THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY AND THE HON’BLE SRI JUSTICE P.DURGA PRASAD A.S.No.21 of 2003 Date: 19th January, 2011 Between: Sri Krishna Pharmaceuticals (P) Ltd., C-4, Industrial Area, Uppal, Hyderabad rep. by its Chairman V.V.Subba Reddy …Appellant/Plaintiff and 1. M/s.Sarvodaya Laboratories, 32-B, Sindhapura Industrial Estate, S.V.Road, Goregaon (West), Bombay – 400 062. …Respondent/defendant *** THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY AND THE HON’BLE SRI JUSTICE P.DURGA PRASAD A.S.No.21 of 2003 JUDGMENT: This Appeal is directed against the judgment and decree, dated 13.09.2002 passed in O.S.No.236 of 1995 on the file of the Principal Senior Civil Judge, R.R. District, at L.B.Nagar, Hyderabad, whereby and whereunder the learned Senior Civil Judge dismissed the suit of the plaintiff for recovery of a sum of Rs.10,05,834.90ps. 2. a) The appellant is the plaintiff and whereas, the respondent is the defendant in O.S.No.236 of 1995. The plaintiff is a Company registered under the Indian Companies Act doing business in pharmaceuticals. The plaintiff supplied pharmaceutical powder to the defendant worth of Rs.1,04,900.60ps. on 16.03.2002 under Bill No.20; Rs.4,25,186.30ps. on 21.04.1992 under Bill No.25 and Rs.4,09,125/- on 04.05.1992 under Bill No.32. The plaintiff opened an account in respect of the material supplied to the defendant. The defendant converted the bulk drugs into paste and made it into granules and thereafter into tablets. The defendant failed to pay the amount of Rs.9,39,211.90ps. being the value of the raw-material supplied under the above referred three invoices. A notice dated 23.03.1995 was caused to the defendant demanding payment of the amount under the above referred three invoices. The defendant neither issued any reply nor paid the demanded amount. Hence, the suit for recovery of Rs.10,05,834.90ps. with interest thereon at 24% p.a. b) The defendant filed written statement disputing its liability to pay the suit amount. The written statement, in brief, is: The plaintiff supplied paracetamol powder to the defendant and the defendant converted the paracetamol powder into tablets and supplied the same to the plaintiff. The account between the plaintiff and the defendant is open, mutual and current account. The statement of account indicates that the defendant is not liable to pay any amount to the plaintiff. The plaintiff filed the suit based on three invoices concealing the true state of transactions between the parties. The three invoices represent only part of the whole transaction between the parties. There have been debts and credits in the transaction. With the material supplied by the plaintiff, the defendant manufactured paracetamol tablets and exported to Logos and London. The tablets sent to Logos returned on the ground that they contained moisture and fungus. Thereupon, the defendant informed the plaintiff and raised debit notes in the name of the plaintiff for the value of the material, which was returned by the foreign buyer. The account between the parties is mutual, open and current account, and therefore, filing of the suit by the plaintiff basing on three invoices cannot be sustained. The defendant is not liable to pay any amount to the plaintiff. c) The trial Court settled the following issues for trial: i) Whether the plaintiff is entitled for recovery of Rs.10,05,834-90ps. from the defendant? ii) Whether the defendant is entitled for compensatory costs? iii) To what reliefs if any? d) On behalf of the plaintiff, one witness was examined as PW.1 and seven documents were marked as Exs.A1 to A7. On behalf of the defendant, one witness was examined as DW.1 and seventy-six documents were marked as Exs.B1 to B76. e) The trial Court, on considering the material brought on record and on hearing the counsel appearing for the parties, came to the conclusion that the plaintiff suppressed the running account of the defendant and projected the three invoices only and therefore, the suit filed by the plaintiff is liable to be dismissed. Accordingly, the suit of the plaintiff ended in dismissal, by judgment dated 13.09.2002. Hence, this appeal by the appellant/plaintiff. 3. Heard learned counsel appearing for the appellant-plaintiff. 4. Learned counsel appearing for the appellant/plaintiff submits that the suit is based on three invoices, which have been exhibited as Exs.A1 to A3, and the respondent/defendant having received the notice, dated 23.03.1995, failed to issue any reply and that itself indicates that the respondent/defendant did not choose to dispute the claim of the plaintiff, in which case, the suit of the plaintiff deserves to be decreed. Learned counsel took us to the statement of account, which has been exhibited as Ex.A7, in support of his contention that the account is not a mutual, open and current account. In support of his submissions, reliance has been placed on the decision of this Court in A.M.Shaik Ali v. D.S. & A. Co. Employees[1] and the decision of the Delhi High Court in Era Constructions (India) Ltd. v. D.K.Sharma, Prop.Keshav Security Services[2]. By referring these two decisions, learned counsel contends that the transactions between the plaintiff and the defendant do not constitute a running account and therefore, the suit filed by the plaintiff basing on three invoices, which have been exhibited as Exs.A1 to A3, is maintainable. 5. In A.M.Shaik Ali’s case (1 supra), a learned Single Judge of this Court held that to categorize a transaction is mutual, open and current account, one party has to become a creditor to the other at one point of time and at another point of time, the other party, who was a creditor, has to become a debtor, which brings out the essence of mutuality in the accounts. Para.14 of the judgment cited needs to be noted and it is thus: “14. The reason given by the lower appellate court for holding that the suit transaction is not mutual, open and a current account is that it is not established that during the dealings, one party has become creditor to the other and at another time, the other party who was a creditor has become a debtor to the other which brings out the essence of mutuality in the accounts. That observation of the learned appellate Judge is falsified by the evidence of PW 1 and the documentary evidence produced by him. The evidence of PW 1 shows that by the end of the years 1969-70 and 1971-72, the plaintiff was due to the first defendant whereas, by the end of the years 1967-68, 1970-71 and 1972-73, the first defendant was due Rs.1,078-63. Rs. 11,833-46 and Rs.5,983-33 respectively to the plaintiff. The evidence of PW 1 is supported by Exs. AI to A5 ledgers. Thus the reciprocity of demands is established both by oral and documentary evidence. There is neither plea nor proof that the balance was struck at any time and the amount was settled. If so. as held in Narayana Murthy Vs. Pitta Venkamma (1) 1963 (2) An W R 108, the suit transaction is an account which has not been closed by settlement, and being an unsettled account where the parties contemplate the continuance of future dealings between them, it is a running, unsettled and an unclosed account and hence it is an open and current account. The Supreme Court held in Hindustan Porest Co. Vs. Lal Chand (2)AIR 1959 SC 1349, that the requirement of reciprocal demands involves transactions on each side creating independent obligations on the ether and not merely transactions which create obligations on one side, those on the other being merely complete or partial discharge of such obligations. This test of reciprocal demands is satisfied by the evidence of PW 1 referred to above, which shows that in certain years the plaintiff was due to the first defendant whereas in some other years the first defendant was due money to the plaintiff. Thus, there were reciprocal demands bringing the suit transaction within the scope of Art. 1 of the Limitation Act. To the same effect is the decision of the madras High Court in Baju and Ors. Vs. L Kumaramuthu (3) AIR 1975 Madras I wherein it is held that unless it is established that during the dealings one party has become a creditor to the other and at another time the ether party who was a creditor has become a debtor to the other which brings out the essence of mutuality in the account it ceases to be a mutual open and current account. The evidence of PW 1 referred to above satisfies this test of mutuality in the accounts bringing the suit transaction within the scope of "mutual, open and current account' As laid down in L Kesava Chettiar Vs. M M Ramanatha (4) AIR 1959 Madras 470 shifting balance is a test of mutuality.” 6. In Era Constructions India Ltd.’s case (2 supra), the Delhi High Court held that for an account properly to be called ‘Mutual Account’ there must be mutual dealing in the sense that both the parties come under liability under each other and to be mutual, there must be transactions on each side creating independent obligations on the other, and not merely transactions which create obligations on the one side, those on the other being merely complete or partial discharges of such obligations. 7. It is the contention of the appellant/plaintiff that the three invoices, which have been exhibited as Exs.A1 to A3, are independent transactions and therefore, the suit is maintainable. Whereas, it is the contention of the respondent/defendant that the account between the parties is open, mutual and current and therefore, the suit based on some of the entries in the running account is not maintainable. 8. The only issue that calls for adjudication in this appeal is, whether the suit filed by the plaintiff based on Exs.A1 to A3 invoices is maintainable? 9. N.V.S.T.Sai was examined on behalf of the plaintiff as PW.1. He admits in cross-examination that the plaintiff supplied bulk drugs to the defendant and the defendant manufactured tablets out of the raw- material supplied by the plaintiff and marketed the tablets. He showed his ignorance with regard to any of the transactions between the parties. He admits in the cross-examination that he has no personal knowledge about the suit transactions. For better appreciation, we may refer the cross-examination of PW.1 in his own words and it is thus: “For the last two years, I have been working in the plaintiff’s firm. I had no personal knowledge about the suit transaction. It is a fact that one Uday Shanker was working in my place at the relevant time. I do not know whether the suit transactions were within the personal knowledge of the said Uday Shanker. We supplied bulk drugs to the defendants. Under Ex.B23, the defendant informed us that the tablets manufactured by it through our bulk drugs were not discoloured. Ex.B26 shows that the representatives of both the companies collected two sets of samples. Ex.B.26 bears the signature of Uday Shankar on behalf of the plaintiff company. I do not know whether Uday Shankar reported that the tablets manufactured with the aid of the bulk drug supplied by us were got discoloured. I do not know whether as against the order of the defendant to supply B.P. bulk drugs we supplied I.P. bulk drugs. I do not know the mode of payment in the suit transaction. The plaintiff company maintained the account of the defendant company. I do not know whether the said account was filed in this Court. The defendant company is maintaining accounts of the plaintiff company. It is not true to say that the defendant company supplied paracetamol tablets to our company, and debited the cost of it to our account. It is not true to say that the defendant is not liable to pay the suit amount.” 10. L.B.Rathi, Managing Director of defendant Company, was examined as DW.1. He stated elaborately with regard to the transactions between the plaintiff and the defendant. He stated in the chief-examination that the defendant supplied tablets to the plaintiff worth of Rs.5,17,440/- on 26.02.1993. He also stated in the cross- examination that on the instructions of the plaintiff, the defendant despatched Paracetamol tablets to M/s.Dharam Charan, Arthi Society, Mani Nagar, Ahmedabad, vide Ex.B34 invoice. The value of the invoice is Rs.4,89,216/-. According to the defendant, the invoice amount has been debited to the account of the plaintiff. Ex.B33 is the account extract maintained by the defendant for the year 1992-1993, more precisely, from 1st April, 1992 to 31st March, 1993. A perusal of the account extract indicates that whenever raw-material is received from the plaintiff, the same is being credited to the account of the plaintiff and whenever amounts paid or tablets supplied to the plaintiff, the same were debited to the account of the plaintiff. It is suffice to refer the two debit entries in Ex.B.33. They are dated 23.09.1992 and 31.03.1993. The debit entry dated 23.09.1992 relates to the claim of inferior quality of the material supplied and the debit entry dated 31.03.1993 is in respect of the amount being adjusted. Ex.B34 is the letter dated 20.02.1993, whereunder the plaintiff instructed the defendant to raise invoice in favour of M/s.Dharam Charan, Arthi Society, Mani Nagar, Ahmedabad, for 5600 tins of Paracetamol tablets of 1000 each @ Rs.84/- + Tax (4% CST). It is the contention of the plaintiff that the defendant received the amount from M/s.Dharam Charan and therefore, debiting the said amount to the account of the plaintiff amounts to double benefit. The plaintiff having taken such a plea, failed to substantiate that the defendant received the amount from M/s.Dharam Charan. Ex.B35 is a letter dated 13.03.1993 addressed by the defendant to the plaintiff. The text of the letter reads as hereunder: “This has reference to the order placed by your Branch Manager Mr.Uday Shankar with us for Paracetamol Tablets IP 500 mg. Please find enclosed Proforma Invoice of Paracetamol Tablets IP 500mg duly signed by your Branch Manager Mr.Uday Shankar. As per your Branch Manager instructions the material was delivered at Bombay vide DC No.3006 dated 4.2.1993. We, are therefore, sending herewith Invoice No.0738 dated 26.2.93 for 5,600 X 1000s of Paracetamol Tablets IP 500mg. The Invoice value will be debited to your account.” Nothing is suggested to DW.1 when Ex.B35 has been marked that Mr.Uday Shankar had no authority to act on behalf of the plaintiff. Indeed, PW.1 admits that Mr.Uday Shankar worked as Branch Manager of the plaintiff at the relevant point of time. Ex.B36 is another letter addressed to the plaintiff with regard to debit note dated 23.09.1992 for Rs.4,78,500/-. The text of the letter reads as hereunder: “Please refer our letter dated 14.08.1992 and personal discussions with Dr.V.V.Subba Reddy had with us at Bombay on 22.09.1992 and as agreed by him, we are enclosing herewith our debit note dated 23/09/1992 for Rs.478500/- towards our claim for rejection of our consignment of Paracetamol BP Tablets 16500 x 1000 Jars which were turned discoloured in Black/Grey. Further, as agreed by you, we shall supply to you Paracetamol Tablets manufactured by us from the Paracetamol powder supplied by you against balance amount payable to you.” The correspondence between the plaintiff and the defendant established that there was supply of raw-material by the plaintiff to the defendant and in turn, the defendant used to supply Paracetamol Tablets to the plaintiff. Therefore, the transactions between the parties are open, mutual and current. Selecting only three of the invoices in the transactions for filing the suit against the defendant is wholly impermissible. Even after the above referred three invoices, there are various transactions between the parties. As per Ex.B.33 account extract of the defendant, no amount is payable to the plaintiff. The trial Court considered the evidence brought on record in right perspective and found that the transactions between the parties are current and mutual and filing the suit basing on three items of the account is not maintainable. On re-appreciation of the evidence brought on record, we do not see any valid ground to interfere with the findings recorded by the trial Court. 11. Accordingly, the appeal fails and it is hereby dismissed. No order as to costs. ______________________ B.SESHASAYANA REDDY, J. _________________ P.DURGA PRASAD, J. Date: 19th January, 2011. cs THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY AND THE HON’BLE SRI JUSTICE P.DURGA PRASAD A.S.No.21 of 2003 (Judgment of the Division Bench delivered by Hon’ble Sri Justice B.Seshasayana Reddy) Date: 19th January, 2011. THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY AND THE HON’BLE SRI JUSTICE P.DURGA PRASAD P.D.Judgments In 1) A.S.No.21 of 2003 2) MACMA No.794 of 2007 [1] 1991 (2) APLJ 192 [2] 2007 ILRDLH-16-1524 = 2008 DRJ -100-712