P L D 1980 Supreme Court 286 (PLP)

`5) Are the contents of para. 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. 15367-6-0 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? The learned trial Judge found that the Appellant was not an agriculturist, that the suit was within limitation on the application of Article 85 of the Limitation Act. the single consolidated account was kept with the mutual consent of the parties in respect of the transaction arising out of dual relationship between the parties and that the three disputed credit entries of May, November, and December, 1957, were genuine. On the 4th and 10th Issues, the learned trial Judge found that subsequent to 1956. the respondent merely declined to make further supplies of goods to the Appellant until it cleared its rather heavy debit balance: It did not terminate the agency or otherwise ceased to carry on its business. On Issue No. I1 he found that the contract of agency was reduced into writing though it had been mislaid. The respondent was also allowed interest at the rate of 61 per cent. on the sum found due. For the final determination on the one hand of the account due to the appellant on account of the commission earned and incidental expenses incurred since the inception of agency for which credit had to be given to the appellant and on the other hand the sum due to the respondent both as principal and as unpaid seller of goods, the learned trial Judge passed a preliminary decree for accounts and appointed a local Commissioner so go into the accounts of the parties. The appellant preferred an appeal -(First Appeal No. 113/61) in the West Pakistan High Court, Karachi Bench, against the judgment of the learned Sub-Judge which was-dismissed with costs on 28-9 1967 by a learned Division Bench of the High Court. According to the learned Judges, the record revealed that instead of a single contractual relationship, the parties 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 with each having demands against the other. While the appellant had demands for the price of goods sold on credit to the respondent, the latter had demands against the Appellant on account of commission on all sales made on its behalf and also incidental expenses incurred in respect of such sales. It was held that business dealings for two distinct contractual relationships laid the foundation for reciprocity of accounts between the parties, that such agreement can be implied in the course of dealings between the parties over a long period of time. With respect to the contention that the essence of a mutual, open and current account is the shifting balance in favour of both the parties and that in the instant case the balance never shifted in favour of the appellant and the High Court held that the shifting of balance, as observed in L. Kesaya Chettiar v. M. M. Ramanatha Mudaliar ( A I R 1959 Mad. 470) was undoubtedly a test of mutuality of accounts but its absence was not a conclusive proof against mutuality. It was observed that the real point to be noticed in such cases is not whether balances actually shifted but whether the nature of transactions was such that it was capable of giving rise to shifting balance. As this condition was fulfilled in the instant case, the conclusion was reached that the account between the parties was a mutual, open and current one and the suit would be governed by Article 85 of the Limitation Act. The appeal preferred by the appellant was, accordingly, dismissed. The appellant, therefore, preferred a petition for special leave to appeal in this Court against the judgment and decree of the High Court. Leave was granted in the following terms: "The principal ground raised is that the application of Article 85 of the Limitation Act, so as to bring the suit within limitation, on the basis of a 'mutual, open * and current' account is incorrect, having regard to the facts. As the judgments of the Courts below are concurrent as to facts, leave can only be granted where a substantial question of law arises. In this case, such a question does arise, namely, whether the incidents necessary to establish a 'mutual, open and current' account have been shown to exist." Mr. Munawar Abbas in support of this .appeal submitted that in a mutual, open and current account the crucial point is that there must be an agreement between the parties regarding reciprocity of account and that in the absence of any such agreement any account maintained by one party without the knowledge and consent of the other is not binding on the affected party and the account so maintained cannot create any liability upon the said party. He further submitted that the test of mutuality is that the dealings between the parties should be such that the balance is sometimes in favour of one party and sometimes in favour of the other. An account which consists of entries of payment made by one party in deduction of a debt to another and the payment made by the latter on behalf of the former is not a mutual account. An account was mutual, open and current account only when each party has a right of action against the other` According to the appellant, these conditions of law which go to establish an account have not been fulfilled in this case. It is also -submitted that the respondent relied upon some unauthorised credit entries made without the consent and knowledge of the appellant just to take advantage under Article 85 of the Limitation Act because there was no transaction after 1956 between the parties and the suit filed on 1-12-1960 was, therefore, time-barred. It is urged that the Courts below erred in law to consider the crux of a mutual, open and current account and have illegally held that an account as such has been maintained by the respondents and to class the suit within limitation. The learned counsel emphasized that mutual accounts are such as consist of reciprocity of dealings between the parties on the basis of which the balance of one account could be set off against the balance of the account of the other and does not embrace dealings having items of one side only though made up of debits and credits. It is submitted that in order that the accounts might be mutual there must to transactions on each side creating independent .obligation on the other and not merely transcations which created obligations on the one side. There must be mutual dealings in the sense that both parties come -under mutual liability to each other. This Court had an opportunity to examine the provision of Article 85 of the First Schedule of the Limitation Act in Robert Colton Associates Ltd., Khanewal v. Khan Karam Hussain Khan and 2 others (PLD1972SC109), and the following observations made in that case may be quoted here with advantage: "This Article (Article 85 of the Ist Schedule of the Limitation Act). which is quite general, applies to a mutual account between any two persons. An open account is one where there are current dealings between the parties, and the account is kept open, because of some contemplated future dealings. It would be so if the account is continuous or current, uninterruputed or unclosed by settlement or other wise and consists of a- series of transactions. The limitation does not run in case of such account against any item where the account continues to be open and current, but as soon as an account ceases to be open, it becomes an account stated and immediately payable. Even where a balance is found to have been struck, the account can still be treated as open and current where it does not appear to have been finally closed and advances and receipts are to be found thereafter. The judicial test with regard to mutual accounts has been laid down by stating that there must be mutual dealings between the parties in the sense that both come under a liability to each other. One has to look at each particular case and see if it is realty a case of debtor and credit only or a case of mutual obligations, which will in the ordinary way result in enforceable liabilities on each side. An ordinary debtor and credit account in which defendant (the. debtor) never had any demand against plaintiff (the creditor) to whom he was indebted, is not within Article 85." It further observed:- "We are prone to think that all that is necessary, .to. be proved is that there should be an open current account between two persons consisting of mutual items of debit and credit in, the course of dealings between them, the credits to be made as such and not in discharge of the one-sided debt. The credit and debit transactions need not necessarily give rise to independent obligations, nor need the balance shift from one side to the other at any stage of the dealings. So long as they is a possibility of the shifting of the balance from one side to the other, mutuality of transactions is maintained. There need not be a mutuality of balance in the sense that balances should also shift from one side to the other from time to time." So far as the present case is concerned, it is not disputed that the business relationship between the parties was that of principal and agent. The first entry in the ledger account (Exh. 19) was dated Ist February, 1952, according to which certain goods of the value of Rs. 1,881, were consigned to the appellant and a debit entry was made against it. Immediately below this entry there were two credit entries bearing the same date for Rs. 1 J9, on account of incidental expenses and Rs. 47-3-0, on account of commission earned by the appellant. Similar entries were repeated until March, 1953. These entries clearly showed that the consignments were made to the appellant as agent for each of which a debit entry was followed by credit entries relating to the commission earned on the sale of the consignment and the incidental expenses incurred. On March, 28, 1953, for the first time a new nomenclature, namely. "To yarn sale" and "to cloth sale" is used. And significantly enough these entries were not followed by any credit entry in favour of the appellant on account of commission or coincidental expenses as hitherto had been the practice. Subsequent to this date, the two nomenclatures, namely, "to cloth sale" etc., and "To Kbairpur consignments" have been used in juxtaposition with each other, the latter entry being followed invariably by credit entry on account of commission and incidental exptnsa. Each .entry "to cloth sale" "or to yarn sale referred to outright sale of goods to the appellant 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. The appellant could not explain the two different nomenclatures in the same ledger account upon any other hypothesis. The evidence on record and particularly Exh. 19 establishes that the respondent and the appellant were dealing with each other in two different capacities viz. principal and agent and seller and purchaser with each having demands against the other. While the respondent had demands for the price of goods sold on credit, to the appellant, the appellant had demands against the respondent on account of commission on all sales made on its behalf and also incidental expenses incurred in respect of such sales. These dealings for two distinct contractual relationships created reciprocity of accounts between the Parties and showed that a mutual, current and open account was maintained. It is also mentioned that Maulana Shabihul Hasnain, managing partner of the appellant-firm was also Director of the respondent-company at the material time and as such Exh. i9-the accounts maintained by the respondent company had its tacit acceptance. The said Maulana Shabihul Husnain further admitted and acknowledged in his letter dated 28-2-1967~Exh. 201 that the sum of Rs. 1,09; 974-9-6 was due to the respondent .from the appellant. firm. This admission on behalf of the appellant not only proves that the mutual, open and current account was maintained as shown in Exh. 19 but also that the same was correct. 'The Managing partner of the appellant who was also a director of the respondent and as such was fully aware of the said accounts had access to,the same and was also responsible for maintaining correct account of the respondent. The High Court, therefore,, rightly observed that the acknowledgement by Maulana Husnain of the sum of Rs. 1,08,974-9-6 as due on 28-2-1957 on the basis of the combined accounts maintained by the respondent constituted a tacit acceptance by the appellant of the accounts maintained by the respondent. It is an admitted position that Maulana Shabihul Husnain held shares in tile respondent-Company of the value of Rs. 50,000: Sometime in 1957, he was involved in a criminal case. He had to make some payments to discharge his pressing liabilities. Accordingly, he entrusted his sharescripts to Mr. Jarar Husnain, the then Managing Director of the respondent for sale in the share-market. It is not disputed that Mr. Jarar Husnain arranged for the sale of the share-scripts in the share-market through different brokers and out of the sale proceeds some Rs. 3,000, odd were paid in cash to Maulana Husnain and the balance was appropriated towards the debit account of the appellant with the respondent. It is also not disputed that the last three credit entries of May, November, and December, 1957, in favour of the appellant were based on the appropriation of the sale proceeds of the share-scripts belonging to Maulana Shabihul Husnain. It is not the case of the appellant-firm that these entries were fictitious or manipulated to extend the limitation of the suit. As pointed out by the trial Judge it would be ridiculous to suggest that the respondent would have raised that debit against itself by these entries to the tune of more than Rs. 45,

000. We agree with the reasoning of the learned trial Judge that the genuineness of these three entries in 19.57, were not disputed by the appellant and its 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 the appropriations that the balance of Rs. 1,08,974-9-6 was reduced to; 73,692-12-6 for the recovery of which the respondent brought the suit. The mutual, open and current account was never settled between the parties until the security deposit of the appellant was deducted by the respondent in its claim in the plaint filed in the suit. If the account was settled in February, 1957, the appellant would have immediately demanded the refund or adjustment of security deposit, which was never done. Applying the test laid down to establish the existence of mutual, open and current account by this Court in Robert Cotton Associates Ltd., Khanewal v. Khan Karam Hussain Khan and 2 others we are satisfied that there was indeed a mutual, open and current account and, as such, the limitation reckoned from the last entry dated 30th December, 1957, makes the respondent's suit within time. This appeal must, accordingly, fail and is dismissed. s. A. H. Appeal dismissed.