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TMI Blog2010 (11) TMI 845X X X X Extracts X X X X X X X X Extracts X X X X ..... iable to pay rent from March, 2007 to May, 2007 of Rs. 3,88,740. 3. The petitioner relies upon clause 5 of the "Agreement to Lease" dated 5-9-2006 and submits that the respondent company is liable to pay liquidated damages in form of rent for a period of 29 months i.e., unexpired portion of the lease of three years starting with effect from 1-11-2006. For the sake of convenience, the said clause is reproduced below:- "5. That this Agreement to Lease shall not be cancelled before the lock-in-period of 3 years. A monthly rent will be liable to be enhanced by 15 per cent of the last paid rent after every 3 years. In case Tenant surrenders the Unit/Shop/Space before the lock-in-period then the Landlord/owner will be entitled to the liquidated damages from Tenant at the rate of rent for the balance period of 3 years' lock-in-period. To illustrate, if Tenant surrenders the Unit/Shop/Space, after 6 months from the date of offer of the possession of the said Unit/Shop/Space, then he will have to pay the liquidated damages at the rate of rent for the period of remaining 30 months." 4. Thus in all, the petitioner claims that the respondent company is liable to pay Rs. 3,88,740 towards arr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd will in construction of law amount to a lease for years as effectually as if the most proper and pertinent words had been used for that purpose; for if the words used are sufficient to prove a lease of land, in whatsoever form they are introduced, the law calls in the intent of the parties, and moulds and governs the words accordingly." Again at page 185, it is stated : "Although no specific words are necessary to create a lease, yet there must be words used which show an intention to demise, therefore, where, on the letting of land to a tenant, a memorandum was drawn up, the terms of which were, that he should on a future day bring a surety and sign the agreement, neither of which he ever did; it was held, that the memorandum was a mere unaccepted proposal, and did not operate as a lease. (Doe d. Bingham v. Cartwright)" 25. Hill & Redman in Law of Landlord and Tenant, 17th Edn., Vol. 1 at page 100 dealing with this aspect of the matter states as under : "40. Distinction between lease and Agreement for lease.-(1) A lease is a transaction which as of itself creates a tenancy in favour of the tenant. (2) An agreement for a lease is a transaction whereby the parties bind thems ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner had written a letter dated 11-4-2007 to the respondent making allegation that the respondent company being a tenant as per the rent agreement dated 5-9-2006 was in arrears of rent in violation of clause 2 of the agreement and asking for the rent for March and April, 2007 within ten days. The respondent company neither paid the rent nor replied to the said letter. Legal notice dated 19-5-2007 was issued on behalf of the petitioner. This notice referred to Clause 5 of the agreement and has described the agreement as a lease agreement. It is also stated that there was violation of clause 12 of the agreement due to non-payment of the rent and other charges for two months and therefore, the petitioner had right to terminate the agreement and claim liquidated damages. Notice under sections 434(1)(a) and 433 of the Act issued by the petitioner dated 25-6-2007 states as under:- "(2) The premises were let out to you for commercial purpose at the monthly rent of Rs. 1,29,580 (Rupees One Lakh Twenty Nine Thousand Five Hundred & Eighty Only) per month excluding water, electricity charges, etc. for a initial period of three years commencing from 1-11-2006 by means of agreement dated 5-9-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipated in the event of breach. It represents genuine covenanted pre-estimate of damages. On the other hand 'un-liquidated' damages or penalty is the amount stipulated in terrorem. The expression 'penalty' is an elastic term but means a sum of money which is promised to be paid but is manifestly intended to be in excess of the amount which would fully compensate the other party for the loss sustained in consequence of the breach. Whether a clause is a penalty clause or a clause for payment of liquidated damages has to be judged in the facts of the each case and in the background of the relevant factors which are case specific. Looking at the nature of the Clause and even the pleadings made by the petitioner, I am not inclined to accept the contention of the petitioner that clause 5 imposes liquidated damages and is not a penalty clause. No facts and circumstances have been pleaded to show that Clause 5 relating to lock-in-period was a genuine pre-estimate of damages which by the petitioner would have suffered in case the respondent company had vacated the premises. No such special circumstances have been highlighted and pointed out. 11. The decision in the case of Food Corpn. of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent did not make any attempt to prove the rate for similar canvas prevalent in Kanpur on the date of breach. Therefore it would obviously be not entitled to any damages at all, for on this state of the evidence it could not be said that any damage naturally arose in the usual course of things." [Emphasis supplied] 13. A person therefore, must take reasonable steps to minimize the loss and refrain from taking unreasonable steps which would increase the loss. Defence cannot be held liable to pay a loss which the claimant could have avoided or which arises due to the neglect and failure of the claimant to take such reasonable steps. Damages is compensation for the wrong suffered by the claimant and the loss incurred by him but this is subject to the rule that the claimant must take reasonable steps to avoid their avoidable accumulation. It is difficult to accept that the petitioner was unable to rent out the premises for the lock-in-period of three years despite the highly commercially viable location of the premises. Decline in the rate of rent is not pleaded. The onus in this regard is on the petitioner and no evidence and material has been placed on record to show that the premise ..... X X X X Extracts X X X X X X X X Extracts X X X X
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