Delhi High Court Clarifies Whether Summary Suit is Maintainable for Recovery Claims Based on Invoices and Ledger Accounts
Case Title: Modern Construction Company Delhi v. Hitech Enterprises
RFA(COMM) 76/2023 & CM APPL. 20581/2023
Date of Decision: 24th August, 2023
Coram: Hon’ble Mr. Justice Suresh Kumar Kait and Hon’ble Ms. Justice Neena Bansal Krishna
Introduction
The case revolves around an appeal filed in the High Court of Delhi against a judgment and decree passed in a suit under Order XXXVII of the Code of Civil Procedure, 1908 (CPC).
Factual Background
Hitech Enterprises, the respondent, a registered Partnership Firm engaged in trading and supplying construction material, including aggregates, supplied goods to Modern Construction Company Delhi, the appellant, pursuant to an Agreement. The goods were supplied from 03.08.2017 to 14.01.2019 through 280 sale invoices, totaling Rs. 72,19,425.50/-. The appellant made a partial payment of Rs. 48,78,736/- until 29.08.2020 but failed to pay the remaining principal amount of Rs. 23,40,689.50/- and the accrued interest. The respondent filed a suit under Order XXXVII Rule 3(5) of the Code of Civil Procedure, 1908, seeking recovery of Rs. 53,69,918.70/- along with interest at 18% per annum. The appellant, Modern Construction Company Delhi, filed the appeal against the respondent, Hitech Enterprises, after the lower court decreed the suit in favor of the respondent.
Key Legal Issues
The main legal issues revolved around the maintainability of the suit under Order XXXVII of CPC, whether the claims were based on individual invoices or a ledger account, jurisdiction of the court, the validity of the claimed interest rate of 18% per annum, and the quality of goods supplied.
Court’s Analysis and Observation
The Court analyzed whether the suit was based on invoices or a ledger account. It cited precedents to establish that invoices could be treated as written contracts, making suits under Order XXXVII CPC maintainable. However, the distinction between a “mutual account” and a “running and non-mutual account” was crucial. It emphasized that a mutual account involves reciprocal demands, while a non-mutual account reflects one party’s obligations.
The court examined whether the appellant had paid against specific invoices or made general payments. It clarified that a suit based on invoices could be maintainable under Order XXXVII CPC, but if the suit relied on a running and non-mutual account, it might not be maintainable under this order. The Court explored sections of the Indian Contract Act, 1872, relating to appropriation of payments and determined that the respondent’s claim was based on the ledger account, reflecting non-mutual transactions. It explained that when a debtor makes a payment without specifying the debt, the creditor may apply it at his discretion. The court noted that the respondent had appropriated payments in its ledger account based on these principles. The Court also addressed jurisdictional concerns raised by the appellant.
Decision of the Court
The Court held that the suit was based on the ledger account and not specific invoices. As a result, the claim was not suited for summary procedure under Order XXXVII of CPC. The Court allowed the appellant’s Leave to Defend, thereby setting aside the previous judgment and decree. It held that a part of the cause of action arose in Delhi, conferring territorial jurisdiction. The case was deemed to involve triable issues related to payment, jurisdiction, interest rate, and quality of goods. The parties were directed to appear before the Commercial Court for further proceedings.
Conclusion
This case highlights the importance of distinguishing between suits based on invoices and those relying on running and non-mutual accounts. It also underscores the relevance of territorial jurisdiction, appropriation of payments, and the principles of Sections 59 and 60 of the Indian Contract Act in commercial disputes. The court’s thorough examination of these aspects serves as a guiding precedent for similar cases involving recovery claims based on invoices and ledger accounts.
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Written by – Ananya Chaudhary