D.S.R. Varma, J.
1. Since both the appeals arise out of the judgment rendered in O.S. No. 471 of 1990 and counter-claim therein, the same are being disposed of by this common judgment.
2. Aggrieved by the judgment and decree, dated 4.9.2006, passed in O.S. No. 471 of 1990, by the IV Senior Civil Judge, City Civil Court at Hyderabad, dismissing the suit filed by the plaintiffs seeking dissolution of the partnership firm and rendition of accounts and decreeing the counter-claim filed by the defendants against the plaintiffs seeking execution of release relinquishment deeds in respect of the schedule properties appended to the written statement, the plaintiffs filed both these appeals CCCA No. 110 of 2007 in respect of the claim arising out of the suit and CCCA No. 51 of 2007 in respect of the counterclaim filed by the defendants in the suit.
3. Appellants are the plaintiffs and respondents are the defendants in the suit O.S. No. 471 of 1990, before the Court below.
4. For the sake of convenience, in this judgment, the parties herein are referred to as per their array in the suit.
5. The plaint averments, in brief, are that the plaintiffs and defendants are carrying on the business of partnerships under different names and possessing different movable and immovable properties. They have been carrying on the business under the names and styles of (1) M/s. Sri Venkateshwara Lodge; (2) M/s. Blue Sea Picnic Cottages; (3) M/s. Venkateshwara Corporation; (4) M/s. Venkateshwara Tube Well Company; (5) M/s. Sri Srinivasa Enterprises; and (6) M/s. Sri Veerabhadra Trading Corporation. The parent partnership firm between the parties has been M/s. Sri Venkateshwara Lodge, carrying on Restaurant and Boarding and Lodging business at Hyderabad. The plaintiffs and defendants constitute Partnership Firm. As on 1.12.1982 the shares of the partners have been specified as 71 per cent in favour of the defendants 1 to 5 (A. Rama Swamy Group) and 29 per cent in favour of the plaintiffs (K. Rama Murthy Group) and the partnership has been at will.
6. The firm has multifarious business activities. The first defendant A. Rama Swamy was the Managing Partner. Due to some differences, the defendants, represented by A. Rama Swamy Group and the plaintiffs, represented by K. Rama Murthy Group, tried to resolve them by referring the same to the Arbitrator viz., Sri V.G. Krishna Murthy, who is an Advocate-cum-Tax Consultant by profession.
7. During the said arbitral proceedings, an agreement, dated 15.6.1987, under Ex.A-7 was entered into between the plaintiffs and the defendants with certain terms and conditions. The main condition was regarding payment of a sum of Rs. 12-00 lakhs to the plaintiffs within the stipulated period and agreed to release the relinquishment of their share and interest and to retire from the partnership business and also to relinquish their respective shares of joint interest in certain land properties. Along with the said agreement under Ex.A-7, certain annexures, which are nine (9) in number, were kept in the custody of the Arbitrator. In the said agreement under Ex.A-7, both the plaintiffs (K. Rama Murthy Group) and the defendants (A. Rama Swamy Group) were referred to as 'the Second Party' and 'the First Party, is respectively.
8. For ready reference, the salient features of the said agreement, dated 15.6.1987 under Ex.A-7, which are not in dispute, are enumerated in the following table:
Term No. 1 of 'The First Party shall pay a total sum of Rs. 12 lakhs (Rupees twelve lakhs only)
the Agreement : to the Second Party'.
Term No. 2 of 'The Second Party shall retire and relinquish their share and interest from all the
the Agreement : Partnership Firms in which they held interest and share in favour of the First Party.'
Term No. 3 of 'The Second Party shall release and relinquish their respective shares of joint interest
the Agreement : held by them (other than interest in the Partnership Firms) such as landed properties
including agricultural lands situated at different places i.e., Gandipet, Papalguda,
Shameerpet, Yousufguda, Yellareddyguda etc.'
Term No. 4 of 'The lined Party shall have the right to carry on the business of Sweet House
the Agreement : presently situated at Lakdikapul, Hyderabad.'
Term No. 8 of 'The First Party shall pay off the loan amount due to the Kumbakonam City Union
the Agreement : Bank together with interest in respect of which the residential house of Sri K. Rama
Murthy of the 2nd Party was given as collateral security and shall have the said
collateral security released from the bank and title deeds and discharge certificate are
handed over to Sri K. Rama Murthy on or before 31.3.1988.
the Term No. 10 'The First Party shall pay a sum of Rs. 5/- lakhs (Rupees five lakhs only) immediately of
the Agreement : on the date of this agreement to the llnd Party and the balance amount of Rs. 7 lakhs
(Rupees seven lakhs only) shall be paid by the First Party together with interest
at the rate of 9% per annum from 15.6.1987 to the date of payment. The First
Party shall pay the balance amount of Rs. 7/- lakhs (Rupees seven lakhs only) on
or before 15.4.1988 and any part payments made earlier by the 1st Party shall be
reduced for purpose of payment of interest. The 1st Party shall pay the interest
on the balance amount calculated at 9% per annum on or before 20th day of every
month i.e., the interest for 15.6.1987 to 15.7.1987 shall be paid by 20th July,
1987 and so on. The First Party has accordingly paid the sum of Rs. 5/- lakhs
(Rupees five lakhs only) to the Second Party on the day of this Agreement by way
of Pay Order of the Andhra Bank, Khairatabad, Hyderabad, the details of which are
given below the receipt of which the 2nd Party hereby acknowledges....'
Term No. 11 of 'The further details of the terms and conditions and other stipulations agreed upon
the Agreement : by the parties by way of full and final settlement are contained in the annexure
separately in respect of each of the Firm and other joint properties appended to
this agreement and are treated as part of this Agreement and binding on the
parties.'
Term No. 12 of 'It is further agreed between the parties that in case the 1st Party fails to honour
the Agreement : the terms and conditions hereby agreed including terms of conditions in the annexures
by payment of the balance of Rs. 7/- lakhs (Rupees seven lakhs only) and other
stipulations on or before 15.4.1988, the sum of Rs. 5/- lakhs (Rupees five lakhs
only) now paid by the 1st Party shall be forfeited by the Second Party and the
2nd Party shall resume back all his rights and interests in all the Firms and in
other joint properties as existing to them before 15.6.1987.'
9. As agreed under the above agreement - Ex.A-7, a sum of Rs. 5-00 lakhs was paid. It is averred that as per the terms and conditions of the agreement under Ex.A-7, including the conditions stipulated in the annexures appended thereto, if the defendants fail to pay the balance of Rs. 7-00 lakhs on or before 15.4.1988, the sum of Rs. 5-00 lakhs, which was initially paid, shall have to be forfeited and further that the plaintiffs shall resume part of their rights and interest in all the Firms and joint properties existing as on the date of agreement under Ex.A-7, that in spite of the conditional settlement, the defendants were not ready and willing to perform their part of the obligations by not only paying the balance amount of Rs. 7-00 lakhs on or before 15.4.1988, as agreed, but also did not fulfil the other terms and conditions stipulated therein. However, as requested by the defendants, time was extended by two (2) months till 15.6.1988 to effect payment of the balance amount of Rs. 7-00 lakhs, that on or before the said extended period also, the balance amount of Rs. 7-00 lakhs was not paid and committed breach of the terms and conditions of the agreement under Ex.A-7, thereby forcing the plaintiffs to issue legal notice, dated 28.1.1989, under Ex. A-1, and as per Clause 12 of the agreement under Ex.A-7, informed the defendants that they resumed their interest and shares in the partnership business, to which a reply notice, dated 6.3.1989, under Ex.A-2 was given by the defendants, whereby the defendants pretended to show their willingness to pay Rs. 7-00 lakhs with interest, but neither the amount was paid nor any communication was sent.
10. It is further averred that in order to resuming their interest, shares and rights in the properties of the Firm, as per Ex.A-1 legal notice, the defendants started creating disputes in discharging their duties as partners, therefore, the plaintiffs issued another legal notice on 6.1.1990 under Ex.A-4 to the defendants, eventually because of the differences and misunderstandings, the plaintiffs attempts to dissolve the Partnership Firm and the Firm being partnership at will, dissolved the Partnership Firm and called upon the defendants to render accounts.
11. It is the further averment of the plaintiffs that the defendants sent certain cheques, as mentioned in their reply notice under Ex.A-5, with an impression that the agreement under Ex.A-7 was still in force. It is further averred that the plaintiffs encashed the cheques under protest without prejudice to their rights and towards part payment of their suit claim.
12. As the defendants failed to render accounts, the plaintiffs filed the present suit seeking the following reliefs:
The plaintiffs, therefore, pray the judgment and decree against the defendants:
(i) Declaring that the Partnership Firm (1) M/s. Sri Venkateshwara Lodge (parent partnership business); (2) M/s. Blue Sea Picnic Cottages; (3) M/s. Venkateshwara Corporation; (4) M/s. Venkateshwara Tube Well Company; (5) M/s. Sri Srinivasa Enterprises; and (6) M/s. Sri Veerabhadra Trading Corporation are dissolved or alternatively to grant judgment and decree dissolving the said Firms;
(ii) Directing the defendants 1 to 5 or any of the other defendants found liable to render true and correct accounts of the Firms;
(iii) Receiver be appointed to take possession of the partnership assets and the landed properties detailed in the schedule hereunder and to grant any other or further relief for which the plaintiffs are entitled to.
13. It is pertinent to mention here that originally the suit is filed by plaintiffs 1 and 2 against defendants 1 to 16. During the pendency of the suit plaintiff No. 1 i.e., K. Rama Murthy died and his legal representatives were bought on record as plaintiff Nos. 3 to 9. So also defendant No. l i.e., A. Rama Swamy died during the pendency of the suit and his legal representatives were brought on record as defendant Nos. 17 to 22.
14. The defendants filed written statement and counter-claim under Order VIII Rule 6-A of the Code of Civil Procedure, 1908 (CPC) denying the material allegations in the plaint. It is denied that only in some of the assets of the Partnership Firm, plaintiffs 1 and 2 are the co-owners along with the defendants, but many of the other properties are not covered by the Firm. It is also denied that M/s. Sri Venkateshwara Lunch Home was an erstwhile branch of Sri Venkateshwara Lodge.
15. It is further averred that the defendants were always ready and willing to perform their part of the contract as embodied in the agreement under Ex.A-7, particularly regarding payment of Rs. 7-00 lakhs before 15.4.1988, which was extended to 10.6.1988 under Ex.A-8 agreement, dated 14.4.1988, but it is the plaintiffs, who did not co-operate with the defendants and committed breach of the terms and conditions of the said agreement, which is evident from the conduct of the plaintiffs in not coming forward to accept Rs. 7-00 lakhs before 15.4.1988. It was further specifically denied that the plaintiffs resumed their interest in the shares of the Firm.
16. It is the further averment of the defendants that the plaintiffs having received the amounts due to them with interest thereon as per the agreements, dated 15.6.1987 and 14.4.1988, under Exs.A-7 and A-8, respectively, and having the defendants shown their readiness and willingness to fulfil all the terms and conditions of the agreement and, in fact, having discharged all the obligations stipulated in the agreement under Ex.A-7, the plaintiffs have no further right or interest in the Firm or its properties and accordingly not entitled for rendition of accounts in respect of any of the Firms.
17. It is also specifically averred that the deceased plaintiff No. 1 -K. Rama Murthy and his son K. Sitaraman, who is arrayed as plaintiff No. 2, have received and encashed four cheques, each dated 1-3-1990, for a total value of Rs. 7-70 lakhs. It is further stated that the defendants filed an application LA. No. 1271 of 1991 under Section 34 of the Arbitration Act, 1940, seeking reference of the matter to arbitration before the trial Court and the same is pending.
18. During the pendency of the said proceedings before the High Court of Andhra Pradesh, the second plaintiff viz., K. Sitaraman, who is the son of the deceased plaintiff No. l-AT. Rama Murthy, has chosen to file suit O.S. No. 5919 of 2000 on the file of X Junior Civil Judge, City Civil Court, Hyderabad, claiming to be a partner in the Firm M/s. Sri Venkateshwara Lodge and sought for a decree of injunction preventing the defendants to participate and share the properties in the said business. The said suit was ended in compromise and a Memorandum of Compromise, dated 5.9.2003, under Ex.B-63 was filed, wherein it was accepted that in full and final settlement of their claim, encashed the cheques, dated 1.3.1990, for a total sum of Rs. 7-70 lakhs, that in the said Memorandum of Compromise, it was categorically set out that a total sum of Rs. 12-00 lakhs and interest at 6 per cent per annum was paid by defendants 1 to 5 and received the consideration due to him on his own behalf and as the legal heir of his father i.e., plaintiff No. l (K. Rama Murthy) and that contrary to the Memorandum of Compromise under Ex.B-63 specifically entered into between the parties in suit O.S. No. 5919 of 2000, the plaintiffs choose to file the present suit O.S. No. 471 of 1990 on 23.4.1990 for dissolution of Firm and rendition of accounts, stating that the cheques were encashed under protest and without prejudice to their rights.
19. It is further stated that the perusal of the agreement under Ex.A-7, which was arrived at the instance of the agreed Arbitrator Sri V.G. Krishna Murthy, discloses that the time was not the essence of the contract in respect of compliance of the terms and conditions, including payment of the balance amount of Rs. 7-00 lakhs, as referred to in Ex.A-7 agreement read with Annexures-I to IX appended thereto. It is further specifically averred the stipulation that the balance amount of Rs. 7-00 lakhs shall be paid on or before 15.4.1988 does not itself make the time as the essence of the contract, specifically in the light of and by virtue of the nature and character of the obligations to be discharged by the defendants mentioned under the annexures appended to the agreement, which also expressly form part of the agreement under Ex.A-7.
20. Further that, in April, 1988 even one week prior to the expiry of the time limit of 15.4.1988, the defendants offered to make payment to the plaintiffs on two occasions and the same was wrongfully refused on the ground that the other liabilities undertaken by the defendants were not discharged, ignoring the fact that such other liabilities, as mentioned in Annexures I to IX, cannot be performed within the fixed time frame, inasmuch as, various Court proceedings initiated by the banks against the plaintiffs were, admittedly, pending and, therefore, the question of discharge of other obligations is beyond the control of the defendants and accordingly it should be construed that time was not the essence of the contract.
21. It is further averred by the defendants in the written statement that, in fact, the defendants deposited with the Arbitrator Sri V.G. Krishna Murthy, the pass books and the cheque books, in this behalf, to tender the cheques at any point of time to show their bona fides, which could be seen from the very fact that the plaintiffs have been collecting the interest amount from the defendants through the Arbitrator on various dates.
22. It is also averred that the first defendant had addressed a letter, dated 17.1.1989, under Ex.B-61 to the Arbitrator regarding avoidance by the plaintiffs to receive the cheques for the balance amount of Rs. 7-00 lakhs and in response to the said letter, the Arbitrator gave reply, dated 18.1.1989, under Ex.B-62 acknowledging the fact of refusal on the part of plaintiffs 1 and 2 to receive the amount and execute the deeds of release. Further that plaintiffs 1 and 2 caused issuance of a further notice on 6.1.1990 under Ex.A-4 through their Advocate to which the defendants issued a reply, dated 1.3.1990, under Ex.A-5, enclosing therewith four cheques for a total sum of Rs. 7-70 lakhs towards the balance amount due and interest at 6 per cent per annum and all the four cheques were dated 1.3.1990 in the joint names of plaintiffs 1 and 2, and surprisingly they were encashed by the plaintiffs on 23.4.1990 on which date the present suit O.S. No. 471 of 1990 was filed for dissolution of the Partnership Firm and rendition of accounts.
23. It is further averred that defendants 1 to 5, with an intention to release the residential house of plaintiff No. l, which was deposited as collateral security with City Union Bank, Kumbakonam, had offered time and again to substitute their other properties as collateral security to the bank before the agreed date, but the plaintiffs have refused the said offer, meaning thereby the plaintiffs did not cooperate with the defendants in discharging their obligation to release the house from the City Union Bank, Kumbakonam, which was the prime obligation cast upon them.
24. Nextly, it is averred that even after the cases filed by the City Union Bank, Kumbakonam, were settled on 30.12.1996, till date the plaintiffs did not choose to collect the documents of their house from the bank for the past 8 1/2 years.
25. It is further specifically averred that the plaintiffs having encashed the cheques, dated 1-3-1990, without prior notice to the defendants, cannot unilaterally appropriate the proceeds of the cheques as they pleased towards rendition of accounts and share of profits, whereas the cheques were given to the plaintiffs specifically towards the debt (balance amount of Rs. 7-00 lakhs) due from the defendants under Ex.A-7 agreement, dated 15.6.1987.
26. The defendants have also furnished the details of compliance of the terms and conditions mentioned in Ex.A-7 agreement as well as Annexures I to IX.
27. Apart from the above, at Paragraph 15 of the written statement, the defendants have also referred various obligations and conditions, which are not performed by the plaintiffs, in order to demonstrate their non-co-operative attitude and eventually sought the following reliefs, which are as under:
The defendants, therefore, pray that the above suit O.S. No. 471 of 1990 be dismissed with costs and the counter-claim prayed by the defendants 2 to 5 and 17 to 22 may be decreed against the plaintiffs 3 to 9 directing them:
(a) to execute the deeds of release/ relinquishment/confirmation in respect of the properties set out in the schedule to the written statement insofar as the 1st plaintiffs share is concerned;
(b) for a decree against the plaintiffs 3 to 9 herein for payment of Rs. 5,00,000/- to defendants 2 to 5 and 17 to 22 herein together with interest @ 6% p.a. on the sum of Rs. 5.00 lakhs from this day till the date of decree and thereafter till satisfaction of the decree;
(c) and for the costs of the counter-claim.
28. Basing on the pleadings of both the parties, the Court below framed the following issues.
(1) Whether the plaintiff is entitled for declaration as prayed for?
(2) Whether the defendants 1 to 5 are liable to render accounts of the Firms?
(3) Whether a Receiver can be appointed to take possession of partnership assets and landed properties as mentioned in the schedule?
(4) Whether plaintiffs 3 to 9 have got surviving cause of action and thereby suit is maintainable?
(5) Whether defendants 1 to 5 were ready and willing to pay the balance of amount as mentioned in the agreement?
(6) Whether time is essence of the agreement?
(7) Whether the defendants have committed breach of agreement?
(8) Whether defendants have paid an amount of Rs. 7,00,000/- towards balance of amount and if so, whether plaintiffs can appropriate the same for other accounts?
(9) Whether the defendants are entitled to the decree as prayed for in the counter-claim?
(10) To what relief?
The Court below also framed the following additional issues settled on 7.2.2006:
(1) Whether the defendants have committed breach of terms of contract and have no right to enforce the contract?
(2) Whether Rs. 5,00,000/- paid at the time of agreement stand forfeited?
29. On behalf of plaintiffs, the plaintiff No. 5 examined as PW-1 and got marked Exs.A-1 to A-9. While on behalf of defendants, defendant No. 3 himself examined as DW-1 and got marked Exs.B-1 to B-65. The Arbitrator Sri V.G. Krishna Murthy was examined as CW-1 and through him Exs.X-1 to X-7 were marked.
30. After hearing both sides and basing on the material and the evidence, both oral and documentary, available on record, the Court below dismissed the suit filed by the plaintiffs and decreed the counter-claim filed by defendants 2 to 5 and defendants 17 to 22, directing the plaintiffs 3 to 9 to execute the deed of relinquishment in respect of the schedule properties of written statement in respect of the share of the first plaintiff, on the ground that the defendants could not discharge the liabilities since suits were pending in different Courts, which is beyond their control, and that time is not the essence of the contract since the plaintiffs accepted the cheques for the balance amount of Rs. 7-00 lakhs without any protest. The Court below also observed that the counter-claim along with the written statement could not be filed by the defendants on account of pendency of the petition under Section 34 of the Arbitration Act, 1940 and if the period of pendency of Section 34 petition is excluded, as contemplated under Section 14 of the Limitation Act, the counter-claim is well within the period of limitation. Hence the present appeals by the plaintiffs.
31. The learned Senior Counsel Sri E. Manohar appearing for the plaintiffs mainly urged the following contentions among other contentions, which will be dealt with later.
1. That time is the essence of Ex.A-7 agreement and the terms and conditions of the said agreement shall be discharged on or before 15.4.1988 or during the extended period i.e., 10.6.1988.
2. There is no readiness and willingness on the part of the defendants to perform their part of the obligations mentioned in Exs.A-7 and A-8 agreements.
3. That the counter-claim filed by the defendants was not brought within the period of limitation and entertaining such counter-claim by the Court below merely because the same was filed along with the written statement, since the same is subject to law of limitation and the Court cannot enlarge the statutory period of limitation.
In the instant case, since the relief sought for in the counter-claim is for specific performance, it ought to have been filed within a period of three years. The obligations under Ex.A-7 agreement are not only the payment of Rs. 7-00 lakhs, but also clearing of the debts and release of the property deeds and handing over the same to the plaintiffs as mentioned in Annexures-I to IX appended to Ex.A-7 agreement.
4. That the Court below has absolutely went wrong in recording a finding that the time was not the essence of the contract and further that once breach was committed by the defendants, Ex.A-7 agreement automatically stands cancelled.
32. Per contra, the learned Senior Counsel Sri Rajendra Chowdary appearing for the defendants advanced the following contentions:
1. That the defendants did not commit any breach of Ex.A-7 agreement, dated 15.6.1987.
2. The judgment in O.S. No. 5919 of 2000 was between the same parties, though prayer was different and, therefore, the same is binding on the plaintiffs.
3. That there are so many other liabilities to be discharged by the plaintiffs, which are set out in the Annexures-1 to IX appended to Ex.A-7 agreement, dated 15.6.1987 and if those obligations are read in conjunction with Ex.A-7 agreement, time cannot be treated as the essence of the contract, particularly Clause 12 of Ex.A-7 agreement has to be read with Annexures and most important among them is Annexure-VIII.
4. That the tender or offer amounts to contract under Section 37 of the Indian Contract Act, 1872.
5. That the limitation to file the counterclaim excludes the period of pendency of the interlocutory application under Section 34 of the Arbitration Act, 1940 and the defendants are entitled for the benefit of Section 14 of the Limitation Act, 1963 till the Supreme Court disposed of Civil Appeal No. 5387 of 1999, by order, dated 27.4.2005, granting permission to the defendants to file written statement.
It is further contended that if the counterclaim is not permitted, it would cause prejudice to the defendants, inasmuch as, the defendants would remain remediless. Further, the object of introduction of Order VIII Rule 6-A of CPC is to see that the scope of litigation be mitigated and to avoid duplication and multiplication of litigation and further that there was no notice given to the defendants regarding the so called protest while encashment of the cheques and filing of the suit on 23.4.1990.
33. Now, the points that arise for consideration in these appeals are-
1. Whether time is the essence of the contract under Ex.A-7 agreement, dated 15.6.1987?
2. Whether there was readiness and willingness on the part of the plaintiffs and defendants with respect to performance of their obligations under Ex.A-7 agreement, dated 15.6.1987?
3. Whether the counter-claim filed by the defendants is within the period of limitation?
4. To what relief?
34. Before dealing with the points for consideration, it is to be remembered that plaintiffs 3 to 9 were brought on record as the legal representatives of plaintiff No. 1-Sri K. Ramamurthy, as per I.A. No. 422 of 2005, dated 5.7.2005 and defendants 17 to 22 were brought on record as the legal representatives of defendant No. 1-Sri A. Ramaswamy, as per I.A. No. 423 of 2005, dated 5.7.2005.
35. After the death of first plaintiff and first defendant during the pendency of the suit and after their legal representatives were brought on record, necessary amendments were also carried out in the cause titles of both the plaint and the counterclaim. Therefore, there is no dispute with regard to the biding nature of the terms and conditions entered into between the parties under Ex.A-7 agreement and Annexures-I to IX appended thereto. In other words, broadly, all the Partnership Firms, the main Firm being M/s. Sri Venkateshwara Lodge and the other firms being subsidiary by virtue of diversified activities, originally, were represented by two groups i.e., Sri A. Ramaswamy and group holding 71 per cent share and Sri K. Ramamurthy and group holding 29 per cent share.
36. It is to be noticed that in Ex.A-7 and Annexures-I to IX appended thereto contain the signatures of the original parties Sri K. Ramamurthy and Ors. representing the plaintiffs, who held 29 per cent share, and other group represented by Sri A. Ramaswamy also signed the above said documents, though not parties to the Annexures, which deal with different liabilities of plaintiffs relating to different properties, the particulars of which are as under.
37. So far as Annexure-I is concerned, plaintiff Nos. l and 2 are having 14 per cent and 15 per cent share, respectively, thus a total of 29 per cent share. In Annexure-II, second plaintiff only is the partner representing the plaintiffs having 15 per cent share. In Annexure-III, second plaintiff only is the partner holding 14 per cent share. In Annexure-IV, second plaintiff only is the partner holding 25 per cent share. In Annexure-V, plaintiffs 1 and 2 are the partners holding 20 per cent share. In Annexure-VI, second plaintiff only is the partner holding 5 per cent share.
38. However, in all these Annexures, though Sri K. Ramamurthy was not a party, still, representing his group of partners, invariably, he signed all the documents and there is no controversy on this aspect viz., extent of liability of each group. It is to be further seen that no other partner represented by Sri K. Ramamurthy and Group came forward with a plea that the said Annexures do not bind them. In other words, for all purposes, Sri K. Ramamurthy and his son Sri K. Sitaraman are holding 5 to 29 per cent share together, on one hand, and remaining are in defendants' group represented by Sri A. Ramaswamy. But, nobody has challenged the authority of Sri K. Ramamurthy and Sri K. Sitaraman, who are holding minority share ranging from 5 to 29 per cent and Sri A. Ramaswamy, while the other group is holding majority share of 71 per cent. This fact is obvious from the very fact that even in the Ex.A-7 agreement and Annexures-I to IX appended thereto, though Sri K. Ramamurthy did not have any share or interest, he was shown as a party and signed the documents.
39. Virtually, this is a conflict of interest between Sri K. Ramamurthy and group, on the one hand, and Sri A. Ramaswamy and group, on the other, as plaintiffs and defendants, respectively.
40. In any event, in the entire dispute, the plaintiffs can be identified with their share ranging from 5 to 29 per cent as prescribed in Ex.A-7 agreement and Annexures-I to IX appended thereto.
In Re Point Nos. 1 and 2:
41. Since Point Nos. 1 and 2 are interrelated and the discussion is somewhat overlapping, the same are dealt with together.
42. The genesis of the whole controversy begins with Ex.A-7 agreement, dated 15.6.1987, read with Annexures-I to IX. It is not in dispute that the parties to the said agreement own different properties in Partnership Firm and they are very closely related. The deceased first plaintiff was brother-in-law of the deceased first defendant and they were carrying on certain businesses constituting a Firm, the details of which are not worth mentioning. It is also not necessary to mention that the original first plaintiff and first defendant died during the pendency of the suit and their legal representatives were brought on record.
43. While so on account of certain differences between both the parties, the controversy has been referred to an Arbitrator, by name Sri V.G. Krishna Murthy, who is a common friend of both the families and agreed to have a final settlement. Accordingly, the said Arbitrator suggested certain proposals towards full and final settlement and the same were accepted by both the parties in toto and binding on them.
44. Accordingly, Ex.A-7 agreement, dated 15.6.1987, was entered into between both the parties. Along with Ex.A-7 agreement, certain other conditions were also recorded in the form of Annexures and the same were appended to Ex.A-7, agreement. It was specifically agreed in Condition No. l 1 of Ex.A-7 agreement that the conditions mentioned in the Annexures have to be treated as part and parcel of Ex.A-7 agreement and binding on the parties.
45. For ready reference, the main substance of Condition No. 11 of Ex.A-7 agreement, dated 15.6.1987, is extracted hereunder:
11. The further details of the terms and conditions and other stipulations agreed upon by the parties by way of full and final settlement are contained in the Annexures separately in respect of each of the Firm and other joint properties appended to this agreement and are treated as part of this agreement and binding on the parties.
46. As per Annexure-I, the plaintiffs (Second Party to the agreement) shall have to change the name of 'Sri Venkateswara' by 15.4.1988. The plaintiffs also agreed not to have any right or interest in the remaining property with effect from 15.4.1988 or from the date of retirement, as the case may be.
47. It is further agreed between both the parties that the defendants shall take over all the assets i.e., the land and buildings belonging to the Firm, excepting a few, and further that the defendants shall also take over all the liabilities, bank loans, other debts, mortgages and other outstandings, business outstandings and all other liabilities payable by the Firm Sri Venkateswara Lodge and shall be responsible to discharge the bank loans, other debts and all other outstandings. The loans taken by the Firm from Andhra Bank have to be repaid in the suit filed by the said Bank against the Firm. It was specifically agreed that it is only the defendants, who have to discharge all those financial liabilities, dues, debts, etc. It was further specifically agreed that the plaintiffs were not in any way responsible for payment of loan amount due to be paid by the Firm. It was also agreed that the plaintiffs shall execute a deed of relinquishment on the date of payment of balance amount of Rs. 7-00 lakhs. It was further agreed that the balance amount of Rs. 7-00 lakhs shall be paid on or before 15.4.1988, which was subsequently extended to 10.6.1988, with mutual consent.
48. Annexure-II deals with the liability of the defendants to discharge the income tax liabilities of the Firm and also the personal liabilities of the second plaintiff by 15.4.1988 and it was agreed that the second plaintiff would not be responsible to pay the income tax liability of the Firm in respect of his share. It was also agreed that the defendants alone are responsible to pay the entire loan together with interest to the Bank of Baroda, including all other liabilities, loans, etc., to be paid by the plaintiffs.
49. Annexure-III deals with the Partnership Firm of Sri Venkateswara Corporation, consisting of other partners, whereby it was agreed that the first plaintiff shall execute the retirement deed on the date of receipt of balance amount of Rs. 7-00 lakhs together with interest. It was reiterated that the first plaintiff shall not be responsible for any debts, loans, dues, etc., and the defendants alone are responsible to pay the Firm's income tax and personal income tax of the first plaintiff in respect of his share in the Firm.
50. As per Annexure-IV, it was specifically agreed that the defendants shall discharge the loan due by the Firm to Kumbhakonam City Union Bank, since there was still substantial amount of loan due to the bank for the recovery of which the bank had filed a suit against the Firm and the partners, which is binding on them. It was specifically mentioned that the first plaintiff had given a collateral security to the bank by depositing the title deeds. The said security shall cover the loans given by the bank for other purposes also. It was again agreed that the defendants alone are responsible to discharge the entire loan amount together with interest due to the said bank and the responsibility of the plaintiffs would cease. It is further agreed that the defendants shall take immediate steps to arrange payment to the said bank to ensure release of the residential property in which the first plaintiff was in occupation.
51. It was also agreed that in case there was a decree in favour of the bank and the bank seeks to execute the said decree against both the plaintiffs and the defendants, it is only the defendants who are liable to ensure that the decree is not executed against the plaintiffs. It was also agreed that the defendants shall ensure the release and return of title deeds of the residential house pertaining to the building referred to above from the bank, on or before 15.4.1988.
52. As per Annexure-V, it was agreed that the plaintiffs shall retire and relinquish their respective shares upon payment of the balance amount of Rs. 7-00 lakhs by the defendants. Again it was agreed that the plaintiffs are not responsible for any loans, dues, etc., due by the Firm in favour of the third parties and it is only the defendants, who were made responsible for it.
53. Annexure-VI deals with the liability of the defendants to pay the loan amounts due by the Firm to the State Bank of India, the T.V.S. and other private parties etc. However, again the plaintiffs were exonerated from their liability of paying the income tax.
54. Annexure-VII deals with several agricultural activities that were being undertaken by the Firm with special reference to the loans taken by the Firm from Kumbhakonam City Union Bank, Central Bank of India, Allahabad. In this context also, the plaintiffs were exonerated from their liability towards bank loans and made the defendants alone responsible for repayment of the same.
55. It could be further seen from this Annexure that in the year 1965-66, some lands were sold to Kalyanagar Co-operative Housing Society and Ayodhyanagar Cooperative Housing Society and the said societies, at the time of Ex.A-7 agreement, are disputing the title and suits were filed for recovery of sale consideration paid by them. The said suits were filed against the first plaintiff and first defendant in the capacity of joint owners of the lands. In the said suits, a decree was passed for a total sum of Rs. 15-00 lakhs and the said decree was sought to be executed against both the first plaintiff and first defendant.
56. In that context, it is relevant to mention that in this Annexure, it was specifically agreed that the first defendant alone shall pay and discharge the entire decretal amount together with damages, costs, interest, etc., till the date of payment. But, it is significant to note here that no date was fixed for the defendants towards payment of the dues in the execution proceedings.
57. It was further agreed that the plaintiff shall execute a release deed in respect of his l/4th share in an extent of Ac.5-00 of land at Yellareddyguda in favour of the defendant. A suit for specific performance was pending in respect of this land. It is the further agreement that all the release deeds shall be executed on receipt of Rs. 7-00 lakhs.
58. As per Annexure-VIII, it was specifically agreed that in case the defendants make the payment of balance amount of Rs. 7-00 lakhs earlier to the stipulated date i.e., 15.4.1988, the plaintiffs shall execute the retirement deeds from the Partnership Firm with effect from 1.4.1987 and the release deeds on the date of actual payment, meaning thereby that the agreement in this annexure would come into effect from 1.4.1987 itself i.e., retrospectively.
59. As per Annexure-IX, both parties agreed that the agreement shall be kept in the custody of Sri V.G. Krishna Murthy, Arbitrator, till the payment is made in full and other formalities, like execution of retirement deeds and release deeds, are completed.
60. From the above, it is obvious that the Arbitrator i.e., Sri V.G. Krishna Murthy, would not become functus officio till the entire transaction is completed by both the parties and the original agreement was specifically agreed to be in the custody of the Arbitrator only.
61. At this juncture, it is to be remembered that the suit was instituted by the plaintiffs basing on a xerox copy of Ex.A7 agreement, but not on the basis of original copy of the agreement, which was, admittedly, in the custody of the Arbitrator.
62. From a conjoint reading of the terms and conditions of Ex.A-7 agreement and the Annexures-I to IX appended thereto, particularly from a reading of condition No. 11 of Ex.A-7 agreement, which was extracted above, it is obvious that the conditions mentioned in Ex.A-7 agreement and the conditions in Annexures-I to IX shall form part of the agreement.
63. Further, from a reading of Annexures-I to IX, it could be seen that each Annexure speaks of some civil proceedings regarding recovery of certain amounts taken as loan by the Firm from the banks, like Andhra Bank, Kumbhakonam City Union Bank, State Bank of India, etc., and suits were pending as on the date of Ex.A-7 agreement and the Annexures appended thereto. Each Annexure specifically relates to one transaction or the other and the liability of the Firm to the banks or the other in civil suits and it was specifically, with abundant caution, the plaintiffs veined away from the responsibility of paying the dues to each bank in the civil proceedings initiated by the banks and the entire responsibility was cast upon the defendants alone. In other words, each Annexure is meant for dealing with each of the loan transaction with one bank or the other, or one dispute or the other, involving financial liabilities, and those liabilities were specifically kept on the shoulders of the defendants.
64. Yet, another fact to be noted, from a reading of the Annexures, is that in some of the Annexures, there is no mention about the time on which the loan transactions are to be cleared by the defendants and in some Annexures, of course, it was mentioned as on or before 15.4.1988 i.e., the last date of compliance of the terms and conditions of Ex.A-7 agreement.
65. When there are several pending suits initiated by different banks against the Firm, making both the plaintiffs and defendants as parties, it is imperative for the defendants to contest those suits and after ascertainment of the actual liability, if any, decided by the Court by way of passing a decree, the question of repayment of the loan coupled with interest, as was agreed, does arise for the simple reason that admittedly those suits were being contested by both the plaintiffs and defendants.
66. Therefore, it should be understood that it is the responsibility of the defendants to pay the debs as decided by various Courts by passing decrees in various suits filed by various banks, when they were sought to be executed by initiating execution proceedings. When the suits are in contest, ascertainment of the actual amount due to each of the bank is an absurdity. Sometime, in contest of the suit, the banks may lose the case also. However, when the burden was shifted on to the defendants and the same was accepted by the defendants, notwithstanding the extent of the liability of the plaintiffs in the eventual decrees that are likely to be passed by various Courts, it was the responsibility of the defendants only to discharge those liabilities. Therefore, the compliance of the conditions mentioned in Annexures-I to IX, which relates to various suits that were pending against the Firm, would arise only after the decrees were passed in the pending suits. It cannot be said that the defendants were prevented from contesting the suits, nor there is any such condition to that effect. Therefore, any condition to the effect that all the dues shall be paid within one year from the date of Ex.A-7 agreement and the Annexures appended thereto would and should mean compliance of the condition as far as possible immediately and subject to finality of the pending suits in various Courts. In other words, the said condition should be understood in realistic sense.
67. Yet, another thing to be noticed is that even though both the parties agreed that the defendants only are responsible for payment of the dues, in case of any decrees, if the respective banks initiate execution proceedings after obtaining decrees, those banks can proceed against both the plaintiffs and the defendants or only against either of the parties, because those banks are not parties to this agreement under Ex.A-7 or the conditions mentioned in the Annexures appended to the said agreement.
68. As a matter of fact, it is to be noticed from the Annexures that it was categorically mentioned as 'in the suits pending and in the event of decrees passed, which expression clearly indicates that the liability of compliance of paying the dues to the banks does arise only after the decrees are passed, because quantification of the loan amount due to each bank by the defendants, including the plaintiffs, would arise only after the actual ascertainment by the Courts by way of passing decrees.
69. Therefore, by using the expression 'the amounts paid by virtue of the decrees in various suits' would only indicate that the plaintiffs were quite conscious that the question of compliance by the defendants would arise only after the decrees are passed and merely because a date has been mentioned in Ex.A-7 agreement, that does not, in strict sense, mean that all dues to various banks to be paid by the plaintiffs are to be paid on or before 15.4.1988. If that was the intention and understanding of the plaintiffs, it would only mean that all the suits filed by various banks against both the parties should be decided on or before 15.4.1988, execution petitions shall be filed and payments also should be made, considering the case of each bank, when actually both the parties were contesting the suits. This kind of understanding that the defendants shall comply the terms and conditions of Ex.A-7 agreement and the Annexures appended thereto, including the payment of Rs. 7-00 lakhs, is an absurdity and it cannot be treated that such compliance be made by the defendants within the time frame i.e., between 15.6.1987 and 15.4.1988, as was agreed in Ex.A-7 agreement and, therefore, it is hard to arrive at a conclusion that time is the essence of the contract.
70. Whether time is the essence of the contract or not has to be understood not only from the mere language employed in Ex.A-7 agreement, but also the intention of the parties to the agreement and the overall facts and circumstances have to be taken into account and an inference has to be drawn.
71. Now, if we go into the facts, in brief, it was agreed, as suggested by the Arbitrator, that in order to get away from the Partnership Firm, initially a sum of Rs. 5-00 lakhs was to be paid by the defendants to the plaintiffs and undisputedly the said amount was paid and for the balance amount of Rs. 7-00 lakhs, to make good the total sum of Rs. 12-00 lakhs, a period of one year was fixed i.e., on or before 15.4.1988, which was subsequently extended to 10.6.1988, through agreement Ex.A-8. This is the main condition to be complied with within a stipulated period and insofar as the other conditions, though compliance was to be made on or before 15.4.1988, they are dependent upon various other contingencies i.e., contest of various suits filed by various banks in various Courts.
72. In this context, it is also to be seen that the defendants had given an account of the compliance of various conditions mentioned in Annexures-I to IX, which are as under:
--------------------------------------------------------------------------------------------------------
Sl. Firm's Name Remarks and compliance by Defendant Group.
No.
--------------------------------------------------------------------------------------------------------
01. Sri Venkateswara Lodge a. Sweet house was being run by the plaintiff Group even
(Annexure-I) before agreement.
P-1 = 15% b. Sweet House Mulgi Regd. to the extent of share of
P-2 = 14% the 2nd plaintiff vide document No. 2346 of 2003.
D-1 to D-5 = 71% c. Andhra Bank claim in O.S. No. 88/1978 and O.S.
No. 404/1980 were adjusted. Bank issued a certificate
dated 4.8.2003.
d. All IT arrears of plaintiff No. 1 had been cleared.
02. Sri Venkateswara a. There are no liabilities or debts outstanding.
Corporation (Annexure-III) b. All the IT arrears of plaintiff-1 upto 15.4.1988 paid.
P-1 = 14% Certificate of Chartered Accountant dated 5.8.2003 is
D-1 to 5 = 80% available.
03. Sri Srinivasa Entp., a. There are no liabilities or debts outstanding.
(Annexure-V) b. All the IT arrears of plaintiff No. 1
P-1 = 10% upto 15.4.1988 paid.
P-2 = 10%
D-1 to D-5 = 80%
04. Item 3 a. City Union Bank, Kumbakonam
(Annexure-VII) The bank filed O.S. No. 615/85. All the outstandings
settled with the bank. Defendant Group paid the Bank
Rs. 10,60,000/- on 30.12.1996 to enable the release of
the title deeds to the plaintiffs 1 and 2. The letter of the
bank's Counsel dated 28.12.1996 and the letter of the
bank dated 6.1.1997 and the certificate dated
20.10.2004 issued by the bank are available.
b. Central Bank of India filed five suits in respect of loans
availed in 1984-85 in a sum of Rs. 11,36,000/-.
Suits compromised and withdrawn by bank. Defendants 1
to 5 paid to the bank Rs. 27.00 lakhs in April, 1988.
05. Item 6 Yousufguda land sold to societies in 1965-1966. Title of
(Annexure-VII) vendors questioned by societies. Suit filed by Ayodhyanagar
Co-op. Society decreed. Decree satisfied by defendants 2
to 5 by payment to the plaintiffs therein. Suit filed by
Kalyanagar Co-op. Society was dismissed.
--------------------------------------------------------------------------------------------------------
(emphasis supplied by us)
73. Exs.B-2 to B-16 are copies of various judgments and certificates issued by different banks.
74. From the above, it is obvious that all the decrees against the plaintiffs and defendants and discharging the liabilities of the plaintiffs also under those decrees could be possible only at a point much later to the agreed date of compromise i.e., 15.4.1988. From the very expression used in Annexure Nos. I to IV that 'Sri A. Ramaswamy alone shall be responsible for any of the debts, loans, dues and other outstanding due by the Firm and Sri K. Ramamurthy of the End Party shall in no way be responsible for the same' would only indicate that the plaintiffs had given up all their rights, subject to the condition that all amounts payable by the plaintiffs in decrees that are likely to be passed in various suits should be paid on or before 15.4.1988, which, in our opinion, is impossible to perform.
75. From the above, it is obvious that the plaintiffs were absolutely conscious that discharge of the liabilities on the part of the defendants insofar as various suits are concerned would arise only after obtaining decrees and not before, and it is a known fact that the decrees cannot be passed by the Courts on or before 15.4.1988, as agreed in Ex.A-7 agreement.
76. It is further to be seen that there is no condition, nor there can be a specific condition to the effect that all the decrees shall be obtained on or before 15.4.1988 and even if any such condition is specifically incorporated and the same if understood by the plaintiffs in strict sense, discharging of the liability by the defendants as fixed in Ex.A-7 agreement and Annexure-I to IX is inexecutable and impossible. In other words, the obligation of the agreement cannot be performed.
77. Therefore, while reading such conditions basing on such circumstances, a plausible and pragmatic approach is required and we are afraid that the plaintiffs are not capable of understanding the implication of incorporating such conditions.
78. After all, the law is settled and also as held by us in Mohammed Ibrahim and Anr. v. Mohammed Abdul Razzak : AIR2007AP294 , to the effect that whether the time is essence of the contract or not is an aspect that has to be inferred from the facts and circumstances in each case. In the present case, from a reading of the conditions and the surrounding facts, it is more than abundantly clear that time is not the essence of the contract.
79. Frustration of the conditions in Ex.A-7 agreement and the Annexures appended thereto is not the ground averred by the plaintiffs. Therefore, we are of the view that time is neither the essence of the contract nor was understood by the parties, nor was acted upon, which is evident from the conduct of the plaintiffs.
80. From the statement, as already shown above, and as could be seen from Exs.B-2 to B-16, which are various decrees and certificates of discharge, it is clear that the suits, which were pending as on the date of entering into Ex.A-7 agreement read with Annexures-I to IX, were decreed only after filing of the present suit and the liability of the plaintiffs in those decrees along with other conditions was discharged by the defendants.
81. From the above, it is further clear that the defendants have successfully contested the suits and despite the suits were decreed and the obligation of the plaintiffs to discharge the liability has not only been undertaken, but also discharged by the defendants only. This itself is a clear indication that the defendants never went back from the their contractual obligation. The Court below further observed that the plaintiffs did not dispute that the defendants have discharged all the liabilities including the tax arrears. No arguments or submissions were advanced by the learned Senior Counsel for the plaintiffs challenging the observations and findings of the Court below in this behalf.
82. In this regard, it is to be seen that the main concentration of the plaintiffs is regarding payment of balance amount of Rs. 7-00 lakhs on or before 15.4.1988, which was subsequently extended to 10.6.1988. In fact, the said amount, as pleaded by the defendants, had been paid to the Arbitrator Sri V.G. Krishna Murthy.
83. In this regard, it is to be seen that the said Arbitrator was appointed by both the parties and that it was specifically mentioned in Annexure-IX as under:
The parties hereby agreed that this agreement shall be kept in the custody of Sri V.G. Krishna Murthy till the payment is made in full and other formalities like execution of retirement deeds and release deeds are completed.
84. From the above, it is clear that till the entire agreed obligations are complied by both the parties, the Arbitrator will not become functus officio and further by the reason that the original agreement under Ex.A-7 was kept in the custody of the said Arbitrator only.
85. Now, the question is whether the amount of Rs. 7-00 lakhs was paid on or before 15.4.1988 or the extended period of 10.6.1988 or not, and if not, what is the effect?
86. Though a finding was recorded in Point No. l that time is not the essence of the contract, still payment of balance amount of Rs. 7-00 lakhs was given more emphasis. Since there is much controversy from both sides as regards the compliance of the said condition, the Court below called upon the Arbitrator Sri V.G. Krishna Murthy to be examined as CW-1, who stated that the defendants used to pay interest on the balance amount of Rs. 7-00 lakhs and the same used to be received by the plaintiffs. In this regard, he filed Ex.X-5, dated 4.11.1987, acknowledging the receipt of a sum of Rs. 14,000/- towards interest on the balance amount of Rs. 7-00 lakhs by the plaintiffs. This fact was revealed by the Arbitrator in the cross-examination of plaintiffs themselves. Therefore, the said factum of paying interest by the defendants to the Arbitrator to be paid to the plaintiffs and receipt of the same by the plaintiffs remained unrebutted.
87. The relevant portion of examination-in-chief and cross-examination of the said Arbitrator, who was examined as CW-1, is extracted hereunder..The Ex.X-1 is signed by Ramaswamy and first plaintiff. Ex.X-2 is drafted by me but I have not signed over Ex.X-1 and X-2. After scribing Ex.X-2 before taking signatures I have explained the contents of Ex.X-2 to both the parties. Witness adds that three witnesses to Ex.X-2 also explained the contents of Ex.X-2 to both the parties and all three witnesses were close associates and known to them very well....
Most of the loans for which the suits were pending were brought to my notice before drafting Ex.X-2.
The parties were coming to me after execution of Ex.X-2 in respect of terms of Ex.X-2. '...After execution of Ex.X-2 before expiry of due date mentioned in Ex.X-2 one Mr. Ramaswamy has offered to pay Rs. 7,00,000/- and interest but Mr. Rama Murthy refused to accept that offer. It was one week before the due date. In January 1989 Mr. Ramaswamy wrote a letter to me and I have replied to that letter and I filed those documents. One week prior to expiry of due date under Ex.X-2 both first plaintiff and first defendant came to me. Mr. Ramaswamy gave the cheques for Rs. 7,00,000/- and also the interest and these cheques were offered to Mr. Rama Murthy in the presence of Rama Swamy. I do not have any document in writing to show that the first plaintiff has refused to receive the cheques. The witness adds that the first plaintiff has not given anything in writing to say that he has refused to receive. Subsequent to this case I also acted as Arbitrator in another matter. I have not maintained any file except the documents filed by me, in respect of the reference made to me. I have not given any notice to first plaintiff stating that he has refused to receive the cheques. I have returned the cheques back to Defendant No. 1. I do not have any acknowledgment to show that I have returned the cheques to D-1..In the beginning I have not taken acknowledgment from first plaintiff however once under Ex.X-5 I have taken a consolidated receipt for four months showing due dates of payment of interest and dates on which the interest was actually paid however the receipt was obtained on 4.11.1987. ...Ex.X-5 is scribed by me..It is true that as per Ex.X-2 the obligations under Ex.X-2 by the defendants what to be discharged by the time fixed under Ex.X-2. The obligations under Ex.X-2 found to be beyond control of D-l. Witness adds that he has mentioned in Ex.X-6 that the obligations under Ex.X-2 could not be met by defendants as they are beyond the control of defendants.....It is not true to suggest that I am aware that Ramaswamy Group was already under debts. It is not true to suggest that in order to help the defendants I am deposing false. Witness adds that he is not appearing before the Court to defend any party.
88. Therefore, there was no reason for this Court to disbelieve the version of the Arbitrator, who was appointed by both the parties with mutual consent.
89. In this context, it is to be further noticed that it is not the case of the plaintiffs that they do not have any faith in the Arbitrator, nor what was stated by the Arbitrator before the Court below was totally untrue.
90. In order to prove that there was tender from the side of the defendants in terms of the agreement, the sequel of events show that under Ex.A-9/Ex-B-61, letter dated 17.1.1989, issued by defendant No. l to the Arbitrator clearly indicate that the tender/offer of Rs. 7-00 lakhs was given by the defendants before the stipulated date. Further, the reply letter given by the Arbitrator to defendant No. l i.e., Ex.X-7/ Ex.B-62/Ex.B-l admits about the offer/tender well within the time. The other documents i.e., Exs.A-1, A-2, A-4 and A-5 being the correspondence between the parties prior to the filing of the suit, supported by the deposition of the Arbitrator and PW-1, supports the case of the defendants amply indicating the offer of Rs. 7-00 lakhs on three occasions, much before the stipulated time i.e., 15.4.1988 and 10.6.1988 and the offer of defendant No. l in clearing the charge created on the residential house of Sri K. Rama Murthy by substituting with the alternate collateral security and non-co-operation of plaintiff Nos. l and 2 in this regard. Further, these documents clearly show that there was total non-cooperation on the part of plaintiff Nos. l and 2 in not agreeing even to write a letter to the City Union Bank for substituting the properties for releasing collateral security given by Sri K. Rama Murthy to City Union Bank. It is relevant to note that in Paragraph 4 of Ex.A-2, it was specifically stated regarding the offer of payment of Rs. 7-00 lakhs and the discharge of collateral security lying with the City Union Bank. However, it is important to note that the subsequent notice, dated 6.1.1990 - Ex.A-4, issued by the plaintiffs did not contain any specific denial either with regard to the offer of Rs. 7-00 lakhs or with regard to the alleged non-cooperation by Sri K. Rama Murthy with regard to the substitution of collateral security for the purpose of releasing the title deeds of Sri K. Rama Murthy.
91. From the above aspect also, it is clear that the plaintiffs used to accept the interest on the balance amount of Rs. 7-00 lakhs even beyond the stipulated time i.e., 10.6.1988. If really the plaintiffs wanted to contend that Ex.A-7 agreement had become frustrated, the question of receiving the amounts in Ex.X-5 towards interest for the balance amount of Rs. 7-00 lakhs does not arise. Therefore, even after the expiry of the stipulated period under Ex.A-7, the plaintiffs had been accepting the amounts from the defendants for the alleged delayed payment of Rs. 7-00 lakhs. This further clears that the plaintiffs never understood that time was the essence of the contract. If really the plaintiffs' intention was to enter into the Partnership Firm by way of restoration, as envisaged under Ex.A-7 agreement, they could have done so by simply cancelling the agreement soon after the expiry of the agreed date i.e., 10.6.1988. But, that did not happen.
92. On the contrary, a notice, dated 28.1.1989, under Ex.A-1 was issued cancelling the agreement after forfeiting the amount of Rs. 5-00 lakhs, to which a reply notice, dated 6.3.1989, under Ex.A-2 was given, wherein it was stated by the defendants that they were ready and willing to pay the balance amount of Rs. 7-00 lakhs and further communication would be given shortly thereafter. Pursuant to the said letter, five (5) cheques were issued for a sum of Rs. 7-00 lakhs with interest amount of Rs. 70,000/-, thus totalling to Rs. 7,70,000/-, and the same has been undisputedly received by the plaintiffs and were encashed on 23.4.1990 and on the same day the present suit was filed.
93. From the above events, two important things are clear. Firstly, as spoken to by the Arbitrator, the defendants were paying the interest to the Arbitrator and the same was transmitted to the plaintiffs, which was accepted after issuing receipt in Ex.X-5 and the actual amount of Rs. 7-00 lakhs was paid in reply to the notice of cancellation in Ex.A-1 by way of issuing five cheques for a total sum of Rs. 7,70,000/-. Secondly, the said cheques were accepted instead of being rejected by the plaintiffs and the same were, in fact, encashed also.
94. Therefore, receipt of the interest subsequent to the agreed date i.e., 15.4.1988 and also accepting the cheques for a sum of Rs. 7,70,000/- did happen only after the agreed date under Ex.A-7 agreement.
95. Another important aspect is, for the first time in the plaint pleadings, it was stated that the said amount of Rs. 7,70,000/- was encashed under protest and the said protest is by way of filing the suit. This contention and the conduct on the part of the plaintiffs cannot be accepted since they are incompatible with each other. Receiving of interest and accepting the cheques and encashing of the same subsequent to the agreed date i.e., 15.4.1988 is a clear indication that the plaintiffs did not understand that the time was the essence of the contract.
96. Obviously, there were several obligations to be performed by both the parties, which could possibly be discharged only after the crucial date and certainly not on or before 15.4.1988. This is a further situation from where we feel it safe to infer that absolutely the time was not the essence of the contract and that the defendants have been all along ready and willing to perform the contractual obligation, which actually, was in the knowledge of the plaintiffs. This aspect would be further clear in the ensuing paragraphs.
97. Even assuming that encashment of the cheques on 23.4.1990, on which date the present suit also was instituted, as a protest, the said protest was not communicated before instituting the suit. Further, the said protest was, for the first time, revealed only in the plaint pleadings. This appears to be somewhat unexpected and unbecoming on the part of the plaintiffs.
98. Therefore, we hold that the time was not the essence of the contract and the defendants all through were ready and willing to perform their part of the obligations mentioned in Ex.A-7 agreement and Annexure Nos. I to IX appended thereto.
Effect of suit O.S. No. 5919 of 2000:
99. In addition to the above, another incidental aspect that requires serious attention of this Court is Ex.B-64 -judgment, dated 22.9.2003, in O.S. No. 5919 of 2000, passed by the X Junior Civil Judge, City Civil Court, Hyderabad. This was a suit filed by the second plaintiff against the second defendant (since the first plaintiff and the first defendant died during the pendency of the suit O.S. No. 471 of 1990). From a perusal of the judgment of the said suit, it appears that the said suit was filed for perpetual injunction and eventually closed in terms of Ex.B-63 Memorandum of Compromise, dated 5.9.2003, entered into between the parties.
100. It is also clear that there is a special mention about the pendency of the suit O.S. No. 471 of 1990 in Ex.B-63 Memorandum of Compromise and both the parties have agreed that the suit proceedings in O.S. No. 471 of 1990 shall be withdrawn. So many other terms and conditions specified under Annexures-I to IX have also been referred to in Ex.B-63.
101. For better appreciation of the conduct and the intention of the plaintiffs in the context of essentiality of time and readiness and willingness, we feel it necessary to extract the relevant excerpts of Ex.B-63 Memorandum of Compromise.
The Defendants and their father late A. Ramaswamy got issued a notice dated 1.3.1990 from the office of P. Pratap Reddy denying the allegations made in the notice by enclosing the following 4 cheques along with upto date interest accrued on the balance amount totalling to Rs. 7,70,000/- thereupon.
---------------------------------------------------------------------------------Cheque No. and Date Name of the Bank Amount---------------------------------------------------------------------------------074910, 31.3.1990 Andhra Bank, Kothapet Branch Rs. 4,00,000/-0749081, 1.3.1990 --do-- Rs. 1,50,000/-0749091, 1.3.1990 --do-- Rs. 1,50,000/-0749104, 1.3.1990 --do-- Rs. 70,000/----------------------------------------------------------------------------------The plaintiff and his father has accepted the full and final settlement of the claim and encashed the cheques. Thereafter the plaintiff and his father on misconception, has filed OS No. 471/1990 on the file of the IV Additional Judge, City Civil Court, Hyderabad, seeking declaration of dissolution of the Firm and rendition of accounts, and appointment of Receiver.'
15. The plaintiff having ceased to be the partner with effect from 15.4.1988 and in pursuance of the interim award/arrangement dated 15.6.1987 has signed the Form No. V with the Registrar of Firms under the Partnership and the same are being filed so as to implement the Interim Award dated 15.6.1987 effectively wherever required before various Government and other authorities under the statute.
92. The plaintiff admits that he along with his father having filed suit bearing O.S. No. 471/90 on the file of the IV Sr. Civil Judge, City Civil Court, Hyderabad, against A. Ramaswamy and his 4 sons and others for dissolution of M/s. Shree Venkateswara Lodge, M/s. Blue Sea Picnic Cottages, M/s. Shree Venkateswara Enterprises, M/s. Shree Venkateswara Tube Wells and M/s. Shree Venkateswara Corporation and also in respect of various properties mentioned in the Annexures 1 to 8 of the Interim Award/ Arrangement dated 15.6.1987 and in view of the fact that the Plaintiff admits that the Defendants having performed their part of contract as per interim award has abandoned his claim in the said suit proceedings in O.S. No. 471/90 to the extent of his interest in the suit. The plaintiff further admits that a Memo is filed by him to get the claim of plaintiff No. 1 dismissed as not pressed against the defendants in respect of the above firms.
95. The plaintiff admits that he has given up all his rights and interest in O.S. No. 471/ 90 on the file of IV Additional Judge, CCC, Hyderabad. The present compromise can be filed by the defendants in the said proceedings and get dismissed the claim of plaintiff No. 1 against defendants....
102. But, no further information is on record as to what had happened pursuant to the judgment in suit O.S. No. 5919 of 2000. However, from the above excerpts of the Memorandum of Compromise, dated 5.9.2003, under Ex.B-63, basing on which Ex.B-64 judgment, dated 22.9.2003 in O.S. No. 5919 of 2000 under was passed, it is clear that the plaintiffs were not at all keen to prosecute the present suit O.S. No. 471 of 1990.
103. However, suffice to notice that the said judgment in suit O.S. No. 5919 of 2000 had become final and as on the date of passing of the judgment under Ex.B-64, though the present suit O.S. No. 471 of 1990 was pending, the intention and the conduct of the plaintiffs is absolutely clear to the effect that they were no longer interested in prosecuting the present suit. Hence, we are unable to find any plausible and justifiable reason for the institution and continuation of the suit. The conduct of the plaintiffs, in this context, can be termed only as motivated one.
104. Furthermore, from a reading of the conditions mentioned in the Memorandum of Compromise under Ex.B-63, it could be seen that every item of Ex.A-7 agreement and the conditions mentioned in Annexures-I to IX appended to the agreement were referred to and were accepted to have been fulfilled by the defendants. In view of the above position in the year 2000, the present suit O.S. No. 471 of 1990 on 23.4.1990 itself was explicitly not intended to be continued.
105. Another aspect to be noted is when the plaintiffs instituted the present suit O.S. No. 471 of 1990, the defendants filed an application under Section 34 of the Arbitration Act, 1940 to refer the matter for arbitration. The same was initially rejected by the trial Court and in the appeal in CMA No. 1358 of 1992, the High Court, while allowing the appeal, referred the matter for arbitration and the same was again challenged before the apex Court by way of Civil Appeal No. 5387 of 1999. The apex Court initially granted stay of all further proceedings before the trial Court and eventually by judgment, dated 27.4.2005, remanded the matter to the trial Court with liberty to the defendants to file written statement and contest the matter.
106. Perhaps, the aspect of filing of the suit O.S. No. 5919 of 2000 and the resultant closure of the said suit in terms of Memorandum of Compromise under Ex.B-63 was not brought to the notice of the apex Court. Even otherwise, the matter had been remitted to the trial Court. Merely because this aspect has not been seriously contested by either of the party, still the effect of Ex.B-64 judgment passed in suit O.S. No. 5919 of 2000 in terms of the Memorandum of Compromise cannot totally be obliterated.
107. Therefore, in view of the Memorandum of Compromise entered into between the parties under Ex.B-63, basing on which Ex.B-64 judgment in suit O.S. No. 5919 of 2000 was passed and had become final, we are of the considered view that the same is an additional and strong circumstance to say that time was only superficially the essence of the contract and the same was not given effect to, and eventually disappeared.
108. Coming to the present point also, from the excerpts extracted above and a perusal of Ex.B-63 Memorandum of Compromise and the consequential passing of judgment in suit O.S. No. 5919 of 2000 under Ex.B-64, it is further obvious that the defendants were always ready and willing to perform their part of the contract and, in fact, all the obligations on the part of the defendants as contemplated under Ex.A-7 agreement and the Annexures appended thereto have been complied with. Hence, the question of further readiness and willingness does not arise.
109. It is not by mere assumptions or presumptions from the facts, but essentially by the very nature and conditions incorporated in the Memorandum of Compromise under Ex.B-63, which resulted in passing of the judgment in suit O.S. No. 5919 of 2000 in terms of the said Memorandum of Compromise under Ex.B-64 itself is a clear indication that all the obligations of the plaintiffs were performed by the defendants, as was originally agreed.
110. Further, inspite of specific elaborate mentioning of Ex.B-63 Memorandum of Compromise in the written statement/counterclaim, no attempt of effective repudiation of the same was made by the plaintiffs in the pleadings as contemplated under Rule 6-A(3) of Order VIII of CPC.
111. As deposed by plaintiff No. 3, it may be true that he is not a party to Ex.B-63 Memorandum of Compromise, but, the same is binding on them, because plaintiff No. 3 came on record as legal representative of deceased first plaintiff. Further, interestingly, plaintiff No. 2, who is the original plaintiff in the present suit, was not examined and instead plaintiff No. 3, who came on record as legal representative of deceased first plaintiff, deposed on behalf of the plaintiffs. Had plaintiff No. 2 was examined, these facts could have been elicited. Therefore, for all purposes, these facts were virtually only in the knowledge of plaintiff No. 2 and he did not choose to examine himself.
112. Hence, it is deemed that the defendants had established the intention of both the parties and of the plaintiffs, in particular, about the non-prosecution of the suit and the performance of all the terms and conditions mentioned in Ex.A-7 agreement read with Annexures-I to IX appended thereto. This is another ground to non-suit the plaintiffs.
113. Therefore, taking stock of the whole situation referred to above, we are of the opinion that there was readiness and willingness to perform the contractual obligations on the part of the defendants, which is apparently visible, and such readiness and willingness had been recognized by the plaintiffs as could be seen from the specific terms and conditions mentioned in the Memorandum of Compromise entered between the parties in O.S. No. 5919 of 2000.
114. It may be further relevant to note here that the residential house, which was kept under mortgage by the deceased first plaintiff and the possession thereof was never allowed to be disturbed or interfered with, in any manner, by the defendants and eventually the interest of the plaintiffs in the said house had been kept intact.
115. Furthermore, surprisingly such reinduction of the plaintiffs into the Firm could and should have been made soon after the expiry of the alleged agreed date of agreement i.e., 15.4.1988. But, as already noticed, the plaintiffs had been enjoying the interest on the amount due and no little finger has ever been raised making any sort of objection regarding the alleged delay or putting the defendants and the entire world under notice that they became the partners of the Firm once again for want of compliance of the contractual obligations by the defendants.
116. The above conduct on the part of the plaintiffs speaks volumes and their intention, initially i.e., at the time of entering into Ex.A-7 agreement, was somehow to get out of the Firm safely, keeping all their financial obligations towards various banks on the shoulders of the defendants with a ransom of Rs. 12-00 lakhs.
117. Therefore, despite the language employed in Ex.A-7 agreement, we reaffirm that the time was never understood or construed as the essence of the contract, or was essentially treated as the essence of the contract, nor was ever acted upon.
118. Accordingly, both these points are answered in favour of the defendants and against the plaintiffs.
In Re Point No. 3:
119. The present suit O.S. No. 471 of 1990 was instituted for dissolution of the Partnership Firm and rendition of accounts by the plaintiffs, styling themselves as partners of the Firm.
120. It is also necessary to refer the events at the risk of repetition that led to filing of the written statement and the trial of the suit. After the suit was instituted, the defendants filed an application under Section 34 of the Arbitration Act, 1940 seeking reference of the matter to arbitration and it was rejected by the trial Court and on appeal before the High Court, it was allowed and when the same was again challenged before the apex Court in CA No. 5387 of 1999, by judgment, dated 27.4.2005, the apex Court remanded the matter to the trial Court with permission to the defendants to file written statement and pursuant to the said order, written statement was filed along with the counter-claim.
121. In this connection, it is the contention of Sri E. Manohar, learned Senior Counsel for the plaintiffs that the counter-claim was barred by limitation. According to him, the limitation for filing the counter-claim is 3 years, commencing from the date of refusal to render accounts.
122. According to the learned Senior Counsel, the defendants refused to render accounts as required by the plaintiffs through their reply notice, dated 6.1.1990 under Ex.A-4. Therefore, from the date of refusal 3 years period, if computed, would expire by 6.1.1993, but, no written statement has been filed before that date. Any counter-claim has to be filed along with the written statement or before filing of the written statement. No doubt, the counter-claim is to be treated as a suit and the general principles of Limitation Act would be applicable for filing a counter-claim.
123. In this regard, it is apposite to extract Order VIII Rule 6-A of the Code of Civil Procedure, 1908 (CPC), which is as under.
6-A Counter-claim by defendant : (1) A defendant in a suit may, in addition to his right of pleading a set-off under Rule 6, set up, by way of counter-claim against the claim of the plaintiff, any right or claim in respect of a cause of action accruing to the defendant against the plaintiff either before or after the filing of the suit but before the defendant has delivered his defence or before the time limited for delivering his defence has expired, whether such counter-claim is in the nature of a claim for damages or not:
Provided that such counter-claim shall not exceed the pecuniary limits of the jurisdiction of the Court.
(2) Such counter-claim shall have the same effect as a cross-suit so as to enable the Court to pronounce a final judgment in the same suit, both on the original claim and on the counter-claim.
(3) The plaintiff shall be at liberty to file a written statement in answer to the counterclaim of the defendant within such period as may be fixed by the Court.
(4) The counter-claim shall be treated as a plaint and governed by the rules applicable to the plaints.
124. The apex Court in Jag Mohan Chawla v. Dera Radha Swami : AIR1996SC2222 , observed as under:
It is true that in money suits, decree must be conformable to Order 20 Rule 18 CPC, but the object of the amendments introduced by Rules 6-A to 6-G are conferment of a statutory right to the defendant to set up a counter-claim independent of the claim on the basis of which the plaintiff laid the suit, on his own cause of action. In Sub-rule (1) of Rule 6-A, the language is so couched with words of wide width as to enable the parties to bring his own independent cause of action in respect of any claim that would be the subject-matter of an independent suit. Thereby, it is no longer confined to money claim or to cause of action of the same nature as original action of the plaintiff. It need not relate to or be connected with the original cause of action or matter pleaded by the plaintiff. The words 'any right of claim in respect of a cause of action accruing with the defendant' would show that the cause of action from which the counter-claim arises need not necessarily arise from or have any nexus with the cause of action of the plaintiff that occasioned to lay the suit. The only limitation is that the cause of action should arise before the time fixed for filing the written statement expires. The defendant may set up a cause of action which has accrued to him even after the institution of the suit. The counter-claim expressly is treated as a cross-suit with all the indicia of pleadings as a plaint including the duty to aver his cause of action and also payment of the requisite Court-fee thereon. Instead of relegating the defendant to an independent suit, to avert multiplicity of the proceeding and needless protection, the Legislature intended to try both the suit and the counter-claim in the same suit as suit and cross suit and have them disposed of in the same trial.
125. The general principle as envisaged under Order VIII Rule 6-A of CPC is that the counter-claim can be filed before filing of the written statement, if the cause of action arises before filing of the written statement.
126. In Mahendra Kumar and Anr. v. State of Madhya Pradesh : [1987]3SCR155 , the apex Court observed as under:
The next point that remains to be considered is whether Rule 6-A(1) of Order VIII, CPC bars the filing of a counter-claim after the filing of a written statement. This point need not detain us long, for Rule 6-A(1) does not, on the face of it, bar the filing of a counter-claim by the defendant after he had filed the written statement. What is laid down under Rule 6-A(1) is that a counterclaim can be filed, provided the cause of action had accrued to the defendant before the defendant had delivered his defence or before the time limited for delivering his defence has expired, whether such counterclaim is in the nature of a claim for damages or not. The High Court, in our opinion, has misread and misunderstood the provision of Rule 6-A(1) in holding that as the appellants had filed the counter-claim after the filing of the written statement, the counter-claim was not maintainable. The finding of the High Court does not get any support from Rule 6-A(1), CPC. As the cause of action for the counter-claim had arisen before the filing of the written statement, the counter-claim was, therefore quite maintainable. Under Article 113, Limitation Act, 1963, the period of limitation of three years from the date the right to sue accrues, has been provided for any suit for which no period of limitation is provided elsewhere in the Schedule. It is not disputed that a counter-claim, which is treated as a suit under Section 3(2)(b), Limitation Act had been filed by the appellants within three years from the date of accrual to them of the right to sue. The teamed District Judge and the High Court were wrong in dismissing the counter-claim.
127. Basing on the above said judgments and in the light of the language employed under Order VIII Rule 6-A(1) of CPC and other connected provisions, this Court in Sugesan and Co. Pvt. Ltd. v. Hindustan Machine Tools Ltd. : AIR2004AP428 , to which one of us (D.S.R. Varma, J) is a party, took a view that the counter-claim, since has to be treated as a civil suit, the provisions of C.P.C. are applicable and has to be necessarily filed within the time as postulated under the Limitation Act. In other words, the general principles of Limitation Act would apply for filing the counter-claim also. However, such counter-claim can be filed even after the written statement is filed - provided, firstly, that the cause of action for filing the counter-claim had arisen before filing of the written statement and, secondly, if the same is not hit by the principles of Limitation Act.
128. If that is the principle to be strictly applied, as contended by the learned Senior Counsel appearing for the plaintiffs, it is to be held that the counter-claim was filed beyond the period of limitation and hence not maintainable.
129. Repelling the said contention, Sri K. Rajendra Chowdary, learned Senior Counsel appearing for the defendants, contended that as observed by the trial Court in the impugned judgment, the filing of an application under Section 34 of the Arbitration and Conciliation Act, 1940 seeking reference of the matter for arbitration and the pendency of the matter for about 15 years in one Court or the other, right from the trial Court to the apex Court, and by virtue of the eventual remand of the matter to the trial Court with liberty to the defendants to file written statement should be construed within the time as the apex Court has extended the time for filing the written statement and in compliance of the general practice of filing counter-claim along with the written statement, the present counter-claim is filed. Therefore, the same is within the period of limitation.
130. In order to substantiate his contention, the learned Senior Counsel relied on a decision rendered by the apex Court in Roshanlal Kuthalia v. R.B. Mohan Singh Oberoi : [1975]2SCR491 , wherein the apex Court observed as under:
Certainly, Section 14 is wide enough to cover periods covered by execution proceedings. After all Section 47 itself contemplates transmigration of souls as it were of execution petitions and suits. The substantial identity of the subject-matter of the lis is a pragmatic test. Moreover, the defects that will attract the provision are not merely jurisdictional strictly so called but others more or less neighbours to such deficiencies. Any circumstance legal or factual, which inhibits entertainment or consideration by the Court of the dispute on the merits comes within the scope of the section and a liberal touch must inform the interpretation of the Limitation Act which deprives the remedy of one who has a right. In the Associated Hotels case (i.e., the very lis in its earlier round on the execution side) this Court pointed out : [1961]1SCR259 that the question was one of initial jurisdiction of the Court to entertain the proceedings. Thus in this very matter, the obstacle was jurisdictional and the exclusionary operation of Section 14 of the Limitation Act was attracted.
The last ditch battle fought by the appellant relates to the deposit of Rs. 3,00,000/- which, if deducted from the date of payment into Court from the amount decreed a huge scaling down of the figure will be the result. While Shri Desai staked his case on equitable considerations which must be applied while executing foreign decrees, Sri Ashok Sen wondered what legal principle could sanction such inroad into sums legitimately due. While Sri Desai's two earlier defences are easily vulnerable, we think his plea on equity, in a less extreme form, is impregnable 'what is truth? said Jesting Pilate (in Jesus trial) and would not stay for an answer.' We choose to pause and answer that Truth is Law cast on the compassionate mould of justice and equity being one of its facets.
Further, while dealing with the aspect of equity, the apex Court held as under:
All great systems of jurisprudence have a mitigating principle or set of principles, by the application of which substantial justice may be attained in particular cases wherein the prescribed or customary forms or ordinary law seem to be inadequate. From the point of view of general jurisprudence, 'equity' is the name which is given to this feature or aspect of law in general'. (American Jurisprudence 2nd Edn. Vol.27 p.516)
131. Further, in ARM Group Enterprises Ltd. v. Waldorf Restaurant : [2003]3SCR222 , while relying on the observations made by it in Roshanlal Kuthalia's case (supra), the apex Court observed as under:
As regards the bar of limitation, it was not rightly pressed on behalf of the Firm. As both the parties had instituted suits against each other, the appellants cannot be held to be lacking in bona fides in resorting to the remedy of suit. The long period spent in the suit deserves to be condoned. Under Section 14 of the Limitation Act, the period spent in prosecuting civil proceedings bona fide and with due diligence is liable to be excluded in computing the period of limitation for the suit or the application. On the question of limitation see the following observations of this Court in the case of Roshan Lal Kuthalia and Ors. v. R.B. Mohan Singh Oberoi (supra) : '27. Certainly, Section 14 is wide enough to cover periods covered by execution proceedings (See 1959 SCR 811 at 818). After all Section 47 itself contemplates transmigration of souls as it were of execution petitions and suits. The substantial identity of the subject-matter of the lis is a pragmatic test. Moreover, the defects that will attract the provision are not merely jurisdictional strictly so called but others more or less neighbours to such deficiencies. Any circumstances legal or factual, which inhibits entertainment or consideration by the Court of the dispute on the merits, comes within the scope of the section and a liberal touch must inform the interpretation of the Limitation Act which deprives the remedy of one who has a right (See 1971 (2) SCR 397 at 401). In the Associated Hotels's case (supra) (i.e., the very lis in its earlier round on the execution side) this Court pointed out (1961 (1) SCR 259 at 272) that the question was one of initial jurisdiction of the Court to entertain the proceedings. Thus in this very matter, the obstacle was jurisdictional and the exclusionary operation of Section 14 of the Limitation Act was attracted.
132. The quintessence of the above judgments is that the period spent in prosecuting civil proceeding bona fide and with due diligence is liable to be excluded in computing the period of limitation. The above observations are obvious in view of the language employed in Sub-section (2) of Section 14 of the Limitation Act.
133. For better appreciation and ready reference, Section 14 of the Limitation Act is extracted below:
14. Exclusion of time of proceeding bona fide in Court without jurisdiction : (1) In computing the period of limitation for any suit the time during which the plaintiff has been prosecuting with due diligence another civil proceeding, whether in a Court of first instance or of appeal or revision, against the defendant shall be excluded, where the proceeding relates to the same matter in issue and is prosecuted in good faith in a Court which, from defect of jurisdiction or other cause of a like nature, is unable to entertain it.
(2) In computing the period of limitation for any application, the time during which the applicant has been prosecuting with due diligence another civil proceeding, whether in a Court of first instance or of appeal or revision, against the same party for the same relief shall be excluded, where such proceeding is prosecuted in good faith in a Court which, from defect of jurisdiction or other cause of a like nature, is unable to entertain it.
(3) Notwithstanding anything contained in Rule 2 of Order 23 of the Code of Civil Procedure, 1908, the provisions of Sub-section (1) shall apply in relation to a fresh suit instituted in permission granted by the Court under Rule 1 of that Order, where such permission is granted on the ground that the first suit must fail by reason of a defect in the jurisdiction of the Court or other cause of a like nature.
134. From a reading of Sub-section (2) of Section 14 of the Limitation Act, the prosecution of any proceeding with due diligence and in good faith shall be excluded to cure the defect of limitation. Sub-section (3) of section applies even to the cases falling under Rule 2 of Order XXIII CPC.
135. In Gurdit Singh v. Munsha Singh : [1977]2SCR250 , while dealing with limitation aspect, the apex Court held as under:
It would be noticed that three important conditions have to be satisfied before the section can be pressed into service. These three conditions are-(1) that the plaintiff must have prosecuted the earlier civil proceeding with due diligence; (2) the former proceeding must have been prosecuted in good faith in a Court which from defect of jurisdiction or other cause of a like nature was unable to entertain it and (3) the earlier proceeding and the later proceeding must be based on the same cause of action.
Now the words 'or other cause of a like nature' which follow the words 'defect of jurisdiction' in the above quoted provision are very important. Their scope has to be determined according to the rule of Ejusdem Generis. According to that rule, they take their colour from the preceding words 'defect of jurisdiction' which means that the defect must have been of an analogous character barring the Court from entertaining the previous suit. A Full Bench of the Lahore High Court consisting of Harries, CJ., Abdur Rahaman, J and Mahajan, J. (as he then was) expressed a similar view in Bhai Jai Kishan Singh v. People Bank of Northern India AIR 1964 Lah. 136 (FB) (supra).
136. In State of Goa v. Western Builders : AIR2006SC2525 , the apex Court observed as under:
Union of India v. Popular Construction Co. : AIR2001SC4010 . This is a case with regard to the applicability of Section 5. His Lordship while interpreting the provision of Sub-section (3) of Section 34 has clearly observed that the words 'but not thereafter' clearly indicate prohibition of applicability of Section 5 of Limitation Act to that extent. His Lordship observed as follows : 2001 AIR SCW 3994, Para 12
'As far as the language of Section 34 of the 1996 Act is concerned, the crucial words are 'but not thereafter' used in the proviso to Sub-section (3). In our opinion, this phrase would amount to an express exclusion within the meaning of Section 29(2) of the Limitation Act, and would therefore bar the application of Section 5 of that Act. Parliament did not need to go further. To hold that the Court could entertain an application to set aside the award beyond the extended period under the proviso, would render the phrase 'but not thereafter' wholly otiose. No principle of interpretation would justify such a result.
It is further observed that-
Therefore, in the present context also it is very clear to us that there is no two opinion in the matter that the Arbitration and Conciliation Act, 1996 do not expressly exclude the applicability of Section 14 of the Limitation Act. The prohibitory provision has to be construed strictly. It is true that the Arbitration and Conciliation Act, 1996 intended to expedite the commercial issue expeditiously. It is also clear in the Statement of Objects and Reasons that in order to recognize economic reforms the settlement of both of domestic and international commercial disputes should be disposed of quickly so that country's economic progress be expedited. The Statement of Objects and Reasons also nowhere indicate that Section 14 of the Limitation Act shall be excluded. But on the contrary intendment of Legislature is apparent in the present case as Section 43 of the Arbitration and Conciliation Act, 1996 applies the Limitation Act, 1963 as a whole. It is only by virtue of Sub-section (2) of Section 29 of the Limitation Act, its operation is excluded to that extent of the area which is covered under the Arbitration and Conciliation Act, 1996. Our attention was also invited to the various decisions of this Court interpreting Sub-section (2) of Section 29 of Limitation Act with reference to other Acts like The Representation of People Act or the provisions of Criminal Procedure Code where separate period of limitation has been prescribed. We need not overburden the judgment with reference to those cases because it is very clear to us by virtue of Sub-section (2) of Section 29 of the Limitation Act that the provisions of Limitation Act shall stand excluded in Act of 1996 to the extend area which is covered by the Act of 1996. In the present case under Section 34 by virtue of Sub-section (3) only the application for filing and setting aside the award a period has been prescribed as 3 months and delay can be condoned to the extent of 30 days. To this extent the applicability of Section 5 of Limitation will stand excluded but there is no provision in the Act of 1996 which excludes operation of Section 14 of the Limitation Act. If two Acts can be read harmoniously without doing violation to the words used therein, then there is no prohibition in doing so.
As the result of the above discussion we are of the opinion that the view taken by the Court below excluding the applicability of Section 14 in this proceeding is not correct. We hold that Section 14 of the Limitation Act, 1963 is applicable in the Arbitration and Conciliation Act, 1996. We set aside all the judgments/Order and remand all these cases back to the trial Court/District Court for deciding the application under Section 14 of Limitation Act on merit after hearing both the parties and in case the delay is condoned then the case should be decided on merits after hearing all the concerned parties. All the appeals are allowed. No order as to costs.
137. In Union of India v. Shring Constructions Co. (P) Ltd. : AIR2007SC318 , the apex Court while relying on its own decision rendered in Western Builders's case (supra), held as under:.In view of the decision in Western Builders, we think it just and proper to remit this matter back to the trial Court to decide whether the application for setting aside the award under Section 34 of the Act filed by the appellant could be considered to be within the period of limitation i.e., after deducting the period spent by the appellant in prosecuting the remedy before the High Court.
138. In United India Insurance Co. Ltd. v. J.A. Infrastructure (P) Ltd. : (2006)8SCC21 , while relying on the decision in Western Builders's case (supra), the apex Court observed as under:
In Western Builders's case (supra), it was held that Section 14 of the Limitation Act, 1963 was applicable in the Arbitration and Conciliation Act 1996 and that the view taken by the Court below excluding the applicability of Section 14 in the said proceeding was not correct. Therefore, the order passed by the High Court is set aside and the matter is remitted back to the District Court to decide the objections under Section 34(3) of the Arbitration and Conciliation Act, 1996 and decide the same on merit after affording opportunity to the other party.
139. From a conjoint reading of the views of the apex Court read with the provisions of C.P.C. and the Limitation Act, it is clear that as a general principle for filing counter-claim, the principles of Limitation Act are to be made applicable. But in appropriate cases, in order to achieve the main object of the provision i.e., to avoid multiplicity or duplicity of litigation, the other proceedings initiated with due diligence and bona fide shall have to be excluded by enhancing the scope of the Limitation Act. Obviously, such an enhancement though appears to be contrary to the general principles of the Limitation Act, still in order to meet the ends of justice and to avoid multiplicity and duplicity of litigation, liberal interpretation has to be given to the operation of Section 14 of the Limitation Act.
140. In the instant case, the suit had been instituted for dissolution of Partnership Firm and rendition of accounts. An application has been filed seeking to refer the matter to Arbitration under Section 34 of the Arbitration Act, 1940 for the simple reason that both the parties have agreed for appointment of an Arbitrator as per Ex.A-47 agreement. That application was initially dismissed by the trial Court and the same was allowed by the High Court in the appeal and eventually the matter landed before the apex Court, where the apex Court remanded the matter to the trial Court giving liberty to the defendants to file written statement. Therefore, as held in ARM Group Enterprises Ltd.'s case (supra), the counterclaim has to be filed along with the written statement and the same had been complied with by the defendants in the present suit.
141. As contended by the learned Senior Counsel for the plaintiffs, it appears that the counter-claim has been filed beyond the period of limitation i.e., 3 years as contemplated under the Limitation Act. But, it gives rise to another question to be addressed by this Court i.e., what is the great prejudice that is caused or likely to be caused to the defendants if no counterclaim is permitted to be filed.
142. Obviously, the suit was filed for dissolution of Partnership Firm and rendition of accounts, which is contrary to Ex.B-63 Memorandum of Compromise in suit O.S. No. 5919 of 2000, wherein it was agreed that all the terms and conditions to be performed by the defendants were performed and the very suit O.S. No. 471 of 1990 also is agreed to be withdrawn. These are the vital facts in favour of the defendants. But, unfortunately, in view of the specific clause incorporated in Ex.A-7 agreement, an application was filed under Section 34 of the Arbitration Act, 1940. Filing of such a petition, ex facie, cannot be held to be illegal or mala fide prosecution of the proceedings. It is not only the suit, but also the proceeding, which was prosecuted bona fide, that is to be taken into consideration for the purpose of invocation of Section 34 of the Limitation Act.
143. It is to be further noticed that if it is the intention of the Legislature that no counter-claim can be filed after the period of limitation like any other suit, a provision like Section 34 of the Limitation Act would not have been provided at all. In other words, Section 34 of the Limitation Act is to be treated as an exception to the general principle or otherwise the same would be otiose. When the statute itself in all its wisdom had provided this facility under Section 34, subject to the conditions mentioned therein and if such conditions are satisfied, the aspect of limitation has to be dealt with liberally in appropriate cases, keeping in view the main objects -firstly, meeting the ends of justice and, secondly, to avoid multiplicity or duplicity of litigation.
144. Though this aspect has not been dealt with elaborately by the trial Court, the findings recorded in favour of the defendants are to be accepted for the aforementioned reasoning.
145. Furthermore, this aspect can be tested in a different angle. If the counterclaim was precluded from being filed, the important relief of a decree directing the plaintiffs to execute the relinquishment deed could not have been raised. In such a case, the defendants would have been forced to file a separate suit for the said relief, in which event, there would have been two suits - one suit by the plaintiffs for the relief of dissolution of the Partnership Firm and rendition of accounts and another suit by the defendants for execution of relinquishment deeds by the plaintiffs. In all probability, these two suits would and should have to be decided separately. Since the genesis of the whole controversy is the same and between the very same parties, it is always desirable to have all the controversies involved in the said dispute in one flush, instead of forcing the parties to agitate their rights by way of filing independent suits and making the dispute further more complicated.
146. Therefore, we are of the view that the counter-claim though appears to be beyond the period of limitation, still under the peculiar facts and circumstances, has to be treated as filed within the period of limitation, if necessary, invoking the jurisdiction of the trial Court under Section 34 of the Limitation Act. In this regard, we are of the considered opinion that the trial Court has arrived at the right conclusion and stated that the counter-claim was maintainable. We fully agree with the said conclusion arrived at by the trial Court, of course, the reasoning was not elaborate enough and non-elaboration by the trial Court in the present case shall not defeat the eventual right conclusion.
147. Accordingly, this point is also answered in favour of the defendants and against the plaintiffs.
148. Another important aspect, which we feel it appropriate to refer, is, as already recorded by us in the earlier points to the effect that the time was not the essence of the contract and all the terms and conditions and also other obligations to be performed by the defendants have already been performed, as explicitly admitted in Ex.B-63 Memorandum of Compromise in suit O.S. No. 5919 of 2000, that the plaintiffs did not act upon the terms and conditions of Ex.A-7 agreement as well as Annexures-I to IX appended thereto and they have been receiving interest from time to time from the Arbitrator, admittedly, in whose custody the original document of Ex.A-7 agreement was kept and the suit was interestingly filed basing on a xerox copy of the said agreement and the Annexures appended thereto. Whether the suit is maintainable on a mere xerox copy of Ex.A-7 agreement is yet another debatable question, in addition to the other important questions that were already answered.
149. The suit was cleverly drafted by the plaintiffs in such a manner by asking the relief of dissolution of Partnership Firm and rendition of accounts presuming that they are partners. In fact, the question of right of the plaintiffs as partners to seek the relief of dissolution of Partnership Firm and rendition of accounts, does not arise. In other words, the relief of dissolution of the Firm and rendition of accounts would mean that without there being any declaration by the Court the plaintiffs presumed themselves as partners of all the Firms.
150. Whether or not the plaintiffs are entitled to be reinducted as partners in all the Firms and whether the defendants are entitled to have the release deeds executed by the plaintiffs are the main questions. Unless and until the first question as to whether the plaintiffs are entitled to become the partners on the ground of non-compliance of the terms and conditions of Ex.A-7 agreement and Annexures-I to IX appended thereto is clarified, the consequential relief of dissolution of the Firm does not arise.
151. Therefore, by seeking such a relief, the plaintiffs are seeking a silent declaration that they are partners of the Firm and the corollary would be that even though the plaintiffs were non-suited for any reason, still it would enure to the benefit of the plaintiffs only, inasmuch as, it is only the relief of dissolution of the Firm alone that was to be decreed, but not their entitlement to become partners again.
152. This is further obvious from the conduct of the plaintiffs that they appropriated the amount of Rs. 7-00 lakhs with interest by way of cheques, dated 1.3.1990.
153. In T. Arivandandam v. T.V. Satyapal : [1978]1SCR742 , the apex Court observed as under:
We have not the slightest hesitation in condemning the petitioner for the gross abuse of the process of the Court repeatedly and unrepentantly resorted to. From the statement of the facts found in the judgment of the High Court, it is perfectly plain that the suit now pending before the First Munsif s Court Bangalore, is a flagrant misuse of the mercies of the law in receiving plaints. The learned Munsif must remember that if on a meaningful - not formal - reading of the plaint it is manifestly vexatious, and meritless, in the sense of not disclosing a clear right to sue, he should exercise his power under Order VII Rule 11 CPC taking care to see that the ground mentioned therein is fulfilled. And, if clever drafting has created the illusion of a cause of action, nip it in the bud at the first hearing by examining the party searchingly under Order X CPC. An activist Judge is the answer to irresponsible law suits. The trial Courts would insist imperatively on examining the party at the first hearing so that bogus litigation can be shot down at the earliest stage. The Penal Code is also resourceful enough to meet such men, (Ch. XI) and must be triggered against them. In this case, the learned Judge to his cost realized what George Bernard Shaw remarked on the assassination of Mahatma Gandhi, 'it is dangerous to be too good'.
154. The same view was taken by the apex Court in another judgment in N.V. Srinivasa Murthy v. Mariyamma : AIR2005SC2897 .
155. In Fertilisers and Chemicals Travancore Ltd. v. K.S.E. Board AIR 1988 SC 1989, the apex Court held that any unilateral change in the contract is not permissible and the same is arbitrary. The same view is followed by a Division Bench of this Court to which one of us (DSRV, J) is a party, in Prathyusha Associates v. Rashtriya Ispat Nigam Limited : 2006(1)ALT691 .
156. The learned Senior Counsel for the plaintiffs also did not challenge the finding of the Court below on the question of pecuniary jurisdiction of the Court below in entertaining the counter-claim of the defendants.
157. As already observed by us, without there being any clear cause of action, only in order to defeat the interest of the defendants, knowing fully well the consequences and all other relevant facts, the plaintiffs have instituted the present suit. This is rather a vexatious litigation, particularly in view of the admitted fact of settlement of all the issues covering all the terms and conditions of Ex.A-7 agreement and the Annexures-I to IX appended thereto.
158. Therefore, on all the aspects discussed above, we are of the considered view that the trial Court did not commit any error in dismissing the suit filed by the plaintiffs and decreeing the counter-claim filed by the defendants. There are no merits in the appeals and the same are liable to be dismissed.
159. In the result, both the appeals are dismissed confirming the judgment and decree passed by the trial Court dismissing the suit and decreeing the counter-claim. However, there shall be no order as to costs.