2018 (12) TMI 1970 - HC - Indian Laws

Recovery of outstanding dues alongwith interest - demand of interest after 120 days - Order XXXVII Rule 2 of the Code of Civil Procedure 1908 - HELD THAT - It is not disputed even in the Affidavit in Reply to the Summons for Judgment that the parties did have, and indeed continue to have, business dealings. The 1st Defendant is a partnership firm that does business in offset printing. Defendants Nos. 2 and 3 are partners of the 1st Defendant. The Plaintif periodically supplied diferent types of papers, cards and other material to the 1st Defendant. The business and commercial relationship was of considerable longevity and continued for over two decades. The 1st Defendant purchased art paper, bond paper, card paper and so on from the Plaintif. Some of these requests were oral or telephonic but in this case that is not an issue that would arise because the Defendants do not dispute the existence of this business relationship or the supplies made to the 1st Defendant - Payments from the 1st Defendant were not on a back-to-back basis with the invoices. From September 2016 to February 2017, the Plaintif s lawyers demanded payment from the Defendants. The Plaintif received about Rs.9 lakhs in that period (the correspondence inadvertently mentioned a slightly lower figure of Rs.7.5 lakhs but that furnishes no defence). The aggregate amount, according to the Plaintif, due to it on 3rd February 2017 was Rs.1,78,08,676/-. The Plaintif sent the Defendants a legal notice demanding payment and, in default, threatened recovery proceedings. The Writ of Summons having been served, the Defendants entered appearance. The Plaintif then filed present Summons for Judgment to which there is an Affidavit in Reply and an Affidavit in Rejoinder. The Affidavit in Reply says very many things, non of them persuasive. The oral submissions have been advisedly more subtle, and the argument before me today is that while the business relationship is not in dispute the Defendants do dispute that all 140 invoices are unpaid - What the Defendants are unable to show is that any payments were made in respect of any particular invoice. The law in this regard is well settled. If a party makes payment to his creditor against a specified bill and that payment is accepted it can only be applied towards satisfaction of the claim under that bill. If no particular invoice is specified, the creditor is entitled to apply the payment to the earliest unpaid bill. This hardly admits of any dispute, especially in the commercial division of a High Court in the commercial capital of the country and I do not propose to spend any more time in addressing this. The Plaintiff has claimed interest after 120 days - HELD THAT - The Defendants were entitled to at least 450 days credit and, having regard to their relationship, over 800 days credit. This is why I said the submission was fantastic. I do not believe that there is a single commercial entity in this city who (being of sound mind) would aford anybody 450 days credit let alone 800 days (over two years) credit. If no credit period is specified, a reasonable period will be taken. That may be 30 days, 60 days or, as in this case, 120 days. In no case is 450 days or 800 days a commercially reasonable period. The argument is actually against the Defendants because if the invoice does not specify a credit period, then it clearly means that the invoice is payable on presentation, and then there is no credit period whatsoever. There is no warrant in law to demand any minimum credit period absent a specific contract to the contrary. The result is that the Plaintif has possibly made a lower claim in interest by granting 120 days rather than computing interest from the date of invoice. The Defendants cannot demand that that claim be reduced even further by insisting on an interest-free credit period stretching into years on end for each invoice. As an exceptional case an order of conditional deposit today is considered for one reason only and that is because the parties have had a business relationship stretching back several decades and will give the Defendants, therefore, an opportunity to secure the Plaintif s claim as a condition precedent to being able to defend the suit. In default, and on obtaining a non-deposit certificate, the Plaintifs would be entitled to apply for an ex parte decree. The Defendants will deposit the amount of Rs.2,64,19,454.56 with the Prothonotary and Senior Master on or before 18th January 2019. Upon that deposit being made, the Defendants will be entitled to leave to defend and will then file their Written Statements on or before 22nd February 2019 - The suit will be listed for framing issues thereafter on 1st March 2019.

Summary

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.