Delhi High Court on Compounding of Interest, TDS and Limitation in Contractual Recovery Suits

Overview

The Delhi High Court in Ansal Housing Ltd. Vs Samyak Projects Pvt. Ltd. (Delhi High Court) examined three key issues in a summary suit for money recovery arising from a real estate funding arrangement:

  • Whether the suit was maintainable under Order XXXVII of the Code of Civil Procedure, 1908;
  • Whether the suit was within limitation where Tax Deducted at Source (TDS) was deposited after the last direct payment; and
  • Whether compound interest could be claimed when the written contract only stipulated interest at a specified rate without expressly providing for compounding.

The Court ultimately granted unconditional leave to defend to the defendant, holding that there were substantial triable issues regarding limitation, the manner of interest computation, and alleged adjustment/set-off of inter se financial dealings between the parties.

Factual Background

Commercial Relationship

  • The plaintiff, Ansal Housing Ltd., is engaged in large-scale real estate development, including residential townships and commercial complexes.
  • The defendant, Samyak Projects Pvt. Ltd., is also involved in real estate activities.

Initial Arrangement and MoU

According to the plaint:

  1. Around July 2012, the defendant approached the plaintiff to develop a piece of land measuring 1.75 acres located in ‘A’ Block, ESSENCIA, in Village Badshapur, Tehsil & District Gurgaon (forming part of Sector 67 of Gurgaon-Manesar Urban Complex Plan 2031).
  2. The defendant represented that the land was free from encumbrances and that there were no legal obstacles to development.
  3. It was disclosed that an earlier agreement with Universal Buildwell Pvt. Ltd. (UBL) dated 27.12.2010 had been terminated through a Notice of Termination dated 20.10.2011.
  4. On the strength of these representations, the parties executed a Memorandum of Understanding dated 12.07.2012.
  5. Under Clause 3 of this MoU:
    • The plaintiff advanced Rs.12 Crores to the defendant.
    • This advance was meant to facilitate effective conclusion of termination of the defendant’s prior agreement with UBL within four months.
    • If termination was not effectively concluded within this period, the plaintiff could either:
      • Seek refund of the entire Rs.12 Crores with interest at 24% per annum, or
      • Extend the time for completion.

Subsequent Events and Cancellation Deed

  1. The defendant did not complete the termination process as contemplated; instead, the earlier agreement with UBL was revived/affirmed through a compromise and undertaking recorded in order dated 17.04.2013 in Arbitration Case No. 43/2011 before the Additional District Judge, Gurgaon.
  2. Thereafter, both parties executed a Deed of Cancellation dated 20.04.2013, whereby:
    • The MoU dated 12.07.2012 stood mutually cancelled; and
    • The defendant acknowledged its obligation to refund Rs.12 Crores to the plaintiff along with interest at 24% per annum.
  3. Under Clause 3 of the Cancellation Deed, the entire principal of Rs.12 Crores along with interest was to be repaid by 31.12.2013, failing which the plaintiff could adjust amounts due to the defendant “in any other account”.

Extensions and Payments

  1. Due to financial difficulties, the defendant (through director Mr. S.K. Jain) requested extension of time to pay. The plaintiff allegedly agreed to extend the final date for repayment to 31.03.2015.
  2. In pleadings, the plaintiff asserted that:
    • The defendant regularly deducted TDS @ 10% on interest and deposited the same with the government;
    • The last direct ‘on account’ payment of Rs.1 Crore was made on 27.03.2015;
    • On 30.09.2015, the defendant deposited TDS of Rs.13,96,886/- in respect of interest component, but no corresponding interest cash payment was released to the plaintiff.

Demand and Response

  1. Persistent non-payment led the plaintiff to issue a Demand Notice dated 24.08.2018 seeking the outstanding balance and interest.
  2. In reply dated 07.09.2018, the defendant admitted having paid Rs.11,79,23,640/- between 18.05.2013 and 27.03.2015, but did not accept liability for any additional interest claimed under the Cancellation Deed.

Institution of Summary Suit

  1. On 20.09.2018, the plaintiff instituted a summary suit under Order XXXVII CPC seeking recovery of Rs.11,79,83,525/- along with pendente lite and future interest, based on the Cancellation Deed dated 20.04.2013 and the alleged balance outstanding after part-payments.

Defendant’s Application for Unconditional Leave to Defend

The defendant moved an application under Order XXXVII Rule 3(5) CPC seeking unconditional leave to defend. The key grounds raised were:

1. Bar of Limitation

  • The plaintiff’s own case was that the last direct payment towards the Cancellation Deed was made on 27.03.2015.
  • Applying Article 37/113 principles, the three-year limitation would expire on 27.03.2018.
  • Since the suit was filed on 20.09.2018, the defendant argued that it was time-barred.
  • The defendant contended that:
    • Deposit of TDS on 30.09.2015 did not amount to either “acknowledgment of liability” under Section 25 of the Indian Evidence Act, 1872 or “payment on account of debt” under Section 19 of the Limitation Act, 1963.
    • Hence, TDS deposit could not extend the period of limitation.

2. Nature of the Suit Under Order XXXVII CPC

  • The defendant asserted that the claim was effectively founded on a ledger account/statement of account, and not exclusively on a written contract.
  • Relying on Ge Capital Services India v. Dr. K.M. Veerappa Reddy & Ors. 2015 SCC OnLine Del 13007, it was argued that where the claim is based on balance “at the foot of the account”, entries must be proved under Section 34 of the Evidence Act, 1872, which takes the matter outside the streamlined ambit of Order XXXVII.

3. Dispute on Interest – Simple vs. Compound

  • The Cancellation Deed only provided for interest @ 24% per annum, without any stipulation for compounded interest.
  • Yet, the plaintiff computed its claim on the basis of 24% per annum compounded annually, alternately on quarterly or half-yearly compounding, as reflected in its own accounts.
  • This inconsistency, according to the defendant, was a substantial triable issue.