2023 (4) TMI 1429 - HC - Indian Laws

Seeking an unconditional leave to defend the present suit filed by the plaintiff under Order XXXVII of the CPC - suit barred by time limitation or not - last on account payment was made by the defendant to the plaintiff on 27.03.2015 while the Suit has been filed on 20.09.2018 - deposit of TDS - payment of compound interest under cancellation deed - Plea of set off/adjustment. Maintainability of suit under Order XXXVII of the CPC - HELD THAT - In Ge Capital Services India 2015 (10) TMI 2868 - DELHI HIGH COURT the plaintiff therein claimed to have extended a certain sum of money to the defendant by means of a total of eight loan agreements. The plaintiff was further relying upon various documents filed with the plaint to show the amount due from the defendant as on the date of the Compromise Deed executed between the parties therein. The amount claimed by the plaintiff therein was not on the basis of such Compromise Deed. The Court found that the plaint when it refers to the amount claimed did not make any averments and refer to any specific document containing the specified liquidated amount as due and payable by the defendant. In Sunpro Integrated Communication Services Ltd. v. Capricot Technologies Pvt. Ltd. Anr. 2020 (1) TMI 1732 - DELHI HIGH COURT another learned Single Judge of this Court relying upon an earlier judgment in Bijender Chauhan @ Bijender Kumar v. Financial Eyes (India) Ltd. 2013 (7) TMI 1250 - DELHI HIGH COURT held that a suit claiming an amount against an invoice remaining unpaid in part is maintainable under Order XXXVII of the CPC. In the present case the Suit is claiming amount due under a written agreement that is the Cancellation Deed. The ledger account merely shows the amounts that have been received against the Cancellation Deed from the defendant. This would not change the claim to be one based on the ledger account especially where there is no dispute on the entries in the ledger account - the present Suit is maintainable under Order XXXVII of the CPC. Whether the suit is barred by limitation? - HELD THAT - In M/s Utility Powertech Limited 2018 (5) TMI 1834 - DELHI HIGH COURT the Court held that the deduction of TDS is not an admission of liability. The same was the ratio in Actal 2012 (10) TMI 1198 - BOMBAY HIGH COURT and in S.P. Brothers 2008 (3) TMI 754 - BOMBAY HIGH COURT . The said judgments would however have no application to the facts of the present case. Though deposit of TDS may not act as an acknowledgment of debt by the defendant it being a payment made by the defendant on account of the plaintiff and on account of a debt would lead to a fresh period of limitation being computed from the date when the deposit of TDS was made. The Suit therefore cannot be said to be barred by limitation. Whether compound interest is payable under the cancellation deed? - HELD THAT - In The Godhra Electricity Co. Ltd. Anr. 1974 (9) TMI 116 - SUPREME COURT relied upon by the learned senior counsel for the plaintiff the Supreme Court held that in the process of interpretation of the terms of a Contract the Court can get an assistance from the conduct of the parties. However the said judgment would not have an application at the present stage inasmuch as the parties are yet to prove their respective conduct which can be done only when the defendant is granted leave to defend the present suit. The plaintiff having found that certain portion of his claim is beyond the scope of Order XXXVII of the CPC can give up such claim. The same shall of course be with prejudice to the rights of the plaintiff - the defendant is otherwise also entitled to an unconditional leave to defend the Suit. Plea of set off/adjustment - HELD THAT - The learned senior counsel for the plaintiff prima facie is correct in his assertion that it is the right of the plaintiff in terms of Clause 3 of the Cancellation Deed to adjust the amounts owed by the defendant under the Cancellation Deed against any amount that the plaintiff may owe to the defendant in other accounts for the purposes of consideration of the present application the defendant by the conduct of the plaintiff has been able to raise a substantial defence that such amounts may have been adjusted by the plaintiff but are now claimed from the defendant in the present suit - The defendant has been able to show that it has a substantial defence and has raised a triable issue entitling it to an unconditional leave to defend the present suit. Tte present application is allowed and the defendant is granted an unconditional leave to defend the present suit.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter are:

(a) Whether the suit filed under Order XXXVII of the Code of Civil Procedure, 1908 (CPC) is maintainable, given that the claim is based on a ledger account and a Deed of Cancellation;

(b) Whether the suit is barred by limitation, considering the last payment date and the deposit of Tax Deducted at Source (TDS) by the defendant;

(c) Whether the defendant is liable to pay interest at 24% per annum on a simple or compounded basis under the Deed of Cancellation;

(d) Whether the defendant is entitled to unconditional leave to defend the suit under Order XXXVII Rule 3(5) CPC, based on the defence raised;

(e) Whether the defendant's plea of set-off or adjustment of amounts payable under other operational accounts between the parties, as per Clause 3 of the Deed of Cancellation, is a substantial defence entitling the defendant to unconditional leave to defend.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Maintainability of the Suit under Order XXXVII CPC

The defendant contended that the suit is based on ledger accounts and thus not maintainable under Order XXXVII, which is intended for suits on a liquidated sum due under a written contract. The Court examined the Deed of Cancellation dated 20.04.2013, which acknowledged the defendant's liability to refund Rs. 12 Crores with interest at 24% per annum, payable by 31.12.2013. The ledger account merely reflected payments made against this liability and was not the basis of the claim.

The Court relied on precedents distinguishing claims based on ledger accounts from those founded on a written contract. It held that since the suit was founded on the Deed of Cancellation, a written contract specifying a liquidated sum, it was maintainable under Order XXXVII CPC. The ledger account was only evidence of payments made and did not alter the nature of the claim.

(b) Limitation Bar

The defendant argued that the suit was barred by limitation since the last payment was made on 27.03.2015 and the suit was filed on 20.09.2018, beyond the three-year limitation period.

The plaintiff contended that the deposit of TDS by the defendant on 30.09.2015 and thereafter constituted a payment on account of debt, thereby restarting the limitation period under Section 19 of the Limitation Act, 1963.

The Court analyzed Section 19 of the Limitation Act, which provides that a payment on account of debt or interest made before the expiry of the prescribed period restarts the limitation period. The Court further examined Sections 194A and 198 of the Income Tax Act, 1961, which require deduction and deposit of TDS on interest payments and deem such sums to be income received by the payee. The Supreme Court's ruling in Baranagore Jute Factory Plc. Mazdoor Sangh was cited, recognizing that deposit of TDS partakes the character of compensation payable.

The Court held that the deposit of TDS by the defendant was a payment on account of debt and, coupled with issuance of TDS certificates, satisfied the requirement of acknowledgment in writing under Section 19 of the Limitation Act. Hence, the limitation period was extended, and the suit was not barred by limitation.

The Court distinguished judgments where TDS deposit was held not to be acknowledgment of liability, clarifying that while TDS deposit alone may not admit liability, it constitutes payment on account of debt for limitation purposes.

(c) Interest Payable: Simple or CompoundRs.

The plaintiff claimed interest at 24% per annum compounded annually, while the defendant contended that the Deed of Cancellation provided only for simple interest.

The Court noted that Clause 2 of the Deed of Cancellation specified interest at 24% p.a. but did not mention compounding. The Supreme Court's decision in State of Haryana v. S.L. Arora & Co. was cited, which held that compound interest can be awarded only if specifically contracted or authorized by statute; otherwise, interest is presumed to be simple interest.

The Court rejected the plaintiff's submission that TDS deposit implied compounding, observing that the deposit of TDS is not an acknowledgment of debt or a basis to infer compound interest. The Court further held that non-denial of compound interest in a legal notice does not amount to admission. The plaintiff's reliance on account statements and conduct of parties was held premature at this stage, as such evidence requires trial.

However, the Court accepted the plaintiff's alternative submission that it could confine its claim to simple interest, which is within the scope of Order XXXVII CPC.

(d) Leave to Defend under Order XXXVII Rule 3(5) CPC

The defendant sought unconditional leave to defend the suit, raising substantial defences including limitation, adjustment/set-off of amounts, and dispute over interest calculation.

The Court reiterated the principles from the Supreme Court in B.L. Kashyap & Sons Ltd. v. JMS Steels & Power Corporation, emphasizing that leave to defend is the ordinary rule and refusal is an exception. A defendant is entitled to unconditional leave if it shows a substantial defence or raises triable issues indicating a bona fide defence.

The Court found that the defendant had raised triable issues on limitation, interest calculation, and adjustment of accounts that warranted unconditional leave to defend. The defendant's defence was neither frivolous nor vexatious but raised genuine disputes requiring trial.

(e) Plea of Set-Off / Adjustment

The defendant claimed that amounts payable under the Deed of Cancellation had been adjusted against sums owed by the plaintiff to the defendant under other operational accounts between the parties, as per Clause 3 of the Deed. The defendant relied on affidavits filed in arbitration proceedings and statements showing payments made by the plaintiff to the defendant after the Deed of Cancellation.

The plaintiff countered that adjustment was a right, not an obligation, and that no such adjustment had been made. The plaintiff further asserted that the defendant's claims in arbitration were for damages, not for set-off against the Cancellation Deed debt.

The Court observed that the defendant, by pointing to the plaintiff's conduct and evidence from arbitration affidavits, had raised a substantial defence and triable issue. The Court noted the plaintiff's delay in filing suit and failure to explain the delay or the nature of adjustments, which strengthened the defendant's case for leave to defend.

The Court held that the defendant's plea of adjustment was a plausible defence requiring trial and thus entitled the defendant to unconditional leave to defend the suit.

3. SIGNIFICANT HOLDINGS

"Generally, the prayer for leave to defend is to be denied in such cases where the defendant has practically no defence and is unable to give out even a semblance of triable issues before the court. If the defendant satisfies the Court that he has substantial defence i.e., a defence which is likely to succeed, he is entitled to unconditional leave to defend. Even in the case of raising of triable issues, with the defendant indicating his having a fair or reasonable defence, he is ordinarily entitled to unconditional leave to defend."

"The present suit is maintainable under Order XXXVII of the CPC as it is founded on the Deed of Cancellation, a written contract acknowledging a liquidated sum payable by the defendant. The ledger account is only a record of payments made and does not alter the nature of the claim."

"The deposit of TDS by the defendant on 30.09.2015 constitutes a payment on account of debt under Section 19 of the Limitation Act, 1963, thereby extending the period of limitation. The issuance of TDS certificates satisfies the requirement of acknowledgment in writing."

"Interest is presumed to be simple interest unless there is a specific contract or statutory authority for compounding. The Deed of Cancellation does not provide for compound interest and the plaintiff's claim for compound interest is not prima facie sustainable."

"The defendant has raised triable issues regarding limitation, interest calculation, and adjustment of accounts. These constitute substantial defences entitling the defendant to unconditional leave to defend the suit."

"Clause 3 of the Deed of Cancellation gave the plaintiff the right to adjust amounts due from the defendant against other accounts. The defendant's plea that such adjustments were made and are now disputed by the plaintiff raises a triable issue."

Final determinations:

- The suit is maintainable under Order XXXVII CPC.

- The suit is not barred by limitation due to the deposit of TDS.

- Interest payable under the Deed of Cancellation is simple interest at 24% per annum; claim for compound interest is not prima facie sustainable.

- The defendant is entitled to unconditional leave to defend the suit on substantial defences raised.