TMI Blog2016 (1) TMI 671X X X X Extracts X X X X X X X X Extracts X X X X ..... at it is a kind of penalty and a penal stipulation cannot be enforced in the absence of any proof of actual loss, which a party to the contract is bound to make good to the other party. For the reasons mentioned above, the amount of damages claimed cannot be said to be admitted debt on account of which the respondent company can be directed to be wound up. The present petition is accordingly dismissed. - CP No. 13 of 2008 (O&M) - - - Dated:- 4-9-2015 - Mr. Rajesh Bindal, J. For The Petitioner : Mr. Mukesh Kumar Verma, Advocate For The Respondent : Mr. Gaurav Chopra, Advocate, Rajesh Bindal, J. 1. The present petition has been filed for winding up of the respondent company on the plea that it had failed to pay its admitted debt. 2. It is pleaded that the petitioner company having business interest in music, besides other things had obtained licence from the Government of India to broadcast FM Radio in the City of Hissar. Agreement was executed between the petitioner company and the respondent company on 11.9.2006 granting licence to the respondent company for broadcasting sound recording in which the petitioner company had a copy right. The aforesaid agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he parties on 22.5.2007. The relevant clauses thereof, which are sought to be relied upon, are extracted below:- LICENCE AGREEMENT RECITALS 3. The Licensor and Licensee had entered into a License agreement dated 11-9-2006 wherein the Licensor had granted license (copyright license And performance license) to the licensee to broadcast licensor Sound Recordings from the Designated Radio Station on such terms and conditions as contained therein. 4. The Licensor and Licensee have, through mutual negotiations have arrived at commercial terms and want to enter into another agreement on such new terms and conditions and pursuant to such agreement both parties hereby execute this License Agreement and terminating the Agreement dated 11-09-2006. The agreement dated 11-9- 2006 shall have no force from the date of execution of this Agreement. xx xx xx 1. Definitions: 1.12 'Term' means a period of three years commencing from 1st April 2007 (Effective Date) hereof; and xx xx xx 2. and 3 xx xx xx 4. License Fee 4.1 In consideration of Copyright and Performance License granted by the Licensor to the Licensee the Licensee shall pay a non-refundable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- in terms of the conditions laid down in licence agreement which provided that even if the agreement is terminated before its expiry, still the amount for the entire period will have to be paid by the respondent company. Whether amount mentioned in an agreement for unexpired period of lock-in period can be termed to be an admitted debt or in the form of damages ? 7. Similar issue came up for consideration before Delhi High Court in Tower Vision India Private Limited's case (supra), where the following question was referred to by the learned Single Judge to the Division Bench for its opinion:- Whether in a contract for rendering of service/use of site, a stipulation to pay an amount for the lock-in period, is an admitted debt within the meaning of Section 433(e) of the Companies Act, 1956 or whether the same is in the nature of damages? 8. Relevant paras of the aforesaid judgment are extracted below:- 16. Consequences for breach of the contract are provided in Chapter VI of the Contract Act which contains three sections, namely, Section 73 to Section 75. As per Section 73 of the Contract Act, the party who suffers by the breach of contract is entitled to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and Anr., 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 had been performed; but this principle is qualified by a second, which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates 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 makes no difference in the present case that the claim of the appellant is for liquidated damages. It stands on the same footing as a claim for unliquidat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 conferred upon it under Clause 18, to recover the amount of such claim by appropriating other sums due to the contractor. On this view, it is not necessary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 an existing obligation to pay a sum of money now or in future. The following passage from the judgment of the Supreme Court of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner of Wealth Tax (Central), Calcutta, 1966 (2) SCR 688 , 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 preestimate 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 still to prove that the legal injury resulted because of breach and he s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udication. 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, Bangalore, [2001] 106 Comp.Cas 391 (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 no existi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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