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2010 DIGILAW 427 (CAL)

Itc Limited v. Oberoi Mall Pvt. Ltd.

2010-04-21

SANJIB BANERJEE

body2010
JUDGMENT: Sanjib Banerjee 1. THE claim of the petitioning creditor is on account of sums payable by the company under two several agreements executed in February, 2008. THE first of the two agreements is a deed of lease and the second is described as the amenities agreement. THE company had taken on lease an area of about 763 sq. ft on the first floor of the Oberoi Mall at Goregaon (East) in Mumbai. 2. THE petitioner says that both agreements contemplated a lock-in period which implied that the company had to honour its commitments for a period of 60 months there under regardless of the company using the facility. In other words, the petitioner suggests that the company was obiliged under the two contracts to pay the monthly amounts contemplated thereby for the period of 60 months whether or not the company occupied the premises or surrendered the same to the petitioner. The petitioner submits that for reasons undisclosed the company abandoned the premises and by an ante-dated letter issued on January 17, 2009 claimed that it had delivered possession to the petitioner. The petitioner says that though it is now not in dispute that the company's goods and fixtures and fittings have been removed from the shop - notwithstanding the petitioner initially seeking to exercise a lien thereon - the company is liable to make payment of the amounts due under the two agreements. The petitioner admits that an amount deposited by the company by way of security has been retained by the petitioner, but that would not cover the amount due from the company. There is an arbitration reference on the same subject matter that has been initiated at the behest of the petitioner, though the parties cannot specify whether the reference was made before or after this petition was instituted. 3. THE petitioner refers to clause 2.2 of the deed of lease. THE petitioner says, and it is not disputed by the company, that there is a clause of similar import in the amenities agreement. Clause 2.2 of the deed of lease provides as follows: "2.2 This Demise, which shall subsist for the Contractual Term shall be 'Lock-in-Period'. 3. THE petitioner refers to clause 2.2 of the deed of lease. THE petitioner says, and it is not disputed by the company, that there is a clause of similar import in the amenities agreement. Clause 2.2 of the deed of lease provides as follows: "2.2 This Demise, which shall subsist for the Contractual Term shall be 'Lock-in-Period'. In the event the Lessor permits the Lessee in writing to determine this Lease prior to the expiry of the Contractual Term or in the event the Lessor terminates these presents on account of any Event of Default on the part of the Lessee in accordance with the provisions of clause 19 hereunder, then in that event, the Lessee shall be liable (without prejudice to the right of Lessor for claim of damages, loss etc. in the event of termination or pre determination of these presents by the Lessor as aforesaid), to pay an amount equivalent to the Rent for the unexpired Contractual Term." 4. THE petitioner refers to clause 4 of the deed of lease that stipulates Che quantum of payment. THEre is an almost identical clause in the amenities agreement. THE two agreements contemplated payment at a lower rate for the first 33 months and at a slightly higher rate for the next 27 months. Clause 4 of the deed of lease provides as follows: "4. Rent 4.1. THE Lessee covenants and agrees that it shall during the Contractual Term pay to the Lessor by way of Rent the following amounts for the following periods: 4.1.1 Rent due and payable during the First Period is Rs. 1,06,057/- (Rupees One Lakh Six Thousand and Fifty Seven Only) for each month. 4.1.2 Rent due and payable during the Second Period shall be Rs. 1,21,966/- (Rupees One Lakh Twenty One Thousand Nine Hundred and Sixty Six Only) for each month." The primary defence set up by the company is that the petitioner's claim is in damages, which is generally not entertained in this jurisdiction. The company also suggests that disputed questions arise and such disputes would be evident from the correspondence exchanged between the parties prior to the issuance of the statutory notice. The company also suggests that disputed questions arise and such disputes would be evident from the correspondence exchanged between the parties prior to the issuance of the statutory notice. The company asserts that the relevant clauses requiring the lessee to make payment at the contractual rate for the entire currency of the period of occupation contemplated by the agreements are penal in nature and the intention of the parties have to be ascertained which would call for more protracted evidence than is conveniently possible in the present proceedings. 5. THE first demand of the petitioner was issued on December 1, 2008, possibly on a computer prompt, upon the rent and the amenity fees not being tendered in terms of the agreements by such date. THE petitioner demanded that the company make payment of the identical sum of Rs. 1,19,167/- under the two agreements within two days of the receipt of the written demand of December 1, 2008. THE first reminder was issued on December 8, 2008 and a lawyer's notice was served on December 18, 2008 claiming the rent, amenity fees and CAM charges and interest thereon for the delayed period. 6. ANNEXURE "H" to the petition is a letter issued by the company that bears the date of December 15, 2008 by which the company apparently handed over the keys to shop No. F-31 at the mall to the petitioner. On January 23, 2009, a further notice issued by advocates representing the petitioner followed. The third paragraph of such notice recorded that the keys were handed over by the company to the petitioner on January 17, 2009 under cover of the letter dated December 15, 2008. The notice recorded that the petitioner was entitled to forfeit the entirety of the security deposit of Rs.25,45,368/- and demanded payment of the outstanding rent, amenity fees and other charges together with the sum of Rs.58,29,509.50 under either agreement for the unexpired tenure of the lock in period. The notice recorded that the petitioner was entitled to forfeit the entirety of the security deposit of Rs.25,45,368/- and demanded payment of the outstanding rent, amenity fees and other charges together with the sum of Rs.58,29,509.50 under either agreement for the unexpired tenure of the lock in period. The company responded through advocates on February 18, 2009 asserting, inter alia, that the keys to the premises had been handed over on December 15, 2008 but the petitioner had issued a formal receipt only on January 17, 2009; that no amount was due from the company to the petitioner as at December 15, 2008; that there was an understanding between the parties that the company's material at the premises would be handed over to the company within 15 days but the petitioner had sought to claim a lien over the goods; and, that the forfeiture of the security deposit was uncalled for. Two paragraphs of such reply of February 18, 2009 are of significance in the context of the subsequent stand taken by the company in Court: "It is submitted that no amount is due and pending by our client and any such claim by your client is denied being wrong and unwarranted. Further, no interest is required to be levied as no amount is due. "All provisions, if any, of the Agreement where under you may seek to claim any money as claimed in para 6 of the notice dated 23rd July, 2009 (sic, January 23, 2009 as subsequently corrected by letter dated March 10, 2009) are arbitrary, unfair, opposed to public policy, penal, illegal, unenforceable and void." 7. THE petitioner did not engage in any further discussion with the company and issued the statutory notice on February 23, 2009. THE notice was confined to the claims of Rs.58,29,509.50 under either agreement together with interest. THE petitioner reserved its right to carry the claims under the other heads to the appropriate forum. THE principal sum demanded in the statutory notice was for Rs. 1,16,59,019/- and interest thereon. THE reply to the statutory notice was issued by advocates representing the company on March 16, 2009. THE defence is summarised at the third and fourth pages of such reply under six heads. THE principal sum demanded in the statutory notice was for Rs. 1,16,59,019/- and interest thereon. THE reply to the statutory notice was issued by advocates representing the company on March 16, 2009. THE defence is summarised at the third and fourth pages of such reply under six heads. THE company asserted that there was no debt due to the petitioner and the claims were false, mala fide and vexatious; that the company was solvent, had a large number of shareholders and was a profit making venture; that the petitioner had wrongfully withheld the security deposit; that the termination of the agreement was baseless, vexatious and illegal; that the keys to the premises had been made over to the petitioner on December 15, 2009 but the petitioner had wrongfully interfered with the company's right to remove its goods from the shop; and, "the mutual terms of the agreement agreed upon at the time of handing over the possession of 15th December, 2008 has been breached ..." and notices issued by the petitioner were wrongful. 8. IN the affidavit used by the company, paragraphs 7 and 8 thereof make interesting reading: "7. As the business at the retail outlet of the Company in the said mall was not picking up as expected, discussions were held between the representatives of the Company and the petitioner and an understanding was reached between the parties (hereinafter referred to as the said understanding). Pursuant to the said understanding the Lease Agreement dated February 27, 2008 and Amenities Agreement dated February 27, 2008 were given a go-by. "8. Pursuant to the said understanding the keys were handed over by the Company to the petitioner on December 15, 2008. IN terms of the said understanding the petitioner was required to refund the security deposit of a sum of Rs.25,45,368/- deposited by the company with the petitioner, to the company immediately upon receipt of the keys of the shop room. However the petitioner has failed and neglected to refund the said sum to the company in breach of the said understanding. A sum of Rs.25,45,368/ along with interest at the rate of 24% per annum is due and outstanding from the petitioner to the company. No sum is due and payable by the company to the petitioner. However the petitioner has failed and neglected to refund the said sum to the company in breach of the said understanding. A sum of Rs.25,45,368/ along with interest at the rate of 24% per annum is due and outstanding from the petitioner to the company. No sum is due and payable by the company to the petitioner. The company reserves its right to take appropriate proceedings against the petitioner." The petitioner pounces on the affidavit stand of the company to discredit the quality of its defence. The petitioner says that not only is there no previous whisper of the alleged understanding between the parties that the agreements of February 27, 2008 were to be given a go by, clause 38.3 of the deed of lease and clause 29 of the amenities agreement would preclude such a stand being taken by the company. Clause 38.3 of the deed of lease records as follows: "38.3 No modification, amendment or waiver of any of the provisions of this Deed shall be effective unless made in writing specifically referring to this Deed and duly signed by the Parties hereto and registered as required by law." 9. INDEED, it is of some concern that a stand such as the one evident from paragraph 7 of the company's affidavit has been taken by an organisation that is a corporate behemoth in this country. For purely prejudice value, a stand such as the one taken by the company in the seventh paragraph of its affidavit would taint the entirety of its defence and it is tempting to rubbish it. The conduct of the company, even without the stand taken at paragraph 7 of its affidavit, is not without blemish. It appears more likely than not that notwithstanding the letter dated December 15, 2008 being dated as it was, neither were the keys nor was such letter handed over to the petitioner prior to January 17, 2009. It is an almost inescapable inference that needs to be drawn from the first complete paragraph appearing on the second page of the company's letter of February 18, 2009. The company acknowledged that a formal receipt as to the surrender of possession of the shop was issued by the petitioner only on January 17, 2009 and the company complained that this was with ulterior motive since the keys had been handed over on December 15, 2008. The company acknowledged that a formal receipt as to the surrender of possession of the shop was issued by the petitioner only on January 17, 2009 and the company complained that this was with ulterior motive since the keys had been handed over on December 15, 2008. It is highly improbable that the possession of any premises is surrendered under cover of a letter demanding an acknowledgement of the receipt of possession but not insisting on the immediate issuance of the receipt. The acknowledgement of receipt of possession has far-reaching consequence; the obligation to pay occupation charges may be suspended from the date of the acknowledgement of receipt of possession. Yet, the company complained of the receipt being issued by the petitioner more than a month after possession was allegedly surrendered; and that too, in passing in response to a notice that alleged wrongdoing by the company. 10. IN the several letters issued on behalf of the company to the petitioner around the time the company quit the said shop, beginning the letter bearing the date of December 15, 2008, there was no assertion of any previous discussion between the parties culminating in an understanding that the two agreements of February 27, 2008 would be given a go by. There were several opportunities that the company had to assert such alleged understanding. Conventional wisdom would have that the understanding be recorded at the first instance and no later than when the keys were being delivered by the company to the petitioner. The letter bearing the date of December 15, 2008 is eloquent in its silence on the alleged understanding. The petitioner thereafter made a detailed claim in the letter of January 23, 2009 to which a considered response was issued on behalf of the company on February 18, 2009. There was no allusion in such reply to the alleged understanding that has been set up on oath in the company's affidavit. The mistaken reference as to a date in the letter of February 18, 2009 was corrected by a letter of March 10, 2009, but the alleged understanding that the company now wants the Court to believe was not referred to in the corrigendum. Even in the studied response to the statutory notice there is not the slightest murmur of the alleged understanding. Even in the studied response to the statutory notice there is not the slightest murmur of the alleged understanding. On such state of evidence on affidavit, it would be a good case for the company to be directed to at least furnish security to afford it the luxury the conjuring up a protracted defence in the arbitral reference or in a suit that the petitioner may bring. But to do so would be to violate an underlying principle that operates in this jurisdiction and to give in to the prejudice occasioned by an affidavit recklessly made. 11. THE company has relied on a judgment reported at (2001) 106 Comp Cas 391 (Greenhills Exports (P) Ltd. v. Coffee Board) for the proposition that a claim in damages, however convincing, may not be carried by way of a creditor's winding-up petition. In that case the Karnataka High Court considered a claim by the Coffee Board following the appellant company's failure to make payment and take delivery of 654.6 MT of coffee that the company had purchased at an export auction. In its defence the appellant had contended before the Company Court that the coffee sold in export auctions by the Coffee Board could be used only for export and not for sale in the domestic market; and, that the company had purchased 1827.70 MT of coffee and had paid for and taken delivery of the major part thereof but the balance of 654.6 MT of coffee was discoloured and did not conform to the specifications for sale in the international market. It was the order of admission of the petition that was assailed and the company in the present case relies on the Division Bench judgment in the distinction that it makes between a debt and a claim in damages. THE company has referred to the following passage: "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. 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 party complaining of breach, but when a competent Court holds on enquiry, that the person against whom the claim for damages is made, has committed breach and incurred a pecuniary liability towards the party complaining of breach and assesses the quantum of loss and awards damages. Damages are payable on account of a fiat of the Court and not on account of quantification by the person alleging breach. (iii) When the contract does not stipulate 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) When a contract provides that on default by a buyer to pay for and take delivery of goods, the seller is entitled to recover the loss incurred on resale, interest on delayed recovery of the price, go-down charges, insurance charges and other expenses incurred by the seller till resale, it cannot be said that the buyer incurs the liability to pay those amounts, automatically, when he fails to take delivery. Failure to take delivery may be due to several valid or lawful reasons which may show that the failure to take delivery is not a "default" or "breach" in which event, no pecuniary liability may fasten on him. Failure to take delivery may be due to several valid or lawful reasons which may show that the failure to take delivery is not a "default" or "breach" in which event, no pecuniary liability may fasten on him. (v) Even if the loss is ascertainable and the amount claimed as damages has been calculated and ascertained in the manner stipulated in the contract, by the party claiming damages, that will not convert a claim for damages into a claim for an ascertained sum due. Liability to pay damages arises only when a party is found to have committed breach. Ascertainment of the amount awardable as damages is only consequential." 12. THOUGH a claim in damages is generally not entertained by way of a creditor's winding-up petition, there is no statutory bar thereto. For instance, upon a party asserting a claim in damages it is open to a company to admit the claim and for the creditor to subsequently found a winding-up petition on the admission. It is true that the petition would then be based on the admission and not on the original claim in damages, but the foundation of the claim cannot be lost sight of. The rationale for company Courts repelling winding up petitions founded on claims in damages may be in the twin problems that such claims present. There has first to be an assessment of the breach and, thus, of the basis of the claim; and, subsequently, of the ascertainment of the quantum. Neither is generally capable of being addressed on affidavit evidence in summary proceedings. But such a problem may not arise if the foundation of the claim is established and the quantum has been agreed upon. It is now legally accepted that the parties may make a genuine predestinate of the quantum of damages by incorporating a liquidated damages clause in the contract. It is also accepted that upon the factum of damages being established the Court may not engage in ascertainment of the quantum if a genuine pre estimate thereof is reflected in the contract itself. On these tests, the company here may be on slippery ground. There is no dispute that both the agreements provided for a lock in period. There is also no dispute that the company surrendered possession prior to the expiry of the promised tenure. The foundation the claim is, thus, unquestionable. On these tests, the company here may be on slippery ground. There is no dispute that both the agreements provided for a lock in period. There is also no dispute that the company surrendered possession prior to the expiry of the promised tenure. The foundation the claim is, thus, unquestionable. The ascertained amount is also apparent from the relevant clauses of the two agreements. But there is a further consideration that weighs with the company Judge in addressing a creditor's winding-up petition which has been recognised to be a perfectly proper remedy for enforcing payment of a just debt and a mode of execution which the Court gives to a creditor against a company unable to pay its debts (See Harinagar Sugar Mills Co. Ltd. v. M. W. Pradhan Court Receiver ( AIR 1966 SC 1707 ) quoting Palmer's Company Precedents). It may amount to unjust enrichment on the petitioner's part for the petitioner to be entitled both to the rent and amenity fees unexpired duration of the lock-in period and simultaneously be free to induct another at the same premises for the residual period or a part thereof for valuable consideration. At least, it raises a substantial legal issue. It is here that the two agreements that the petitioner has based its claim on have to be divorced. Assuming for the moment that the petitioner would be entitled to the claim for rent under the deed of lease for the unexpired period, the consideration for the amenities agreement would be entirely different. Assuming again that the petitioner does not, in fact, induct any other into the premises vacated by the company for the unexpired period of the lease or that the petitioner is unable to do so and the clause in such case does not amount to a penal provision. But the same test would be inappropriate for the amenities agreement. Clause 3 of the amenities agreement details the common facilities that the company would enjoy. There is no doubt that even if the company had surrendered possession there would be no proportionate reduction of the common facilities, yet it is possible that the extent of energy consumed for air conditioning or the use of the generator set or the need for water at the relevant shop would be somewhat reduced upon it remaining unoccupied. There is no doubt that even if the company had surrendered possession there would be no proportionate reduction of the common facilities, yet it is possible that the extent of energy consumed for air conditioning or the use of the generator set or the need for water at the relevant shop would be somewhat reduced upon it remaining unoccupied. It is possible then to urge that the payment of the full monthly quota of amenity fees may be penal in nature and in derogation of the Contract Act. It would be, at any rate, a matter of involved evidence at the very least. As far as the deed of lease is concerned, there is no material to show whether the space vacated by the company has been let out or attempted to be let out by the petitioner; as to whether diligent steps have been taken by the petitioner to mitigate the loss. Further, the period of 60 months has not expired yet; in fact, only about half the period has been covered by now. In the present proceedings the test is not to finally assess the merits of the claim or the defence unless the defence is such that it is demurrable. The company Court will proceed no further once it sees that a triable issue has been raised which calls for a more detailed scrutiny. Just as it would not do for a company to create an illusion of a defence, it is also mandatory that a petitioning creditor affirmatively establish the debt before the petition can progress to the second stage after admission. It is for such reason that the petitioner has to be left to pursue the claim in the arbitral reference or in a suit that the petitioner may bring. 13. THOUGH the petitioner has scaled down, at the final hearing, its demand for payment to a prayer for security being furnished, in principle there is little distinction between the two. If a company has no defence or the defence set up is illusory or sham or practically moonshine, then the petitioner is ex debitor Justinian entitled to an order of admission, whether or not an order of winding up is made at the second stage upon consideration of other factors. If a company has no defence or the defence set up is illusory or sham or practically moonshine, then the petitioner is ex debitor Justinian entitled to an order of admission, whether or not an order of winding up is made at the second stage upon consideration of other factors. The discretion to require a company to furnish security is also upon the assessment of the defence to be illusory or sham or practically moonshine but where the company Court shows mercy to the company to enable it to try and prove a defence in more protracted proceedings. The tests as enumerated in the context of summary proceedings under the Civil Procedure Code in Smt. Kironmoyee Dassi v. Dr. J. Chatterjee [AIR 1949 Cal 479] and accepted by the Supreme Court in Mechelec Engineers and Manufacturers v. Basic Equipment Corporation [ (1976) 4 SCC 687 ] also govern creditors winding up petitions. These tests make no distinction between when security may be directed to be furnished and when payment may be directed to be made to ward off admission, save mercy being shown by Court to the company. The nature of defence is qualitatively the same in either case. 14. THE claim of the petitioner may be pursued in the arbitral proceedings already commenced or in a suit that the petitioner may institute in accordance with law. CP No. 199 of 2009 is permanently stayed. For the company's showing in its affidavit, it will pay costs to the petitioner assessed at 1000 GM. Urgent certified photocopies of this judgment, if applied for, be supplied to the parties subject to compliance with all requisite formalities. Petition stayed.