Friday 11 July 2014

Whether promise to pay time barred debts under Section 25 of Contract Act should be express promise?


The award passed was challenged on the ground that claim sought to be passed since was barred by limitation, the award passed was not correct. The claim forming the base of dispute was based on a promise to pay an amount in writing under Section 25(3) of the Indian Contract Act, 1872 (ICA). The claim was preferred well after three years since it become due. Section 25 deals with Agreement without consideration. Such agreement is void unless in writing and registered, or is a promise to compensate for something done, or is a promise to pay a debt barred by limitation law. Sub-section (3) of Section 25 provides for a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorized in that behalf, to pay wholly or in part a debt.
In the instant matter, promise to pay in writing was stated to be made through a letter which though disputing and denying the payment as claimed (in terms of figures) and it was mentioned that correct figure could be arrived only by way of mutual verification. It was further mentioned that payment legally due is not denied.
The Court observed that whatever was shown as outstanding figure was disputed and denied for want of mutual verification and clarification, but dues per se was not denied. Arbitrator considered this aspect as an admission on the part of the Petitioner and accordingly a promise to pay and since it was in writing the same was an express promise to pay. Unless the Petitioner could show that the demand is illegal, the express promise to pay would have to be performed by payment.
The promise to pay must be express. An implied promise to pay inferred from an acknowledgment could not be made the basis of the suit to recover a debt barred at the time of the acknowledgment and since S. 25(3) relates to promise to pay a debt, already time barred.
In the instant matter, the Petitioner failed to show the Arbitrator and also the  Court how the demand made was not legal and consequently the petition was dismissed.

IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION

M/s. Gem Synth Resins Pvt. Ltd. Vs. M/s. Mahendra Rosin and Turpentine Pvt. Ltd.

ARBITRATION PETITION NO. 168 OF 2012
Coram:
:  MRS. ROSHAN DALVI, J.

:  11   JUNE, 2014.
   th 





The petitioner has challenged the arbitration award dated 29 th 
1.
December, 2010 only on the ground that the claim of the respondent before 
the learned Arbitrator was barred by limitation but has been considered 
and that could not have been so considered.  The petitioner would contend 
that since limitation is held to be on the plea of the public policy, a stale 
could not be considered in arbitration.   [See.  Municipal Corporation of 
Greater   Mumbai   Vs.   Prestress   Products   (India)   2003(3)   Bom.   C.   R. 
117.]
2.
The claim has been considered as a promise to pay an amount 
in writing under Section 25(3) of the Indian Contract Act, 1972 (ICA).  
3.
The parties had business relationship.  Supplies were made by 
the respondent to the petitioner herein from time to time.  Part payments 
were made.  The last of such payments has been made on 29.06.2005.  The 
claim   has   been   referred   well   after   3   years.    The   learned   Arbitrator   has 

considered a promise made in writing and signed by the petitioner to pay 
that debt under Section 25(3) of the ICA which could be enforced by a 
separate suit which runs thus:
The promise to pay in writing is made by the petitioner under 
4.

25. Agreement   without   consideration,   void,   unless   it   is   in  
writing   and   registered,   or   is   a   promise   to   compensate   for  
something   done,   or   is   a   promise   to   pay   a   debt   barred   by  
limitation law. ­.......
(1) .........
(2) ........
(3) it is a promise, made in writing and signed by the person to  
be   charged   therewith,   or   by   his   agent   generally   or   specially  
authorized in that behalf, to pay wholly or in part a debt of which  
the creditor might have enforced payment but for the law for the  
limitation of suits.
its letter dated 1st September, 2007, the relevant part of which runs thus:
Your outstanding figure we dispute and deny since we have mutually  
never   so   far   verified   and   clarified   how   your   outstanding   figure  
arrives.   This is possible by mutual verification of the account and  
finalizing the figures mutually.
We have never denied the legal due payment.  Delay in payment was  
due to helplessness but not intentionally.
This   is   our   business   ethics   maintained   as   an   entrepreneur   since  
1972.   This, please verify and clarify the legal dues mutually  for  
which we will always cooperate.
5.
The learned Arbitrator has sought to consider what to make of 
the   aforesaid   statement.     The   Learned   Arbitrator   was   called   upon   to 
consider whether the statement was a promise to pay under Section 25(3) 
of the ICA.  This Court would also, therefore, have to see only that aspect.
6.
Whatever was the outstanding figure shown by the respondent 
was disputed and denied.   That was because it was not mutually verified 
and clarified.  Hence the petitioner did not know how it was arrived.  But 
the petitioner accepted that it would be possible to arrive at figure which 

would   be   payable   by   the   petitioner   upon   mutual   verification   and 
finalization.     The   petitioner   clarified   that   it   never   denied   its   legal   due 
payment.   Consequently it admitted the legal due payment.   It accepted 
that there was delay.   That was because of helplessness (due to a certain 
fire)   but   not   intentional   (to   avoid   or   evade   payment   or   to   defeat   the 
plaintiff's right).  This is a matter of business policy of moral ethics of the 
petitioner.  Hence the petitioner called upon the respondent to verify and 
clarify the legal dues mutually and the petitioner offered to cooperate.
The   respondent   sent   a   further   reply   dated   1 st  June,   2008 
7.

annexed   to   which   was   the   entire   statement   of   account   of   the   balance 
amount payable and the interest claimed thereof together with the total 
amount   payable.     This   the   petitioner   denied   on   the   ground   that   in   an 
earlier   notice   the   respondent   claimed   the   principal   amount   and   in   the 
notice dated 1st June, 2008 the respondent claimed the principal as also the 
interest  and   hence  proper   accounts   were   not   furnished   and   true   and 
correct information and the description of the business transaction was not 
given.     This   was   despite   the   promise   to   pay   what   was   the   legal   due 
payment upon verification and clarification, albeit mutually, and with the 
petitioner's   cooperation.     If   the   petitioner   would   not   cooperate,   the 
verification   and   clarification   made   by   the   respondent   would   have   to   be 
seen   to   ascertain   the   legal   due   payment   which   the   petitioner   expressly 
stated it has never denied.
8.
The   learned   Arbitrator   has   considered   this   aspect   as   an 
admission on the part of the petitioner herein.  The admission would be the 
promise   to   pay.     The   promise   to   pay   in   writing   would   be   an   express 
promise to pay.  The express promise to pay in this case is what is legally 
due.  The respondent has shown the precise amount which is legally due. 

Unless   the   petitioner   shows   how   it   is   an   illegal   demand,   the   express 
promise to pay would have to be performed by payment.  This is what the 
Arbitrator has considered.  The mere stating that it is an admission, instead 
of a promise to pay would not make the award liable for being set aside as 
that   would   not   be   an   error   of   jurisdiction   but   an   error   in   exercise   of 
jurisdiction, if at all [See. Municipal Corporation of Greater Mumbai Vs. 
Prestress Products (India) 2003(3) Bom. C. R. 117 Para 14.]
It   has   been   argued   that   an   implied   promise   to   pay   is   not 
9.
contemplated under Section 25(3) of the ICA, 1972 as it would be upon a 
ig
written acknowledgment of liability under Section 18 of the Limitation Act, 
1963.   That does not matter because the acknowledgment of liability has 
not been made within the period of limitation and consequently does not 
apply in this case and has not been considered by the learned Arbitrator 
also.   All that has to be seen is whether there was an express promise to 
pay in writing under the petitioner's letter dated 01.09.2007, the relevant 
part of which has been extracted above.
10.
The   promise   to   pay   must   be   express.     [See.  Reunion 
Engineering   Co.   P   Ltd.   Vs.   Mrs.   Uma   Kumar,   Proprietor,   Kandhan 
.
Electricals and Engineers in Appeal (L) No. 319 of 2006 in Company 
Petition No. 570 of 2005 of this Court dated 21.06.2010 as held by the 
Division Bench of this Court and the case of Balkrishna Mansukhram Vs. 
Jayshankar Narayan in Letters Patent Appeal No. 16 of 1937 of this 
Court   decided   on   23.06.1938]   in   which   the   distinction   was   made 
between Section 18 of the Limitation Act, 1963 (earlier Section 19 of the 
Indian Limitation Act) and Section 25(3) of the ICA.   In that case it was 
specifically   held   that   an   implied   promise   to   pay   inferred   from   an 
acknowledgment could not be made the basis of the suit to recover a debt 

barred at the time of the acknowledgment and since Section 25(3) related 
to the promise to pay a debt which was already barred.   It was held that 
under   Section   25(3)   of   the   ICA   there   must   be   an   express   promise   as 
opposed   to   an   unconditional   acknowledgment   involving   an   implied 
promise to pay.
11.
What is seen is that the petitioner has expressly admitted to 
pay whatever is legally due though the petitioner disputed the outstanding 
figure   then   shown   by   the   respondent   herein   which   was   shown   to   be 

Rs.13,80,859/­ (without interest later claimed).
12.
The   petitioner   having   not   shown   the   learned   Arbitrator   or 
even   this   Court   how   that   is   not   a   legal   demand   cannot   challenge   the 
(ROSHAN DALVI J.)
impugned award.  Consequently the petition is dismissed.


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