P L D 1968 Karachi 167
Before Qadeeruddin Ahmed and Muhammad Gul, JJ
KHAIRPUR TEXTILE MILLS LTD.‑‑Respondent
First Civil Appeal’ No. 113 of 1961, decided on 28th September 1967.
Munawwar Abbas for Appellant.
A. A. Zari for Respondent.
Dates of hearing : 28th September 1967.
MUHAMMAD GUL, J.‑This is first appeal against the Judgment of the learned Civil Judge First Class, Khairpur, dated the 31st of March 1961, whereby in a suit brought by the Khairpur Textile Mills Ltd., Khairpur (hereinafter called the plaintiff‑company) for the recovery of Its. 73,692‑12‑6 he passed a preliminary decree for accounts against M/s. Qureshi Brothers, Khairpur, a partner ship firm through its partner Maulana Shabihul Hasanain (here inafter called the defendant‑firm).
2. The facts giving rise to this appeal are these. The plaintiff company carries on business of manufacture of cloth and yarn at Khairpur. Early in 1952 the plaintiff=company appointed the defendant‑firm, who carried on the business of cloth merchants, as its agent at Khairpur for the sale of cloth and yarn. Under the terms of the agency, which was reduced into writing but is no longer traceable, the plaintiff company was to send cloth and yarn to defendant‑firm for sale “on instructions” from the plaintiff‑company, and the defendant‑firm was to charge commission at the rate of 1 per cent. beside the incidental expenses on all such sales. Subsequently in 1953, it appears that the plaintiff-company also started supplying cloth and yarn on credit to the defendant‑firm who would pay the price after the sale on its own account. It is alleged in the plaint that it was orally agreed between the parties that a single ledger: account shall be maintained despite the dual contractual relationship between them, namely, that of principal and agent on the one hand, and of seller and buyer, on the other. This dual business relation ship is alleged to have continued between the parties till November 1960 when on 28th November 1960 the plaintiff‑company filed the suit for the recovery of Rs. 73,692‑12-6 being the sum due on the balance with interest thereon at the rate of Rs. 6; per cent. It was averred in the plaint that the accounts between the parties were “mutual, open and current”, and to bring the suit within limitation, plaintiff‑company relied upon three credit entries in the accounts in favour of the defendant‑firm dated 30th May 1957, 28th November 1957 and 1st December 1957 respectively for Rs. 30,000, 15,000 and Rs. 649‑3‑0.
3. The defendant‑firm admitted that it was appointed agent by the plaintiff‑company in 1952 and the terms on which the business of agency had to be conducted by the firm, but denied the subsequent transactions between them as Seller and buyer of the goods as also the alleged oral agreement for the maintenance of a single ledger account in respect of two distinct kinds of business dealings. The defendant‑firm disowned its liability for the sum claimed by the plaintiff‑company on a number of grounds which would be apparent from the following issues settled by the trial Court on the pleadings of the parties:‑–
(1) Is the defendant an agriculturist?
(2) Is the suit beyond time?
(3) Whether there were agency and dealers accounts separately and were they combined with mutual consent?
(4) Has the defendant ceased to carry on business in cloth and yarn since 1956?
(5) Are the contents of pare. No, 13 of the written statement correct? If yes, what is the effect?
(6) Is the defendant not liable to pay interest?
(7) What amount of commission the defendant can get?
(8) Is the defendant liable to pay Rs. 63,325‑6‑6 as principal and Rs. 15,367‑6‑0 as interest?
(9) How much is due from the defendant to the plaintiff?
(10) Did the agency of the defendant terminate in 1956 and ceased to continue in force? If yes, what is the effect ?
(11) What were the terms of commission agency, were they reduced in writing?
(12) What should the decree be?
4. The learned trial Judge found that the defendant‑firm was not an agriculturist, that the suit was within limitation, the Article applicable being Article 85 of the Limitation Act, 1908, that the single consolidated account was kept with the mutual consent of the parties in respect of the transactions arising out of dual relationship between them and that the three disputed credit entries of May, November and December 1957, referred to above, were genuine and, therefore, saved limitation for the suit. On issues Nos. 4 and 10, the learned trial Judge found that subsequent to 1956 the plaintiff‑company merely declined to make further supplies of goods to the defendant‑firm till it cleared its rather heavy debit balance and did not terminate the agency or otherwise ceased to carry on its business with the firm. On issue No.11 the learned trial Judge found that the contract of agency was reduced into writing though it was mislaid. The plaintiff‑company was also allowed interest at the rate of 6 per cent. on the sum found due. For the final determination on the one hand of the amount due to the defendant‑firm on account of the commission earned and incidental expenses incurred since the inception of agency for which credit had to be given to the defendant‑firm and on the other band the sum due to the plaintiff‑company both as principal and as unpaid seller of goods, the learned trial Judge appointed a local Commissioner to go into the accounts of the parties.
5. Mr. Munawwar Abbas, who appeared on behalf of the defendant‑firm, assailed the above findings of the learned trial Judge and the preliminary decree thereon on the following grounds, namely :‑–
(i) that the accounts produced by the plaintiff‑company have not been formally proved and, therefore, cannot be read into evidence ;
(ii) that the relationship subsisting between the parties was entirely that of principal and agent and that there was no relationship of unpaid seller and buyer of goods or any ” agreement for the maintenance of mutual, open and current account ;
(iii) that in any event the accounts between the parties were settled on the 28th of February 1957, when on behalf of the defendant‑firm Rs. 1,08,964‑9‑6 were acknowledged to be due by the firm and this made the suit beyond limitation having been instituted more than three years from the said date;
(iv) that assuming for the sake of argument that there was “mutual, open and current” account between the parties, even then the suit would be beyond limitation because the three aforesaid credit entries in favour of the defendant‑firm which were specifically denied in the written‑statement were not proved by any intrinsic evidence ;
(v) and lastly, in view of the plaintiff‑company’s claim :or a specific sum, namely, Rs. 73,692‑12‑6, it was not competent to the learned trial judge to pass a preliminary decree and to appoint a local commissioner for the examination of accounts of the parties.
6. Mr. Munawwar Abbas was, however, frank enough to concede that in view of the provisions of rule 7 of. Order VII, Civil Procedure Code, 1908, there was no substance in the last point urged by him, namely, his objection to the competency of the trial Judge to pass a preliminary decree in the circumstances of the case and, therefore, learned counsel did not press it.
7. The defendants’ learned counsel’s objection to the admissibility of the accounts produced by the plaintiff‑company was founded upon the provisions of section 34 of the Evidence Act, 1872 which reads :‑‑–
“Entries in books of account, regularly kept in the course of business, are relevant whenever they refer to a matter into which the Court has to inquire, but such statements shall not alone be sufficient evidence to charge any person with liability.” The argument was that this ‘section merely makes entries in books of account “regularly kept in the course of business” relevant. Learned counsel stressed that this section did not dispense with the formal proof of each entry in the accounts and no evidence having been led in proof of the various entries in .the ledger account of the defendant firm kept by the plaintiff’‑company (copy Exh. 19) these accounts cannot be read into evidence. It was further urged that these entries standing by themselves in the absence of any other corroborative evidence will not establish the liability of the defendant‑firm.
8. As rightly pointed out by Mr. A. A. Zari, learned counsel for the plaintiff‑company, it was too late at this stage to raise objection against the admissibility in evidence of the entries in the ledger account of the firm for want of formal proof. It is no controverted that the copies of account were tendered in evidence by the firm’s Accountant, Ansar Hassan P. W. 1 and duly exhibit ed in the trial Court without any objection to their admissibility by the defendant‑firm. Such being the case, the defendant‑firm must be deemed to have waived its objection, if any, as to the admissibility of the copies of accounts Exh. 19. Not only that, There is the acknowledgment dated 28th February 1957, Exh. 20 signed on behalf of the defendant firm by Shabibul Hasanai which furnishes strong circumstantial proof of all entries preceding that date because it was on the ba4s of these entries that the sum of Rs..1,08,974-9‑6 was admitted as due by the firm to the plaintiff company on that date. Even in the written statement objection was taken only with regard to the last three credit entries of May, November and December 1957 in favour of the defendant‑firm. As to the remaining entries, no objection whatever was taken. Consequently, we do not find any substance in the argument of learned counsel that in the absence of formal proof, copies of ledger account of the defendant firm Exh. 19 cannot be read in evidence.
9. The second objection against the accounts Exh. 19, concerned their evidential value. It was urged that the entries in the ledger account of the defendant‑firm per se would not be sufficient to sustain the suit against the defendant‑firm. It is true that section 34 of the Evidence Act imposes a limitation as to the evidentiary value of the entries in the account books even though regularly kept in the course of the business, but in this case the matter does not rest with the production of the copies of the entries in the account books. As pointed out already, there is a downright acknowledgment of liability by the managing partner of the defendant‑firm that on the 28th of February 1957, the firm owed a sum of Rs. 1,08,974‑6‑6 to the plaintiff‑company. We, therefore, find no substance in the objection against the admissibility or the evidential value of the accounts Exh. P. 19. In its written statement, the defendant firm’s objection was confined only to the three credit entries of May, November and December 1957 which were relied upon by the plaintiff‑company for the purpose of extending limitation under Article 85 of the Limitation Act. We will presently consider the objection against these three entries in connection with the arguments addressed as regards the applicability of Article 85 to the case.
10. The main argument in the case addressed by learned counsel for the defendant‑firm was devoted as to the applicability of Article 85 of the Limitation Act. It was urged that there was no positive proof that there were two distinct business relationships between the parties giving rise to independent demands in favour of each side against the other so as to lay a foundation for mutual, open and current account within the meaning ‘of Article 85 of the Limitation Act. The argument was that the relationship between the parties was essentially that of principal and agent and no evidence has been produced to show that apart from the agreement of agency there came into existence separate agreement between the parties under which the plaintiff‑company agreed to sell on credit cloth and cotton yarn to the defendant‑firm. In the absence of proof of any such separate agreement, there was no question of mutuality of the accounts. It was also urged that from the inception of business relationship between the parties till the acknowledgment of liability on behalf of the firm in Exh. 20 on the 28th of February 1957, the accounts throughout showed a debit balance against the defendant‑firm and at no point of time the balance shifted in its favour. This, according to the learned Counsel, was the real test for the mutuality of accounts between two parties for the purpose of Article 85 of the Limitation Act. In support of this argument, learned counsel relied upon L. Kelava Chettiar v. M. M. Ramanatha Atudallar (A I R 1956 Mad. 210.). The Tea Financing Syndicate Ltd. v. Chandra Kamal Bez Barua (A I R 1931 Cal. 359), Milkhi Ram‑Hem Raj v. Rup Chand Lachmandas (A I R 1931 Lah. 233) and a Judgment by one of us in G. Raymond v. Haji Muhammad Ishaq Haji Dost Muhammad (P L D 1959 Kar. 707).
11. Before adverting to the precedents cited by counsel for the defendant‑firm in support of the above argument, it appears necessary to determine the precise nature of business relationship between the parties. It is not disputed that to begin with the business relationship between the parties was that of principal and agent. The first entry in the ledger account Exh. 1 4 is dated 1st February 1952, according to which certain goods of the value of Rs. 1,881 were consigned to the defendant‑firm and a debit, entry was made against it. Immediately below this entry, there are two credit entries bearing the same date for Rs. 1‑9‑0 on account of incidental expenses and Rs. 47‑0‑3 on account of commission earned by the defendant‑firm. Similar entries are repeated till March in 1953. These entries clearly showed that the consignments were made to the defendant‑firm as agent for each of which a debit entry is followed by credit entries relating to the commission earned can the sale of the consignment and the incidental expenses incurred. On March 28, 1953, for toe first time a new nomenclature, namely, “To yarn sale” and “To cloth sale” is used. And significantly enough these entries are not followed by any credit entry in favour of the defendant‑firm on account of commission or incidental expenses as hitherto had been the practice. Subsequent to this date tile two nomenclature’s namely, “To cloth sale” etc. and “To Khairpur consignments” have been used in juxta‑position with each other, the latter entry being followed invariably by credit entry on account of commission and incidental expenses. Mi. Zari, learned counsel for the plaintiff campany explained, that each entry, “To cloth sale” or “To yarn sale” referred to outright sale of goods to the defendant firm on credit, for which debit was raised against it and on which it earned no commission on the other, hand each entry “To Khairpur consignment” followed by two credit entries on account of commission and incidental expenses with regard thereto, signified the transaction was between the principal and the agent. Learned counsel for the defendant‑firm, on the other hand, could not explain the two different nomenclature in the same ledger account upon any other hypothesis. Therefore, we have no hesitation to accept the explanation off red by learned counsel for the plaintiff. company that these two different nomenclatures in the same ledger accounts signified two distinct relationships between the parties, namely, that of principal and agent, on the one hand, and unpaid seller and buyer of goods on the other. Thus we are perfectly satisfied that the dealings between the parties disclose two contractual relationships giving rise to demands in favour of each side against the other. While the plaintiff‑company had its claims against the defendant‑firm on account of goods sold on credit which the latter sold in retail market on its own account, it had distinct counter‑claims against the plaintiff‑company on account of commission earned on sales of goods made on its behalf. And this dual relationship amply lays a foundation for the application of Act. 85 of the Limitation Act. It can, scarcely be controverted that the legal consequences arising out of this dual business relationship between the parties were entirely different. For in relation to the business of agency, the defendant‑firm was bailee of the goods consigned to it by the plaintiff‑company, and these goods could not be sold except under instructions from the plaintiff‑company. Further, notwithstanding the fact that the goods remained in possession of the defendant‑firm, the property in goods remained ve3ted in the plaintiff‑company and any rise or fall in the price of goods was to the advantage or, as the case may be, disadvantage of the plaintiff‑company. On the other hand, in the case of sale of the goods by the plaintiff‑company to the defendant‑firm, .the property in goods immediately passed to the defendant‑firm despite the fact that the price was to be paid after the actual sale. Any variation in the market price of the goods would in this case be of no consequence so far as the rights of the plaintiff‑company were concerned.
12. Thus, it becomes clear that the instant case does not reveal a single contractual relationship between the parties. Rather they were dealing with each other in two different capacities, viz. principal and agent in one set of transactions and seller and purchaser in the other set of transactions. Therefore, each had demands against the other. While the plaintiff‑company had demand for the price of goods sold on credit to the defendant firm the latter had demands against the plaintiff‑company on account of commission on all sales made on its behalf and also incidental expenses ‘incurred in respect of such sales. These business dealings for two distinct contractual relationships laid foundation for reciprocity of accounts between the parties.
13. Learned counsel for the appellant‑company, however, argued that “mutual, open and current account” must rest on agreement between the parties to bring together items of debits and credits relating to their mutual accounts with a view to set them off against each other. It was stressed that in the instant case there was no evidence of any agreement between the parties for maintenance of reciprocal accounts even if it be accepted that the accounts appertained to two different contractual relationships subsisting between the parties. And in the absence of any such agreement, limitation for the balance due cannot be extended by unilateral entry in the ledger account similar to the account maintained by the plaintiff‑company. Learned counsel, however, did not go so far as to contend that the law insisted upon an express agreement in the relevant behalf and therefore such agreement may be implied in the course of dealings between the parties over a long period of time, and this is precisely the case before us. It is not controverted that the defendant‑firm never objected to the maintenance by the plaintiff‑company of a single ledger account in respect of the agency’s business and also in, respect of the sale of goods to the defendant‑firm, and then it is not denied that the managing partner of the firm (Maulana Shabihul Hasanain) acknowledged the sum of Rs. 1,08,974‑9‑6 as due on 28th February 1957, on the basis of the combined accounts maintained by the plaintiff‑company. This, in our view, consti tuted a tacit acceptance by the defendant‑firm of the accounts maintained by the plaintiff‑company. Else the managing partner would not have signed the acknowledgment.
14. It was next argued by the learned counsel for the defendant‑firm that the essence of mutual, open and current account is the shifting balance in favour of both the parties. It was pointed out that to the instant case the balance never shifted to favour of the defendant‑firm and the credit entries in favour of she firm related to trivial sums earned by the defendant‑firm on account of agency business and the expenses incurred with regard hereto. The remaining credit entries, according to., the learned counsel, consisted of payments in partial discharge of the firm’s indebtedness to the plaintiff-company. It was observed in Kalipada Banerjee v. Sree Bank Ltd. (A I R 1960 Cal. 285) a case relied by the appellant’s learned counsel that the main feature of a mutual, open and current account is that the transactions must be both on the debit and credit sides creating independent obligations. No dogmatic test can be uniformly or invariably applied in such cases, and the real test is mutual accountability between the parties arising on reciprocity of demands. It was also observed in this case that while the balance may be a shifting balance even the absence of a shifting balance is not conclusive on the question. In the opinion of the learned Judges, the essence of mutual, open and current account is that there must be independent transactions giving rise to cross demands between the parties which can be duly set off against each other. Similarly in L. Kesava Chettiar v. M. M. Ramanatha Mudaliar (A I R 1959 Mad. 470) it was observed a shifting balance may, no doubt, be a test of mutuality of accounts but its absence cannot be taken to be conclusive proof against mutuality. The real point to be noticed in such cases is not whether balances E actually shifted but whether the nature of transactions was such that it was capable of giving rise to shifting balances. It is pertinent to point out that in the instant case both in the written statement filed on behalf of the firm and also in the statement of Maulana Shabihul Hasanain a counter claim of over a lac of rupees was made by the firm on account of commission earned by it in the course of agency business on behalf of the plaintiff company. This clearly establishes that having regard to the mutual relationship between the parties it was not beyond realm of possibility, than, at a given time the balance of account shifted in favour of the firm. Incidentally it may also be pointed out that the Madras case was a decision in appeal taken in L. Kesava Chettlar v. M. M. Ramanatha Mudallar which was relied by the appellant’s counsel in support of his argument that the nature of the account in the instant case was not mutual, open and current. In appeal the Judgment of the learned single Judge was reversed and, therefore, the 1956 Madras case relied upon by the appellant’s counsel is of no avail to him. Even the other precedents relied upon by him proceeded on their own peculiar facts and it was found in those cases that the relationship between the parties was more or less that of a debtor and creditor, and there was no dual relationship.
15. Even Milkhl Ram‑Hem Raj v. Rup Chand‑Lachmandas upon which defendant‑firms counsel placed strong reliance is distinguishable on facts. In that case the account between the parties commenced on 1st June 1918 with a sum in cash borrowed by the defendants who were dealers in grain and other articles. Money was advanced to the defendants even on subsequent occasions. The defendants used to send their goods to the plaintiffs for sale and the latter after deducting the commission and other charges, appropriated the balance of price in repayment of money advanced to the defendants from time to time. On a suit brought by the plaintiff s for the recovery of balance due on the basis of the account between the parties, the question debated in the case was, whether the account between them was mutual, open and current under Article 35 of the Limitation Act? It was held that Article 85 did not of ply to the case because the cash transactions between the parties were contracted primarily on the basis of relationship between a debtor and a creditor and the defendants sent their goods from time to time for sale to the plaintiff in partial discharge of their monetary debt after deduction of the commission of agency. Thus, it is clear that in the precedent case the plaintiffs were essentially creditors. In the first instance they advanced money to the defendants from time to time: secondly they also acted as agents for the defendants and therefore charged them with commission on all sales made on their behalf. The sale proceeds of goods sent by the defendants in that case, were appropriated to satisfy the monetary claims both on account, of the loans advanced and also on account of the commission earned by the plaintiff. In the instant case, no cash was advanced by the plaintiff‑company and then unlike the precedent case, it is the defendant‑firm which has counter‑claim on account of commission on all sales made on behalf of the plaintiff‑company. Thus this precedent is also distinguishable on facts.
16. As a result of the above discussion, we have no hesitation to conclude that the account between the parties was mutual open and current and the suit would be governed by Article 85 of the Limitation Act according to which the limitation for a suit on such account is three years from the close of the years in which the last item admitted or proved is entered in the account.
17. Lastly, it was argued by learned counsel for the appellant that even if the account between the parties were accepted to be mutual, open and current, it was finally adjusted on 28th February 1957, when Maulana Shabihul Hasanain acknowledged in writing that the sum of Rs. 1,08,974‑9‑6 was due, to the plaintiff‑company: With this acknowledgment, according to the learned counsel, the accounts were closed once for all and the subsequent three credit entries in favour of the defendant‑firm dated 30th May 1957, 28th November 1957, and 1st December 1957, did not extend the limitation in favour of the plaintiff‑company, particularly when the correctness of these entries was disputed in the written statement and also in the statement, of Maulana Shabihul Hasanain. To appreciate the efficacy of the argument, it is necessary to advert to certain facts about which there appears to be no dispute between the parties. It appears that Maulana Shabihul Hasanain held shares of the plaintiff‑company of the value of Rs. 50,000.00. Sometimes in 1957, he was involved in a criminal case, though the nature of that case is not quite clear. The fact, however, remains that he had to make some payments to discharge his pressing liabilities. Accordingly; Maulana Shabihul Hasanain entrusted his share scrips to Mr. Jarar Husain, the then Managing Director of the plaintiff‑company for sale in the share‑market. This was apparently done to enable Maulana Shabihul Hasaaain to ‘meet his pressing financial liabilities. It is not disputed that Mr. Jarar Husain arranged for the sale of the share scrips in the share market through different brokers and out of the sale proceeds Rs. 3,000 odd were paid in cash to Maulana Sbabihul Hasanain and the balance was appro priated towards the debit account of the defendants‑firm with the plaintiff‑company. It is not disputed that the last three credit entries of May, November and December, 1957, in favour of the defendant‑firm are based on the appropriation of the sale proceeds of the share scrips belonging to Maulana Shabihul Hasanain. It is not the case of the defendant‑firm that these entries were fictitious manipulated to extend the limitation of the suit. As rightly pointed out by the learned trial judge that it would be ridiculous .to suggest that the plaintiff‑company would raise the debit against itself by these entries to the tune of more than Rs. 45,1:00,00. 1f we have understood the learned counsel for the appellant a right even he did not challenge the genuineness of these entries. His contention merely was that these entries were unauthorised and, therefore did not have the effect of extending the limitation for the purpose of the suit. It was, however, not controverted that it was because of these appropriations that the balance of Rs. 1,08,974‑9‑6 was reduced to Rs. 73,692‑12‑6 for the recovery of which the plaintiff company brought the suit.
18. In the light of the above facts, the question that falls for determination is whether these entries could be deemed to be in continuation of the mutual, open and current account between the parties or it had closed with the acknowledgment of balance by Maulana Shabihul Hasanain on 28th February 1957? An answer to the above question would depend, upon the further question whether Exh. 20 was merely in the nature of acknowledg ment of liability or the accounts were actually settled between the parties so that they would have no more business dealings between them. In this behalf it is significant to point out that the acknowledgment Exh. P. 20 was not made in the Book of Account but was recited on separate sheet so as not to form integral part of the accounts. Therefore, this acknowledgment in our opinion was an extraneous transaction and can in no wise be treated as account stated within the meaning of Article 64 of the Limitation Act. Then there is not a scintilla of evidence to show that the accounts weep the parties were actually gone into, before Exh. 20 was signed by Maulana Shabihul Hasanain. To all appearances the accounts between the parties continued till the last credit entry on 1st December 1957. The mere fact that there was no business dialing between the parties after the acknowledgment by Maulana Shabihul Hasanain as explained by the plaintiff’s Managing Director in his evidence, was more due to the fact that the company would not risk entering into further transactions with the defendant firm unless the debit balance was first paid off. Accordingly there was no settlement of accounts or actual closure of business relationship between the parties, with the acknowledgment of liability on 28th February 1957, vide Exh. 20. On the above view of the matter, therefore have no reason to doubt the genuineness of the three disputed credit entries of May, November and December, 1957, and also to find that they were made in the regular course of business as part of the mutual, open and current account between the parties. The last credit entry for Rs. 649‑3 was made on 1st December 1957. This makes the suit instituted on 28th November 1960, well within limitation.
19. For the foregoing reasons, we find no merit in the appeal which is hereby dismissed with costs. The conclusion was announced by us on the 28th of September 1967.
A. H . Appeal dismissed.