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Komu Haji Hysrose Haji Vs. Moosakutty Bava - Court Judgment

LegalCrystal Citation
SubjectLimitation
CourtKerala High Court
Decided On
Case NumberS.A. No. 226 of 1979
Judge
Reported inAIR1985Ker126
ActsLimitation Act, 1963 - Schedule - Article 1 and 14
AppellantKomu Haji Hysrose Haji
RespondentMoosakutty Bava
Appellant Advocate M.R. Parameswaran, Adv.
Respondent Advocate M. Ramachandran and; K.R.B. Kaimal, Advs.
DispositionAppeal allowed
Cases ReferredIn Raju v. L. Kumaramuthu
Excerpt:
limitation - open account - articles 1 and 14 of schedule to limitation act, 1963 - employer's suit to recover due from employee dismissed partially for being barred by limitation - employee used to take goods on credit from employer and was adjusted with salary - bare reading of account shows that it has two different transactions that create different obligations - account in question is mutual, open and current account to which article 1 applies - held, computation of limitation period by virtue of article 1 renders suit maintainable. - - it is further clear that goods as well as money may be sent by way of payment......current when it is not closed. then the further question is when can an account be considered as a mutual account. it is only when parties agree to bring together their items of debits and credits relating to their mutual dealings for a set off against each other, that a mutual account comes into existence. the mutual dealings must result in independent obligations in both directions. there should be two sets of independent transactions between the parties with the result that the creditor in one will be the debtor in the other. it is then that there will he room for reciprocal demands between the parties. this docs not mean that either party must have actually made a demand against the other. going by the nature of the transactions there need only be a possibility of cross claims......
Judgment:

K.K. Narendran, J.

1. The plaintiff in a suit on accounts is the appellant in the Second Appeal. The short facts of the case shorn of unnecessary details are : The plaintiff-appellant is a dealer in provisions and the defendant-respondent was an employee in the shop from 1956 onwards. In November 1969 the respondent ceased to he an employee of the appellant. While in employment the respondent used to purchase goods on credit and also take loans from the appellant. The amounts thus due from the respondent used to be adjusted from his salary. As per the accounts on 30-11-1969 some balance was due to the appellant. The suit was filed for the recovery of the above balance from the respondent as per accounts.

2. The respondent filed a written statement denying liability and also contending that the suit was barred by limitation.

3. The trial court found the accounts as genuine but rejected the appellant's contention that the same was a mutual, open and current account and held that it was Article 14 of the Limitation Act, 1963 that was applicable to the case and not Article 1 of the Act. Accordingly the trial Court held that except the last three items which fell within three years of the date of suit, the rest of the plaint claim was barred by limitation and the suit was disposed of on that basis.

4. The plaintiff-appellant challenged the above judgment and decree of the trial Court in appeal. The respondent filed a cross-objection also. The lower appellate Court confirmed the judgment and decree of the trial Court and dismissed the appeal and cross-objection.

5. It was under the above circumstances that this Second Appeal was filed. The main contention of the learned counsel for the appellant was that the suit was one for the balance due on a mutual, open and current account and since the suit was filed within three years of the close of the year in which the last item proved was entered in the account, no part of the plaint claim was barred by limitation. Hence, according to the learned counsel the courts below decided wrongly a substantial question of law namely, whether the accounts in question are mutual, open and current.

6. It was not disputed that if the accounts in question were mutual, open and current it was Article 1 of the Limitation Act, 1963 that applied to the case and hence no part of the plaint item would have been barred by limitation. So the questions that arise for consideration are, what is a mutual, open and current account and whether the accounts in question satisfy these tests?

7. Article 1 of the Limitation Act. 1963 reads :

'Description of suitPeriod of limitationTime from which period begins to run.1. For the balance due on a mutual, open and current account, where there have been reciprocal demands between the partiesThree yearsThe 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.'

The corresponding provision in the Indian Limitation Act, 1908 was Article 85. Article 1 applies only when the account is mutual, open and current. An account is nothing but a detailed statement of a series of receipts and disbursements. An account is said to be open when ii is not settled. It is current when it is not closed. Then the further question is when can an account be considered as a mutual account. It is only when parties agree to bring together their items of debits and credits relating to their mutual dealings for a set off against each other, that a mutual account comes into existence. The mutual dealings must result in independent obligations in both directions. There should be two sets of independent transactions between the parties with the result that the creditor in one will be the debtor in the other. It is then that there will he room for reciprocal demands between the parties. This docs not mean that either party must have actually made a demand against the other. Going by the nature of the transactions there need only be a possibility of cross claims. Mutuality will not be lost if the claims are of different nature. When one party claims wages for services rendered the other party can demand price of goods delivered. But both the sets of transactions must be entered in the same account. A shifting balance will no doubt be a test of mutuality but it is not a must. It is enough that the nature of the transactions was such that a shifting balance also was possible. In this case the account contains entries of two different transactions resulting in independent obligations. When the loans advanced and the price of goods given on credit were debited in the account, the salary of the respondent was credited. The facts that the respondent was an employee of the appellant and that the respondent used to purchase provisions on credit from the appellant's shop were concurrently found by the courts below. The challenge against the accounts was also rightly repelled. In the facts and circumstances of this case it cannot but be held that the account in question is a mutual, open and current account and hence it is Article 1 of the Lim. Act, 1963 that applies to the case. In that case no part of the plaint claim is barred by limitation and the suit will have to be decreed as prayed for.

8. Before parting with the case I will refer to some of the decisions relied on by counsel on both sides. In Hirada Basappa v. Gadigi Muddappa, (1871) 6 Mad HCR 142, a Division Bench of the Madras High Court has held :

'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, these on the other being merely complete or partial discharges of such obligations.'

In Tea Financing Syndicate v. Chandra Kama), AIR 1931 Cal 359 it has been held :

'It appears to me to be reasonably plain that the type of cases suggested by Vice-Chancellor Turner in Phillips v. Phillips (1852) 9 Hare 471, namely where each party has received and paid on account of the other, is by no means the only type of case coming within Article 85. Perhaps the simplest and commonest case of all is that of two merchants each supplying goods to the other. But the cases already referred to show that the cross claims may be rent and wages, rent and liquor supplied, money let and proceeds of sale of goods. The conditions of the applicability of Article 85 are not, I think, obscure. There must be cross claims arising out of a course of dealing which evidences or is referable to an intention of set-off. The phrase 'reciprocal demands' does not import that either party has made an actual demand in fact.'

In the above case it was further held :

'..............the requirement of reciprocal demands involves, as all the Indian cases have decided following Holloway, Ag. C. J., transactions on each side creating independent obligations on the other and not merely transactions which create obligations on one side, those on the other being merely complete or partial discharges of such obligations. It is further clear that goods as well as money may be sent by way of payment. We have therefore to see whether under the deed the tea sent by the defendant to the plaintiff for sale was sent merely by way of discharge of the defendant's debt or whether it was sent in the course of dealings designed to create a credit to the defendant as the owner of the tea sold which credit when brought into the account, would operate, by way of set-off to reduce the defendant's liability. In my judgment the present case cannot rationally be distinguished in this respect from Watson's case ((1874) 11A 346) where Messrs. Currie & Co. were empowered out of the money to be received of the proceeds of sale to take and pay themselves such sum and some of money as might from time to time become due to them. The case is not taken out of Article 85 by reason that the mutual dealings are carefully arranged and designed so as to afford security to one party or the other. Whether the security is arranged for, as in the present case, by taking a charge upon all the tea in the garden or by the somewhat different machinery adopted in Watson's case can make no difference. In my opinion plaintiffs' liability to account to the defendant for the proceeds of the tea sold by them was an independent obligation and the circumstance that they were expected and intended to apply such sums as would be necessary in liquidation of their advances does not mean that this was an account in which the obligations were all on one side as distinct from an account in which there are cross claims or reciprocal demands.'

In Hindustan Forest Company v. Lal Chand, AIR 1959 SC 1349 the Supreme Court has approved the decision of the Calcutta High Court in Tea Financing Syndicate Ltd. v. Chandra Kamal, AIR 1931 Cal 359 and held that there was no reciprocity of dealings in the case before it and hence Article 85 of the Indian Lim. Act would have no application as the account could not be one mutual, open and current. In Kesharichand Jaisukhalal v. S. Banking Corpn. AIR 1965 SC 1711 it has been held :

'In the instant case, there were mutual dealings between the parties. The respondent Bank gave loans on overdrafts, and the appellant made deposits. The loans by the respondent created obligations on the appellant to repay them. The respondent was under independent obligations to repay the amount of the cash deposits and to account for the cheques, bundles and drafts deposited for collection. There were thus transactions on each side creating independent obligations on the other and both sets of transactions were entered in the same account. The deposits made by the appellant were not merely complete or partial discharge of its obligations to the respondent. There were shifting balances; on many occasions the balance was in favour of the appellant and on many other occasions, the balance was in favour of the respondent. There were reciprocal demands between the parties, and the account was mutual. This mutual account was fairly active up to June 25, 1947. It is not shown that the account ceased to be mutual thereafter. The parties contemplated the possibility of mutual dealings in future. The mutual account continued until Dec. 29, 1950 when the last entry in the account was made. It is conceded on behalf of the appellant that if the account was mutual and continued to be so until December 29, 1950, the suit is not barred by limitation, having regard to Section 46(O) of the Banking Companies Act. The Courts below, therefore, rightly answered issue No. 1 in the negative.'

In L. Kesava Chettiar v. M. M. Ramanatha, AIR 1959 Mad 470 it has been held :

'The absence of actual reciprocal demands would not matter, because the point to be considered is whether such demands were capable of being made on the account by one party upon the other.'

In State of Bihar v. Motilal, AIR 1964 Patna 127 it has been held :

'The distinctive features of a mutual account are that there should be two sets of independent transactions between the parties and in one transaction one of the parties should be debtor and the other creditor, whereas, in the other transaction the parties should occupy reverse positions. Besides that, the dealings should indicate independent obligation on both sides and not merely obligations on one side. The test of mutuality is that the dealings between the parties should be such that the balance is sometimes in favour of one party and sometimes in favour of the other.'

In Raju v. L. Kumaramuthu, AIR 1975 Mad 1 it has been held :

' The mere striking of the balance after the parties have had a continuous dealings as between themselves cannot prima facie make that account a mutual open and current account. The account may be current and equally it may be open, but unless it is mutual it ceases to be a mutual open and current account. To establish such mutuality, it is necessary that at one point of time at least each of the parties should have a credit as against the other. In other words, the account should be capable of giving rise to shifting balances. Unless it is established that during the dealings one party has become a creditor to the other and at another time, the other party who was a creditor has become a debtor to the other which brings out the essence of mutuality in the accounts, it ceases to be mutual open and current account.'

With respect to the learned Judge I venture to state that the above decision, which insists that there should be a shifting balance to make the account a mutual account, has not laid down the correct law.

9. In the result, the judgment and decree of the court below are set aside and the Second Appeal is allowed. The suit will stand decreed as prayed for with costs. The parties will suffer their costs in the appeals.


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