Buyer–Seller Account Based On Credit Sales Not “Mutual, Open And Current” Under Article 1 Limitation Act: Kerala High Court
Deekshitha Sharmile
The High Court of Kerala Division Bench of Justice Sathish Ninan and Justice P. Krishna Kumar has held that a buyer–seller account based on credit sales does not qualify as a mutual, open and current account under Article 1 of the Limitation Act, 1963, in the absence of reciprocal and independent obligations on both sides. Deciding regular first appeals arising from a money decree obtained by a steel manufacturer against its authorised dealer partnership firm, the Court confirmed the decree for the principal amount against the firm and two partners, while modifying the rate of interest and dismissing the suit as against the individual alleged partner who was found not to be a member of the firm.
The dispute arose from transactions between a manufacturing company engaged in the sale of iron and steel and its authorized dealer, a partnership firm. The firm purchased goods on credit, and payments were defaulted beginning in 1997. The last payment recorded was Rs. 52,200 in February 1998. The company filed a suit seeking recovery of Rs. 80,74,224, which included a principal sum of Rs. 47,29,420.99 and interest.
The dealer firm admitted its distributorship and credit purchases but contested the amount claimed and denied any agreement for interest. One of the defendants denied being a partner of the firm and challenged his liability. The trial court upheld the claim for the principal amount but declined interest before the suit date, citing lack of proof of agreement.
Evidence included invoices, ledgers, statements of accounts, and communications between the parties acknowledging the debt. The defendants argued that the suit was barred by limitation and that the accounts were unproved due to non-examination of the accountant. The plaintiff relied on acknowledgments of liability and documentary evidence. Statutory provisions discussed included Article 1 and Article 14 of the Limitation Act, and Order VII Rules 14 and 17 of the Code of Civil Procedure.
The Court recorded: “To be an open, mutual and current account, there must be mutual dealings between the parties creating mutual debts or reciprocal demands.”
It stated: “A transaction between a buyer and seller, wherein the buyer pays the price for the goods sold by the seller, is only a payment in discharge of the obligations under the contract to buy goods and to pay for them. It does not create independent obligations on the parties.”
The Bench observed: “Hence, the appellants are right in their contention that the suit is not based on a mutual, open and current account falling within the description of a suit under Article 1 of the Limitation Act.” On limitation, the Court recorded: “The suit is being one for recovery of the unpaid price of the goods, Article 14 of the Limitation Act is attracted and the suit has to be filed within three years from the date of delivery of the goods.”
It noted: “As per Ext. A136 letter dated 28.01.1999, the plaintiff demanded payment of the amount. The same was duly replied by the defendants as per Ext.A137 dated 12.02.1999. Therein, no dispute was raised regarding the debt; time was sought for settling the liability and also agreed to provide collateral security for the debt.”
On admissibility of ledgers, the Court stated: “The list of documents annexed to the plaint indicates that photostat copies of the ledgers were produced therewith, and it has been stated therein that the originals of the ledgers will be produced later. The ledgers were subsequently produced and have been admitted and marked in evidence.”
Regarding proof of accounts, the Court recorded: “Ext.B6 is the statement of accounts of the defendants maintained by the plaintiff. Therein, the net debit balance is shown as Rs. 47,29,420.99/-. Ext.A139 and Ext.A139(a) are the ledgers. The trial court noticed that Exts.A1 to A133 invoices corroborate the entries in the ledgers.”
On the liability of one defendant, the Court observed: “True, the documents reflect that the 2nd defendant was acting on behalf of the firm and was representing the same in the business transactions. The business was being carried out through him. However that would not make the 2nd defendant a partner of the firm.”
On interest, the Court stated: “Considering the prevailing rate of interest in the banking transactions, we are of the opinion that grant of interest at the rate of 9% per annum from the date of suit till decree, and thereafter at 6% per annum would be just and reasonable.”
The Court directed: “R.F.A. No.198 of 2012 is allowed. The decree as against the 2nd defendant will stand set aside and the suit as against him will stand dismissed. R.F.A. No. 375 of 2012 is allowed in part. The rate of interest awarded by the trial court will stand refixed at 9% per annum from the date of suit till decree, and thereafter at 6% per annum till realisation. The decree and judgment as against defendants 1, 3 and 4 will stand affirmed in all other respects.”
Advocates Representing the Parties
For the Petitioners: Shri. Varghese C. Kuriakose, Shri. G. Krishnakumar, Smt. Renjini Rajendran
For the Respondents: Shri. V. N. Haridas, Shri. P. Chandrasekhar, Smt. Kripa Elizabeth Mathews, Shri. Aju Mathew, Shri. P. Viswanathan (Sr.), Shri. G. Krishnakumar, Smt. Sneha Joy
Case Title: Re The Tata Iron & Steel Co. Ltd and Connected Case
Neutral Citation: 2025 : KER : 88827
Case Number: R.F.A. Nos. 198 and 375 of 2012
Bench: Justice Sathish Ninan, Justice P. Krishna Kumar
