Section 46 of the Provincial Insolvency Act embodies a rule of equity and its benefits are not confined to insolvency proceedings only.

( 1 ) THE petitioner is the plaintiff in Small Cause Suit No. 2 of 1955 on the file of the Court of the District Munsiff, Mangalore, South Kanara. His suit has been dismissed and he has come up in revision to this Court. This revision petition raises some interesting questions of law. In order to properly appreciate the questions of law that arise for consideration it is necessary to state the facts of the case briefly.

( 2 ) IN the Town of Mangalore a Chit Fund was being run which was known as the New Kerala daily Auction Chit Fund which will be hereinafter called the "fund". The defendant was a member of the said "fund". He executed a demand promissory note on 28-1-1952 in favour of the "fund" for a sum of Rs. 500/- security for the due payment of the future instalments of the chit purchased by him. The practice of this 'fund' seems to have been that whenever a member was a successful bidder in any of the chit auctions, he will have to execute a pro-note as security for the payment of future instalments of the chits purchased by him.

( 3 ) THE proprietor of the said 'fund' seems to have disappeared and the transactions of the "fund" came to a sudden end sometime in 1953. On the application of the creditors, insolvency proceedings started and the Official Receiver took charge of the assets of the 'fund'. The Official receiver assigned the suit pronote in favour of the plaintiff as per endorsement dated 13-8-1954 and the plaintiff filed the present suit on the basis of the said demand promissory note. Prior to the filing of the suit, the plaintiff had issued a registered notice demanding a sum of Rs. 440/- as balance due under the pronote. The defendant in his reply notice stated that only 11 instalments are due from him under the chit in question. Hence his liability under the chit was only Rs. 55/- He claimed certain bonus deductions. He also Claimed a set off of Rs. 185/-in respect of the 37 instalments paid by him to the same 'fund' under a separate chit. The plaintiff confined his suit only to a sum of Rs. 66-9-3 i. e. , Rs. 55/- as admitted arrears of 11 instalments of Rs. 5/- each, Rs. 8-9-3 as interest thereon from 28-1-1952 at 6 per cent, per annum upto date and Rs. 3/- as the cost of demand. The learned District Munsiff dismissed the suit holding that the defendant was entitled for set off of Rs. 185 due to him under Section 46 of the provincial Insolvency Act as mutual dealings between the insolvent and the creditor. The learned counsel for the petitioner challenges the correctness of the decision of the trial Court.

( 4 ) THE first contention raised by him is that Section 46 of the Provincial Insolvency Act has no application to the facts of the case. According to him the said section relates only to insolvency proceedings and its benefit cannot be availed of in proceedings other than insolvency proceedings. It is further contended that the suit is based on a negotiable instrument; the plaintiff is a holder in due course without notice of the defendant's claim, hence the plea of set off is not open to the defendant.

( 5 ) THE argument of the petitioner proceeds thus: section 46 of the Provincial Insolvency Act is in part III of the Act which relates to the administration of the property of the insolvent. The provisions of Part III are intended to provide for the proof of debts etc. According to him on analysis of the sections grouped under that head it would be clear that the benefit of Section 46 could be availed of only in an Insolvency proceeding. Section 45 relates to the proof of certain debts which had not become due. Section 46 provides for the adjustments of mutual dealings; Section 47 sets out the rights of the secured creditors; section 48 provides for the payment of interest under certain circumstances; Section 49 speaks of the mode of proof of debts; Section 50 provides for the disallowance and reduction of certain entries in the schedule. So much for the scheme of the Act. He further contends that

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