Set-off in winding-up allows mutual claims to be adjusted before liquidation priorities are applied.

In winding-up proceedings, mutual dealings between a company and its creditor permit set-off under the insolvency rules applied by section 529 of the Companies Act, 1956, read with section 46 of the Provincial Insolvency Act, 1920. Separate chit fund accounts or fixed deposits did not destroy mutuality where reciprocal monetary claims existed between the same parties, and liquidation did not extinguish the ordinary right of set-off. The priority scheme under section 530 operated only after the balance was ascertained. The respondents were therefore entitled to adjust their dues against the official liquidator's claim and were liable only for the net balance.

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Issues: Whether, in winding-up proceedings, a debtor of the company can claim set-off of sums due to him from the company under other chit fund accounts or fixed deposits against the amounts claimed by the official liquidator.

Analysis: Section 529 of the Companies Act, 1956 makes the insolvency rules applicable in the winding up of an insolvent company, and section 46 of the Provincial Insolvency Act, 1920 provides that where there have been mutual dealings between the insolvent and a creditor, the balance only is recoverable on either side. The existence of separate chit fund accounts or fixed deposits did not destroy mutuality where reciprocal monetary claims existed between the same parties. The court held that liquidation does not extinguish the ordinary right of set-off, and the priority scheme under section 530 does not prevent adjustment of mutual claims before the balance is ascertained.

Conclusion: The respondents were entitled to set off the amounts due to them from the company against the sums claimed by the official liquidator, and they were liable only for the balance remaining after such adjustment.

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