ARC ARORA PROJECTS PRIVATE LIMITED vs KARAN PAL SINGH

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* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Reserved on: 29th November, 2023
Pronounced on: 04th December, 2023
+ FAO(OS) 87/2023, CM APPL.Nos.39950/2023, 39953/2023

ARC ARORA PROJECTS PRIVATE LIMITED ….. Appellant
Through: Mr.Sanjeev Sindhwani, Senior Advocate with Mr.Vikas Arora, Ms.Radhika Arora, Mr.Mohammad Azhar, Mr.Abhay Sachar, Mr.Piyush Kumar, Mr.Siddharth Singh, Advocates.
versus
KARAN PAL SINGH ….. Respondent
Through: Mr.Sudhir Nandrajog, Senior Advocate with Mr.Preet Pal Singh, Mr.Aaryan Sharma, Mr.Madhav Goel, Advocates.
CORAM:
HON’BLE MR. JUSTICE YOGESH KHANNA
HON’BLE MR. JUSTICE TUSHAR RAO GEDELA
YOGESH KHANNA, J.
1. The present appeal is filed by the appellant with following prayers:
“A. Summon the record of the case Civil Suit bearing No.459/2021 in case titled as ‘Karan Pal Singh vs. ARC Arora Projects Private Limited’; and
B. Allow the appeal thereby set aside the impugned order 18.04.2023 passed by HMJ Chandra Dhari Singh in Civil Suit bearing CS(OS) No.459/2021 in case titled as ‘Karan Pal Singh vs. ARC Arora Projects Private Limited’ whereby application under Order 7 Rule 11 CPC filed by the applicant has been dismissed; and
C. Allow the application under Order 7 Rule 11 CPC filed by the appellant and dismiss the suit filed by the respondent; xxx xxx”
2. It is alleged in the year 2014 the appellant approached the respondent with a proposal of sale of property on the ground floor of Tower of Arc being an area of 15000 sq. ft. at the rate Rs.5000/- per sq. ft. After negotiations the purchase transaction was agreed to be a total consideration of Rs.7.50 crores. It is further alleged Mr.Rajesh Arora and Mr.Kanwarjit Arora represented themselves as the directors of M/s.Innovative Thermal Coating Private Limited (now known as M/s.ARC Arora Projects Pvt. Ltd.), the appellant herein and the appellant company as the owner of the said property.
3. In the year 2014, out of total agreed sale consideration of Rs.7.50 crores, the respondent paid an amount of Rs.4,72,68,215/- to the appellant, vide various cheques which was duly honoured on presentation and thereafter the appellant company started avoiding the topic. It is alleged on 22.09.2014 the company refunded an amount of Rs.50.00 lacs out of the aforesaid amount through cheque and now Rs.4,22,68,215/- was liable to be refunded to the respondent. It is alleged that though the appellant has admitted its liability in its books of accounts, yet has failed to discharge its liability owed to the respondent.
4. On 28.04.2015 after making substantial payment, the respondent kept asking the appellant to execute the documents and later on it transpired that Mr.Rajesh Arora and Mr.Kanwarjit Arora were no longer the directors of the appellant company and they had resigned from the directorship. In the year 2015 the respondent procured all the records of appellant company from the Registrar of Companies. On 27.01.2016 the appellant company changed its name from M/s.Innovative Thermal Coating Private Limited to M/s.ARC Arora Projects Private Limited.
5. In the year 2018 the appellant along with the other entities held by Mr.Rajesh Arora filed a suit against the father-in-law of the respondent whereby the appellant has in fact sought recovery of a sum of more than Rs.20.00 crores from the respondent as well as his other family members as the father-in-law of the respondent had entered into a memorandum of settlement with Mr.Rajesh Arora wherein it was agreed that all the accounts between the two will be settled including that of respondent and the father-in-law shall pay a sum of Rs.20.00 crores to Mr.Rajesh Arora, such suit is still pending.
6. In the year 2021, the respondent filed a civil suit titled as Karan Pal Singh vs. ARC Arora Projects Private Limited for recovery of an amount of Rs.7,48,14,740/- i.e., the amount due with interest.
7. It is the contention of the learned senior counsel for the appellant that the suit is hopelessly barred by time and the best case of the respondent would be the balance sheet of the appellant shows its amount as due and payable under “other long terms liability” and the amount so reflected in the balance sheet is higher than the amount claimed by the respondent, as such said owed amount must include the claim of the respondent as well, thereby extending the period of limitation. It is submitted that the respondent did not scrutinize the entire financial records of the appellant company which shows the amount claimed to have been paid as advance is rather partial payment of the invoices raised by the appellant towards services rendered by him.
8. On 11.03.2023 the appellant filed an application under Order VII Rule 11 CPC but it was dismissed vide the impugned order dated 18.04.2023. The learned senior counsel for the appellant has referred to para 14 of the plaint filed in CS(OS)459/2021, which reads as under:
“14. That the plaintiff has obtained the financial records from the Registrar of Companies. Though the defendant has not submitted its detailed schedule of creditors/ long term borrowing along with its balance sheet but on the reading of the balance sheets of the defendant company it is manifestly clear that the amount of Rs.4,22,68,215/- (Four Crore Twenty-Two Lakhs Sixty-Eight Thousand Two Hundred Fifteen Only) due and payable to Plaintiff is being reflected in the books of Defendant and that the said amount is being shown under the heading “Other Long Term Liabilities” in the balance sheet of the Defendant for the year 31st March 2015. That the plaintiff reasonably believes that the Defendant has shown the name of the Plaintiff in the detailed schedule of creditors/ long term borrowing and has shown the said amount of Rs.4,22,68,215/- (Four Crore Twenty-Two Lakhs Sixty Eight Thousand Two Hundred Fifteen Only) due and payable by defendant to Plaintiff regularly and continuously in their books of accounts/balance sheet under the head “Other Long Term Liabilities” and Sub-Head “Others” since the financial year 2014 – 2015 till 2019 – 2020:”
9. It is submitted by the learned senior counsel for the appellant that para 14 above shows it is merely a reasonable belief that the defendant has shown the name of the plaintiff in the detailed schedule of creditors/long term borrowings or has shown an amount of Rs.4,22,68,215/- as due and payable by the appellant to the plaintiff/respondent. It is alleged the amount shown as due and payable regularly and continuously in the books of accounts/balance sheet under the head “other long term liabilities” and sub head “others” since the financial year 2014-15 till 2019-2020, would not make the appellant liable for payment.
10. It is argued that it is not an averment of the respondent that the books of accounts viz, balance sheet has shown any amount due to the respondent and the respondent rather is taking benefit of “other long term liabilities” in general. He has referred to various financial documents to submit that the name of the respondent does not exist in the financial records from the year 2014-15 till 2019-2020.
11. Reference is made to Jai Shiv Steel Enterprises and Ors. vs. Manish Aggarwal and Ors. in RFA (COMM)22/2021 decided on 26.11.2021, wherein it was held:
“9. There can be no doubt to the proposition that the entry made in the books of accounts, including balance sheets, can amount to an acknowledgment of liability within the meaning of Section 18 of the Limitation Act, 1963 (hereinafter referred to as ‘the Act’) however, in the present case, barring making a bald averment, no document in the form of books of accounts or balance sheets of the respondents has been placed on record by the appellants along with the plaint or with the present appeal. It was for the appellants to produce these documents as the appellants was seeking an extension of period of limitation based thereon. It is a settled law that Section 9 of the Act is to be strictly adhered to and once the time begins to run, it cannot be halted, except by a process known to law. The Commercial Courts, Commercial Division and Commercial Appellate Division of the High Courts Act, 2015 also requires the plaintiff to file all documents in the power, possession, control or custody of the plaintiff, pertaining to the facts and circumstances of the proceedings initiated by him.”
12. Further he referred to S.C.Gupta vs. Allied Beverages Co. Pvt. Ltd. in I.A.7987/2044 filed in Suit No.542/2004 decided on 30.04.2007, to submit the name of S.C.Gupta was shown in the list of sundry creditors in the said balance sheet.
13. Further in Rajah of Vizianagaram vs. The Official Liquidator, Vizianagaram Mining Company Limited, Vizagapatam AIR 1952 Mad 136, there was an acknowledgment of defendant in writing by agent of the company, hence good enough under Section 18 of Limitation Act, 1963.
14. It is the submission of the learned senior counsel for the appellant the plaint is vague and needs to be rejected under Order VII Rule 11 CPC. He rather referred to C.S.Ramaswamy vs. V.K.Senthil and Ors. 2022 SCC OnLine SC 1330, to say clever drafting would not help the plaintiff to extend limitation.
15. He then referred to documents, more specifically at page no.74 of the paper book, to show the name of the respondent did not find mention in the balance sheet(s) of the appellants, hence the suit filed on assumptions that the name of respondent may have been mentioned in the list of “long term other liabilities” is liable to be dismissed. It is submitted there must exist a jural relationship between the debtor and creditor and where the debt is not identified, the limitation would not start.
16. Heard.
17. Admittedly, the issues have been framed in this case on 04.10.2023 and issue no.4 is as under:
“(iv) Whether the suit is barred by limitation? OPD.”
18. Now if one would peruse para 14 of the plaint, the respondent has categorically mentioned that the financial records pertaining to the appellant company have been obtained from the Registrar of Companies but the appellant has not submitted its detailed schedule of creditors/long term borrowings along with its balance sheet but in the head of balance sheet it is manifestly mentioned as Rs.4,22,68,215/- is due and payable to the respondent being reflected in the books of accounts of appellant and the said amount is shown in the heading “other long term liability” in the balance sheet till 2020. Reference is also made to para 4 of the written statement filed by the appellant before the learned Trial Court wherein the appellant says:
“xxx xxx Even the amount available under the said account is Rs.2,84,37,765/- crores and not Rs.4.22 Crores approx. as being wrongly claimed by the plaintiff. As such there was never any admission on the part of the defendant, either in its books of accounts or otherwise, to the effect that the said amount is a liability payable to the plaintiff”
19. In the plaint the respondent has made averments that his amount is shown in the account of the appellant though he could not place all financial records of the appellant on record as he could not lay his hand on the list of creditors/debtors that would include his name since the same was never filed by appellant with the Registrar of Companies.
20. In cause of action paragraph, the respondent rather mentions his amount due being reflected in the accounts of the appellant company and if given an opportunity, shall summon the record of the appellant Company from Registrar of Companies and would prove his contentions.
21. On record the appellant has filed proforma invoice dated 02.02.2014 for brokerage for sale of various office space amounting to Rs.7,30,34,000/-. Further the appellant has also filed balance sheet dated 31.03.2015 showing other long term liabilities of Rs.22,38,65,678/-. It is the case of the respondent this amount includes his liability. Page 5 of the documents filed in index IV notes significant accounting policies and notes on financial statements at page nos.1 to 24. A bare perusal of such notes would show the liabilities viz. security deposits relating to Omaxe Square, Jasola-AG part payment of commission Rs.2,84,37,765/- and service tax on commission Rs.38,30,450/- (totalling to Rs.3,22,68,215/-) payable to the respondent. How the appellant has arrived at this figure is rather clarified in ledger account at page nos.12 and 14 which show a total outstanding payable to the respondent to be Rs.4,72,68,215/-. This prima facie establishes jural relationship between the parties. It is the case of respondent that appellant though had made unauthorised deductions but nevertheless in its ledger account has acknowledged the liability of respondent and the amount paid by respondent is also reflected in credit in the books of the appellant.
22. In respect of the argument viz the name of creditor must appear in the record, we may refer to Asset Reconstruction Company (India) Limited vs. Bishal Jaiswal and Another 2021 (6) SCC 366, wherein the Court held:
“36. xxx xxx 48. The learned counsel next argued that the words used in the entry in the balance-sheet in the present case did not amount to any acknowledgement of liability. We do not think so. The words used in the entry apparently show that in explaining its current liabilities and the provisions made for the same, it was stated that there was a sum of Rs. 7,87,150.42 held in share- holders’ suspense account for payment to the share-holders of the Indian National Airways Limited (in voluntary liquidation — since dissolved). The words used clearly acknowledge the liability. The learned single Judge also took the same view as regards the words used in the balance-sheet. In Lahore Enamelling and Stamping Co. Ltd. v. A.K. Bhalla, Tek Chand J. held that “debts due to creditors not mentioned by name but included in the item relating to “Loans (unsecured)” or as due to “Sundry Creditors” mentioned in the balance-sheet amount to an “acknowledgement” of liability for the purposes of section 19 of the Indian Limitation Act, 1908. There was thus no force in the argument of the learned counsel.
40. xxx xxx In several judgments of this Court, this legal position has been accepted. In Daya Chand Uttam Prakash Jain v. Santosh Devi Sharma 67 (1997) DLT 13, S.N. Kapoor J. applied the principle in a case where the primary question was whether a suit under Order 37 CPC could be filed on the basis of an acknowledgement. In Larsen & Toubro Ltd. v. Commercial Electric Works 67 (1997) DLT 387 a Single Judge of this Court observed that it is well settled that a balance sheet of a company, where the defendants had shown a particular amount as due to the plaintiff, would constitute an acknowledgement within the meaning of Section 18 of the Limitation Act. In Rishi Pal Gupta v. S.J. Knitting & Finishing Mills Pvt. Ltd. 73 (1998) DLT 593, the same view was taken. The last two decisions were cited by Geeta Mittal, J. in S.C. Gupta v. Allied Beverages Company Pvt. Ltd. (decided on 30/4/2007) and it was held that the acknowledgement made by a company in its balance sheet has the effect of extending the period of limitation for the purposes of Section 18 of the Limitation Act. In Ambika Mills Ltd. Ahmedabad v. CIT Gujarat (1964) 54 ITR 167, it was further held that a debt shown in a balance sheet of a company amounts to an acknowledgement for the purpose of Section 19 of the Limitation Act and in order to be so, the balance sheet in which such acknowledgement is made need not be addressed to the creditors. In light of these authorities, it must be held that in the present case, the disclosure by the assessee company in its balance sheet as on 31st March, 2002 of the accounts of the sundry creditors’ amounts to an acknowledgement of the debts in their favour for the purposes of Section 18 of the Limitation Act. The assessee’s liability to the creditors, thus, subsisted and did not cease nor was it remitted by the creditors. The liability was enforceable in a court of law.”
23. Thus the amount payable and the alleged misappropriation, if any, is a triable issue and evidence is required. Though the appellant may say only Rs.2,84,37,765/- is mentioned as liability towards the respondent in its ledgers and not Rs.4,72,68,215/- as is claimed in the suit, but at this stage the extent of amount payable to respondent cannot be determined and hence in these peculiar circumstances it was rightly held by the learned single Judge that limitation is a mixed question of law and fact and evidence is required. In the light of positive assertion that liability towards respondent is being continuously shown in accounts of the appellant company, the respondent cannot be denied of an opportunity to summon record to prove it, especially, because the appellant had chosen not to file accounts of later years.
24. The appeal thus has no merits and is accordingly dismissed. Pending application, if any, also stands disposed of.

YOGESH KHANNA, J.

TUSHAR RAO GEDELA, J.
DECEMBER 04, 2023
DU

FAO(OS) 87/2023 Page 9 of 9