Restoration of the Name of the Company which struck off by the ROC

MANJU BAGAI v. MAGPIE RETAIL LTD [DEL]
Company Petition No.193 of 2007 Sanjiv Khanna, J. [Decided on 02/11/2010]
Companies Act, 1956 – Section 433(e) – Winding up – Lease agreement – Vacation by lessee company – Liquidated damages in the form of rent for the unexpired period of the lease – Landlord filed winding up petition on the basis of liquidated damages – Whether admissible-Held, No.

Brief facts : Te petitioner is the owner landlady and had rented out commercial space to the respondent company on monthly rent under an” Agreement to Lease” dated 5th September, 2006. 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. The petitioner relies upon clause 5 of the Agreement and claimed 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. Thus in all, the petitioner claimed 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. 

Decision : Petition dismissed.

Reason : I have examined and read Agreement to Lease dated 5th September, 2006. The said document cannot be regarded as Agreement to Lease inspite of the nomenclature or the heading given to the document. The petitioner has placed reliance on the introductory clauses which refer to the discussions between the parties prior to execution of the documents. On reading of the main or recital clauses it is apparent that the said document is a lease deed in itself in praesenti which was executed on 5th September, 2006 but the lease was to begin with effect from 1st November, 2006. Clause 13 no doubt refers to execution of another document but this clause is not to be read in isolation. Other clauses indicate that the document dated 5th September, 2006 is a lease deed. No other document was executed between the parties. It is well settled that the document has to be read as a whole in entirety to find out the character/nature of the said document. The main clauses of the lease refer to the rent, the date of payment of rent, the security deposit, the right to terminate the rent agreement, subletting, maintenance charges and interest. It also talks about the method of termination i.e. how notice of termination was to be issued. 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.

 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-inperiod 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.

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 434 (1)(a) of the Act.

(Published in Chartered Secretary Dec 2010 - ICSI)