The Chief Justice.-The Andhra Paper Mills, Co., Ltd.,. a Limited Company Incorporated under the Indian Companies Act, was directed to be wound up by an order of this Court made on the 23rd September, 1947 and one Mr. Price was appointed Official Liquidator. The Official Liquidator on behalf of the company in liquidation filed a suit, after obtaining the leave of Court, for the recovery of a sum of Rs. 2,74,734-15-6 with further interest from the date of suit from Anand Brothers, a firm carrying on business in Madras. The suit was instituted under the provisions of Order VII of the Original Side Rules. The defendant firm was the sole selling agent of the plaintiff from 1942. By a resolution of the Board of Directors of the plaintiff company, dated 8th February, 1947, this agency of the defendant was terminated. The amount claimed in the suit is made up of Rs. 2,39,354-15-6, the balance alleged to be due from the defendant to the plaintiff company in respect of the value of stocks of paper delivered to the defendant after giving credit to the payments made by the defendant from time to time and interest at six per cent. per annum from the date of the termination of the agency, namely, 8th February, 1947. As the suit had been filed under Order VII of the Original Side Rules, the defendant took out an application (No. 3037 of 1949) for the grant of leave to appear and defend the suit. In the affidavit filed in support of this application by a partner of the defendant firm, the proposed defence was set out. The defence is adequately summarised by the Master before whom the application came up in the first instance. It comprised several claims by the defendant against the plaintiff company including claims for damages, the total amount of which was pleaded in reduction and discharge of the claim made by the plaintiff. The plaintiff opposed the application. In the counter-affidavit filed by the Official Liquidator the merits of the several claims made by the defendant were not traversed, but certain legal objections were raised. It was stated that the several items of claims made by the defendant fell under one or other of the two categories, namely, legal set-off or equitable set-off and they should be pursued, if at all, by the defendant independently and could not form the subject-matter of the defence to the action. The claims had to be preferred at the first instance before the Official Liquidator and if they were disallowed, they could be taken up before the Court on appeal. In any event it was said that court-fee had to be paid on the amount of these claims. Other legal pleas with reference to particular claims were also raised, but it is unnecessary to refer to them. The Official Liquidator further submitted that even if the defendant was entitled to succeed in respect of all or any of the claims, it was not entitled to a set-off against the claim in suit, as the defendant would be entitled only to a dividend on proof of its claims. As these claims were therefore no defence to the action, it was urged that no leave to defend should be granted to the defendant.

Another application was also filed by the defendant (No. 4188 of 1949) for an order converting the suit brought under the summary provisions of Order VII of the Original Side Rules into an ordinary suit. The two applications were heard by the Master who granted the defendant leave to defend unconditionally, except as regards an amount of Rs. 25,724-5-10 the liability for which was admitted by the defendant. In view of this order, he thought it was unnecessary to pass any separate order on the other application, though he was apparently not inclined to grant it. Mr. Narasimha Aiyar, the learned counsel for the Official Liquidator who appeared before the Master and who appeared before us contended before him that the various claims made by the defendant were really counter-claims that have to be made with appropriate court-fees and could not be defences to the suit. He als

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