Madras HC Time-Bars Leather Supplier’s ₹5.18-Crore Suit, Finding No Proof Tanning Firm Or Its Authorised Agent Made Final LC Payment

The plaintiff, a partnership firm, alleged that the first defendant company owed money for leather and leather products supplied in 2013–2014.

It relied on a Memorandum of Understanding dated 9 November 2015, which recorded the liability and contemplated payment, and claimed that payments were made between April and July 2016, leaving Rs.5,18,74,602 outstanding.

The plaintiff sued the company and its directors, seeking joint and several liability and interest. The defendants disputed the debt, the alleged payments and the directors’ personal liability, and pleaded limitation.

The suit was presented on 10 June 2019. The plaintiff relied particularly on a ledger entry for a letter-of-credit transaction dated 1 July 2016 to establish a fresh period of limitation.

Under Section 19 of the Limitation Act, 1963, a qualifying payment on account of a debt, made before expiry of limitation by the debtor or an authorised agent, may start a fresh limitation period; the statutory requirements must be proved, including the required written acknowledgment of payment.

Under Section 34 of the Indian Evidence Act, 1872, entries in regularly kept books of account are relevant but cannot, by themselves, charge a person with liability.

The Court applied the principle in Salomon v. A. Salomon & Co. Ltd., [1897] AC 22, that a company has a legal personality distinct from its directors and shareholders; the corporate veil may be lifted where the corporate structure is shown to have been used as a façade for fraud or to evade an existing obligation, but control or non-payment alone is insufficient.

Order I Rule 9 CPC provides that misjoinder of parties does not, by itself, defeat a suit.

The Court treated 31 March 2016, the agreed last date for payment under the MOU, as the most favourable starting point for the plaintiff. The receipts allegedly made on 5 and 22 April 2016 could not extend limitation to the date the suit was presented; therefore, the disputed 1 July 2016 payment was crucial.

The plaintiff’s ledger recorded net proceeds and discounting charges but did not prove that the first defendant, or an authorised agent, had paid the debt on that date. The plaintiff produced no letter of credit, bank statement, discounting advice or evidence of the issuing bank’s honour or settlement of the bill.

The earlier refusal of summary judgment did not determine limitation; it left disputed facts for trial.

Separately, the supplies were made to the company, and the plaintiff did not prove a personal guarantee, independent undertaking or fraud by the directors warranting veil-piercing.

It also found no basis to impose personal liability on defendants 2 to 8 and held defendants 3 and 5 to 7 neither necessary nor proper parties to the claim against the company.

The claim for recovery and joint and several liability was rejected, and the suit was dismissed with costs.