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TMI Blog2001 (3) TMI 922X X X X Extracts X X X X X X X X Extracts X X X X ..... ions for sale of coffee in the course of export'. According to the Board, the company participated in the auctions held by the Board between 21-6-1989, and 20-12-1989, and purchased 654.6 metric tons of coffee, but failed to make payment and take delivery of the said coffee within the time stipulated for payment, or within the time extended by the Board at the request of the company. The Board contends that the company committed breach by failing to make payment and take delivery and as a consequence, the Board resold 593.4 m.t. of coffee in the auctions held in April/May, 1991, and incurred a loss. As a result of such alleged breach, the Board claimed the following amounts from the company : (Rs.) (a) Loss incurred by the Board on resale (on account of difference between the price at which coffee was sold to the company and the price realised on resale) 8,09,478.00 (b) Interest on the auction sale price, from the dates of original auction sales till date of resale 35,00,744.16 (c) Insurance charges 74,879.47 (d) Godown rent 3,12,263.40 (e) Extension charges for non-shipment of coffee 9,49,440.00 Total 56,46,805.03 3. The company had furnished bank guarantees aggregat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gher than the international prices; and that, therefore, it was not liable to pay damages for any alleged loss. The company also denied that the Board had sustained loss as alleged. The company next contended that the Board had granted extension for payment till December, 1990, but refused to extend time till June, 1991, as requested by the company; that if such extension had been granted the company would have been able to take delivery in view of the improved market conditions and devaluation of the rupee. In short, the company denied that it had committed breach or default or was liable to pay damages. It also contended that the Board had failed to mitigate losses and it was not liable to pay the amounts claimed. It also denied the allegations that it had stopped its business and was unable to pay its debts. The company also contended that as the entire claim was for damages, proceedings for winding up were not maintainable. 5. The learned company judge heard the matter in regard to admission and passed an order dated 13-2-1997, admitting the winding up petition. He accepted that "damages are not a debt and an action to recover damages is not an action to recover a debt". He fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the applicant alone is not of predominant consideration. The interests of the shareholders of the company as a whole apart from those of other interests have to be kept in mind at the time of consideration as to whether the application should be admitted on the allegations mentioned in the petition." (p. 91) 10. In Pradeshiya Industrial & Investment Corpn. of U.P. v. North India Petro Chemicals Ltd [1994] 79 Comp. Cas. 835 (SC) the company court after notice and hearing, ordered admission of a petition for winding up filed against the appellant-company but postponed advertisement, as in this case. The Division Bench dismissed an appeal by the company, challenging the admission. On further appeal by special leave, the Supreme Court held that the two basic requirements for a petition under section 433(e) were that (i ) there should be a debt and (ii) the company must be unable to pay such debt; and that if either of these requirements were absent, the petition was liable to be dismissed as a case for admission was not made out. It was also held that an order of admission, even without an order for advertisement, is fraught with serious consequence to the company. As the two require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... To become a 'debt', an amount should either be due by the debtor under an agreement/promise to pay, or admitted to be due by the debtor, or determined to be due by the debtor by a competent court. It does not include claims for damages or compensation which has to be assessed by a court before it becomes due and payable.... (p. 389) In a petition under section 433(e) the court can examine whether the dispute raised by the company in regard to the claim of the petitioner is bona fide or whether the defence of the company to the claim is frivolous, and intended merely to avoid an undisputed liability. But it should not decide the claims which are disputed bona fide nor quantify the loss suffered by the petitioner and award damages, nor award interest to compensate the loss on account of delay on the part of the company in paying the bills. Exercise of such powers, would be beyond the scope of proceedings for winding up, as such proceedings are not meant to ensure recovery of debts by creditors nor ensure that the creditor does not suffer loss on account of delay in payment." (p. 388) [emphasis supplied] 15. We may next refer to the decision of a learned single judge of the Punjab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within 30 days from the date of auction. Clause 15 provides for extension of time for payment, not exceeding 60 days, on application by the buyer, subject to payment of interest as such rates as may be prescribed by the marketing committee from time to time for the period commencing from the expiry of 30 days from the date of auction till date of payment. Clause 16 provides that if payment is not made within the time stipulated in clause 14 or within the time as extended under clause 15, the buyer will be treated as a defaulter and the coffee which had been agreed to be sold to him, will be sold at his risk and cost as soon as may be convenient and the loss, if any, resulting from such sale as also the insurance premia, godown rent and other charges incurred between the date of original auction and the date of resale shall be due and recoverable from the defaulter. The learned company judge has held that the Board has ascertained the amounts due in accordance with the contract and, therefore, the total amount claimed is an "ascertained sum payable by the defaulter (company)" and, therefore, a 'debt'; and as the company has neglected to pay such debt; the Board has made out prima fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h as a breach of contract does not result in any existing obligation on the part of the person who commits the breach, the right to recover damages is not an actionable claim and cannot be assigned. 7. Now, this principle has been accepted by the learned judge below, but the reason why he has taken a different view is that the definition of 'debt' given in this Act is an artificial definition and is not the definition which has been accepted for the purpose of the Transfer of Property Act, and what is emphasised is that debt is not merely a liability which is ascertained, but it is also a liability which is to foe ascertained, and, therefore, the view is taken that unliquidated damages would constitute a debt within the meaning of this Act. In my opinion, with respect to the learned judge, greater emphasis should be placed on the expression 'any pecuniary liability' rather than on the expression 'whether ascertained or to be ascertained'. Before it could be said of a claim that it is a debt, the court must be satisfied that there is a pecuniary liability upon the person against whom the claim is made, and thequestion is whether in law a person who commits a breach of contract beco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract, 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 the right to sue for damages...." [Emphasis supplied] (p. 1273) 23. The position is the same whether the claim is for unliquidated damages under section 73 or for liquidated damages under section 74 of the Indian Contract Act. While there may be difference in regard to ascertainment of loss or the quantum of damages awardable under sections 73 and 74, the basic requirement for both is a finding by a competent court (or Arbitrator) that the person against whom the claim is made, has committed breach and has incurred a pecuniary liability. This is clear from the decision of the Supreme Court in Sir Chunilal V. Mehta & Sons Ltd. v. Century Spg. & Mfg. Co. Ltd. AIR 1962 SC 1314, and Raman Iron Foundry's case (supra) . In Sir Chunilal's case (supra) , the Supreme Court held : "Where parties name in a contract reduced to writing, a sum of money to be paid as liquidated damages they must be deemed to exclude the right to cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resale by the Board. This again is a claim for damages. The basis for the claim is that if the buyer had paid the sale price on the date of sale, the seller would have had the benefit of such amount; and as the buyer did not pay the price, and the goods were resold much later, until realisation of the price on resale, the buyer should make good the loss on account of non-availability of the money (that is sale price) by way of interest. This is based on clause 15. This is also a claim for damages, based on breach. In fact the said clause contemplates payment of interest for a period not exceeding 60 days and not for a period of about one and half to two years which is now claimed. Neither the exact periods for which the interest is claimed nor the rate at which interest is claimed is disclosed. The claim presupposes that there was a breach by the appellant-company in not paying the price and taking delivery of goods. On the other hand, the appellants' contention that it could not take delivery and pay for the goods for reasons which do not amount to breach. Thus entitlement to interest will depend on a decision whether the appellant committed breach. 29. The claim for insurance c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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