1940 (5) TMI 14

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....his sum to him without security. His mother-in-law Mrs. G.P. Sathanantham Srinivasan offered to give the necessary security. On the date of the loan she had a sum of Rs. 4,300 in fixed deposit covered by the Fixed Deposit Receipt bearing the same date. She gave that amount as security. In her affidavit Mrs. Srinivasan states that she gave the said security on the definite understanding that the Bank should adjust the amount due by Mr. Samuel from and out of the money due to her under the said deposit at the time of maturity. The terms on which she gave the said security were reduced to writing and is evidenced by a letter written by Mrs. Srinivasan to the Bank and it runs thus: "I beg to hand you herewith Fixed Deposit amount Receipt No.....

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....been able to put before me any authority in support of the contention that he can claim a set-off under the said section. His contention however is that Mrs. Srinivasan was a surety for Samuel though her liability is limited to the extent of her security and a surety can claim to have the debt due to her by the Bank set-off against the debt due by the principal. In support of this contention he relied on a ruling of my learned brother Gentle, J., in Application Nos. 841 and 815 of 1939. In that case both the principal and the surety were severally liable to pay the debt due to the bankrupt creditor. Therefore the learned Judge following the rule that if a surety being severally liable has money in the hands of the creditor who became a bank....

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.... Caldicott, In re Hart [1884] 25 Ch. D. 716 and Commercial Bank of Australia v. Official Assignee of the Estate of John Wilson & Company [1893] A.C. 181. The case decided by Gentle, J., appears to be a case in point. In that case the applicant was a subscriber for one ticket in a chit fund conducted by the Travancore National (Subsidiary) Company and was a successful bidder for a sum of Rs. 940 at the auction held. Under the Rules of the Company he could only draw the amount of Rs. 940 on giving sufficient security for the due payment of the future instalments of the chit. Two of the brothers of the subscriber who were also subscribers to other chit funds conducted by the company offered to give the amount that might be due to them in respe....

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....inciple that a mortgagee will not be permitted to sue his mortgagor for the mortgage debt, if he has parted with the mortgaged property otherwise than in exercise of a power of sale" would apply to the case. But the principle is not inflexible and some modification was required in the circumstances of that case. He was of the opinion that justice could be done in that case by ascertaining the market value of the shares on the date of the receiving order and by setting off the amount so ascertained against the amount found due from the defendant and the balance directed to be paid by the defendant. When the matter went up before the House of Lords, Viscount Cave, L.C, was of the opinion that bankruptcy could not modify the application of the....

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....duct of the Bank.' It seems to me that the rule of Viscount Cave, L.C. will not be applicable to cases of liquidation or insolvency. The security in this case takes the form of a debt due by the Bank. If that debt was owing to the debtor it will be a case of cross-demand and a case for a set off. But the security in this case was given by a third party and by reason of the liquidation the owner of the security cannot have any cause of action against the Bank for any wrongful conversion. Under the law he cannot say that the value of his debt is impaired: he is only entitled to receive the dividend and cannot claim the full amount. While therefore the owner of the security cannot claim the full amount and there can be no cause of action again....