Section 60/61 Contract Act - If Adjustment Is Made Towards A Particular Invoice, It Can't Extend Limitation For Other Outstanding Invoices: Bombay High Court

The Bombay High Court has held that once a payment has been applied as per creditor's discretion under Section 60 of the Contract Act to a few of the pending invoices instead of all, and the period of limitation has expired regarding all of them, the creditor then cannot take the plea that cheque payment getting dishonoured will extend the period of limitation on all pending payments. A two-judge bench of Bombay High Court comprising Justice RD Dhanuka and Justice RN Laddha applied the principles in Section 60 and 61 of the Contract Act in this case.The question before the bench was :"A short question that arises for consideration of this Court is whether the claimant having exercised the option under section 60 of the Indian Contract Act by adjusting the payment of Rs.50 lakhs towards four earlier invoices, three invoices fully adjusted and one invoice partly adjusted and not having made the claim in respect of those three fully paid invoices is estopped from raising the plea that the cheque of Rs.50 lakhs issued by the respondent towards part payment having been dishonored, would amount to acknowledgment of liability in respect of all the outstanding invoices on the date of commencement of the arbitral proceedings or not". In the circumstances of the case, the Court held that if the adjustment was made towards a particular outstanding invoice, that payment cannot enure to the benefit of claimant so as to extend the period of limitation for other outstanding invoices.The facts of the case pertain to a steel shipment supplied by the claimant to the respondents and the debt due on the respondents of an amount of INR 25 Crore, out of the which the respondents had made a few payments, and the claimant had chosen to apply those payments as per his own discretion, and meanwhile, the period of limitation had expired regarding all those payments. Once the case reached the Bombay High Court, the Court referred the entire dispute to arbitration and during the proceedings, both the claimant and the respondent had cross-examined each other's witnesses and made oral submissions and the learned arbitrator made an award in favour of the respondents, rejecting the claim of claimants for the pending amount being barred by limitation, except a part of the claim of INR 368005 (out of INR 22249067). The claimant then filed a petition under S.34 of Arbitration and Conciliation Act before this Court and a single judge bench then delivered a judgment, again in favour of respondents and being aggrieved by the same, the claimant had then filed this appeal. The case of the claimant was that each cheque issued by the respondent would constitute an acknowledgement in writing and would imply an extension on limitation for all invoices. The first alleged acknowledgement came on 20th July 2011 and the last alleged acknowledgement came after a gap of more than three years, on 25th May, 2015. The counsel for respondents argued that the period of limitation expired at the end of 45 days of each invoice and thus, the claimant's claim was barred by limitation and that the claimant did not even plead extension of limitation during the arbitral proceedings. The counsel for respondents further argued that the last payment of Rs. 50 Lakh in the form of a cheque which was dishonoured and then sent again, on the basis of which claimant is pleading extension of the limitation period, was in fact applied to three invoices fully and 4th invoice partly and the claimant now cannot be allowed to contend that part payment of INR 50 Lakhs by cheque which was dishonoured would save limitation in respect of all invoices. The counsel for respondents further submitted that the Arbitrator was right in pointing out that out of 38 invoices, only one invoice with the outstanding liability of INR 368005 was payable by the respondent to the claimant and the dishonoured cheque cannot be considered in isolation since the 38 invoices which were the subject matter of arbitration proceedings caused 38 separate causes of action and thus the claimant, having taken benefit of appropriation and had saved limitation in respect of earlier four invoices, must be estopped from taking inconsistent pleas. The counsel for the respondent further submitted that since the claimant had failed to prove the claims made by various invoices which were the subject matter of arbitration proceedings were within the period of limitation, the claimant could not now claim extension of limitation with regard to those invoices. The bench looked into the question as to whether the fact that claimant had exercised his option under S.60 of the Indian Contract Act by adjusting the payment of INR 50 Lakh towards four invoices and not having made the claim in respect of those invoices, was estopped from taking the plea that the earlier cheque of INR 50 Lakh (which had been dishonoured) would amount to an acknowledgement of...

Section 60/61 Contract Act - If Adjustment Is Made Towards A Particular Invoice, It Can't Extend Limitation For Other Outstanding Invoices: Bombay High Court

Rashmi Bagri

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