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2016 (1) TMI 671 - PUNJAB AND HARYANA HIGH COURT

2016 (1) TMI 671 - PUNJAB AND HARYANA HIGH COURT - TMI - Winding up of the respondent company sought on the ground that liquidated damages - Held that:- In Manju Bagai vs. Magpie Retail Ltd., [2010 (11) TMI 845 - DELHI HIGH COURT] inter-alia held that whether a particular clause about predetermined liquidated damages represents genuine covenanted pre-estimate of damages or it is in the nature of penalty has to be judged in the facts of each case and in the background of relevant factors which ar .....

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s not been able to show that the same is on account of pre-estimated genuine damages, rather the amount as has been mentioned establishes that 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 .....

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icence 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 agreement was replaced by another agreement dated 22.5.2007. It was for a period of three years at an annual licence fee of ₹ 22,000,00/-. The amount was to be paid in equal month .....

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s of agreement signed between the parties, the respondent company having failed to pay the debt, despite statutory notice, it deserves to be wound up. 3. On the other hand, learned counsel for the respondent submitted that the agreement is not in dispute. There were certain excess payments made in terms of earlier agreement dated 11.9.2006, which were adjusted when fresh agreement was signed on 22.5.2007. After adjustment of installment of April, 2007, still additional sum of ₹ 3,81,424/- .....

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pay any licence fee as it has never used the licence. He further submitted that the amount sought to be claimed while placing reliance on terms of the contract, cannot be said to be a debt due, rather it is a kind of penalty and for non-payment thereof, the company cannot be ordered to be wound up. In support of his arguments, reliance was placed upon Division Bench judgment of Delhi High Court in CO. PET. 458/2010- Tower Vision India Private Limited vs Procall Private Limited decided on 24.8.2 .....

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ce 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 for .....

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y the Designated Radio Station aggregating to ₹ 22,000,00/- (Rupees Twenty Two Lacs only) per annum. 4.2 That the non-refundable License Fee as per section 4.1 shall be paid by the Licensee to the Licensor on a advance monthly basis. The Licensee shall be obligated to pay every installment of License Fee (consolidated Copyright License Fee and Performance License) amounting to ₹ 1,83,334/- (One Lac Eighty Three Thousand Three Hundred Thirty Four only) plus applicable taxes within 7 d .....

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tice period, the License Agreement can be terminated by the Licensor. Provided further that in case of such termination the Licensee shall still be liable to pay the entire License Fee for the remaining term of this Agreement @ 22,000,00/- per annum. 6. The stand of the respondent is that after adjusting the installment for the month of April, 2007, out of the amount already paid during the currency of the earlier agreement, a sum of ₹ 3,81,424/- was lying balance with the petitioner compa .....

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tely, the respondent company sent email on 7.9.2007 informing the petitioner company that it had stopped playing FM Radio with effect from 1.9.2007. The present petition has been filed by the petitioner company claiming balance of ₹ 61,73,059/- 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 a .....

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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 receive from the defaulting party, compensation for any loss or damage cau .....

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ges unless the said party has in fact suffered damages because of such breach. Loss or damage which is actually suffered as a result of breach has to be proved and the plaintiff is to be compensated to the extent of actual loss or damage suffered. When there is a breach of contract, the party who commits the breach does not eo instant 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 righ .....

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pensation for loss suffered and not by way of punishment. The rule applicable for determining the amount of damages for the breach of contract to perform a specified work is that the damages are to be assessed at the pecuniary amount of difference between the state of the plaintiff upon the breach of the contract and what it would have been if the contract had been performed and not the sum which it would cost to perform the contract, though in particular cases the result of either mode of calcu .....

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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 highligh .....

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ate the loss consequent on the breach and debars him from claiming any part of the damages which is due to his neglect to take such steps. 18. Thus, while on one hand, damages as a result of breach are to be proved to claim the same from the person who has broken the contract and actual loss suffered can be claimed, on the other hand, Section 74 of the Act entitles a party to claim reasonable compensation from the party who has broken the contract which compensation can be predetermined compensa .....

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of a genuine preestimate of damages . If they are penal in nature, then a penal stipulation cannot be enforced, that is, it should not be a sum fixed in terrarium or interrarium. This action, therefore, merely dispenses with proof of actual loss or damage . However, it does not justify the award of compensation when in consequence of breach, no legal injury at all has resulted, because compensation for breach of contract can be awarded to make good loss or damage which naturally arose in the usu .....

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ts. The claim is admittedly one for damages for breach of the contract between the parties. Now, it is true that the damages which are claimed are liquidated damages under Clause 14, but so far as the law in India is concerned, there is no qualitative 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 .....

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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 .....

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es 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. That is not an actionable claim and this position is made amply clear by the amendment in Section 6(e) of the Transfer of Property Act, which provides that a mere right to sue for damages cannot be transferred. This has always been the law in England and as far back as 1858 we find it stated by Wightman, J., in Jones v. Thompson [1858] 27 L.J .....

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e claim was for unliquidated damages : "... in such cases there is no debt at all until the verdict of the jury is pronounced assessing the damages and judgment is given". The same view has also been taken consistently by different High Courts in India. We may mention only a few of the decisions, namely, Jabed Sheikh v. Taher Mallik 45 Cal. Weekly Notes, 519, S. Malkha Singh v. N.K. Gopala Krishna Mudaliar 1956 A.I.R. Pun. 174 and Iron & Hardware (India) Co. v. Firm Shamlal & B .....

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ion 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 .....

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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 for us to consider the other contention raised on behalf of the respondent, namely, that on a proper construction of Clause 18, the purchaser is entitled to exercise the right conferred under that clause only where the claim for payment of a sum of money is either admitted b .....

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ween the parties provide that whenever any claim for the payment of a sum of money arises out of or under the contract against the contractor, the purchaser shall be entitled to recover such sum by appropriating in whole or in part, the security, if any, deposited by the contractor. The purchaser/Union of India, invoking this clause, wanted to recover and adjust liquidated damages in terms of clause 14 of the contract. As is seen from the aforesaid extracted portion, the Court held that a claim .....

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n of any existing obligation on the part of the person who has committed the breach. He gets compensation as a result of fiat of the Court. Therefore, it has to be decided by the Court, in the first instance, that the defendant is liable and then it proceeds to assess what liability is. Till that determination, there is no liability at all upon the defendant. The Court further went to the extent of holding that there would not be any debt payable unless the Court determines the liability. In thi .....

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se 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 .....

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learly brings out the essential characteristics of a debt: Standing alone, the word 'debt' is as applicable to a sum of money which has been promised at a future day as to a sum now due and payable. If we wish to distinguish between the two, we say of the former that it is a debt owing, and of the latter that it is debt due. 22. The Supreme Court in the matter of ONGC Ltd. v. Saw Pipes Ltd., AIR 2003 SC 2629, in para 65 has discussed provisions of Section 73 and 74 of the Indian Contract .....

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amount to be paid in case of such breach, the party complaining of breach is entitled, whether or not actual loss is proved to have been caused, thereby to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named. Section 74 emphasizes that in case of breach of contract, the party complaining of the breach is entitled to receive reasonable compensation whether or not actual loss is proved to have been caused by such breach. therefore, the empha .....

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e actual loss suffered by him. Burden is on the other party to lead evidence for proving that no loss is likely to occur by such breach… 23. In the matter of Keshoram Industries & Cotton Mills Ltd. v. Commissioner 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 wh .....

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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 suffered some loss. In the process, he may also be called upon to show that he took al .....

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ind of determination is done by the Court, it does not result into debt . 25. At this juncture, we would like to refer to the judgment of Bombay High Court in the case of E-City Media Private Limited a Private Limited Company v. Sadhrta Retail Limited a Public Limited Company, [2010] 153 Comp.Cas 326 (Bom.) (rendered by Single Judge). In this case also, winding up petition was filed on account of alleged dues stipulated in the contract in case of breach. Facts of the case disclose that the petit .....

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nth, during the term of the agreement, the petitioner would be at liberty to terminate the agreement with notice of seven days. In that event, respondent was obliged to make good losses and damages which may be suffered by the petitioner. The respondent was liable to pay entire royalty/minimum guaranteed amount mentioned in the agreement with interest @ 18% per annum on alleged breach committed by the respondent. The petitioner terminated the contract and demanded the entire amount of royalty/mi .....

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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: ( .....

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d), 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 &quo .....

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late the quantum of damages, the court will assess and award compensation in accordance with the principles laid down in Section 73. Where the contract stipulates the quantum of damages or amounts to be recovered as damages, then the party complaining of breach can recover reasonable compensation, the stipulated amount being merely the outside limit. (iv)... (v) Even if the loss is ascertainable and the amount claimed as damages has been calculated and ascertained in the manner stipulated in the .....

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