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N. Ethirajulu Naidu Vs. K.R. Chinnikrishnan Chettiar - Court Judgment

LegalCrystal Citation
SubjectContract;Limitation
CourtChennai High Court
Decided On
Case NumberAppeal No. 138 of 1968
Judge
Reported inAIR1975Mad333
ActsEvidence Act, 1872 - Sections 18 and 101; Indian Contract Act, 1872 - Sections 25(3); Limitation Act, 1968 - Sections 18
AppellantN. Ethirajulu Naidu
RespondentK.R. Chinnikrishnan Chettiar
DispositionAppeal allowed
Cases ReferredChako Varkey v. Thommen Thomas
Excerpt:
contract act (ix of 1872), section 25(3)--promise to pay time barred debt-- when enforceable--promise should be in writing and signed by person charged therewith--implied promise, not sufficient under section.;limitation act (xxxvi of 1963), section 18--acknowledgement--what is-- difference between section 18 and section 25(3) of contract act (ix of 1872);words and phrases--account stated--meaning of;under section 25(3) of the indian contract act, a promise to pay a time-barred debt would be valid and enforceable provided it is made in writing and signed by the person to be charged therewith or by his agent generally or specially authorised in that behalf, to pay whole or in part a debt of which the creditor might have enforced payment, but for the law of the limitation of suit. what the..........the defendant's reply which was prepared, not by a trained lawyer, but by d. w. 2, who is a part-time accountant of the defendant. though details are not given in the reply, the defendant has unambiguously denied the truth of the 'account stated' and his liability thereunder. we, therefore, disagree with the trial court and answer this point in favour of the appellant.8. points nos. 2 and 8: the expression 'account stated' is not a magical incantation, which can exempt a time-barred debt from the bar of limitation. ex. a.1 has been characterised in the plaint as an 'account stated', evidently with a view to save the plaintiffs claim from getting time-barred. according to the plaintiff, the original loan of rs. 7000 was advanced by him to the defendant in january 1959. assuming that ex......
Judgment:
1. The defendant appeals. The suit out of which the appeal

arises was laid by Chinnikrishnan Chettiar, the plaintiff, against the appellant Ethirajulu Naidu for the recovery of a sum of Rs. 9850 allegedly due on an account stated by the plaintiff and signed by the defendant on 30-5-1964. In the plaint, it was alleged that the defendant borrowed from the plaintiff a sum of Rs. 7000 agreeing to repay the same with interest at 12 per cent per annum thereon. According to the plaint, on 30-5-1964, the plaintiff demanded from the defendant the repayment of Rs. 8330 representing Rs. 7000 on account of principal and Rupees 1330 on account of interest. On the date of demand, 30-5-1964, the defendant is alleged to have paid a sum of Rs. 500 towards interest and demanded an account, whereupon an account stated was prepared then and there by the plaintiff. The defendant after verifying the same put his signature to it on the same day, 30-5-1964, It was further alleged in the plaint that on 30-3-3965, the defendant paid a further sum of Rs. 500 towards interest, but failed and neglected to pay the balance. Hence the suit,

2. The defendant in his answer denied that he ever borrowed any amount at any time from the plaintiff. He also denied specifically the alleged borrowing of a sum of Rs. 7000, the demand by the plaintiff for the repayment on 30-5-1964, the alleged payment of a sum of Rs. 500 towards interest on that date, the preparation by the plaintiff on the account stated and the alleged acknowledgment by the defendant of (he account stated by putting his signature thereto. The defendant also denied that on 30-3-1965 he paid a sum of Rs. 500 towards the alleged dues. The case of the defendant was that he, as a tin-can manufacturer, used to receive supply of old tin sheets and new tin sheets from the plaintiff and would manufacture out of that material snuff boxes and supply the same in different sizes to the plaintiff, who is a dealer in snuff. In the course of the dealings, the plaintiff used to take the signature of the defendant in a note book as a token of his having received the raw materials. The defendant is an illiterate person, who had learnt only to sign his name in Tamil and English for the purpose of bank transactions in the course of his business. There were occasions when the defendant signed his name in the plaintiffs note book, on the plaintiff telling him that he would later fill the space above the defendant's signature with the terms of the agreement as to the rate of the labour charges for manufacture of tin boxes. The defendant also used to sign his name in a chittai whenever labour charges are paid to him by the plaintiff. Misunderstandings broke out between the plaintiff and the defendant in April 1967, with reference to the labour charges. According to the defendant, the plaintiff must have made use of the signature of the defendant in the plaintiffs note book acknowledging receipt of raw materials or receipt of labour charges for the purpose of cooking up the account on foot of which this suit has been filed.

3. The Fifth Assistant Judge, City Civil Court, Madras, before whom the suit was filed, framed the following issues--

1. Whether the defendant borrowed Rs. 7000 from the plaintiff?

2. Whether the defendant is not liable for the suit claim?

3. To what relief, if any, is the plaintiff entitled?

Upon a consideration of the oral and documentary evidence adduced by the parties, the trial Court answered all the issues against the defendant and granted a decree as prayed for with costs. It is against this judgment, the defendant has preferred this claim.

4. In appeal grounds, it is pleaded inter alia, that the plaintiff's claim is barred by limitation because on the plaintiffs own showing, the loan is alleged to have been advanced in 1959 and there was no payment made in writing by the appellant towards the said loan upto 1964, and in the absence of such payment in writing within three years from the date of the loan or an unconditional acknowledgment of the liability in writing within the said period, the loan must have become barred by limitation even as early as 1963. Another plea urged by the appellant is that even if Ex. A. 1, the alleged account stated were construed as an acknowledgment, the acknowledgment itself having been made after the debt had become barred by limitation, would be ineffective to save the plaintiffs claim from the bar of limitation.

4. The points that arise for determination are:-- (1) Whether the loan said to have been advanced by the plaintiff to the defendant is true; (2) Whether Ex. A. 1 is in the nature of an account stated or in the nature of a valid acknowledgment; (3) Whether, in any event, the suit claim is in time?

5. Point No. 1: Though in the plaint, the date of the advancement of the loan has not been mentioned, P. W. 1 the plaintiff, stated for the first time from the witness box that he advanced the loan of Rs. 7000 to the defendant in January 1959 and that the defendant agreed to repay the loan with interest at 12 per cent per annum. It is astonishing that the plaintiff did not take the trouble of obtaining a promissory note or at least a voucher from the defendant to evidence the payment of this huge amount. Admittedly, he had not, advanced any loan to the defendant on any prior occasion. The plaintiffs explanation is that out of confidence, which he reposed in the defendant, he did not obtain any promissory note from him. One wonders why he should not have issued a cheque for Rs. 700ft to the defendant instead of paying the whole amount in cash. According to the plaintiff, be paid this amount in his own office when his employees were working and he is unable to say whether any of his employees knew about the alleged payment to the defendant. The plaintiff is admittedly an income-tax assessee, and he is carrying, on business in the name of Radha and Co, in which he had invested about five lakhs of rupees. The plaintiff further admits that he is maintaining accounts. But curiously enough, he hastens to add that the payment of Rs. 7000 is not entered in his accounts. The excuses he trots out for not entering this loan in his ac-counts is that the amount does not represent the shop amount. Admittedly, he has bank accounts, and if he had withdrawn his own moneys from the bank for the purpose of advancing this loan, his bank pass book ought to evidence it. Lest the non-production of the bank accounts should be adversely commented upon the plaintiff would proceed to say that he got this amount of Rs. 7000 from his brother and gave it to the defendant. The question arises whether his brother was in possession of adequate funds for advancing this amount. According to the plaintiff his brother was employed under a Marwari getting a monthly salary of Rs. 200. But on closer cross-examination, the plaintiff, had to admit that in 1959, his brother was unemployed. His brother has not been examined to support the plaintiffs story that he advanced the amount. The plaintiff admits that there is no record to show that he took this amount from his brother, and that, his brother himself has noted the payment of this amount in his accounts. According to the plaintiff, he repaid this sum of Rs. 7000 to his brother in two instalments viz. Rupees 2000 in 1956 and the balance in 1967. These repayments must be disclosed by the entries in his accounts as income-tax assessee. But those accounts have not been produced. The plaintiff wants the Court to believe that from January 1959 to 30-5-1964, the defendant paid him Rs. 4000 odd by way of interest towards the loan obtained by him. There is not a scrap of paper to evidence this statement. According to the plaintiff on 30-5-1961, when Ex. A. 1, was prepared, the accounts were looked into by the defendant in the office of the plaintiff, and the account slated as per Ex. A. I was prepared then and there, and the defendant after verifying the same put his signature thereto. If it is true that the plaintiff had advanced Rs. 7000 in January 1959, and the defendant had paid over Rs. 4000 by way of interest in numerous instalments from January 1959 to 30-5-1964, and if there were no accounts kept by the plaintiff to evidence either the payment or the repayments alleged, one is at a loss to understand with reference to which account Ex. A. 1 was prepared on 30-5-1964 and with reference to which books the defendant was able to verify the correctness of the three suspiciously bald entries, which are entered in Ex. A. I. Be it noted that Ex. A. 1 itself makes no reference whatsoever to the loan of Rs. 7000 advanced in January 1959, or to the alleged repayments by the defendant of Rs. 4999 or the dates and particulars thereof. The very first entry, in Ex. a. 1, which is in Tamil, is to following effect--

"Arrears due by tin factory Ethirajulu Naidu on account of balance of principal Rs. 7000,"

The entry does not explain as to how it was arrived at. The next entry runs as follows--

"Interest arrears upto 15-5-1964 --Rs. 1330."

Below this entry is given the amount of Rs. 8330, which is evidently the total of the balance of principal and interest. Below this entry, the third and the last entry is found, and it runs as follows--

"30-5-64, Received Rs. 500." Below this entry, the balance is struck and the amount of Rs. 7830 entered. One line is left blank below the balance and in the next line, we find the signature of the defendant with the date 30-5-1964 underneath it. Ex. A. 1 is headed 'K. R. Chinnikrishna Chetti, Radha and Co."

The heading is in different ink and pen from the entries that follow. The paper upon which Ex, A. 1 has been engrossed is incredibly flimsy. It is a slip of ruled paper forming half of a quarter sheet. Evidently, it has been torn off from an exercise note book. The plaintiff himself admits that he tore the paper from a note book kept in his shop and wrote all the entries in Ex. A. 1. The defendant as D. W. 1 while admitting that the signature in Ex. A. 1 is his, says that it has been torn from the Chittai book maintained by the plaintiff. He says that he used to sign in the chittai book whenever he received tin sheets from the plaintiff for the purpose of manufacturing snuff boxes. It is also his case that he used to wait in the plaintiff's shop till 1 p. m., and he used to go away in a hurry after signing the blank sheets in the ehittai and that one of such blank sheets in the chittai must have been exploited by the plaintiff for concocting Ex. A. 1, Having regard to the intrinsic infirmities, in Ex. A. 1, the surrounding circumstances and the antecedent conduct of the parties, we think that the version of the defendant, who is an illiterate person, is more acceptable than that of the plaintiff. It is not as if Ex. A. 1 is a document which evidences an independent transaction. The liability thereunder had its genesis, according to the plaintiff himself even in 1959, If what he says is true, ample evidence must be available to prove the alleged dealings from 1959 upto 30-5-1964. The amazing failure of the plaintiff to prove the antecedent dealings resulting in Ex. A. 1 by evidence aliunde strengthens our misgivings about the genuineness of the entries in Ex. A. 1. We have little doubt that the plaintiff has utterly failed to prove that he prepared the account stated on 30-5-1964, or that the entries therein are true 'or that the defendant affixed his signature thereto after verifying the correctness of the entries and in acknowledgment of his liability thereunder.

6. The trial Court has, without a strict scrutiny of the relevant circumstances, ascribed undue weight to two circumstances. The first is that the defendant has admitted his signature in Ex. A. 1. According to the trial Court, "the fact that EX. A. 1 contains the signature of the defendant is prima facie proof that the defendant had acknowledged his liability to pay the amount of Rs. 7830 Contained in Ex. A. 1 to the plaintiff . Hence there is absolutely no difficulty in holding that the defendant had acknowledged the correctness of the 'account stated' in Ex. A. 1." The lower court has overlooked the fact that the execution of a document implies intel-ligent and conscious appreciation of the con-tents thereof and the facts connected there-with; and where the defendant admitted only that he had put his signature in a blank piece of paper, which, he alleged, had possibly been utilised for fabricating Ex A. 1 it cannot be regarded as his having admitted the execution or Ex. A. 1. The onus of proving that a particular paper, which is the basis of a suit was duly executed by the defendant, must, therefore, have been thrown upon the shoulders of the plaintiff,

7. The second circumstance that undoubtedly influenced the trial court was that in Ex, A. 2, the reply sent by the defendant to the plaintiffs notice Ex. B-1, the defence adumbrated by the defendant in his answer had not been set forth in all its detail. The plaintiffs notice, which was sent by an advocate, did not even mention the case of the plaintiff that he had advanced a sum of Rs. 7000 by way of loan to the defendant in January 1959 or that the defendant had repaid a sum of Rs. 4000 in several instalments upto 30-5-1964. There is, therefore, more reason to criticise the plaintiffs notice for its lacunae than to criticise the defendant's reply which was prepared, not by a trained lawyer, but by D. W. 2, who is a part-time accountant of the defendant. Though details are not given in the reply, the defendant has unambiguously denied the truth of the 'account stated' and his liability thereunder. We, therefore, disagree with the trial court and answer this point in favour of the appellant.

8. Points Nos. 2 and 8: The expression 'account stated' is not a magical incantation, which can exempt a time-barred debt from the bar of limitation. Ex. A.1 has been characterised in the plaint as an 'account stated', evidently with a view to save the plaintiffs claim from getting time-barred. According to the plaintiff, the original loan of Rs. 7000 was advanced by him to the defendant in January 1959. Assuming that Ex. A. 1 is true and genuine, it came into existence on the plaintiffs own showing, on 30-5-1964, that is to say, more than 5 years and 4 months after the date of the original loan. Admittedly, the defendant did not in writing acknowledge his liability under the loan of January 1959, at any time within three years thereafter. On 30-5-1964, therefore, the plaintiff's claim had become barred by time. There are no words in Ex. A. 1, above the signature of the defendant, to show that he acknowledged the liability to pay the balance of Rs. 7840 under the alleged loan. Even assuming that there were an acknowledgment it would be merely an acknowledgment of a time-barred debt and could not in law operate to revive the debt and give it a new lease of life. No doubt, under Section 25(3) of the Indian Contract Act, a promise to pay a time-barred debt would be valid and enforceable provided it is made in writing and signed by the person to be charged therewith or by his agent generally or specially authorised in that behalf, to pay whole or in part a debt of which the creditor might have enforced payment, but for the law for the limitation of suits. But there is no such promise contained in Ex. A. 1. Learned counsel for the respondent wants us to construe Ex. A. 1 as embodying an implied promise to pay a time-barred debt, What the section requires is an express promise made in writing and signed by the person to be charged therewith. Nothing short of an express promise, therefore, will provide a fresh period of limitation. It is settled law that an implied promise is not sufficient. In fact, in Govinda Nair v. Achutan Nair, AIR 1940 Mad 678, this court held as follows--

"The promise referred to in Section 25, Sub-section (3) Contract Act, must be an express one and cannot be held to be sufficient if the intention to pay is unexpressed and has to be gathered from a number of circumstances. In other words, there must be a distinct promise to pay before the document could be said to fall within the provisions of this section -- See Ramaswami Pillai v. Kuppuswami Pillai, 1910 Mad WN 547; Govind Das v. Sarjudas, (1908) ILR 30 All 268; Manraj Sath v. Sethrup Chand (1906) ILR 33 Cal 1047, and Mukhilal v. Gul Muhammad, AIR 1933 Lah 209."

The distinction between an acknowledgment under Section 18 of the Limitation Act 1983 and a promise within the meaning of Section 25(3) of the Contract Act is of great importance. Both have the effect of creating a fresh starting point of limitation, if they are in writing signed by the party or his authorised agent. But while an acknowledgment under the Limitation Act in order to be valid, must be made before the expiry of the period of limitation, a promise under Section 25, Sub-section (3) of the Contract Act, to pay a debt may be made after the debt has become barred by limitation. Ex. A. 1 which purports to he an account stated, may conceivably amount to an acknowledgment, but it is of no avail to the plaintiff because it is an acknowledgment of a time-barred debt. As it contains no express words promising to pay a time-barred debt, it will not avail the plaintiff either. In Jethibai v. Putlibai (1912) 14 Bom LR 1020, an account stated has been held to be a mere acknowledgment, as distinguished from a promise to pay under Section 25(3) of the Indian Contract Act.

9. Confronted with these difficulties, learned counsel for the respondent endeavoured to make out that Ex. A. 1 being an account stated, no question of limitation arises. We shall, therefore, examine what is pith and substance of an account stated. In Bishunchand v. Girdharilal AIR 1934 PC 147, their Lordships of the Judicial Committee of the Privy Council explained the nature of an account stated in the following words:--

'The essence of an account stated is not the character of the items on one side or the other, but the fact that there are cross items of account and that the parties mutually agree the several amounts of each and by treating the items so agreed on the one side as discharging the items on the other side pro tanto, go on to agree that the balance only is payable. Such a transaction is in truth bilateral, and creates a new debt and a new cause of action. There are mutual promises, the one side agreeing to accept the amount of the balance of the debt as true (because there must in such cases be, at least in the end, a creditor to whom the balance is due), and to pay it, the other side agreeing the entire debt as at a certain figure and then agreeing that it has been discharged to such and such an extent, so that there will be complete satisfaction on payment of the agreed balance. Hence, there is mutual consideration to support the promises on either side and to constitute the new cause of action."

The observations above quoted show that the essence of an account stated being bilateral the promise to pay made by one party is good enough consideration for the promise made by the other. Such a contract being fully supported by consideration is enforceable at law, and would constitute a new cause of action. But, where in an account of the nature of Ex. A. 1, the relationship between the debtor and the creditor is unilateral, the implied promise of the debtor to pay the creditors a time-barred debt would be an agreement made without consideration, and, therefore, void under Section 25 of the Indian Contract Act, subject of course to the exception contained in Sub-section (3) of Section 25 of the Act. In fact, in AIR 1934 P. C. 147, their Lordships, while holding that an account stated would constitute a new cause of action, even though some of the items were statute barred expressly left the question open whether the same principle would be applied if all the items in the account stated were statute-barred. Subsequent to the ruling of the Privy Council, the open question has been settled by three High Courts in India. The first is, Ganesh Prasad v. Rambati Bai, AIR 1942 Nag 92, where it was held as follows:

"If the whole account is time-barred, then the ban imposed by Section 25(3), Contract Act, would apply."

This decision was followed in Tulsiram Srikisan v. Zaboo Bhima, AIR 1949 Nag 229, where their Lordships held:--

"In an account stated, it does not matter if some of the items are time-barred, It would be a different thipg if all the items are time-barred and we see no reason to depart from the view expressed on this point in Ganesh Prasad v. Rombati Bai, AIR 1942 Nag 92."

The question arose also before a Full Bench of the Kerala High Court in Chako Varkey v. Thommen Thomas, . Their Lordships were called upon to construe Section 26 of the Travancore Contract Act which corresponds, word for word, to Section 25 of the Indian Contract Act, 1872, and their Lordships observed as follows--

"An account stated is no more than an agreement, and when the entire claim is barred as in this case prior to the date of the settlement, the account stated cannot give rise to any cause of action unless it amounts to an express promise within the meaning of Section 26 (3) of the Travancore Contract Act..... When the entire claim is not barred, but only a portion thereof the maximum that can be said is that the consideration for the settlement is inadequate. The position however is different when the entire claim is barred; in such a case, there is no consideration at all and the agreement will be void unless it is saved by Section 26 (3) of the Travancore Contract Act."

We respectfully follow the rulings cited above and hold that the account stated in Ex. A. 1 on 30-5-1964 relates to a claim which was clearly time-barred on that date, and there being no express promise within the meaning of Section 25(3) of the Indian Contract Act, to pay the time-barred debt, the plaintiff cannot rely upon it to save his claim from the bar of limitation. Both these points are answered against the plaintiff.

10. In the result, the judgment and decree of the trial court are set aside and the appeal allowed with costs throughout.


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