Set-off in money claims requires mutuality and a legally recoverable debt; a time-barred or unproven cross-claim fails.

Set-off in a money claim is maintainable only where the defendant's cross-claim is an ascertained debt legally recoverable in law and supported by mutual dealings between the parties. A time-barred or unproven liability, including an alleged sales tax payment not shown to have been made on the company's directions or with its consent, cannot be used as set-off. The material also did not establish any legal obligation on the company to issue C forms or any basis to fasten the alleged pre-winding-up liability on the official liquidator. The recovery claim therefore prevailed and the set-off defence failed.

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Issues: (i) whether the respondent could claim set-off against the company in liquidation for an amount allegedly paid towards sales tax in the absence of mutual dealings and legal recoverability; (ii) whether the set-off claim was barred by limitation; and (iii) whether non-issuance of C forms and the alleged pre-winding up liability justified the dismissal of the company's recovery petition.

Issue (i): whether the respondent could claim set-off against the company in liquidation for an amount allegedly paid towards sales tax in the absence of mutual dealings and legal recoverability.

Analysis: Set-off under Order 8 Rule 6 of the Code of Civil Procedure requires an ascertained sum that is legally recoverable, with both parties in the same character. A claim based on a barred debt cannot be treated as a valid set-off. The alleged payment towards sales tax was not shown to arise from mutual dealings between the parties, nor was it established that the amount was paid on the company's directions or with its consent.

Conclusion: The respondent was not entitled to claim set-off.

Issue (ii): whether the set-off claim was barred by limitation.

Analysis: A claim that could no longer be enforced by a suit due to expiry of limitation is not legally recoverable for the purpose of set-off. The special computation adopted for claims under section 446(2) of the Companies Act, 1956 did not assist a defendant asserting set-off in a recovery petition. The principle that limitation bars the remedy, not the right, did not save an otherwise time-barred set-off claim.

Conclusion: The set-off claim was barred by limitation.

Issue (iii): whether non-issuance of C forms and the alleged pre-winding up liability justified the dismissal of the company's recovery petition.

Analysis: The evidence did not establish any legal obligation on the company to supply C forms so as to saddle it with the respondent's sales tax payment. The material also did not show that the official liquidator was bound by the respondent's alleged liability in the manner suggested. On the record, the findings allowing the respondent's claim could not stand.

Conclusion: The findings against the appellant on these grounds were unsustainable.

Final Conclusion: The recovery petition succeeded and the decree was passed in favour of the appellant with interest and costs, while the set-off defence was rejected.

Ratio Decidendi: A set-off in a money claim is maintainable only where the defendant's cross-claim is an ascertained debt legally recoverable in law and supported by the requisite mutuality; a time-barred or unproven liability cannot be used to defeat the plaintiff's claim.

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