JUDGEMENT: RUSTAM S. SIDHWA, J.-1. This is an Inter-Court appeal preferred by Haji Muhammad Sabir, appellant, against the order of the Company Judge dated 14.3.1984 directing the appellant to refund Rs.
4,200.00 to the official liquidator, being the excess advance rent received by him.
2. The brief facts of the case are that on 1-5-1979, Haji Muhammad Sabir, appellant, rented out a shop in Nowshera Virkan, District Gujran- wala, to the Ghazi Commercial Finance Limited, a company presently under liquidation, for five years at a rental Rs. 700 per mensem. Rs. 8,400.00 were received by the appellant from the said company as advance rent for one year. On 25-10- 1979, the company went into liquidation, through a winding up order passed on that day. On 27-11- 1979, Mr. Zahid Hussain, Advocate, was appointed as official liquidator of the said company. On 22- 5-1980, the appellant filed a claim with the official liquidator for the refund of Rs. 4,165.00 as creditor, being the sum deposited by him in the Small Investment Scheme account with the said company. On 9-7-1980, the official liquidator vacated the rented shop of the appellant. On 19-5- 1983, the official liquidator submitted a report to the Company Judge inter alia showing the appellant as a debtor with regard to the sum of Rs.4,200.00, being advance rent held by him in excess, as on the date of the winding up order. The Company Judge issued a notice to the appellant to pay up the said amount. The appellant filed a reply claiming that he was entitled to full rent from the Company from 1-5-1979 to 9-7-1980 and the further sum of Rs. 4,165 which was due by the Company to him on his Small Investment Scheme Account. On 14-3-1984, the said matter came up before the learned Company Judge. On behalf of the appellant it was pleaded that since the official liquidator had vacated the shop on 9-7-1980, the advance rent of Rs. 8.400.0 paid to the appellant stood exhausted on 30-4-1980 and that, in any case, further rent from 1-5- 1980 to 9-7-1980 was due and payable by the official liquidator to the appellant as rent. However, the learned Company Judge held that on the date when the Company went into liquidation, i.e. 25- 10-1979, the appellant was a debtor to the extent of Rs. 4,200.00, being holder of excess advance rent on that date. He was, therefore, directed to pay up the said amount. Being aggrieved by the said order, the appellant has preferred the present inter-Court appeal, which is now before us for disposal.
3. On behalf of the appellant it is submitted that by virtue of section 229 of the Companies Act, 1913, in the winding up of an insolvent company the same rules should be applied and observed with regard to the respective rights of secured and unsecured creditors and to debts provable as are available for the time being under the law of insolvency with respect to the estate of persons adjudged insolvents, It is. Further submitted that under section 45 of the Provincial Insolvency Act, 1920, a creditor can prove for a debt not payable when the debtor is adjudged an insolvent, as if it were payable presently, and under section 46 of the same Act, where there have been mutual dealings between an insolvent and a creditor proving or claiming to prove a debt under the said Act, an account can be taken of what is due from one to the other in respect of such mutual dealings, and the sum due from one can be set of against any sum due from the other, and the balance of the account alone, and no more, can be claimed or paid on either side respectively. It is, therefore, urged that there was no debt due and payable by the appellant on the date of adjudication, i.e. 14-3-1984 and that assuming there was any other debt, he would have had the right of setting of Rs. 4,165.00, which was the amount payable by the Company to him on his Small Investment Scheme Account, and Rs. 1,610.00 which was rent due to him from 1-5-1980 to 9-7-1980.
4. On behalf of the official liquidator it is submitted that the appellant had a right to claim the rent for the period 25-10-1979 to 9-7-1980 through a separate application, as a creditor, which claim he can file and which would be considered when claims of creditors are adjudicated.
5. We have given our anxious consideration to this case. Section 229 of the Companies Act provides that in the winding up of an insolvent company, the same rules are to prevail and be observed with regard to the respective rights of secured and unsecured creditors and to debts provable as are in force for the time being under the law of insolvency with respect to the estates of persons adjudged insolvents. The word "rule" in this section does not mean the rules under the Insolvency Acts. What it means is the provisions laid down in the Insolvency Acts relating to the said subject. See B. Anand Behari Lai v. Dinshaw &. Co. Ltd AIR 1942 Oudh 417. In Hansraj and others v.
Official Liquidator, Dehra Dun Mussoorie Electric Tramway Co. Ltd. AIR 1929 ALL-353, a full Bench of the Allahabad High Court held that the phrase "the same rules.............................. ,...- under the law of insolvency" in this section was were enough to include the provisions contained in the Provincial Insolvency Act, the rules made under any power conferred by that Act and the rules of practice applicable in the matter, unless there was something in the Companies Act itself which already provided for the matter in question. However, one thing is clear that the provisions to be imported from the Insolvency Acts should be those relatable to matters stated in section 229 of the Companies Act. Under section 34(2) of the Provincial Insolvency Act, save debts which cannot be proved under section 34(1) all debts and liabilities, present or future, certain or contingent, to which the debtor is subject when he is adjudged insolvent, or to which he becomes subject before his discharge by reason of any obligation incurred before the date of such adjudication, are treated by legal fiction as debt payable under the Act. Under section 45 of the said Act, a creditor can prove for a debt not payable when the debtor is adjudged an insolvent, as if it were payable presently.
Under section 46 of the same Act, where there have been mutual dealings between an insolvent and a creditor proving, or claiming to prove a debt under the Act, an account can be taken of what is due from the one to the other in respect of such mutual dealings, and the sum due from one can be set of against any sum due from the other, and the balance of the account, and no more, can be claimed or paid on either side respectively. The words "mutual dealings" in section 46 should not be confused with mutual dealings arising out of a "mutual open and current Account", as that expression is used in Article 85 of the First Schedule to the Limitation Act, 1908. The principle behind section 46 is to prevent injustice which would arise after a person who is the insolvent creditor on one account and his debtor on the other, is compelled to pay the entire amount due by him, receiving only a dividend on the amount due to him. See Seth Radha Kishan vs. Firm Ganga Ram 23 IC 927 and Sundar Avaradon Vs. Official Liquidator, T.N.B. Subsidiary Company AIR 1940 Mad 266.
Thus where two persons have dealt with each other on mutual credit and one of them becomes insolvent, the account can be settled between them and the balance only, which is found due on either side, is treated as payable, In order that section 46 may apply, both the claims must be debts, both must be pecuniary, both must be between the same parties i.e. The insolvent Messrs Sterling Engineering Corporation Vs. Collector of Customs and mother and the creditors, and both must be in the same capacity or right. In the light of these provisions, the appellant cannot be stated to be a debtor at all, neither on the date of liquidation i.e. 25-10-1979, nor on the date of adjudication i.e. 14-3-1984. It appears that this legal position was not brought to the notice of the learned Company Judge. In these circumstances, the order of the learned Company Judge dated 14-3-1984 calling upon the appellant to pay back Rs. 4,200.00, appears to be against the law on the subject.
6. On behalf of the official liquidator it is pointed out that as the appellant had agreed to pay Rs.
4,200.00 by 20th April, 1984, before the learned Company Judge, that he is estopped from challenging the impugned order. We notice from the order that the appellant at no stage accepted his liability. We are informed by the learned counsel for the appellant that after the matter was adjudicated against the appellant, he was asked to signify the period by which he was prepared to clear the same, failing which coercive measures would be taken against him and, in answer to that question, he gave the date, which has been recorded in the order. Other than this, it was nowhere conceded by the appellant that he admitted the legal position as found by the learned Company Judge. We agree with this submission. It does not appear from the order that the appellant admitted his legal liability, as found by the learned Company Judge. He only expressed his willingness to clear the amount by a particular date, after which coercive measures could be taken against him. In these circumstances, nothing turns on the objection raised by the Official Liquidator.
7. For the foregoing reasons, we accept this appeal and set aside the order of the learned Company Judge dated 14.3.1984, to the extent that it calls upon the appellant to refund the advance rent of Rs. 4,200.