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TMI Blog1972 (10) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... g to perform the contract and that, consequently, the defendant was not entitled to forfeit the amount. The learned Judge also observed that, even assuming that the plaintiff had committed breach of the contract, the plaintiff was entitled to a refund of the deposit on the principles laid down by their Lordships of the Privy Council in Murlidhar Chatterji v. International Film Co. Ltd. 3. The defendant filed an appeal which was heard by the learned Additional which was heard by the learned Additional Judge. Differing from the trial Judge, the learned appellate Judge held that the plaintiff had committed breach of the contract, but that, nevertheless, the defendant was not entitled to forfeit the amount of ₹ 5,000/- in view of the principles laid down by Ramaprasad Rao, J., in Meenakshinada Deikshtar v. Murugesa Nadar AIR 1970 Mad 391 . He therefore gave leave to the defendant to aver and prove damages. Aggrieved by the said order of remand, the plaintiff has preferred this appeal. 4. The first point raised by Thiru Vedantham Srinivasan, the learned counsel for the appellant, is that there was no concluded contract at all between the parties and that only negotiations we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our rights to reject any tender offer without assigning reasons. 7. To this the plaintiff sent a letter, Ex. B-5, dated 10-5-1967, requesting time till the 17th for confirmation, because the senior partner was not in station. 8. On 11th May, 1967, however, the plaintiff sent a telegram followed by a letter (Ex. B-6) as follows: With reference to you letter as above, we wish to inform you that we are hereby accepting your rates in both zinc dross and ash at ₹ 2,715/- and ₹ 1,225/- per metric tonne respectively. So we request you to kindly send your confirmation order at the earliest. 9. Ex. B-7 dated 13th May, 1967 was practically a reminder reiterating the same and asking for confirmation order at the earliest. 10. Ex. B-9 dated 26-5-1967 was another such reminder. 11. The defendant sent a letter, Ex. B-10, dated 31-5-1967 (27/31-5-1967). It is important. The defendant states that the rates offered by the plaintiff for the period 1-4-1967 to 31-3-1968 for zinc dross at ₹ 2,715/- and for zinc ash at ₹ 1,225/- were accepted. The defendant further stated: This acceptance is subject to all the conditions laid down in the instructions to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rate of ₹ 2,715/- per m. tonne as we are the highest tenderer for zinc dross quoted in our quotation. 14. The defendant sent a letter dated 30-6-1967 stating that the contract was finalised by the letter dated 27/31-5-1967 (Ex. B-10) and that it was neither possible to award the contract completely to the plaintiff nor was it possible to entrust the contract for the zinc dross alone. The defendant pointed out that the amount of ₹ 5,000/- was liable to be forfeited under clause 9. The defendant therefore asked the plaintiff to show cause why the amount should not be forfeited. The plaintiff sent a reply Ex. B-13, and the defendant replied by Ex. B-14. 15. The learned trial Judge proceeded on the footing the under Ex. B-3 when the defendant asked the plaintiff whether he was willing to offer ₹ 2,715/- for zinc dross and ₹ 1,225/- for zinc ash, the defendant did not give any indication to the plaintiff that the letter would have to share the contract with another party, that it virtually meant that, if the plaintiff accepted those rates, the entire contract would be given to it, and that, since the plaintiff was willing to perform the entire contract a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ector of the defendant could split up the tender in the sense that he need accept only either the rate offered for zinc dross or the rate of offered for zinc ash and was not bound to accept both. The first question that arises on this submission is what is the meaning of the word 'tender'; whether, in particular, when the plaintiff offered to lift zinc dross at ₹ 2,705/- and zinc ash at ₹ 360/-, it could be considered as really two tenders, one for zinc dross and another for zinc ash. Clause 2 of Ex. B-1 says that tenders should be superscribed as 'Tender for purchase of zinc dross and zinc ash.' Since both zinc dross and zinc ash are clubbed together, it seems reasonable to hold that there is only a single tender, though it relates to two articles, namely, zinc dross and zinc ash. Now the relevant portion of clause 4 consists of two parts, (i) 'The Managing Director reserves the right of rejecting all or any part of the tenders without giving any reason for the same;' and (ii) 'split up the tender as he may deem fit.' Since there are two separate clause, they are intended to have different meanings. Under the first clause the Managing Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed or because the law does not recognize a contract to enter into a contract. In the latter case there is a binding contract and the reference to the mere formal document may be ignored. In this case Ex. B-1 required the tender to quote the rates and make a deposit, and, under clause 9, once the defendant accepted the tender, there would be a concluded contract, because all the material terms would become settled by that stage itself. Clause 11 is therefore a mere formality. The contention of Thiru Vendantham Srinivasan is clearly untenable. 21. The conclusion, that with the acceptance of the tender under Ex. B-10 dated 27/31-5-1967 a contract resulted, carries with it the consequence that the plaintiff committed breach of the contract, because it was not prepared to share the business with another. The defendant would, no doubt, be entitled to recover damages which it sustained by reason of the plaintiff's default, but even so, it must return the sum of ₹ 5,000/- which it got from the plaintiff. This is because of Section 64 of the Contract Act, which enacts: When a person at whose option a contract is voidable rescinds it, the other party thereto need not perfo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wrongful refusal to carry out the contract, and should set forth that these are claimed by way of set off against the plaintiff's claim to recover ₹ 4,000/- which has been allowed upon the footing that he wrongfully repudiated the contract and that the defendants lawfully put an end to the contract by their letter of January 21, 1937. Their Lordships think that this appeal should be allowed; that the decrees of the High Court dated January 10 and July 14, 1939, should be set aside; that it should be declared that the plaintiff is entitled to recover from the defendants ₹ 4,000/- paid under the contract of May 8, 1936, subject to the right of the defendants to set off the amount due to them as damages for the plaintiff's repudiation and breaches of the said contract. The defendant would, however, contend that even without proving any damages sustained by it, it would be entitled to forfeit the sum of ₹ 5,000/- under Clause 9 of the tender notice. The contention is based on the footing that under Clause 7 the sum of ₹ 5,000/- is earnest money for the due performance of the contract and that the moment the plaintiff committed breach, the defendan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rivy Council in and pointed out that the defendant was bound to return the deposit of ₹ 5,000/-, even if the plaintiff had committed breach, and that the defendant should bring its own action to recover damages from the plaintiff. The learned counsel points out that, even after all that, the defendant in its written statement adopted the wrong procedure of forfeiting the sum of ₹ 5,000/- as earnest deposit and did not even allege that it had suffered any damage. 24. He further submits that on 6-7-1970 when the learned appellate Judge permitted the defendant to file additional pleadings raising the question of damages, the right of the defendant to recover damages was time-barred Article 55 of the Limitation Act, 1963 (Act 36 of 1963). The Article prescribes a period of three years for a suit for compensation for breach of any contract, express or implied, not therein specially provided for, and the period of limitation is three years 'when the contract is broken or (where there are successive breaches) when the breach in respect of which the suit is instituted occurs, or (where breach is continuing) when it ceases.' The learned counsel contends that on the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the legal right of set-off, the defendant herein had an equitable right of set-off to the extent of ₹ 5,000/-, that they could plead it virtually as a defence in O.S. No. 3216 of 1968, that for the purpose of limitation the claim of equitable set off should be considered as having been made on the date of the suit, O.S. No. 3216 of 1968, namely, 21-6-1968, and that on 21-6-1968 the claim of equitable set off was in time. 26. The short question for decision therefore is whether in law the defendant had such an equitable right of set-off to the extent of ₹ 5,000/- and whether for the purpose of limitation it was enough if it was not time-barred on 21-6-1968, the date of the plaintiff's suit. There are a number of cases which have recognized such a right of equitable set off to the extent of the plaintiff's claim and they have also pointed out that such a right could be urged so long as it was not time-barred on the date of the plaintiff's suit (21-6-1968 in this case). The two conditions for allowing a claim of equitable set off are that it must arise out of the same transaction which is the basis of the plaintiff's claim and that it would be inequitabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sea damage to some goods shipped by Messrs. Palmer and Company, without properly insuring the goods in accordance with the instructions of the defendant. The learned Judges started the discussion by a reference to the English cases and pointed out that, though English cases recognized the right of set off in equity, the particular case before them was not one such case, because the claims were wholly unconnected. The learned Judges then pointed out that under the provisions of the then Civil Procedure Code (Act VIII of 1859) (more or less corresponding to Order VIII, Rule 6 of the Civil Procedure Code), the claim could not have been allowed. But they proceeded to observe as follows: These, however, are provisions of a Code regulating procedure only, and, whilst we think that the language used has not the effect of enlarging the right of set off, we ought at the same time to say that, according to our present opinion, the Procedure Code was not intended to take away any right of set off, whether legal or equitable, which parties would have had independently of its provisions. It seems to us that the right of set off will be found to exist not only in cases of mutual debts and cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titled to recover ₹ 6,662/-. which means that they would get a decree for ₹ 2,333-12-0, being the excess over the damages claimed, viz., ₹ 6,328-4-0, but because of the operation of the Stamp Act, each party was entitled only to ₹ 5,000/-, and the suit was dismissed. The learned Judges discussed the right of set off, and observed: The remaining question is whether the last mentioned amount of damages can be set off, and we are of opinion that the decision of the learned Judge on the point is right, although we are not prepared to go quite the length that he does in resting the case on the ground of mutual credit derived from the intention of the parties as evidenced by the contract. We would rather confine ourselves to saying that the terms of the contract are quite consistent with the claim to set off, and rest our judgment on the general principle of equitable protection. They refer with approval to the passage in (1865) 2 MHCR 296 and observe: Here the cross demands are connected with the same transaction and arose out of one and the same contract, and an amount appeared to be payable from the plaintiff and was capable of being immediately determine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f mutual debits and credits, but also where the cross-demands arise out of one and the same transaction, or are so connected in their nature and circumstances as to make it inequitable that the plaintiff should recover and the defendant be driven to a cross suit. And so, in the case before us, the claim springs out of the same contract which the plaintiff seeks to enforce, and can be readily determined in this suit, and it is equitable that it should be so determined. 30. Then comes another passage which shows that limitation for the purpose of equitable set off is the date of the institution of the plaintiff's suit and not the date when the equitable set off is claimed, and reference is made to Walker v. Clements, (1850) 15 QBR 1046 = (1850) 117 ER 755, but it will be convenient to refer to this later. 31. Oldfield, J. was further inclined to grant a decree in favour of the defendants in excess of the plaintiff's claim (the plaintiff's claim was ₹ 1,367-10-9, and the defendants' claim was ₹ 1,808-5-6). But Duthoit, J., was not prepared to allow the defendants to claim in excess. He observed: I am not prepared to admit the validity of this claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efendants against the plaintiff. In that part of the country in which the suit was brought, Act X of 1859 is still in force, and suits for rent are tried in Revenue and not in Civil Courts. Further, it appears on the face of the record that, as regards a portion of the claim for rent, the defendants' demand was barred by limitation at the time when their written statement in this suit was filed. It remains, therefore, to be decided whether the amount of rent paid to the zamindar by the defendants without the help of the plaintiff, and for which the plaintiff was liable jointly with themselves, amounts to such a sum as will cancel the plaintiff's claim in this suit. If the amount recoverable under this head by the defendants in equal to or in excess of the plaintiff's claim against them, the suit will properly be dismissed. If, on the other hand, this amount is less than the plaintiff's admitted claim against the defendants, he will obtained a decree for the excess........... The District Judge must now determine whether the amount claimed by the defendants under the first head alone is sufficient to satisfy the plaintiff's claim. 33. This case is interesting, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ff may arise under circumstances under which the right would not arise in English and under circumstances under which a right to set off under Section 111 of the Code of Civil Procedure, 1882, would not arise. They refer to some of the decisions, and observe: Section 216 of the Code of Civil Procedure, as amended by Act VII of 1888, recognizes that a right of set off which would not be admissible under Section 111 of the Code might be otherwise admissible and that a defendant pleading it might be entitled to a decree on it as against the plaintiff. 36. The defendant was willing to forego any claim in excess of the set off, and consequently the plaintiffs' suit was dismissed. 37. The above decision was followed in Nand Ram v. Ram Prasad, ILR 27 All 145. The plaintiffs were appointed commission agents by the defendants to sell their bags. The plaintiffs sued for commission, and the defendants were allowed equitable set off of the damages sustained by them on account of the negligence of the plaintiffs to carry out their instructions. 38. Equitable set off was again allowed in Kallyanjee Shamjee v. Shorrock. ILR (1910) Cal 334. The plaintiff agreed to supply 800 ton ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en preposterous for equity (which by its own proper authority always maintained a limitation) to countenance laches beyond the period that law had been confined to by Parliament. And therefore in all cases where the legal right has been barred by Parliament, the equitable right to the same thing has been concluded by the same bar. Lord Reddesdale in Hovendon v. Lord Anneslay, (1806) 2 Sch Lef. 607 expresses himself with equal clearness: It is said that Courts of Equity are not within the Statutes of Limitations. . . I think it is a mistake in point of language to say that Courts of Equity Act merely by analogy to the statutes; they act in obedience to them. 40. The learned Judge then proceeds to point out that an exception has been recognized in some cases, for instance, between a trustee and cestui que trust, where by way of equitable set off even time-barred claims can be allowed on the basis of accountability. 41. Panuganti Narasimha Rao v. Zamindar of Tiruvur, ILR (1920) Mad 873 = AIR 1920 Mad 819 is again very useful for us. The plaintiff was the agent of the defendant. He stated that on account being taken balance would be found due to him and he filed a suit for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases, but it does not deal with the question of limitation. A set off was originally merely a defence to an action, and it has been held that the right to plead this defence arises when the action is brought, so that it does not become barred subsequently by the statute of limitations, (1850) 15 QB 1046. The right has now become one of attack as well as of defence and the defendant occupies the position of a plaintiff in respect of any balance claimed by him. No decision of this Court has been cited before us that in a suit upon a contract the plaintiff is precluded from setting up the defence of the statute as well as any other defence to the attack of the defendant. Lower down he says: In the present case, the defendant's right to sue his agent for an account was not barred on the 17th June, 1912, when the plaintiff's suit was instituted, but became barred immediately thereafter under Art. 89 of the Limitation Act, 1908. I am of opinion that when the defendant filed his written statement there was no sum due by the plaintiff to the defendant within the meaning of Order XX, Rule 19, because there was no amount them legally recoverable by the defendant from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject to the law of limitation. It is true that the defendant, in order to retain the sum of ₹ 5,000/-, must prove that it has suffered damages at least to the extent of ₹ 5,000/-, if the matter comes to the Court. But it does not follow from this that even to retain the sum of ₹ 5,000/- it should have taken the initiative in filing a suit to get a declaration of its right to retain the same. It could well wait. This being the nature of equitable set off, it follows that the date for judge whether the claim for equitable set off was in time would be the date of the plaintiff's suit and not a later date. If we were to hold that the plea of equitable set-off must be held to have been raised only on the date of the written statement, it might prejudice the defendant, because, the plaintiff might have brought the suit on the last date of limitation (as was the case in ILR (1920) Mad 873 = AIR 1920 Mad 819 and in another case might delay service of summons on the defendant. The claim of the defendant to recover damages in excess of the plaintiff's claim stands on a different footing and normally the claim must be held to have been filed only on the date when it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred when the written statement was filed on 8th January, 1935. 45. Herendra Nath v. Sourindra Nath AIR 1942 Cal 559 (cited by Thiru A. N. Rajagopalan, counsel for the defendant) is an interesting case. The plaintiffs sued for arrears of rent for faslis 1341 to 1344 (₹ 9,000/- odd). The suit was filed on 19-4-1938. The defendants filed their written statement on 5th August, 1938, claiming that the plaintiffs were liable to pay them a sum of ₹ 8,100/- odd as rent for the faslis 1341 to 1344 in respect of some other tenures. The defendants claimed set-off for the said amount. At the time when the plaint was filed, the defendants' claim was not barred for any of the faslis 1341 to 1344, but on the date when they filed the written statement, the claim for rent for fasli 1341 was so barred. The question arose whether the defendants were entitled to set-off the rent for fasli 1341 B.S. also. It was answered in favour of defendants. It was pointed out that the claim of the defendants fell within order VIII, Rule 6 , because it was an ascertained sum of money and that the question was whether it was legally recoverable. The learned Judges held that this question had to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able set-off at all and so it was not sufficient if it was alive at the date of the plaintiff's suit. It was pointed out that it did not arise out of the same transaction as that on which the plaintiffs' claim was based and that the claims were not interconnected to render it inequitable to drive the defendant to a separate suit. 48. In Govindji Jevat and Co. v. C. S. and W. Mills AIR 1968 Ker 310 a Bench of the Kerala High Court recognized the claim of set off. The suit was for damage for breach of contract. The defendants set off the price of part of the bales which had been accepted by the plaintiff. It was held that they could do so, because it was less than the plaint claim and was a pure set-off and it was within time at the time of the filing of the suit, though it was out of time at the time of the filing of the written statement. Reference was made to the decision in AIR1942Cal559 and Sheobachan Pandey v. Madho Saran Choube AIR 1952 Pat 73 . 49. In view of the numerous authorities which have recognized the right of set-off, I feel that I cannot interfere with the discretion exercised by the learned appellate Judge in allowing the defendant to raise the plea o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay a sum of ₹ 300/- to the plaintiff as a condition precedent to the filing of the written statement. The defendant is given three weeks from now to pay the amount to the plaintiff's counsel. This amount cannot be recovered from the plaintiff, even if the defendant ultimately succeeds in proving its claim for damages. 51. The third matter to which the permission to file the additional written statement is subject is this. In the additional written statement filed in December, 1970, the defendant has stated that the total damages suffered by it is ₹ 39,291.55 and that it is entitled to forfeit the deposit of ₹ 5,000/-, and they are ready to file a suit against the plaintiffs for the balance of the amount of loss suffered by them on account of the plaintiff's breach. It was subsequently that the defendant filed the suit, O.S. No. 7279 of 1971, on 10-6-1971. Even in the additional written statement proposed to be filed hereafter, the defendant says: The defendants therefore pray that they may be allowed to set off against the plaintiff the sum of ₹ 5,000/- being the part of damages suffered by them. Now Thiru Vedantham Srinivasan has urged be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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