2016 (1) TMI 671 - HC - Companies Law

Winding up of the respondent company sought on the ground that liquidated damages - Held that - In Manju Bagai vs. Magpie Retail Ltd., 2010 (11) TMI 845 - DELHI HIGH COURT inter-alia held that whether a particular clause about predetermined liquidated damages represents genuine covenanted pre-estimate of damages or it is in the nature of penalty has to be judged in the facts of each case and in the background of relevant factors which are case specific. The party claiming it may have to prove actual damages suffered. After applying the aforesaid enunciation of law, Delhi High Court dismissed all the petitions. If the principles of law as laid down by Delhi High Court are considered in the facts of the present case, it is evident that winding up of the respondent company is being sought on the ground that liquidated damages as mentioned in the business agreement have not been paid. The petitioner company has not been able to show that the same is on account of pre-estimated genuine damages, rather the amount as has been mentioned establishes that it is a kind of penalty and a penal stipulation cannot be enforced in the absence of any proof of actual loss, which a party to the contract is bound to make good to the other party. For the reasons mentioned above, the amount of damages claimed cannot be said to be admitted debt on account of which the respondent company can be directed to be wound up. The present petition is accordingly dismissed.

Summary

Issues Involved:

1. Whether the amount mentioned in the agreement for the unexpired period of the lock-in period can be termed as an admitted debt or in the form of damages?
2. Whether the respondent company is liable to pay the entire balance license fee for the remaining period after termination of the agreement?

Issue-wise Detailed Analysis:

1. Whether the amount mentioned in the agreement for the unexpired period of the lock-in period can be termed as an admitted debt or in the form of damages?

The petitioner company sought to wind up the respondent company on the grounds of non-payment of an admitted debt, claiming an amount of Rs. 61,73,059/- as per the license agreement dated 22.5.2007. The respondent argued that the amount claimed is not an admitted debt but a penalty, which cannot be enforced without proving actual loss. The court referred to the Division Bench judgment of the Delhi High Court in Tower Vision India Private Limited vs. Procall Private Limited, which addressed whether a stipulation to pay an amount for the "lock-in" period in a contract is an admitted debt or in the nature of damages. The judgment emphasized that a claim for damages does not become a debt until adjudicated by a court, and the party claiming damages must prove actual loss suffered due to the breach. The court concluded that the amount claimed by the petitioner is a form of penalty and not an admitted debt, as it requires proof of actual loss.

2. Whether the respondent company is liable to pay the entire balance license fee for the remaining period after termination of the agreement?

The agreement between the parties stipulated that in case of default in payment, the licensee would still be liable to pay the entire license fee for the remaining term of the agreement. The respondent company contended that they had stopped using the license from 1.9.2007 and communicated this to the petitioner, arguing that they should not be liable for the license fee for the period after they ceased using the license. The court analyzed the terms of the agreement and the communications between the parties. It was noted that the respondent had informed the petitioner about stopping the use of the license, and the petitioner's claim for the entire balance license fee was based on a penal stipulation. The court held that such a stipulation could not be enforced without proof of actual loss, aligning with the principles laid down in the Delhi High Court judgment. Consequently, the court found that the respondent company could not be held liable to pay the entire balance license fee as claimed by the petitioner.

Conclusion:

The court dismissed the petition for winding up the respondent company. It concluded that the amount claimed by the petitioner was in the nature of a penalty and not an admitted debt, and the petitioner failed to prove actual loss suffered due to the breach of the agreement. Therefore, the respondent company could not be directed to be wound up based on the claimed amount.