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2014 (6) TMI 847 - HC - Companies LawWinding up petition - Respondent took premises on leave and license from the petitioning-creditor for lock in period - Respondent vacated the premises before the end of that lock-in period - Appellant claim the license fee for the remainder of that lock-in term - Respondents claims that there is no debt - Held that - There are, as is well-established, two primary legal components to any such agreement the permission or license to use and occupy without creating any rights in the licensee in the property in question, and the licensee s obligation to pay the licensor the stipulated license fee. Possession is, therefore, the sine-qua-non of any such agreement. The surrender of possession cannot but be a termination of the agreement, whether these words are used or not. Without possession, there is no question of any leave and license agreement of immovable property. The agreement is undisputed. Its terms are known. The company s premature exit is not denied. There is no material to evidence any oral understanding and, in any case, the contract forbids any such oral understanding.1 What Treasure World therefore asks Indiabulls to prove is the negative - i.e., was there not an oral understanding to abandon the written contract? I do not see how Indiabulls can possibly do this, or even why it should be asked to, especially since Treasure World has been unable to produce anything to indicate that this state of affairs ever existed. It seems to me highly improbable that, had there been any such understanding, it would not have been recorded. Treasure World had multiple opportunities to do this. Received wisdom has it that such a recording of abandonment would and should have been done at the first such opportunity, and that the record must so show. What Treasure World s email of 29th October 2012 is merely interesting; what it does not say is crucial. Indiabulls claim for liquidated damages is wholly distinct. It arises only under clause 9.9, one that provides for liquidated damages. But it does not operate where there is a termination by the licensee before the end of the lock-in period. It comes into effect only when the licensee has overstayed his welcome when it has not vacated, though bound to do so, though the licensor is ready to refund the security deposits. Indiabulls claim for liquidated damages is for a period from 1st November 2012 to 11th December 2012. It stands apart from Indiabulls claim for arrears (for the period from June 2012 to 31st October 2012) when Treasure World was undeniably in possession, and, too, from Indiabulls claim for license fees and other charges from 1st November 2012 to the end of the lock-in-period, 14th June 2014. There are, therefore, three distinct claims that Indiabulls makes Claim 1 is for a total of Rs.61,16,648.25 as arrears for June 2012 to 31st October 2012, the time Treasure World used the premises as a licensee but did not pay the license fees and charges. Claim 2, not pressed, is for Rs.32,75,923.96 as liquidated damages for the period 1st November 2012 to 11th December 2012. Claim 3 is for Rs.2,33,30,970.73 as the license fee and maintenance charges for the unexpired term of the lock-in period from 1st November 2012 to 14th June 2014 - Claim 1 is soon despatched. It was undoubtedly payable by Treasure World. It is, however, in the aggregate amount of Rs.61,16,648.25, lower than the security deposit of Rs.73,12,145/-. Once the latter is adjusted, Claim 1 is fully paid. If the other two claims are also not legally due, then there is no debt at all; indeed, it is Indiabulls that would be indebted to Treasure World, as it would have to refund the balance security deposit after adjusting the security deposit. Claim 2, for liquidated damages, is also not a debt. By its nature, it must be first adjudicated. That, as we shall see, is now well settled. E-City Media P. Ltd. vs Sadhrta Retail Ltd., 2009 (11) TMI 508 - HIGH COURT OF BOMBAY ; Union of India v Raman Iron Foundry, 1974 (3) TMI 105 - SUPREME COURT . License fees for the remainder of the lock-in period, couched in the manner it is in the contract, cannot be said to be one for damages of any kind. Treasure World s liability arises not from Clause 3.2, which makes no mention of any payment at all, but only says that there is a lock-in period of 36 months during which Treasure World may not terminate. It arises under clause 13.2 should Treasure World, despite the interdiction of clause 3.2, terminate after that lock-in period commences but before it ends, it incurs an immediate liability to pay for the remainder of the 36-month term. This is a debt. No valid defence to Claims 1 and 3 taken together. The amounts of Rs.61,16,648.25 and Rs.2,33,30,970.73, less the amount of the security deposit, Rs.73,12,145.00, i.e., Rs.2,21,35,473.98 is due and payable by Treasure World to Indiabulls. Treasure World has, without valid justification, neglected to pay this amount to Indiabulls. An order of admission and advertisement is justified. However, given the discussion, I am inclined to afford Treasure World a final opportunity to make payment. - Decided in favour of appellant.
Issues Involved:
1. Whether the claim for the license fee for the remainder of the lock-in period constitutes a 'debt' under Sections 433 and 434 of the Companies Act, 1956. 2. Whether the claim for liquidated damages is a 'debt' under the Companies Act. 3. Whether the termination of the leave and license agreement by the respondent was valid and its implications. 4. The interpretation and enforceability of the lock-in period clause in the leave and license agreement. 5. The applicability of the duty to mitigate losses in the context of the leave and license agreement. Detailed Analysis: 1. Claim for License Fee as 'Debt': The petitioner, Indiabulls, claimed the license fee for the remainder of the lock-in period as a 'debt' under Sections 433 and 434 of the Companies Act, 1956. The court held that this claim is not in the nature of damages but is a debt in an ascertained sum due to Indiabulls. The court emphasized that Treasure World agreed to be bound to a three-year term and was obliged to pay the monthly license fees, maintenance charges, and other dues for that period. The claim for the remainder of the lock-in period is a debt, payable immediately, and not in the nature of damages. This is supported by the contractual clauses 3.1 and 13.2, which clearly stipulate the liability of Treasure World to pay for the entire unexpired lock-in period if it terminated the agreement prematurely. 2. Claim for Liquidated Damages: Indiabulls also claimed liquidated damages under clause 9.9 of the agreement for the period Treasure World overstayed after termination. The court distinguished this claim from the claim for license fees, stating that the claim for liquidated damages must first be adjudicated and is not a 'debt' within the meaning of the Companies Act. The court cited established legal principles that damages, whether liquidated or unliquidated, become a debt only after judicial determination. 3. Termination of Agreement: Treasure World contended that its email of 29th October 2012 was not a termination but merely information about vacating the premises. The court rejected this argument, stating that the surrender of possession is effectively a termination of the agreement. The court noted that the agreement's terms are clear, and Treasure World cannot escape its financial obligations by claiming an oral agreement to abandon the written contract, especially when the contract explicitly requires any modifications to be in writing and signed by both parties. 4. Lock-in Period Clause: The court upheld the enforceability of the lock-in period clause, rejecting Treasure World's argument that such clauses are illegal or voidable. The court emphasized that both parties were of equal bargaining strength and Treasure World knew what it was committing to when it signed the agreement. The court held that the lock-in period clause is a valid contractual term, and Treasure World is bound by it. 5. Duty to Mitigate Losses: Treasure World argued that Indiabulls had a duty to mitigate its losses by re-licensing the premises. The court rejected this argument, stating that the duty to mitigate applies to claims in damages, not to claims for unpaid consideration. The court noted that the claim for the license fee for the remainder of the lock-in period is a debt, not damages, and therefore, the duty to mitigate does not apply. Conclusion: The court concluded that Indiabulls' claim for the license fee for the remainder of the lock-in period is a debt and ordered Treasure World to pay the amount due. The claim for liquidated damages was not considered a debt and would require separate adjudication. The termination of the agreement by Treasure World was valid, and the lock-in period clause was enforceable. The duty to mitigate losses did not apply to the claim for the license fee. The court provided Treasure World an opportunity to make the payment before proceeding with the winding-up petition.
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