Secured creditor election in liquidation bars set-off against sale proceeds unless the court redeems the security.

A secured creditor who elects to value its security and prove only for the balance in liquidation must accept that election's legal effect: the security is treated as valued for proof, and no set-off can later be claimed against the auction price of the company's assets unless the court redeems the security. Under section 229 of the Indian Companies Act, 1913, read with section 47 of the Provincial Insolvency Act, the available courses are to realise the security, relinquish it, or value it and prove for the balance. Having chosen the third course, the creditor cannot insist on adjustment of the valued security against sale proceeds. The claimed set-off was therefore impermissible.

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Issues: Whether secured creditors who had elected to value their security and prove only for the balance in liquidation could claim a set-off against the auction price of the company's assets.

Analysis: Under section 229 of the Indian Companies Act, 1913, read with section 47 of the Provincial Insolvency Act, a secured creditor has alternative courses: realise the security, relinquish it, or value it and prove for the balance. Once the third course is chosen, the security is treated as valued for the purpose of proof in liquidation. The court had no proposal to redeem the security under section 47(4), and the creditors could not insist that the valued security be recognised as a set-off against the sale proceeds. The question whether they could give a valid discharge on the debentures therefore did not require determination for deciding the claimed set-off.

Conclusion: The claimed set-off was not permissible, and the appeal failed.

Final Conclusion: A secured creditor who elects to value security and prove for the balance cannot demand adjustment of that security against the liquidation sale price unless the court redeems the security.

Ratio Decidendi: Election to value security and prove in liquidation excludes any right to set off that security against sale proceeds, absent redemption by the court.

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