TMI Blog2014 (6) TMI 847X X X X Extracts X X X X X X X X Extracts X X X X ..... oral understanding.1 What Treasure World therefore asks Indiabulls to prove is the negative - i.e., was there not an oral understanding to abandon the written contract? I do not see how Indiabulls can possibly do this, or even why it should be asked to, especially since Treasure World has been unable to produce anything to indicate that this state of affairs ever existed. It seems to me highly improbable that, had there been any such understanding, it would not have been recorded. Treasure World had multiple opportunities to do this. Received wisdom has it that such a recording of abandonment would and should have been done at the first such opportunity, and that the record must so show. What Treasure World's email of 29th October 2012 is merely interesting; what it does not say is crucial. Indiabulls' claim for 'liquidated damages' is wholly distinct. It arises only under clause 9.9, one that provides for liquidated damages. But it does not operate where there is a termination by the licensee before the end of the lock-in period. It comes into effect only when the licensee has overstayed his welcome: when it has not vacated, though bound to do so, though the licensor is ready ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms 1 and 3 taken together. The amounts of Rs.61,16,648.25 and Rs.2,33,30,970.73, less the amount of the security deposit, Rs.73,12,145.00, i.e., Rs.2,21,35,473.98 is due and payable by Treasure World to Indiabulls. Treasure World has, without valid justification, neglected to pay this amount to Indiabulls. An order of admission and advertisement is justified. However, given the discussion, I am inclined to afford Treasure World a final opportunity to make payment. - Decided in favour of appellant. - Co. Petition No. 496 of 2013 - - - Dated:- 28-2-2014 - G.S. Patel, J. Mr. S.H. Jagtiani with Saket Mone and Ms. Anshula Grover for the Petitioner Mr. Z.T. Andhyarujina and Bhoomin Badani for the Respondent JUDGMENT 1. The respondent-company, Treasure World Developers Pvt. Ltd ( Treasure World ) took premises on leave and license from the petitioning-creditor, Indiabulls Properties Pvt. Ltd. ( Indiabulls ). The leave and license agreement has what is commonly known as a 'lock-in period', a contractually agreed minimum tenure. Treasure World vacated the premises before the end of that lock-in period. Indiabulls claims it is entitled to claim the license fee f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refunded when Treasure World returned possession. Indiabulls was entitled to adjust this security deposit against amounts contractually due from Treasure World. 5. Indiabulls claims that Treasure World was persistently in default in paying the license fee and other charges. Indiabulls had to send repeated reminders for payment. On 29th September 2012, Indiabulls sent Treasure World a notice (Exhibit E to the petition), demanding payment of the license fee and service tax from June through September 2012; maintenance charges from July through September 2012; and electricity charges from July 2012 onward. Indiabulls also demanded interest on all these claims. In default, it threatened termination of the agreement. 6. On 29th October 2012, Treasure World emailed Indiabulls saying it would vacate the premises in question on 31st October 2012. It asked for a grace period for packing and moving. There followed, between 31st October 2012 and 12th December 2012, some e-mail correspondence between the parties. This relates principally to the matter of Treasure World vacating the premises. 7. On 14th January 2013, Indiabulls wrote to Treasure World demanding payment, inter alia, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rminate the agreement under clause 12 of this Agreement, the Licensor shall not be entitled to terminate this Agreement during the License Period. 13.2 If the Licensee desires to terminate this Agreement before the expiry of the Lock in Period or the Licensor is compelled to terminate this Agreement before the expiry of the Lock in Period for defaults of the Licensee not cured within a period of one month as provided in clause 12, then the Licensee shall be required and liable to pay to the Licensor the License Fee, Car Parking Fees, Maintenance charges for the entire un-expired Lock in Period. 13. Two other clauses are material. Clause 9.9 deals with liquidated damages, and clause 15.2 with amendments to the agreement. This is how they are cast: 9. Covenants of the parties 9.9 Upon the expiry of this license or on sooner determination/termination thereof the Licensee shall on its own remove all articles and things belonging to the Licensee, or its employees and hand over and/or deliver the vacant, quiet and peaceful charge of the Licensed Premises without any claim or hindrance and the Licensor shall refund of the Security Deposits subject to deduction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the original) 14. Mr. Jagtiani restricts his claim to, first, the arrears of license fees and other charges and, second, the license fees and charges for the unexpired term of the lock-in period. This, he submits, is in any event more than the statutory minimum, and Treasure World has neglected to pay it without just cause. Clause 13.2 gives Treasure World the option of a no-fault exit; but that option comes at a price. Its plain meaning, strengthened by clause 3.1, is that Treasure World agreed to be bound to a three-year term. It was obliged to pay the monthly license fees, maintenance charges and other dues for that period. It could not pay less, even if it quit before the three-year term ended. Indiabulls was well within its rights to adjust the security deposit against its claim, and it has done so. The remainder of the lock-in period is 19 months and 14 days, from 1st November 2012 to 14th June 2014. Treasure World must be held to the contract it signed. This is not in the nature of damages. Liquidated damages are separately provided in clause 9.9. This is a debt in an ascertained sum, and it is due now. Treasure World not having paid a legitimately due debt, and not h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain us. Of this, there is, of course, no evidence at all other than Treasure World's e-mail of 29th October 2012 supposedly in continuation of personal meetings and telephonic discussions saying that it would vacate the premises at the end of that month. Without further particulars, this is at best indicative of a prior termination by Treasure World; it cannot evidence a supervening oral agreement. I also cannot see how Treasure World can rely on or plead an oral agreement in variation of the terms of a written contract. In any event, the terms of the contract themselves are unambiguous: clause 15.2 required all modifications or amendments to be in writing and signed by both parties. There is no such written, signed modification. 19. It is of some concern that any corporate entity should take a stand of the kind that Treasure World does. It has all manner of insidious implications: that a company may persuade another to enter into a high-value transaction on assurances solemnly made with no intention of honouring them; that the party to whom these promises are made must then be driven to a civil proceeding to establish its claim. But establish what, exactly? The agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o-called 'illegality' of a lock-in clause is not among them. In fairness, Mr. Andhyarujina did not even attempt to develope this line, and quite rightly. I have only dealt with it because it has been so emphatically stated and pleaded. 21. Indiabulls' claim for 'liquidated damages' is wholly distinct. It arises only under clause 9.9, one that provides for liquidated damages. But it does not operate where there is a termination by the licensee before the end of the lock-in period. It comes into effect only when the licensee has overstayed his welcome: when it has not vacated, though bound to do so, though the licensor is ready to refund the security deposits. Indiabulls' claim for liquidated damages is for a period from 1st November 2012 to 11th December 2012. It stands apart from Indiabulls' claim for arrears (for the period from June 2012 to 31st October 2012) when Treasure World was undeniably in possession, and, too, from Indiabulls' claim for license fees and other charges from 1st November 2012 to the end of the lock-in-period, 14th June 2014. 22. There are, therefore, three distinct claims that Indiabulls makes: Claim 1 is for a total of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he only meaning of the relevant clause/s was that the licensee-appellant became liable to pay for the entire lock-in-period even if the license period had not commenced. It was possible, the Court said, to construe the relevant clause as meaning that if the license was terminated after the lock-in period began, then the licensee was bound to pay the license fee for the remainder of that term. Two phrases in the clause determined the Court's opinion. The first was that for the lock-in period liability clause to begin, the termination should have been before the end of that period; i.e., the lock-in period should have begun. The other was the use of the term sum equal to the balance period left of the lock-in period . This, the Division Bench said, could not possibly mean the entirety of the lock-in period, but only so much of it as remained. In Lonza, the termination was before the licensee took possession at all. The Division Bench held that a possible view was that for such a clause to operate, the lock-in period must have commenced and the claim must be for the remainder of the term. However, the Division Bench also said that the contrary view of the learned single Judge was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [2013] 112 CLA 364 (Delhi); MANU/DE/4958/2012. That decision dealt with four separate company petitions for winding up. Some had claims for liquidated damages expressly so stated. One, Company Petition No.302 of 2009, was similar to the present case. The decision must, therefore, be carefully parsed; for it is only that portion of the decision that deals with the claim for license fees for the remainder of the lock-in period that can be said to be of relevance to the present case. Now Company Petition No.302 of 2009 before the Delhi High Court was also a case of a leave and license agreement, a lock-in period (of 33 months) and a claim for the license fee for the remainder of that term after the licensee terminated the agreement. The question before the court was whether the amount representing the lock-in period can be treated as 'debt' for the purposes of a company petition for winding up. Paragraph 7 of the MANUPATRA report 29. Before I proceed further, I must note the circumstances in which Tower Vision came to be decided. On 2nd November 2010, a learned single Judge of the Delhi High Court held, in Manju Bagai v. Magpie Retail Ltd., [2011] 161 Comp Cas 382 (Delhi) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e his loss. 33. The Tower Vision India (P.) Ltd. (supra) court then considered Chapter VI, Sections 73 to 75 of the Contract Act. A party is entitled to compensation for any loss or damage suffered by reason of a breach of contract. That loss must be one that naturally arises in the usual course of things, or which the contracting parties knew, at the time when they made the contract, to be the likely result. Remote or indirect losses or damages are not recoverable. A mere breach, absent proof of loss or damage, does not entitle the other party to claim damages. The Court said: Para 15 of the MANUPATRA report When there is a breach of contract, the party who commits the breach does not eo instanti,i.e., at the instant 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 is the right to sue for damages. No pecuniary liability thus arises till the Court has determined that the party complaining of the breach is entitled to damages. The Court in the first place must decide that the defendant is liable and then it shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. (Emphasis supplied) 36. Tower Vision also notes the discussion in Raman Foundry on when a debt is said to be due, and when it is said to be owing. Now a sum would be due to the purchaser when there is an existing obligation to pay it in present. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for winding up. E-city Media (P.) Ltd. (supra) in turn cited the decision of the Karnataka High Court in Greenhills Exports (P) Ltd. v. Coffee Board [2001] 106 Comp Cas 391 (Kar) where, on a comprehensive review of the law, the Court held: '(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 dama ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority for the proposition that a claim of this nature, for license fees for the unexpired portion of a lock-in period, is a debt properly so-called for the purposes of Section 433(e) of the Companies Act, 1956. 42. In November 2009, another single Judge of this Court took the view in E-City Media that a claim for liquidated damages can never be a 'debt' for the purposes of Section 433(e) of the Companies Act, 1956. The two Lonza India (P.) Ltd. (supra) decisions were not placed before the E-City Media court. It is doubtful whether, since the Lonza India decisions were narrowly decided on the facts of that case, they would have altered the E-City Media (P.) Ltd. (supra) decision. E-City Media did, however, cite Greenhills Exports (P.) Ltd. and Saw Pipes Ltd. (supra); neither was noticed in the two Lonza India (P.) Ltd. (supra) decisions. 43. A year later, in November 2010 came the decision in Manju Bagai ( supra) of a learned single Judge of the Delhi High Court. It was doubted in October 2011 and referred to a Division Bench. The decision of the Division Bench in Tower Vision India (P.) Ltd. (supra) references E-City Media (P.) Ltd., Greenhills Exports (P.) Ltd., S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es for the unexpired term of the lock-in period, if not an opportunity cost? asks Mr. Andhyarujina. And what is an opportunity cost claim if not one in damages? There is, he says, simply no escaping the legal inevitability of such a claim. 48. Mr. Jagtiani responds by pointing out that the Tower Vision Court also cited the decision of the Supreme Court in Kesoram Industries Cotton Mills Ltd. v. CWT. [1966] 59 ITR 767; AIR1 966 SC 1370; MANU/SC/0142/1965 The three-Judge bench of the Supreme Court comprised K. Subba Rao, J.C. Shah and S. M. Sikri, JJ. K. Subba Rao and Sikri, JJ delivered the majority decision; Shah, J dissented (from p. 785 of the ITR. This decision, and not Raman Foundry, he submits, deals with what constitutes a debt; Raman Foundry was more directed to an analysis of when a debt can be said to be due. Clause 3.2 of the present leave and license agreement is, Mr. Jagtiani says, a liability or a debt contingent upon a single event: termination by the licensee, Treasure World. Clause 3.2 uses the words liable to pay . That is a present contingent liability payable in futuro. A company petition can always be brought on such a liability, provided the contingency h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zed that, if there was a liability in praesenti , the fact that the amount was to be ascertained did not make it any the less a debt. 35. We shall now notice some of the decisions of the Indian Courts on this aspect. 36. A Special Bench of the Madras High Court in Sabju Sahib v. Noordin Sahib I.L.R (1899) 22 Mad.139 held that a claim for an unliquidated sum of money was not a debt within the meaning of the Succession Certificate Act, 1889, s. 4(1)(a). The claim was to have an account taken of the partnership business that was carried on between the deceased and others and to have the share of the deceased paid over to him as the representative of the deceased. Shephard, Officiating C.J., said: It is quite clear that this not a debt, for there was at the time of the death no present obligation to pay a liquidated sum of money. The claim is one about which there is no certainty; it may turn out that there is nothing due to the plaintiff. 38. The decision of a Full Bench of the Calcutta High Court in Banchharam Majumdar v. Adyanath Bhattacharjee [1909] I.L.R. 36 Cal. 936 throws considerable light on the connotation of the word debt . Jenkins C.J. d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lightly different considerations must apply. It is not enough that there be a debt; that debt must be ascertained; it cannot be one whose amount is unknown. A mere liability is insufficient. It must be a liability in a known amount. That liability in a known amount is the debt, and that must also be now due. Perhaps, to use the language of established authority, we may put it thus: it must be both a debitum in praesenti and solvendum in praesenti. Evidently, it cannot be a liability on a contingency yet to occur; that contingency must already have come to pass. But it must be a debt payable at the date of the winding up petition; indeed, it must be payable at the time of the preceding statutory notice. It cannot be a debt yet to become due. This, for the purposes of winding up, is the confluence of Kesoram Industries Cotton Mills Ltd. and Raman Iron Foundry (supra). 51. What Mr. Jagtiani says is that the claim for license fees for the three-year lock-in period is in no sense one for damages. It is a claim for unpaid consideration. But for that agreement, the leave and license agreement would never have been executed. It is also consideration for Indiabulls agreeing not to incr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 13.1, prevents Indiabulls from terminating for the entire period of the license except where Treasure World is in default and has failed to cure its defaults within the time specified in clause 12. The second, clause 13.2 itself has two components. The first is a non-fault/no-cause termination option given to Treasure World; the second is Indiabulls' right to terminate for cause. We are concerned here only with the first of these components. That, Mr. Jagtiani submits, requires no evidence at all. It is only the second that might: whether Treasure World was in default; whether Indiabulls asked it to cure defects; whether it did so or not; and so on. The termination is not under the second part or component of Clause 13.2. It is only under the first, the no-fault/no-cause termination option given exclusively to Treasure World. There is, therefore, no question of any evidence being required. 55. Mr. Andhyarujina invites attention to the relevant clause in Manju Bagai. It is, he submits, for all intents and purposes indistinguishable from the present clause. Both are compensatory; they are provisions that seek to contain loss or damage likely to be suffered by the licensor o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f money which is promised to be paid but is manifestly intended to be in excess of the amount which would fully compensate the other party for the loss sustained in consequence of the breach. Whether a clause is a penalty clause or a clause for payment of liquidated damages has to be judged in the facts of the each case and in the background of the relevant factors which are case specific. Looking at the nature of the Clause and even the pleadings made by the petitioner, I am not inclined to accept the contention of the petitioner that Clause 5 imposes liquidated damages and is not a penalty 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. 57. This, then, is not a discussion of whether such a claim is always a claim for liquidated damages but rather of whether, even when such a claim is said to be for liquidated damages, it is to be automatically so construed, or whether the court can examine if it is in the nature of a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s overlooks is that Indiabulls' liberation - so to speak - from Treasure World is of the latter's own making. Indiabulls was content to let Treasure World continue for the entirety of the lock-in period. Indeed, the contract bound it not to terminate at all for the full tenure of the agreement unless, of course, Treasure World was in default under clause 12 and did not cure its defaults despite a cure notice as provided in that clause. In assessing the nature of Indiabulls' claim, it is not, I think, possible to run this sort of forensic regression or to approach it from the perspective of what it might or might not be able to do following a termination by Treasure World. The side-effects or fall out of the termination cannot determine the nature of the claim. 61. Once it is held that there was a termination, the rest must follow. Mr. Andhyarujina's argument that there was no termination but rather a supervening oral agreement of abandonment of the prior written contract is one that I have already held to be unsustainable. The contract itself militates against the acceptance of this submission. Treasure World's correspondence with Indiabulls indicates that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on a lock-in-period as in this case. He may not agree to a short duration at all. 25. It is thus not always possible or easy to assess the loss in the case of a breach of a leave and licence agreement by the licensee. Indeed, for these reasons, it is not always necessary for a licensor to mitigate loss in the case of a breach of a leave and licence agreement by the licensee. Unlike in the case of a sale it would not always be permissible to compel a licensor to let the premises to another with a view to mitigating the loss. 63. I do not refer to these passages for an authoritative pronouncement of law. Rather, I see them as a reminder that a commercial court cannot blind itself to the realities of the world of commerce, to the ordinary and usual manner in which parties do business, to the common considerations that weigh when they transact. Mr. Jagtiani is, I believe, correct in saying that if contracts are to be read in the manner Mr. Andhyarujina suggests be done in this case, the result can only be of manifest inequity, driving a stake through the heart of quotidian commerce. A party solemnly binds itself to a three-year license term for premises. The licensor agrees, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever happen, there can be no debt.24 (d) A contractual provision in a leave and license agreement for a lock-in period is not per se illegal, unlawful, void or even voidable. (e) Every claim for license fee for the remainder of a lock-in period in a leave and license agreement is not per se a claim for damages, liquidated or unliquidated. In a given case, it may be in the nature of either, or in the nature of a penalty, or it may simply be a component of the contractual consideration and therefore a debt properly so-called when the contingency in contemplation comes to pass. This will depend on an interpretation of the contract in question and an assessment of the conduct of the parties. 66. There is, I find, no valid defence to Claims 1 and 3 taken together. The amounts of Rs.61,16,648.25 and Rs.2,33,30,970.73, less the amount of the security deposit, Rs.73,12,145.00, i.e., Rs.2,21,35,473.98 is due and payable by Treasure World to Indiabulls. Treasure World has, without valid justification, neglected to pay this amount to Indiabulls. An order of admission and advertisement is justified. However, given the discussion, I am inclined to afford Treasure World ..... X X X X Extracts X X X X X X X X Extracts X X X X
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