Ganapatia Pillai, J.
1. This Letters Patent Appeal is directed against the judgment arid decree of Ramaswami, J., in C.M.A. No. 442 of 1953. The decree in that appeal confirmed the decree of the District Judge of North Arcot in A.S. No. 377 of 1951, which reversed the decree of the Subordinate Judge of Vellore in O.S. No. 41 of 1951.
2. The appellant before us is the plaintiff in O.S. No. 41 of 1951. The suit was laid for recovery of a sum of Rs. 4,371-12-6 due on dealings between the plaintiff and the defendant, had from 29th April, 1946 to 26th March, 1948. The suit itself was instituted on 7th March, 1951 within three years from the date of the last dealing shown in the accounts of the plaintiff. The defendant resisted the suit inter alia on the ground of limitation. The plaintiff pleaded that the account between the parties was a mutual, open and current account, and that, since Article 85 of Schedule II of the Limitation Act applied, the suit was in time. He also relied on acknowledgment by part payments and contended that the suit was also saved by Section 20 of the Indian Limitation Act. On the first question the learned Subordinate Judge held that Article 85 of the Limitation Act applied and granted a decree for a sum of Rs. 3,584-10-0 after adjusting payments made, which were pleaded by the defendant or were found against. The learned District Judge of North Arcot, on appeal, took a different view, and held that Article 85 would not apply for the recovery of the balance due on the plaintiff's account and remanded the suit for fresh disposal and directed the Subordinate Judge to investigate the question whether the balance claimed was otherwise saved. By this he obviously referred to the plea of saving of limitation based upon Section 20 of the Indian Limitation Act.
3. On appeal, Ramaswami, J., confirmed the decision of the District Judge, but, in addition, went into the question of applicability of Section 20 of the Limitation Act, which was based upon the construction of certain receipts signed by the defendant, which are contained in Exhibits A-5 and A-6, and concluded that these were not sufficient to save limitation. Therefore, he dismissed the suit of the plaintiff.
4. Mr. S.V. Venugopalachariar, learned Counsel for the respondent, very properly did not invite us to examine the correctness of the view that Exhibits A-5 and A-6 series were not sufficient to constitute acknowledgments within Section 20 of the Indian Limitation Act, especially when this question had not been agitated before or examined by both the Subordinate Judge and the District Judge-who have dealt with this case. The arguments addressed to us referred only to the question of the applicability of Article 85 of the Indian Limitation Act.
5. The facts necessary for the purpose of ascertaining the applicability of Article 85 are not in dispute. The appellant-plaintiff was during the period covered by suit dealings a wholesale merchant carrying on business in yarn at Ami and the defendant respondent was a retailer in the same business at Kalambur. Throughout the period of the dealings between the parties, there was a State machinery, controlling the supply and distribution of yarn. Though there was some dispute on the pleadings as regards the period of dealings, it is now agreed that the period commenced from 29th April, 1946 and ended with 26th March, 1948. It is seen from the copy of accounts of the plaintiff that, commencing from 29th April, 1946 up till 9th October, 1946 the respondent was advancing substantial sums - a few thousands of Rupees - to the plaintiff appellant even before supplies of yarn were made by the appellant. Subsequent to October, 1946, payments made by the respondent to the appellant were mostly in the nature of payment of price for the yarn supplied. This position continued till 7th August, 1947, when, again, there appears a credit balance in favour of the respondent in the account, which means that, again, the respondent began to advance monies to the appellant. This state of account showing credit balance in favour of the respondent continued till 18th October, 1947. Thereafter, the account constantly showed a debit balance against the respondent, which means that he had not paid any advances to the appellant upto the close of the account on 26th March, 1948. On 26th March, 1948, the debit and credit sides were balanced, with the result that the accounts show a debit balance against the respondent in the sum of Rs. 4,371-12-6, which was the amount claimed in the plaint.
6. The question for consideration is whether the account evidencing this course of dealings between the parties amounts to a mutual, open and current account involving reciprocal demands between the parties. If the answer is in the affirmative, Article 85 of the Limitation Act is attracted and the suit would be in time.
7. Quite a large number of cases were cited before us, illustrating the test to be applied in determining the mutuality of the dealings between the parties and the application of this test to individual cases. It is unnecessary for the purpose of this appeal to refer to the provisions of the English law as regards limitation in respect of' mutual accounts which have been succinctly summarised by Rankin, C.J., in Tea Financing Syndicate v. Chandra Kamal Bezbaruah I.L.R.(1931) Cal. 649. The definition of 'mutuality' given by Holloway, C.J., in Hirada Basappa v. Gadigi Mudappa (1871) 6 M.H.C.R. 142, has almost become a classic, being quoted with approval in every subsequent decision both of this Court and of other High Courts. It is useful to bear this definition in mind, which runs as follows:
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.
Though this dictum of Holloway, C.J., was not quoted, the next case of this Court in Lakshmayya v. Jagannatham I.L.R.(1887) Mad. 199 , applied the principle underlying this dictum. There, the plaintiff was a boat-owner, and the defendant was entrusted with the working of these boats. The defendant was authorised by the contract between the parties to receive monies payable by people using the boats, to pay expenses incurred for working the boats, and to receive commission from the plaintiff for his work. Under this agreement, the defendant worked the boats for the period from 10th January, 1879 to April 1880. Accounts were being furnished by the defendant to the plaintiff from time to time and the last such account showed a balance of Rs. 179-11-4 due to the defendant. Soon after sending the last account, the defendant called upon the plaintiff to pay the balance due to him with interest. The suit was filed on the basis of these accounts; but the plaintiff claimed money as due on the basis of an intermediate account sent by the defendant. The question arose whether Article 85 of the Limitation Act applied to the balance due on such accounts. In dealing with this question, the Bench consisting of Kernan and Brandt, JJ., observed as follows:
There were here reciprocal demands between the plaintiff and the defendant apparent on the accounts, viz., the money received by the defendant for the earnings of the boat formed to that extent the plaintiff's demand, and the payment by the defendant at the plaintiff's request to other parties and the payment to the plaintiff and payments for the expenses of working the boats and the commission due to him, to that extent, formed the defendant's demand against the plaintiff.
It will be clear from the above that it is not necessary, for an account to be mutual, that the dealings between the parties must refer either to different businesses or to distinct subject-matters. That has been assumed both by the learned District Judge and by Ramaswami, J., in rejecting the plea that the account in this case was mutual. The District Judge observed as follows:
All the dealings between the parties admittedly relate to the yarn business, the plaintiff being a wholesaler and the defendant a retailer throughout. Because of the advances, the balances shifted, being sometimes to the credit of the plaintiff, and sometimes to that of the defendant. But the advances, were not loans, or arising out of any independent relationship whatever.
To the same effect is the following observation of Ramaswami, J.:
But, throughout, there is only one single relationship, viz., that between wholesaler and retailer and there is not even one transaction which arose independently or could be enforced as such.
In our opinion, this view is not in accordance with the dictum laid down in Lakshmayya v. Jagannatham I.L.R.(1887) Mad. 199 , cited above. As early as 1881, Sir Charles Sargent J., of the Bombay High Court in effect approved of the definition of mutuality given by Holloway, C.J., in Hirada Basappa v. Gadigi Mudappa (1871) 6 M.H.C.R. 142, though this decision was not actually cited in Narandas Hemraji v. Vissendas Hemraj I.L.R.(1881) 6 Bom. 134, the case first mentioned. There, Sir Charles Sargent, J., relied on Gaseram v. Monohardas 2 Ind. Jurist N.S. 241. This early case dealt with the provision of the Limitation Act (XIV of 1859), corresponding to Clause 87 of Schedule II of the Limitation Act (IX of 1871), which was the clause which Sir Charles Sargent, J., had to interpret. The difference consisted merely in that the clause in the Act of 1859 applied to suits for balance on accounts current between merchants, whereas clause 87 of the Second Schedule of IX of Act of 1871 applied to every suit brought 'for the balance due on mutual, open and current account where there have been reciprocal demands between the parties'. In repelling an argument that there should have been actual demands made by one party against the other for payment of the balance due, Sir Charles Sargent, J., said:
Literally construed, it would confine the clause to those cases only in which both parties have, in the course of their dealing, made actual demands on one another. The more reasonable and more probable intention of the framers of the clause appears to have been that it should apply to cases where the course of business has been of such a nature as to give rise to reciprocal demands, between the parties - in other words, where the dealings between the parties are such that sometimes the balance may be in favour of one party and, sometimes, of the other.
The language of Article 85 of the present Limitation Act IX of 1908 is in similar terms:
For the balance due on a mutual, open and current account where there have been reciprocal demands between the parties.
This does not however give rise to the condition that actual demands should have been made, as on the authorities, it is undoubted that, even though there were no actual demands, the account would be mutual, provided it was such that it could give rise to mutual demands.
8. The observation of Sir Charles Sargent, J., quoted above, relating to shifting balances, has given rise to a conflict in later decisions. One view was that a shifting balance is a conclusive test of mutuality. The other view was that it is only one of the tests of mutuality and the absence of it does not indicate that the account was not mutual. In our view the correct rule on this point was stated as early as 1894 in Velu Pillal v. Ghose Mahomed (1893) 4 M.L.J. 140 : I.L.R. Mad. 293. After quoting the observations of Sir Charles Sargent, J., in Narandas Hemraji v. Vissandas Hemraj I.L.R.(1881) 6 Bom. 134, the learned Judges who constituted the Bench in that case explained the meaning of the observation of Sir Charles Sargent, J., thus:
The meaning of which is not that there must have been such a shifting balance, but such was a possible and likely incident of the mutual transactions, with regard to which the account was kept.
This view was reiterated in Kunhikutti Ali v. Kunhammad (1922) 44 M.L.J. 184. Schwabe, C.J., who delivered the judgment in that case referred to the judgment of Mookerjee, J., in Rampershad v. Harbans Singh (1906) Cri.L.J. 158, and quotes the discussion in the judgment of Mookerjee, J., about the shifting balance in the following passage and explains it:
He then enters on a discussion of the various cases on those lines and points out that 'where you have a case of shifting balance, sometimes in favour of one side, sometimes in favour of the other, it is a test of mutuality, but its absence is not conclusive proof against mutuality'. The meaning of that, as I understand it, is that, if you may get a balance in favour of either party, it follows that there must be mutual liabilities of both parties to each other; if the balance is always in favour of one party in the very nature of the transactions, there, you have got a case where you have not separate mutual dealings.
The above quotation aptly illustrates the significance of a shifting balance as a test of mutuality. The presence of a shifting balance is one of the tests of mutuality; but, as already indicated by us, its absence may not be conclusive against mutuality, because in every case, the facts must be sifted to find out if there could have been reciprocal demands by one upon the other as a result of the dealings. The correct view on this matter is that laid down in Velu Pillai v. Ghose Mohomed (1893) 4 M.L.J. 140 : I.L.R. Mad. 293, in the following terms, which we respectfully endorse:
A shifting balance may, no doubt, be a test of mutuality, but its absence cannot be taken to be conclusive proof against mutuality.
That the account in this case was both open and current is admitted by both sides. Mr. Venugopalachari, learned Counsel for the respondent, however, contended that the few instances where the balance was in favour of the defendant, were only casual transactions, which should not be taken as indicating an independent course of transactions. To reinforce this argument, he cited Velu Pillai v. Ghose Mahomed (1893) 4 M.L.J. 140 : I.L.R. Mad. 293. There, the father of the plaintiffs who was a broker had continuous dealings with the defendant from September, 1885, to 7th October, 1890. The suit was laid for recovery of the balance due on this account. Purchases were ordinarily made in that case by the defendants from the plaintiffs' father; but, two entries were found in the plaintiffs' account, showing purchase of oil by the plaintiffs' father from the defendants. On the strength of these two entries, it was contended in that case that the account was a mutual one. In repelling this argument, the learned Judges said:
The amounts credited to defendants in the account kept by plaintiffs in the present case are merely payments made in reduction of the debt due from defendants to plaintiffs, and two entries of amounts due to defendants from plaintiff for oil, etc., purchased from defendants are also credited merely as items received in partial discharge of defendants' debt, to the plaintiffs. We cannot accede to the contention that they arc evidence of reciprocal demands. They are casual merely and not such as would imply a regular course of reciprocal dealings.
To appreciate the significance of the alleged reciprocal demands, we must have regard to the facts of that case. The plaintiffs' account disclosed a course of dealings where the defendant had been making regular purchases from the plaintiffs' father. Numerous entries showed such purchases. During the course of these dealings, two instances of sale of oil by the defendants to the plaintiffs' father occurred, which were entered in the plaintiffs' account. But these two instances of purchase of oil were not independent transactions, but items received in partial discharge of the defendants' liability to the plaintiffs. This is the basis for the observation that the transactions were casual and would not imply a regular course of reciprocal dealings. Bearing this in mind, if we examine the dealings between the parties in the present case, we would see that, for a period of nearly five months at the commencement of the dealings, the defendant had been making advances to the plaintiff even at a time when no money was due by him for the supply of yarn. Again for a further period of 2 months during August, September and October, 1947, the defendant had been similarly making payments in the nature of advances. These payments could not be construed as payments made in discharge of the liability incurred by the defendant for yarn purchased from the plaintiff. The advances made by the defendant are nearly 13 in number. They do not in our opinion answer the test of casualness laid down in Velu Pillai v. Ghose Mahomed (1893) 4 M.L.J. 140 : I.L.R. Mad. 293.
9. Learned Counsel for the respondent cited Shiev Gowda v. Fernandez (1910) 21 M.l.J. 391 : I.L.R. Mad. 513, for the contention that there could be no mutuality where the course of dealings merely showed that the transactions related to only one relationship between the parties. The facts of that case are as follows: The plaintiffs were merchants and the defendants were coffee-planters. The accounts of the plaintiffs from the year 1893 showed that the plaintiffs had been financing the defendants and the defendants had been sending consignments of coffee to the plaintiffs. By January, 1894, the advances made by the plaintiffs amounted to Rs. 10,700. In that month, a consignment of coffee was received by the plaintiffs from the defendants, and, later consignments also were received. These consignments were sold by the plaintiffs, and defendants were credited with the sale proceeds with interest. A balance was struck in May, 1894, which included debits against the defendants for interest due on monies advanced by the plaintiffs, and also with what was termed commission. This was not really commission, but an amount calculated at Rs. 2 per candy, every Rs. 1,000 advanced being taken as equivalent of 30 candies in respect of advances before any coffee was received by the plaintiffs, and every Rs. 1,000 being taken as equivalent of 10 candies in respect of advances made subsequently. Ultimately, in November, 1899, the balance shown in the plaintiffs' accounts was a sum of Rs. 7,500 and odd due by the defendants, for which the suit was brought. On these facts, the Bench held that the relationship between the defendants and the plaintiffs was not that of seller and buyer as regards the coffee consigned to the plaintiffs, nor that of principal and agent in respect of the coffee sold by the plaintiffs. The Bench ruled that the contract between the parties was that the plaintiffs should finance the defendants and the defendants should keep the plaintiffs secured in respect of the advances made by the plaintiffs on their behalf by consigning to them coffee of a value equal to the amount of their indebtedness, the defendants being given credit for the prices of the coffee as and when sold by the plaintiffs, and if the defendants failed to do this, they should make further payment of what is called commission, which was really a payment by way of damages. On these findings, the conclusion reached was that there were no independent obligations on both sides. The consignment of coffee by the defendants was really in discharge of the obligation, under which they already lay, namely, the obligation to repay the advances made by the plaintiffs. Throughout, the parties kept the position of the plaintiffs being a creditor and the defendants being a debtor and the consignment of coffee was only one of the methods of repayment of the obligation of a debtor towards the creditor. This decision, therefore, does not help the respondent, because, in the present case, it cannot be construed, as we would show presently, that, when the advances were made by the defendant to the plaintiff they were actually made for the discharge of any obligation already undertaken by the defendant or as the result of any agreement relating to the business of sale and purchase of yarn.
10. Both the learned District Judge and Ramaswami, J., have construed the advances made by the defendants as not giving rise to any independent obligation, because they thought that the advances were really intended to secure supplies of yarn. In one sense, they are right. Clearly, this is not a case where the defendant made the advances intending them to be loans. But that is not the distinction which matters. It is common ground that, neither by reason of contract nor by reason of agreement of parties, the defendant was under a liability to make any advances to secure supplies of yarn. The mere fact that the monies were not paid as loans would not lead to the inference that they do not give rise to any independent obligation on the part of the plaintiff. Ramaswami, J., in one portion of his judgment, observed as follows:
One test of this (what the learned Judge refers to was the existence of an independent relationship, apart from that of a retailer and wholesaler, between the parties) is that, during the relevant period, the defendant could not have filed a suit against the plaintiff for recovery of the advances as such and independently of the yarn transactions.
With all respect to Ramaswami, J., we do not agree that the defendant could not have maintained a suit for the recovery of the advances, independent of the supply of yarn. Clearly, even though the advances in this case are not monies lent, they are at least monies had and received for the use of the defendant. Unless the facts show that the advances were paid under an obligation to pay for the future purchase of yarn, the receipt of money by the plaintiff - we are referring to the advances - creates an obligation on the part of the plaintiff to return the money. Though, in fact, this was not a uniform course of dealings between the parties - and, in one sense, we may agree that the defendant did not intend the advances to be repaid in cash - yet, the crucial test is, what are the obligations that arise in law by reason of payment of advances by the defendant and the acceptance of such advances by the plaintiff. Only two consequences can follow. If the payments were made under a contract, that is to say, under a duty cast by the contract upon the defendant to make such payments, certainly, the right to recover these monies would depend upon the terms of that contract. If that contract provided that the payments should be liquidated by future supplies of yarn, money so paid could not be properly described as money had and received by the plaintiff for the use of the defendant. It is true that, as already pointed out by us, the advances are not loans obtained by the plaintiff. But, once there was no obligation on the part of the plaintiff to supply yarn in spite of the fact that he had accepted the advances, the only other alternative is that, by the fact of acceptance of these advances, the plaintiff had put himself under a liability to return money received for the use of the defendant. That no such demand was actually made by the defendant during the course of the dealings - and we may even say that that was not the intention of the defendant in making the advance - is not material for our purpose. Intention in a case of this kind becomes relevant only if it helps to understand a contract or agreement concluded between the parties. In the absence of any such contract or agreement, whatever might have been the intention of the defendant in making the advances, so long as he did not intend to make a gift of the monies, in law, the obligation on the part of the plaintiff to return the money arises. This obligation could certainly have been enforced by a suit, if the defendant was so minded. The fact that no such demand for return of the money was made is not material in determining the relationship between the parties. To illustrate the distinction we draw, we may refer to the facts in Tea Financing Syndicate v. Chandra Kamal Bezbaruah I.L.R.(1931) Cal. 649. There, the plaintiffs were a limited company called Planters' Agency Company, the defendant was the proprietor of a tea estate in Assam. Under a deed of hypothecation dated 3rd February, 1920, the plaintiffs undertook to make advances to the defendant to an extent not exceeding Rs. 80,000 to enable him to work and carry on the tea estate; but it was expressly provided in the deed that the plaintiffs might discontinue the advances as and when they considered it expedient with one month's notice to the defendant. By the deed of hypothecation, the defendant hypothecated to the plaintiffs the entire tea crop for the season 1920 and the produce thereof, and agreed to send the tea grown in his estate, as soon as it was manufactured, to the plaintiffs, in order that it might be sold in Calcutta by the plaintiffs by public auction. It was further declared by the hypothecation deed that, until the tea should be so consigned and transmitted, the defendant would hold it in trust for the plaintiffs and at the plaintiffs' absolute order and disposal. It was further agreed under the hypothecation deed that the defendant's account in the plaintiffs' book should be made up with interest at 9 per cent, per annum with half-yearly rests and that all costs, charges and expenses incurred by the plaintiffs in connection with the security and the amount for the time being due to the plaintiffs on the said account should be repaid by the defendant to the plaintiffs on demand, or, if no demand be made, within one year from the date of the deed. The plaintiffs alleged that, in pursuance of this arrangement, they had advanced monies to the defendant and had received from the defendant consignments of tea, the proceeds of which, after sale, they had credited to the defendant. Such dealings commenced from 3rd February, 1920 and ended on 30th June, 1921. For the balance due on such account, the suit was brought. The defendant, among other grounds, resisted the suit on the ground that the plaintiffs' account was not a mutual, open and current account. Except the agreement between the parties evidenced by the hypothecation deed, there was no other or further agreement between them. Considering the nature of this account between the parties, Rankin, C.J., observed thus:
In my opinion, the 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 obligation were all on one side as distinct from an account in which there are cross-claims or reciprocal demands.
11. We are in respectful agreement with this view, and we would sum up the legal position thus:
(1) To constitute a mutual account between two parties, the essence of the transactions should be looked at in order to find out if independent obligations arise on both sides resulting in possibility of reciprocal demands, even though the transactions may relate to the same commodity or to the same kind of business.
(2) Before deciding whether a particular course of dealings is a continuous course of transactions independent of the other transactions involved in the case, the number of dealings do not count to decide whether the counter-claim arises upon casual transactions: the real import of the casual transaction should be taken note of in deciding the question whether they give rise to independent obligations or whether they are merely a mode of liquidation of the obligation already undertaken by the party.
(3) A shifting balance may, no doubt, be a test of mutuality, but its absence cannot be taken to be conclusive proof against mutuality. The real point to be noticed is not whether balances actually shifted, but whether the nature of the transactions was such that it was capable of giving rise to shifting balances.
(4) 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.
12. Applying these principles, we hold that, in this case, though the advances were intended to procure supplies of yarn and eventually to liquidate the price of the yarn supplied by the plaintiff to the defendant, this would not mean that the obligation to return the advance was non-existent or was not independent of the obligation arising under the sale and purchase of yarn. The legal import of the transactions between the parties is such as to give rise to cross-claims or reciprocal demands. With all respect to Ramaswami, J., was are of opinion that this is a case where the application of Article 85 of the Limitation Act is called for, and the balance claimed in suit was within time. In view of this it is not necessary to deal with the other question whether Exhibits A-5 and A-6 were sufficient to save limitation under Section 20 of the Limitation Act.
13. The appeal is allowed. The decrees of Ramaswami, J., and of the District Judge of North Arcot are set aside, and the decree of the learned Subordinate Judge of Vellore is restored. The costs of the appellant in this appeal and before Ramaswami, J., and the District Judge of North Arcot will be paid by the respondent.
This appeal having been set down for being mentioned this day, the Court made the following Order:
14. It is represented to us that the respondent is an agriculturist and entitled to relief on that ground in the matter of enforcement of the decree. As the plea involves question of fact, we are not in a position to deal with it. The respondent will be at liberty to take such steps as may be open to him to obtain a relief on the ground that he is an agriculturist in appropriate proceedings.