The Judgment of the Court was as follows:—
Mukherjea, J.:— This is an appeal on behalf of Defendants Nos. 1 to 5 and it arises out of a suit commenced by the Plaintiff for recovery of money due on a mortgage bond. There is not much controversy about the facts of the case which lie within a comparatively narrow compass. On September, 1914, the Defendants Nos. 4 and 5, together with the predecessor of Defendants Nos. 1 to 3, executed a mortgage bond in favour of the Plaintiff Company on taking a loan of Rs. 2,000 only. Certain sums were paid by these Defendants to the Plaintiff from time to time and by the end of April, 1933, the amount due to the Plaintiff on the mortgage bond stood at Rs. 1,098 and annas odd. The pro forma Defendant No. 6 had a current account with the Plaintiff Company and in the beginning of May, 1933, he had to his credit in this account a sum of about Rs. 1,550. The Plaintiff Company, being in financial difficulties, had just before this time embarked on a scheme of composition with its creditors under sec. 158 of the Indian Companies Act. An application under sec. 153, el. (1), was made to this Court in March, 1933 and in April following an order was passed, directing the holding of a meeting of the depositors. This meeting was held on May 21st, 1933 and the majority of the creditors, who represented more than 34th in value, agreed to the arrangement proposed with some modifications. On June 19th, 1933, this scheme was sanctioned by this. Court and admittedly it came into, operation from May 21st, 1933, the date when the scheme was adopted at the meeting of the creditors. On May 20th, 1933, just the day before the meeting took place, the pro forma Defendant No. 6 assigned, for consideration; his right to a sum of Rs. 1,105 standing to his credit in his current I account with the Company to Defendants Nos. 1 to 5. Notice was given of this transfer to the Loan Company in June, 1933. On July 29th, 1933, Defendants Nos. 1 to 5 wrote a formal letter to the Plaintiff, demanding that this sum of Rs. 1,105 might be credited towards their mortgage debt which would thus be wiped out. This the Plaintiff refused to do and eventually they brought this present suit for recovery of a sum Rs. 1,328 alleged to be still due to them by Defendants Nos. 1 to 5.
The defence of the Defendants in substance was that the Plaintiff was bound to set off the sum of Rs. 1,105 against the money due on the mortgage bond and on a proper adjustment being made, nothing would be found due by these Defendants to the Plaintiff Company.
The first Court gave effect to this contention and dismissed the Plaintiffs' suit. On appeal the judgment was reversed and the Plaintiffs' suit has been decreed. The lower Appellate Court was of opinion that though the scheme allowed a set off in cases like this where the same person was both a debtor and a creditor, yet the Defendants could not take advantage of that provision in the scheme inasmuch as he assignment by pro form Defendant No. 6 in favour of these Defendants was not a bona fide transaction. It is conceded by Dr. Pal who appears on behalf of the Appellants and this fact is apparent on the face of the record, that there was no provision in the scheme which allowed a set oil when the creditor was also a debtor to the Company. The lower Appellate Court was obviously labouring under a misconception of facts on this point. Dr. Pal in support of the appeal has attacked the decision of the lower Appellate Court on two grounds.
The first ground is that the question of bona fides was perfectly immaterial and if the assignment itself was valid in law, the question of motive would be irrelevant. In the second place Dr. Pal has argued that the scheme framed under sec. 153 of the Indian Companies Act would not stand in the way of his clients inasmuch as they constituted a separate class of creditors, having interests different from those of the ordinary creditors and as there was no separate meeting of the class of creditors to which these Defendants belonged, the scheme would not be binding on them. So far as the first ground is concerned we are of the opinion that Dr. Pal's contention is sound. There is no finding that the transfer in favour of Defendants Nos. 1 to 5 by pro forma Defendant No. 6 was not for consideration. It is true that the transfer was made on the day just before the meeting took place and the scheme was adopted but that by itself cannot defeat the rights of the assignee to get a set off, if he is otherwise entitled to it under law.
The whole controversy therefore centres round the point whether by virtue of the scheme which was sanctioned by this Court under sec. 158 of the Indian Companies Act, the Defendants Nos. 1 to 5 are entitled to claim a set off in the present case. Now under the scheme a creditor could not demand any money due to him by the Plaintiff Company except in accordance with the conditions and terms contained in the scheme itself. The money due to Defendants Nos. 1 to 5 as creditors, on the basis of the assignment made by pro forma Defendant No. 6, was not therefore recoverable by these Defendants after the scheme had become operative on May 21st, 1933. The Appellants contend that it was recoverable on May 20th, 1933, while the assignment was made. But the Directors were not given any notice of the assignment either by the transferor or by the transferee prior to June, 1933 and at that time as the scheme had already become operative, they had no power left in them to make any adjustment which would be tantamount to paying these creditors their dues in full, in contravention of the terms of the scheme. Dr. Pal tried to get round this difficulty by saying that the scheme was not at all binding on his clients inasmuch as they constituted a separate class of creditors who were not invited to hold a separate meeting of their own. Assuming that the creditors, who were also debtors, constituted a class by themselves and their conditions and interests were dissimilar to those of the ordinary creditors to make it impossible for them to meet together in a common platform, I do not think that this contention would really assist Dr. Pal in the circumstances of the present case. Here the composition was made with the creditors of the Company and notices were issued on all those creditors preliminary to the holding of the meeting under the orders of this Court sometime in April, 1933. The Defendant No. 6, who was the assignor of the debt and who admittedly received a notice of the meeting was one of the general body of creditors and could not claim to belong to any special or separate class. Just before the date of the meeting he purported to assign his interest in a part of his Bank account to Defendants Nos. 1 to 5. It would be manifestly unreasonable to suggest that even though the assignment was made by pro forma Defendant No. 6 after he received the notice, it was necessary to serve a fresh notice on the assignee before the meeting could be held. In that case it will be open to any creditor to frustrate the purpose of this meeting by making an assignment of some portion of his debt to some body else just before the meeting is held. The Defendants Nos. 1 to 5 who were debtors pure and simple up to this time could not, in my opinion, come to the picture at all when the meeting was actually held and it could not be said that as they belonged to a different class of creditors they should have been invited to hold a meeting separately.
We need not express any opinion on that class of cases where a right of set off is allowed in liquidation proceedings on the principle of bankruptcy laws between the Company and the creditor. The present case obviously is not one of that description.
In these circumstances we think that even though the reasoning of the lower Appellate Court is not quite sound, the scheme which was sanctioned by this Court under sec. 153 of the Indian Companies Act stood in the way of the Defendants claiming a set off in the present case.
In the result the decision of the lower Appellate Court is affirmed and this appeal is dismissed.
There will be no order as to costs in this appeal.
Roxburgh, J.:— I agree.
Dr. Pal contends that the Defendants Nos. 1-5 are not bound by the scheme as they are creditors of a class “debtor creditor” and therefore different from the class of creditors who formed the meeting and agreed to the scheme. He does not contend that it is possible for him to challenge the scheme collaterally if it in terms covers his case and he concedes that in that event his clients' remedy would be to move the Court which approved the scheme. He contends that it does not in terms cover his class. He relies on the judgments in Southern Life Assurance, Company v. Dodd . In that case the Company in liquidation sued the Defendant to recover money lent before liquidation and the Defendant set up as a defence a right of set off based on a matured policy. It was held that there was a right of set-off and also that the scheme formulated in the winding up was not binding on the holders of matured policies who were a different class from policyholders whose policies had not matured. Here the facts are quite different. Defendants Nos. 1 to 5 are debtors who acquired a share in the interest of a creditor of the Plaintiff Company after notice had been issued on that creditor of the meeting to frame a scheme and in fact the interest was acquired on the day before the meeting was held. It is clear that they must have done so with knowledge of the facts, as has been found by the lower Appellate Court. The real question in the case is whether we are impelled to hold that such persons are to be held to be a different class from the class of creditors from whom they acquire interest. I can see no requirement for us so to hold. There is no analogy here in the circumstances of bankruptcy and winding up such as are provided for in sec. 46 of the Provincial Insolvency Act, 1920 and sec. 47 of the Presidency Towns Insolvency Act, 1909 and are referred to in Krishna Ch. Bhaumick v. Pabna Dhanabhandar Co., Ltd. . Relief is given under those provisions to a creditor only who has had mutual dealings with an insolvent or Company in liquidation. In the present case it is not mutual dealings which have given rise to the claim for set off, the claim is a deliberate creation of the debtor-creditor for the purpose of avoiding the scheme. It is not necessary for us to decide what would have been the position, had this been a genuine case of mutual dealings. It is evident that the class of debtor-creditors of this genuine character are in a very different position from the ordinary creditors and it may well be that they cannot be bound by decisions of a meeting of ordinary creditors.
If Defendant No. 6 had assigned his debt to a person who was not a debtor of the Company, that person could not have claimed that he was not bound by the decision of the meeting because he had received no notice, if in fact the assignment had been made after the receipt of notice by the Defendant and for the purpose of raising the plea. In the circumstances I do not think that the fact that Defendants Nos. 1 to 5 acquired the interest of a creditor gives them any advantage or allows them in any way to coalesce their status as debtors with that as creditors; I hold that they are bound by the terms of the scheme and I agree therefore that the appeal must be dismissed.
P.C