TaxTMI 
TaxTMI 
2016 (1) TMI 671
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....installments. On failure to pay three installments, the petitioner / licensor was within its rights to cancel/ terminate the licence and in that eventuality, the respondent company was liable to pay the entire balance licence fee for the remaining period. As the respondent-company had paid installments only for months of May to July, 2007 and the licence was directed to be terminated vide communication dated 14.9.2007, balance of Rs. 61,73,059/- was due from the respondent company in terms of agreement signed between the parties, the respondent company having failed to pay the debt, despite statutory notice, it deserves to be wound up. 3. On the other hand, learned counsel for the respondent submitted that the agreement is not in dispute. There were certain excess payments made in terms of earlier agreement dated 11.9.2006, which were adjusted when fresh agreement was signed on 22.5.2007. After adjustment of installment of April, 2007, still additional sum of Rs. 3,81,424/- remained balance with the petitioner company. The respondent company paid installments for May to July, 2007 and there being certain problems, it had stopped playing music with effect from 1.9.2007 and a comm....
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....esignated Radio Station aggregating to Rs. 22,000,00/- (Rupees Twenty Two Lacs only) per annum. 4.2 That the non-refundable License Fee as per section 4.1 shall be paid by the Licensee to the Licensor on a advance monthly basis. The Licensee shall be obligated to pay every installment of License Fee (consolidated Copyright License Fee and Performance License) amounting to Rs. 1,83,334/- (One Lac Eighty Three Thousand Three Hundred Thirty Four only) plus applicable taxes within 7 days of beginning of the English Calendar, failing which the Licensor shall be at liberty to terminate the License Agreement. xx xx xx 4.7 It is expressly agreed by and between the parties that in case of any default of payment as scheduled in clause 4.1, 4.2, 4.3 and 4.4 above, the Licensor can terminate the License Agreement by giving 15 days notice to the Licensee to rectify the payment breach and in case of a failure on part of the Licensee to rectify the payment breach within that 15 days notice period, the License Agreement can be terminated by the Licensor. Provided further that in case of such termination the Licensee shall still be liable to pay the entire Licens....
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....ual course of things from such breach, or which the two parties knew when they make the contract to be likely the result of the breach of contract. This provision makes it clear that such compensation is not to be given for any remote or indirect loss or damage sustained by reason of the breach. The underlying principle enshrined in this Section is that a mere breach of contract by a defaulting party would not entitle other side to claim damages unless the said party has in fact suffered damages because of such breach. Loss or damage which is actually suffered as a result of breach has to be proved and the plaintiff is to be compensated to the extent of actual loss or damage suffered. When there is a breach of contract, the party who commits the breach does not eo instant i.e. at the instant 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 is the right to sue for damages. No pecuniary liability thus arises till the Court has determined that the party complaining of the breach is entitled to damages. The Court in the first place ....
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.... 18. Thus, while on one hand, damages as a result of breach are to be proved to claim the same from the person who has broken the contract and actual loss suffered can be claimed, on the other hand, Section 74 of the Act entitles a party to claim reasonable compensation from the party who has broken the contract which compensation can be predetermined compensation stipulated at the time of entering into the contract itself. Thus, this section provides for preestimate of the damage or loss which a party is likely to suffer if the other party breaks the contract entered into between the two of them. If the sum named in the contract is found to be reasonable compensation, the party is entitled to receive that sum from the party who has broken the contract. Interpreting this provision, the Courts have held that such liquidated damages must be the result of a "genuine preestimate of damages". If they are penal in nature, then a penal stipulation cannot be enforced, that is, it should not be a sum fixed in terrarium or interrarium. This action, therefore, merely dispenses with proof of "actual loss or damage". However, it does not justify the award of compensation when in consequence o....
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....e liability is adjudicated and damages assessed by a decree or order of a Court or other adjudicatory authority. When there is a breach of contract, 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 is the right to sue for damages. That is not an actionable claim and this position is made amply clear by the amendment in Section 6(e) of the Transfer of Property Act, which provides that a mere right to sue for damages cannot be transferred. This has always been the law in England and as far back as 1858 we find it stated by Wightman, J., in Jones v. Thompson [1858] 27 L.J.Q.B. 234 "Exparte Charles and several other cases decide that the amount of a verdict in an action for unliquidated damages is not a debt till judgment has been signed". It was held in this case that a claim for damages does not become a debt even after the jury has returned a verdict in favour of the plaintiff till the judgment is actually delivered. So also in O'Driscoll v. Manchester Insurance Committee ....
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....tion of Clause 18, the purchaser is entitled to exercise the right conferred under that clause only where the claim for payment of a sum of money is either admitted by the contractor, or in case of dispute, adjudicated upon by a court or other adjudicatory authority. We must, therefore, hold that the appellant had no right or authority under Clause 18 to appropriate the amount of other pending bills of the respondent in or towards satisfaction of its claim for damages against the respondent and the learned Judge was justified in issuing an interim injunction restraining the appellant from doing so. 20. In that case, Clause 18 of the contract entered into between the parties provide that whenever any claim for the payment of a sum of money arises out of or under the contract against the contractor, the purchaser shall be entitled to recover such sum by appropriating in whole or in part, the security, if any, deposited by the contractor. The purchaser/Union of India, invoking this clause, wanted to recover and adjust liquidated damages in terms of clause 14 of the contract. As is seen from the aforesaid extracted portion, the Court held that a claim for liquidated damages do....
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....esoram Industries v. Commissioner of Wealth Tax : [1966] 59 ITR 767 (SC) clearly brings out the essential characteristics of a debt: Standing alone, the word 'debt' is as applicable to a sum of money which has been promised at a future day as to a sum now due and payable. If we wish to distinguish between the two, we say of the former that it is a debt owing, and of the latter that it is debt due." 22. The Supreme Court in the matter of ONGC Ltd. v. Saw Pipes Ltd., AIR 2003 SC 2629, in para 65 has discussed provisions of Section 73 and 74 of the Indian Contract Act and held as under: "Under Section 73, when a contract has been broken, the party who suffers by such breach is entitled to receive compensation for any loss caused to him which the parties knew when they made the contract to be likely to result from the breach of it. This Section is to be read with Section 74, which deals with penalty stipulated in the contract, inter alia [relevant for the present case] provides that when a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, the party complaining of breach is entitled, whether or....
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.... to show that he took all reasonable steps to mitigate the loss. It is only after proper enquiry into these aspects that the Court in a given case would rule as to whether liquidated damages as prescribed in the contract are to be awarded or not. Even if there is a stipulation by way of liquidated damages, a party complaining of breach of contract can recover only reasonable compensation for the injury sustained by him and what is stipulated in the contract is the outer limit beyond which he cannot claim. Unless this kind of determination is done by the Court, it does not result into "debt". 25. At this juncture, we would like to refer to the judgment of Bombay High Court in the case of E-City Media Private Limited a Private Limited Company v. Sadhrta Retail Limited a Public Limited Company, [2010] 153 Comp.Cas 326 (Bom.) (rendered by Single Judge). In this case also, winding up petition was filed on account of alleged dues stipulated in the contract in case of breach. Facts of the case disclose that the petitioner had appointed the respondent as an exclusive agent for designated branding sites situated within the premises of a shopping mall. The petitioner had permitted t....
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....y 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 not on account of quantification by the person alleging breach. (iii) When the contract does not stipulate the quantum of damages, the court will assess and award compensation in accordance with the principles laid down in Section 73. Where the contract stipulates the quantum of damages or amounts to be recovered as damages, then the party complaining of breach can recover reasonable comp....