Patna High Court
The State Of Bihar vs Ram Ballabh Das Jalan And Anr. on 22 January, 1960
Equivalent citations: AIR1960PAT400, AIR 1960 PATNA 400
JUDGMENT Choudhary, J.
1. In the suit, out of which the present appeal arises, the plaintiff appellant, the State of Bihar, claimed to recover a sum of Rs. 42,926-3-8 from the defendants as being partners of the firm Rum-ballabh Motilal dealing in foodgrains. According to the case of the plaintiff the said firm entered into various contracts for purchase of Government stocks of foodgrains etc., and had also supplied foodgrains to the Regional Grain Supply Officer, Gaya as purchasing agents on behalf of the said authority. In pursuance of the above contracts, the defendants purchased various quantities of foodgrains from the plaintiff on different dates the price of which had been realised in full except in respect of two items, namely, (1) the purchase of 10,500 maunds of rice under agreement dated 13-3-1945, and (2) the purchase at auction sale of 58,916 empty bags on 3-3-1945.
The total price of 10,500 maunds of rice amounted to Rs. 1,08,846-14-0, out of which a sum of Rs. 81,773-15-9 was paid by the defendants to the plaintiff, and the balance of Rs. 26,072-14-3 remained unpaid. The total price of 58916 empty bags amounted to Rs. 18,853-2-0, out of which Rs. 10,000/- had been paid to the plaintiff as earnest money, and the balance of Rs. 8,853-2-0 remained unpaid. The total claim on these two counts, therefore, came to Rs. 34,923-0-3. The plaintiff had also supplied six tarpaulins to the defendants, out of which they returned five, but did not return one, and the plaintiff claimed a sum of Rs. 172-8-0 as the price for the same. The plaintiff claimed a further sum of Rs. 7,755-3-0 for supply of 700 maunds of rice, as shown in schedule C to the plaint, including a sum of Rs. 747-11-0 as commission and incidental charges. The total thus came to Rs. 42,853-11-3; but due to some mistake in accounting the claim was made for a sum of Rs. 42,926-3-8.
2. It appears that by 16-9-1945, a sum of Rs. 1,83,384-0-0 was found due from the defendants to the Regional Grain Supply Officer, Gaya, and a sum of Rs. 48,658-0-0 was standing to the credit of the defendants against the said Regional Grain Supply Officer. After adjusting the above sum of Rs. 48,658-0-0, a sum of Rs. 1,34,726-0-0 was found due from the defendants to the Regional Grain Supply Officer. A demand for the above sum was made from the defendants by a letter, exhibit 2(b)(1) dated 25-9-1945, to which the firm replied on the same day by a letter, exhibit 2(c), requesting the Regional Grain Supply Officer to realise certain dues of the firm from the Bank of Bihar and the Food Supply Officer of the East Indian Railway, Dinapore, and offered to pay a sum of Rs. 70,000-0-0 in cash promising to pay the balance, if any, as soon as possible.
It further appears that a sum of Rs. 30,000-0-0 was realised from the Bank of Bihar which was credited to the account of the defendants, after deducting a sum of Rs. 18-12-0 paid as bank charges. It also appears that, before the institution of the suit, the "Food Supply Officer of the East Indian Railway, Dinapore offered to pay a sum of Rs. 4,835-0-0 and actually paid the said sum, but after the institution of the suit. Thus deducting from the above sum of Rs. 1,34,726-0-0 the two sums of Rs. 70,000-0-0 and Rs. 30,000-0-0, stated above, the balance comes to Rs. 34,726-0-0. But due to some mistake somewhere the claim has been made for Rs. 34,926-0-3 as representing the first two items of the claim. After the receipt of the sum or Rs. 4,835-0-0 from the East Indian Railway, the claim on these two counts is reduced to a sum of Rs. 30,091-0-3.
3. Defendant No. 2 did not appear, and the suit was contested only by defendant No. 1. The pleas taken by him are that he was not a partner with defendant No. 2 of the firm and had nbt authorised him to enter into any contract with the plaintiff; that he was not bound by any deliveries made to defendant No. 2; that the price charged was in excess of the controlled rates; and that any contract to pay at a rate in excess of the controlled rates was illegal.
4. The learned Additional Subordinate Judge held that defendant No. 1 was a partner of the firm Ramballabh Motilal, and that he was bound by the contracts entered into by defendant No. 2 on behalf of the firm. He also held that the accounts given by the plaintiff in the plaint were correct, and the defendants were liable to pay the same if the suit could succeed on the original contracts. He, however, held that the suit should have been framed on the basis of the balance struck and the account stated in exhibit 2(b)(1) and accepted by the defendants by virtue of exhibit 2(c), and that the transaction amounted to an alteration or the original terms.
In view of that finding, he held that the claim in respect of the first two items, referred to above, based on the original contracts was not maintainable, and dismissed the same. The claim with respect to the third item, namely, the price of the tarpaulin, was found in favour of the plaintiff, and a decree for that amount was passed. Similarly, the claim under item No. 4 for the price of 700 maunds of rice mentioned in Schedule C of the plaint, except with respect to the sum of Rs. 747-11-0 as commission and incidental expenses, was accepted in favour ot the plaintiff, and a decree for the same was passed in its favour. The result was that the suit was decreed in favour of the plaintiff with respect to a sum of Rs. 172-8-0, representing the third item of the claim, and a sum of Rs. 7,007-8-0 out of Rs. 7,755-3-0 in regard to the claim under item No. 4, the total being Rs. 7,180-0-0. The rest of the claim of the plaintiff, namely, the entire claim of items 1 and 2, and the claim for a sum of Rs. 747-11-0 out of item No. 4, was dismissed.
5. The plaintiff, accordingly, preferred the present appeal in this Court for the claim dismissed by the trial Court, and the defendant No. 1 filed a cross-objection with respect to the amount for which the decree was passed in favour of the plaintiff.
6. The appeal was heard by Ahmad and U. N. Sinha, J.T., who dismissed the cross-objection on merit. Learned Government Pleader, appearing for the appellant, the State of Bihar did not press the appeal for the sum of Rs. 747-11-0 disallowed by the trial Court out of item No. 4 of the claim. He also conceded that out of the claim under items 1 and 2 the appellant had realised, after the institution of the suit, a sum of Rs. 4,885-0-0, and he did not press his claim with regard to the same. With respect to the rest of the claim in items 1 and 2 no argument was advanced before their Lordships challenging the correctness of the amount, and the only point that remained to be considered by their Lordships was, whether the claim was based on account stated and there was a novation or alteration of the contracts. Ahmad. J. took the view that the claim was based on account stated and there was novation and alteration of the contract, and, as such, the suit was not maintainable on the original contracts.
He, however, came to the conclusion that the mistake made in making the claim on the basis of the original contracts, and not on the basis of the altered contract, was not due to any mala fide or negligence on the part of the plaintiff, but it was a sheer result of either confusion or misapprehension on its part in not appreciating fully the true implication of the facts of the case. In these circumstances, his Lordship remanded the case to the trial Court to enable the parties, if they so liked, to get their pleadings suitably amended on the question of novation or alteration of the contracts and to cite in support of their respective stand in regard thereto any additional evidence that any or both or them might choose to tender. U. N. Sinha, J., however, held that the claim was rightly based on the original contracts, and there was no claim on account stated.
He further held that there was no novation or alteration of the contracts and the suit was maintainable. He, therefore, allowed the appeal with respect to the claim made in the first two items, after giving a credit of a sum of Rs. 4,835-0-0 which was received by the plaintiff after the institution of the suit, as stated above. On a difference of opinion between the two Hon'ble Judges on the above points, the case has been placed before me for hearing under Clause 28 of the Letters Patent of this Court.
7. It appears that, when the appeal was taken up for hearing by the Division Bench, none of the learned Counsel, who had originally accepted the brief on behalf of the respondent, appeared in Court, and one Mr. Rajendra Prasad Sinha, Advocate, simply watched the hearing of the case in their absence. Subsequently, on the last day of the hearing, he filed a vakalatnama executed by defendant No. 1 alone. But, when called upon to argue the case on behalf of the respondent, he conceded, after a few submissions, that he was not ready with the brief, and he wanted time to study the brief or to engage a senior Counsel. As the appeal had already been heard for a number of days and no prayer for adjournment was made in the beginning, their Lordships did not, in the circumstances of the case, allow the prayer for adjournment.
In these circumstances, as has been observed by their Lordships, neither in the appeal nor in the cross-objection they had the benefit of any assistance from the respondents. Before me, however, Mr. G. P. Das has appeared for the respondent 1, and he has taken a point that the appeal should have been dismissed on the finding of the learned Subordinate Judge that the contract price was in excess of the controlled price. He has drawn my attention to paragraph 26 of the written statement filed on behalf of the respondent in which he specifically took this point and stated that the contract was illegal and unenforceable. It was urged before the learned Subordinate Judge that, if the excess amount paid be calculated, it would appear that all the dues claimed by the plaintiff had been satisfied and something more would be recoverable from the plaintiff.
The learned Subordinate Judge found that the supplies appeared to have been made at rates far in excess of the controlled rates and the Regional Grain Supply Officer could not enter into any agreement at a rate in excess of the prescribed rate. But he observed that, so far as the claim of the plaintiff was concerned, it was not based on those agreements which were said to have been made in excess of the controlled rates, and the defendant had not claimed any amount by way of set off. He also held that, even if he had claimed any amount by way of set off, it would have been difficult to give him any relief on that score in view of the fact that the contract was void according to him inasmuch as Courts are not only reluctant, but they refuse, to give any relief to any of the parties to avoid contract.
On behalf of the appellant, however, it has been submitted that it is not open to the respondent to urge this point before me because there was no difference of opinion on this point between the Hon'ble Judges of the Division Bench and the jurisdiction of this Bench hearing the appeal under clause 28 of the Letters Patent of this Court is limited to decide the question on which there is a difference between the two Hon'ble Judges. To me there appears to be much substance in the contention raised by the learned Government Pleader on behalf of the appellant. Clause 28 of the Letters Patent runs as follows:
"And we do hereby declare that any function, which is hereby directed to be performed by the High Court of Judicature at Patna, in the exercise of its original or appellate jurisdiction may be performed by any Judge, or by any Division Court, thereof, appointed or constituted for such purpose in pursuance of Section one hundred and eight of the Government of India Act, 1915; and if such Division Court is composed of two or more Judges and the Judges are divided in opinion as to the decisions to be given on any point, such point shall be decided according to the opinion of the majority of the Judges if there be a majority, but, it the Judges be equally divided they shall state the point upon which they differ and the case shall then be heard upon that point by one or more of the other Judges and the point shall be decided according to the opinion of the majority of the Judges who have heard the case including those who first heard it".
The above provision makes it perfectly clear that, it the Judges of the Division Bench are divided in their opinion as to the decision to be given on any point, they shall state that point and the case shall then be heard upon that point by one or more of the other Judges. Therefore, it is only that point on which there has been the difference of opinion between the two learned Judges of the Division. Bench which can be heard by me under Clause 28 of the Letters Patent. The latter part of the clause, that the point shall be decided according to the opinion of the majority of the Judges who have heard the case including those who first heard it, also makes it perfectly clear that a point which has not been urged before the Division Beneh and on which there has been no difference of opinion between them cannot be heard under the above clause of the Letters Patent by a third Judge inasmuch as in that case the decision cannot be according to the opinion of the majority of the Judges including those who first heard it.
In that view of the matter, I do not think the respondent is entitled to urge this point before me. True it is that the point was not urged before the Division Bench because the respondents were not represented by any lawyer to press their case, as stated above, but that cannot be helped. Law does not permit such an argument to be advanced before a Bench hearing an appeal under the above clause of the Letters Patent.
8. Even on merits the above contention raised on behalf of the respondent is without any substance. The learned Subordinate Judge has found, as stated above, that the claim of the plaintiff in the present case is not based on any of the agreements which were said to have been made in excess of the controlled rates, and the correctness of this finding has not been challenged before me. It is, therefore, manifest that the contracts which are the basis of the present suit cannot in any way be called to be void or invalid.
True it is that, in view of the price realised from the defendants by the plaintiff with respect to other articles on different contracts in excess of the controlled rates, the defendants could claim a set off from the plaintiff; but, for reasons best known to them, they have not made any claim for the set off of the same. They, therefore, are not entitled to urge in this Court that, if accounts be taken, the claim would be proved to have been satisfied.
9. Learned Government Pleader, in support of the appeal has submitted an argument that the Court below was wrong in permitting the defendant to urge novation or alteration of contract and the claim to be on account stated in absence of any pleading or issue on that point. It has been argued that the learned Subordinate Judge erred in law in dismissing the suit of the plaintiff for the first two items of the claim on the ground of there being a novation or alteration of contract. It is too well known that a point of law can be taken at any stage of the suit, including even first and second appeals, if for the decision of the same a fresh investigation of facts is not necessary.
In other words, if on the facts proved in the case, a point of law arises, it can be raised though it has not been pleaded or the parties have not joined issue on the same. It is also well established by now that, if a new point is sought to be raised, the decision of which depends upon facts with regard to which parties had no opportunity to place materials on the record in support of their respective contentions, that cannot be permitted to be raised at a late stage in the suit, unless a fresh opportunity is given to the party against whom the point is raised to meet the same by placing on record materials relevant to the decision on the point.
The question whether the claim is based on account stated is a mixed question of law and fact, and the question whether there has been a novation or alteration of the contract is a pure question of fact, the determination of which rests on the facts of each case and the intention of the parties to the contract. In the present case, though defendant No. 1 filed a written statement alleging all possible points that he could take in defence, the plea of account stated or of novation or alteration of contract was not at all taken and no issue was framed in regard to that.
Even when the parties stated their case at the time the case was taken up for hearing, in the Court below, nobody thought of this point. The plaintiffs case commenced in the trial Court on 29-2-1951. On 12-3-1951, P. W. 4 Raghunandan Prasad was examined who proved exhibits 2(b)(1) and 2(c) dated 25-9-1945. Even then the defendant did not think of raising this point on the basis of those two exhibits. The plaintiff closed its case on 20-3-1951, and the defendant's case began on the same day. Then on 27-3-1951, a petition was filed on behalf of defendant No. 1 stating that the production of exhibits 2(b)(1) and 2(c) necessitated filing of a fresh suit on the basis of the said exhibits, evidencing account stated and novation of contract giving opportunity to the defendant to put in proper defence and take proper stand after thorough enquiry, and that the suit on the basis of the original contracts was not maintainable.
It was prayed that the above point be decided as a preliminary issue. By another petition on the same day it was prayed on behalf of defendant No. 1 that a new issue should be framed as to whether the suit was maintainable in view of exhibits 2(b)(1) and 2(c), A rejoinder to the above petition was filed on behalf of the plaintiff on the next day, and on the same day the defendant filed a reply to that rejoinder mentioning that the objection raised by the defendant might be considered along with other issues involved in the suit. No prayer, however, was ever made on behalf of defendant No. 1 to amend the written statement by raising specifically the above plea, nor was any prayer made on his behalf that the above petition might be treated as an additional written statement in the case.
The Court also, even therealter, did not frame any issue on the point. No opportunity was given to the plaintiff thereafter to adduce any evidence against the contention raised in the above petition, and the learned Subordinate Judge considered the question of settlement of account and novation of contract under issues Nos. 5 and 6 which were as follows:
''5 Were the supplies made to the defendants? If so, on what control rates or otherwise and whether they were made in time with freshness of goods and grains?
6. Did defendant No. 1 along with defendant No. 2 purchase from the plaintiff grains and other articles under agreement and by auction sale and did they give delivery certificates to the plaintiff in respect of the same as alleged?"
These two issues have not even the resemblance of any bearing on the new point raised. Even then, he held that, in view of exhibits 2( b)(1) and 2(c), the Regional Grain Supply Officer accepted the offer made by the defendants, and the said acceptance constituted a new contract or a variation of the original contracts upon which the suit was based. In my opinion, the defendant No. 1 was not entitled to raise the said plea after the plaintiff closed its case, and the plaintiff has been seriously prejudiced in establishing its case on account of the new plea having been raised by the defendant and accepted by the Court below.
The proper procedure in such a case should have been, if the learned Subordinate Judge felt inclined to permit the defendant to raise that plea, to require the defendant to amend his written statement, frame an issue on the point and allow the parties to adduce further evidence if any, in support of their respective case on that point. That not having been done, the learned Subordinate Judge could not take into consideration the above new point raised by the defendant and his decision on that point, therefore, cannot be allowed to stand.
10. Be that as it may, even on merit I do not feel inclined to accept the judgment of the learned Subordinate Judge as correct on the above point. Counsel for the appellant has submitted that there was no account stated in the present case nor was there any novation or alteration of the original contracts. On the other hand. Mr. G. P. Das, for the respondent, has submitted an argument that the letter exhibit 2(b)(1) manifestly proved that there was account stated, and the offer made in the letter exhibit 2(c) having been accepted by the Regional Grain Supply Officer by his conduct there was an alteration in the contracts. Before deciding the above question. I will better quote the above two letters.
"Exhibit 2(b)(1) Office of the Regional Grain Supply Officer, Gaya.
Memo No. 95/C dated Camp Arrah, toe 25th September, 1945.
To, M/s. Ramballabh Motilal, Arrah.
It would appear from the accounts of this office that a sum of Rs. 1,83,384/- is due from you to the Regional Grain Supply Officer, Gaya. To meet this due, the Regional Grain Supply Officer, Gaya has adjusted a sum of Rs. 48,658/- standing to your credit of purchase amount. A sum of Rs. 1,34,726/- is still due from you to the Regional Grain Supply Officer, Gaya. Several times you have been requested verbally to settle this account and you agreed to settle the account by 16-9-1945. So far no cash deposit has been made by you against these dues since 16-9-45. I am to request, therefore, that a sum of Rs. 1,34,726/- be paid to me either in cash or by bank draft immediately.
Failing payment of this account, the Regional Grain Supply Officer, Gaya reserves the right to take such action as he may consider proper to recover these dues.
Please acknowledge receipt of this letter.
Sd. Illegible.
Regional Grain Supply Officer, Gaya.
Exhibit 2(c) Ramballabh Motilall Dealers in Food Grains, Oil Seeds, Jagree etc. Merchants and Commission Agents, Arrah.
Dated the To The R. G. S. O., Gaya, Sir.
In reply to your letter No. 95(C) of the date we beg to request as follows:
(1) That we hereby relinquish the title and rights of my Firm to the stocks of the Firm placed with the Bank of Bihar Ltd., Arrah in favour of the Regional Grain Supply Officer, Gaya. The R. G. S. O. Gaya can use it in any manner he thinks fit, and appropriate the proceeds thereof towards my dues on his account.
(2) We hereby also relinquish the title and rights on account of the dues pending with the Food Supply Officer, E. I. Rly.. Dinapore on account of Chanti supplied to them in favour of the R. G. S. O. the amount whereof may also be appropriated towards our dues.
(3) In addition we hereby pay Rs. 70,000/- in cash towards our outstanding dues.
(4) We will try to pay up the balance, if any, as soon as possible.
Sd. Ramballav Das Jalan By my own pen dated 25-9-45 Sd. Mott Lal For Ramballabh Motilal 25-9-45"
It is contended on behalf of the respondents that exhibit 2(b) (1) shows that the accounts of the Regional Grain Supply Office showed a sum of Rs. 1,83,384-0-0 as due from the defendants, and a sum of Rs. 48,658-0-0, had to be paid to the defendants by the Regional Grain Supply Officer on account ot certain purchases made from them which having been adjusted to the above dues a sum of Rs. 1,34,726-0-0, remained to be paid by the defendants. It is urged that this document clearly shows that after accounting claims and cross-claims there were adjustments made and a balance was struck to be required to be paid by the defendants. Thus the balance due is based on account stated.
With reference to exhibit 2(c) the contention put forward on behalf of the respondents is that the defendants offered the Regional Grain Supply Officer to realise certain amounts of money which might be available from the Bank of Bihar and the Food Supply Officer, East Indian Railway, Dinapore as payable to the defendants on certain accounts, and offered to pay a sum of Rs. 70,000/- in cash with promise to pay the balance, if any, as soon as possible.
It is now an admitted case that the Regional Grain Supply Officer did realise certain sums of money from the Bank of Bihar as well as from the Food Supply Officer of the Railway. The point urged, therefore, is that, the Regional Grain Supply Officer having realised the above two sums accepting the Bank of Bihar and the Food Supply Officer of the Railway as his debtors, there was novation of the contracts or, at any rate, an alteration of the same. In my opinion, none of these contentions has any merit.
11. In Nahani Bai v. Nathu Bhau, ILR 7 Bom 414, it has been held that an account stated is where several items of claim are brought into account on cither side, and, being set against one another, a balance is struck, and the consideration for the payment of the balance is the discharge on each side; each party resigning his own rights on the sums he can claim, in consideration of a similar abandonment on the other side, and of an agreement to pay, and to receive in discharge, the balance found due. In Ishar Das v. Harkishan Das, 35 Ind Cas 577: (AIR 1916 Lah 84) it was held that an account is said to be stated only when there have been cross-demands between the parties and the balance struck then becomes the consideration for the discharge on either side. Such an account stated amounts to a new contract and is a substantive cause of action. The same view has been taken in Bishun Chand v. Girdhari Lal, AIR 1934 PC 147. The test of account stated laid down in that case appears from the following passage of the judgment in that case:
"Indeed, the essence of an account stated is not the character of the items on one side or the other, but the fact that there are cross items of account and that the parties mutually agree the several amounts of each and, by treating the items so agreed on the one side as discharging the items on the other side pro tanto, go on to agree that the balance only is payable. Such a transaction is in truth bilateral, and creates a new debt and a new cause of action. There are mutual promises, the one side agreeing to accept the amount of the balance of the debt as true (because there must in such cases be, at least in the end, a creditor to whom the balance is due) and to pay it, the other side agreeing the entire debt as at a certain figure and then agreeing that it has been discharged to such and such an extent, so that there will be complete satisfaction on payment of the agreed balance. Hence, there is mutual consideration to support the promises on either side and to constitute the new cause of action. The account stated is accordingly binding, save that it may be re-opened on any ground for instance, fraud or mistake which would justify setting aside any other agreement".
Applying the above principles of law to the facts of the present case, it has to be seen whether there is any evidence in the case to show that there was an account stated. The evidence relevant to this inquiry consists of only two documents, namely, exhibits 2(b)(1) and 2(c) referred to above. Those documents, in my opinion, do not show that there was any account of any ascertained sum of claims and counter-claims of the parties of which there were adjustments and the balance was arrived at after such adjustments.
The letter exhibit 2 (b) (1) as already observed, only shows that a sum of Rs. 1,83,394-0-0 was to be paid by the defendants to the Regional Grain Supply Officer out of which a sum of Rs. 48,658-0-0 which the Regional Grain Supply Officer had to pay to the defendants on purchase account, was adjusted, and a demand was made for the balance of Rs. 1,34,726-0-0. The letter exhibit 2(c) appears to accept the correctness of the account, and shows a request to have been made to the Regional Grain Supply Officer to realise certain unascertained amounts from the Bank of Bihar and the Food Supply Officer, East Indian Railway, which they had to pay to the defendants, in order to have a part satisfaction of the above dues at the instance of the Regional Grain Supply Officer.
It further shows that, in addition to any amount realised from the Bank of Bihar and the Railway, the defendants were paying a sum of Rs. 70,000-0-0 in cash and were promising to pay the balance, it any, soon thereafter. This, in my opinion, amounted only to an arrangement for part payment in cash and part payment by realisation from the Bank of Bihar and the Food Supply Officer of the Railway with the assistance of the Regional Grain Supply Officer with an acknowledgment of liability for the balance.
12. Schedule B attached to the plaint, the correctness of which has not been challenged on behalf of the respondent, makes it perfectly clear that in respect of almost all the items of supplies of rice made to the defendants the price of the same had been fully realised on various dates and nothing was left due. For example, under serial No. 1,500 maunds of rice was supplied on 1-4-1945, the total price of which amounted to Rs. 5,156/4/0, and the entire amount was paid by chalan No. 4, dated 11-4-1945. Under serial Nos. 2, 3, 4, 5 and 6, 8,000 maunds of rice had been supplied between the 2nd and 14th of April, 1945 and the total price was Rs. 30,936-0-0 which had already been realised in advance on 23-3-1945.
Thus it is apparent that it was not a case of claims and cross-claims and adjustments, but a case of supply and realisation of price in full mostly in cash under various chalans. The entries in the personal ledger of the firm (Exhibit 15) also support the statements made in the above schedule. My concluded opinion therefore, is that it is not a case of account stated, and the Court below was wrong in holding it to be so.
13. Even if it be a case of account stated, it does not improve, in the least, the case of the defendants because, as observed by U. N. Sinha, J, an account stated does not extinguish the original debt on which the account is based and it is open to the creditor to base his suit for the recovery of the debts either on the account stated or on the original contract. This view is supported by a Bench decision of this Court in Bhatu Das v. Mt. Bibi Iffatun Nisha, 63 Ind Cas 280. In that case the question arose whether, in view of there being an account stated, the plaintiffs could sue on the debt on which the account was based.
The original contract was in writing registered, and the plaintiffs had six years' period of limitation for a suit for recovery of money on the basis of that contract. The alleged account stated was on 30th Bhado 1319, and the period of limitation for a suit to recover the amount on account stated is only three years. If the suit had to be brought on the account stated, it was obviously barred, but the suit on the basis of the original contract was well within time.
It was urged in that case on behalf of the debtor that as there was a settlement of account between the parties, it was not open to the plaintiffs to sue on the original contract. Their Lordships relied on the case of Callander v. Howard, (1850) 138 ER 117 in which it was pointed out that the adjustment of the account, together with the implied or express promise to pay the balance, cannot be regarded as the extinguishment of the original debt; and consequently, that it cannot be set up, by a plea in assumpsit, as affording, per se, a defence to an action, but must be treated in pleading as a payment. Their Lordships also quoted with, approval the observation made in Scarborough Corporation v. Butler, (1685) 83 ER 668 that the new promise on the account was only a chose in action and that one chose in action could not be discharged by another chose in action of the same nature.
Their Lordships further observed that the principle underlying all these cases is this, that where two persons nave cross-demands against each other and they meet together and set off the demands of one against the other "this is all one as if the obligor had paid to the obligee, and he had repaid him. This is a payment by way of retainer." In other words, the transaction is one of payment, and not of the creation of a fresh contract extinguishing the original contract. This case is on all tours applicable to the facts of the present case.
14. The next question that falls to be determined is whether there was a novation or alteration of the original contracts. Section 62 of the Contract Act lays down that if the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed. The meaning and scope of this Section are afforded by the illustrations given thereunder which are as follows:
"(a) A owes money to B under a contract. It is agreed between A, B and C that B shall thenceforth accept C as his debtor, instead of A. The old debt of A to B is at an end, and a new debt from C to B has been contracted.
(b) A owes B 10,000 rupees. A enters into an arrangement with B, and gives B a mortgage of his (A's) estate for 5,000 rupees in place of the debt of 10,000, rupees. This is a new contract and extinguishes the old.
(c) A owes B 1,000 rupees under a contract. B owes C 1,000 rupees. B orders A to credit G with 1,000 rupees in his books, but C does not assent to the arrangement. B still owes C 1,000 rupees, and no new contract has been entered into''.
In the present case the argument in regard to the novation or alteration of the contract is based on exhibits 2 (b) (1) and 2(c) and the subsequent conduct of the plaintiff in accepting the money as proposed in the first three clauses of exhibit 2(c). There is, however, nothing on the record to show that the Bank of Bihar and the Food Supply Officer of the Railway contracted new debts with the plaintiff in substitution of the old debts due to it from the defendants and bound themselves for the payment of the same so as to entitle the plaintiff to enforce their realisation from them by legal processes.
In other words, it cannot be said that the old debts payable by the defendants to the plaintiff came to an end and new debts in substitution thereof were contracted by the Bank and the Food Supply Officer with the plaintiff. Illustration (a) of Section 62 of the Contract Act, therefore, has no application. The other two illustrations have no relevancy to the present case.
15. Ordinarily under the common law novation is brought about by introduction of new parties, or alteration between the same parties by introduction of new terms. It is not consistent with the original debtor remaining liable in any form on the terms of the old contract. The right against the original debtor on such contract must be extinguished and there must be present substitution of another contract for the original contract.
16. While dealing with the question of account stated I have already held that exhibits 2(b)(1) and 2(c) read together do not create a new contract of debt extinguishing the old indebtedness, and that they only point out an arrangement for making payment of the dues under the old contracts. In that view of the matter, there is no scope for holding in favour of there being a novation or alteration of the old contracts so as to non-suit the plaintiff for claims based on the old contracts.
17. The view taken above gains support from various decisions of the High Courts in India, including our own High Court. In Ramdin Singh v. Ramparichan Singh, AIR 1942 Pat 170, it appears that the debtor wrote a letter to the creditor stating that he gave him three documents noted in that letter in lieu of the debts, principal with interest, payable by him (the debtor) to the creditor, and further stating that since then he had no claim to all those documents. It was held that this letter contained acknowledgment of the debt due and also suggested an inchoate proposition of arrangement for the liquidation thereof, and that it did not amount or had not amounted to a novation of contract within the meaning of Section 62 of the Contract Act. In Vishram Arjun v. Shankariah, (S) AIR 1957 Andh Pra 784, it was held that a novation is a substitution of the contract and not a mere variation of some of its terms, It should rescind or extinguish the previous contract, and a new and independent agreement concerning the same matter as the previous agreement may be construed to discharge the former, only if the terms of the latter are so inconsistent with those of the former that they cannot stand together. In other words, a contract will be said to be rescinded by another between the same parties when the latter is inconsistent with or renders impossible the performance of the former. If their legal effect is the same, though they differ in terms, even then it will be a mere ratification of the first and they must be construed together.
Whether an agreement entered into is a substitution of an old contract or not is always a question of fact depending also on the intention of the parties. The intention of the parties no doubt may be inferred from the contents of the document, but in order to gather their intention one should look to the substance of the matter and not to the mere form. In that case the original contract between the parties, exhibit P-6, dated the 11th of October, 1949, was an agreement to sell certain forest produce. According to its terms the defendants had to pay Rs. 30,000-0-0 within a period of five months from the date of receipt of the order from the P. W. D. towards the felling charges of the jungle and the full amount of the valuation of the jungle as fixed by the P. W. D. in such manner and at such time as the P. W. D. would demand from the first party.
Another term of the contract was that such wood as was not useful to the second party shall be left there at the site for the first party and shall not be sold by the defendants. There was also a stipulation by which the plaintiff was made responsible for any dispute that might arise between him and the P. W. D. and that he had to execute a power of attorney in favour of the second party. Subsequently, there was another document exhibit D-7, which referred only to a sum of Rs. 1,09,226-0-0 (which was arrived at by private settlement) showing the entire liability and was agreed to be paid by the defendants to the plaintiff subject to certain conditions.
The first condition was that Rs. 10,000-0-0 would be paid on or before the last day of April either through challan or in person, and the remaining amount would be paid in monthly instalments from April, 1951 to the end of March, 1952, There was a further stipulation that, in case there was default in payment for two consecutive months, the plaintiff would be entitled to take proceedings for the collection of the said amount. Some rebate was given with regard to valuation amount on a certain item and the last and an important clause was that the plaintiff would be responsible for getting the attachment lifted within one week failing which the liability for the transaction would rest with him.
Thus it was clear that as a result of exhibit D-7, the amount in relation to the felling charges and the valuation of the jungle payable under the agreement exhibit P-5 was reduced and the manner and the time at which it had to be paid was specified in determinate terms. This agreement, however, did not cover all the terms of exhibit P-6. Applying the principles of law quoted above, it was held in that case that exhibit D-7 was not a self-contained agreement in relation to the original contract of sale and it did not constitute a novation, but was substantively an agreement of remission, and that both the exhibits put together formed one complete subsisting contract.
18. In Madho Prasad v. Gouri Dutt, AIR 1939 Pat 323, the partners of an existing firm, along with a newly admitted partner, acknowledged a certain amount to be from the firm to their creditor. It was held that such an acknowledgment did not amount to novation inasmuch as novation of contract is not consistent with the original debtor remaining liable in any form whereas in that case the prior liability of the partners did not become extinguished. In Kshetra Nath Sikdar v. Harasukdas Balkissen Das, AIR 1927 Cal 538 a creditor who had not been actually paid took a renewed bill or promissory note for his debt in order to give time to the debtor and received some consideration by way of increased interest for his forbearance.
It was held that whether there was an agreement to substitute a new contract or not is a question of fact depending on the intention of the parties, & the true, rule is that one should look to the substance of the matter and not to mere form. On the facts of that case, it was held that it could hardly be said that the old debt had been paid off by the acceptance of the renewed bill. A similar view was taken in Madimulla v. Channappa, 5 Bom LR 617 wherein it was held that a contract by novation requires it as an essential element that the rights against the original contractor shall be relinquished and the liability of the new contracting party accepted in their place.
19. On a consideration of the authorities referred to above, there is no room for doubt that in the present case there was no novation or alteration of the contracts originally entered into between the parties and the plaintiff was perfectly entitled in law to base its claim on the original contracts referred to above. The plaintiff is, accordingly, entitled to recover its claim with regard to the first two items referred to above except the sum of Rs. 747-11-0, as commission and incidental charges, which was not pressed by the learned Government Pleader on behalf of the State, and the sum of Rs. 4,835-0-0 which, as already held, was realized by the plaintiff after the institution of the suit from the Food Supply Officer of the East Indian Railway Dinapore.
20. I, accordingly, agree with the view taken by U. N. Sinha, J. that the appeal should be allowed in part and the plaintiff's suit should be decreed in part to the extent mentioned above. The appeal is, accordingly allowed in part with proportionate costs, and the suit of the plaintiff with respect to the first two items of the claim, referred to above, is decreed in part as indicated above.