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2012 (12) TMI 107 - HC - Companies LawClaim of liquidated damages - Consequences for breach of the contract - winding up petition filed on account of alleged dues - can an amount of unexpired lock-in period be treated as debt ? - Held that - The petitioner is claiming payment on the basis of lock-in period mentioned in the Master Service Agreement (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 and also mentioned that he has already tendered an amount of Rs.1.13 Crores to the petitioner and, therefore, the petition has become infructuous. 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. 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. 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 dismiss this petition. 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,the consequence of that would be to dismiss this petition as well.
Issues Involved:
1. Whether a stipulation to pay an amount for the 'lock-in' period in a service contract is an admitted debt under Section 433(e) of the Companies Act, 1956, or in the nature of damages. Detailed Analysis: Co. Pet. 458/2010: The petitioner, engaged in providing infrastructure services to telecom operators, entered into a Master Service Agreement (MSA) with the respondent, a telecom company. The MSA included a "lock-in period" clause requiring payment for a minimum period of five years, even if terminated prematurely. The petitioner claimed Rs. 4,10,71,305/- for breach of the lock-in commitment, plus additional amounts for outstanding fees and interest, totaling Rs. 5,98,68,652/-. The respondent disputed the claim, arguing that no definite amount was owed and that there were genuine disputes requiring reconciliation of accounts. The court held that the claim for the lock-in period did not constitute a crystallized debt and dismissed the petition. Co. Pet. 302/2009: The petitioner granted the respondent a license to use premises under a Leave and License Agreement with a lock-in period of 33 months. The respondent terminated the agreement prematurely, and the petitioner claimed the entire amount for the lock-in period. The court found that the petitioner did not provide evidence of actual loss or that the liquidated damages were a genuine pre-estimate of damages. Following the legal principles established in previous judgments, the court dismissed the petition, ruling that the claim did not constitute a debt. Co. Pet. 393/2010: The petitioners, joint owners of land, entered into a Collaboration Agreement with the respondent for developing a commercial project. The agreement included clauses for damages due to delays in construction. The project was delayed, and the petitioners claimed damages as stipulated in the agreement. The respondent attributed the delay to lack of funds and complications in securing loans. The court noted that even if the respondent admitted to some delay, the petitioners still needed to prove some loss, although not necessarily the actual loss. The court concluded that the claim for damages had not crystallized into a debt and dismissed the petition. Legal Principles and Analysis: 1. Definition of Debt: A debt must involve an existing obligation to pay a sum of money either presently or in the future. Claims for damages, whether liquidated or unliquidated, do not constitute a debt until adjudicated by a court or other authority. 2. Liquidated Damages vs. Penalty: Liquidated damages must represent a genuine pre-estimate of loss and not be penal in nature. The claimant must show that the stipulated amount is reasonable compensation for the loss suffered due to breach. 3. Mitigation of Damages: The claimant is required to take reasonable steps to mitigate the loss. Failure to do so can affect the claim for damages. 4. Adjudication Requirement: Claims for damages require adjudication to determine liability and quantify the amount. Until such determination, there is no debt. Conclusion: The court dismissed all three company petitions, ruling that the claims for amounts due to the lock-in period or damages for delay did not constitute crystallized debts under Section 433(e) of the Companies Act, 1956. The petitioners were directed to pursue their claims through appropriate adjudicatory forums.
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