Set-off in company liquidation may be raised defensively without leave, with mutual claims adjusted to the net balance.

A defence to a suit by a company in liquidation is not a proceeding commenced against the company, so leave under section 171 is not required for a plea of set-off or counterclaim raised in answer to the company's claim. The article also states that section 229 applies the insolvency principle of mutual adjustment of cross-demands: where both sides have money claims, the balance alone is recoverable. A set-off may therefore answer the company's demand wholly or in part without defeating the winding-up scheme, and the defendant need not prove its claim only as a dividend creditor.

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Issues: (i) Whether leave under section 171 of the Indian Companies Act was required for the defendant to plead set-off or counterclaim in defence to a suit instituted by the company in liquidation. (ii) Whether the defendant could rely on set-off against the company's money claim in view of section 229 of the Indian Companies Act.

Issue (i): Whether leave under section 171 of the Indian Companies Act was required for the defendant to plead set-off or counterclaim in defence to a suit instituted by the company in liquidation.

Analysis: A defence filed in answer to a claim already brought by the company is not a proceeding commenced against the company within the meaning of section 171. A plea of set-off, though treated for some procedural purposes as having the effect of a cross-suit, remains defensive in character when it is raised to resist the company's claim. The statutory prohibition on suits and proceedings against the company does not extend to such defensive pleadings.

Conclusion: Leave under section 171 was not required, and the plea of set-off or counterclaim could be raised in defence.

Issue (ii): Whether the defendant could rely on set-off against the company's money claim in view of section 229 of the Indian Companies Act.

Analysis: Section 229 incorporates the insolvency principle of mutual adjustment of cross-demands. Where the company and the defendant have mutual money claims, the proper course is to take account of both sides and determine only the balance. It would be unjust to compel the defendant to prove its claim merely for dividend while allowing the company to recover in full. The set-off therefore operates as an answer to the company's demand, wholly or pro tanto, and does not defeat the scheme of winding up.

Conclusion: The defendant was entitled to assert set-off against the company's claim.

Final Conclusion: The company's appeal failed because the defendant was entitled to defend the suit by pleading set-off without prior leave, and the defence raised triable issues that could be examined in the suit.

Ratio Decidendi: A set-off pleaded in defence to a suit brought by a company in liquidation is a defensive proceeding, not a proceeding against the company, and may be raised without leave of the winding-up court; in mutual money claims, section 229 requires adjustment of cross-demands so that only the balance is recoverable.

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