TMI Blog2001 (3) TMI 922X X X X Extracts X X X X X X X X Extracts X X X X ..... export . According to the Board, the company participated in the auctions held by the Board between 21-6-1989, and 20-12-1989, and purchased 654.6 metric tons of coffee, but failed to make payment and take delivery of the said coffee within the time stipulated for payment, or within the time extended by the Board at the request of the company. The Board contends that the company committed breach by failing to make payment and take delivery and as a consequence, the Board resold 593.4 m.t. of coffee in the auctions held in April/May, 1991, and incurred a loss. As a result of such alleged breach, the Board claimed the following amounts from the company : ( Rs. ) ( a ) Loss incurred by the Board on resale (on account of difference between the price at which coffee was sold to the company and the price realised on resale) 8,09,478.00 ( b ) Interest on the auction sale price, from the dates of original auction sales till date of resale 35,00,744.16 ( c ) Insurance charges 74,879.47 ( d ) Godown rent 3,12,263.40 ( e ) Extension charges for non-shipment of coffee 9,49,440.00 Total 56 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted, it would have paid for and taken delivery, as the internal market prices were higher than the international prices; and that, therefore, it was not liable to pay damages for any alleged loss. The company also denied that the Board had sustained loss as alleged. The company next contended that the Board had granted extension for payment till December, 1990, but refused to extend time till June, 1991, as requested by the company; that if such extension had been granted the company would have been able to take delivery in view of the improved market conditions and devaluation of the rupee. In short, the company denied that it had committed breach or default or was liable to pay damages. It also contended that the Board had failed to mitigate losses and it was not liable to pay the amounts claimed. It also denied the allegations that it had stopped its business and was unable to pay its debts. The company also contended that as the entire claim was for damages, proceedings for winding up were not maintainable. 5. The learned company judge heard the matter in regard to admission and passed an order dated 13-2-1997, admitting the winding up petition. He accepted that "damages a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs is likely to cause immense injury to the company if ultimately the application has to be dismissed. The interest of the applicant alone is not of predominant consideration. The interests of the shareholders of the company as a whole apart from those of other interests have to be kept in mind at the time of consideration as to whether the application should be admitted on the allegations mentioned in the petition." (p. 91) 10. In Pradeshiya Industrial Investment Corpn. of U.P. v. North India Petro Chemicals Ltd [1994] 79 Comp. Cas. 835 (SC) the company court after notice and hearing, ordered admission of a petition for winding up filed against the appellant-company but postponed advertisement, as in this case. The Division Bench dismissed an appeal by the company, challenging the admission. On further appeal by special leave, the Supreme Court held that the two basic requirements for a petition under section 433( e ) were that ( i ) there should be a debt and ( ii ) the company must be unable to pay such debt; and that if either of these requirements were absent, the petition was liable to be dismissed as a case for admission was not made out. It was also held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A company court can direct winding up, when the company is unable to pay its debts . The word debt as noticed above refers to an ascertained and definite amount due to the creditor. To become a debt , an amount should either be due by the debtor under an agreement/promise to pay, or admitted to be due by the debtor, or determined to be due by the debtor by a competent court. It does not include claims for damages or compensation which has to be assessed by a court before it becomes due and payable. ... (p. 389) In a petition under section 433( e ) the court can examine whether the dispute raised by the company in regard to the claim of the petitioner is bona fide or whether the defence of the company to the claim is frivolous, and intended merely to avoid an undisputed liability. But it should not decide the claims which are disputed bona fide nor quantify the loss suffered by the petitioner and award damages, nor award interest to compensate the loss on account of delay on the part of the company in paying the bills. Exercise of such powers, would be beyond the scope of proceedings for winding up, as such proceedings are not meant to ensure recovery of debts by credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated/ ascertained in terms of the contract. We may at this stage conveniently refer to the relevant clauses in the "terms and conditions for sale of coffee in the course of export". Clause 14 requires payment of price by the buyer within 30 days from the date of auction. Clause 15 provides for extension of time for payment, not exceeding 60 days, on application by the buyer, subject to payment of interest as such rates as may be prescribed by the marketing committee from time to time for the period commencing from the expiry of 30 days from the date of auction till date of payment. Clause 16 provides that if payment is not made within the time stipulated in clause 14 or within the time as extended under clause 15, the buyer will be treated as a defaulter and the coffee which had been agreed to be sold to him, will be sold at his risk and cost as soon as may be convenient and the loss, if any, resulting from such sale as also the insurance premia, godown rent and other charges incurred between the date of original auction and the date of resale shall be due and recoverable from the defaulter. The learned company judge has held that the Board has ascertained the amounts due in accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that a right to recover damages is not assignable because it is not a chose in action. An actionable claim can be assigned, but in order that there should be an actionable claim there must be a debt in the sense of an existing obligation. But inasmuch as a breach of contract does not result in any existing obligation on the part of the person who commits the breach, the right to recover damages is not an actionable claim and cannot be assigned. 7. Now, this principle has been accepted by the learned judge below, but the reason why he has taken a different view is that the definition of debt given in this Act is an artificial definition and is not the definition which has been accepted for the purpose of the Transfer of Property Act, and what is emphasised is that debt is not merely a liability which is ascertained, but it is also a liability which is to foe ascertained, and, therefore, the view is taken that unliquidated damages would constitute a debt within the meaning of this Act. In my opinion, with respect to the learned judge, greater emphasis should be placed on the expression any pecuniary liability rather than on the expression whether ascertained or to be asc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a claim for unliquidated damages. Now the law is well-settled that a claim for unliquidated damages does not give rise to a debt until the liability is adjudicated and damages assessed by a decree or order of a court or other adjudicatory authority. When there is a breach of contract, the party who commits the breach does not eo instanti incur any pecuniary obligation, nor does the party complaining of the breach becomes entitled to a debt due from the other party. The only right which the party aggrieved by the breach of the contract has the right to sue for damages... ." [Emphasis supplied] (p. 1273) 23. The position is the same whether the claim is for unliquidated damages under section 73 or for liquidated damages under section 74 of the Indian Contract Act. While there may be difference in regard to ascertainment of loss or the quantum of damages awardable under sections 73 and 74, the basic requirement for both is a finding by a competent court (or Arbitrator) that the person against whom the claim is made, has committed breach and has incurred a pecuniary liability. This is clear from the decision of the Supreme Court in Sir Chunilal V. Mehta Sons Ltd. v. Cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dissented from/impliedly overruled on another point in H.M. Kamaluddin Ansari Co. v. Union of India AIR 1984 SC 29. 25. We will now cull out the principles for ready reference : ( i )A debt is a sum of money which is now payable or will become payable in future by reason of a present obligation. The existing obligation to pay a sum of money is the sine qua non of a debt. Damages is money claimed, by, or ordered to be paid to, a person as compensation for loss or injury. It merely remains a claim till adjudication by a court and becomes a debt when a court awards it. ( ii )In regard to a claim for damages (whether liquidated or unliquidated), there is no existing obligation to pay any amount. No pecuniary liability in regard to a claim for damages, arises till a court adjudicates upon the claim for damages and holds that the defendant has committed breach and has incurred a liability to compensate the plaintiff for the loss and then assesses the quantum of such liability. An alleged default or breach gives rise only to a right to sue for damages and not to claim any debt . A claim for damages becomes a debt due , not when the loss is quantified by the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -company. 27. The first claim is loss incurred on resale, that is the difference between contract price and resale price. This is nothing but a claim for damages, as per clause 16, based on the alleged breach by the company. 28. The second part of the claim is interest on the sale price from the respective dates of auction sales till the date of resale by the Board. This again is a claim for damages. The basis for the claim is that if the buyer had paid the sale price on the date of sale, the seller would have had the benefit of such amount; and as the buyer did not pay the price, and the goods were resold much later, until realisation of the price on resale, the buyer should make good the loss on account of non-availability of the money (that is sale price) by way of interest. This is based on clause 15. This is also a claim for damages, based on breach. In fact the said clause contemplates payment of interest for a period not exceeding 60 days and not for a period of about one and half to two years which is now claimed. Neither the exact periods for which the interest is claimed nor the rate at which interest is claimed is disclosed. The claim presupposes that there was a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
