JUDGMENT
M. Jeyapaul, J.
1. The plaintiff files the suit for recovery of a sum of Rs. 2,13,00,398.94 with interest thereon at the rate of 18% per annum from the date of filing the suit till the date of realisation, a sum of Rs. 11,20,703/= being the value of the stocks lying with the defendant and also a sum of Rs. 31,88, 698/= with interest at 18% per annum from the date of order of the Orissa Sales Tax Authority.
2. It is contended by the plaintiff Company that it is engaged in the manufacture of explosives and detonators at its factories in Rourkela-Orissa and Hyderabad-Andhra Pradesh. The defendant company was functioning as the consignment agent of the plaintiff company in respect of the States of Tamil Nadu, Karnataka, Andhra Pradesh and Kerala. The products manufactured by the plaintiff, are despatched to various consignment agents throughout the country and are stored by the said consignment agents in licensed magazines. The consignment agent holds the stock on behalf of the plaintiff until they are actually sold to the customers. For paltry dispatches to small customers, other than those of, DGS & D rates contract, the consignment agents raise bill and collect money on the customer on behalf of the plaintiff and remit the same. In respect of the large customers, the payment is made directly to the plaintiff company. The consignment agent sends weekly stock statements along with weekly sales statements indicating the stocks held by them and the sales effected by them during each week. After availing the credit period, the consignment agents remit sales amounts to the plaintiff Company. The consignment agents become eligible for distribution and handling charges on products supplied by them, reimbursement of transportation charges, actual expenditure incurred on behalf of the plaintiff in respect of stock transfers, reimbursement of turnover tax paid on behalf of the plaintiff, Wagon Clearance charges, ex gratia payment for the overall performance and reimbursement of 50% of magazine licence fee and excess storage wherever applicable. Every year, before closing of accounts, the plaintiff sends reconciliation of the accounts for the year and statement of balance due and payable by each consignment agent on a specified date. The sources of the accounting is the information available with and furnished by the consignment agent. The defendant was acting as consignment agent right from the year 1974. There was no written agreement governing the relationship. The defendant vide its letter dated 10.6.1986, confirmed the balance of Rs. 47,95,548.03 due to the plaintiff as on 25.4.1986. The defendant also by its letter dated 1.8.1998 confirmed a balance of Rs. 1,89,63,942.78 as on 30th June 1988. The amounts due to the plaintiff after collection from the customers were not immediately remitted. Large amounts were being withheld by the defendant. The defendant started showing indifferent and hostile attitude towards the plaintiff’s business. The number of defaults and delays multiplied and the defendant started raising unnecessary problems with the plaintiff. By April-May 1992, huge amounts amounting to 2 crores became outstanding from the defendant. The defendant also started raising absurd and baseless contentions such as that accounts should be looked into for thirty years without regard to propriety and commercial and accounting practice. As on date, the defendant owes a sum of Rs. 2,24,21,110.14. The defendant is also liable to pay a Rs. 31,88,698, for not submitting the F declaration forms to the plaintiff.
3. The defendant Company would contend in the written statement that the suit as framed praying for recovery of money is not at all maintainable. The suit ought to have been filed for rendition of accounts and not for recovery of money. The business relationship between the plaintiff and the defendant started way back in the year 1963. The relationship between the plaintiff and the defendant was as such that even without a formal written agreement between the two, the business was carried on smoothy for the last 2-1/2 decades. The defendant used to send weekly costing statements to the plaintiff. This statement reflected the sale effected during the week and the payments made by the defendant towards the sales dues. The statement is only a base to update the ledger accounts of the companies. It did not reflect the statement of account or the liability of one to the other. The transactions between the plaintiff and the defendant fall under the following heads:
a) Customers drawing supplies from the defendant magazines for which bills are raised and payments are received directly by the defendants.
b) Customers drawing supplies from the defendants magazine for which bills are raised by the defendant but the payments are received by the plaintiff in its name.
c) Supplies are made directly from the plaintiff’s factory for which the defendant raises bill and payments are received by the plaintiff directly.
d) Supplies are made to customers in defendant’s area directly from the plaintiff’s factory which are billed by the plaintiff and payments received by the plaintiff.
4. The defendant would further contend that it is entitled to remuneration charges for all the four types of transactions. The credit position of the balance on any day can be confirmed only after verification of the books of the plaintiff and the defendant so that any amount debited or credited by either party not known to the other could be accounted in the respective books of accounts. The accounts between the plaintiff and the defendant is a mutual and running account and the state of affairs would be known only if the account books of both the plaintiff and the defendant are further disclosed to each other and reconciled. The professional auditor employed by the defendant to clarify the outstanding dues reported that unless a complete ledger to ledger reconciliation between the plaintiff and the defendant books is carried out, the correct financial position cannot emerge. Upon scrutiny of the ledger extracts for five years sent by the plaintiff, it is found that there was an aggregate credit balance of almost Rs. 77,00,000/= lying to the credit of the defendant. The accounts of both the parties have not been reconciled and there has been no determination of liability. According to the defendant, no amount is due and payable by the defendant to the plaintiff and in fact, the plaintiff owes a huge amount to the defendant. The plaintiff did not render true account of the moneys collected by them directly from the customers. The allegation that there can be no independent transaction not known to the agent in a consignment sale agency is factually incorrect. The contract between the plaintiff and the defendant does not contain a term regarding payment of interest on the amount due to the defendant by the plaintiff. The termination of agency is illegal. The defendant is entitled to receive money from the plaintiff after rendition of true accounts by the plaintiff. The defendant, pays the court fee of Rs. 4525/= valuing its counter claim of Rs. 1,00,000/=. The defendant prays that the suit may be dismissed with costs.
5. The following are the issues that arise for consideration:
1. Whether the plaintiff ought to have filed a suit for rendition of accounts and not for money.
2. Whether the defendant was appointed as a consignment agent of the plaintiff from 1963 onwards or only from 1975.
3. Whether the plaintiff’s reconciliation of accounts for the period 1988-1993 is correct.
4. Whether submission of accounts for the period from 1.7.1986 to 25.12.1991 shows that there has been over statement by the plaintiff to the extent of Rs. 77.47 lakhs.
5. Whether a sum of Rs. 77.45 lakhs for the period from 1.7.1986 to 25.12.1991 is lying to the credit of the defendant.
6. Whether the defendant is entitled to claim that the opening balance from 1986 has to be treated as nil.
7. Whether there is lack of confirmation of credit balance on the part of the defendant.
8. Whether the plaintiff is entitled to a judgment and decree for Rs. 2,13,00,38.94 with interest thereon at the rate of 18% per annum from the date of filing of the suit till the date of realisation.
9. Whether the plaintiff is entitled to Rs. 11,20,703/= being the value of the stocks lying with the defendant.
10. Whether the defendant is entitled to receive any money by way of counter claim from the plaintiff.
6. Issue No. 1:- The suit is laid seeking recovery of the amount due to the plaintiff by the defendant. It is the admitted case that the defendant was the consignment agent of the plaintiff. Learned Counsel for the defendant would contend that the plaintiff being the principal should have filed a suit for rendition of accounts from the agent, the defendant herein, as the account maintained by the agent is seriously in dispute. Therefore, the suit laid for recovery of amount simplicitor is not sustainable.
7. Per contra, learned Senior Counsel for the plaintiff would contend that the defendant being agent has been sending weekly statements and that the reconciliation of the ledgers maintained by the defendant with that of the plaintiff, had to be reconciled. Therefore, the question of suing the defendant for the larger relief of rendition of accounts does not arise.
8. It is found that the defendant had been sending weekly stock statements to the plaintiff Company. The plaintiff, on its part, sent its accounts maintained by it to the defendant for the purpose of regular reconciliation. In fact, the defendant, under Ex.P1 dated 10.6.1986 has admitted unambiguously that a sum of Rs. 47,95,548.03 was the balance amount payable by the defendant to the plaintiff. The defendant also, through the letter, Ex.P2 dated 1st August, 1988, confirmed the balance of Rs. 1,08,63,942.78 payable by the defendant to the plaintiff as on 30th June 1988. In the last confirmation letter, Ex.P24 dated 26th August 1992, the defendant has chosen to confirm the amount of Rs. 196.57 lakhs due from the defendant to the plaintiff as on 25th July 1992, of course, subject to the claim made by the defendant in his letter, Ex.D5 dated 14th August 1992. When the defendant has been regularly sending the weekly stock statements to the plaintiff and it has also obliged to confirm as and when a communication was received from the plaintiff of the dues from the defendant to the plaintiff, the question of filing the suit by the plaintiff for rendition of accounts as against its agent does not arise for consideration. The reconciliation of accounts maintained at both the ends were to be reconciled and as per the directions of this Court, a reputed auditor reconciled the accounts and filed his report. In the above facts and circumstances, it is held that the suit, as such, framed seeking the relief of recovery of amount due from the defendant to the plaintiff is quite sustainable. The issue is answered accordingly.
9. Issue No. 2:- The plaintiff, in the plaint averment, has stated that the defendant has been functioning as the consignment agent of the plaintiff Company in respect of four Southern States viz., Tamil Nadu, Karnataka, Andhra Pradesh and Kerala right from the year 1974. But, the defendant, in its written statement, has contended specifically that the defendant was serving as consignment agent of the plaintiff Company right from the year 1963.
10. The learned Senior Counsel for the plaintiff would contend that the issue as to whether the defendant functioned as consignment agent right from 1963 or from 197 4 pales into insignificance in view of the fact that the auditor appointed by this Court has chosen to reconcile the accounts maintained by either parties right from the year 1963.
11. The learned Counsel for the defendant would contend that a wrong statement has been made by the plaintiff purposely that the defendant was employed as consignment agent only from 1974 in order to shirk its responsibility of showing the accounts maintained by the plaintiff right from 1963.
12. As rightly contended by the learned Senior Counsel for the plaintiff, the auditor appointed by this Court has reconciled the accounts maintained by either parties right from the year 1963. Of course, there is some controversy between the parties as to the nature of assignment given to the defendant in the year 1963.’ The plaintiff would contend during the course of evidence that the defendant was appointed only as a selling agent from 1963 to 1973 and was appointed as consignment agent only from the year 1974. But, the defendant would seriously contend that right from 1963, the defendant was appointed as consignment agent of the plaintiff. The court finds that it is totally an unnecessary exercise to go into the question whether the defendant was appointed as selling agent or consignment agent right from 1963 inasmuch as both the parties maintained accounts right from 1963 and the defendant had served under the plaintiff as its agent. In view of the above development in this case, the court finds that the aforesaid issue has become a non issue and the same is answered accordingly.
13. Issue No. 9:- The plaintiff has claimed a sum of Rs. 11,20,703/= being the value of its stock lying with the defendant. The learned Counsel for the plaintiff would submit that inasmuch as the allegation with respect thereto was not denied by the defendant, the plaintiff is entitled to a judgment and decree for the said amount also on the principle of non traverse.
14. The learned Counsel for the defendant wound contend that the plaintiff has miserably failed to establish that the stock of the plaintiff worth Rs. 11,20,703/= was lying with the defendant.
15. On a careful perusal of Ex.D8, it appears that some of the explosives found in the custody of the defendant were destroyed in the presence of not only the representative of the defendant but also the representative of the plaintiff by the Controller of Explosives on behalf of the Deputy Chief Controller of Explosives, Mangalore. The destruction has been ordered having found that those magazines had become unserviceable having exceeded their shelf life as they had been manufactured 10 to 15 years-prior to the date of destruction.
16. First of all, the plaintiff has failed to establish that those stocks are worth Rs. 11,20,703/=. Except the serf-serving document, Ex.P60, there is no material evidence to substantiate the stock lying with the defendant and the value thereof. There is no indication as to how the value given under Ex.P60 was arrived at by the plaintiff. Therefore, the plaintiff cannot make its claim based on a self-serving document, Ex.P60 without substantiating the claim by filing necessary proof to show the supply of those materials and the value thereof. Secondly, it is found that on account of lack of reconciliation of the accounts maintained by either parties, the said stock which was destroyed by the Explosives Department could not be sold to the end users. Further, there is no iota of evidence to show that the plaintiff being the principal had sought for the return of those magazines from the defendant who was their agent. In view of the above, the court finds that the claim for Rs. 11,20,703/= being the value of the stock held by the defendant as on 8.7.1993 is found not sustainable. The issue is answered accordingly.
17. Issue No. 8:- On the side of the plaintiff, a representative of the plaintiff was examined as PW1 and on the side of the defendant, a representative of the defendant was examined as DW1. Mr. K. Vasudevan, Chartered Accountant attached to M/s. Sarathy and Vasu, Chartered Accountants appointed as Commissioner by this Court for the purpose of reconciliation of the accounts of the plaintiff and the defendant was examined as CW1. As many as 61 documents were marked on the side of the plaintiff and 16 documents were marked on the side of the defendant and the reports of the Commissioner was marked as Exs.C1 to C3.
18. The learned Senior Counsel for the plaintiff would contend that though the plaintiff has sought for the claim of Rs. 2,24,21,101.94 along with the additional amount of Rs. 31,88,698/=, the plaintiff is prepared to accept the final report of the Commissioner.
19. Per contra, the learned Counsel for the defendant would submit that the reconciliation had not been done by the Commissioner as per the reconciliation procedure being normally adopted by the auditors. The defendant was not given an opportunity to peruse the documents of the plaintiff in order to put forth its counter claim. Further, the auditor has failed to reconcile the accounts in the presence of the contesting parties. Therefore, the learned Counsel for the defendant would contend that the report of the Commissioner has to be rejected.
20. It is admitted by both the parties that the following transactions had taken place between the plaintiff and the defendant:
1) Bills were raised and payments were directly received by the defendant’s magazines.
2) Bills were raised by the defendant and the payments were received by the plaintiff in its name from the customers drawing supplies from the defendant’s magazines.
3) Bills were raised by the defendant and payments were received by the plaintiff directly for the supplies made directly from the plaintiff’s factory.
4) Bills were raised and payments were received by the plaintiff from the customers who received the supplies directly from the plaintiff’s factory.
Though the last transaction referred to above was disputed during the course of first part of the cross examination, PW1 has admitted in the later part of the cross examination that the supplies made by the plaintiff Company to Singareni Collieries would fall under the aforesaid last transaction.
21. Through the letter correspondence, Exs.Pl to P20, it appears that the plaintiff Company has sent a note of caution to the defendant Company to speed up the sale of the products of the plaintiff to get over stiff competition in the market and complained about the misdemeanor of the officials of the defendant Company, the financial irregularities committed by the defendant Company, the poor performance put up by the Salem branch of the defendant Company, unhappiness of the customers with the defendant Company which necessitated direct sale by the plaintiff Company, the failure to do ledger to ledger reconciliation by the defendant and the lack of remittance of the dues to the plaintiff.
22. The plaintiff has chosen to send reconciliation statement, Ex.P21 for the period from 1.6.1986 to 25.12.1991. The plaintiff also sought for remittance of overdue under the letter of communication, Ex.P22 dated 4th August 1992. Certain Debit Notes along with the letter of the defendant dated 10th August 1992 was returned as not admissible under Ex.P25 dated 27th August 1992. It appears that the defendant has sought for supply of Explosives without reconciliation of the accounts for the period from 1986-87 to 1991-92 to the satisfaction of both the parties. The plaintiff shot off a letter under Ex.P26 dated 27.8.1992 putting the defendant on notice that the resumption of supplies could not be made till payments due to the plaintiffs were promptly released.
23. The plaintiff has sought for substantial remittance out of Rs. 2.5 crores outstanding as on 25th October 1992 under Ex.P28 dated 16th November 1992. Deprecating the attitude of the defendant in sending a cheque for a meager amount when the outstanding was at Rs. 2.5 crores, the plaintiff has chosen to return the cheque received from the defendant under Ex.P29 dated 16th November 1992. The defendant vide letter, Ex.P30 dated 16th November 1992, chose to confirm the outstanding of Rs. 1.80 crores as on 15.9.1992. As against such dues, the defendant has reminded the plaintiff of the Debit Notes for Rs. 32,00,000/= pending for payment as also credit balance of Rs. 77,00,000/= as indicated by it in its statement of account.
24. The plaintiff has sought for reconciliation and confirmation of the balance of Rs. 257.57 lakhs from the defendant under Ex.P31 dated 5th December 1992. The plaintiff has furnished a statement of account from 1.7.1986 to 31.12.1991 for the outstanding balance of Rs. 2.57 crores under Ex.P33 dated 30th December 1992 and sought for settlement of the accounts. A stern reply was given by the plaintiff to the defendant under Ex.P36 dated 12th January 1993 that the plaintiff was not in a position to stock-transfer any products since no remittance towards consignment sales was forthcoming from the defendant. Thereafter, it appears that the plaintiff has also reminded time and again to settle the outstanding dues as stated earlier. The defendant, on its part, under Ex.P48 dated 29th March 1993, has sought the plaintiff to settle a sum of Rs. 37, 66,410.82 due as on 28th January 1993 based on the Debit Notes. Exs.P53, P54, P55, P56 and P57 are the ledger extracts showing the sales statement for the respective weeks.
25. The aforesaid documents would go to show that the plaintiff had consistently sought for reconciliation of accounts and settlement of the dues from the defendant. The final figure of Rs. 2.57 crores arrived at by the plaintiff as outstanding balance due from the defendant was seriously disputed by the defendant and the latter, on its part, has sought for settlement of the outstanding balance amount of Rs. 32,00,000/= due under the Debit Notes and also a sum of Rs. 77,00,000/= towards credit balance in the account of the defendant. The defendant has indicated under Ex.D5 dated 14th august 1992 that a sum of Rs. 77,00,000/= is in the credit of the defendant as per the last five years statement.
26. On the basis of the application moved by the defendant in A.No. 5665 of 1995, an independent auditor was appointed as commissioner by this Court to inspect and reconcile the accounts of the plaintiff as well as the defendant and submit a detailed report. The auditor has submitted interim report Ex.C2 and final report, Ex.C3 and another final report Ex.C1.
27. Mr. K. Vasudevan, Chartered Accountant and Senior Partner of M/s. P. Sarathy and Vasu has spoken to the preparation of the three reports, Exs.C1 to C3. It is found that the ledger extract of the plaintiff was taken to the place of the defendant and the entries were reconciled. All the ledger extracts of the defendant in the books of the plaintiff were also submitted by the auditor before the court. CW1 has categorically stated that reconciliation was carried out in accordance with the normal accounting practice. Only a very few entries remained unmatched. But, most of the entries were found matched by the auditor. The unmatched entries were also accounted for in the report filed by the auditor. CW1 has also deposed to the effect that the auditor approached the plaintiff as well as the defendant at various points of time and got the accounts clarified by them orally as well as in writing. The auditor, having prepared working sheets, passed them on to the defendant seeking clarification. According to CW1, the working sheets were given to the defendant even after finalising the report. CW1 has very fairy submitted that the auditors were not able to form an opinion with regard some of the entries. He also denies the suggestion that the working sheets were not produced before the defendant before February 2004. Under Ex.D13, the Chartered Accountants informed the defendant that they have already despatched all ledger extracts given by the plaintiff. Through the aforesaid letter, the Chartered Accountants also informed the defendant that it could have access to all the records that were available with the Chartered Accountants and take copies thereof.
28. The Chartered Accountants appointed by this Court, after adopting the normal accounting procedure known to audit jurisprudence, on reconciliation, has come to the conclusion that the outstanding amount of Rs. 1.69 crores is due and payable by the defendant to the plaintiff.
29. It is quite impossible to verify each and every entry and reconcile the accounts in the presence of both sides. The fact remains that the auditor appointed by this Court has taken four long years to complete the assignment entrusted to him. The job would have been more laborious and tiresome. It is not as if opportunity was not given to the defendant to articulate its grievance. There had been exchange of ledger extracts maintained by either parties to facilitate them to come out with their view of the account.
30. The auditor is supposed to seek clarification only where a doubt arises as to a particular entry in the volume of entries found in the ledger of the party concerned. The auditor has spoken to the effect that the reconciliation, as directed by the court, was done as per the normal accounting practice in vogue in the auditing field. To substantiate the contention that the procedure adopted by the Commissioner was not the normal practice, the defendant has not chosen to examine any other auditor on its side indicating different method of practice. Considering the neat execution of the job assigned to the Commissioner in a balanced manner, the court finds that no motive can be attributed to the Commissioner. Under Exs.P1 and P2, the defendant has admitted a part of the liability claimed by the plaintiff. Under Ex.P24, the defendant acknowledges the liability to the tune of Rs. 196.57 lakhs subject to the claim it has made under Ex.D5 dated 14th August 1992. It is found that the Commissioner has filed a fair report after adopting the procedure known to the auditing field.
Therefore, the same is accepted and it is held that the defendant is liable to pay outstanding dues of Rs. 1,69,51,588/= as determined by the Commissioner in his final report with interest to the plaintiff.
31. It is found that the transaction between plaintiff and the defendant was a commercial one. Therefore, the plaintiff is entitled to interest at 18% per annum from the date of filing of the suit till the date of decree and 12% per annum from the decree till the realisation.
32. The plaintiff, by way of amendment to the plaint, has sought for additional claim of Rs. 31,88,698/= being the sales tax liability the plaintiff has borne on account of failure on the part of the defendant to submit statutory forms. It is to be noted that the plaintiff has not produced any document to show that such a huge amount was paid towards sales tax on account of the default of the defendant. No notice also was sent by the plaintiff to the defendant calling upon it to submit the statutory forms. Therefore, it is held that the additional claim made by the plaintiff for a sum of Rs. 31,88/698/= is not substantiated and therefore, the plaintiff is not entitled to claim the said amount. The issue is answered accordingly.
33. Issue Nos. 3 to 7:- As a reputed auditor was appointed as Commissioner for the purpose of reconciliation of the accounts for the period from 1963 to 1972 and the reconciliation of the accounts was accepted by this Court, the aforesaid issues have become superfluous and redundant. Therefore; it is held that those issues are infructuous.
34. Issue No. 10:- The auditor appointed by this Court as Commissioner has filed a final report stating that the defendant is found liable to pay a sum of Rs. 1,69,51,588/= to the plaintiff, after reconciliation of the accounts. The same is also accepted by this Court. Though the defendant has made a claim of Rs. 77,00,000/= from the plaintiff, except the letter of communication emanated from the defendant, there is no document to substantiate that a sum of Rs. 77,00,000/= was due and payable by the plaintiff to the defendant. In view of the above, the court finds that the counter claim made by the defendant from the plaintiff is unsustainable. The issue is answered accordingly.
35. In the result, the suit is decreed for a sum of Rs. 1, 69,51,588/= with interest at 18% per annum from the date of filing of the suit till the date of decree and at 12% per annum from the date of decree till the date of realisation with proportionate cost. The other reliefs sought for by the plaintiff and the counter claim made by the defendant stand rejected.