2009 (11) TMI 508 - HC - Companies Law

Maintainability of the Winding up Petition - Held that - A petition for winding up cannot be maintained upon a claim for damages. 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 Thus the Company Petition would have to be dismissed on the ground that it is not maintainable, leaving it open to the Petitioner to have recourse to its remedies in accordance with law.

Summary

Issues:
1. Dispute over contract performance and compensation extension.
2. Claim for amounts due and payable along with service tax.
3. Question of maintainability of the winding-up petition.
4. Interpretation of liquidated damages clause in the contract.
5. Legal principles regarding debts, damages, and liquidated damages.
6. Application of legal precedents on liquidated damages.
7. Requirement of adjudication for crystallizing damages into a debt.
8. Jurisdiction of the Court in determining reasonableness of liquidated damages.

Analysis:

1. The judgment revolves around a contract dispute where the Petitioner appointed the Respondent as an exclusive agent for advertising at a shopping mall. Disputes arose over contract performance, leading to compensation extension offers by the Petitioner, followed by termination due to payment defaults.

2. The Petition sought winding-up based on claims for amounts due and payable, including service tax, totaling Rs. 25.02 lakhs with interest. The Respondent argued that a substantial part of the claimed debt was for alleged damages requiring evidential proof.

3. The Respondent challenged the maintainability of the Petition, contending that determining damages for breach required detailed evidence beyond the summary nature of winding-up proceedings.

4. The crux of the issue lay in interpreting the liquidated damages clause in the contract. The Petitioner argued that the Respondent's failure to pay the minimum guaranteed royalty constituted a debt due and payable under the contract terms.

5. Legal principles regarding debts and damages were extensively discussed, emphasizing the distinction between existing obligations to pay debts and the adjudication required for claims of damages to crystallize into debts.

6. Precedents, including the Supreme Court judgment in Oil & Natural Gas Corpn. Ltd. v. S AW Pipes Ltd., were cited to support the Petitioner's stance on claiming liquidated damages unless deemed unreasonable or penal.

7. The judgment highlighted that damages become payable only upon adjudication, transforming claims into debts, and that a winding-up petition cannot be based on unadjudicated claims for damages.

8. The Court's jurisdiction in determining the reasonableness of liquidated damages was underscored, emphasizing that such evidential matters are beyond the scope of winding-up petitions and require adjudication in suits.

In conclusion, the winding-up petition was dismissed as not maintainable due to the need for adjudication to crystallize damages into a debt, leaving the Petitioner to pursue remedies through appropriate legal channels.