruptcy must be also the line for defining what cross claims are to be set off in the case of a creditor whose set-off is not stopped at an earlier date by notice of an act of bankruptcy. If the line were to be drawn at different times for the two purposes of proof & set-off the result might be unjust.”
14. The equivalent of adjudication in the case of a Co. is the order for winding-up. The right of proof & set-off in the case of an insolvent Co. in the course of winding up in a Presidency Town in India must, therefore, be defined & ascertained at the date of the order of winding up. The right of set off may be stopped earlier by notice of the presentation of the winding up petn. in Presidency Towns. In England the dividing line in the case of Bankruptcy Act is the date of the receiving order, yet it has been held there that the date of the order of winding up is the dividing line for set off in the case of winding up of an insolvent company: Re National Benefit Assurance Co., (1924) 2 Ch D. 339 at p. 345.
15. Section 47 of the Presidency Towns Insolvency Act, is positive & absolute rule of law. A set off so far as it is available under that section is equivalent to payment & a creditor by claiming to prove necessarily causes satisfaction of his debt so far as the set off extends. Re Deveze; Ex parte Barnett, (1874) 9 Ch A. 293 at p. 297.
16. In bankruptcy & winding up ordinarily a joint debt & a separate debt cannot be set off against each other. Halsbury, Laws of England, Edn. 2, vol. 2, Article 377. In re Pennington & Owen, Ltd., (1925) Ch. 825.
17. In the case of a guarantee the right of set off will depend upon the form of the guarantee & the nature of the equities arising in the case.
18. The guarantee may take the form of a joint promise by the surety & the principal debtor. Although ordinarily a joint debt cannot be set off against a separate debt the surety may insist that a separate claim of the principal debtor against the creditor must be set off against a claim on the joint promise. The reason is that in equity the surety is entitled to call upon the principal debtor to exonerate him. Story, Equity Jurisprudence 1442. Becherbaise v. Lewis, (1872) 7 C.P 372. In Ex parte Hanson, (1811) 18 ves. Jur. 232, Eldon L.C observed as follows:
“The joint debt was nothing more than a security for the separate debt; & upon Equitable considerations a creditor, who has a joint security for a separate debt, cannot resort to that security without allowing what he has received on the separate account, for which the other was a security.”
19. The guarantee may be in the form of a joint & several promise by the surety & the principal debtor. In such a case even in England the liability under the joint & several promise may be set off against a separate debt due to the surety. Ex parte Stephens, (1805) 11 ves. 24 as explained by Jessel M.R, in Middleton v. Pollock, (1875) 20 Eq. 515 at pp 519-621, Rowlett, Principal and Surety, Edn. 2, p. 139.
20. In India, a joint promise is also a several promise & in a suit to enforce such promise the surety can set off a separate debt due to him. There are mutual dealings between the surety & the bankrupt Co. in liquidation & such dealings must be set off against each other u/s. 229, Companies Act read with Section 47 of the Presidency Towns Insolvency Act. Re: Travancore National & Quilon Bank Ltd., A.I.R (28) 1941 Mad. 654. With respect I agree with this decision. This decision is followed in New Bank of India v. Banwarilal, (1949) comp cas. 236 To the same effect is the decision of Gentle J. in Re: Travancore National Bank Subsidiary Co., Ltd., A.I.R (27) 1940 Mad. 266.
21. The guarantee may not be in the form of a joint & several promise but as in this case it may be in form of an engagement for the default of a third party. In such a case the liability of the guarantor is neither joint nor several. His is a contract to perform the promise of another on his default: Section 126 of the Contract Act. The question whether a debt due to the surety may be set off against his liability on the guarantee in an ordinary action must he solved in England with reference to R. s.c O. 19, R. 3 & in India with reference to O. 8, R. 6 of the CPC 1908. In bankruptcy & in winding up of insolvent companies the subject-matter of set off is wider & unliquidated damages may be set off against a debt: Sir Dinshaw Mulla's Law of Insolvency, Article 470, p. 308, Jefjery v. Official Assignee of Rangoon, 6 Rang. 46, Jack v. Kippling, (1878) 9 Q.B.D 113; Re. National Benefit Assurance Co., (1924) 2 ch. D. 339 at p. 345. There is, therefore, no doubt that in bankruptcy & in winding up of insolvent companies the surety's liability under a guarantee may be set off against a debt due to the surety.
22. The fact that the debt is not payable on the date of the winding up is wholly immaterial. A debt payable in future may be set off Ex parte Prescote, (1753) 1 Atk. 230. Indeed this was conceded before Gentle J. in Re: Travancore National & Quilon Bank Ltd., A.I.R (27) 1940 Mad. 157.
23. If as security for the debt of a, B charges in favour of the creditor of a debt due to B from C without incurring any personal obligation for the repayment of the debt of a, no doubt B is a surety for some purposes —Smith v. Wood, (1929) 1 ch. 14, Jagjibandas Jethalal v. King Hamilton & Co., 55 Bom. 677. It has, however, been held that on the bankruptcy of c, a cannot set off the debt due to B from C against the debt due to from a: In Re Travancore National & Quilon Bank Ltd., A.I.R (28) 1941 Mad. 622. In this case it is not necessary to decide this point & I express no opinion.
24. In the case before me on the date of the order for winding up of the bank Badrinarayan Banerjee was a guarantor for the whole of the debt due to the bank from Annapurna & was liable personally to the bank for the repayment of such debt. At the same time, the bank was on that date indebted to Badrinarayan. There is no doubt, therefore, that there were mutual dealings between Badrinarayan & the bank & the debt due to him from the bank must be set off against his liability as guarantor for the debt of Annapurna.
25. The fact that one of the fixed deposit receipts fell due after the date of the petn. for winding up is immaterial. The dividing line is the date of the order of winding up and the debt fell due before such date. Besides even a debt payable after the date of the order for winding up may be set off.
26. I, therefore, declare that Badrinarayan Banerjee is entitled to set off the amount due to him under the several fixed deposit receipts mentioned in Para. 7 of the petn. against the claim of the bank against him as guarantor & only the balance remaining on such set off & no more shall be payable by Badrinarayan to the bank. Of course ex concessis the principal debtor Sm. Annapurna is also liable to pay such balance to the bank.
27. The petnrs. also asked for an order directing the liquidator to compromise the matter on certain terms. Such order cannot be made as the liquidator is not agreeable to compromise on those terms.
28. Having regard to all the circumstances of this case, I direct the appcts. will bear & pay their own costs of the appln. & the liquidator will be at liberty to retain the costs of this appln. out of the assets. I got much assistance from Mr. T. Banerjee & I will allow him fees as if he is an Advocate. Having regard to my judgment it is now agreed between the parties that the balance due to the bank on such set off will be paid by Sm. Annapurna & Badrinarayan in the following manner: Rs. 6000 will be payable in the course of the day & the remaining balance will be payable in monthly installments of Rs. 500, the first of such installments will be payable by 7-4-1951 & thereafter every month & no interest from to-day will be charged if payment is punctually made in accordance with these terms. But if default is made in payment of any one of these installments, the whole of the amount then remaining unpaid will become due & the liquidator will be entitled to realize the same forthwith. Leave to the liquidator is given to compromise on the above terms.
V.S.B
29. Ordered accordingly.
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