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Issues: (i) Whether the bank was entitled to set off the amount payable to the company under fixed deposit receipts and other credit balances against the overdraft liability owed by the company in liquidation. (ii) Whether renewal of the fixed deposit receipts and the bank's objection based on limitation could defeat the official liquidator's claim pending determination of the set-off.
Issue (i): Whether the bank was entitled to set off the amount payable to the company under fixed deposit receipts and other credit balances against the overdraft liability owed by the company in liquidation.
Analysis: The winding up provisions do not destroy mutual claims between the same parties. Once the company stood as creditor of the bank under the fixed deposit receipts and as debtor of the bank under the overdraft account, the case fell within the mandatory rule of mutual set-off under the insolvency law made applicable by section 529 of the Companies Act, 1956. Section 46 of the Provincial Insolvency Act, 1920 requires an account to be taken of mutual dealings and permits only the balance to be claimed or paid. The Court held that even if the pledge of some fixed deposit receipts as security was void under section 536(2) of the Companies Act, 1956, that would not alter the underlying debt payable by the bank to the company or the company's overdraft debt to the bank. The bank's claim to a lien under section 171 of the Indian Contract Act was also rejected because the special company law provisions prevailed.
Conclusion: The bank was entitled to set off its overdraft claim against the sums payable by it to the company in liquidation, and only the balance, if any, remained payable on either side.
Issue (ii): Whether renewal of the fixed deposit receipts and the bank's objection based on limitation could defeat the official liquidator's claim pending determination of the set-off.
Analysis: The relevant point of time for determining provable debts and mutual set-off is the date of the winding up order. The subsequent plea that the claim on the fixed deposit receipts had become time-barred could not defeat a statutory set-off where the mutual liabilities had to be balanced as on that date. Since the account had not yet been finally balanced, the question of immediate renewal or encashment did not arise as an independent limitation issue. The bank was directed to prepare the account as on the date of winding up, and the official liquidator was to verify it. Any amount found due from the bank was to be paid, and any balance due from the company was to be dealt with as an unsecured claim in liquidation.
Conclusion: The limitation objection did not defeat the liquidator's claim, and the matter had to proceed on the basis of balancing mutual accounts as on the winding up date.
Final Conclusion: The bank succeeded on the core question of statutory set-off, while the ancillary objections to renewal and limitation failed. The appeals were disposed of by directing accounting and verification of mutual balances as on the winding up date.
Ratio Decidendi: In winding up, where the company and the creditor have mutual dealings in the same capacity, section 46 of the Provincial Insolvency Act, 1920, read with section 529 of the Companies Act, 1956, mandates set-off of mutual debts as on the date of winding up, and only the balance is recoverable or payable.
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