Equitable set-off: future ascertained deposits permit set-off against overdraft despite non maturity; post winding transactions need court sanction.

The note addresses set-off and validity of adjustments in a winding up: the pleaded bank adjustment on 25-7-1947 was not proved and cannot be relied on; transactions after the winding up application require Court sanction and premature adjustments needed internal authority, so would not bind the liquidator; however fixed deposits that were unmatured but constituted future yet ascertained debts at the date of the winding up qualify as mutual dealings and entitle the creditor to an equitable set-off; interest is to be recalculated per Ext. A and no interest runs from the winding up application date.

---

---

Issues: (i) Whether the defendant's pleaded adjustment of fixed deposits against his overdraft account on 25-7-1947 is established as a fact; (ii) If established or alleged, whether such adjustment was valid and binding in view of the fixed deposits' maturity dates and the pending winding up application; (iii) Whether the defendant is entitled to a set-off in respect of the fixed deposit amounts though those deposits had not matured by the date of the winding up application; (iv) Proper rate and computation of interest in view of Ext. A dated 18-9-1945.

Issue (i): Whether the defendant proved that the fixed deposits were adjusted against his overdraft account on 25-7-1947.

Analysis: The defendant bore the burden of proof and relied on his own evidence and documentary exhibits. The alleged best evidence (the overdraft pass-book showing entries and endorsements on the fixed deposit receipts) was not produced; the fixed deposit receipts produced by the plaintiff bear no endorsements of discharge; the defendant's account of custody and suppression of the pass-book was not satisfactorily established. The Secretary of the Bank denied making the adjustment.

Conclusion: The Court finds that the pleaded adjustment was not proved as a fact and cannot be accepted.

Issue (ii): If an adjustment had occurred, whether it would have been valid and binding given that the fixed deposits had not matured and a winding up application had been filed.

Analysis: The fixed deposits matured after the alleged adjustment dates. Evidence indicates that adjustment before maturity required specific sanction of the Managing Director, which was not shown. Further, Section 168 (Companies Act) makes transactions after the date of the winding up application binding on the liquidator only with Court sanction; the alleged adjustment, being on 25-7-1947 after the winding up application on 24-7-1947, would require Court sanction. No justification for retrospective sanction was shown and the proximity of dates raised suspicion of fraudulent preference.

Conclusion: Even if the adjustment had been proved, it would be unauthorised and not binding on the liquidator and not entitled to Court sanction in the circumstances.

Issue (iii): Whether the defendant is entitled to set-off the amounts due under the fixed deposit receipts against the overdraft liability despite non-maturity by the date of the winding up application.

Analysis: Section 229 (Companies Act) incorporates the insolvency rules, and Section 46 (Provincial Insolvency Act) allows account-taking of mutual dealings. Authoritative authorities establish that mutual dealings comprising reciprocal demands that terminate in debts qualify for set-off. A future but ascertained debt at the date of insolvency is available for set-off where it is of a nature to terminate in a debt. The fixed deposits, though not matured on the date of the winding up application, constituted debts provable in winding up and thus mutual dealings for set-off purposes.

Conclusion: The defendant is entitled to set-off the fixed deposit amounts under Exts. B and B-1 against his overdraft liability notwithstanding non-maturity by the date of the winding up application.

Issue (iv): Proper rate and computation of interest in light of Ext. A dated 18-9-1945.

Analysis: Ext. A prescribes the variation of interest: 7% on fixed deposits and 7.5% originally referred to for overdraft (plaintiff agreed to recalculation from the date of Ext. A). No interest runs from the date of the winding up application.

Conclusion: Interest shall be recalculated with reference to Ext. A dated 18-9-1945 (fixed deposits at 7% from that date) and no interest accrues from the date of the winding up application.

Final Conclusion: The plaintiff (official liquidator) is entitled to a decree for the recalculated balance of the overdraft account after allowing the defendant's equitable set-off for the fixed deposit amounts and after applying the interest rates per Ext. A; the defendant failed to prove the pleaded adjustment and cannot rely on it, and the defendant shall pay the plaintiff's costs for forcing the trial on that pleaded but unproved adjustment.

Ratio Decidendi: In a winding up, Section 229 incorporates insolvency rules so that reciprocal demands between the company and a creditor, including future but ascertained debts existing at the date of insolvency, qualify as mutual dealings entitling the creditor to an equitable set-off; however transactions after the date of the winding up application are not binding on the liquidator without Court sanction and pre-maturity adjustments require appropriate internal authority to be valid.

---