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TMI Blog1980 (4) TMI 324X X X X Extracts X X X X X X X X Extracts X X X X ..... hat ₹ 10,613.98 was due to the appellant. The said amount continued to be included in the balance-sheets for the years 1969 and 1970. On the failure of the Sabha to return the amount, the appellant sent a registered notice on 17-9-1971. The Sabha sent a reply to the above notice denying the transaction and alternatively setting-forth the bar of limitation. The suit was, accordingly, filed on 10th November, 1971. 3. The first respondent Sabha filed a written statement, through its Secretary, the third defendant, the President, fifth defendant, and the Treasurer, the sixth defendant. Defendants 2 and 4, according to the written statement, were not Office Bearers of the Sabha. The contesting defendants denied the loan According to them, since the affairs of the first defendant Sabha were being managed by contributions from its members, there was no occasion to borrow amounts from the plaintiff. The plaintiff manipulated the accounts of the Sabha during his tenure of office as President with a view to put forward a claim based on the loan. The entries in the accounts were fraudulent and had no foundation on truth, and as such, they are not binding on the first defendant Sabha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the period of three years were held to be barred by limitation. So far as the amounts advanced within three years of 6-5-1967 were concerned, the inclusion thereof in the balance-sheets kept alive the liability. This amount, less by ₹ 1000/- paid on 25-6-1968, was held to be due to the plaintiff. The balance, if any, was held to be barred by limitation. A preliminary decree for the above-said amount with interest at 6% from the date of suit till the date of realisation was, accordingly, passed. The question of costs was left to be decided in the final decree proceedings. The appeal relates to the amount, which has been disallowed by the trial court. 5. Respondents 1, 7 and 8, who are respectively the Sabha, its President and Secretary, filed a cross-objection challenging the preliminary decree passed and contending that no amount was due to the plaintiff-appellant. 6. Though it was vaguely asserted that the amounts entered in the accounts of the Sabha as advances made by the appellant were really amounts received in transactions entered by him in his capacity as President of the Sabha, in the absence of definite materials in support of that case, the contention was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Ext. A2 was prepared. This is not a relevant factor because Ext. A3 series, the balance-sheets for the years 1967 to 1970, were prepared at a time when the appellant ceased to be the President. The then office bearers of the Sabha have signed in these documents besides the the auditors. It is also the admitted case that these balance-sheets were passed and accepted by the general body of the Sabha. 9. The respondents case that the advances even if true have been relinquished by the appellant is spoken to by Dw-1, the 3rd defendant, who was the General Secretary in May, 1967. According to him, the annual meeting of the general body of the Sabha was on 27th May 1967. The proceedings are recorded in Ext. B1 minutes book. It was as a result of the election held during the annual meeting that the appellant ceased to be the President. One of the members brought a resolution that the amount due to the appellant be allowed to be paid in instalments without detriment to the activities of the Sabha. The appellant then said that he did not want the amount. In token of the relinquishment the appellant himself wrote that fact in Ext. B1 and the general body accepted the offer. At page 39 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances and also of sundry creditors. The balance sheet should be approved by the Board of Directors, and thereafter authenticated by the Manager or the Secretary if any and not less than two directors one of whom should be the Managing Director. (See S.215). The Act also provides for supply of copies of the balance sheet to the members before the company in general meeting. Going by the above provisions, a balance sheet is the statement of assets and liabilities of the company as at the end of the financial year, approved by the Board of Directors and authenticated in the manner provided by law. The persons who authenticate the document do so in their capacity as agents of the company. The inclusion of a debt in a balance sheet duly prepared and authenticated would amount to admission of a liability and therefore satisfies the requirements of law for a valid acknowledgment under S.18 of the Limitation Act, even though the directors by authenticating the balance sheet merely discharge a statutory duty and may not have intended to make an acknowledgment. 11. The question whether inclusion of a debt in the balance sheet of a company would amount to acknowledgment of liability has co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be taken as settlement of accounts and a decree should be given in his favour on that basis is sustainable in law. An account stated or a settlement of accounts is a bilateral transaction wherein the parties take an account of their dealings and arrive at the balance by mutual agreement. One of the parties agrees to pay the balance while the other agrees to give discharge of the whole liability if such balance is paid. The agreement amounts to a novation of the contract and gives rise to a fresh cause of action for realisation of the balance amount found due. The appellants contention that a balance sheet evidences a settlement of accounts cannot be accepted. A balance sheet is a document prepared and signed by the directors in discharge of a statutory obligation, No bilateral agreement or settlement of accounts by mutual agreement can be spelt out from the fact that certain amounts are mentioned in the balance sheet of a company as due to a person No promise to pay the amount is involved by the inclusion of a debt in the balance sheet. It follows that a balance sheet is not an account stated. (See John Shaw and Bans Salfara Ltd. v. Shaw - 1935 K B. 113). Inclusion of a debt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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