Buyer–Seller Credit Dealings Not “Mutual, Open & Current Account” Under Article 1 Of Limitation Act: Kerala High Court

A Division Bench comprising Justice Sathish Ninan and Justice P. Krishna Kumar delivered the judgment in regular first appeals arising from a money decree obtained by Tata Iron & Steel Co. Ltd. (TISCO) against its dealer, Pattasseril Cement Marketing.

The Plaintiff submitted that the 1st defendant- Pattasseril Cement, purchased goods on credit and there was an open, mutual and current account between the parties. The payments were defaulted since 1997 and hence a suit was filed claiming an amount of Rs. 80,74,224/- including principal amount of Rs. 47,29,420.99/- and the interest. The second defendant denied the allegation that he is a partner of the firm.

The amount claimed was challenged in the trial court contending that there was no agreement for payment of interest. The trial court upheld the plaintiff's claim for the principal amount but denied the claim for interest citing that the plaintiff failed to prove agreement for payment of interest.

The decree for the suit for money was challenged in the present appeals.

The High Court examined whether the running credit account maintained between TISCO and its authorised dealer could be treated as a “mutual, open and current account” under Article 1 of the Limitation Act, which provides a special limitation period measured from the close of each accounting year.

The Court observed that for an account to fall under open, mutual and current account under Article 1, there must be mutual dealings between parties creating mutual debts or reciprocal demands.

“There should be two sets of independent transactions between the parties; the creditor in the one will be the debtor in the other.” the Court added.

The Court relied on Hindustan Forest Company v. Lal Chand and others [AIR 1959 SC 1349], where it was held that a transaction between buyer and seller, wherein the buyer pays the price for the goods sold by the seller, is only a payment in discharge of the obligations under the contract to buy goods and to pay for them.

The Court further relied on several other decisions of the Supreme Court which included Madappillil Brothers and others v. Ullattil Agencies [2006 (4) KLT 196], where it was held that Article 1 cannot apply when there is no reciprocity of obligation between parties.

The Court thus reaffirmed that transactions where the buyer merely pays for goods purchased do not create mutual obligations and therefore cannot be classified as mutual, open, and current accounts under Article 1.

“In the present case, there is only a contract for sale of goods and to pay for them. The payments made by the defendants go in reduction of their debt to the plaintiff. Hence, the appellants are right in their contention that the suit is not based on a mutual, open and current account falling within the description of a suit under Article 1 of the Limitation Act. We are unable to agree with the trial court which held otherwise.” the Court concluded

The appellants have also argued that the plaintiff failed to produce original account books with the plaint as required under Order VII Rule 17 of the Code of Civil Procedure. It was argued that the account books cannot be relied upon since Rule 18 of Order VII which gave discretion to the Court to accept such documents even at a later stage, was taken away by the CPC amendment of 2002.

The Court rejected the objection, noting that the power to accept late-produced documents continues under Order VII Rule 14(3) even after the deletion of Rule 18.

“At the first blush it would appear that on the deletion of Rule 18, the power has been taken away. But it is significant to note that the said power has been retained and transplanted, verbatim, as sub rule (3) to Order VII Rule 14.” the Court noted.

“It is trite that the procedure is a handmaid of justice and not its mistress.” it added.

The Court set aside the decree against the second defendant, holding that the participation in business correspondence does not prove partnership and no reliable evidence of his partnership was produced.

The Trial Court's 12% annual interest was reduced to 9% from date of suit till decree and 6% thereafter.

Case Title: Jimmy Ellias v The Tata Iron & Steel Co. Ltd and connected case

Case No: RFA 198/ 2012 and connected case

Citation: 2025 LiveLaw (Ker) 778

Counsel for Appellants: Aju Mathew, P Viswanathan (Sr.), G Krishnakumar, Sneha Joy

Counsel for Respondents: Varghese C Kuriakose, Renjini rajendran