Insolvency set-off allows mutual cross-claims to be adjusted where liability is joint and several in liquidation.

In liquidation, a debtor and a surety may set off sums due from the company against liabilities owed to it where the obligations are joint and several and the company has separate cross-claims against them. The insolvency rules, including the mutual dealings requirement, were treated as satisfied because the company and the claimants had reciprocal debts. Order 8 Rule 6 CPC was regarded as inapplicable to insolvency or liquidation. The equitable basis of insolvency set-off therefore allowed each claimant to deduct the amount owed to them, leaving only any balance payable.

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Issues: Whether, in winding up, a debtor and a surety can set off sums due from the company against their liabilities to the company where the obligation is joint and several.

Analysis: Section 229 of the Companies Act attracted the insolvency rules, including Section 46 of the Provincial Insolvency Act, which permits set-off only where there are mutual dealings. The liabilities of the debtor and surety were joint and several, and the company was also indebted to each of them on separate dealings. The absence of a general rule permitting set-off between joint and separate debts did not apply where the debt was joint and several. Order 8, Rule 6 of the Code of Civil Procedure, 1908 was held to be inapplicable to insolvency or liquidation. The equitable basis of insolvency set-off supported allowing both the debtor and the surety to set off their cross-claims against the company's demand.

Conclusion: The debtor and the surety were each entitled to set off the sums due to them from the company against their respective liabilities to the company, and only the balance, if any, remained payable.

Final Conclusion: Mutual claims between the company and persons jointly and severally liable to it were treated as mutual dealings for insolvency purposes, so set-off was allowed in liquidation.

Ratio Decidendi: In liquidation, where liability to the company is joint and several and the company is also indebted to the debtor or surety on a separate account, the claims constitute mutual dealings permitting set-off under the insolvency rules.

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