2009 Supreme(Cal) 921

High Court Of Calcutta
Sanjib Banerjee, J.
Abheya Realtors Private Limited - Appellants
Vs
SSIPL Retail Limited - Respondents
G.A. No. 2029 of 2009; C.S. No. 216 of 2009
Decided on: Dec 21, 2009

The court held that the relevant clause providing for liquidated damages in the event of the lessee determining the lease within the lock-in period was not a penalty that would fall foul of the Contract Act.

Headnote:

ATTACHMENT BEFORE JUDGMENT - LEASE AGREEMENT - STAMP ACT, 1899 - REGISTRATION ACT, 1908 - LIQUIDATED DAMAGES - MITIGATION OF DAMAGES - BALANCE OF CONVENIENCE - BANK GUARANTEE.

Fact of the Case:

Plaintiff, the owner of a shop-room in Astral Building Complex, Kolkata, purchased the shop from the proforma defendant. The proforma defendant executed a lease in favor of the first defendant and an agreement to provide certain facilities. The plaintiff claimed to be entitled to the proforma defendant's rights under the agreements. The lease provided for a lock-in period of three years, during which neither party could terminate the lease except for breach by the other party. The first defendant sought to terminate the lease during the lock-in period due to financial slowdown and global recession. The plaintiff claimed liquidated damages to the extent of the unpaid lease rent for the balance lock-in period, alleging that the first defendant was impecunious and unless the lease rent was secured, the plaintiff may not be able to realize the sum after obtaining the decree. The first defendant contended that the lease deed was unstamped and unregistered, and the provisions of both the Stamp Act, 1899 and the Registration Act, 1908 would preclude its terms being looked into and the material clause relating to alleged liquidated damages being enforced.

Finding of the Court:

The court held that the plaintiff had a good arguable case and that the asset within jurisdiction was unlikely to remain at the time judgment would be delivered and the claimant would have no means to satisfy the decree. The court found that the relevant clause providing for liquidated damages in the event of the lessee determining the lease within the lock-in period was not a penalty that would fall foul of the Contract Act. It also held that the onus would be on the first defendant to demonstrate that the plaintiff could have done to mitigate its damages and the consequential reduction, if at all, of the first defendant's liability as to liquidated damages.

Issues: 1. Whether the lease deed being unstamped and unregistered, the provisions of the Stamp Act, 1899 and the Registration Act, 1908 would preclude its terms being looked into and the material clause relating to alleged liquidated damages being enforced? 2. Whether the plaintiff had a good arguable case and that the asset within jurisdiction was unlikely to remain at the time judgment would be delivered and the claimant would have no means to satisfy the decree? 3. Whether the relevant clause providing for liquidated damages in the event of the lessee determining the lease within the lock-in period was a penalty that would fall foul of the Contract Act?

Ratio Decidendi: 1. The court held that at the interlocutory stage, where the plaintiff had not tendered the lease deed in evidence, the relevant provisions of the Stamp Act may not be attracted. It relied on the unreported judgment of the Division Bench, Sekh Nurmal Ali vs. Dhanindra Kumar Sil and in Biswajit Chakraborty. The court also held that Section 49 of the Registration Act is less severe in the sense that it provides an escape route via its proviso. 2. The court found that the plaintiff had a good arguable case and that the asset within jurisdiction was unlikely to remain at the time judgment would be delivered and the claimant would have no means to satisfy the decree. It relied on the principles enunciated in Mareva injunction cases and held that the concept of "within jurisdiction" and "outside jurisdiction" in England that is applicable to a Mareva injunction is quite distinct from what is meant by "within jurisdiction" qua a Civil Court in India. 3. The court held that the onus would be on the first defendant to demonstrate that the relevant clause providing for liquidated damages in the event of the lessee determining the lease within the lock-in period, is a penalty that would fall foul of the Contract Act.

Final Decision: The court directed the first defendant to furnish an unconditional bank guarantee in the sum of Rs. 85 lakhs in favor of the Registrar, Original Side, within a period of four weeks after the Christmas Vacation. The subsisting order of injunction in respect of the bank account of the first defendant was vacated upon the written confirmation of the Registrar, Original Side, of the unconditional bank guarantee to the satisfaction of the Registrar having been furnished.