The Indore Commercial Court, on 5 November held that a subsidiary company has a distinct legal personality from its parent company and cannot claim a legal set-off against a debt owed to its parent under Order VIII Rule 6 of the Code of Civil Procedure, 1908 (CPC).
District Judge Amit Singh Sisodia partly allowed an application filed by Yamato Scale Company Limited and its Indian subsidiary, Yamato Scale India Private Limited, in a commercial suit seeking recovery of Rs. 1.08 crore from Wintech Taparia Limited. The Bench observed:
“...the independent subsidiary company has different legal entity, whereas it is expected that the parties must fill the exact same character or capacity in the set-off claim, as they do in the plaintiff's original suit. A subsidiary company has distinct legal entity with separate corporate personality and therefore does not fulfil the same character requirement u/o. 8 rule 6 of CPC, 1908.”
The dispute arose from a purchase order that Wintech placed in February 2018 for six weighing machines at an aggregate price of USD 1,05,000. Although Wintech paid 30% of the purchase price as advance, it failed to pay the remaining USD 73,500 despite receiving the machinery.
In a letter dated 25 September 2018, Wintech acknowledged its outstanding liability of USD 73,500 and warehouse charges of USD 566, aggregating to USD 74,066, and assured payment.
Before the Court, Wintech admitted the transaction, the purchase order, the advance payment and its liability to pay the balance amount. However, it sought to adjust the outstanding dues against USD 47,840 allegedly receivable from Yamato's German subsidiary in connection with a separate transaction dating back to 2010.
Rejecting the plea, the Court observed:
“….from the pleading of the defendant and the plea taken in the written statement regarding set-off of amount in tune of USD 47,840/- from plaintiffs German subsidiary company is not legally tenable, as that company is not party in the instant suit.”
The Court held that the German subsidiary had a separate corporate personality and was not a party to the suit. Therefore, the claim did not satisfy Order VIII Rule 6 CPC, which requires mutual debts between the same parties acting in the same capacity.
It added that “in fact, legal set-off requires mutual debts between the exact same parties in the same capacity.”
Further, the Bench also noted that Wintech had not paid the requisite court fee for claiming the set-off. It found that Wintech had acknowledged its liability in both the written statement and the letter dated 25 September 2018.
Accordingly, the Court directed Wintech to pay USD 74,066, equivalent to Rs. 61,82,289, with interest at 9% per annum from 10 September 2024, the date of filing of the suit, until payment. It declined pre-suit interest as the parties had not agreed upon any rate of interest.
For Plaintiffs: Advocates Yogesh Hemnani and Sidhharth Sijoria
For Defendant: Advocate Nilesh Sharma