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2012 SCC OnLine Del 4396 : (2014) 183 Comp Cas 364 : (2013)
112 CLA 364

In the High Court of Delhi

(BEFORE A.K. SIKRI, A.C.J. AND RAJIV SAHAI ENDLAW, J.)

Co. Pet. 458/2010 & C.A. No. 2179/2010

Tower Vision India Pvt. Ltd. … Petitioner;
Versus
Procall Private Limited … Respondent.
With
Co. Pet. 302/2009
Silvermoon Construction Pvt. Ltd. … Petitioner;
Versus
South Asian Hospitality Services Private Limited …
Respondent.
And
Co. Pet. 393/2010
PVP Entertainment Ltd. and Another … Petitioners;
Versus
Omaxe Limited … Respondent.
Co. Pet. 458/2010; C.A. No. 2179/2010; Co. Pet. 302/2009; and
Co. Pet. 393/2010
Decided on August 24, 2012
Advocates who appeared in this case:
Sanjay Jain, Sr. Adv. with Mr. Uttam Datt, Ms. Ritika Pal, Ms.
Akanksha, Mr. Abhijit Mittal, Ms. Sonam Singh, Advocates;
Maninder Singh, Sr. Adv. with Mr. Manish Srivastava, Mr. Pankaj
Bhagat, Advocates;
Jay Salva, Adv. with Ms. Shilpi, Ms. Amrita, Mr. Prabhat, Advocates;
None;
Ms. Ranjana Roy Gawai with Mr. Krishna Keshav, Ms. Tushita Ghosh,
Advocates;
Ramesh Singh with Mr. Sumit Attri, Advocates.
The Judgment of the Court was delivered by
A.K. SIKRI, A.C.J.:— All these three company petitions are referred
by the learned Company Judge to the Division Bench for decision.
Initially Company Petition No. 458/2010 had come up before the
Company Judge and was heard on 31.10.2011 when following order
was passed:
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“After hearing the parties at length, this Court is of the view that
following question need to be answered by a Division Bench of this
Court as the said issue arises in a number of matters and an
authoritative pronouncement of the same is required:—
i) 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?
The present reference has been made as this Court has some
doubts with regard to the judgment rendered by another learned
Single Judge of this Court in Manju Bagai v. Magpie Retail Ltd.,
(2010) 175 DLT 212.
Accordingly, the present matter is referred to a Division Bench.
Let the papers be placed before appropriate Division Bench on 1st
December, 2011, subject to orders of Hon'ble the Acting Chief
Justice.”
2. As this issue came up subsequently in other two petitions, they
have also been referred to the Division Bench. That is how we have
heard these matters. It would be pertinent to point out that at the time
of hearing, the counsel for all the parties in all these petitions agreed
that it is not only the question which is formulated to be answered, but
on the basis of answer given to the aforesaid question and applicability
thereof in each case, the company petitions 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 between the petitioner and the concerned
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service provider in respect thereof, an Infrastructure Providing Service

Order is executed between the parties. The respondent is also a
telecom company which is engaged in the business of, inter alia,
providing mobile radio trunking services and it commenced its digital
push to talk services in the year 2008. The petitioner and the
respondent entered into Master Service Agreement (‘MSA’) dated
2.1.2008 which was amended vide an addendum dated 29.2.2008. As
per the terms and conditions of the MSA, the petitioner was required to
provide shareable roof top tower sites and ground based tower sites,
upon request from respondent. The petitioner was required to build and
deliver to the respondent in accordance with Infrastructure Provisioning
service orders duly signed thereby, completely built-up new sites (i.e.
anchor sites) as well as provision of space and services on existing sites
to be used by the respondent on a sharing basis with other existing
operators (i.e. shared sites), as per the standard site specifications, for
the purpose of installing and operating the telecommunications
equipment by the respondent. The MSA further provided that
respondent would be liable to pay interest @ 9% per annum on any
delayed payments to the petitioner.
4. Another significant clause with which we are directly concerned
was “lock-in period” clause in the said agreement as per which the
minimum period for which the respondent was to pay for the aforesaid
services was five years and even if the respondent were to terminate
the agreement prematurely, it was liable to pay the charges for the
aforesaid period termed as lock-in period. Relevant clause in this behalf
is clause 11 which was amended vide addendum and the amended
clause reads as under:
“7. Clause 11.3 and 11.4 of the Agreement (Lock In Period) are
hereby amended and are hereby replaced with the following clauses:
11.3 Anchor Sires : with Respondent to Anchor Sites a Lock In
period of 10 (ten) years shall apply, however, the Operator shall be
liable for payment of the IP Fees with respect to any specific Anchor
Site as follows:
11.3.1 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 50% of
the IP Fees for the remaining 8 years.
11.3.2 If 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:
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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 manner, total amount payable by the respondent
company to the petitioner is Rs. 5,98,68,652/-, the details whereof are
worked out as under:
“(a) Sum of Rs. 92,32,012/- (Rupees Ninety Two Lacs Thirty Two
Thousand and Twelve only) towards the outstanding IP Fee
payable against several outstanding invoices as detailed in
Annexure-P4 (Colly).
(b) Sum of Rs. 50,58,915/- (Rupees Fifty Lacs Fifty Eight
Thousand Nine Hundred and Fifteen only) towards outstanding
‘actual costs’ payable by Respondent against several
outstanding invoices as detailed in Annexure-P5 (Colly).
(c) Sum of Rs. 45,06,420/- (Rupees Forty Five Lacs Six Thousand
Four Hundred and Twenty only), being the contractual interest
calculated upto August 31, 2010, at the rate of 19% on the
aggregate amount of Rs. 1,42,90,927/- (Rupees One Crore
Forty Two Lacs Ninety Thousand Nine Hundred and Twenty
Seven only) due and payable by the Respondent to the
Petitioner on account of outstanding IP Fees and ‘actual costs’
and further interest at the said contractual rate payable till
date of realization.
(d) Sum of Rs. 4,10,71,305/- (Four Crores Ten Lacs Seventy One
Thousand Three Hundred and Five only) towards the charges
payable for non compliance with the lock-in terms…”
6. According to the petitioner, aforesaid amount becomes ‘debt’
payable by the respondent to the petitioner. The petitioner served
notices upon the respondent under Section 433 read with 434 of the
Companies Act, 1956 calling upon the respondent to pay the same. The
respondent, however, refused to pay the same. It is under these
circumstances the petitioner filed aforesaid company petition seeking
winding up of the respondent company. In this backdrop, question has
arisen as to whether the claim for service charges for the lock-in period
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amounts to ‘debt’ or not.

Co.Pet. 302/2009
7. By and under a Leave and License Agreement dated 18.2.2008
executed between the petitioner and the respondent, the petitioner
granted to the respondent on leave and license basis, the use of
premises bearing No. K-3, situated at the Food Court Premises of the
Mega Mall at Oshiwara, Andheri (West), Mumbai on the terms and
conditions specified therein. The petitioner stated that it has duly
complied with all its obligations under the said license agreement. The
said premises were to be utilized by the respondent for serving “North
Indian/Mughlai” cuisines 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 asked the petitioner to take
possession of the premises. The petitioner claims that still the
respondent is liable to pay the license charges and the facilities charges
for the lock-in period which amounts to Rs. 30,60,582/- and Rs.
73,472/- respectively. After adjusting the security of Rs. 3,43,350/-,
the petitioner claims that a sum of Rs. 29,87,110/- remains due and
payable by the respondent. Notice to pay this amount was issued by
the petitioner to the respondent under Section 434 read with 433 of the
Companies Act, 1956 and as the respondent did not pay the same and
disputed the liability, present company petition for winding up of the
respondent company is filed. It is on these facts, same question arises
viz. whether the amount representing lock-in period can be treated as
‘debt’ for the purposes of company petition.
Co.Pet. 393/2010
9. This petition is filed by two petitioners who claim themselves to
be the joint owners of land measuring about 4 acres, 4 canals and 18
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marlas situated at revenue estate, village Bhattian, Ludhiana, Punjab.

They decided to develop a multiplex-cum-commercial complex on the
said land. For this purpose, they approached the respondent company
who is in the real estate business. Collaboration agreement dated
28.4.2005 for the construction and development of the said commercial
project was entered into between the parties which was followed by a
rectification letter dated 12.5.2005 and an addendum to the
collaboration agreement which was executed between the parties on
26.10.2005. As per these agreements, the share of the petitioners in
the proposed commercial complex was to be 23% and that of
respondent company 77% subject to minimum commitment of 80870
sq.ft. of FAR area to the petitioners. The entire commercial project was
to be constructed by the respondent at its expense. In terms of clause
6(g), the respondent was to complete the construction of the building
of Phase I of the project having an FAR of 125 within a period of 30
months with a reasonable extension up to six months as per the mutual
discussions between the parties from the date of sanction of plans or
handing over of the possession of the land to the respondent whichever
is later. Phase II of the project to achieve an additional FAR of 50 was
to be completed within a period of one year from the completion of
Phase I in terms of clause 6(a) of the Collaboration 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 OMAXE shall pay to the owners of damages @ Rs.
Five Lacs per month on account of delay in completion of the
buildings beyond 30 months with a reasonable extension upto 6
months period agreed to I the Agreement subject to force majeure
circumstances for first 6 months and thereafter, damages @ Rs. Ten
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Lacs per month shall be payable for any further delay beyond 42
months to the owners by OMAXE. Any liability for delay towards
prospective buyer and Government shall be on account of OMAXE.
However, if the delay in completion of the said Project by OMAXE is
caused due to any court proceedings of hindrance by any third party
due to defective title of the said land or hindrance by the Owners,
then the owners shall pay to the OMAXE all cost and expenses
incurred by the OMAXE for the period of delay.
16(b) That in case the OMAXE fails to achieve additional FAR of 50
as mentioned in Clause 6(a) within a period of one year, then the
OMAXE shall pay to the Owners damages calculated on proportionate
basis i.e. for first 6 months Rs. 200000/month and after 6 months
Rs. 400000/month.
11. As per the petitioners, the respondent has failed to achieve the
time limits within which the construction was to be completed and is,
therefore, liable to pay the damages as per clauses 16(a) and 16(b) of
the Collaboration Agreement. The petitioners, thus, sent the notice
dated 18.6.2010 under Section 434 of the Companies Act, 1956 calling
upon the respondent to pay to the petitioners a sum of Rs.
2,04,00,000/- together with interest on the said outstanding amount
calculated up to 22.5.2010. The respondent refuted this liability vide
reply dated 15.7.2010 and blamed the petitioners for the delay.
According to the petitioners, this stand taken in the reply is contrary to
the respondent's admission in its earlier letter dated 9.2.2010.
According to the petitioners, the amount of damages payable under the
aforesaid clauses is pre-estimated liquidated damages and is, therefore,
‘debt’ for the purpose of petition under Section 433 and 434 of the Act.
On this basis, winding up of the respondent company is prayed for by
filing the instant petition.
What is ‘debt’ : The legal position
12. We have already extracted the order dated 31.10.2011 vide
which reference was made to the Division Bench in Co.Pet. 458/2010.
That order takes note of the judgment of another learned Single Judge
in Manju Bagai (supra) 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
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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 cancelled before the lock-in period of three
years. Since the premises were vacated after seven months, according
to the petitioner, the company was also liable to pay rent for the
remaining period of 29 months because of the aforesaid clause
containing lock-in period of three years. The said rent for unexpired
period was claimed as liquidated damages in the sum of Rs. 37,57,820/
-. The petitioner made a total claim of Rs. 41,46,560/- as well as
interest and since the respondent company failed to pay the same,
company petition for winding up was filed on that basis claiming that
the aforesaid amount was debt payable. It was on these facts the
question arose as to whether liquidated damages for the remaining lock
-in period could be treated as ‘debt’ entitling the petitioner to maintain
petition for winding up of the respondent company. Though the learned
Single Judge noted that agreement to lease in question was an
unregistered document and could not be relied upon for making the
claim, even on merits, the Court took the view that the claim for
“liquidated damages” was not sustainable. In the opinion of the Court:
“10. ….The distinction between ‘liquidated’ and ‘unliquidated’
damages is well settled. Mere use of the term ‘liquidated’ damages
in a document cannot be the criteria to determine and decide
whether the amount specified in the agreement is towards
‘liquidated’ damages or ‘un-liquidated’ damages. Amount specified
in an agreement is liquidated damages; if the sum specified by the
parties is a proper estimate of damages to be anticipated in the
event of breach. It represents genuine covenanted pre-estimate of
damages. On the other hand ‘un-liquidated’ damages or penalty is
the amount stipulated in terrorem. The expression ‘penalty’ is an
elastic term but means a sum of 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
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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.
13. The decision in the case of Food Corporation of India (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.
14. It may be also noted that the Doctrine of Unavoidable
Consequence or Mitigation of Damages is applicable in cases of un-
liquidated damages….
15. A person therefore, must take reasonable steps to minimize the
loss and refrain from taking unreasonable steps which would increase
the loss. Defence cannot be held liable to pay a loss which the claimant
could have avoided or which arises due to the neglect and failure of the
claimant to take such reasonable steps. Damages is compensation for
the wrong suffered by the claimant and the loss incurred by him but
this is subject to the rule that the claimant must take reasonable steps
to avoid their avoidable accumulation. It is difficult to accept that the
petitioner was unable to rent out the premises for the lock-in-period of
three years despite the highly commercially viable location of the
premises. Decline in the rate of rent is not pleaded. The onus in this
regard is on the petitioner and no evidence and material has been
placed on record to show that the premises could not be rented out.
Even the date on which the premises was subsequently rented out has
not been stated.”
16. The aforequoted reasoning demonstrates the following factors
which influenced the Court not to treat the amount of unexpired lock-in
period as debt or liquidated damages:
(i) Whether a particular clause about pre-determined 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
are case specific. In that case, no facts and circumstances were
pleaded to show that clause relating to lock-in period was a
genuine pre-estimate of damages which the petitioner would have
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suffered in case the respondent company vacated the premises

before the expiry of lock-in period.
(ii) In order to prove that amount mentioned as payable for the lock-
in period is genuine pre-estimate of damages, proper evidence is
required of specific nature, namely, the landlord had altered its
position by making the premises available to the tenant keeping
in view the tenants' requirements and spending thereupon.
Certain expenditure was incurred on infrastructure specifically
provided to the tenant as per tenant's requirements; certain other
expenditure incurred on whitewashing, fixtures and fittings and
the landlord was forced to incur such expenditure again before
giving the premises to new tenant and, therefore, 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.
17. On this reasoning, in that case, winding up petition was
dismissed.
18. 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.
19. 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.
20. 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 caused to him
by such breach, which naturally arose in usual course of things from
such breach, or which the two parties knew when they make the
contract to be likely the result of the breach of contract. This provision
makes it clear that such compensation is not to be given for any remote
or indirect loss or damage sustained by reason of the breach. The
underlying principle enshrined in this Section is that a mere breach of
contract by a defaulting party would not entitle other side to claim
damages unless the said party has in fact suffered damages because of
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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 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 should proceed to assess
what the liability is. But, till that determination, there is no liability at
all upon the defendant. Courts will give damages for breach of contract
only by way of compensation 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 calculation may be the
same. The measure of compensation depends upon the circumstances
of the case. The complained loss or claimed damage must be fairly
attributed 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.
21. 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 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 consequent on the
breach and debars him from claiming any part of the damages which is
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due to his neglect to take such steps.

22. 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
pre-determined compensation stipulated at the time of entering into
the contract itself. Thus, this section provides for pre-estimate of the
damage or loss which a party is likely to suffer if the other party breaks
the contract entered into between the two of them. If the sum named
in the contract is found to be reasonable compensation, the party is
entitled to receive that sum from the party who has broken the
contract. Interpreting this provision, the Courts have held that such
liquidated damages must be the result of a “genuine pre-estimate 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 usual course
of things, or which the parties knew when they made the contract, to
be likely to result from the breach.
23. The Supreme Court in the case of Union of India v. Raman Iron
Foundry, (1974) 2 SCC 231 : AIR 1974 SC 1265, expounded this very
principle in the following words:
“9. Having discussed the proper interpretation of Clause 18, we
may now turn to consider what is the real nature of the claim for
recovery of which the appellant is seeking to appropriate the sums
due to the respondent under other contracts. 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 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
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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 unliquidated damages. Now the law is well settled that a
claim for unliquidated damages does not give rise to a debt until the
liability is adjudicated and damages assessed by a decree or order of
a Court or other adjudicatory authority. When there is a breach of
contract, the party who commits the breach does not eo instanti
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. 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.Q.B. 234
“Exparte Charles and several other cases decide that the amount of a
verdict in an action for unliquidated damages is not a debt till
judgment has been signed”. It was held in this case that a claim for
damages does not become a debt even after the jury has returned a
verdict in favour of the plaintiff till the judgment is actually
delivered. So also in O'Driscoll v. Manchester Insurance Committee,
[1915] 3 K.B. 499, Swinfen Eady, L.J., said in reference to cases
where the 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, AIR 1956 Punj 174 and Iron & Hardware
(India) Co. v. Firm Shamlal & Bros., AIR 1954 Bom 423. Chagla, C.J.
in the last mentioned case, stated the law in these terms:
In my opinion it would not be true to say that a person who
commits a breach of the contract incurs any pecuniary liability,
nor would it be true to say that the other party to the contract
who complains of the breach has any amount due to him from the
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other party.
As already 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
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 by the contractor,
or in case of dispute, adjudicated upon by a court or other
adjudicatory authority. We must, therefore, hold that the
appellant had no right or authority under Clause 18 to appropriate
the amount of other pending bills of the respondent in or towards
satisfaction of its claim for damages against the respondent and
the learned Judge was justified in issuing an interim injunction
restraining the appellant from doing so.
24. In that case, Clause 18 of the contract entered into between 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
for liquidated damages does not give rise to a debt until the liability is
adjudicated and damages assessed by a decree or order of a Court or
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other adjudicatory authority. When there is such a clause, the only right
which the plaintiff has is the right to go to Court and recover damages.
25. The Supreme Court also explained that damages are the
compensation which a Court of Law gives to a party for the injury which
he has sustained and the plaintiff 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 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 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 an
existing obligation to pay a sum of money now or in future. The
following passage from the judgment of the Supreme Court of
California in People v. Arguello [1869] 37 Calif. 524 which was
approved by this Court in Kesoram Industries v. Commissioner of
Wealth Tax (1966) 59 ITR 767 (SC) clearly 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.”
26. The Supreme Court in the matter of ONGC Ltd. v. Saw Pipes
Ltd., (2003) 5 SCC 705 : AIR 2003 SC 2629, in para 65 has discussed
provisions of Section 73 and 74 of the Indian Contract Act and held as
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under:
“Under Section 73, when a contract has been broken, the party
who suffers by such breach is entitled to receive compensation for
any loss caused to him which the parties knew when they made the
contract to be likely to result from the breach of it. This Section is to
be read with Section 74, which deals with penalty stipulated in the
contract, inter alia [relevant for the present case] provides that when
a contract has been broken, if a sum is named in the contract as the
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 emphasis is on reasonable
compensation. If the compensation named in the contract is by way
of penalty, consideration would be different and the party is only
entitled to reasonable compensation for the loss suffered. But if the
compensation named in the contract for such breach is genuine pre-
estimate of loss which the parties knew when they made the
contract to be likely to result from the breach of it, there is no
question of proving such loss or such party is not required to lead
evidence to prove 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…”
27. 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 which is now payable or will become
payable in further by reason of a present obligation : debitum in
presenti, solvendum in future.”
28. 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.”
29. 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
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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 all reasonable steps to mitigate the loss. It is only after
proper enquiry into these aspects that the Court in a given case would
rule as to whether liquidated damages as prescribed in the contract are
to be awarded or not. 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 and what is
stipulated in the contract is the outer limit beyond which he cannot
claim. Unless this kind of determination is done by the Court, it does
not result into “debt”.
30. 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 petitioner had appointed the respondent as an exclusive agent
for designated branding sites situated within the premises of a
shopping mall. The petitioner had permitted the respondent to display
advertisements at the Mall, in a theatre and upon ticket jackets. The
contract was to commence on 22.5.2008 and was to conclude on
31.7.2009. This term was extended by a formal amendment till
September, 2009. The agreement also provided that in the event
respondent fail to make payment for a period of one month, 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/minimum guaranteed amount. On the
respondents failure to pay, winding up petition was filed. The Court
dismissed the said petition holding that it was not maintainable upon a
claim for damages which could not be treated as debt. It was held that
damages become payable only when they are crystallized 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, Bangalore,
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(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 “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) …
(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
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amount awardable as damages is only consequential.”

31. Reading of the aforesaid judgments and the ratio laid down
therein would amply demonstrate that the legal position propounded by
learned Single Judge in Manju Bagai (supra) is the correct legal position
of law and we agree with the same. We now proceed to apply this legal
principle to each of the cases before us.
Co.Pet. 458/2010
32. In this case, as already noted above, the petitioner is claiming
payment on the basis of lock-in period mentioned in the MSA with
respect to the sites procured by the respondent from the petitioner.
Winding up petition is filed on that basis. The defence of the
respondent 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
33. 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. The petitioner is claiming total amount of the lock-
in period. It is nowhere stated as to how it has suffered any loss on this
account and whether the liquidated damages stipulated in the
agreement are genuine pre-estimate damages. Once we have accepted
the judgment in Manju Bagai (supra) and we are also in agreement
with the view taken by the Bombay High Court in E-City Media Private
Limited (supra), the consequence of that would be to dismiss this
petition as well.
Co.Pet. 393/2010
34. We have already narrated the facts of this petition. Here, the
Collaboration Agreement was entered into between the parties as per
which, obligation of the respondent company was to complete the
construction and project in two phases within a time bound period.
Clause 16(a) and 16(b) provide for damages for delay in construction.
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Project has been delayed and there is no dispute about this. The
petitioner had sent legal notice dated 14.12.2009 claiming damages on
account of delay in construction as provided in clause 16(a) and 16(b).
The respondent sent reply dated 9.2.2010. In this reply, reason for
delay given by the respondent was lack of inflow of funds. This was
stated so in para 2 of the reply as under:
“It is a matter of common knowledge that the project of such
magnitude as of ours, are usually financed from funds provided by
the builder from their own sources, funds made available by the
Banks/Financial Institutions as loans and money collected/realized
from the intending Purchasers on the booking/sale of spaces/areas in
the proposed project.”
35. From para 3 onwards, the respondent stressed the fact that such
projects are usually financed not only from the funds provided by the
builder from its own sources but also made available by the
banks/financial institutions due to non-availability of title deeds of the
project lands to be deposited with the bank for creating equitable
mortgage on the said property etc. It was also mentioned that
respondent had spent a sum of approximately Rs. 30 Crores on the
project. Further, there were no sufficient bookings/sale of spaces/areas
of the project as there were no willing buyers in the market. As against
saleable area of approximately 3,25,000 sq.ft., only an area of 5175
sq.ft. had been sold which was of the value of Rs. 2.95 Crores and out
of this, only a sum of Rs. 2.80 Crores had been received. As per the
respondent, therefore, 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, 2009 (Phase-II) respectively. It was the
submission of the learned counsel that had this area been available, the
petitioner would have made use thereof and earned the money. The
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parties, at the time of entering into agreement, accepted that if the

aforesaid area is not handed over to the petitioner by the stipulated
date, it would result in the loss to the extent stipulated in clause 16(a)
and 16(b). Learned counsel for the petitioner relied upon the judgment
of the Apex Court Kesoram Industries (supra) and specifically referred
to the following passage therefrom:
“Counsel for the Company claims that in determining liability for
wealth-tax income-tax which would become payable on the income,
profits or gains for the assessment year may be deemed a debt owed
in the previous year, and liable to be adjusted in determining the
aggregate value of debts for the purpose of s. 2(m). The expression
“debt” is a sum of money due from one person to another : it
involves an obligation to satisfy liability to pay a sum of money. The
liability must be an existing liability but not necessarily enforceable
in presenti : an existing liability to pay a sum of money even in
future is a debt, but the expression does not include liability to pay
unliquidated damages nor obligations which are inchoate or
contingent. Lord Justice Lindley in Webb v. Stenton, [1883] 11
Q.B.D. 518 observed that
“a debt is a sum of money which is now payable or will become
payable in the future by reason of a present obligation”. That
definition for the purpose of the Wealth Tax Act correctly describes
the concept of debt. A debt, therefore, involves a present obligation
incurred by the debtor and a liability to pay a sum of money in
present or in future. The liability must however be to pay a sum of
money, i.e., to pay an amount which is determined or determinable
in the light of factors existing at the date when the nature of the
liability has to be ascertained.”
36. Learned counsel also relied upon Division Bench judgment of
Karnataka High Court in the case of Kudremukh Iron Ore Company Ltd.
v. Kooky Roadways P. Ltd., (1992) 73 Comp Cas 418 (Kar.). That was a
case where there was short delivery of goods entrusted to the
respondent company for carriage which fact was acknowledged by the
respondent company and it took time to make good the short delivery.
However, it could deliver minuscule 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
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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 amount arises on
the date when short delivery or non-delivery is found. The fact that
the exact amount of the liability of the common carrier to the owner
arising under section 8 of the Carriers Act has to be ascertained or
determined or quantified, does not make such liability any the less a
debt since the “debt” takes within its ambit the existing liability of a
person to pay a sum of money to be ascertained or determined or
quantified subsequently as held by the Supreme Court in Kesoram's
case, (1966) 59 ITR 767 (SC). From this, it follows 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 clause (e) of section 433 of the
Act. As the meaning we have ascribed to the to the word “debt” in
clause (e) of section 433 of the Act takes within its ambit the
existing liability of a company, though the amount of such liability
has yet to be ascertained, determined or quantified, we find it
difficult to subscribe to the view expressed by the learned single
judge in his order under appeal that the liability of the respondent-
company to the petitioner for short-delivered goods cannot become a
debt unless the amount of such liability is ascertained in a suit to be
filed by the petitioner in that regard.
Re. Point (ii).- An application to the court for winding up of a
company shall be by a petition presented under sub-section (1) of
section 439 of the Act, among others, by any creditor as is specified
in clause (e) thereof. According to the learned single judge, the
petitioner could not have filed the petition for winding up of the
respondent-company since it could not be a creditor within the
meaning of the word “creditor” in section 439 of the Act. But, we
find it difficult to agree with the view expressed by the learned
single judge in the matter. The general meaning of the word
“creditor” is, as found in the third edition of Stroud's Judicial
Dictionary, volume I, at page 680, a person to whom a debt is
payable. The word “creditor” in clause (b) of subsection (1) of
section 439 of the Act, could, therefore, be understood as a person
to whom a debt is payable inasmuch as there is nothing in the
context of the word “creditor” used in clause (b) of sub-section (1) of
section 439 of the Act which requires the word “creditor” to be
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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.”
37. Another judgment of the Single Judge of this Court in European
Metal Recycling Ltd. v. Blue Engineering P. Ltd., (2010) 156 Comp Cas
35 was also pressed into service. That was a case where the respondent
company had failed to take possession of contracted goods and when it
did not take the delivery, the petitioner sold those goods to mitigate
loss. Thereafter, petitioner lodged claim with the respondent company
for difference between contracted price and sale price. No notice was
issued by the petitioner before re-sale. The Court held that such claim
was not ‘debt’ for purposes of winding up proceedings and was to be
decided by Civil Court and the petition under Section 433 was
dismissed as not maintainable. However, this judgment was referred to
for the purpose of discussion on the meaning of ‘debt’.
38. In the reply filed by the respondent, the liability is denied and
the respondent has gone to the extent of alleging that petitioners have
committed fraud with the respondent company as the petitioners have
granted limited license to have access from National Highway to the
land in question but has also caused irreparable loss and damage to the
respondent. The respondent has also alleged that delay is not
attributable to it. It is further submitted that on the basis of clause of
‘liquidated damages’, the petitioners cannot maintain company petition
unless ‘actual loss’ is proved. It is further submitted that in view of the
Division Bench judgment of this Court in BSNL v. BWL Ltd., [FAO (OS)
457/2010 decided on 19.04.2011], it is imperative on the part of the
petitioners to prove “some loss” even if breach is to be attributed to the
respondent and this exercise of proving some loss requires trial.
Following observations from the said judgment are relied upon:
“9. We are, therefore, unable to affirm, in toto, the decision in
Union of India v. Daulat Ram, (2009) 2 Arb LR 327 (Del) wherein the
learned Single Judge may have been right in coming to a particular
conclusion which cannot ubiquitously apply to all situations. This
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very question came up for consideration in ONGC v. Saw Pipes,

(2003) 5 SCC 705 and their Lordships formulated the controversy to
be-“Whether the claim of refund of the amount deducted by the
Appellant from the bills is disputed or undisputed claim?” The
discussion is perspicuous and is available in paragraphs 70-72. The
conclusion was that the “arbitrators were required to decide by
considering the facts and the law applicable whether the deduction
was justified or not”. These decisions are an enunciation of the legal
position that (a) liquidated damages cannot be punitive in nature
and (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.”
39. 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 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. We are,
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, we dismiss this petition as well.
40. We make it clear that in all the three cases, we have not gone
into the strength of the petitioners' claims or the merits of the
respondents' defence. When the matter is adjudicated upon either
before the Civil Court or before the arbitral tribunal, it would be for the
said forums to deal with the claim of the petitioners based upon
evidence produced by the parties.
41. As a result, all these company petitions seeking winding up of
the respondent companies, are dismissed as not maintainable leaving
the parties to bear their own costs.
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