Delhi HC ,13/03/2023

46. The Ledger account maintained by the petitioner was a “running and non-mutual account”. In case of a running and non-mutual account between the buyer and seller, when goods are delivered by the seller to the buyer, the value of the goods is debited in the debit column and when amounts are paid by the buyer to the seller, they are entered in the credit column.

👉 The difference is continuously struck in the column for balance. In such a case, when the buyer defaults to make balance payment, the seller’s action is not for the price of goods sold and delivered, but for the balance due at the foot of an account.

👉 The account is running as the amounts received are credited and the amounts still due is reflected as debit. Essentially, it is non mutual because the amounts being adjusted are those payable by one party. Mutual account implies that the credit – debit account is of both the parties.

47. The accounts being maintained being running and non-mutual, the manner of apportionment of money in running accounts has been explained in Section 59, 60 and 61 of the Contract Act,1872.

S.61. Application of payment where neither party appropriates.Where neither party makes any appropriation, the payment shall be applied in discharge of the debts in order of time, whether they are or are not barred by the law in force for the time being as to the limitation of suits. If the debts are of equal standing, the payment shall be applied in discharge of each proportionally.”

52. In the present case, where neither party specifies the manner of apportionment, then the amount has to be first adjusted towards earlier debts irrespective of limitation as indicated by Section 61 Contract Act. Thus, the money which was continuously being received from the respondent was to be apportioned to the previous amounts that were due in the earlier Agreements.

53. The learned Arbitrator while was correct in observing that the arbitration had been invoked pursuant to the Contract of 12.11.2012 renewed in 2015, but he overlooked the statutory provisions under Contract Act for apportionment of money received from the Respondent from time to time.

54. Section 28(1) (a) of the A&C Act, 1996 mandates the arbitral Tribunal to decide the dispute in accordance with the substantive law for the time being in force in India.

56. Hence, if the award is passed in violation of the provisions of the Transfer of Property Act or in violation of the Indian Contract Act, it necessarily suffers from patent illegality and has to be set aside.


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