ORDER P.T. Raman Nayar, J. 1. This petition brought by the liquidator of the Popular Bank Ltd., really consists of 18 different applications under section 531 of the Companies Act. They have been brought together as one petition by leave of court (no objection being taken by the parties) because they involve common questions of fact and law. 2. The Popular Bank Ltd. (hereinafter referred to as the bank) was incorporated in May 1944. It suspended business on 16th August 1956 and, on a petition presented by a creditor on 27th August 1956, this court ordered its winding-up on 19th December 1956. The liquidator alleges that, on several dates between the 7th July and 16th August 1956, at a time when the bank was unable to pay its debts as they became due from its own money, payments were made to the respondent creditors (named in the petition as counter petitioners, but I find it more convenient to refer to them as respondents) with the view of giving them preference over the other creditors of the bank. In most of the cases there was not enough money in the bank to make the payments, and the device adopted was to transfer amounts from the accounts of creditors to the accounts of debtors, obviously by some arrangement between the creditor and his chosen debtor so that the debtor instead of the bank became accountable to the creditor in respect of the amount so transferred. No doubt a trusted debtor would be chosen so that the result was that the creditor got his money in full instead of the mere dividend he would get in liquidation. There was a discharge by the debtor to the extent of the amount transferred; and, but for the transfer, the bank could have recovered the amount from the debtor in full and need have paid the creditor only a dividend. Whatever the form, there was, in effect, a payment by the bank to the creditor of the money due to him, a loan by the creditor to his chosen debtor (or some other adjustment), and a payment by the debtor to the bank of the money due from him. Whatever the form, there was, in effect, a payment by the bank to the creditor of the money due to him, a loan by the creditor to his chosen debtor (or some other adjustment), and a payment by the debtor to the bank of the money due from him. In fact in some cases the payment by the bank to the creditor, and by the debtor to the bank, were shown in the books as cash transactions, but they were in truth mere book adjustments, the bank not having enough money to make the payment to the creditor except by such adjustment. (In Natukottai Bank Ltd., in re. (1957) 27. Comp. Case 404, Balakrishna Ayyar J., viewed a similar transaction as a payment to the creditor by assignment of the money due from the debtor, and the order he made was one setting aside the entire transaction as he viewed it, in other words, a reversal of the entries. The debtor was required to pay the amount due from him, and the creditor was held entitled to rank as a creditor on the basis of the accounts as they stood before the transaction. With respect, I think what has been stated above is a more direct way of looking at the matter. A payment is none the less a payment because it is made not in cash but by credit to the account of some other person as directed by the payee; we need therefore view the transaction only as a cash payment to the creditor and a cash payment by the debtor; and I do not think we need interfere with the private arrangement between the debtor and the creditor whatever it be.) 3. The general defence of the respondents is their particular defences will be considered when considering each particular case that the bank was in a solvent position that the withdrawals whether it be in cash, or by transfer to other constituents of the bank with whom they had dealings, were in the ordinary course of business, that in any case they were entirely unaware of the possibility of the bank suspending business or going into liquidation, and that there was no intention either on the part of the bank or on their own part that they should steal a march over the other creditors of the bank. 4. 4. There were originally 23 respondents and the petition was brought under section 542 of the Companies Act as well. Certain officers of the bank were therefore included in the party array and so were some of the debtors by transfer to whom the alleged fraudulent preferences were effected, apparently against the possibility of an order for a reversal of the entries and for recovery on that basis. The petition has however been amended by dropping the relief under section 542, by striking off respondents 3, 4, 5, 6, 11, 12, 15, 16, 20 and 22 (earlier the petition had been withdrawn as against 16th respondent) from the party array, and by including a prayer, which did not originally find place in the petition, for recovery from the respondents fraudulently preferred the sums paid to them together with interest. 5. I shall forthwith deal with the objection taken to the new relief of recovery on the score that it does not come within the scope of section 531 of the Companies Act. The argument is that, under that section, the company court can only declare a transfer or payment a fraudulent preference; and any remedy which the liquidator wishes to pursue as a result of that declaration must be pursued in the ordinary course by way of suit. There the creditor who has been preferred might have defences open to him which he cannot urge in an application under section 531 of the Act. Attention is drawn to sub-section of section 542 which expressly confers power on the company court to give such directions as it thinks proper for the purpose of giving effect to a declaration under sub-section (1) and it is pointed out that there is no corresponding provision with regard to section 531. Attention is drawn also to the difference in language of section 54 (1) of the Provincial Insolvency Act which makes a transfer or payment in fraudulent preference void as against the Popular Bank receiver and not merely invalid, and what is more, requires court to annul the transfer or payment, something which necessarily implies restoration of the status quoante. (The insolvency law in force here is the Kerala Insolvency Act which is virtually a copy of the Provincial Insolvency Act. It is more convenient to refer to the provisions of the latter Act.) Karachi Bank, Ltd. v. Castellino 1932 (2) Com. Cas. (The insolvency law in force here is the Kerala Insolvency Act which is virtually a copy of the Provincial Insolvency Act. It is more convenient to refer to the provisions of the latter Act.) Karachi Bank, Ltd. v. Castellino 1932 (2) Com. Cas. 567 and Dr. Tarachand Jeramdas v. Official Liquidators of the Peoples Bank of India, Ltd., Lahore, in liquidation (1915) 29 Indian Cases 265 are cited in support of this argument that the liquidator must go to a regular suit if he wishes to recover money paid to a creditor by way of fraudulent preference. 6. These cases do indeed support the argument, but with great respect I am unable to agree with the view taken in them. True there is no express provision empowering the court to order recovery in allowing an application under section 531, but, I think the power is necessarily implied in the section, especially so, considering the scheme of the Act. If the argument were pushed to its logical conclusion it would mean that section 531 is merely declaratory of the law and that this court has no jurisdiction even to declare a fraudulent preference, a very extreme position which, so far as I am aware, has not been taken by anybody, not even by the respondents. The respondents did not object to this court entertaining the liquidators application under section 531 and, all that has been said on their behalf, is that although this court has jurisdiction, in fact exclusive jurisdiction, to determine whether a transfer or a payment is a fraudulent preference or not, it has no jurisdiction to order recovery in pursuance of such a determination. 7. As pointed out in Atchuthan v. F.C.J. Mattathil A.I.R. 1954 T.C. 164 with reference to the corresponding section, section 267, of the old Travancore Companies Act, the section is to be found in that part of the Act which gives Popular Bank powers to the court in the matter of winding up, and, sub-section (3) of section 533, it seems to me, takes it for granted that not merely is an application attacking a payment as a fraudulent preference to be made to the company court, but also that the court should, if it finds fraudulent preference, order recovery. Under section 446 (2) the company court has jurisdiction to entertain or dispose of any suit or proceeding by or against a company it is winding up, and, in the case of a banking company it has exclusive jurisdiction by reason of section 45-B of the Banking Companies Act. It is the winding-up court that has the power to determine the rights and liabilities of the company in relation to its creditors and contributories, and there can be no doubt that it is the one court competent to determine whether the conditions mentioned in the section obtain. As I have said, it is not disputed that it is this court that has the power to declare any payment or transfer a fraudulent preference, and, that being so, I fail to see why, after obtaining such a declaration from this court, the liquidator should be driven to a suit for recovery especially when, should a suit be instituted, this court would have jurisdiction to try it. Any special defence, if there be one, which a preferred creditor might have in a suit for recovery can, it seems to me, be equally urged before this court in an application under section 531. 8. The corresponding section of the English Act is section 320, the wording of which is very similar to our section 531. The English Act contains no express provision empowering the company court either to declare a fraudulent preference or to make orders for recovery consequent on such declaration. However, the form in use for a summons for a fraudulent preference see Form No. 576 at page 523 of part 2 of Palmers Company Precedents, Seventeenth edition Shows that the application is made to the company court by the liquidator and that the relief prayed for is both for a declaration that a particular payment constitutes a fraudulent preference and is void, and for an order that the person so preferred do repay the liquidator the said sum. This would appear to be the established English practice and seems to have been taken for granted in In re B.P. Fowler Ltd. 1939 (9) Com. Cas. 117. In re Singer (A) and Co. (Hat Manufacturers) (1943) 1 Ch. D. 121, and In re M. Kushler, Ltd. (1943) 1 Ch. D. 248. It was similarly taken for granted by the Madras High Court in In re Natukottai Bank, Ltd. (1957) Com. Cas. Cas. 117. In re Singer (A) and Co. (Hat Manufacturers) (1943) 1 Ch. D. 121, and In re M. Kushler, Ltd. (1943) 1 Ch. D. 248. It was similarly taken for granted by the Madras High Court in In re Natukottai Bank, Ltd. (1957) Com. Cas. 404. 9. I hold that this court has the power not merely to declare a particular payment or transfer a fraudulent preference, but also to pass a consequential order of recovery. 10. The onus of proving each of the elements necessary to bring a particular payment within the scope of section 531 of the Companies Act lies on the liquidator, and the first thing he has to show and this is something common to all the cases is that when the payments were made the bank was unable to pay its debts as they became due from its own money, that it was commercially insolvent as this state of affairs is sometimes compendiously called. (It will be remembered that the petition on which winding up was ordered was presented on 27th August 1956. That was the commencement of the winding up, and the impugned payments are all well within the period laid down by section 581). That the bank is now insolvent can admit of no doubt. The evidence of the liquidator shows that the outside liabilities of the bank as on the date of the winding-up order amounted to Rs. 13,97,300, and that although the assets were shown in the statement of affairs as Rs. 14,87,900 he has been able to realise only about Rs. 4,40,000 and that out of the balance of Rs. 10,00,000 about Rs. 6,50,000 is unrealisable. In fact it has been found that a sum of Rs. 1,99,000 figuring among the assets as advances was never due to the bank, the so-called advances being altogether fictitious. So far only 13 naye Paise in the rupee has been paid to the creditors, and in the liquidators opinion it is not likely that the ordinary creditor will get more than 7 or 8 annas in the rupee on the whole. I might mention that this seems to me a very optimistic estimate. 11. Ext. D-1 (b), dated 15th August 1956 is a resolution of its board in pursuance of which the bank suspended business. I might mention that this seems to me a very optimistic estimate. 11. Ext. D-1 (b), dated 15th August 1956 is a resolution of its board in pursuance of which the bank suspended business. It says that the board, after considering the possibilities of raising funds to meet the existing financial crisis, has resolved after mature consideration to suspend business from the 16th August 1956 in view of the impossibility of raising sufficient funds to meet the day-to-day requirements to run the bank. This is a confession of the banks inability to pay its debts s they became due, of inability to raise sufficient money by borrowing for the purpose, leave alone payment from its own funds. And I might add that this state of affairs could not have come about suddenly. In the ordinary course the bank must have reached a state of commercial insolvency, some time before matters came to such a head that it had to stop business. For, it must be borne in mind that there was no sudden run on the bank the evidence is that although there was some little increase in the withdrawals and diminution in the deposits, there was no such thing as a run. The inability to pay must have been chronic. 12. P.W. 2 was the manager of the bank from its inception in 1944 until 1955 when he was demoted as scretary in which capacity he continued until it stopped business in August 1956. His evidence is that the bank got into trouble towards the end of 1953 because of the slump in the coir trade. Most of the bank advances were to coir manufacturers and exporters. These advances were not being repaid. They became what in banking parlance is called, sticky if not altogether irrecoverable. The cash position of the bank was becoming progressively worse and worse until in August 1955 the position was so bad that in order to carry on its day-to-day business the bank had to borrow Rs. 47,000 on the repledge of gold pledged with it. Later in the month, the board passed a resolution authorising the borrowing of a further sum of Rs. 1,00,000 on the charge of mortgages held by the bank. The position never really improved, and, in March 1956 the board authorised its general manager (who is the 2nd respondent here) to raise a loan up to Rs. Later in the month, the board passed a resolution authorising the borrowing of a further sum of Rs. 1,00,000 on the charge of mortgages held by the bank. The position never really improved, and, in March 1956 the board authorised its general manager (who is the 2nd respondent here) to raise a loan up to Rs. 10,00,000 which he did to the extent of about Rs. 1 z lakhs on his own personal guarantee. From 1954 onwards, the bank was finding it difficult to meet its liabilities as and when demands were made. Various devices were adopted; advances were recalled, further advances were restricted, and temporary accommodation was being obtained by the device known as kite-flying. Self cheques would be issued by the general manager or by P.W. 2 or by some trusted constituent of the bank on his account with the bank, and these cheques would be discounted with local bankers with instructions to present them only after a few days by which time some other money would come in or the same process, repeated. (On this point P.W. 2 is corroborated by R.W. 4 who originally figured as the 12th respondent but has subsequently been struck off. He has said that, on 28th July 1956, the general manager sent for him and obtained a hundi from him for Rs. 5,00 saying that the bank was in difficulties and was in urgent need of funds. In the same way the general manager obtained from him another hundi for Rs. 5,000 on 31st July 1956 as also two cash cheques for Rs. 1,100 and Rs. 100 respectively. R.W. 4 was paid nothing at all and was told that the documents were required so that the bank may raise funds by discounting them. He was told that the bank would itself subsequently make the necessary adjustments and he would not be held liable). These were however only temporary measures, and the position continued to be unhappy until, in April 1956, it took a definite turn for the worse and progressively deteriorated with the result that the bank had to be closed down. From the end of April 1956 there was a general talk that the bank was in trouble and some members of the staff were advising depositors to withdraw their money. From the end of April 1956 there was a general talk that the bank was in trouble and some members of the staff were advising depositors to withdraw their money. Although there was no run as such, from the beginning of July the withdrawals were higher than usual and in excess of the deposits. No depositor was actually turned away when he came for money, but some of the constituents were persuaded to postpone withdrawals until funds came in. The position on the 15th August when the board decided to close down the bank was that the bank could not carry on any longer unless it obtained cash of at least Rs. 2 lakhs. Some efforts were made to raise at least Rs. 50,000 by the re-pledge of gold with the 8th respondent, a rich constituent, but, the efforts having failed, the bank had no option but to close down. 13. The evidence of P.W. 2 has been assailed on the ground that he is a dishonest man who was admittedly responsible for defalcations to the tune of nearly Rs. 2 lakhs. But the remarkable thing is that, although the 1st respondent was a director of the bank, and the 2nd respondent its general manager from 1955, and the husband of the 21st respondent, a director and the legal advisor of the bank, none of them has chosen to get into the box to contradict P.W. 2. These persons must have intimate first-hand knowledge of the working of the bank, and, if anything that P.W. 2 said regarding its financial position was incorrect, they could easily have told the court what the true position was, and found support for their evidence in the books of the bank which were in court and were subjected to thorough scrutiny by the several respondents. Far from the respondents adducing evidence to rebut the evidence of P.W. 2, the evidence actually adduced by them only tends to support his evidence. 14. I have already referred to the evidence of R.W.4 which shows that by the end of July 1956 the bank was in such straits that it had to raise funds by discounting hundies and cheques obtained from R.W.4. R.W.2 evidence shows that, on the night of 15th August 1956, the bank unsuccessfully attempted to get a loan of Rs. 14. I have already referred to the evidence of R.W.4 which shows that by the end of July 1956 the bank was in such straits that it had to raise funds by discounting hundies and cheques obtained from R.W.4. R.W.2 evidence shows that, on the night of 15th August 1956, the bank unsuccessfully attempted to get a loan of Rs. 50,000 from him because it had practically no funds to continue business, and that it was his refusal of the loan on the terms offered that led to the decision to suspend business. R.W. 3 evidence is to the effect that, when he went to the bank on the 11th August 1956 in order to cash a cheque issued in his favour by the 21st respondent, he was told that there was no money and that the cheque could be paid only by crediting the amount thereof to his (R.W.3) account with the bank which stood overdrawn to the tune of about Rs. 3000. R.W.3 insisted on cash payment but had eventually to agree to payment by transfer into his account. R.W.5 evidence is that, on 10th August 1956, he presented a cheque for Rs. 11,500 against his current account with the banks Alleppey office and asked the secretary P.W. 2, for Rs. 5,000 in the shape of a draft on its Vaikom branch and for the balance in cash. P.W.2 said that he was not in a position to pay cash and gave R.W.5 a draft for Rs 9,500 on the bank Vaikom branch and another draft for Rs. 2,000 on its Kuthiathodu branch. The draft on the Kuthiathodu branch was encashed the next day, but that on the Vaikom branch was dishonoured. R.W.5 took the dishonoured draft to P.W.2 at Alleppey on 14th August 1956 and demanded payment, but the best that P.W.2 could do for him was to pay him Rs.2500 in cash against an endorsement on the draft, saying that he could collect the balance from the Vaikom branch. Before he could attempt to do so the bank closed down. 15. As I have said the books of the bank have been subjected to very close scrutiny, and the books reveal that at least from about April 1956 the bank was in a commercially insolvent position. Before he could attempt to do so the bank closed down. 15. As I have said the books of the bank have been subjected to very close scrutiny, and the books reveal that at least from about April 1956 the bank was in a commercially insolvent position. From April onwards, it was not merely drawing heavily from its accounts with other banks, but was borrowing up to the limit on the pledge of the securities it held. The position on the 31st July 1956 was that its credit balance with other banks stood at the negligible figure of Rs. 1883 and odd, whereas it had borrowed as much as Rs, 1,67,000 and odd. The cash balance held by it in all its branches put together was only Rs. 46,000 and odd, and, from the beginning of August, this cash balance was quickly depleted until on the 14th August 1956 it stood at the figure of Rs. 4,300 and odd, the position having been much the same since the 4th August. In March 1956, the bank general manager, the 2nd respondent, gave personal guarantee to the tune of about 1z lakhs for obtaining credit facilities for the bank from the Indian Bank, Alleppey, and, in July 1956 the chairman of the board and another director gave personal security to the tune of Rs. 50,000 for the purpose of getting similar facilities from the Canara Bank. It would also appear that from April 1956, if not earlier, the bank was not maintaining the minimum cash reserves prescribed by section 18 of the Banking Companies Act and that, for the purpose of the returns under that section, large amounts were periodically being shown as deposited almost every Thursday or Friday into the account of the general manager, the 2nd respondent, only to be met by corresponding withdrawals the following Saturday or Monday. A study of the agent scrolls of the several branches also goes to show that most of the impugned payments could not have been made with the cash available with the bank and could only have been made by adjustment or transfer as they were in fact, though not always in form made. 16. I hold that at least from April 1956 the position of the bank was such that it was unable to pay its debts as they became due from its own money. 17. 16. I hold that at least from April 1956 the position of the bank was such that it was unable to pay its debts as they became due from its own money. 17. I shall now proceed to consider the several impugned payments in the order in which they are mentioned in the petition, not forgetting that the onus lies on the liquidator to prove the intention behind the payments. 18. The 7th respondent had a savings bank account with the Kuthiathode branch of the bank, and her husband the 8th respondent, had a current account. The position on the 7th July 1956 was that there was a balance of Rs. 75,457 in the 7th respondent account while the 8th respondent account was overdrawn to the extent of Rs. 52,809. On that day, the 7th respondent withdrew Rs. 50,000 from her account by means of a cheque without the requisite notice required by the rules, and, there being no sufficient money to make the payment, payment was effected by crediting the amount of the cheque to the overdrawn account of the 8th respondent, reducing the debit balance in the latter s account to Rs. 4,809. 19. The defence of the 7th and 8th respondents is that the money in both accounts really belonged to the 8th respondent, the 7th respondent being merely a name lender and having no interest of any kind in the savings bank deposit in her name. Therefore, the credit balance in the 7th respondent name could legitimately be set off against the debit balance in the 8th respondents name and no question of any fraudulent preference arises. 20. It is not necessary to go into the merits of this defence, for, the liquidator has with leave of court come to an arrangement with the 7th and 8th respondents by which they have agreed to a reversal of the entries, leaving their accounts as they stood before the transfer effected on the 7th July 1956. This without prejudice to their case that the money in both the accounts belongs to the 8th defendant. The parties are thus relegated to the position they occupied before the impugned payment, in other words, the 7th respondent will figure as a creditor for the sum of Rs. 75,457 as on the 7th July 1956 whereas the 8th respondent will figure as a debtor in the sum of Rs. The parties are thus relegated to the position they occupied before the impugned payment, in other words, the 7th respondent will figure as a creditor for the sum of Rs. 75,457 as on the 7th July 1956 whereas the 8th respondent will figure as a debtor in the sum of Rs. 52,809 as on the same date. A claim filed by the liquidator for the recovery of this amount from the 8th respondent is pending adjudication on the 8th respondent contention, supported by the 7th respondent, that the money in the 7th respondent name is really due to the 8th respondent and should therefore be set off against the money due from him. 21. The 9th respondent and her mother-in-law, the 10th respondent, had savings bank deposits with the Alleppey office of the bank which they had given as security for the overdraft allowed by the bank to a firm known as D. Lakshmana Naik & Sons, run by the 11th respondent (who is the husband of the 9th respondent and the son of the 10th respondent) and his brother. On the 14th July 1956 these savings bank deposits were converted into short notice deposits repayable on seven days notice, the deposit in the name of the 9th respondent amounting to Rs. 12,089-5-11 and that in the name of the 10th respondent to Rs, 11,647-9-8. The deposits continued to be security for the overdraft of D. Lakshmana Naik & Sons. On the 11th August 1956, at a time when there was not enough money in the bank to repay the deposits in cash entries were made in the books showing both deposits as having been repaid, two payments of Rs. 10,000 each as having been made into the overdraft account of D. Lakshmana Naik & Sons, and a sum of Rs. 2,116-3-1 as having been deposited by the 9th respondent and a sum of Rs. 1,673-7-2 by the 10th respondent, this sum in each case representing the original deposit plus interest minus Rs. 10,000. It is not disputed that what actually happened was that on 11th August 1956 the 9th and 10th respondents were each paid Rs. 10,000 from out of their short notice deposits, the payments being actually effected by the transfer of these sums to the account of D. Lakshmana Naik & Sons which, as a result of these payments aggregating Rs. It is not disputed that what actually happened was that on 11th August 1956 the 9th and 10th respondents were each paid Rs. 10,000 from out of their short notice deposits, the payments being actually effected by the transfer of these sums to the account of D. Lakshmana Naik & Sons which, as a result of these payments aggregating Rs. 20,000 ceased to be overdrawn and, in fact, showed a credit balance of Rs. 254-11-3. 22. These payments were made to the 9th and 10th respondents at a time when the bank was commercially insolvent. It is not the case that the 9th and 10th respondents put any pressure on the bank for the repayment of their deposits. On the contrary, although the case put forwarded by the 9th and 10th respondents in their written statements was that the transactions of the 11th August 1956 were effected in pursuance of a joint request made by them and D. Lakshmana Naik & Sons to the bank with a view to take their business elsewhere, the evidence given on their behalf by the 11th respondent as R.W. 10 is to the effect that it was the bank that insisted on repaying the deposits of the 9th and 10th respondents since it was anxious that the firm overdraft should be cleared, the firm being unable to find the money otherwise. So what appears is that, at a time when it was commercially insolvent and at a time when it had no money to repay the 9th and 10th respondents, leave alone repaying its other debts as and when they became due, the bank, without any pressure or even a demand paid Rs. 10,000 to each of these respondents by transfer to the overdraft account of the firm belonging to their very close relatives. The result of the payment has been to prefer the 9th and 10th respondents to the other creditors of the bank and from the circumstances, it seems to me legitimate to infer that this was the dominant intention. In fact I find it difficult to think of any other possible intention. 23. The defence put forward by the 9th and 10th respondents is two-fold. In fact I find it difficult to think of any other possible intention. 23. The defence put forward by the 9th and 10th respondents is two-fold. The first is that the firm is really a joint family business and that the monies deposited in the names of the 9th and 10th respondents were not their monies, but were the monies of the joint family. These respondents were mere name-lenders and had no interest of their own in the monies. Since the debtor under the overdraft and the creditor under the short notice deposits were the same, namely, the joint family) the deposits could lawfully be set off against the overdraft and therefore the transfer effected on 11th August 1956 cannot be regarded as a fraudulent preference. The second defence is that since the deposits were, in any case, security for the overdraft they were liable to be adjusted against the overdraft and that, in doing so, the bank was only enforcing the security which was the proper thing for it to do. If the bank owed money to respondents 9 and 10 on the deposits, the respondents in turn owed money to the bank by reason of the security they gave for the firm overdraft, and an adjustment of the one against the other was precisely the account and set-off section contemplated by section 46 of the Provincial Insolvency Act which is attracted by reason of section 529 of the Companies Act. 24. The first defence need not detain us long. It was put forward for the first time only in the evidence and a perusal of the written statement filed by respondents 9 and 10 clearly shows that it is an afterthought. (Even so there is only the bare interested oral assertion of the 11th respondent as R.W. 10 in support of it). In more than one place the written statement refers to the deposits (originally in savings bank and subsequently in short notice deposits) as the deposits of the 9th and 10th res-pondents and of the balance therein as due to them. There is not a whisper of the money being not really theirs, but the money of the joint family of the 11th respondent. Nor is there any whisper of the firm of D.Lakshmana Naik & Sons being a joint family business. There is not a whisper of the money being not really theirs, but the money of the joint family of the 11th respondent. Nor is there any whisper of the firm of D.Lakshmana Naik & Sons being a joint family business. On the contrary the express averment is that the firm was a partnership, the partners being the two sons of the 10th counter-petitioner. (Paragraph 2 of the written statement wrongly states that the 11th respondent is the son of the 9th respondent and the husband of the 10th respondent. It is really the other way about; he is the husband of the 9th respondent and the son of the 10th respondent). By their written statement, respondents 9 and 10 clearly committed themselves to the case that the money under the short notice deposits was due to them personally and that the money under the overdraft was due from the firm of which the 11th respondent and his brother were partners. The case for a set-off on the footing of the joint family being really the creditor under the deposits and the debtor under the overdraft, must therefore be rejected out of hand. 25. The question that remains is whether set-off is permissible in liquidation by reason of the fact that the deposits of the 9th and 10th respondents with the bank were security for the overdraft of the firm. The payments were by set-off, and, if such a payment was something which respondents 9 and 10 could have got in the liquidation there can, of course, be no question of their having obtained any preference over the other creditors. They got only what they properly would have got. If, on the other hand, set-off is not permissible, the payments made to respondents 9 and 10 by means of set-off would be fraudulent preferences even if the set-off was for the purpose of recovering the money due on the overdraft of the firm and in enforcement of the security. It is doubtless proper that a bank, especially a bank in difficulties should take prompt and effective steps for the recovery of the monies due to it and should, for this purpose, enforce any security it holds. It is doubtless proper that a bank, especially a bank in difficulties should take prompt and effective steps for the recovery of the monies due to it and should, for this purpose, enforce any security it holds. But, where the security is a debt due by itself, and the recovery of the debt due to it by enforcement of the security necessarily involves repayment of the debt due by it, it gains no advantage by the transaction, and, unless the repayment was due to some pressure brought by the creditor, or was by a set-off permissible in liquidation, the intention behind the repayment by set-off could only be to prefer the creditor. 26. We may take it that it was on the joint demand of the debtor firm and of respondents 9 and 10 that the adjustment was made. Exts. D-11 and D-12 (which are in identical terms) are copies of the bonds by which respondents 9 and 10 hypothecated and pledged their deposts (then in savings bank and later converted into short notice deposits but nevertheless remaining subject to the bond) as continuing security for the dues of the firm. Under the terms of the bond the bank was at all times at libert to appropriate the deposits towards the dues of the firm without the assent of, even without notice to, the depositors. But it was not bound to do so. True, in normal circumstances, it would have done so on the request of the owner of the security; but then, in normal circumstances, it would have repaid any depositor the money due to him and no one could have taken exception to that. As I have already said, these were repayments of the deposits of respondents 9 and 10, nonetheless so because they were mode by set-off against a debt for which the deposits were security and unless this later circumstance makes a set-off permissible in winding-up, the repayments would be fraudulent preferences. 27. In In re Travancore N. & Q. Bank A.I.R. 1941 Mad. 622 Venkataramana Rao, J., held in similar circumstances that a set-off was not permissible, and that decision has recently been followed by a Division Bench of the Calcutta High Court in Mani Bhusan Malik v. Pioneer Bank, Ltd. (1960) 30 Com. Cas. 27. In In re Travancore N. & Q. Bank A.I.R. 1941 Mad. 622 Venkataramana Rao, J., held in similar circumstances that a set-off was not permissible, and that decision has recently been followed by a Division Bench of the Calcutta High Court in Mani Bhusan Malik v. Pioneer Bank, Ltd. (1960) 30 Com. Cas. 478, (That the set-off in those cases was claimed by the debtor makes no difference in fact, in both cases, the owners of the pledged deposits also asked for a set-off). Venkataramana Rao, J., viewed the matter thus: If A owes money to B and B to C and C has stood surety for A, then C being, severally with A, personally liable to pay A debt there is against C demand on B, B cross-demand on C on account of A debt. Therefore there are mutual dealings between B and C, and, in B insolvency, A surety debt to B could be set off against B debt to C under section 46 of the Provincial Insolvency Act. (Even so, it occurs to me that since B could at any time have released C from his surety obligation and looked solely to A for payment, the receiver could do likewise in which case there would be nothing to set off against the debt due to C. But that, in such circumstances, C can get a set-off seems well settled). But, supposing C has not made himself personally liable to pay A debt but has only given his property as security, then B cannot call upon C to pay the debt but can only realise the security and pay himself. There is no mutuality since nothing is due from C, and hence no question of set-off. Moreover, B could at any time have given up the security. So can the receiver if that is beneficial to the administration; and in that case there would be no question of even C property being liable. 28. With great respect I agree. And I might add that the fact that the property given by C as security is a debt due to him from B makes no difference to the position, for, that circumstance does not make for a demand by B against C. Moreover I should think that, when C pledges the debt to B, he transfers it to him. And I might add that the fact that the property given by C as security is a debt due to him from B makes no difference to the position, for, that circumstance does not make for a demand by B against C. Moreover I should think that, when C pledges the debt to B, he transfers it to him. Nothing is due to him from B until A debt is paid and the security returned. Only when that contingency has occurred can C ask for repayment of his debt, and, in that event, if B has become insolvent, C cannot get the entire sum due to him but must be content with a dividend. Nor has C any cause of action against B for the diminution of the value of the security by reason of B insolvency, and any premature payment to him of the entire sum (albiet by adjustment against the debt due from A) would be a fraudulent preference. 29. It is true that C is entitled to have the security realised and adjusted towards A debt. But it is to be noted that what he has given as security is not money (in which case the entire money would be available for paying A debt) but only the debt due to him by B. The value of that debt having diminished by reason of B s insolvency it is only this diminished value (namely, the sum-total of the dividends) that can be realised and adjusted against A debt. Nor would there be any question of B having improperly made away with the security by becoming insolvent so as to attract the rule thus stated by Viscount Cave, L.C., in Ellis and Company Trustee v. Dixon- Johnson (1925) A.C. 489: "If a creditor holding security sues for his debt, he is under an obligation on payment of the debt to hand over the security; and if having improperly made away with the security he is unable to return it to his debtor, he cannot have judgment for the debt". For, as pointed out by Venkataramana Rao, J., in the case already referred to, in the example we are considering, when B becomes insolvent he does not thereby make away with the security, namely, the debt due by him, or become unable to return it. For, as pointed out by Venkataramana Rao, J., in the case already referred to, in the example we are considering, when B becomes insolvent he does not thereby make away with the security, namely, the debt due by him, or become unable to return it. The moment A debt to him is paid the security will be released and the property restored to C although diminished in value by reason of B insolvency. It is this that Venkataramana Rao, J., meant when he said that the. rule of Viscount Cave, L.C. will not be applicable to cases of liquidation or insolvency., namely, that the insolvency of a secured credit or does not amount to his making away with the security even if it be a debt due by him; nor I think, with great respect to the Calcutta Judges, as they thought, that the rule that the security must be returned on repayment of the debt does not apply when the creditor becomes insolvent. And, it is in this view that he thought that the rule had been misapplied in Official Assignee v. M. C. Harikrishna A.I.R. 1935 Rangoon 201. 30. It seems to me that respondents 9 and 10 are not entitled to a set-off under section 46 of the Provincial Insolvency Act. All that they can ask, and could have asked, is for a return of the security on the repayment of the firm debt or that the security should be realised and adjusted towards that debt. That, since the bank is insolvent will be only of a smaller sum than the face value of the security and will be possible only as and when dividends are declared, and the payment of Rs. 10,000 to each of these respondents (although by adjustment towards the firm liability was, in my view, a fraudulent preference. Respondents 9 and 10 must therefore repay the amounts and be content with such dividends as they might get, and even that only after the firm liability is discharged. * * * * * * * * * * * * * * 61. There will be an order against each of the respondents for payment to the liquidator of the sum withdrawn by him in fraudulent preference as set forth above. * * * * * * * * * * * * * * 61. There will be an order against each of the respondents for payment to the liquidator of the sum withdrawn by him in fraudulent preference as set forth above. Interest on each sum will be paid at 6 per cent per annum from the date of withdrawal, and the respondents will also pay costs to the liquidator, advocate fee being calculated on the sums decreed against them as in a suit.