Section 60/61 Contract Act - If Adjustment Is Made Towards A Particular Invoice, It Can't Extend Limitation For Other Outstanding Invoices: Bombay High Court

The Bombay High Court has held that once a payment has been applied as per creditor's discretion under Section 60 of the Contract Act to a few of the pending invoices instead of all, and the period of limitation has expired regarding all of them, the creditor then cannot take the plea that cheque payment getting dishonoured will extend the period of limitation on all pending payments.

The facts of the case pertain to a steel shipment supplied by the claimant to the respondents and the debt due on the respondents of an amount of INR 25 Crore, out of the which the respondents had made a few payments, and the claimant had chosen to apply those payments as per his own discretion, and meanwhile, the period of limitation had expired regarding all those payments. Once the case reached the Bombay High Court, the Court referred the entire dispute to arbitration and during the proceedings, both the claimant and the respondent had cross-examined each other's witnesses and made oral submissions and the learned arbitrator made an award in favour of the respondents, rejecting the claim of claimants for the pending amount being barred by limitation, except a part of the claim of INR 368005 (out of INR 22249067). The claimant then filed a petition under S.34 of Arbitration and Conciliation Act before this Court and a single judge bench then delivered a judgment, again in favour of respondents and being aggrieved by the same, the claimant had then filed this appeal.

The case of the claimant was that each cheque issued by the respondent would constitute an acknowledgement in writing and would imply an extension on limitation for all invoices. The first alleged acknowledgement came on 20^th July 2011 and the last alleged acknowledgement came after a gap of more than three years, on 25^th May, 2015. The counsel for respondents argued that the period of limitation expired at the end of 45 days of each invoice and thus, the claimant's claim was barred by limitation and that the claimant did not even plead extension of limitation during the arbitral proceedings. The counsel for respondents further argued that the last payment of Rs. 50 Lakh in the form of a cheque which was dishonoured and then sent again, on the basis of which claimant is pleading extension of the limitation period, was in fact applied to three invoices fully and 4^th invoice partly and the claimant now cannot be allowed to contend that part payment of INR 50 Lakhs by cheque which was dishonoured would save limitation in respect of all invoices.

The counsel for respondents further submitted that the Arbitrator was right in pointing out that out of 38 invoices, only one invoice with the outstanding liability of INR 368005 was payable by the respondent to the claimant and the dishonoured cheque cannot be considered in isolation since the 38 invoices which were the subject matter of arbitration proceedings caused 38 separate causes of action and thus the claimant, having taken benefit of appropriation and had saved limitation in respect of earlier four invoices, must be estopped from taking inconsistent pleas. The counsel for the respondent further submitted that since the claimant had failed to prove the claims made by various invoices which were the subject matter of arbitration proceedings were within the period of limitation, the claimant could not now claim extension of limitation with regard to those invoices.

The bench looked into the question as to whether the fact that claimant had exercised his option under S.60 of the Indian Contract Act by adjusting the payment of INR 50 Lakh towards four invoices and not having made the claim in respect of those invoices, was estopped from taking the plea that the earlier cheque of INR 50 Lakh (which had been dishonoured) would amount to an acknowledgement of liability by respondents for all outstanding invoices.

The court took note of the witness cross-examination during arbitration proceedings and noted that the claimant did not appropriate any payment received from the respondent towards the other 37 invoices and the arbitrator was right in recording a finding that the payments made by the respondents did not extend the period of limitation in respect of those 37 invoices as per S.19 of the Limitation Act. The court also observed that even the claimant had declared that the cause of action arose for payment of interest as well as principal amount after expiry of 45 days from the date of each invoice and since the 1^st invoice was dated 2^nd June 2011 and the last pay payment was made on 28^th July, 2015, there would be no extension in the period of limitation. In fact, the court observed that the entire claim was barred by limitation as on 28^th July, 2015 and thus became unenforceable since that date.

Stating that, "Adjustment made towards a particular outstanding invoice, that payment cannot ensure to the benefit of claimant so as to extend the period of limitation for other outstanding invoices", the court noted that as per S.60 of the Indian Contract Act, if the debtor has not intimated regarding how the debt is to be applied and the creditor has then applied the debt as per his own discretion, regardless of the fact that debt is barred by law or not, the creditor could not claim an acknowledgement regarding all invoices on the basis of such payment. Further, the court held that although S.61 says that if all debts in question are of equal standing then payment shall be applied in discharge of each proportionately, since the claimant has invoked S.60 of Indian Contract Act, 1871, he could not then invoke S.61 of the same.

The court then observed that the various findings given by the Arbitrator were neither perverse nor had any patent illegality in them and the learned single judge was right to interfere with the impugned award.

Further stating that the appeal was completely devoid of any merit, the court dismissed the appeal without any order to costs.

Case Title :  Anmol Steel Processors Pvt Ltd vs Colour Roof (India) Ltd

Citation : 2022 LiveLaw (Bom) 16

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