FREE INDIA BANK LTD Vs. STATE OF KERALA

JUDGEMENT

(1.) The question raised is this: When a company that is being wound up is the foreman of a chitty governed by the provisions of the Travancore Chiltics Act. 1120, are the "prized subscribers" from whom money is due to the chitty entitled to have moneys clue 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 Inslovency 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 behalf of the prized subscribers who are chitty debtors of the company, but ordinary creditors, that Section 529 of the Companies Act read with Section 47 of the Kerala Insolvency Act gives them the right of set off which they can claim notwithstanding the charge created by Section 42 of the Chitties Act.

(2.) Section 42 of the Chitties Act reads as follows:

(3.) It is argued on behalf of the prized subscribers, namely, the chitty debtors of the compny, that so far as they are concerned, the money due from them to the chitty is a debt due to the foreman company, nothing more or less, and that the fact that, in the hands of the foreman company, it is an asset on which its chitty creditors have a charge, cannot affect their right to an account and set off under Section 47 of the Insolvency Act. But I look at the matter like this: The money due from the chitty debtors to the company is a chitty asset on which the chitty creditors of the company have a charge. And, once a third party has a charge or other interest in that money, it cannot be the subject matter of an account between the chitty debtor and the foreman creditor to the prejudice of the third party charge-holder.