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M.W. Pradhan Vs. Panchal Engineering Works - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtMumbai High Court
Decided On
Case NumberA.F.O.D. No. 178 of 1958
Judge
Reported inAIR1967Bom48; (1965)67BOMLR18; ILR1966Bom965
ActsPartnership Act, 1932 - Sections 46 and 47; Limitation Act, 1908 - Schedule - Article 85; Limitation (Amendment) Act, 1963 - Schedule - Article 1
AppellantM.W. Pradhan
RespondentPanchal Engineering Works
Appellant AdvocateD.H. Buch, Adv.
Respondent AdvocateR.L. Dalal, Adv.
Excerpt:
.....v. sree bank ltd. [1860] a.i.r. cal. 285, referred to. - - he called upon the defendant-firm to make that payment good and thereafter action in case opf its failure to pay the amount. this view was disapproved by this court and it categorically held that the account must continue to be open, mutual and current till the date of the institution of the suit. he has also stated that in case the defendant failed to pay the said amount further steps would be taken for the recovery of the amount. 1 with institution of a suit for recovery in case he failed to pay within a week......suit and it was enough for the application of art. 85 of the limitation act that the account was open, mutual & current till the end of the year when the last transaction or the last entry took place. under article 85 of the limitation act the cause of action accrues at the end of the accounting year and the calcutta high court proceeded on the footing that once the cause of action had accrued and once the court came to the conclusion that till the accrual of the cause of action the account was mutual, open and current, the happening of the subsequent events, that is to say, subsequent to the accrual of the cause of action, would not affect the nature and character of the account. this view was disapproved by this court and it categorically held that the account must continue to be.....
Judgment:

(1) This appeal arises out of a suit filed by the Court Receiver of a firm called Prabhat Trading Company against the defendant for the recovery of a sum of Rs. 7,000/- and odd due at the foot of the accounts. The Prabhat Trading Company (hereinafter referred to as the plaintiff-firm) was a firm carrying on business at Bombay in the sale and purchase of paper and engineering goods. The defendant was firm carrying on business as iron and brass founders at Ahmedabad. Among other things they were manufacturing lathe machines. The defendant-firm was placing others with the plaintiff-firm for the supply of engineering goods. In the same way, the plaintiff-firm was also placing orders with the defendant-firm for the supply of the products of their factory. There was an account opened in the name of the defendant-firm in the plaintiff-firm, and entries were made in this account as transactions took place. The last entry made in the account with the plaintiff-firm was on 17-6-1950. It is common ground that the accounting year ran from Divali to Divali and during the relevant year viz., 1949-50, 9-11-50 would be the closing date of the accounting year. Disputes started between the partners of the plaintiff-firm and on 24-7-50 one of the partners filed a suit for dissolution of the firm on the Original Side of this Court (No. 1001 of 1950). On 18-8-1950 the Court Receiver had been appointed as receiver to manage the property of the firm and to realise the assets. On 20-4-50 the Court Receiver wrote a letter (Ex. B collectively) to the defendant-firm stating that a suit for dissolution of the partnership was pending in the High Court of Bombay and that he was appointed as receiver for collecting the assets and that it was noticed that a sum of Rs. 18,000/- and odd was due at the foot of accounts from the defendant-firm. He called upon the defendant-firm to make that payment good and thereafter action in case opf its failure to pay the amount. The defendant-firm gave a reply on 27-4-51 stating that the balance shown by the plaintiff-firm against the defendant-firm was not true and contending inter alia that a big sum was due from the plaintiff to the defendant on account of delivery of nineteen lathe machines not being taken in pursuance of a contract between the parties. The defendant, therefore, called upon the plaintiff to settle the account and accept delivery of the remaining nineteen lathe machines. The Receiver, therefore, filed a suit for the recovery of the balance due to the plaintiff-firm at foot of accounts. The plaintiff-firm alleged that there were mutual dealing between the parties sine May 1945 in respect of the goods supplied from time to time by the plaintiff to the defendant, and the goods supplied by the defendant to the plaintiff from time to time. The plaintiff averred that the account continued to be mutual, open and current till the date of the suit. At Paragraph (7), the plaintiff referred to the correspondence that ensued between the Receiver and the defendant. It is not necessary to set out the details of that correspondence at this stage of the discussion.

(2) the defendant-firm put in its written statement and resisted the plaintiff's claim on several grounds. It denied that the account between the parties was mutual, open and current. Alternatively, it contended that assuming that the account was mutual, open and current, the same ceased to continue as such on the dissolution of the plaintiff's partnership. At paragraph (12) of the written statement, the defendant gave details of the set-off, which it claimed from the plaintiff. At paragraph (16), it referred to the internal disputes between the members of the plaintiff-firm and stated:-

'. . . . . . . . . . The dispute and differences which had arisen between the partners of the plaintiff's firm ultimately led to the dissolution of the plaintiff's firm as appears from the said High Court suit for dissolution of the plaintiff's firm.'

It is not necessary to set out the other defences, since the suit has been decided on the preliminary point viz., that it is barred by limitation.

(3) Appropriate issues were framed, but the trial Court chose to treat issues Nos. 1 to 3 as preliminary issues. These issues ran as follows:-

(1) Whether there was a mutual, open and current account between the parties before the suit was filed?

(2) Whether the suit is barred by the law of limitation?

(3) Whether the partnership firm of Messrs Prabhat Trading Co., was dissolved on 20th June 1950 or on 24th July 1950?'.

(4) It was conceded on behalf of the plaintiff that the plaintiff-firm was dissolved with effect from 24th July 1950. The learned trial Judge, therefore, recorded a finding to that effect issue No. 3 . With regard to issue No. 1, the trial Judge proceeded on the footing that initially the account was mutual, open and current for the purpose of deciding issue of limitation. Eventually, the trial Judge came to the conclusion that the suit was not governed by Art. 85 of the Limitation Act inasmuch as the account ceased to be mutual, open and current at the date of the suit. Once it is held that Article 85 of the Limitation Act is not attracted to the facts of this case, it is clear that the suit is barred by limitation since the date of the last debit entry was 17-6-50 and that of the last credit entry was made on 30-5-50, whereas the suit was instituted on 3-11-53. Consequently , the trial Court dismissed the plaintiff's suit. It is against that judgment that the plaintiff has come up in appeal.

(5) It is clear that the suit would be in time, in case it is held that Article 85 of the Limitation Act applies to the facts of this case. Art. 85 of the Act runs thus:

1st Col. 'Description of suit; for the balance due on a mutual, open and current account, where there have been reciprocal demands between the parties.'

2nd Col. 'Period of limitation: Three years'.

3rd Col. 'Time close of the year in which the last item admitted or proved is entered in the account; such year to be computed as in the account'.

It is conceded that the accounting year in this case begins from Divali to divali, and since the last entry was dated 17-6-50 and since Divali of that year fell on 9-11-50, the cause of action for finding the suit under Article 85 would commence from 9-11-50.

(6) The crucial question, however, for consideration is whether Article 85 of the Limitation Act applied to the facts of the present case. It has been held by this court in Karsondas v. Surajbhan 35 Bom L. R. 929: AIR 1933 Bom 450 that the account must continue to be mutual, open and current till the date of the suit in order that Article 85 is attracted. The only point that was raised in the written statement was that the account had ceased to be mutual open and current, because the plaintiff-firm had come to be dissolved. The trial Court held that the fact that the plaintiff-firm has come to be dissolved with effect from 24-7-50 must bring the account to an end. The trial court also proceeded to consider the effect of the demand put forward by the Receiver by the registered notice dated 20-4-51 and the reply given by the defendant to the said notice on 27-4-51 and came to the conclusion that the legal effect of this correspondence is that the account was closed between the parties. Mr. Buch, for the appellant, contended that the trial Court was wrong in holding that the effect of the correspondence referred to above is to close the mutual dealings between the parties. He also contended that the dissolution of the partnership would not put an end to the dealings between the parties. These two points are connected with one another and, therefore, they can be conveniently discussed together.

In order to appreciate the rival contentions raised on behalf of the parties before me, it is necessary to set out a few more facts. Suit No. 1001 of 1950 was filed by one of the partners against the other for dissolution of the plaintiff-firm. The partnership was a partnership at will. The plaintiff averred at paragraph (2) of the plaint in that suit that there was an express agreement to the effect that in the event of the dissolution of the firm neither of the partners shall be entitled to trace under the firm name, i.e. that Prabhat Trading Company, and that it would cease to exist. Again, at paragraph (6) of the said plaint, the plaintiff averred that on the 20th June 1950 the defendant gave a notice alleging mismanagement of the affairs of the firm by the plaintiff and that therefore he was dissolving the said partneership. At paragraph (9) of the plaint, the plaintiff stated that he was willing to treat and was thereby treating the said firm as dissolved from the date of the filing of that suit. Alternatively, he submitted that the firm be dissolved by the Court from the date of the filing of that suit. He also requested that accounts of the said firm be taken and its affairs be wound up by or under the supervision of the High Court. The other partner in his written statement accepted the position taken by the plaintiff in the plaint. At paragraph (9) he reiterated that he was compelled to dissolve the said partnership by his letter dated 20th June 1950. He also submitted that the said partnership may be treated as dissolved as from the date of the filing of the suit. It will, therefore, be seen that it was common ground between the partners of the plaintiff-firm that the firm was dissolved either from 20th June 1950 or in any case from the date of the institution of the suit i.e., 24-7-50. It is an admitted fact that the High Court has passed a decree fixing the date of the dissolution of the plaintiff-firm as 24-7-1950 and the Commissioner has been asked to take accounts of the firm. I have already pointed out that the High Court appointed a Receiver by an order dated 18-8-50. The Receiver was called upon to take into possession the furniture and stock-in-trade of the firm. he was invested with all the powers under O. 40, R. 1, C. P. C. including the power of management of the property of the firm. It is significant to note that this order did not confer any power upon the Receiver to carry on the business of the firm. In his registered letter dated 20-4-51 the Receiver referred, in the opening paragraph to his appointment by an order of the High Court with powers to recover the outstandings due to the plaintiff-firm. It will thus be clear that the Receiver was writing the letter dated 20-4-51 with the object of realising the outstandings belonging to the plaintiff-firm.

(7) It is in this background that we have to consider tha two points viz., (1) what is the effect in law of the dissolution of the firm upon the transactions between the parties? and (2) what is the effect of the correspondence that ensued between the Receiver on one side and the defendant on the other so far as the mutuality and openness of the account between the parties was concerned? As pointed out above, it has been held in Karsondas's case 35 Bom. L. R. 929: AIR 1933 Bom 450 that the account must continue to remain mutual, open and current till the date of the institution of the suit. The Calcutta High Court in Ganesh Lal v. Sheo Golam Singh (1880) 5 c LR 211 had taken the view that it was not necessary that the account should continue to remain mutual, open and current till the date of the institution of the suit and it was enough for the application of Art. 85 of the Limitation Act that the account was open, mutual & current till the end of the year when the last transaction or the last entry took place. Under Article 85 of the Limitation Act the cause of action accrues at the end of the accounting year and the Calcutta High Court proceeded on the footing that once the cause of action had accrued and once the Court came to the conclusion that till the accrual of the cause of action the account was mutual, open and current, the happening of the subsequent events, that is to say, subsequent to the accrual of the cause of action, would not affect the nature and character of the account. this view was disapproved by this Court and it categorically held that the account must continue to be open, mutual and current till the date of the institution of the suit. The learned Judges have also considered the question as to under what circumstancesw, the account would be deemed to have been closed between the parties. The facts of the case under the learned Judge's consideration were as follows;

On July 10, 1922, the defendants wrote to the plaintiff's a letter sending them an account showing the amount due from the defendants to the plaintiffs as Rs. 2,123 odd, and they stated that they had settled that amount by a hawala entry in favour of another shop, in which they alleged the plaintiffs were partners. To that letter the plaintiffs replied on July 16, saying that they did not admit the accuracy of the account and they also challenged the right of the defendants to settle the account by means of the hawala entry, and they stated that the money due must be paid to themselves. After some further correspondence, on July 28, the defendants wrote saying that they would send the money due viz., Rs. 2,123 odd to the plaintiffs, and they further contended in the correspondence that the accounts were correct. On July 25, 1928, the present suit was filed.

Beaumont c. J. emphasised two facts viz., that there were no dealings between the parties after April 1922 and that in July the defendants sent in an account showing the amount due and made an unconditional offer to pay that amount. From these two circumstances tha learned Chief Justice drew the inference that it was the intention of the defendants to close the account Rangnekar J., who gave a concurring judgment, observed at p. 937 as follows:

' . . . . . . .An account current means a running account, that is, an account which is continued and not stopped or closed. If the account is running, that is to say, if it is unclosed then it is open and current. It is open either because the balance remains to be drawn or struck, or because it is to be carried forward because of some contemplated future dealings between the parties. If the account is not closed by settlement or otherwise, it is open. Of course, mere cessation of the dealings between the parties does not mean that the account is closed. The real question in each case would be what is the intention of the parties, and that must be inferred from the surrounding circumstances. Suppose there is mutual, open and current account between the parties and the dealings close in July and the plaintiffs draw a balance against the defendants and then demand the sum from them intimating that no further dealings will take place between them, I am unable to see how it can be said that after July the account still remained a mutual, open and current account and continued to bear that character right up to the end of the year. there is nothing in law which prevents a party from saying to the other 'I am closing your account today. this is what is due to you. I shall have nothing to do with you in future''.

Thereafter, the learned Judge referred to a passage from Wood, 4th Edn. p. 1427, which is

'The theory upon which the doctrine as to mutual accounts rests is that there is a mutual understanding between the parties, either express or implied, that they will continue to credit each other until one signifies a contrary intention, when the balance being ascertained, becomes due and payable.'

The learned Judge then referred to the facts of the case and remarked that the only conclusion possible on the facts was that the account between the parties was closed.

(8) The principles deductible from the above decision are the following;

(1) The account between the parties may be settled by mutual consent and finally put an end to. this is the clearest case of the closure of the account between the parties.

(2) The account may be settled by one of the parties and a demand made accompained by an intimation that he was closing the account. This also is a clear case for raising the inference that the account has ceased to be mutual open and current.

(3) Between the two extreme positions illustrated by cases (1) and (2) above. there may be circumstances from which it will be Permissible to draw the inference that the intention of the parties or either of them was to close the account.

Side by side with the positions described at Nos. 1 and 2 above, which arise out of the act of the parties, there may be cases where certain situations arise by the operation of law which would make it impossible for the parties or either of them to carry on the dealings between them. The mutuality, openness and currency of the account presupposes the continuance of the mutual dealings between the parties. If an event has taken place which will make it impossible for the parties or either of them to continue the dealings, then certainly it would be difficult to say that the account continued to be open or mutual. It is true that mere stoppage or cessation of dealings, by itself is not ground for holding that the account has come to a close. But, side by side with the cessation of the dealings, if we find a situation which makes it impossible for either of the parties to continue the transactions, then it would be reasonable to draw an inference that the mutuality or openness of the account has come to an end. Such a situation would arise where one of the parties is dead or where, if it is a firm, it has been dissolved and if it is a limited company, it has gone into liquidation. As pointed out above, it was one of the terms of the agreement of partnership that after the dissolution of the partnership, the firm ceased to exist and the name of the firm could not be utilised by either of the parties and no transactions could be carried on in that name. In the present case, the firm has been dissolved with effect from 24th july 1950. The defendant is aware that the firm has been dissolved. It is significant to note that the firm has been dissolved before the date of the closing of the accounting year in which the last transaction took place viz., 9-11-50, the date of the last transaction being 17-6-50. If the firm is dissolved, it became incapable of continuing the dealings between the parties. That, in my ivew, should be sufficient to close the dealings between the parties and the logical corollary of the closure of the dealings would be the closure of the account between the parties. In this connection, reference may be made to Ss. 46 and 47 of the Indian Partnership Act. S. 46 of the said Act in effect provides that 'on the dissolution of the firm every partner or his representative is entitled, as against all the other partners or their representatives to have the property of the firm applied in payment of the debts and liabilities of the firm and to have the surplus distributed among the partners or their representatives according to their rights'. That means that once the firm is dissolved, not only the firm becomes incapable of carrying on business of the old firm but that the assets of the firm become liable to be distributed between the partners. Section 47 of the Act provides that after the dissolution of the firm the authority of each partner to bind the firm, and the other mutual rights and obligations of the partners, continue notwithstanding the dissolution, so far as may be necessary to wind up the affairs of the firm and to complete transaction begun but unfinished at the time of the dissolution, but not otherwise. In Kalipada v. Sree bank Ltd., : AIR1960Cal285 (which is relied upon by Mr. Buch, for the appellant), the bank was ordered to be wound up or liquidated and it was held that the legal effect of liquidation must mean that openness, mutuality and currency of the account are all disrupted. Of course, the Calcutta High Court took the view that although as a result of liquidation the openness, mutuality and currency of the account have come to an end still the cause of action which was vested in the Bank when the account was mutual, open and current, would pass on to the liquidator and the liquidator could file a suit within three years from the date of the closure of the accounting year. In taking this view, the Calcutta High Court reaffirmed the view taken in Ganeshlal's case (1880) 5 CLR 211 which was not accepted by this court in Karsondas's case 35 Bom LR 929: AIR 1933 Bom 450. I am, therfore, inclined to the view that the fact that the firm came to be dissolved even before the accrual of the cause of action must result in the disruption of the mutuality, openness and currency of the account between the parties.

(9) Turning to the other point, it is necessary to note that the receiver in his letter (Ex. B) dated 20-4-51, after pointing out that he had been appointed a receiver with powers to recover the outstanding, called upon the defendant to pay the amount due to the plaintiff with interest at nine per cent. Within four days from the receipt thereof. He has also stated that in case the defendant failed to pay the said amount further steps would be taken for the recovery of the amount. It is true that the mere circumstance that a balance has been struck at the end of the year and the further circumstance that a demand for the balance has been made by the creditor by themselves do not amount to the closing of the account. At the same time, we have taken into account the surrounding circumstances viz., the fact that demand was being made by the receiver, who was appointed by the Court in the suit for dissolution of the partnership; that the receiver was making a reference to the powers vested in him by the Court to recover the outstandings; that demand was being made by a registered notice; that the receiver was calling upon the defendant to pay interest at nine per cent., when no interest was charged in the earlier account and that finally, he made a peremptory demand for payment within a short period of four days and threatened to take legal steps for the recovery in case of default, would indicate that the notice was inspired with the intention to close the business and the account between the parties. In Firm Kamta Prasad Jagannath Prasad v. Gulzari Lal, : AIR1955All41 the Full Bench of the Allahabad High Court was dealing with the following facts;

(1) After the end of the year the plaintiff struck balance in his books on 3-11-1937, and (2) thereafter he started making demand for payment and on 18-4-1938 he served the defendant No. 1 with a registered notice of demand threatening the defendant No. 1 with institution of a suit for recovery in case he failed to pay within a week. The learned Judges held that the mutuality, openness and currency of the account must be deemed to have been closed with effect from 3-11-1937. The facts of the present case are in my view, stronger than those with which the learned Judges of the Allahabad High Court were dealing. But the matter does not rest there. Assuming that the letter dated 20-4-51 written by the receiver did not by itself amount to the closure of the account, we have on record the reply of the defendant which leaves no manner of doubt about the defendant's intention. In this letter, the defendant made a counter claim on the allegation that there was a brech of contract committed by the plaintiff in regard to the supply of twenty lathe machines. On its part, the defendant too called upon the plaintiff-firm to take delivery of the remaining lathe machines within eight days from the receipt of the letter and settle the account with the said firm. The two letters read together, therefore, lead to the conclusion that neither of the parties was intending to continue the business and that they were keen on putting an end to the transactions between themselves and thus close the account.

(10) the result is that the appeal fails and is, therefore, dismissed with costs.

(11) Appeal dismissed.


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