M/s. Binary Semantics Limited Corporate Office Vs M/s Sonata Software limited Corporate Office

K.S. Mudagal, J.—The above appeal and cross objection arise out of the judgment and decree dated 15.01.2010 in O.S.2627/98 passed by the XXXI Addl. City Civil Judge, Bangalore.

2. By the impugned judgment and decree, the trial Court has decreed the suit of the plaintiff for recovery of Rs. 18,55,281.30 and rejected the claim for interest.

3. The defendants are the appellants and the plaintiff is the cross objector. For the purpose of convenience, the parties will be referred to their ranks as before the trial Court.

4. The undisputed facts of the case are as follows:

The plaintiff was supplying certain software products to the defendants for marketing and purchasing some software products from the defendants. Both the parties had allowed mutual credit facilities. Plaintiff supplied software products under invoices annexed to the plaint which came to be marked later in the suit at Exs.P.2 to P.27 on credit basis. Plaintiff issued notices dated 28.10.1997 (Ex.P.59) claiming that the defendants are due to pay Rs. 25,60,281.30 towards supply of software products and committed default in payment and calling upon the defendants to pay the same. To the said notice, defendants issued reply (Ex.P.50) dated 13.11.2 997 claiming that they are some book adjustments and after such reconciliation of the accounts, they are liable to pay only Rs. 5,08,368/-.

5. After exchange of notices, the plaintiff filed the above referred suit claiming that they have supplied software products to tire defendants on credit basis and defendants committed default in payment of Rs. 25,60,281.30 tinder the invoices and delivery challens annexed to the plaint. The plaintiff further contended that on insisting for payment, the defendants issued 5 cheques for Rs. 1.00 lakh each towards part payment of the dues and when presented they were dishonoured. Plaintiff contended that they issued notice dated 28.10.1997 for which an untenable reply dated 13.11.1997 was issued. Plaintiff contended that thereafter it served another notice dated 14.03.1998 demanding the payment, which was not complied. Therefore, the plaintiff claimed that defendants are liable to pay the suit claim with interest @ 18% p.a. from the date of the suit till realisation.

6. The defendants in their written statement contended that the plaintiff or the defendants were buying and selling the software products of each other on mutual cash credit basis. They contended that the plaintiff was irregular in supplying goods and was not replacing the defective goods nor taking them back. It was contended that due to such attitude of the plaintiff to maintain goodwill with their clients, the defendants had to buy software products from outside and cater to the need of their customers. Further, it was contended that the defendants for their administrative reasons, instead of giving discounts for the goods supplied, were issuing credit notes to make good the price variation. The defendants contended that due to the attitude of the plaintiff in dealing with the transactions, they suffered loss and therefore they stopped transaction with the plaintiff. The defendants contended that on holding series of meetings and negotiations, book of accounts were reconciled and it was agreed that the defendants are liable to pay only Rs. 5,08,868/-. In the written statement, the said adjustment are shown as follows:

7. The defendants contended that after negotiation, the amounts were reconciled and the offer of payment of Rs. 5,08,368/- was in full settlement of the claim with the following conditions:

(a) Supply of extremely critical material and complete the partially executed orders so that the Defendants could collect payments from those of their customers who were not making any payment due to partial delivery and late delivery of materials ordered by them;

(b) Replacement of bad media and mismatch/old versions of software handed over to the plaintiff and also lying with the defendants.

It was contended that the defendants issued 5 cheques for Rs. 1,00,000/- each and one cheque for Rs. 8368/- in full and final settlement of the claim of the plaintiff and as per the understanding between the parties, the cheques issued by the plaintiff were to be presented for realization in stages depending on the progress made by the plaintiff in complying the above said agreed terms. It was contended that the plaintiff without fulfilling its obligation presented the cheques and realized the cheque for Rs. 8368/- on 20.08.1997 and to prevent such breach of conditions by the plaintiff, the defendants issued stop payment instructions to their bankers with regard to five cheques of Rs. 1,00,000/- each though they had enough balance in their bank account. The defendants contended that suppressing all these facts, the plaintiff got issued the notice dated 28.10.1997 which came to be suitably replied by the defendants on 13.11.1997. The issuance and service of notice dated 14.03.1998 and the liability for the suit claim and interest was denied.

8. On the basis of the above pleadings, the trial Court framed the above issues:

(1) Were the accounts between plaintiff mid the defendants in respect of the suit transactions reconciled in the manner stated in para 9 of the written statement?

(2) If so, was the defendants to pay Rs. 5,08,368/- and the said amount paid through six cheques referred in para 8 of the written statement?

(3) If not, is the defendants liable to pay Rs. 25,60,281.30 as claimed by the plaintiff?

(4) Is the defendant company liable to pay interest at 18% p.a. to plaintiff?

(5) What decree or order?

9. In support of its case, the plaintiff examined one R. Sathyanarayan as PW1 and got marked Ex.P.1 to P.63. On behalf of the defendants, DW1 is examined and D.1 to D.33 are marked. The trial Court after hearing the parties, decreed the suit holding that the defendants have admitted the liability of Rs. 15,68,958/- and has failed to prove the reconciliation of the accounts. The trial Court rejected the claim for interest holding that there is no agreement for payment of interest.

10. Having heard both sides, the question that arises for the consideration of this Court is:

"Whether the impugned decree for recovery of Rs. 18,55,281.30 and rejection of interest is sustainable in law?"

11. Learned counsel for the defendants relying upon the evidence of PW1 and Ex.D.17 - the rejoinder filed by the plaintiff itself in a COP 319/1999 contends that there is a clear admission on the part of the plaintiff that the outstanding balance as on 22.7.1997 was Rs. 15,68,978/-. He further argued that PW1 in his cross examination has admitted the issuance of credit notes Exs.D. 1 to D.13 and balance confirmation letter - Ex D. 14, which confirmed the balance of Rs. 15,68,958.80. He argued that despite the admission of the said documents that plaintiff did not produce its books of account and in the absence of the production of the books of account, the trial Court is not justified in decreeing the suit.

12. As against that, the learned counsel for the plaintiff argued that the defendants have admitted the liability of Rs. 15,68,958.80 as on 19.02.1997 and setup the defence of counter liability of the plaintiff and failed to prove the same. He argued that without filing the set off or counter claim on paying the due court fee the defendants cannot seek adjustment to the tune of Rs. 10,17,333/-. In support of such contention, he relied upon the Judgment of Delhi High Court in Cofex Exports Limited v. Canara Bank (AIR 1997 Delhi 355)

13. He further argued that the defendants did not issue reply to the notice at Ex.D.61 thereby, admitted the liability. So far as the cross objections, the learned counsel for the cross objector argued that the transaction is the commercial transaction and therefore, trial Court ought to have allowed the interest at 18% p.a.

14. So far as the need of seeking set off or counter claim by paying the court fee, this Court in the Judgment reported in The State Trading Corporation of India Limited, Bangalore v. Vanivilas Co-Operative Sugar Factory Limited, Hiriyur, Chitradurga District, reported in 2001(5) KLJ 570 at para 15.2 has held as follows:

"15.2. An adjustment is an act of party by which he seeks to extinguish a debt or part thereof by an act of appropriation and adjustment but claim to set off is a request or prayer to the court for adjustment by the Court. A plea of ''adjustment'' does not require payment of court fee. A plea of set-off of requires payment of court fee. The need for such payment of court fee is obvious so long as the matter is one governed by a contract or acts of parties, a party can adjust an amount due by him to the other party towards an amount due by the other party to him, and there is no intervention of court. But once the other party (plaintiff) files a suit for recovery of amount due to him such claim of the other party is seized by the court and therefore, the party (defendant) who wants to adjust the amount due by him towards the amount towards the amount due by the other party (plaintiff) has to seek the leave of the court."

15. The plaintiff in the plaint itself states that there used to be mutual cash credit facilities between it and the defendants. PW.1 also admits in his cross examination that there used to be mutual supply and purchase of goods and adjustment of the accounts. The defendants claim to have made the adjustment of Rs. 10,17,333/- out of their liability. The sum sought, to be adjusted is an ascertained amount and not by way of damages. Having regard to these facts and the judgment in The State Trading Corporation referred supra tire claim of defendants for deduction of Rs. 10,17,333/- covered by the term ''adjustment'' not the terms ''set off or the ''counter claim''. Therefore, there is no need of payment of court fee on such defence.

16. In Cofex Exports Limited v. Canara Bank''s case it is held that the counter claim can be entertained only if the Court has competence to take cognizance of the same and if found entertain able that requires to go through all the procedure of a Cross Suit including the payment of the Court fee. In that case the defendants had preferred a counter claim seeking the relief of a decree of mandatory injunction for correcting, drawing and recasting the entire account of the defendant with the plaintiff, for giving due credits in respect of excess amount of interest charged and amount/credits received from Export Credit Guarantee Corporation and cheques received towards payment of foreign goods of the defendant for goods exported by them etc. But, in this case Firstly, the defendants in their written statement did not seek any such relief of set off or counter claim in the hands of the Court against the plaintiff. As against that, the defendants in the written statement contend that much prior to the suit they had adjusted the sums due to it on several heads and claimed that after such adjustment it is due to pay Rs. 5,08,368/-. not applicable. Secondly, there is no issue of the competence to entertain any set off or counter claim. Therefore, the said decision is not applicable to the facts of this case.

17. Coming to the merits of the case, the plaintiff claimed that it has supplied the software products worth Rs. 18,82,559.80/- to the defendants under the invoices as at Exs:E2 to E27 and the defendants have failed to pay the said amount. In the written statement admitted the supply of the software products under the said invoices but setup the defence that the defendants that the plaintiff were are due to it sum Rs. 10,17,333/- towards the purchase made by the defendant, replacement of defective goods and amount due by way of price variation after reconciling the accounts that the defendants are due to pay only Rs. 5,03,368/- and that is the only liability. Therefore, the trial court framed issue Nos. and 2 casting the burden of proving the reconciliation of the accounts on the defendants and limiting the liability only to Rs. 5,03,368/-.

18. The trial Court held that the defendants have failed to prove the said defence by leading documentary proof and cogent oral evidence. The learned counsel for the appellants contends that the plaintiff has failed to produce the accounts, therefore, the trail court ought to have dismissed the suit. Order 7, Rule 17 CPC requires the plaintiff to produce the original accounts books provided the suit based on such accounts. In this case, the suit is not based on the accounts but it is based on the Exs.P2 to P27 the invoices and Exs.P27 to P57 the delivery challans under which the software products are sold to the defendants. The defendants in the written statement do not dispute the supply of such goods. DW1 in his cross examination admits that the defendants negotiated for purchase of goods mentioned in Exs.P2 to P27 and P62 and P63. He admits defendants have not paid the entire amount in respect of those invoices but volunteers that the final settlement was for Rs. 5,08,368/- Therefore, it is clear that the suit is not based on the accounts but it is based on the invoices Exs.P2 to P27 and delivery challens Exs.P28 to P57. Since they are the suit documents, they are produced as required under Order 7, Rule 14 (i) CPC. DWI admits that those delivery challens bear the signatures of the company''s representatives. Therefore, there is no merit in the contention that for non-production of the accounts books the suit ought have been dismissed.

19. So far as the merits of the claim, DW1 admits that he is aware of the terms and conditions of the negotiations for the purchase of goods mentioned ExP2 to P27, P62 and P63. He admits that himself and the company have subscribed the signatures on the delivery challens.

20. Though the defendants contend that there were series of meetings to settle the accounts and thereafter the amount payable by the defendants was arrived at Rs. 5,08,368/- except the ocular evidence of DW1, which is denied by the plaintiff, absolutely no evidence is adduced. DW1 says that, that was only an oral agreement. The plaintiff and the defendants both are the companies incorporated under the Companies Act. It goes difficult to believe that when disputes arouse between them in respect of a huge sum of money, the understanding if any reached between them goes without documentation. The defendants do not even whisper any particulars like the names and designation of the participants in such meetings on behalf of both the companies, date and venue of such meetings, etc,. No worth believing evidence is adduced in proof of such meetings or reconciliation of the accounts. Therefore, the trial court has rightly disbelieved the theory of such reconciliation or mutual adjustments.

21. To prove the contention that the plaintiff owed Rs. 10,17,333/-, the defendants rely upon Exs.D1 to D12-the credit notes, D13, D15 and D 16-copies of letters of credit, D19 to D22-the delivery challens, D23-the copy of the debit note and Ex. D27 to D32-customer copy of statement of account. The persons, who are competent to speak about those documents are not examined. DW1 states that a senior officer of their company attended the suit transactions. But he is not examined. DW1 further admits that suit claim is not with regard to the invoices Exs.D2 to D13 and they relate to some other transactions. The genuineness of Exs.D27 to D32 is disputed. Apparently those documents contain lot of interpolations. Admittedly, the defendants have not issued any notice nor have they filed any suit claming any amount from the plaintiff towards the outstanding amount for the goods supplied, as damages for any breach of contract or replacement of damaged goods etc., Therefore, the trial court has rightly rejected such claim of the defendants.

22. Then the question is whether the grant of decree for Rs. 18,55,281.30/- is justifiable. PW1 admits that Ex.D14 dated 07.04.1997 is the balance confirmation letter issued by it along with Ex.D14(a &b). As per those documents, the outstanding balance as on 28.02.1997 was Rs. 15,68,958.80/-. PW1 admits that the last supply was under the invoice dated 30.03.1996. In Ex.D17-the certified copy of rejoinder filed by the plaintiff in company petition No.313/1999, the plaintiff states that the balance outstanding as on 22.07.1997 is Rs. 15,68,958/-.

23. PW1 admits that under Ex.D1-the letter of credit dated 30.05.1997, plaintiff has received Rs. 1,00,000/-.Though plaintiff claims that the suit claim is arrived after deducting all the payments made, still as per its own admission in ExD17 the claim was Rs. 15,68,958/- only. The evidence of PW1 and DW1 show that there were mutual cash credit arrangements between the parties. The plaintiff has not adduced any evidence in proof of there being any agreement for payment of interest on the amount due to each other. Therefore, the claim in excess of Rs. 15,68,958/- that is Rs. 20,12,509.80/- in the notice Ex.P59 and Rs. 25,60,281.30/- cannot succeed.

24. Ex.D.31- the certified copy of the order dated 18.09.2001 in company appeal No. 16/2001 shows that the defendants deposited Rs. 7,05,000/- in that case. PW1 says the suit claim is arrived at after deducting that sum also. The trail Court has held that a suit claim is arrived at after giving deductions to the said sum. The suit is filed in 1993. The company petition No.313/1999 itself is filed in the year 1999 and Company Appeal 16/2001 is filed in the year 2001. Therefore, it is hard and highly irrational to accept that the said sum of Rs. 7,05,000/- is adjusted while arriving at the suit claim even before filing the company petition. Having regard to these facts, the decree requires to be modified granting the suit claim for (P.s. 15,68,958/- (-) Rs. 7,05,000/-) Rs. 8,63,000/-.

25. So far as the interest claimed by the plaintiff at 18% on the suit claim, the trial court has rejected the same holding that the plaintiff has failed to prove any contract with respect to the payment of interest. The plaintiff challenges the said findings by way of the above cross objection. The learned counsel for the plaintiff argued that the transaction between the parties is a commercial transaction and in C.A.No. 16/2001, the defendants have deposited Rs. 5,00,000/- with interest @ 15% p.a. and the trial court has overlooked that admission. He further argued that even otherwise the trial Court ought to have allowed the interest as required under Section 34 of CPC. The learned counsel for the defendants argued justifying the finding of the trial Court regarding rejection of the interest.

26. The courts are empowered to grant interest only invoking Sections 3 and 4 of the Interest Act and Section 34 of CPC. It is settled law that unless there is a contract between the parties for payment of interest, the interest prior to the suit cannot be awarded. It is an undisputed fact that the parties had allowed the mutual cash credit transactions. In the notice at Ex. 59, the plaintiff claimed interest at 18% p.a. The defendants categorically denied its liability to pay the interest. Despite that the plaintiff has not adduced any evidence in proof of contract for payment of interest on delayed payment of bills. DW1 in his cross examination said that there was no agreement with the plaintiff for payment of interest. The said statement is not denied in the cross examination. In para 8 of the cross objections, the plaintiff itself states that the defendants deposited Rs. 5,00,000/- with interest at 15% p.a. without prejudice to the decision on merits of the suit pending between the parties. Therefore, such payment does not amount an admission regarding the contract for payment of interest Therefore, the finding of the trial court for payment of interest till the date of the filing of the suit does not call for any interference. But the trial Court ought to have awarded the future interest as required under Section 34 of CPC. The suit is decreed in the year 2010. As per the information on Banknet India information, for the public sector scheduled commercial banks, the base rate range of the interest during 2010-11 was 8.25% to 9.50%. Therefore, this Court finds it appropriate to award interest at the rate of 9% per annum on Rs. 8,63,000/- from the date of the suit till the realization. The appeal and cross objection are partly allowed accordingly. In the result, the judgment and decree of the trial court is hereby modified decreeing the suit with costs through out for Rs. 8,63,000/- with interest at 9% p.a. from the date of suit till its realization.

27. Draw decree accordingly.