Delhi High Court

M/S. Alliance Paints & Varnish ... vs Hari Kishan Gupta (Deceased) ... on 10 February, 2010

Author: Reva Khetrapal

                                          REPORTED
*      IN THE HIGH COURT OF DELHI AT NEW DELHI

%                              DATE OF RESERVE: December 16, 2009

                               DATE OF DECISION: February 10, 2010

+                              RFA No.54/1997

       M/S. ALLIANCE PAINTS AND VARNISH
       WORKS PVT. LTD.                               ..... Appellant
                      Through: Mr. Keshav Dayal, Sr. Advocate with
                               Mr. Prahlad Dayal, Advocates

                      versus

       HARI KISHAN GUPTA (DECEASED)
       THROUGH LRs                                              ..... Respondents
                     Through: None

       CORAM:
       HON'BLE MS. JUSTICE REVA KHETRAPAL

1.     Whether reporters of local papers may be allowed
       to see the judgment?
2.     To be referred to the Reporter or not?
3.     Whether judgment should be reported in Digest?


:      REVA KHETRAPAL, J.

1. This appeal is directed against the judgment and order of the learned

Additional District Judge dated 6th December, 1996 decreeing the suit of the

respondent in the sum of Rs.1,48,240/- with costs and interests.

2. The predecessor-in-interest of the respondents, late Shri Hari Kishan

Gupta, as proprietor of Gupta Potteries had filed a suit for recovery of money

against the appellant on the following facts.

3. Shri Hari Kishan Gupta, proprietor of M/s. Gupta Potteries was engaged

in the manufacture and sale of fire bricks, fire clay, bentonite, fire cement,

tiles, B.P. Sets, etc. and on the request of the appellant had started supplying

B.P. Sets, tiles and fire bricks from 1986 to the appellant. The appellant in lieu

of the goods supplied was making part-payments from time to time, which

were duly entered in the account of the appellant maintained by the respondent

in his books of account. The appellant was also issuing 'C' Forms in the

prescribed format of the Sales Tax Department to the respondent. On

28.05.1988, allegedly a sum of Rs.95,335.28 was due from the appellant as per

the books of account maintained by the respondent in the regular course of

business. The appellant allegedly did not pay the aforesaid amount despite

repeated requests made in this regard and a legal notice dated 23.04.1991

served upon it. The respondent accordingly instituted a suit for the recovery of

the balance amount claiming interest @ 18% per annum in accordance with

custom, usage and trade practice, that is to say, Rs.95,335.28 as principal and

Rs.52,210.74 as interest up to the date of the filing of the suit.

4. The appellant was proceeded ex parte in the suit on 28.02.1994 when it

failed to appear despite service of summons upon it. An application moved

under Order IX Rule 7 of the CPC by the appellant was dismissed by order

dated 22nd May, 1995. The appellant preferred Civil Revision No.670/1995

before the High Court, which too was dismissed by a detailed order dated

07.08.1996.

5. The sum and substance of the order dismissing the Civil Revision

Petition was that the entire progress of the suit had been thwarted by the

appellant by his persistent defaults and the appellant could not be allowed to

take advantage of its own wrong. The appellant, therefore, without filing any

written statement joined the proceedings at the stage of arguments, after the

respondent had led ex parte evidence by examining himself and proving the

documents in support of his case. The hearing of the suit culminated in the

passing of the decree in favour of the respondent and against the appellant in

the sum of Rs.1,48,240/- with costs and interest @ 12% per annum on the

principal amount of Rs.95,335/- from the date of the suit till realisation.

6. Aggrieved by the aforesaid judgment and decree, the present appeal has

been preferred by the appellant, which was admitted to hearing as far back as

on April 29, 1997. In the meanwhile, the respondent died without reaping the

benefits of the decree and was substituted by his legal representatives, the

respondents No.1 to 6 herein. Initially, the respondent No.1 contested the

appeal, but subsequently chose not to appear. The respondents No.2 to 6 did

not contest the appeal despite service effected upon them. Notice of default

was also served on the counsel for the respondents, but to no avail.

Accordingly, the appellant through his counsel Mr. Keshal Dayal, Senior

Advocate was heard and the records perused by me.

7. Mr. Keshal Dayal, the learned senior counsel for the appellant at the

outset contended that the suit was not maintainable in view of the bar of

limitation imposed by Section 3 of the Limitation Act, 1963. He submitted

that the respondent himself had pleaded in the suit filed by him that as per the

books of account, duly kept and maintained by him, on 28.05.1988, a sum of

Rs.95,335.28 was due and payable by the appellant to the respondent towards

the price of the goods purchased by the appellant. Thus, the suit of the

respondent was barred by limitation as the last bill was dated 28.05.1988 and

the suit could only have been filed on or before 27.05.1991. Mr. Dayal also

vehemently contended that Article 1 of the Limitation Act could not be

invoked by the respondent in this case as the respondent had failed to prove the

existence of a mutual, open and current account, where there have been

reciprocal demands between the parties, and that the only Article for

computation of limitation applicable in the instant case was Article 14.

Assailing the finding of the learned Additional District Judge that the 'C' Forms

amounted to acknowledgment of liability for the payment of the amounts

mentioned therein within the meaning of Section 19 of the Indian Limitation

Act, the learned senior counsel for the appellant next contended that the

issuance of 'C' forms did not amount to acknowledgment of debt as the same

were issued in the due course of business, which were meant for paying tax to

the Government and not for extending the period of limitation.

8. Adverting to the first contention of the learned senior counsel for the

appellant, there is no manner of doubt that Section 3 of the Limitation Act

places a statutory obligation on the Courts to examine whether the suit is filed

within limitation or not, even if no such plea has been taken by the opposite

party. If the suit is filed beyond limitation and is clearly time barred, it cannot

be decreed in the teeth of Section 3 of the Limitation Act and the Court has to

dismiss it, whether or not limitation has been set up as a defence. [See

Central India Chemicals Pvt. Ltd. vs. Union of India (UOI) Railways, AIR

1962 MP 301 (DB); Roshan Lal Kuthiala and Anr. vs. Raja Rana Yogendra

Chandra and Ors., AIR 1996 HP 14; Syed Jalaluddin Hasan Quadri vs.

Tarapharmacy represented by its Managing Partner, Tarachand Aggarwal,

AIR 1966 AP 136 and Ajab Enterprises vs. Jayant Vegoiles and Chemicals

Pvt. Ltd., AIR 1991 BOMBAY 35.]

9. Before dealing with the next contention of Mr. Keshav Dayal that the

respondent had failed to prove the existence of a mutual open and current

account, it would be apposite to reproduce Article 1 and Article 14 of the

Schedule to the Limitation Act,1963 for the sake of ready reference, which

read as under:

             Description of suit     Period of Time from which
                                     limitation period begins to run
             1. For the balance Three             The close of the year
             due on a mutual, years               in which the last item
             open and current                     admitted or proved is
             account, where there                 entered     in      the
             have been reciprocal                 account; such year to
             demands between the                  be computed as in the
             parties                              account.
             14. For the price of Three           The date of the
             goods     sold    and years          delivery of the goods.
             delivered where no
             fixed period of credit
             is agreed upon.

10. A bare reading of the aforesaid Articles set out in the Schedule to the

Limitation Act shows that Article 1 relates to suits in respect of balance due on

a mutual, open and current account where there have been reciprocal demands

between the parties. The period of limitation prescribed by this Article is three

years from the close of the year in which the last item admitted or proved is

entered in the account and such year is to be computed as in the account. In

other words, if the statement of account between the parties is to be regarded as

a mutual, open and current account, then the period of limitation of three years

would begin from the close of the year in which the last item admitted or

proved is entered in the account. In the instant case, however, the learned

Additional District Judge has held, and I think rightly so, that Article 1 of the

Schedule to the Limitation Act cannot be invoked in favour of the respondent,

as the respondent has failed to prove the existence of a mutual account between

the parties.

11. It is settled law that merely because there is a running, open or current

account in respect of the transactions between the parties does not mean that

Article 1 of the Limitation Act, 1963 would apply. It has been so held by the

Supreme Court in the case of Kesharichand Jaisukhlal v. Shilong Banking

Corporation Ltd. (1965) 3 SCR 110, after referring to the leading case on

mutual accounts Hirada Basappa vs. Gadigi Muddappa (1871) VI MHCR

142, wherein it is observed as under:

"To be mutual there must be transactions on each side creating independent obligations on the other, and not merely transactions which create obligations on the one side, those on the other being merely complete or partial discharges of such obligations."

12. A Division Bench of this Court in the case of Manish Garg v. East

India Udyog Ltd. 2001 III AD (Delhi) 493, after referring to the judgment of

the Supreme Court in Kesharichand Jaisukhlal's case (supra) and in the case

of Hindustan Forest Co. vs. Lal Chand and Ors. (1960) 1 SCR 563, held as

follows:

"8. Thus for an account properly to be called Mutual Account there must be mutual dealing in the sense that both the parties come under liability under each other. In this case, this ingredient is not satisfied. It was

simply a case of debtor and creditor only and not a case of mutual obligations which will in the ordinary way result in enforceable liabilities on each side. Mutual Account is when each has a demand or right of action against the other."

13. The grievance of Mr. Keshav Dayal, the learned senior counsel for the

appellant, however, is that the learned Additional District Judge while rightly

holding that there were no reciprocal dealings between the parties and thus

there was no mutual, open and current account within the meaning of Article 1

of the Schedule 1 to the Limitation Act which could keep the debt alive even

after 28.05.1988, grossly erred in relying upon the written acknowledgment in

the form of Sales Tax Declaration duly signed by the Director of the appellant

Company to the respondent. Mr. Dayal contended in this connection that the

Sales Tax Declaration forms submitted to the respondent at best could be said

to have acknowledged the receipt of the goods delivered to the appellant and

cannot be stretch to mean acknowledgment of liability.

14. This Court is inclined to agree with the aforesaid contention of the

learned senior counsel for the appellant. The record shows that the appellant

submitted Central Sales Tax Declaration on 16.09.1988 duly signed by Shri

Subodh Kumar, Director of the appellant, proved as Exhibit PW-1/3,

acknowledging the receipt of the goods and making a declaration that these

goods with details of the bills and dates were worth Rs.1,46,225.60. Similarly,

the appellants under the signatures of the same Director had submitted similar

Declaration Exhibit PW-1/12 and Exhibit PW-1/13 on 16.09.1988 admitting

the receipt of the goods worth Rs.22,880/- and Rs.10,608/- respectively. The

learned trial court opined that these written Declarations duly signed by the

Director of the Company not only acknowledged the receipt of the goods

detailed therein but also amounted to acknowledgment of liability for the

payment of the amounts mentioned therein, within the meaning of Section 19

of the Limitation Act. Relying upon the judgment of the Supreme Court in

Shapoor Freeloom Mazda v. Durga Prasad Chamania and Ors. AIR 1961

SC 1236 and the observations made therein that the provisions of Section 19 of

the Limitation Act must be construed liberally in favour of the creditor as there

is no prescribed format for acknowledgment, the learned trial court, while

taking note of the fact that the amount of the aforesaid three Declarations was

more than Rs.1,80,000/- as against the liability of the appellant which was only

Rs.95,000/- and odd, held that the Declarations nonetheless must be construed

as acknowledgment in view of the unrebutted and unchallenged testimony of

the respondent made on oath, though it held that the respondent was entitled

for a decree in the sum of Rs.95,335.28 only, that is, amount remaining due

against the appellant as per the books of account of the respondent with interest

amounting to Rs.52,210.74 @ 18% per annum.

15. In my considered opinion, the learned trial court clearly erred in

construing the 'C' Forms as acknowledgments of liability and in relying upon

them for extending the period of limitation, inter alia, for the reason that when

exemption from limitation is prayed for, it is essential for the plaintiff to very

specifically plead such an exemption in the plaint. As a matter of fact, under

Order VII Rule 6 CPC, it is obligatory, as a matter of pleading, to show the

ground on which the exemption from limitation is claimed. It was so held in

Sha Manmall Misrimall vs. K. Radhakrishnan AIR 1972 Mad 108 by the

Madras High Court and by a Division Bench of the Himachal Pradesh High

Court in the case of Roshan Lal Kuthiala (supra). In the instant case, this

has not been done by the respondent-plaintiff at all, in that the respondent in

the plaint does not seek to rely upon any acknowledgment for extending the

period of limitation for institution of the suit. Thus, clearly, in my view, it

would not be open to the respondent to rely on an exemption not specifically

pleaded in the plaint.

16. Apart from the above, in my view, the Central Sales Tax declarations

cannot be relied upon as acknowledgments in the

instant case for claiming extension of the period of limitation. Section 18 of

the New Act(corresponding to Section 19 of the Old Act) deals with the effect

of acknowledgment in writing, the relevant portion whereof reads as under:

"18. Effect of acknowledgment in writing-(1) Where, before the expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgment of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed.

(2)................................................................................

                      Explanation. ---- For the purposes of this
             section,
                      (a)        an acknowledgment may be sufficient

though it omits to specify the exact nature of the property or right, or avers that the time for payment, delivery, performance or enjoyment has not yet come or is accompanied by a refusal to pay, deliver, perform or permit to enjoy, or is coupled with a claim to set-off, or is addressed to a person other than a person entitled to the property or right;

(b) the word "signed" means signed either personally or by an agent duly authorized in this behalf; and (c ) an application for the execution of a decree or order shall not be deemed to be an application in respect of any property or right."

17. In Shapoor Freeloom Mazda (supra), the Supreme Court, while laying

down the basic requirements that need to be fulfilled for a document to

constitute a valid acknowledgment within the meaning of Section 19 of the

1908 Act, held as follows:

"(6). It is thus clear that acknowledgment as prescribed by Section 19 merely renews debt; it does

not create a new right of action. It is a mere acknowledgment of the liability in respect of the right in question. It need not be accompanied by a promise to pay either expressly or even by implication. The statement on which a plea of acknowledge is based must relate to a present subsisting liability though the exact nature or the specific character of the said liability may not be indicated in words. Words used in the acknowledgment must, however, indicate the existence of jural relationship between the parties such as that of debtor or creditor, and it must appear that the statement is made with the intention to admit such jural relationship. Such intention can be inferred by implication from the nature of the admission, and need not be expressed in words. If the statement is fairly clear then the intention to admit jural relationship may be implied from it. The admission in question need not be express but must be made in circumstances and in words from which the court can reasonably infer that the person making the admission intended to refer to a subsisting liability as at the date of the statement. In construing words used in the statements made in writing on which a plea of acknowledgment rests oral evidence has been expressly excluded but surrounding circumstances can always be considered. Stated generally courts lean in favour of a liberal construction of such statements though it does not mean that where no admission is made one should be inferred, or where a statement was made clearly without intending to admit the existence of jural relationship such intention could be fastened on the maker of the statement by an involved or far-fetched process of reasoning. Broadly stated that is the effect of the relevant provisions contained in S.19, and there is really no substantial difference between the parties as to the true legal position in this matter."

18. The question was again examined with reference to the right of

redemption in Tilak Ram vs. Nathu reported in AIR 1967 SC 935, wherein the

Court held:

"The right of redemption no doubt is of the essence of and inherent in a transaction of mortgage. But the statement in question must relate to the subsisting liability or the right claimed. Where the statement is relied on as expressing jural relationship it must show that it was made with the intention of admitting such jural relationship subsisting at the time when it was made. It follows that where a statement setting out jural relationship is made clearly without intending to admit its existence, an intention to admit cannot be imposed on its maker by an involved or a far-fetched process of reasoning."

19. Again in Reet Mohinder Singh Sekhon vs. Mohinder Parkash (1989)

3 SCR 610, where the suit was resisted on the ground that the recitals in the

sale deed served as an acknowledgment, the Supreme Court relying upon

Tilak Ram's case (supra) held that:

".......................................the period of limitation cannot be extended by a mere passing recital regarding the factum of the mortgage but that the statement on which the plea of an acknowledgment is based must relate to a subsisting liability. The words used must indicate the jural relationship between the parties and it must appear that such a statement is made with the intention of admitting such jural relationship. But, in our opinion, the recitals in the sale deed on November 1, 1913 fulfil the above requirements.............................................................The words spell out a clear intention the moneys due under the mortgage still remained unpaid and also that the mortgagor had a subsisting right of redemption which he could enforce against the mortgagee. In this view of the matter the contention on behalf of the appellant that the recitals in the document of November 1, 1913

constituted an acknowledgment of liability for redemption within the meaning of Section 19 of the Limitation Act deserves to be accepted."

20. The aforesaid principles relating to Section 19 of the Old Act, the

provisions of which are similar to Section 18 of the New Act, were reiterated

by the Supreme Court in the case of Prabhakaran and Ors. Vs. M. Azhagiri

Pillai (Dead) by LRs. and Ors. (2006) 4 SCC 484.

21. In Valliamma Champaka Pillai v. Sivathanu Pillai and Ors. (1979)

SCC 429, it was held as under:

"Under Section 18 of the Limitation Act, 1908, one of the essential requirements for a valid 'acknowledgment' is that the writing concerned must contain an admission of a 'subsisting liability'. A mere admission of the past liability is not sufficient to constitute such an 'acknowledgment'. Hence a mere recital in a document as to the existence of a past liability, coupled with a statement of its discharge, does not constitute an 'acknowledgment' within this Section."

22. In the case of Hansa Industries (P) Ltd. v. MMTC Limited 113 (2004)

DLT 474, it was held as under:

"19. We can deduce the following principles from the aforesaid judgments which shall have to be applied in a given case to ascertain as to whether writing constitutes an acknowledgment or not:

(a) Acknowledgment means an admission by the writer that there is a debt owned by him either to the receiver of the letter or to some other person on whose behalf it is received. It is not enough he refers to a debt as being due from somebody. He must admit that he owes the debt.

(b) The statement on which a plea of

acknowledgment is based must relate to a present subsisting liability though the exact nature of the specific character of the said liability may not be indicated in words.

(c) Words used in the acknowledgment indicate the circumstances of jural relationship between the parties such as that of debtor and creditors.

(d) It must appear that statement is made with the intention to admit such jural relationship.

(e) Such intention can be implied and need not be expressed in words. In construing the words used in the statement, surrounding circumstances can be considered although oral evidence is excluded.

(f) Although liberal construction is to be given to such statement but where a statement was made without intending to admit the existence of jural relationship, the Court cannot fasten such intention on the maker by an involved or far-fetched process of reasoning.

(g) In deciding the question in a particular case, it is not useful to refer to judicial decision and one has to inevitably depend upon the context in which words are used."

23. The question whether an auditor's report could be treated as an

acknowledgment for the purpose of extending the period of limitation came to

be considered by this Court in R.K.Chemical v. Kohinoor Paints Faridabad

Pvt. Ltd. And Anr. 2005 II AD (Del) 133, wherein the Court held as under:

"An auditors report signed on 27th November 1996 which reflected a debt existing in the accounting period 1995-96 (1.4.1995 to 31.3.1996) did not constitute acknowledgment of the debt as the said report merely affirmed the state of affairs prevailing as on 31.3.2006 and cannot be treated as acknowledging the position existing on the date of the report as well, i.e., 27th November 1996. For even if the position of

debtors or creditors had undergone a change between April to November 1996, the same would not have found place in the said report."

24. In Taipack Limited and Ors. Vs. Ram Kishore Nagar Mal 2007(3)

ARB. LR 402 (Delhi), a similar question arose as in the instant case as to

whether 'C' Form supplied by the petitioner therein constituted

acknowledgment of debt owed to the respondent so as to give a fresh lease to

the commencement of limitation. A learned Single Judge of this Court

answered the question in the negative giving the following reasons:

"32. Firstly, there is no acknowledgment of a present and subsisting liability. The said form can at the most be treated as an acknowledgment of the goods received under the contract of supply of goods and the price fixed to be paid for them. Whether or not payments were effected thereafter, or any amount remains due or outstanding cannot be inferred from the said 'C' form in the facts and circumstances of this case. Secondly, no intention to acknowledge a liability can be inferred from the contents of the said 'C' form. Thirdly, one cannot establish a jural relation of debtor and creditor from the contents of the said 'C' form. Thus, the essential requirements for a writing to constitute acknowledgment are missing from the document.(also see Hansa Industries (P) Limited v. MMTC Ltd. 2004 VI AD (Del) 222)."

25. In view of the aforesaid settled legal position, the Central Sales Tax 'C'

Form dated 16th September, 1988, in my view, cannot be treated as an

acknowledgment of the debt owed by the appellant to the respondent as it fails

to fulfil the essential requirements for a valid acknowledgment. The C 'Form'

is dated 16th September, 1988. It is not in dispute that the suit was instituted on

27.05.1991. Whether any payments were made after 16th September, 1988,

and whether any amount remained due or outstanding, cannot be inferred from

the aforesaid 'C' Form. Most importantly, however, the 'C' Form cannot be

construed as an acknowledgment for the reason that no intention to

acknowledge a liability can be inferred therefrom. The Courts though lean in

favour of a liberal construction of all documents which are sought to be relied

upon as acknowledgments, it would be too far fetched to hold that a 'C' Form