Kashinath Sankarappa Wani vs New Akot Cotton Ginning and Pressing Co., Ltd.

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: supreme-court

Case Number: Civil Appeal No. 77 of 1954

Decision Date: 18 February 1958

Coram: Natwarlal H. Bhagwati, J.L. Kapur, P.B. Gajendragadkar

In the matter titled Kashinath Sankarappa Wani versus New Akot Cotton Ginning & Pressing Co., Ltd., the judgment was delivered on 18 February 1958 by a Bench of the Supreme Court of India consisting of Justice Natwarlal H. Bhagwati, Justice J. L. Kapur and Justice P. B. Gajendragadkar. The petitioner, identified as Kashinath Sankarappa Wani, brought the suit against the respondent, New Akot Cotton Ginning & Pressing Co., Ltd. The case is reported in the 1958 Indian Annual Reports as AIR 437 and in the Supreme Court Reports as 1331, and it involves the provisions of the Limitation Act together with issues relating to a suit on a deposit receipt, acknowledgments of liability, and the admissibility of a balance sheet obtained from the Registrar of Companies under the Commercial Documents Evidence Act of 1939, section 3(b). The factual backdrop, as set out in the headnote, explains that the petitioner had advanced various sums of money to the respondent. In consideration of those advances, the respondent issued a deposit receipt that covered a twelve‑month period beginning on 1 August 1939 and ending on 31 July 1940. On 16 June 1944, the petitioner instituted a suit seeking recovery of the amount advanced together with interest, contending that the liability became due on 17 May 1941 when the demand for payment was made, that the limitation period for instituting the suit expired on 17 May 1944, and that the suit was filed on the first day the Court reopened after the prescribed limitation period had lapsed. In support of his claim, the petitioner also relied upon two alleged acknowledgments of the debt by the respondent: a resolution passed by the Board of Directors on 2o May 1941 and a balance sheet of the respondent for the financial year 1940‑41 dated 10 October 1941.

The Court held that the suit was barred by limitation because the monies due under the deposit receipt became payable on 31 July 1941, and there was no evidence of any agreement that the amounts due under the receipt were repayable on demand. Consequently, the alleged acknowledgments did not save the suit from the operation of the limitation period. The Court explained that the Board’s resolution merely proposed a settlement of the petitioner’s claim, which would have required the petitioner’s acceptance and subsequent presentation before a general meeting of the shareholders; it referred only to a past liability and could not be construed as an acknowledgment of the respondent’s liability under the specific deposit receipt in question. Regarding the balance sheet, the Court observed that the copy obtained from the Registrar of Companies and filed in the proceedings had been incorrectly rejected by the High Court on the ground that no evidence was produced to prove its authenticity. Under section 3(b) of the Commercial Documents Evidence Act, such a document is admissible, and the Court may, at its discretion, draw a presumption that the balance sheet was duly made by or under the appropriate authority and that the statements therein are correct. The presumption is not mandatory but discretionary. In the circumstances of this case, marked by factions within the company and disputes over the regularity of the meeting at which the balance sheet was passed, the Court indicated that the High Court would have been justified in not invoking the presumption, thereby rendering the acknowledgment contained in the balance sheet ineffective for the petitioner’s purpose.

The Court noted that the High Court was perfectly justified in refusing to raise the statutory presumption concerning the balance sheet. Because the presumption was not invoked, the acknowledgment recorded in the balance sheet could not be used to assist the appellant’s case. Consequently, the balance‑sheet acknowledgment proved of no benefit to the appellant.

The appeal fell within the civil appellate jurisdiction and was designated Civil Appeal No. 77 of 1954. It was filed against the judgment and decree dated 25 August 1949 issued by the former Nagpur High Court in First Appeal No. 91 of 1945. That first appeal had itself arisen from the judgment and decree dated 31 July 1945 rendered by the Court of the Second Additional District Judge, Akola, in Civil Suit No. 7‑B of 1944. The legal arguments for the appellant were presented by counsel C. B. Agarwala and Ratnaparkhi A. G., while counsel Veda Vyasa and Ganpat Rai represented the respondent. The judgment was delivered on 18 February 1958.

Justice Bhagwati delivered the judgment of the Court. He stated that the appeal was supported by a certificate issued under section 109(a) read with section 110 of the Code of Civil Procedure, 1908. The appeal challenged the judgment and decree of the Nagpur High Court, which had dismissed the appellant’s earlier appeal and had affirmed the dismissal of his suit by the learned Second Additional District Judge, Akola. The appellant had originally been the plaintiff in a suit filed in the Court of the First Additional District Judge, Akola, identified as Civil Suit No. 2‑B of 1944. The suit was directed against the respondent identified as the 7‑B respondent, a limited company incorporated under the Indian Companies Act, 1882. The company owned a ginning and pressing factory and carried on the business of ginning and pressing cotton at Akot in the district of Akola.

The appellant asserted that he was one of the creditors of the company and that the company had been borrowing money from him for approximately thirty‑five years. He described himself as having acted as the banker of the company. The sums borrowed by the company were entered in the company’s account books in two separate ledgers, commonly referred to as “khatas”: one ledger was known as the current account or “chalu khata,” and the other was described as the “fixed deposit khata.” At the end of each financial year, an account was prepared, and the amount shown as due at the foot of that account was entered into the balance sheet of the company. The balance sheet was then adopted at the company’s Annual General Meeting. From time to time, deposit receipts were issued for the amounts recorded in the fixed deposit khata. At the close of the year ending July 1939, a sum of Rs 79,519‑12‑9 was shown as due by the company to the appellant on both the current and the fixed deposit accounts. On 15 January 1940, the company issued a deposit receipt in favour of the appellant for the said amount. The appellant subsequently demanded payment of that amount by sending letters dated 10 May 1941 and 17 May 1941 to the company. The company failed to make the payment despite these demands. As a result, the appellant instituted a suit on 16 June 1944 seeking recovery of a total sum of Rs 1,03,988, which comprised the principal amount of Rs 79,519‑12‑9 and interest of Rs 24,468 calculated from 1 August 1939 to 15 January 1944. The plaint claimed that all of these amounts had been borrowed by the company from the appellant.

In this matter, the appellant asserted that the sums claimed were deposits made by him and that, as a creditor, he could demand payment of those deposits at any time. To avoid having to pay a large amount immediately, the company periodically transferred amounts from its current‑account balance to the fixed‑deposit account. Because the deposits remained payable on demand, the appellant said that his cause of action arose on 17 May 1941, which also marked the date when the limitation period for his suit began and would have expired on 17 May 1944. However, the courts were closed on the expiration date, and consequently the suit was filed on the first day the courts reopened, namely 16 June 1944. The filing on that day, the appellant contended, preserved his right to sue under section 4 of the Limitation Act.

The appellant further supported his claim by pointing to several acknowledgments of the debt recorded by the company. These included: (a) a resolution adopted by the Board of Directors on 20 May 1941; (b) the company’s balance‑sheet for the financial year 1940‑41 dated 10 October 1941, together with the balance‑sheets for the subsequent years 1941‑42 and 1942‑43; and (c) an entry made in the plaintiff’s account ledger (khata) in the company’s books on or about 31 July 1941, which entry bore the signature of the company’s Chairman. In addition, the appellant relied on an application made under section 162 of the Companies Act seeking the liquidation of the company, filed on 16 June 1941. That application was dismissed by the court on 16 June 1944, the court explaining that the appellant, being a bona‑fide litigant seeking the same relief as in the present suit, could have the period spent pursuing the liquidation application deducted from the limitation period under section 14 of the Limitation Act, because the debt itself was contested by the company.

The respondent challenged the appellant’s contentions, primarily arguing that the suit was barred by the applicable limitation law. Both the trial court and the High Court rejected the appellant’s arguments, dismissed his suit, and affirmed the dismissal on appeal, leading to the present petition before this Court. The sole issue for determination therefore is whether the appellant’s suit is time‑barred.

To establish his case, the appellant initially relied on a deposit receipt issued by the company in his favour on 15 January 1940 (Exhibit P‑1). That receipt documented a deposit of Rs 79,519‑12‑9 for a twelve‑month term running from 1 August 1939 to 31 July 1940, and it stipulated that the amount shown at the foot of the receipt would become due and payable by the company to the appellant on 31 July 1940. Nonetheless, the appellant sought to shift the start of the limitation period to 17 May 1941, contending that the monies covered by the receipt were payable to him on demand, that he had made such a demand on that date, and consequently that 17 May 1941 should be treated as the commencement of the limitation period. No express agreement

In this regard the appellant could not produce any evidence to prove that an agreement, either express or implied, existed, nor could such an agreement be inferred from the twenty‑five years of dealings between him and the company. The deposit receipt itself negated any such agreement because, besides stating that the money was received by the company as a deposit for the twelve‑month period from 1 August 1939 to 31 July 1940, the reverse side carried a note specifying that interest would cease on the due date. That clause was sufficient to demonstrate that the amount shown at the foot of the receipt became due and payable on the date explicitly mentioned, and that there was no provision for the sum to become payable at any later time on demand by the creditor. The record of the parties’ interactions further repudiated the notion of an implied agreement, since the company had issued similar deposit receipts to the appellant on several occasions, each receipt being for a fixed term and containing an identical note on the reverse that interest would cease on the due date. Accordingly, both the trial court and the appellate court were correct in concluding that no agreement of the kind asserted by the appellant existed; the monies shown on the deposit receipt were payable by the company only on 31 July 1940 and not on demand thereafter. The subsequent issue was whether the limitation period, which began to run on 31 July 1943, was extinguished by any of the circumstances pleaded in the plaint. The appellant had pleaded three acknowledgments of debt, but he withdrew the third during the hearing, leaving only two: (a) the resolution of the Board of Directors dated 20 May 1941, and (b) the company’s balance‑sheet for the financial year 1940‑41 dated 10 October 1941. It is noteworthy that the appellant made no attempt to produce the balance‑sheets for the years 1941‑42 and 194‑2‑43. Regarding the Board resolution of 20 May 1941, the record shows that at that meeting one director, Pandurang Narsaji Hadole, referred to a proposed settlement of the appellant’s claim for the sum of Rs. 67,939, an amount that had been deemed due at the end of July 1936 and had been resolved upon by the Board on 22 December 1936, but which the appellant had not accepted. The resolution invited the appellant to inform the company again if he was prepared to accept the terms of that proposed settlement.

The Court observed that the resolution of the Board of Directors asked the appellant to state whether he was prepared to accept the terms of the proposed settlement, and that such acceptance would cause the settlement to be placed before the general meeting of all shareholders of the company if the appellant replied in the affirmative. The appellant claimed that this resolution amounted to an acknowledgment of a continuing liability of the company with respect to the debt shown on the deposit receipt that was in dispute. The Court found that the resolution could not be interpreted as such an acknowledgment. It noted that the wording of the resolution merely referred to a liability that had arisen in the past and that there was no language in the resolution that could, even by a liberal construction, be read as referring to the liability of the company to the appellant under the deposit receipt dated 15 January 1940. The Court then turned to the deposit receipts that the company had issued in favour of the appellant on 30 May 1935, 18 October 1936 and 30 November 1938, each receipt being for the sum of Rs 47,500. The Court pointed out that no factual link had been established between the amount of Rs 47,500 reflected in those receipts and the amount of Rs 79,519‑12‑9 that was the subject of the disputed deposit receipt. In the absence of any such connection, the Court held that the appellant could not rely on the alleged acknowledgment of liability contained in the May 20 1941 resolution, even if that resolution could be construed, in the slightest degree, as acknowledging a continuing liability. Consequently, the Court concluded that the May 20 1941 resolution could not be used by the appellant as proof of his debt. Regarding the balance‑sheet of the company for the financial year 1940‑41, which was dated 10 October 1941, the Court noted that the appellant had applied to the trial court on 28 April 1945 for permission to file that balance‑sheet and had expressly stated that he did not intend to call any oral evidence to prove its contents. The trial court allowed the filing, but it later became clear that the balance‑sheet did not establish the appellant’s claim. Accordingly, the appellant made a second application on 11 July 1945 seeking permission to file a copy obtained from the Registrar of Companies, contending that the copy would prove the balance‑sheet. The trial court rejected this filing as being untimely. When the matter was appealed to the High Court, counsel for the appellant argued that the copy taken from the Registrar’s office should be admissible as evidence. The High Court rejected that argument, relying on sections 65 and 74(2) of the Evidence Act. The Court observed that the High Court had not been called to consider the Commercial Documents Evidence Act of 1939, which amended the law of evidence in relation to certain commercial documents, and specifically section 3 of that Act, which prescribes the treatment of such documents for evidentiary purposes.

The Court explained that Section 3 of the Commercial Documents Evidence Act (XXX of 1939) modifies the Indian Evidence Act, 1872 by allowing a court, for the purposes of that Act, to presume that a document listed in Part 11 of the Schedule has been duly made by or under the appropriate authority and that the statements it contains are accurate. Item No 21 in Part 11 of the Schedule specifically describes a “copy, certified by the Registrar of Companies of the Balance Sheet, Profit and Loss Account, and audit report of a company, filed with the said Registrar under the Indian Companies Act, 1913 and the rules made thereunder.” The Court observed that, had the High Court been made aware of this statutory provision, it would not have dismissed the copy of the balance‑sheet obtained by the appellant from the Registrar of Companies, and the Court therefore admitted that copy into evidence. The appellant contended that the balance‑sheet, signed by the directors, contained an acknowledgment of a debt owed by the company to the appellant in the sum of Rs 67,939 as a fixed deposit, and that this acknowledgment was sufficient to defeat the limitation defence. Consequently the Court examined whether the presumption under Section 3(b) of the Commercial Documents Evidence Act could be invoked with respect to the balance‑sheet’s authenticity and the accuracy of its statements. The Court noted that the presumption under Section 3(b) is discretionary, unlike the compulsory presumption under Section 3(a). The appellant’s case, however, was undermined by evidence of internal divisions within the company at the relevant time. A directors’ meeting on 27 April 1941 accepted the resignation of the appellant as Chairman and appointed a successor. A subsequent meeting called for 17 May 1941 was adjourned for lack of quorum, and the adjourned meeting held on 20 May 1941 did not pass any balance‑sheet. No further board meeting is recorded for the approval of the balance‑sheet for the year 1940‑41. A shareholders’ general meeting convened for 16 November 1941 to pass the accounts was also adjourned for lack of quorum, and at the adjourned meeting the shareholders present refused to pass the accounts. It was not until five weeks later, on 30 December 1941, that a rival faction of shareholders met and passed the accounts, but this meeting was irregular because an adjourned meeting must be reconvened within twenty‑four hours and the later meeting was not a properly noticed fresh meeting. Under these circumstances the Court concluded that the balance‑sheet could not be deemed to have been duly made, and that the discretionary presumption under Section 3(b) could not be raised. Accordingly the alleged acknowledgment in the balance‑sheet was of no assistance to the appellant. With regard to the reliance on Section 14 of the Indian Limitation Act, the Court remarked briefly that the matter would be considered in the context of the liquidation proceedings.

In the proceedings, the parties pointed out that the shareholders finally passed the accounts, but the meeting at which this occurred was described only as a continuation of the earlier meeting that had been adjourned because a quorum was lacking. That characterization was held to be irregular, because the law required that an adjourned meeting be convened within twenty‑four hours of the original meeting. The later gathering did not present itself as a fresh meeting called after giving proper notice, and therefore it could not be claimed that the balance‑sheet had been duly passed at that occasion.

The Court observed that even if the High Court had been urged to consider section 3(b) of the Commercial Documents Evidence Act (XXX of 1939), it would have been entirely justified in refusing to invoke the statutory presumption that the balance‑sheet had been properly made by the appropriate authority or that the statements therein were accurate. Consequently, the alleged acknowledgment of the balance‑sheet could not assist the appellant in any way.

With respect to the reliance placed by the appellant on section 14 of the Indian Limitation Act, the Court noted that liquidation proceedings had never been instituted in the subordinate courts, and there was no evidence that the conditions required by section 14 had been fulfilled. The appellant had not advanced any persuasive argument that would lead the Court to conclude that the High Court’s earlier finding on this point was erroneous.

On the basis of all these considerations, the Court held that the appellant’s claim was clearly barred by the limitation period, and that the trial court’s dismissal of the suit, as well as the High Court’s dismissal of the appeal, were justified. Accordingly, the appeal was dismissed and costs were awarded against the appellant.