IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 19-09-2011 Coram THE HONOURABLE MRS. JUSTICE R. BANUMATHI and THE HONOURABLE MR. JUSTICE B. RAJENDRAN O.S.A. No. 399 of 2008 and M.P. No. 1 of 2008 Southern Explosives Company Pvt Ltd Vistfotak Bhavan No.161, Greams Road Madras – 600 006 rep. By its Managing Director .. Appellant / Defendant D.P. Rangasamy Versus Gulf Oil Corporation Limited Kukatpally Sanatnagar (IE) P.O. Hyderabad 500 018 Andhra Pradesh .. Respondents (Plaintiff) Appeal filed under Order XXXVI Rule (II) of O.S. Rules read with Clause 15 of the Letters Patent against the decree and judgment dated 05.07.2007 made in C.S. No. 1096 of 1993 on the file of this Court. For Appellant : Mr. A.L. Somayaji, Senior Counsel for Mr. G.R. Shivakumar For Respondents : Mr. Arvind P. Datar, Senior Counsel for Mr. M.S. Rajasekar JUDGMENT B. RAJENDRAN, J The defendant in C.S. No.1096 of 1993 is the appellant in this appeal. This appeal is filed as against the decree and judgment dated 05.07.2007 made in C.S. No. 1096 of 1993 passed by the learned single Judge, decreeing the suit filed by the plaintiff/respondent herein for a sum of Rs.1,69,51,588/- with interest at 18% per annum from the date of filing the suit till decree and at 12% per annum from the date of decree till the date of realisation with proportionate cost. By the said decree and judgment, the learned https://hcservices.ecourts.gov.in/hcservices/ single Judge dismissed the counter claim made by the defendant/appellant herein. 2. Originally, the plaintiff has filed the suit for recovery of a sum of Rs.2,13,00,398.94 with interest thereon at 18% per annum from the date of filing the suit till the date of realisation; for recovery of Rs.11,20,703/- being the value of the stock lying with the defendant and for costs. Subsequently, the plaint was amended to include a sum of Rs. 31,88,698/- being the tax liability payable by the defendant and the suit claim was accordingly enhanced. 3. According to the plaintiff/respondent herein, the defendant/ appellant was originally appointed as a sole agent in the year 1963 and subsequently, in the year 1974, the defendant was appointed as a consignment sales agent. In between 1974 to 1992, the defendant was having transaction with the plaintiff, for which the defendant sent statement of account to the plaintiff including debit and credit notes. In between 1988 to 1992, there was disagreement between the plaintiff and the defendant as the defendant defaulted in remitting the amount. There were exchange of correspondence between the plaintiff and the defendant for reconciliation of accounts and disputing the receipt of payment of amount, as the case may be. In fact, by a letter dated 14.08.1992, the plaintiff claimed a sum of Rs.2,33,67,000/- as due, whereas, the defendant, by the letter dated 26.08.1992 has admitted outstanding difference upto 25.07.1992 at Rs.1,96,57,000/-. Thereafter, between 1992 to 1993, there were various correspondences exchanged between the parties regarding the reconciliation of account. Since the amount was not paid by the defendant, as claimed, the plaintiff filed the suit on 03.08.1993 claiming the amount, of course basing also on the admission of the defendant vide letters dated 18.06.1986, 01.08.1998 and 26.06.1992. Along with the suit, various applications were filed for interim injunction, attachment of immovable property before judgment etc., In fact, application No. 5665 of 1995 was filed for appointment of an independent auditor to inspect and reconcile the accounts from 1963 to 1992. This Court, by an order dated 02.04.1998, allowed Application No. 5665 of 1995 and M/s. Sarathy and Vasu, were appointed as auditors to reconcile the account. The auditors were also directed to make independent inspection and reconcile the accounts from 1963 to 1992. The auditor appointed by this Court also filed interim as well as final report. Based on the auditor report, the suit was decreed and the defendant was directed to pay a sum of Rs.1,59,51,588/- with interest at the rate of 18% per annum and 12% from the date of decree. 4. The case of the defendant/appellant is that the defendant is acting as consignment agent from 1974 and there is no written agreement. The suit ought to have been filed for rendition of account and not for recovery of amount, therefore, the suit is not maintainable. Unless the books of accounts of both the plaintiff and the defendant are disclosed to each other, the liability to pay the amount cannot be ascertained. The defendant submitted weekly https://hcservices.ecourts.gov.in/hcservices/ sales and stock statements to the plaintiff. The defendant, as agent, is entitled to deduct distribution charges, handling charges and reimbursement of 50% of the magazine licence fee at the time of making weekly remittances against the dues. The defendant raises debit notes as against other expenses. At the time of closing the accounts, the plaintiff used to send the reconciled statement for the year and the statement of the balance due and payable on each consignment agent on a specified date. The reconciliation is carried forward as opening balance in respect of the said consignment agent for the subsequent period. The accounting process starts with the dispatch by the consignment of the records connected with sales effected by the agent from time to time. It is on the basis of these statements and records like invoices etc., a principle, like the plaintiff, account these transaction. The relationship between the plaintiff and defendant was cordial till 1988. The allegation of the plaintiff that there were huge amounts due seemed unrealistic. The defendant sought the services of a professional auditor to clarify the situation of outstanding dues and to speed up the matters to scrutinise the accounts. The auditor, after study of accounts informed that ledger to ledger reconciliation of the plaintiff and the defendant books have to be done to arrive at a decision. During 1989 to 1990, the plaintiff took steps like contacting the customers directly to oust the defendant as agent from the territory. An assurance was given that the defendant would be paid commmission even in respect of all such sales done directly by the plaintiff in the territory of the defendant, but it was not adhered to. The discriminatory sale policy adopted by the plaintiff completely kept the defendant out of business. In any event, the suit, as filed, for recovery of money is not maintainable and the suit ought to have filed for rendition of account. 5. We have heard the learned Senior counsel for both sides and perused the materials on record. Before the learned single Judge, both sides have let in oral and documentary evidence. On behalf of the Plaintiff, Mr. A. Vasudeva Moorthy was examined as PW1 and Exs. P1 to P61 were marked. On behalf of the defendant Mr. D.P. Padmanabhan was examined as DW1 and Exs. D1 to D17 were marked. Mr. K. Vasudevan, Auditor, was examined as Court witness – CW1 and Exs. C1 to C3 were marked as Court documents. 6. (i) The learned senior counsel for the defendant/appellant would mainly contend that the suit, as filed, is not maintainable. The plaintiff ought to have filed the suit for rendition of account and not for recovery of money. Further, to set out the nature of transaction between the parties, there was a credit balance of Rs.77 lakhs and it required necessary reconciliation of accounts if the account book of both the plaintiff and defendant are disclosed to each other, which according to the learned senior counsel for the appellant was not done. Therefore, even the reconciliation made by the auditor and the report of the auditor appointed by the learned single Judge is not correct and the appellant is not liable to pay the suit claim https://hcservices.ecourts.gov.in/hcservices/ (ii) The learned senior counsel for the defendant/appellant would mainly contend that there is a need for reconciliation of accounts from the start point of the business. According to the learned senior counsel for the defendant/appellant, the net amount would be due only from the plaintiff and not from the defendant. (iii) The learned Senior counsel for the defendant/appellant also brought to the notice of this Court that the defendant/appellant had filed counter claim for rendition of true and proper accounts and valued the counter claim at Rs.1 lakhs, which was erroneously dismissed by the learned single Judge. (iv) The appellant was one of the consignment sales agents in respect of the Southern States. The plaintiff/respondent is manufacturer of machineries. As an agent, the defendant/appellant is entitled to certain benefits namely-- (i) The distribution and handling charges on products supplied by them on behalf of the plaintiff (ii) Reimbursement of transportation charges on stock transfers from factories (iii) Any other expenditure actually incurred on behalf of the plaintiff in respect of stock transfers (iv) Reimbursement of turnover tax paid on behalf of the plaintiff (v) Wagon clearance charges for the products dispatched by wagon to their magazines (vi) Ex-gratia depending on the over all performance of such consignment agent (VII) Reimbursement of 50% of the magazine licence fee and the excess storage fee wherever applicable. (v) Therefore, the defendant/appellant would submit the weekly sales and stock statement to the plaintiff/respondent and he is also entitled to deduct distribution and handling charges and commission of 60% of magazine licence fee at the time of making weekly remittances against the dues. According to the learned senior counsel for the appellant, the accounts between the plaintiff and the defendant is a mutual running account wherein the actual state of affairs can be known only if the account books of both the plaintiff and defendants are disclosed to each other for reconciliation. (vi) The jural relationship between the parties cast legal obligation on the defendant to know the amount collected directly collected by the plaintiff from the buyers so that the defendant can make corresponding entries in their books of accounts and deduct the amount payable to the plaintiff. (vii) According to the learned senior counsel for the appellant, the nature of transaction between the plaintiff and the defendant would fall under four categories and they are (i) bills were raised and payments were directly received by the defendant's magazine (ii) bills were raised by the defendant and the payments were received by the plaintiff in its name from the customers https://hcservices.ecourts.gov.in/hcservices/ drawing supplies from the defendant's magazines (iii) bills were raised by the defendant and the payments were received by the plaintiff directly for the supplies made from the plaintiff's factory (iv) bills were raised and payments were received by the plaintiff from the customers who received the supplies directly from the plaintiff's factory. (viii) According to the learned senior counsel for the defendant/appellant, the learned single Judge passed the decree and judgment only on the basis of the report of the Auditor but the report cannot be taken into account at all as there is no corresponding rectification of the account made between the parties. Therefore, the learned senior counsel for the appellant would contend that the suit could have been filed by the plaintiff only for rendition of account and not for recovery of money. If the suit is filed for rendition of account, then it could be easily ascertained that the accounts has not been reconciled at all. 7. (i) On the contrary, the learned Senior counsel appearing for the plaintiff/ respondent would contend that the plaintiff, being a manufacturer of explosives and detonators, appointed the defendant/appellant as a consignment sales agent for four southern States namely Tamil Nadu, Andhra Pradesh, Kerala and Karnataka in the year 1963, although there was no written contract. During the course of such business transaction between the plaintiff and the defendant, the defendant started defaulting in remitting the amount due to the plaintiff and in this regard, there were exchange of correspondence between them. According to the learned senior counsel for the plaintiff/respondent, in the letters dated 18.06.1986, 01.08.1988 and 26.08.1982, the defendant/appellant admitted his liability to the tune of Rs.1,96,57,000/-. Though originally the suit was filed only claiming Rs.2,13,00,000/- towards outstanding amount, the plaint was amended to include a further sum of Rs. 31,88,698/- being the tax liability payable by the defendant and the suit claim was accordingly enhanced. (ii) The plaintiff/respondent, in order to settle the controversy between the parties in so far as reconciliation of the accounts is concerned, agreed to have the examination of the accounts from the year 1963 to 1984 and the accounts have been reconciled by appointing auditor from 1963 to 1992 for a period of 30 years. The auditor took four years to finalise the report and determined the sum of Rs.1,69,51,588/- payable by the defendant as against the suit claim of Rs.2.13 crores even though the admitted liability of the defendant himself at Rs.1.96 crores. Even after the report was submitted, the defendant/appellant is dragging on the matter. When the defendant is unable to point out any error or deviation in the report submitted by the auditors, the learned single Judge is right in decreeing the suit (iii) In so far as the averment that the suit ought to have been filed for rendition of account instead of seeking the relief of recovery of amount, the learned senior counsel for the plaintiff/respondent submitted that it is a fallacy as the learned single Judge has appointed an auditor to reconcile the account and on the date when the suit was filed, there was an admission of the https://hcservices.ecourts.gov.in/hcservices/ part of the defendant to pay certain amount and therefore, it is not open to the defendant/ appellant to contend that the suit is not maintainable. In this context, the learned Senior counsel for the plaintiff/respondent relied on the decision of the Honourable Supreme Court reported in (K.C. Skaria vs. Government of State of Kerala) 2006 2 SCC 285 to contend that the suit for rendition of account is an unusual form of relief to be granted only under specific circumstances and such an argument cannot be made by the defendant/appellant at this stage. Therefore, the learned senior counsel appearing for the plaintiff/ respondent prayed for dismissal of this appeal by confirming the decree and judgment passed by the learned single Judge. 8. The main ground of attack made by the learned senior counsel for the defendant/appellant is that the suit filed by the repsondent/plaintiff for recovery of money is not maintainable and the suit ought to have been filed for rendition of account. In this connection, we have to analyse the background of the case. The appellant and the respondent herein were associated in business from 1963. The appellant was working as a sole agent. In the year 1974, the appellant became the consignment sales agent. The modus operandi of the transaction was the defendant use to send weekly sales and stock statement to the plaintiff and the defendant, as an agent is entitled to deduct distribution charges, handling charges and reimbursement of 50% of magazine license fee and the excess storage fee, wherever is applicable, at the time of making weekly remittances against the dues. The appellant, as an agent, would raise debit note as against the other expenses. At the time of closing the accounts, the plaintiff/ respondent used to send reconciliation of the accounts for the year and the statement of the balance due and payable for each consignment on a specified date. When reconciliation of accounts is confirmed by the agent, the balance is carried forward as opening balance in respect of the said consignment of the agent for the subsequent year. 9. According to the plaintiff/respondent herein as well as the defendant/ appellant, the crux of the issue involved in this appeal for adjudication is with respect to four points namely (i) bills raised and payment received by the defendant (ii) bills raised by the defendant and the payments were received by the plaintiff in its name from the customers drawing supplies from the defendant magazine (iii) bills were raised by the defendant and payments were received by the plaintiff directly for supplies made directly from the plaintiff's factory and (iv) bills were raised and payment received by the plaintiff from the customer, who received the supplies directly from the plaintiff's factory. 10. In this connection, it is necessary to point out that the term 'magazine' would denote the place where the goods (explosives) are kept by the defendant which the defendant brought from the plaintiff. The contention of the defendant/appellant is in certain cases, referring to one example in the first category, there will be a reduction in the stock of the defendant and money will given to https://hcservices.ecourts.gov.in/hcservices/ the defendant directly. Then, the defendant would be liable to amount for both the stock and the money. 11. In the second category, the stock of the defendant would go down, the sundry creditors would go up but the cash would be received by the plaintiff. To illustrate, 'A' has purchased to whom defendant would supply the stock. 'A' would be shown as debtor in the defendant's book. When 'A' pays money directly to the plaintiff (not defendant) there will be no entry in the accounts of the plaintiff. 12. In the third instance, the sundry debtors in the defendant book would go up, but there will be no change in the stock and the sundry debtors would remain the same even after the purchaser directly pays to the plaintiff. 13. In the last segment, the defendant would be entitled to atleast overriding the commission and nothing more. 14. Therefore, according to the learned Senior counsel for defendant/appellant, unless the entire accounts are reconciled from day one, from either of the parties, there will not be a proper reconciliation or the amount arrived therein will not be the correct amount. According to the learned senior counsel for the defendant/appellant, this was also insisted by the defendant from the day one. 15. No doubt, upto 1988, the relationship between the plaintiff and defendant were cordial. Therefore, according to the learned Senior counsel for the defendant/appellant, there cannot be any argument that huge amount were due and it is only an unrealistic. That is why the defendant originally sought for appointment of a professional auditor to clarify this situation even during the year 1989-1990. At that time, the plaintiff, according to the defendant, took every steps to contact the customers directly to oust the defendant as agent from the territory. In this context, the learned senior counsel for the defendant/ appellant would contend that there was never any agreement between the parties, but unfortunately, it is not so, as proved by the parties as per the admission made in the letters mentioned below:- S.No. Date of letter Amount due Exhibit 1. 10.06.1986 Rs. 47,95,548/- Ex.P1 2. 01.08.1988 Rs.1,08,63,942/- Ex.P2 3. 26.08.1992 Rs.1,96,57,000/- Ex.P24 16. In this connection, it is worthwhile to mention about the report of the auditors, who were appointed by this Court. In fact, a clarification was sought for by the appellant at the time of appointment of the auditor and this Court also directed to take complete accounts, right from the year 1963 to 1994. In the auditors report, it was clearly stated as to how they have https://hcservices.ecourts.gov.in/hcservices/ approached the problem namely by verification of the ledger extract of both the plaintiff and the defendant for the period 1963 to 1994, verification of voucher, debit notes, credit notes, weekly costing sheet and other relevant correspondence in their opinion considered necessary. The auditors also given details of the transaction took place between the period from 1962 and 1984 originally and for the year ending 30th June 1963 upto 1981 after verifying all the accounts. They have also clearly stated that there was no material differences arise between the accounting books of the Southern Southern Explosives Company Pvt Ltd (defendant) and Gulf Oil Corporation Limited (plaintiff). Finally, they have concluded that a sum of Rs.1,69,59,588/- is due and payable by the defendant, even though the plaintiff claimed a sum of Rs.2,13,00,000/- in the suit. 17. Mr. Vasudevan, Auditor was examined as Court Witness No.1. Even in the cross-examination at the instance of the counsel for the defendant, CW1 had answered that all the figures are made available and the reconciliation was carried out in accordance with the normal accounting practice. Further, he has also clarified that the auditors have approached the plaintiff and defendant at various point of time and obtained clarification, both orally as well as in writing. It was clearly stated by CW1 that "we stand by our final report dated 23.03.2000". 18. An attempt was made by the learned Senior counsel for the appellant contending that in so far as Rs.15.23 lakhs is concerned, since the auditors have expressed their inability to form an opinion, the audit report cannot be considered as a correct one. For this argument of the leanred Senior counsel for the appellant, it was replied by the learned Senior counsel for the respondent that this fact was clarified by the auditors in point No.7.3 of the second report. Point No.7.3 of the second report reads as follows:- "7.3 As per our interim report, the amount due by SEC to IDL was stated to be Rs.51,82,016/- which was subject to non- inclusion of reimbursement claim to the tune of Rs.24,80,705/-. We have further examined the relevant records and find that SEC as per their letter dated 27.03.1992 has admitted its claim to the extent of Rs.8,97,810/-. It appears that the reimbursement claim to the extent of Rs.24,20,703 (-) Rs.8,97,210/- = Rs.15,23,495/- lakhs represents reimbursement claim made by SEC and not admitted by IOL. Therefore, this sum of Rs.15,23,495/- represents the disputed item which we are unable to comment upon. We are of the opinion that the claim of SEC to the extent of Rs.8,97,210/- is to be paid by IDL. 19. Therefore, it is not open to the appellant, at this point of time to contend that the auditors have expressed their inability to form an opinion with respect to a particular aspect and therefore, the audit report is not correct. https://hcservices.ecourts.gov.in/hcservices/ 20. A further attempt was made by the learned Senior counsel for the appellant to demonstrate that Ex.B5, letter dated 14.08.1992 was not considered by the auditors during the reconciliation process and it was admitted by CW1 himself in the cross-examination. When we analyse Ex.B5, it was a letter dated 14.08.1992 written by Southern Explosives Limited to Ideal M/s. IDL Chemicals Limited wherein they have pointed that "as per the earlier transaction by consignment sale, the non-singareni/MMDC dues is to the tune of Rs.76,43,000/- and therefore, the amount already in credit for the last five years given by the defendant is to the tune of around Rs.77 lakhs. Further reconciliation for prior periods would be atleast result in similar amounts.... Under these circumstances, we are unable to understand how you can ask us to pay any further amounts until accounts are reconciled." In the evidence of CW1, it was categorically stated that Ex.D-17 series are working sheets and they were prepared by the auditors from and out of the ledger extract given by the defendant, then, after getting clarification from the office of the defendant, they have got it with the records of the plaintiff and thereafter, they have completed the conciliation. Therefore, the circumstances under which CW1 deposed that they could not form an opinion is when in normal accounting practice, both the parties will have to accept or not to accept certain entries, but in this case, since the plaintiff has not accepted the debit note, at the same time the defendant placed the facts before them, they have stated in their preliminary report that they were unable to form an opinion with regard to these entries. It is further clarified in the cross-examination that in a subsequent report, when the documentary evidence in the form of letter of the defendant is available, wherein the defendant detailed the debit note to the extent of 8.45 lakhs, for which supporting document are avialable, they have stated that the plaintiff should have considered