IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD TUESDAY THE NINETEENTH DAY OF APRIL TWO THOUSAND AND ELEVEN HON’BLE SRI JUSTICE B. PRAKASH RAO AND HON’BLE SRI JUSTICE G. BHAVANI PRASAD A.S. No.614 of 1999 Between: M/s. Ashok Agencies (Regd. Firm) rep. by Partner S. Sravan Kumar and others .. Appellants AND M/s. The Coastal Chemicals Ltd. and others .. Respondents JUDGMENT: (per G. Bhavani Prasad, J) An appeal against the judgment and decree in O.S. No.98 of 1991 on the file of the Senior Civil Judge’s Court, Kovvur, dated 04-08-1998. The parties are referred to herein as they are arrayed before the trial Court. The suit was filed for recovery of Rs.7,18,689-12 ps. and costs claiming that the plaintiff appointed the 1st defendant registered firm represented by the 2nd defendant as a wholesale dealer for sale of paper manufactured by it. The letter of dealership was dated 27-01-1989, while the supplies of paper started earlier from 13-01-1989. The 1st defendant had to deposit Rs.3,00,000/- as security, on which it is entitled to simple interest of 15 per cent per annum. The account between the parties specifically agreed to carry interest at 24 per cent per annum on the amounts due from the defendants to the plaintiff as per business custom and prevailing rate of interest. The defendants became due to Rs.5,35,297/- with interest after adjusting the security deposit by 31-03-1989. But even later the plaintiff supplied material out of good faith. But the defendants returned two truck loads without any intimation or reason. One truck load of material was adjusted in the account and the other truck load material was sent back to the transporter. The bank bills of the defendants dated 16-02-1990 and 11-03-1990 were dishonoured by the bank. As the defendants did not pay in spite of repeated demands and a registered notice dated 06-07-1991, the suit is for recovery of the amount with interest and as the defendants are not agriculturists and the suit transaction is a commercial transaction, interest at 24 per cent per annum is reasonable. The 3rd defendant was impleaded subsequently and hence, the suit. Defendants 1 to 3 resisted the suit contending that the 2nd defendant, whose name was wrongly given, is the Managing Partner of the 1st defendant. The dealership is admitted, but the letter of dealership dated 27-01-1989 did not stipulate any payment of interest. There was no contract to pay interest and the rate of interest claimed is usurious and penal. The defendants were never served with any copy of account and the adjustment of the security deposit by the plaintiff was without the consent of the defendants. Interest on security deposit ought to have been credited till the date of the suit. The material supplied by the plaintiff was substandard, on which two truck loads of material were returned. But the plaintiff did not adjust the material sent by the second truck worth Rs.1,32,000/-. It was learnt that the plaintiff requested the transporter to keep the stock in their godown for convenience. The amount of Rs.1,32,000/- ought to have been credited on 26-04-1990. The defendants sent a cheque for Rs.25,000/- with a letter dated 27-07-1991 and sent two further cheques for similar amounts. Even after the suit, the defendants sent another Rs.25,000/- through a cheque. The said sum of Rs.1,00,000/- has to be credited. Dealer being given trade discount is the prevailing practice between the parties, but, for about ten bills specified in the letter dated 25-09-1989, the plaintiff did not give credit discount, which was to a tune of Rs.38,757-17 ps. The plaintiff issued a telex message on 03-03-1989 about rise in prices from 01-03-1989, which was not applicable to pending orders. The plaintiff charged new prices under bills dated 01-04-1989 and 03- 04-1989 for old orders and thus, charged an excess of Rs.24,000/- at Rs.2,000/- per metric ton for 12 metric tonnes. As the plaintiff did not issue E1 forms, the defendants were subjected to sales tax and the defendants are entitled to recover the loss and the damages. The suit based on vague claims about the principal and interest is, hence, requested to be dismissed with exemplary costs. On such pleadings, the following issues were settled for trial: 1. Whether the plaintiff is entitled to recover the suit amount from the defendants ? 2. Whether the plaintiff is entitled to recover interest at the rate of 24 per cent per annum ? 3. To what relief ? During trial, P.Ws.1 and 2 and D.W.1 were examined and Exs.A.1 to A.11 and B.1 to B.18 were marked. The trial Court rendered the impugned judgment referring to the evidence of P.W.1, the Marketing Executive of the plaintiff, P.W.2, the Sales Accountant of the plaintiff and D.W.1, the 2nd defendant and the documents marked through them. The Court noted that the learned counsel for the plaintiff conceded that the defendants are entitled for the differential amount between old price and new price on the material supplied to them,which is Rs.24,000/-. It also noted that the plaintiff admittedly received Rs.1,75,000/- after the suit. The trial Court referred to Exs.B.6 to B.9 invoices specifying the rate of interest at 24 per cent per annum on delayed payments. The trial Court also inferred from Ex.A.1 dealership agreement about the transactions being subjected to trade practices that the plaintiff is entitled to charge interest. Interest was noted to have not been shown in Ex.A.2 account by the plaintiff, but the same was refused to be showing any absence of right to charge interest or waiver of interest. The trial Court opined that interest does not arise in a running transaction. The trial Court noted that during the currency of dealings, the plaintiff did not demand the defendants to pay interest on delayed payments to improve business and maintain cordial relationship. The trial Court concluded that the plaintiff, which agreed specifically to pay interest at 15 per cent per annum on the security deposit, waived its right of claiming interest during the period of continuing transactions with the defendants when the security deposit was not adjusted to the outstanding balance. The trial Court held that the right to interest accrues only from the date of stopping of business and final adjustment of the security deposit to the outstanding amount. The last transaction was noted to be on 16-03-1990 as per Ex.A.11 and the trial Court held that the interest due was only Rs.2,73,442.50 ps. and the principal due was Rs.8,35,295/- as on 12-08-1991. The security deposit with interest at 15 per cent per annum came to Rs.3,94,598/- and after deducting the same, Rs.7,14,139.50 ps. were due by 12-08-1991, which includes interest at 24 per cent per annum. The trial Court also held that the defendants are entitled to adjustment of Rs.1,35,000/- towards the second truck load material as admitted in Exs.B.3 and B.4. The trial Court did not agree to give any trade discount of Rs.38,000/- to the defendants as Ex.B.9 invoices were consignment sales. The trial Court itself noted that under Ex.A.1, the plaintiff promised to give trade discount on all the sales, but relied on P.W.2 to refuse such discount on consignment sales. The claims of the defendants about E1 forms and sales tax of Rs.70,000/- were rejected in the absence of any evidence and the trial Court, hence, concluded that out of the suit claim calculated at Rs.7,14,139.50 ps., Rs.1,75,000/-, Rs.1,35,000/- and Rs.24,000/- have to be deducted and the sum of Rs.3,80,139.50 ps. was due with interest on Rs.3,76,297/- at 24 per cent per annum from the date of the suit till the date of decree and at 6 per cent per annum thereafter till realization with proportionate costs. The suit was decreed accordingly with personal liability for the 2nd defendant. The three defendants preferred the present appeal contending that Ex.A.1 dealership agreement did not specify or prove any business custom for payment of interest at 24 per cent per annum. Trade discount was given for Exs.B.6 to B.8 invoices but not for Ex.B.9 invoices. The defendants are entitled to interest at 15 per cent per annum on security deposit up to 19-04-1991, but they were given interest only up to 31-03-1989, which is contrary to the admission of P.W.1. Interest could have been directed to be paid by the defendants only from 19-04-1991 even according to the reasoning of the trial Court and the interest at 24 per cent per annum is excessive and exorbitant. The plaintiff himself did not claim interest on credit sales and Clause 6 of Ex.A.1 was misinterpreted. Exs.A.2 and A.11 are inconsistent and P.W.1 admitted that the defendants are entitled to trade discount on all the sales contrary to P.W.2. The loss due to not sending E1 forms at Rs.70,000/- should have been granted and the 2nd defendant could not have been made personally liable. Hence, the appellants sought for reversal of the impugned judgment and decree. The Official Liquidator, High Court of Andhra Pradesh, was impleaded as 2nd defendant, as the 1st respondent company was wound up on a reference by BIFR in R.C.C. No.6 of 2000 and the cause title was amended even in respect of the 1st respondent as being represented by the Official Liquidator as per the orders in C.M.P. Nos.4477 of 2004 and 5546 of 2004 dated 10-03-2004. The learned advocates for both parties are heard. The point that arises for consideration in this appeal is about the extent of liability of the defendants to the plaintiff in respect of the suit transactions on broad human probabilities arising out of the material on record. The Marketing Executive of the plaintiff as P.W.1 admitted undertaking to pay interest at 15 per cent per annum over the security deposit of Rs.3,00,000/-. He also admitted that two truck loads of paper were returned by the defendants to the plaintiff, out of which only the value of one truck load was credited to the account. He also admitted that the plaintiff received Rs.1,75,000/- from the defendants after the suit. He further admitted that Ex.A.1 dealership agreement does not contain interest clause over the due amounts. He further admitted that Ex.A.2 extract of account does not show any charging of interest on the earlier bills. He also admitted that interest of 15 per cent per annum on the security deposit of Rs.3,00,000/- was not credited for 1989-90 and 1990-91, while the security deposit was adjusted in September, 1991 at the time of filing of the case. That interest from 01-04-1989 to September, 1991 on the security deposit of Rs.3,00,000/- was not paid, was specifically admitted, while P.W.1 also stated that the defendants are entitled to interest for that period. While admitting that there was no record to show the termination of dealership in April or May, 1990 as claimed, he expressed no objection for crediting the interest due to the defendants from 01-04-1989 to September, 1991. P.W.1 also admitted return of two truck loads of material under Exs.B.1 and B.2 lorry receipts and Ex.B.3 message. He also admitted that there is nothing in writing to show that the plaintiff informed the 1st defendant that the second load material was not manufactured by them. He also admitted that under Ex.B.5, Kedar Raman, their General Manager, Marketing, undertook to issue credit notes for the returned consignment and the approximate value of the material was stated to be Rs.1,36,000/- and Rs.1,37,000/- respectively. P.W.1 also stated that the dealer is entitled to trade discount which was given under Exs.B.6 to B.8, but not given under Ex.B.9. He did not assign any reason for the same and he further admitted about the difference of Rs.2,000/- per metric ton for 12 metric tonnes in the invoices raised between 01-04-1989 and 03-04-1989. He also stated that they have to give E1 forms to the defendants if they furnish C forms, but denied the defendants fulfilling the conditions for issue of E1 forms. He claimed that C forms were not produced and the value of the consignment was not stated, due to which E1 forms were not issued. P.W.2, the Sales Accountant, who prepared Exs.A.2, A.3 and A.10, claimed that no trade discount will be shown in consignment sales, but did not assign any specific reason or practice for the same. He also admitted that there is no documentary evidence to show that the trade discount will be shown separately for the invoices. P.W.2 did not bring the ledgers relating to the account and he admitted that till the termination of dealership and refund of security deposit, interest at 15 per cent per annum has to be paid by 31st March every year. He also admitted not crediting interest on the deposit as on 31-03-1990 and 31-03-1991. He tried to make such interest conditional on payment of interest on the amounts due to them. He admitted that no amounts were shown in Ex.A.2 towards interest. P.W.2 was recalled to furnish Ex.A.11 statement of account, in which interest on security deposit was said to have been calculated till the date of filing of the suit. The witness claimed Rs.7,55,580.55 ps. to be due as per the said statement. The plaintiff did not examine the other officers or employees of the plaintiff connected with the suit transactions referred to by P.W.1 and P.W.2. The 2nd defendant as D.W.1 claimed interest on Rs.3,00,000/- security deposit after 31-03-1989 up to 09-04-1991 when the said security deposit was adjusted by the plaintiff towards the outstanding balance. He also claimed that there was no agreement to pay interest on the credit supplies and such interest was not charged earlier, as seen from Ex.B.3 account copy. He claimed to have paid Rs.1,75,000/- in seven instalments and also claimed credit discount for Ex.B.9 set of invoices like under Exs.B.6 to B.8. He claimed to have addressed Ex.B.14 claiming a trade discount of Rs.40,764.39 ps. in respect of ten invoices. He claimed entitlement to old price and the difference of Rs.24,000/- in respect of 12 metric tonnes supplied in pursuance of the orders prior to 01- 04-1989. He also referred to the return of two truck loads of material under Exs.B.1 and B.2, out of which one consignment was kept with the transporter by the plaintiff for want of gate pass. He also complained against non-issue of E1 forms compelling him to pay sales tax of Rs.70,000/-. He admitted not producing the account books of the 1st defendant firm, which is an income tax assessee, and though he claimed that he filed the record to show that he sent C forms to the plaintiff to enable it to send E1 forms, no such record was filed. He admitted not considering payment of Rs.70,000/- towards sales tax in the written statement and he denied the denials about the correspondence produced by him. He denied any trade practices to pay interest and though he admitted that the invoices mentioned the rate of interest and trade discount, he denied any difference between consignment invoices and ordinary invoices. The suggestion to D.W.1 that he took back the goods from the transporter in respect of the second truck load, was not even the evidence of P.Ws.1 and 2. On such evidence, the conclusions of the trial Court about the liability to deduct Rs.1,75,000/- towards payments received by the plaintiff subsequently, Rs.1,35,000/- towards the material returned prior to 12-08-1991 and Rs.24,000/- towards the excess price collected in respect of the materials supplied in pursuance of the orders prior to 01-04-1989 were not challenged by the plaintiff and the said conclusions have become final. The trial Court also, in spite of presuming a stipulation for payment of interest at 24 per cent per annum on delayed payments, concluded that the plaintiff waived its right of claiming interest during the period of continuance of transactions between the defendants and the plaintiff when the security deposit amount was not adjusted towards the outstanding balance. The trial Court concluded that the right to interest accrues only from the date of stoppage of business by the defendants and the date of adjustment of the security deposit towards the outstanding amount and not before. The trial Court also found that in accordance with Ex.A.11, the last transaction between the plaintiff and the defendants was on 16-03-1990, after which the defendants did not purchase any further material from the plaintiff and by which time Rs.10,06,551/- were found due from the defendants. This conclusion also remained unchallenged by the plaintiff and has become final. Coming to the trade discount, the trial Court upheld the distinction between consignment sales/invoices and ordinary sales/invoices based on the evidence of P.W.2. But when P.W.1 admitted about the entitlement of the defendants to trade discount without specifying any distinction between consignment invoices and other invoices, the defendants cannot be deprived of the trade discount on Ex.B.9 invoices. P.W.1 did not give any reason for not allowing trade discount on Ex.B.9 invoices and even P.W.2 admitted that there is no documentary evidence on this aspect. Why any distinction should be made between consignment invoices and other invoices was not explained by P.W.2 and on the admissions of P.W.1, the defendants should have been permitted trade discount of Rs.38,000/- also. So far as any loss sustained by the non-supply of E1 forms by the plaintiff is concerned, the defendants did not produce any material to show the payment of sales tax of Rs.70,000/- for that reason or their sending C forms to the plaintiff to enable the plaintiff to issue E1 forms. The trial Court refused to grant any relief due to the total absence of any evidence for the defendants in this regard, which conclusion cannot be found fault with. While delayed payments carrying interest at 24 per cent per annum was the specification in the invoices and not Ex.A.1 letter of dealership, there was no independent evidence of any such trade practices or custom in vogue uniformly and since long. While the security deposit carried interest at 15 per cent per annum, the delayed payments carrying interest at 24 per cent per annum stands in contrast and apart from the absence of any contractual rate for payment of such interest between the parties, the trial Court inferring the transactions to imply a right to charge interest to the plaintiff from the stipulation in Ex.A.1 about the transactions being subject to trade practices is not shown to be based on any commercial or jurisdictional principle. That it is the normal practice followed in business circles to charge interest on delayed payments appears an assumption by the trial Court without any evidentiary basis and the right of the plaintiff to charge interest even from 16-03-1990 may have to be, therefore, not on the basis of any contractual rate of interest of 24 per cent per annum, but on the basis of being deprived of the principal sum due while being liable to pay interest on the security deposit to the defendants in justice and equity and further in view of the stipulation in the invoices about the right to charge interest. In the absence of any contractual rate of interest, the then prevailing rates of interest adopted by nationalized banks for lending and borrowing or the prevailing rates of interest in the market have to be taken as the guide and it was submitted on behalf of the appellants that 16 per cent per annum was the then prevailing rate of interest. Both parties are not at dispute that including the interest payable on the security deposit of Rs.3,00,000/-, Rs.3,94,598/- were due to the defendants by 12-08-1991, the date of the suit claim. Rs.10,06,551/- being due to the plaintiff from the defendants towards the materials supplied up to 16-03-1990 is not in dispute. Ex.A.11 statement admits the value of the returned material dated 28-04-1990 at Rs.1,36,256/- and Rs.25,000/- paid on 23-11-1990 (23-01-1990) and Rs.10,000/- paid on 03-04-1991. The balance will be Rs.8,35,295/- due to the plaintiff. The value of the second truck at Rs.1,35,000/- as allowed by the trial Court and value of difference in price at Rs.24,000/- allowed by the trial Court have to be deducted from the amount due apart from the amount of Rs.3,94,598/- due towards the security deposit and interest up to the date of the suit. The return of two truck loads being in April, 1990, the difference in price and one payment of Rs.25,000/- also being earlier, it was only the payment of Rs.10,000/- that was about one year later. But irrespective of any marginal difference, for calculating the interest on the principal sum due, the two payments made, the two trucks returned, the excess price collected and the security deposit with interest can be justly and equitably deducted from the amount due as on 16-03-1990 towards the supplies made. The amount of trade discount allowed to the defendants also has to be similarly deducted from the principal sum and the balance has to be taken as the principal sum for the purposes of calculation of interest from 16-03-1990 up to the date of the suit. From the said sum, the payments made during the pendency of the suit to a tune of Rs.1,75,000/- have to be deducted. Future interest has to granted from the date of the suit till the date of decree and then till the date of payment on the suit sum, while giving credit to the payments made during pendency of the suit from time to time. Proportionate costs, of course, shall be granted on the sum decreed. If Ex.A.11, the contents of which are not in dispute, were to be taken as the basis for the conclusions with reference to broad human probabilities arising out of the oral and documentary evidence on record, the amount due has to be calculated as follows as broadly suggested in the reconciliation statements provided by the learned counsel for the appellants during hearing: : Amount due as on 16-03-1990 as per Ex.A.11 Rs. 10,06,551-00 Less: Amount of DD sent on 23-01-1990 shown as 23-11-1990 in Ex.A.11 Rs. 25,000- 00 ------------------- ----- Rs. 9,81,551-00 Less: Value of returned material dt.28-04-1990 accepted by plaintiff as shown in Ex.A.11 Rs. 1,36,256-00 ------------------- ----- Rs. 8,45,295-00 Less: Amount of security deposit plus interest as shown in Ex.A.11 Rs. 3,94,598-00 ------------------- ----- Rs. 4,50,697-00 Less: Amount sent by the defendant vide dated 03-04-1991 as shown in Ex.A.11 Rs. 10,000-00 ------------------- ----- Rs. 4,40,697-00 Less: Value of second truck load returned on 24-04-1990 Rs. 1,35,000-00 ------------------- ----- Rs. 3,05,697-00 Less: Value of difference in price allowed by Court Rs. 24,000-00 ------------------- ----- Rs. 2,81,697-00 Less: Value of trade discount Rs. 38,000-00 ------------------- ----- Amount due from defendants as on 16-03-1990 Rs. 2,43,697-00 Interest at 16% per annum from 16-03-1990 to date of suit i.e. 03-09-1991 for 537 days Rs. 57,366-00 ------------------- ----- Amount due as on the date of the suit Rs. 3,01,063-00 ------------------ ------ Interest from the date of the suit till the date of decree can be at the same rate of 16 per cent per annum in view of the transactions being commercial transactions and can be limited to the normal rate of 6 per cent per annum from the date of the decree till the date of realisation. The appeal has to succeed to that extent, but in the peculiar circumstances without costs. In the result, the judgment and decree in Original Suit No.98 of 1991 on the file of the Senior Civil Judge’s Court, Kovvur, dated 04-08-1998 are set aside and the Original Suit No.98 of 1991 is decreed for a sum of Rs.3,01,063/- with interest at 16 per cent per annum from the date of the suit till the date of decree and at 6 per cent per annum thereafter till realization on the principal sum of Rs.2,43,697/- with proportionate costs and the payments totalling to Rs.1,75,000/- made by the defendants during the pendency of the suit shall be given credit to towards part satisfaction of the decree debt on the respective dates of payment. The appeal is allowed accordingly in part without