T.V. Gopalakrishna Aiyar and Another vs The Official Receiver of South Malabar at Calicut and Others

Reilly, J.—This is an appeal against the order of the District Judge of South Malabar in an insolvency matter. The appellant, a creditor of the

insolvent, has put in a claim before the Official Receiver for an amount which he says is due to him from the insolvent. The learned District Judge

has found that the Official Receiver is entitled to set off against that claim a time-barred debt due from the creditor to the insolvent. I do not think it

can be disputed, and I did not understand Mr. Anantaraman for the Official Receiver to dispute, that a creditor in an insolvency can prove only a

debt which at the date of the adjudication has not become time barred. If we examine Sections 34 and 28(2) of the Provincial Insolvency Act, I do

not think that there can be any doubt on that point. But It is suggested that, although the creditor cannot recover from the insolvent a time-barred

debt and although a day before he is adjudged insolvent the insolvent himself could not set off against the creditor a time-barred claim, the Official

Receiver has a higher right and can set off against the creditor''s claim a time-barred claim. That appears to me to be a very startling proposition.

Mr. Anantaraman argued that it can be founded on the wording of Section 46 of the Provincial Insolvency Act. That section runs :

Where there have been mutual dealings between an insolvent and a creditor proving or claiming to prove a debt under this Act, an account shall be

taken of what is due from the one party to the other in respect of such mutual dealings, and the sum due from the one party shall be set off against

any sum due from the other party, and the balance of the account, and no more, shall be claimed or paid on either side respectively.

Now in that section Mr. Anantaraman contends ""due"" does not mean ""legally recoverable"" but ""justly due""; and he has pointed out that in

Section 60 of the Contract Act ""due"" is used of a debt which is no longer legally recoverable from the debtor but which is actually and justly due

from him. No doubt the word ""due"" is used in that sense in Section 60 of the Contract Act; but we have to ascertain in what sense it is used in

Section 46 of the Provincial Insolvency Act. I think that, if we try to work that section out, there can be no doubt that ""due"" as used in it means

legally recoverable"" because, if it includes not only debts which are legally recoverable but also debts which have become time-barred, then that

meaning of the word must apply to both parties, and, if we take into account what is due otherwise than legally recoverable from the insolvent to

the creditor and from the creditor to the insolvent and arrive at the balance in the way indicated in the section, the balance may well be in favour of

the creditor by reason of a time-barred debt due to him. The result of that would be that under the Insolvency Act a creditor could recover a time-

barred debt, which I think is entirely out of the question. For that reason alone without discussing the matter further, I may mention neither side has

been able to find any authority on this point, it appears to me clear that the learned District Judge''s view of the matter is wrong and that the Official

Receiver in this case has no right to set off against the creditor''s claim a time-barred claim against the creditor.

But it is represented to us that, although the learned District Judge disposed of the appeal on his view of the law in this matter and then sent the

case back to the Official Receiver to be worked out in accordance with that view, it has not yet been determined whether the claims of the

insolvent against the creditor are actually time-barred, and that question, of course, must be investigated. So, although I do not agree with the

learned District Judge''s view of the law, I agree with him that it is necessary that this case should go back to the Official Receiver for further

investigation.

In the circumstances the appellant is entitled to his costs on this appeal.

Anantakrishna Aiyar, J.

I agree. I wish to add that the object of Section 46 of the Provincial Insolvency Act is not to do away with the provisions of the Limitation Act

and to revive claims already barred by limitation before a person became insolvent. The logical result of the contention raised by the learned

advocate for the respondent would be that once a person becomes insolvent, not only could the Official Receiver representing the estate of the

insolvent enforce claims of the insolvent which had become barred by limitation long before the insolvency but also the creditors of the insolvent

whose debts had become barred by limitation long prior to the insolvency could seek to enforce such claims against the estate of the insolvent in

the hands of the Official Receiver. In the absence of any specific provision in the Insolvency Act, I am not prepared to agree to a contention which

leads to such results. I can understand that claims not barred by limitation on the date of adjudication should be taken to be not barred so long as

the adjudication subsists; but the contention that the effect of insolvency is to revive debts already barred by limitation is, I think, a startling one,

and, in the absence of authority, should not be accepted. No decision of any English or Indian Court in support of such a contention has been cited

before us.

It seems to me that the object of Section 46 of the Provincial Insolvency Act is to provide for a just and equitable mode of adjustment of mutual

dealings of the insolvent and his creditor; but for such a provision the creditor of an insolvent if he also owed a debt to the insolvent would have to

pay the whole of the debt to the Official Receiver, that is, he will have to pay the full sixteen annas in the rupee in respect of the debt due by him to

the insolvent''s estate, whereas he would be entitled to receive from the estate only pro rata dividend from the estate. Such a result was considered

unjust and equitable in cases where ""mutual dealings"" of the nature contemplated by the section existed between the parties. The section

accordingly provides that ""an account shall be taken of what is due from the one party to the other in respect of such mutual dealings and that the

sum due from the one party shall be set off against any sum due from the other party, and the balance of account and no more shall be claimed or

paid on either side respectively.

Whether any amounts are due from the one party to the other and whether they are barred by limitation are all questions to be decided under

the general law, and Section 46 only provides how the respective rights of the parties should be adjusted by set off in cases of mutual dealings.

I agree with my learned brother that the appeal should be allowed.