Code of Civil Procedure, 1908 (CPC)
Decree for Accounts under Order XX Rule 16 CPC
Where one person has handled another's money or property, the remedy is often not a claim for a fixed sum but a claim that he render an account of what he received and what he did with it. The amount due cannot be stated until the account is taken, so the suit proceeds in two stages, and Order XX Rule 16 of the Code of Civil Procedure, 1908 provides accordingly. These notes cover the nature of a suit for accounts, the right to an account, the form of the preliminary decree, the mode of taking accounts, and the final decree.
1. Order XX Rule 16: The Provision
§ Order XX Rule 16, CPC 1908 In a suit for an account of pecuniary transactions between a principal and an agent, and in any other suit not hereinbefore provided for, where it is necessary, in order to ascertain the amount of money due to or from any party, that an account should be taken, the Court shall, before passing its final decree, pass a preliminary decree directing such accounts to be taken as it thinks fit. |
Two features of the drafting matter. The rule names the principal and agent relationship as its paradigm, but it is not confined to it: the closing words, and in any other suit not hereinbefore provided for, where it is necessary... that an account should be taken, make it the residuary provision for accounts in the Code, covering every case in which an account is needed and which is not already dealt with by Rules 13, 15 or 18. And the rule is mandatory in form: where an account is necessary to ascertain the amount, the court shall pass a preliminary decree before any final decree.
2. When a Suit for Accounts Lies
§ Relationships that found a right to an account The right to call for an account rests on substantive law, and arises where one person is accountable to another for dealings with money or property: • Principal and agent, the relationship the rule names, where the agent is bound under Section 213 of the Indian Contract Act, 1872 to render proper accounts to his principal on demand; • Partners inter se, under Section 9 of the Indian Partnership Act, 1932, though a suit for dissolution and accounts falls under Order XX Rule 15; • Trustee and beneficiary, the trustee being bound to keep clear and accurate accounts of the trust property; • Mortgagee in possession and mortgagor, where the mortgagee must account for the rents and profits received; • Executor or administrator and beneficiary, though an administration suit falls under Order XX Rule 13; • Co-owners, where one has received more than his share of the rents and profits of the common property. |
§ The two stages of a suit for accounts Stage one: the right. The court decides whether the defendant is liable to account at all, that is, whether the relationship exists and whether the account has been rendered or settled. If the answer is no, the suit is dismissed and no account is taken. Stage two: the account. If the defendant is liable, the court passes a preliminary decree directing the account to be taken, with directions as to the period, the basis and the mode, and the account is then taken. The final decree ascertains the balance due and directs its payment, with interest where appropriate. The plaintiff's initial valuation of his claim is therefore provisional, which is why suits for accounts are filed on a tentative valuation and the court fee is adjusted when the amount is ascertained. |
Order XX Rule 16 among the decrees that require accounts before the final adjustment
3. The Preliminary Decree and Its Directions
i. The declaration of liability. The decree records that the defendant is liable to account, and on what footing, which is the finding that the final decree cannot go behind.
ii. The period of the account. The decree specifies the period for which the account is to be taken, ordinarily from the beginning of the relationship or from the last settled account until its termination, subject to limitation.
iii. The basis of the account. Whether the account is on the footing of wilful default, which requires the accounting party to account not merely for what he received but for what he would have received but for his own default, or on the ordinary footing.
iv. The mode of taking. The rule requires the court to direct the accounts to be taken as it thinks fit, and in practice the directions specify who will take them, what vouchers and books are to be produced, and how surcharge and falsification are to be dealt with.
v. Interest. Directions as to interest on the balance, which the court may award under Section 34 once the balance is ascertained.
4. Taking the Account
Accounts are ordinarily taken by a Commissioner appointed under Section 75(b) and Order XXVI Rule 11, which empowers the court, in any suit in which an examination or adjustment of accounts is necessary, to issue a commission to such person as it thinks fit. Order XXVI Rule 12 requires the commissioner to make the examination or adjustment and to return the accounts with his report, and provides that the report and the evidence shall be evidence in the suit; Order XXVI Rule 10 allows the court to consider objections and either confirm, vary, set aside or direct a further inquiry. The commissioner's report is therefore evidence and not an adjudication: the court decides the account itself, on the report and the objections.
§ Surcharge and falsification Two technical terms recur in accounts work and are worth knowing. To surcharge an account is to allege that the accounting party has omitted a receipt for which he ought to have accounted. To falsify an account is to allege that an item of expenditure entered in it is wrong, either because it was never incurred or because it was not properly chargeable. A party permitted to surcharge and falsify does not have the whole account reopened; he attacks specified items, and the burden of establishing each falls on him. Where the account is to be taken on the footing of wilful default, the accounting party must in addition account for sums he would have received but for his own neglect. |
5. The Final Decree
When the account has been taken and objections decided, the court passes the final decree, which ascertains the balance due to or from each party and directs its payment, together with interest and costs. Three points complete the picture. The final decree must conform to the preliminary decree, and cannot reopen the finding on liability or the directions as to the period and basis of the account. Court fee is adjusted at this stage on the amount found due, since the plaintiff's original valuation was provisional. And the final decree, being the operative money decree, is what is executed under Order XXI; the preliminary decree alone gives the plaintiff nothing to execute.
6. Landmark Points
- Order XX Rule 16. Where an account is necessary to ascertain the amount due, the court shall pass a preliminary decree directing such accounts to be taken as it thinks fit, before any final decree.
- Section 75(b) with Order XXVI Rules 11, 12 and 10. Commissions to examine or adjust accounts; the report and evidence are evidence in the suit, and the court may confirm, vary, set aside or direct further inquiry.
- Section 213, Indian Contract Act, 1872. An agent is bound to render proper accounts to his principal on demand, which is the substantive foundation of the paradigm case in Rule 16.
- Section 2(2), Explanation. A decree directing accounts is preliminary, further proceedings being necessary before the suit can be completely disposed of.
- Section 34 CPC. Interest on the balance found due is awarded under the ordinary rules, once the amount is ascertained by the final decree.
7. Frequently Asked Questions
What is a suit for accounts?
A suit in which the plaintiff asks that the defendant render an account of dealings with money or property for which he is accountable, and pay the balance found due. The amount cannot be stated at the outset, so the suit proceeds in two stages: liability to account, then the taking of the account.
What decree is passed under Order XX Rule 16?
A preliminary decree directing such accounts to be taken as the court thinks fit, passed before any final decree. The final decree follows once the account has been taken, ascertaining the balance due and directing its payment.
Is Order XX Rule 16 confined to principal and agent?
No. It names pecuniary transactions between a principal and an agent as its paradigm but extends to any other suit not otherwise provided for in which an account is necessary to ascertain the amount due, so it is the residuary accounts provision in the Code.
Who takes the account?
Ordinarily a commissioner appointed under Section 75(b) and Order XXVI Rule 11. Under Rule 12 he returns the accounts with his report, which together with the evidence is evidence in the suit, and under Rule 10 the court may confirm, vary or set aside the report or direct a further inquiry.
What do surcharge and falsification mean?
To surcharge an account is to allege that the accounting party omitted a receipt for which he should have accounted; to falsify it is to allege that an item of expenditure entered in it is wrong. A party permitted to surcharge and falsify attacks specified items rather than reopening the whole account.
How is court fee dealt with in a suit for accounts?
The plaintiff files on a tentative valuation, since the amount due is unknown until the account is taken. When the final decree ascertains the balance, the court fee is adjusted on the amount found due.
8. Related Topics in This CPC Series
- Decree in a Suit for Dissolution of Partnership
- Decree in an Administration Suit under Order XX Rule 13
- Section 33 and Order XX: Judgment and Decree
- Section 34: Interest on Decrees