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<h1>Court rules on set-off in loan agreement, directs bank to adjust dividend.</h1> The court ruled against allowing a set-off in the case of a loan agreement between the Bank and the applicant, Mr. G. Samuel, but directed the Bank to ... Winding up – Overriding preferential payments Issues:Question of set-off in a loan agreement; Validity of a set-off in the case of a loan secured by a third party; Interpretation of agreement for set-off; Impairment of security due to bank liquidation.Analysis:The judgment addresses a question of set-off in a loan agreement between the Travancore National and Quilon Bank ('Bank') and the applicant, Mr. G. Samuel. The Bank lent Rs. 2,000 to Mr. Samuel, secured by his mother-in-law's fixed deposit of Rs. 4,300. The mother-in-law, Mrs. Srinivasan, authorized the Bank to set-off the deposit against the loan amount. However, the Bank went into liquidation before the fixed deposit matured. Mr. Samuel claims a right to set-off the amount due by the Bank to Mrs. Srinivasan against his debt. The court examines if a set-off can be allowed in law, considering the absence of mutual dealings under Section 229 of the Indian Companies Act.The applicant argues that Mrs. Srinivasan, as a surety, can claim a set-off against the debt due by the principal. He relies on a ruling by a judge in a similar case. However, the court distinguishes the ruling, stating that in the current case, the Bank cannot demand repayment from Mrs. Srinivasan but only realize the security. The court rejects the applicant's contention for a set-off under the Indian Companies Act.The applicant further contends that an agreement for set-off was made at the time of the contract, and the Bank is bound by it. He also argues that the Bank's liquidation has impaired the security, entitling him to a credit for the full value of the security. The court examines previous judgments and concludes that the Bank's liquidation does not allow for a full set-off, but the Bank should adjust the dividend payable under the deposit towards the debt and recover only the balance. The court awards costs to the Official Liquidators and other counsels from the Bank's assets.In summary, the court rules against allowing a set-off in the case but directs the Bank to adjust the dividend towards the debt, considering the equity of the case and the impairment of security due to the Bank's liquidation.
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