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Simplex Manufacturing Company (Private) Ltd. Vs. the Hindustan Tools Mfg. Co. Ltd. (In Liquidation) - Court Judgment

LegalCrystal Citation
SubjectCompany;Property
CourtPunjab and Haryana High Court
Decided On
Case NumberCivil Original No. 107 of 1956
Judge
Reported inAIR1960P& H164
ActsCompanies Act, 1956 - Sections 528 and 529; Indian Companies Act, 1913 - Sections 171; Indian Limitation Act - Schedule - Article 85; Delhi and Ajmer Rent Control Act, 1952 - Sections 2, 4, 8, 8(7) and 11
AppellantSimplex Manufacturing Company (Private) Ltd.
RespondentThe Hindustan Tools Mfg. Co. Ltd. (In Liquidation)
Cases ReferredBanarsi Lal v. B. L. Verma
Excerpt:
.....the mutuality is also borne out by what is stated in para 6 of the petition and the better (sic) statement. i am not satisfied on the record of this case, as to any damage having been sustained by simplex company on account of use and occupation in excess of the rent which was payable to it......years' limitation where the claim in suit is based on 'the balance due on a mutual, open and current account, where there have been reciprocal demands between the parties'. the starting point of limitation is 'the 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'.(7) the rent in this case is being claimed from 1-4-1949, up to 31-19-1956. the last date on which castings were supplied by the respondent-company to the petitioner was 28-8-1952. if art. 85 is to govern the limitation, then the starting point would be 1-1-1953, and three years would expire on 1-1-1956.the company was ordered to be wound up on 6-7-1955, and in view of the provisions of section 171, the claim of the petitioner-company was within.....
Judgment:
ORDER

(1) This is a petition of the Simplex Manufacturing Company (Private) Limited under section 528 and 529 of the Companies Act, 1956, praying that the claim of the Company for Rs. 76,032/9/9 plus interest may be admitted by this Court and the Official Liquidator of the Hindustan Tools Manufacturing Company Limited (in liquidation) be directed to pay damages for use and occupation of the petitioner's buildings from 1-10-1956, to the date the premises are vacated and the plant, machinery and equipment of the petitioner-Company are handed over to it.

The petition for the winding up of the Hinudstan Tool Manufacturing Company was presented on 26-5-1955, and the winding up order was passed on 6-7-1955. The premises of the Simplex Manufacturing Company were first leasd to the Hindustan Company complete with foundry, machinery, plant and equipment for a period of three months from 2-5-1946 to 1-8-1946, for a total rent of Rs. 1,200/-. These premises were again taken on rent at a rate of Rs. 200 per mensem between 3-8-1946, and 2-11-1946.

On the third occasion the Hindustan Company took these premises on lease from 17-1-1947, till 31-12-1947, for a period of less than one year. The rent which was payable up to the end of March, 1947 was fixed at Rs. 600/- and from April, 1947, onwards a sum of Rs. 225 per mensem was payable as rent. This lease was again renewed from 1-1-1948 up to 31-12-1948.

(2) On 29-11-1948, Simplex Company served a notice, vide Exhibit O.W.1/12, upon the Hindustan Company desiring that the premises be vacated. There was a considerable correspondence between the parties on the question whether the premises were liable to be vacated but the correspondence did not culminate in any agreement and no steps were taken by either party and the matter in controversy was not taken by either party to a Court of law.

It is contended by the Simplex Company and there is no denial by the Company in liquidation, that during the years 1948, 1949, 1950, 1951 and 1952 the Hindustan Company used to supply casting to the Simplex Company. The amount due to the Hindustan Company on account o f the castings supplied used to be adjusted against the rent payable to the Simplex Company. In the financial year ending 31st March, 1949, the Hindustan Company had supplied castings to the Simplex Company of the value of Rs. 861/13/3 in excess of the amounts debited to the Hindustan Company.

It is now contended that after giving credit for all sums received and value of materials supplied by the Hindustan Company, a sum of Rs. 17,384-9-9 exclusive of interest is due to the Simplex Company on account of unpaid rent and electric charges up to 31-10-1956, as borne out by statements produced by the Simplex Company, Exhibits O.W.1/34 to O.W.1/43. The Simplex Company gave a notice to the Hindustan Company to vacate the premises by 1-4-1949, but there was no compliance with the notice.

The amount of damages which is claimed for use and occupation of the premises after the notice, is assessed at Rs. 58,639/-. The Simplex Company submitted the above claim to the Official Liquidator of the Company but the same was not admitted and hence the present petition before this Court.

(3) In the written statement filed on behalf of the Hindustan Company, the above factual allegations in the main were admitted but a better statement was filed later in which the Hindustan Company took up a different position. It was stated on behalf of the Hindustan Company that it paid to the Simplex Company a sum of Rs. 5,619/2/6 in cash or by cheques and supplied goods worth Rs. 5,890/12/9, and thus paid in all Rs. 11,509-15-3 to the Simplex Company.

The claim of the Simplex Company was denied and it was contended that it could not make a demand for rent in excess of the standard rent of the premises. It was contended that the Simplex Company was paying Rs. 28/8/- as rent or compensation for use and occupation of these premises to the landlord and it could not claim at a higher rate from the Hindustan Company.

It was contended that the claim of the Simplex Company for the period prior to 26-5-1952, i.e., beyond three years from the date of the petition of winding up was barred by time. It was also maintained that as the premises had been acquired by the Delhi Town Improvement Trust, nothing was payable to Simplex Company after the date of acquisition. On the pleadings of the parties, the following issues were framed:

1. Whether the claim of Simplex Manufacturing Company (Private) Limited is within time ?

2. What is the effect of the acquisition of the premises by Delhi Town Improvement Trust ?

3. To what amount is the claimant entitled

(4) Shri Jiwan Lal Gauba, the Managing Director of the Simplex Company, appeared as O.W.1 to support the claim of the Simplex Company and a number of documents have also been produced. Mr. Gauba stated that the transactions between the contending parties were that the castings used to be supplied by the respondent Company to the petitioner Company at a price which used to be adjusted against the petitioner's claim for rent and thus the net balance payable to either party was determined.

It was admitted that Delhi Town Improvement Trust had acquired these premises on 15-4-1953, and the petitioner Company was paying rent to Delhi Development authorities who were the successors of Delhi Improvement Trust. This acquisition was made from the petitioner-Company's landlord. The first landlord was Shri Jamnadas Chhohemal and on his death this property devolved upon his heirs. Mr. Gauba, while giving his evidence in rebuttal, said that the entire foundry as a going concern was given to the respondent-Company. He also stated that he had not received any demand from the Official Liquidator of the respondent-Company on account of any claim made against the petitioner-Company.

(5) I may take up the first issue. Mr. Awasthy, learned counsel for the petitioner-Company, has argued that the claim of the petitioner is within time in view of the provisions of Article 85 of the Indian Limitation Act. As already stated, the petition for winding up was made on 26-5-1955, and the winding up order was passed on 6-7-1955. According to the provisions of section 171 of this Indian Companies Act, 1913, which are now found in section 446 of the present Act of 1956, when a winding up order has been made, no suit or other legal proceedings shall be proceeded with or commenced against the Company except by leave of the Court.

In my view, which I also expressed in Lahore Enamelling and Stamping Co. Ltd. v. A. K. Bhalla, AIR 1958 Punj 341 (346), for purpose of limitation, the material date is the date of the winding up order. If the claim had become time barred after the presentation of the petition for winding up but before the passing of the winding up order, the claim would become time barred and the party would not be able to avail of the provisions of section 171 for extending the period of limitation. I have, therefore, to see whether on the date of the passing of the winding up order the petitioner's claim had become time barred.

(6) Article 85 of the Indian Limitation Act provides three years' limitation where the claim in suit is based on 'the balance due on a mutual, open and current account, where there have been reciprocal demands between the parties'. The starting point of limitation is 'the 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'.

(7) The rent in this case is being claimed from 1-4-1949, up to 31-19-1956. The last date on which castings were supplied by the respondent-Company to the petitioner was 28-8-1952. If Art. 85 is to govern the limitation, then the starting point would be 1-1-1953, and three years would expire on 1-1-1956.

The Company was ordered to be wound up on 6-7-1955, and in view of the provisions of section 171, the claim of the petitioner-Company was within limitation on that date. The only question that arises in this case is whether the dealings between the parties were such which could be said to have been based on a mutual, open and current account where there had been reciprocal demands between them.

(8) The test of mutuality for purposes of this Article is that the account must show mutual or reciprocal dealings in the sense that both parties may incur liability to each other on account of there being mutual obligation giving rise to liabilities on each side, or right of action to either against the other. A reliable test of mutuality is whether during the currency of the account each party can say to the other 'I have an account against you'.

For showing mutuality, one should be able to deduce, after the perusal of the accounts, that out of a course of dealings, there arose cross claims which could be set off one against the other. These cross claims may arise, as in a case like the present, when petitioner claims the rent, and the respondent, the price of the manufactured goods supplied. This is not a case of there being a one-way-traffic, i.e., all claims being on one side and all obligation on the other, as would be the case where one party is a lender and the other, a borrower.

In such a case one is always a creditor and the other a debtor, the amount of indebtedness varying from time to time. Such a contingency is opposed to mutuality. Mutuality is not violated if the basis of the contending claims are different, as when one party is demanding the price of goods sold and the other claims money for services rendered. In such a case, there are created independent obligations in favour of one and against the other respectively. As already said, one-sided obligation is inconsistent with mutuality.

It is also to be remembered that the words 'reciprocal demands' do not contemplate the making of actual demands by the parties on one another. All that it means is that the nature of the account should be such which can give rise to reciprocal demands. Reference in this connection may be made to Satappa Jakappa v. Annappa Basappa, ILR 47 Bom 128: (AIR 1923 Bom 82); Tea Financing Syndicate, Ltd. v. Chandrakamal Bezbaruah, ILR 58 Cal 649 (667): (AIR 1931 Cal 359 (367)); Mt. Tapibai v. Shanker Lal Scbharam, AIR 1939 Nag 113; and Dogar Mal v. Mula, AIR 1920 Lah 25.

(9) Applying the above tests in this case, the transactions between the parties were of two kind. The claim of Simplex Company was on account of rent of the leased premises or compensation for their use and occupation besides the electric charges. The demand of the respondent-Company was on account of the price of the castings fabricated. Under both these claims, the two parties were creditors and debtors of each other. The dealings between the two arising out of different kinds of demands were independent.

From the perusal of the statements of accounts, Exhibits O.W.1/34 to O.W.1/43, produced by the petitioner-Company and of the accounts, Exhibits O.W.1/10. O.W.1/11, O.W.1/23, O.W.1/24, and O.W.1/29, produced by the respondent-Company, it does appear that the subject-matter of the claim before me was based on 'a mutual, open and current account where there have been reciprocal demands between the parties' within the meaning of Article 85 of the Limitation Act. The mutuality is also borne out by what is stated in para 6 of the petition and the better (sic) statement. In this case, the balance has been shifting.

(10) Mr. Tuli, on behalf of the insolvent Company, has argued, that to the facts of this case, the provisions of Article 85 do not apply, because the account cannot be said to be 'open and current'. He has relied in support of his contention on a lawyer's notice, Exhibit O.W.1/28, given on behalf of the Simplex Company to the Hindustan Company demanding certain sums which were due. I do not think that an account ceases to be 'open and current' simply because the creditor has made a demand. The test in such cases is, whether the account had been closed and that, to the knowledge of the other party.

It is not open to any party to deprive the other of the benefit of Article 85 of the Limitation Act by arbitrarily closing the account. An account is deemed to be open when the balance is not struck, or, though struck, is not accepted or acknowledged to be correct by the parties concerned. If the account is not closed by settlement or otherwise, it is open, and a mere cessation of dealings between the parties does not mean that the account has been closed. Vide Karsondas Dhunjibhoy and Co. v. Surajbhan Ramrijpal, ILR 58 Bom 200 (213): (AIR 1933 Bom 450 (451) and ILR 58 Cal 649: (AIR 1931 Cal 359).

(11) In the light of the above rules and the facts of this case, and after looking at the dealings as a whole, the accounts between the parties were mutual, open and current and the claim of the Simplex Company is governed by Article 85 of the Indian Limitation Act and is within time. The first issue is, therefore, decided in favour of he petitioner-Company.

Issue No. 2.

(12) Under the second issue the argument of Mr. Tuli is that the Simplex Company's landlord is now Delhi Tow Improvement Trust, though originally these premises were taken on lease from Jamnadas Chhoheman who was their first landlord. The changing of landlords for purposes of this dispute is of no significance. The liability of the Hindustan Company towards Simplex Company is not affected by this Act. Issue No. 2 is, therefore, decided against the Hindustan Company and in favour of the Simplex Company.

Issue No. 3.

(13) The third issue relates to the amount payable to the Simplex Company. They have claimed a sum of Rs. 17,384/9/9 on account of unpaid rent and electric charges up to 31st of October, 1956. Besides this amount, they have also made a claim of Rs. 58,639 on account of damages for use and occupation due to the Company from 1st of April, 1949, to 31st of October, 1956, after excluding the rent at Rs. 225 per mensem. I am not satisfied on the record of this case, as to any damage having been sustained by Simplex Company on account of use and occupation in excess of the rent which was payable to it.

(14) On the question, whether the claim of Rs. 17,384/9/9 is valid, the learned counsel for Hindustan Company has argued, that having regard to the provisions of the Delhi and Ajmer Rent. Control Act, 1952, his clinet is not liable to pay any sum in excess of the 'standard rent' which according to him cannot be more than Rs. 35 per mensem as calculated in accordance with Schedule II, para 3(b). Shri Jiwan Lal Gauba in his statement has said that the rent which was agreed between his Company and his landlord was about Rs. 30 per mensem for the premises.

The foundry, plant and equipment, which besides these premises, were also leased out to the Hindustan Company, were valued at Rs. 4,000 to Rs. 5,000 as originally purchased. In calculating the amount payable by Hindustan Company, Mr. Awasthy, learned counsel for the Simplex Company submits that the rent payable to his client as agreed between the parties included not only rent payable for the use and occupation of the building, but also for the use of the foundry, plant and equipment.

(15) Mr. Tuli has drawn my attention to the provisions of the Delhi and Ajmer Rent Control Act, 1952. Section 2(g) defines 'premises' as meaning-

'any building or part of a building which is, or is intended to be, let separately for use as a residence or for commercial use or for any other purpose, and includes-

(i) the garden, grounds and out-houses if any, appertaining to such building or part of a building;

(ii) any furniture supplied by the landlord for use in such building or part of a building; but does not include a room in a hotel or lodging house'.

(16) Section 2(i) defines 'standard rent' in the following words:

'standard rent', in relation to any premises, means,--

(i) where the standard rent has been fixed by the Court under section 8, the rent so fixed; or

(ii) where the standard rent has not been fixed under section 8, the standard rent of the premises as determined in accordance with the provisions of the Second Schedule;'

(17) In this case, the standard rent had not been got fixed at any time by the parties. No application for fixation of standard rent under section 11 was ever made. Mr. Tuli has placed his main reliance on section 4 of the Act. Under this provision, notwithstanding any agreement to the contrary, no tenant shall be liable to pay to his landlord for the occupation of any premises any amount in excess of the standard rent of the premises unless such amount is a lawful increase of the standard rent in accordance with the provisions of this Act.

(18) Sub-section (2) provides that any agreement for the payment of rent, in excess of the standard rent, shall be null and void, and shall be construed as if it were an agreement for the payment of the standard rent only. Mr. Tuli relying on section 4, wants me to fix Rs. 35/- per mensem as the standard rent of the premises regardless of the fact that no application had been made for its fixation by either party previously. He has placed reliance on a decision of the Chief Justice, reported in Banarsi Lal v. B. L. Verma, ILR (1956) Punj 232.

(19) The Chief Justice had expressed the view that when a landlord brings a suit for the recovery of rent and the tenant alleges that the amount claimed is in excess of the standard rent, it is the duty of the Court (in that case of Small Causes) to determine the standard rent even though the tenant' application for determination of the standard rent is barred by time.

It was observed that the expiry of the period of limitation destroyed the remedy of the tenant to claim a determination of the standard rent but did not destroy his right to pay only the standard rent and nothing more. In that case two suits were brought for the recovery of rent at the contractual rate for two separate periods of occupation. On behalf of the tenant, reliance was placed upon the provisions of section 4 of the Act.

(20) In this case my attention has been drawn by Mr. Awasthy to section 8(7) of the Act which is in the following words:

'In every case in which the Court determines the standard rent of any premises under this section, it shall specify a date from which the standard rent so determined shall be deemed to have effect: Provided that in no case, the date so specified shall be earlier than six months prior to the date of filing of the application for the determination of the standard rent or, as the case may be of the institution of the suit or proceeding in which the standard rent is determined'.

(21) I am required to determine in these proceedings the standards rent of the premises and the proviso makes it incumbent upon the Court that the date form which the standard rent should be deemed to have effect shall in no case be earlier than six months prior to the date of taking proceedings in which the standard rent is determined. In this case, the petition was made to this Court on 14th of March, 1957. This, therefore, means that having regard to the prayer made in this case, the tenant has to pay to Simplex Company the standard rent from 14th of September, 1956, till the end of October, 1956.

In view of the provisions of S. 8(7) the standard rent of Rs. 35 in this case shall be deemed to have effect for a period of a month and a half. According to the clear provisions of S. 8(7), I cannot accept the correctness of the contention of Hindustan Company that the rent should be deemed to be Rs. 35 per mensem from the very beginning, when it occupied the premises, and that the contractual rate of rent should be totally disregarded.

(22) This case presents another difficulty. The contractual rent included not only the use of the premises but also the foundry, plant, equipment etc. In this case the parties did not separately assess the rent of the premises and compensation for the use of the plant etc. which had been installed there by Simplex Company. It did not belong to its landlord. The sum of Rs. 35/- per mensem represents the standard rent of the premises but not the amount due to the Simplex Company on account of the use of its plant etc.

As the period for which the standard rent is to have effect, covers not more than a month and a half, the Simplex Company has not minded the entire liability of the Hindustan Company being determined at the rate of Rs. 35 per mensem between 14th of September, 1956 and the end of October, 1956. I therefore, deduct Rs. 337/8/- which according to this calculation have been paid in excess to the Simplex Company. The Hindustan Company shall be liable to pay to the Simplex Company a round sum of Rs. 17,100 on account of unpaid rent and electric charges up to 31st of October, 1956.

The Official Liquidator shall treat the claim of the Simplex Company, accruing after the date of the winding up, in priority, along with other creditors who are also entitled to priority.

(23) In view of what has been stated above, the Official Liquidator is directed to admit the claim of the Simplex Company to Rs. 17,100 and abide by the other directions contained in this order. There will be no order as to costs.

Order accordingly.


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