Versus: Efore Anjiv Hanna
Versus: Efore Anjiv Hanna
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2010 SCC OnLine Del 3842 : (2010) 175 DLT 212 : (2011) 161 Comp Cas 382 :
2011 CLC 823
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JUDGMENT
SANJIV KHANNA, J.— Manju Bagai, the petitioner seeks winding up of M/s. Magpie
Retail Limited, the respondent company under Section 433(e) of the Companies Act,
1956 (hereinafter referred to as Act, for short).
2. It is stated that the petitioner is the owner landlady and had rented out
commercial space No. UGF-1, Wedding Souk (now known as Gold Souk), Local
Shopping Centre, Sharda Niketan, Pitampura, Delhi (hereinafter referred to as the
premises, for short) to the respondent company on a monthly rent of Rs. 1,29,580/-
excluding water, electricity charges. The respondent company started paying rent with
effect from 1st November, 2006 and while the same was continuously paid till the end
of February, 2007, the respondent company did not pay the agreed rent for the
months of March, April and May, 2007 and handed over the possession of the premises
on 31st May, 2007. Thus the respondent company is liable 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 5th
September, 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 1st November, 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% 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 arrear of rent and liquidated damages of Rs. 37,57,820/-; total Rs.
41,46,560/- and interest.
5. Agreement to Lease dated 5th September, 2006 is an unregistered document
and is stamped on Rs. 100/- stamp paper. The contention of the petitioner is that the
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said document is an Agreement to lease and not an Agreement of Lease. The
distinction between the two is well known. Agreement of Lease has the effect of
demise of the property in praesenti. An agreement for/to lease merely entitles the
parties to execute another deed or agreement in future. It does not create any right in
praesenti. It is only an executory agreement in form of a promise to enter into a future
agreement. An agreement of lease requires registration but agreement to lease in
future does not require registration. It does not create any interest in an immovable
property as has been observed by the Supreme Court in Food Corporation of India v.
Babulal Agrawal, (2004) 2 SCC 712.
6. In State of Maharashtra v. Atur India (P) Ltd., (1994) 2 SCC 497 it has been
observed as under:
“24. The facts mentioned above are clearly indicative of an agreement to lease and
not an agreement of lease. The distinction between the two may be
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seen first with reference to English law. Woodfall in Law of Landlord and Tenant, Vol. I,
28th Edn., 1978 at page 127 states as under:
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lease depends on the intention of the parties, which intention must be ascertained
from all the relevant circumstances.
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5.9.2006.
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(3) The above said agreement of lease which was duly acted upon by you and our
client inter-alia contained the following clause—
‘para 5: ……………………………………………………………………………..’
(4) That you in violation of the above said clause and without any default
attributable to our client, unilaterally vacated the premises and handed over the
possession on 31.5.2007, without complying with requirements of the above said
clause viz. that you will not terminate the lease or vacate the premises until
expiry of term of 3 years of lease and in case you do so during this period, you
will be liable to pay as a result of violation of the above said amount of Rs.
37,57,820.00 (Rupees Thirty Seven Lakhs Fifty Seven Thousand Eight Hundred &
Twenty Only) which have incurred by you as debt to our client. You have also
defaulted in the payment of monthly rent of premises from March 2007 to May
2007 amounting to Rs. 3,88,740.00 (Rupees Three Lakhs Eighty Eight Thousand
Seven Hundred & Forty Only).”
9. Thus the petitioner did not regard the said document as an agreement to lease
but a lease deed in itself. The document dated 5th September, 2006 being an
unregistered lease deed cannot be relied upon by the petitioner. The tenancy in
question was a monthly tenancy and nothing more. The petitioner cannot rely upon
Clause 5 of an unregistered document. In these circumstances, reliance placed by the
Counsel for the petitioner on the decision of the Supreme Court in Food Corporation of
India (supra) is misplaced and cannot be accepted.
10. Even otherwise the claim for ‘liquidated’ damages is not sustainable. It may be
noted that Clause 5 relied upon by the petitioner uses the term ‘liquidated’ damages
in case the tenant vacates the property during the lock-in period of first three years. It
is a contention of the petitioner that the respondent company, as a tenant, is liable to
pay the balance rent for the unexpired period of the lease of three years. The
distinction between ‘liquidated’ and ‘un-liquidated’ damages is well settled. Mere use
of the term ‘liquidated’ damages in a document cannot be the criteria to determine
and decide whether the amount specified in the agreement is towards ‘liquidated’
damages or ‘un-liquidated’ damages. Amount specified in an agreement is liquidated
damages; if the sum specified by the parties is a proper estimate of damages to be
anticipated 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
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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 Corporation of India (supra) is distinguishable.
In the said case a civil suit was filed and there was evidence to show that the plaintiff
therein had performed his part of the contract and altered his position, having
constructed the plinths according to specifications of the defendant i.e. FCI. The
defendant had promised to plaintiff that on completion of the construction, they would
hire the premises for a period of three years but later on backed out. The trial Court
and the finding of the Supreme Court was that the construction was made in
accordance with the design and specification prescribed by the defendant. Therefore, it
was held that the defendant cannot back out from the promise held out and escape
from the liability.
12. It may be also noted that the Doctrine of Unavoidable Consequence or
Mitigation of Damages is applicable in cases of un-liquidated damages. It was
observed in Murlidhar Chiranjilal v. Harishchandra Dwarkadas, (1962) 1 SCR 653, as
under:
9. The two principles on which damages in such cases are calculated are well-
settled. The first is that, as far as possible, he who has proved a breach of a bargain
to supply what he contracted to get is to be placed, as far as money can do it, in as
good a situation as if the contract had been performed; but this principle is
qualified by a second, which imposes on a plaintiff the duty of taking all reasonable
steps to mitigate the loss consequent on the breach, and debars him from claiming
any part of the damage which is due to his neglect to take such steps: (British
Westinghouse Electric and Manufacturing Company Limited v. Underground Electric
Railways Company of London). These two principles also follow from the law as laid
down in Section 73 read with the Explanation thereof. If therefore the contract was
to be performed at Kanpur it was the respondent's duty to buy the goods in Kanpur
and rail them to Calcutta on the date of the breach and if it suffered any damage
thereby because of the rise in price on the date of the breach as compared to the
contract price, it would be entitled to be reimbursed for the loss. Even if the
respondent did not actually buy them in the market at Kanpur on the date of breach
it would be entitled to damages on proof of the rate for similar canvas prevalent in
Kanpur on the date of breach, if that rate was above the contracted rate resulting in
loss to it. But the respondent 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
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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
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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 premises could not be rented out. Even the
date on which the premises was subsequently rented out has not been stated.
14. It is accepted by the petitioner that they had security deposit of Rs. 3,88,740/-.
In the petition and the two legal notices dated 19th May, 2007 and 25th June, 2007 it
is not alleged that the security deposit was required to be adjusted on account of
arrears towards electricity, water or damages caused to the premises. There are no
such allegations or averments. In these circumstances, the security deposit given by
the respondent company to the petitioner can be adjusted towards the rent for the
months of March to May, 2007. No further amount is due and payable by the
respondent company to the petitioner towards admitted liability or debt due and
payable, for the purpose of Section 433(e) r/w Section 434(1(a) of the Act.
15. In view of the aforesaid, I do not find any merit in the winding up petition and
the same is dismissed.
Petition dismissed.
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