TMI Blog2012 (12) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... due to non-availability of title deeds of the project land which was to be deposited with the bank for creating equitable mortgage etc. Moreover, even if breach is accepted and the clause relating to liquidated damages gets triggered, still the obligation of the petitioners to prove that because of non-completion of the project in time, it has suffered some loss though proof of actual loss may not be required. In the communication dated 9.2.2010 itself, the respondent highlighted that there were no willing buyers in the market. Therefore, it cannot be said that even if this area in constructing form was made available to the petitioner, it could have been able to sell the same. Therefore, of the opinion that at present, having regard to the legal position explained above, 'debt' has not got crystallized and the matter needs evidence. Thus dismiss this petition. Where the premises were given by the petitioner to the respondent on license basis vide lease and license agreement dated 18.2.2008. Lock-in period of 33 months was prescribed and the entire amount is claimed on account of premature termination of agreement by the respondent. The petitioner is claiming total amount of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... themselves be decided on merits as it would be reflected in our discussion, answer to the question cannot be in vacuum and may vary depending upon the facts of each case. In this backdrop, we resume our discussion by taking note of the facts in all these cases. Co. Pet. 458/2010 3. The petitioner company, in this petition, is primarily engaged in the business of providing infrastructure provisioning services to telecom operators across the country. This business includes providing "passive infrastructure services" to various telecommunication operators at the telecom sites of the petitioner. These services include the provision of telecommunication towers, shelters, diesel generators, air conditioners, batteries, transformers and other passive infrastructure equipments and the continuous maintenance of such equipment. For providing these services known as "infrastructure provisioning services" (hereinafter referred to as 'the services'), the petitioner enters into 'Master Service Agreements' with its clients, i.e. telecommunication operators. Thereafter, for the purpose of making a requisition for each individual site and the terms and conditions governing the arrangement betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the termination takes place after the initial 2 (two) years as of the commencement date then the Operator will pay 50% of the IP fees for the remaining of the 10 years Lock In Period. 11.4 Shared Sites: with respect to Shared Site, a Lock In Period of 5 (Five) years shall apply, however, the Operator shall be liable for payment of the IP Fees with respect to any specific Shared Site as follows: 11.4.1 If the termination takes place during the initial 2 (two) years as of Commencement Date, then the Operator will pay 100% of the IP Fees for the balance of the initial 2 year period and 30% of the IP fees for the remaining 3 years. 11.4.2 If the termination takes place after the initial 2 (two) years as of Commencement date, then the Operator will pay 30% of the IP Fees for the remaining of the 5 year Lock In Period." 5. According to the petitioner, the respondent did not adhere to the said agreement for minimum period of five years and committed breach of the lock-in commitment. Therefore, respondent is liable to pay the service charges for the entire lock-in period which comes to Rs. 4,10,71,305/-. The petitioner also claims that there are certain interest payable and in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ines and non-alcoholic beverages under the brand name "Moti Mahal Deluxe Tandori Trial". 8. As per clause 5 of the said License Agreement, the respondent was required to pay a sum of Rs. 57,225/- (Rupees Fifty Seven Thousand Two Hundred Twenty Five only) per month to the Petitioner as and by way of license fee, in advance, on or before the 10th day of each month. The parties also entered into a Facilities Agreement dated 18.2.2008 as per which the petitioner was to provide various facilities to the respondent and in consideration thereof, the respondent had agreed to pay a sum of Rs.57,225/- to the petitioner as facilities charges. Under Clause 7 of the Facilities Agreement, the respondent was also required to pay charges @ Rs.20 per sq.ft. aggregating to a sum of Rs.15,260/- per month and for delayed payment, interest @ 24% per annum was attracted. These two agreements also had lock-in period clause as per which the respondent was required to pay the license fees as well as facilities charges for a minimum period of 33 months. However, vide e-mail dated 17.12.2008, the respondent informed the petitioner that respondent was shutting down the business from the said premises and as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Agreement. The project was deemed to have been completed when the respondent applied for completion certificate to the competent authority. As per the petitioners, the petitioners handed over the possession of the site to the respondent on 10.11.2005 and the building plans were duly sanctioned on 22.2.2006. Accordingly, in terms of the Collaboration Agreement, the respondent was under a contractual obligation to complete the construction of Phase I of the building within a period of thirty months with effect from 22.2.2006 which ought to have been completed by August 2008. The Phase II of the building ought to have been completed by August, 2009. 10. The Collaboration Agreement, vide clause 16(a) and 16(b), provided for damages on account of delay in completion of building beyond 30 months. It was agreed that these damages will be @ Rs.5 lacs per month for the first six months of delay and @ Rs.10 lacs per month for any further delay thereafter in respect of Phase I. As far as Phase II is concerned, the damages were payable @ Rs.2 Lacs per month for the first six months and @ Rs.4 Lacs for any further delay beyond six months. These clauses read as under: "16(a) That the OMAX ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bagai v. Magpie Retail Ltd. [2011] 105 SCL 55 (Delhi) and reason for referring the matter to Division Bench was that vide reference order, the Company Judge raised some doubts about the legal position formulated therein, though while doing so, no reasons because of which doubts are nurtured have been given in the reference order. In this scenario, it would be appropriate to first look into the raison de'tre of Manju Bagai (supra). That was a case where petitioner had filed winding up petition under Section 433(e) of the Act on the ground that the respondent company therein had taken on rent certain premises from the petitioner. The rent was fixed at Rs. 1,29,580/- excluding water and electricity charges. The company started paying rent with effect from 1.11.2006 and paid rent till February, 2007. It did not pay rent for the months of March, April and May, 2007 and handed over the possession of the premises on 31.5.2007. Thus, rent for March, 2007 to May, 2007 amounting to Rs. 3,88,740/- was admittedly due which the company was to pay. However, as per the petitioner, agreement to lease entered into between the parties contained a clause to the effect that this agreement shall not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalty clause. No facts and circumstances have been pleaded to show that Clause 5 relating to lock-in-period was a genuine pre-estimate of damages which by the petitioner would have suffered in case the respondent company had vacated the premises. No such special circumstances have been highlighted and pointed out. 11. The decision in the case of Food Corporation of India and Others (supra) is distinguishable. In the said case a civil suit was filed and there was evidence to show that the plaintiff therein had performed his part of the contract and altered his position, having constructed the plinths according to specifications of the defendant i.e. FCI. The defendant had promised to plaintiff that on completion of the construction, they would hire the premises for a period of three years but later on backed out. The trial court and the finding of the Supreme Court was that the construction was made in accordance with the design and specification prescribed by the defendant. Therefore, it was held that the defendant cannot back out from the promise held out and escape from the liability. 12. It may be also noted that the Doctrine of Unavoidable Consequence or Mitigation of Damag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , lock-in period was treated as reasonable period to avoid duplication of such expenditure, etc. (iii) The doctrine of mitigation of damages may also apply in such cases and even if the tenant had committed breach by leaving the premises before the expiry of lock-in period, it was for the landlord to prove that he had taken reasonable steps to minimize the loss, but could not award the loss to the extent mentioned in the clause and, therefore, the same is to be treated as genuine pre-estimation of the loss. On this reasoning, in that case, winding up petition was dismissed. 14. As pointed out above, in the reference order, the learned Company Judge has expressed some reservations about the aforesaid ratio from which we infer that the learned Company Judge has hinted that the amount of unexpired lock-in period can be treated as debt though no specific reasons are given in the reference order. 15. Before we give our final comments, we would like to traverse through the statutory provisions as well as some case law on the subject cited before us during the arguments by counsel for the parties. 16. Consequences for breach of the contract are provided in Chapter VI of the Cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttributed to the breach as a natural result or consequence of the same. The loss must be a real loss or actual damage and not merely a probable or a possible one. When it is not possible to calculate accurately or in a reasonable manner, the actual amount of loss incurred or when the plaintiff has not been able to prove the actual loss suffered, he will be, all the same, entitled to recover nominal damages for breach of contract. Where nominal damages only are to be awarded, the extent of the same should be estimated with reference to the facts and circumstances involved. The general principle to be borne in mind is that the injured party may be put in the same position as that he would have been if he had not sustained the wrong. 17. In Murlidhar Chiranjilal v. Harishchandra Dwarkadas AIR 1962 SC 366, the Supreme Court highlighted two principles which follow from the reading of Section 73 of the Contract Act. The first principle on which damages in cases of breach of contract are calculated is that, as far as possible, he who has proved a breach of a bargain to supply what he contracted to get is to be placed, as far as money can do it, in as good a situation as if the contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive difference in the nature of the claim whether it be for liquidated damages or for unliquidated damages. Section 74 of the Indian Contract Act eliminates the somewhat elaborate refinements made under the English common law in distinguishing between stipulations providing for payment of liquidated damages and stipulations in the nature of penalty. Under the common law a genuine pre-estimate of damages by mutual agreement is regarded as a stipulation naming liquidated damages and binding between the parties : a stipulation in a contract in terrorem is a penalty and the Court refuses to enforce it, awarding to aggrieved party only reasonable compensation. The Indian Legislature has sought to cut across the web of rules and presumptions under the English common law, by enacting a uniform principle applicable to all stipulations naming amounts to be paid in case of breach, and stipulations by way of penalty, and according to this principle, even if there is a stipulation by way of liquidated damages, a party complaining of breach of contract can recover only reasonable compensation for the injury sustained by him, the stipulated amount being merely the outside limit. It, therefore m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated, the only right which he has is the right to go to a Court of law and recover damages. Now, damages are the compensation which a Court of law gives to a party for the injury which he has sustained. But, and this is most important to note, he does not get damages or compensation by reason of any existing obligation on the part of the person who has committed the breach. He gets compensation as a result of the fiat of the Court. Therefore, no pecuniary liability arises till the Court has determined that the party complaining of the breach is entitled to damages. Therefore, when damages are assessed, it would not be true to say that what the Court is doing is ascertaining a pecuniary liability which already existed. The Court in the first place must decide that the defendant is liable and then it proceeds to assess what that liability is. But till that determination there is no liability at all upon the defendant. This statement in our view represents the correct legal position and has our full concurrence. A claim for damages for breach of contract is, therefore, not a claim for a sum presently due and payable and the purchaser is not entitled, in exercise of the right conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determines the liability. In this process, the Court also explained the concept of 'debt' in the following manner: "6. The first thing that strikes one on looking at Clause 18 is its heading which reads: "Recovery of Sums Due". It is true that a heading cannot control the interpretation of a clause if its meaning is otherwise plain and unambiguous, but it can certainly be referred to as indicating the general drift of the clauses and affording a key to a better understanding of its meaning. The heading of Clause 18 clearly suggests that this clause is intended to deal with the subject of recovery of sum due. Now a sum would be due to the purchaser when there is an existing obligation to pay it in praesenti. It would be profitable in this connection to refer to the concept of a 'debt', for a sum due is the same thing as a debt due. The classical definition of 'debt' is to be found in Webb v. Stenton [1883] 11 Q.B.D. 518 where Lindley, L.J., said :"... a debt is a sum of money which is now payable or will become payable in the future by reason of a present obligation". There must be debitum in praesenti; solvendum may be in praesenti or in future- that is immaterial. There must be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that no loss is likely to occur by such breach " 23. In the matter of Kesoram Industries Cotton Mills Ltd. v. CWT [1966] 59 ITR 767 (SC), the Supreme Court considered the meaning of expression "debt owed". What does the word 'debt' mean was also considered with reference to various English decisions and held as under: "a debt is a sum of money which is now payable or will become payable in further by reason of a present obligation : debitum in presenti, solvendum in future." The said decisions also accept the legal position that a liability depending upon a contingency is not a debt in presenti or in future till the contingency happened. But if there is a debt the fact that the amount is to be ascertained does not make it any the less a debt if the liability is certain and what remains is only the quantification of the amount." 24. What follows from the above is that even if there is a clause of liquidated damages, in a given case, it is for the Court to determine as to whether it represents genuine pre-estimate of damages. In that eventuality, this provision only dispenses with the proof of "actual loss or damage". However, the person claiming the liquidated damages is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d upon adjudication. Until and unless an adjudication takes place with a resultant decree for damages, there is no debt due and payable. Damages require adjudication. Until then, the liability of a party in alleged breach of a contract does not become crystallized. In support of this view, the Court referred to a Division Bench judgment of Karnataka High Court in Greenhills Exports (P.) Ltd. v. Coffee Board [2001] 106 Comp. Cas 391/34 SCL 717 (Kar) in the following words: "...Mr. Justice R.V. Raveendran (as the Learned Judge then was) speaking for the Division Bench formulated the propositions of law which emerge from judgments of the Supreme Court and the High Court. The Court held as follows: (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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that it does not own any definite or certain amount to the petitioner and there is no admitted debt. It is also mentioned that respondent has already tendered an amount of Rs.1.13 Crores to the petitioner and, therefore, the petition has become infructuous. It is also stated that the respondent is willing to pay the rightful claim of the petitioner and has repeatedly sought reconciliation of accounts but the petitioner has deliberately refused to do so. According to the respondent, no further amount is payable and claim of the petitioner is in dispute. We also find that in the agreement entered into between the parties, there is an arbitration clause. There are thus genuine disputes and from the facts of this case, applying the position of law discussed above, we are of the opinion that in praesenti, no 'debt' has crystallized. This petition is accordingly dismissed. Co. Pet. 302/2009 28. This is a case where the premises were given by the petitioner to the respondent on license basis vide lease and license agreement dated 18.2.2008. Lock-in period of 33 months was prescribed and the entire amount is claimed on account of premature termination of agreement by the respondent. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, the delay, if any, in completion of the project was neither willful nor deliberate but due to the aforesaid reasons and not only this project, but projects of all other major players in Ludhiana in realty business were behind schedule. At the end, respondent assured that it had always been and was still willing to complete the project. On the basis of the aforesaid, the contention of the of the counsel for the petitioner is that the fact of not completing the project in time on the part of the respondent is duly established and in fact admitted and the respondent has accepted the same and from the aforesaid notice, it is also clear that it is entirely attributable to the respondent. It was argued that it was for the respondent to arrange funds and if respondent was not able to arrange loans from the banks, that was a matter with which the petitioner was not concerned and petitioner became entitled to the damages. It was further argued that in the facts of this case, these were pre-estimated reasonable damages inasmuch as the petitioner was deprived of a reasonable amount of area which should have been made available to the petitioner by August, 2008 (Phase-I) and August, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scule of the short delivery leaving a net shortage of substantial material to be delivered. For undelivered material, the petitioner called upon the respondent company to pay the amount of the cost of that material. Then notice under Section 433 read with 438 of the Act was issued and company petition filed. In this backdrop, question arose as to whether the liability of the respondent company to the petitioner arisen on account of short delivery of goods entrusted to it for carriage could be regarded as a 'debt' within the meaning of Section 433(e) of the Companies Act, 1956. The Court took note of the expression 'debt' as defined in various judgments of English Courts as well as Indian Courts and held that the amount payable could be regarded as 'debt' because of the following circumstances: "18. Under section 8 of the Carriers Act, the liability of a common carrier to the owner for the loss of the goods entrusted for carriage is fastened whenever the goods remain undelivered or short delivered to the owner. Though no exact amount may be claimed by the owner as the liability of the common carrier towards the undelivered goods or short-delivered goods, the liability to pay the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... understood differently. While dealing with point (i), we have held that the liability of the respondent-company to the petitioner arising on account of short delivery of goods entrusted to it for carriage, could be regarded as a "debt" within the meaning of the word "debt" in clause (e) of section 439 of the Act. It is, therefore, a "debt" payable by the respondent-company to the petitioner. This situation makes the petitioner a "creditor" of the respondent- company. Hence, we are of the considered view that the petitioner, who had entrusted the goods to the respondent-company for carriage, becomes a "creditor" of the latter for short delivered goods within the meaning of the word "creditor" in the section 439 of the Act. When the petitioner is a "creditor", the petition for winding up presented by it against the respondent-company becomes maintainable. Thus, our answer to point (ii) is in the affirmative." 32. Another judgment of the Single Judge of this Court in European Metal Recycling Ltd. v. Blue Engineering (P.) Ltd. [2010] 156 Comp. Cas 35/98 SCL 80 (Delhi) was also pressed into service. That was a case where the respondent company had failed to take possession of contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d (b) that the actual loss need not be proved in order to sustain the claim for liquidated damages. This, however, does not mean that merely because a contract contains a liquidated damages clause, these damages could be claimed even where no loss has-been sustained; even where delay has not actually occurred; and where delay is a consequence of the action of the claimant." 34. From the aforesaid, it is clear that no doubt the respondent had, to some extent, accepted its fault and also stated in reply dated 9.2.2010 that delay for completion of the project was result of lack of inflow of funds. However, on reading of reply dated 9.2.2010, one cannot say that the respondent had accepted its fault in entirety. Para 5 indicates that loans from banks/financial institutions could not be raised due to non-availability of title deeds of the project land which was to be deposited with the bank for creating equitable mortgage etc. Moreover, even if breach is accepted and the clause relating to liquidated damages gets triggered, still the obligation of the petitioners to prove that because of non-completion of the project in time, it has suffered some loss though proof of actual loss may n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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