2018 (12) TMI 1970 - HC - Indian Laws

Plaintiff Wins Summary Suit for Recovery of Outstanding Dues

The plaintiff filed a Summary Suit under Order XXXVII Rule 2 of CPC to recover outstanding dues of Rs.2,64,19,454.56 with interest. The defendants ... Summary suit - Admission by balance confirmation - Conditional leave on deposit - Application of payments where no appropriation made - Running account - Reasonable credit period for computation of interest - No plausible or probable defence threshold in summary proceedingsAdmission by balance confirmation - The balance confirmation dated 31st August 2016 and the subsequent unqualified communication to pay by instalments amount to an admission of liability. - HELD THAT: - The Court found that the document of 31st August 2016, which confirmed a balance, contains no qualifying language and the Defendants did not satisfactorily explain or repudiate its effect. The Defendants' later letter offering payment in instalments was an unqualified commitment indicating acceptance of liability. Attempts to characterise the balance confirmation as a document issued merely for security or to facilitate finance were not supported by the material or the response to the demand notice and were rejected. [Paras 5, 9]The balance confirmation and the instalment commitment are admissions of liability and are of evidentiary value in the summary suit.Application of payments where no appropriation made - Payments made by the Defendants without specifying the invoices are not shown to have been appropriated to particular bills; accordingly the creditor is entitled to apply such payments to the earliest unpaid invoices. - HELD THAT: - The Court observed that while payments were made, the Defendants failed to demonstrate that any payment was applied to specific invoices. The settled commercial rule - that where no appropriation is specified the creditor may apply payments to the earliest unpaid bill - was applied. The Defendants were unable to identify the 13 allegedly unpaid invoices or their admitted values when pressed, and an asserted average invoice value did not constitute an answer. [Paras 6]The plaintiff is entitled to apply unspecified payments to the earliest unpaid invoices; the defendants have not discharged the burden of showing specific invoices were already satisfied.Running account - The transactions between the parties do not constitute a running account as a matter of commercial practice. - HELD THAT: - The Court explained that continuous business dealings do not automatically convert transactions into a running account. A running account requires demonstration of regular debits and credits with periodic balances being struck. Here, the existence of multiple invoices with some unpaid and payments made without appropriation does not establish the requisite contemporaneous debits and credits or periodic balancing. [Paras 7]The claim cannot be defeated on the basis that the dealings constituted a running account.Reasonable credit period for computation of interest - The Defendants' contention that they were entitled as of right to an unusually long credit period (450-800 days) is unreasonable and rejected; where no credit period is specified a commercially reasonable period is applied. - HELD THAT: - The Court found the submission that such long credit periods were commercially reasonable to be implausible. If an invoice does not specify a credit period, a reasonable period (which may be 30, 60 or, in this case, 120 days) will be taken; there is no legal basis to claim multi-year interest-free credit absent an express agreement. The plaintiff had, if anything, been conservative in allowing 120 days before interest was claimed. [Paras 8, 9]The plea for extended credit of 450-800 days is untenable; interest commencement is governed by a commercially reasonable period and not by asserted past forbearance.No plausible or probable defence threshold in summary proceedings - Summary suit - On the material before the Court, the Defendants have not demonstrated a plausible or probable defence sufficient to defeat summary proceedings under Order XXXVII CPC; nevertheless, conditional leave to defend was granted on deposit. - HELD THAT: - The Court stated that ordinarily it was not inclined to grant conditional leave where there is no prima facie defence of substance, referring to the standard of plausible or probable defence. However, given the long-standing business relationship, the Court exercised discretion to permit the Defendants to defend if they made a conditional deposit of the claimed amount with the Prothonotary and Senior Master by the specified date. The terms fixed the timeline for deposit, the right to file written statements on deposit, investment of the sum in accordance with office practice, and the procedure for issuance of a non-deposit certificate and consequent entitlement of the Plaintiffs to apply for an ex parte decree. [Paras 11, 12, 13, 15, 16]No plausible defence shown; conditional leave to defend granted subject to deposit of the claimed amount by the defendants within the stipulated time and compliance with the ordered procedure.Summary suit - Filing a summary suit in July 2018 based on the 31st August 2016 balance confirmation and unpaid invoices is permissible. - HELD THAT: - The Court rejected the submission that the passage of time rendered the summary suit impermissible. The suit was founded on the unpaid invoices and the balance confirmation; nothing in law precluded instituting summary proceedings in July 2018 on that basis. [Paras 10]The summary suit is maintainable notwithstanding the dates of the underlying documents.Final Conclusion: The summary suit succeeds on the material before the Court: the balance confirmation and instalment commitment constituted admissions of liability, there is no running account established, unspecified payments may be applied to the earliest unpaid invoices, and the defendants have not shown any plausible defence. The Court granted conditional leave to defend only upon deposit of the claimed amount by the date specified and prescribed the consequent procedural steps; in default the plaintiffs may obtain an ex parte decree. Issues: Recovery of outstanding dues in a Summary Suit under Order XXXVII Rule 2 of CPC, disputed invoices, interest calculation, existence of a running account, credit period dispute, defense arguments, conditional deposit order.Recovery of Outstanding Dues:The plaintiff filed a Summary Suit under Order XXXVII Rule 2 of CPC to recover Rs.2,64,19,454.56 with 18% interest per annum. The claim was based on 140 invoices detailing the amount due, interest, and outstanding dues. The business relationship between the parties involved supplying various materials by the plaintiff to the defendant over two decades. Despite some payments made by the defendants, the plaintiff claimed a substantial outstanding amount as of February 2017. The defendants' response to the legal notice included an unqualified commitment to pay in installments, indicating an admission of liability.Disputed Invoices and Running Account:The defendants disputed only 13 out of 140 invoices claimed by the plaintiff. However, they failed to provide details of the admitted value of these invoices. The court clarified that payments made without specifying a particular invoice would be applied to the earliest unpaid bill. The concept of a running account was refuted as mere non-payment of invoices and unspecified payments did not constitute a running account in commercial practice.Interest Calculation and Credit Period Dispute:The plaintiff claimed interest after 120 days, although invoices did not specify a credit period. The defendants argued for an extended credit period of 450 to 800 days based on past practices, which the court found unreasonable. The court emphasized that in the absence of a specified credit period, invoices were payable on presentation, and no minimum credit period could be demanded without a specific contract.Defense Arguments and Conditional Deposit Order:The defendants raised various defenses, including violation of accounting principles and the alleged sham nature of the balance confirmation document. The court dismissed these defenses as unsubstantiated. Despite the lack of a plausible defense, the court conditionally allowed the defendants to deposit the claimed amount to defend the suit. Failure to deposit would result in the plaintiff's entitlement to an ex parte decree. The court set specific deadlines for deposit, filing of written statements, and further proceedings in the suit.This judgment highlights the importance of clear invoicing practices, reasonable credit terms, and the significance of providing specific details in payment transactions to avoid disputes in commercial dealings.