1959 (11) TMI 30

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....neys due to them from the company under other dealings set off against their chitty debts. In other words, whether what I might call an ordinary debt due by the foreman company can be set off against a chitty debt due to it. It has been argued on behalf of the "non-prized subscribers" whom I might call chitty creditors of the company, that, in the face of the charge given to them by section 42 of the Chitties Act, they are in the position of secured creditors who by reason of section 529(1)(c) of the Companies Act read with section 28(6) of the Kerala Insolvency Act, have the right to realise the money due to them from their security and that there can be no set-off to the detriment of that right. On the other hand it has been argued on beh....

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....ell recognised that in insolvency proceedings, a secured creditor who allows the receiver to realise the security on his behalf, has a claim to be paid first out of the money so realised ; and I see nothing either in the Companies Act or in the Insolvency Act which affects the charge created by section 42 of the Chitties Act. It is true that the Companies Act does not provide for any priority to chitty creditors. But notwithstanding the heading of section 42 of the Chitties Act, this is not a case of preferential payment to the chitty creditors but of a security created in their favour. And, if a security created by act of parties remains unaffected by the insolvency of the owner of the property charged, I fail to see why a security create....

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....It is also argued that, after having realised the money, the chitty foreman may dissipate it and render the charge valueless. But I fail to see how this latter possibility can affect the existence of the charge. And, as for the foreman being able to give a valid discharge, by set-off or adjustment that question does not really arise since no such adjustment has actually been made. I might add that it was held in 16 Trav. LR 193, that such an adjustment could be set aside at the instance of the chitty creditors. It is said that what section 42 of the Chitties Act at best does is to create a charge in favour of the chitty creditors as against the ordinary creditors of the foreman and that it creates no charge so far as third parties are conc....