Vijay Kumar Takkar And Ors vs Raymond Ltd

CNR No : HCBM010536672025

WP-13459-25.DOC
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO. 13459 OF 2025

1. Vijay Kumar Takkar
nd
Since deceased on 22 June 2026
1A Dr. Neerja Vijaykumar Takkar
1B Aniruddha Vijay Kumar Takkar
1C Antariksh Vijay Kumar Takkar
all having their residential address at
th
D-1214, 12 Floor, Hillside Building,
Raheja Vihar, Near Chandivali Film
Studio, Saki Vihar Road, Andheri (E)
Mumbai – 400 072
2. Dr. Neerja Vijay Takkar
3. V K Takkar HUF, through its Karta
Mr. Vijay Kumar Takkar, all having
th
their address at D-1214, 12 Floor,
Hillside Building, Raheja Vihar,
Near Chandivali Film Studio,
Saki Vihar Road, Andheri East,
Mumbai 400 072. ..Petitioners

SAINATH
SANJAY
BODKHE
Digitally signed by
SAINATH SANJAY
BODKHE
Date: 2026.11.04
22:22:47 +0530
Versus
Raymond Ltd. a company incorporated
under the provisions of Indian Companies
Act, 1913 and presently governed by the
provisions of Companies Act 2013 (as
amended till dated), having its registered
office address at Plot No.156/H. No.2,
Village : Zadgaon, Ratnagiri, Maharashtra
& Head Office at New Hind House, Narottam
Morarji Marg, Ballard Estate,
Mumbai 400 001
…Respondent
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_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Mr. Rohan Savant, a/w Nirmal D, Mr. Agam Mehta, i/b Mr.
Abhijeet Mahadeokar, for the Petitioners.
Mr. Jehangir Jeejeebhoy, a/w Ms. Avantika M. i/b Vernas
legal, for the Respondent.
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
CORAM : N. J. JAMADAR, J.
st
RESERVED ON : 31 JULY 2026
th
PRONOUNCED ON : 04 NOVEMBER, 2026
JUDGMENT :-
1. Rule.
2. Rule made returnable forthwith, and with the consent of
the learned Counsel for the parties, heard finally.
3. This petition under Article 227 of the Constitution of India,
calls in question the legality, propriety and correctness of an
th
order dated 10 September, 2025 passed by the learned Judge,
City Civil Court, in Summons for Judgment No. 29/2024 in Suit
No. 4892/2010 whereby the learned Judge granted leave to the
petitioners/defendants to defend the suit on the condition of the
deposit of a sum of Rs. 87,15,250/- (Rupees Eighty Seven Lakhs
Fifteen Thousand Two Hundred and Fifty) in the Court.
4. Shorn of superfluities, the background facts leading to
this petition can be stated as under :-
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4.1 A shop premises being Unit No. 001 on the ground floor
admeasuring 2370 sq. feet in a building known as “Dev-
Mahran” situated at Vile Parle (“the licenced premises”) was
given on a licence by the petitioners/defendants to the
respondent/plaintiff for commercial purpose, under a leave and
st
licence agreement dated 01 April, 2008. The term of the licence
was 16 months with a lock-in period of 12 months. The licence
fee was Rs.4,65,000/- (Rupees Four Lakhs Sixty Five Thousand
only) for the initial period of 36 months and Rs.5,34,750/-
(Rupees Five Lakhs Thirty Four Thousand Seven Hundred and
Fifty) for the next 24 months. The licencee was to pay applicable
service tax on the monthly licence fee. A sum of Rs.92,50,000/-
(Rupees Ninety Two Lakhs Fifty Thousand) was kept as a
security deposit by the licencee with the licensor as an interest
fee refundable deposit.
4.2 Subsequently, another agreement was executed between
st
the parties on 01 September, 2009 to modify the terms of the
st
leave and licence agreement dated 01 April, 2008. After the
modified lock-in period came to an end, there were negotiations
between the parties and the plaintiff agreed to deliver
nd
possession of the licenced premises to the defendants by 22
May, 2010. Incontrovertibly, the plaintiff delivered the
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nd
possession of the licenced premises to the defendants on 22
June, 2010.
4.3 In the intervening period, disputes arose between the
parties over the payment of the service tax in accordance with
terms of the leave and licence agreement. In the wake of
proceedings that had ensued before this Court and the Supreme
Court in regard to the liability to pay the service tax on the
amount of licence fee, at the behest of the Retailers Association
of India, certain orders were passed and the plaintiff claimed
that, it had cleared the service tax liability and nothing
remained to be paid. The plaintiff demanded the refund of the
security deposit. Upon non-payment thereof, the plaintiff
instituted Summary Suit No.4892/2010 for recovery of the
security deposit and allied reliefs in this Court.
4.4 Eventually, in view of the enhancement in the pecuniary
jurisdiction of the City Civil Court, the suit came to be
transferred to the City Civil Court and renumbered as Summary
Suit No. 4892/2010. In the said suit, after the defendants
entered appearance, the plaintiff took out the summons for
judgment. The defendants sought an unconditional leave to
defend the suit on the ground inter alia that, the plaintiff had
committed default in the making payment of licence fee and
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service tax. On account of the said default, the defendants were
entitled to recover penalty at the rate of Rs. 20,000/- per day in
accordance with Clause 3.9 of the leave and licence agreement.
The plaintiff had abruptly stopped the payment of the service
tax. Thus, the defendants were entitled to recover a sum of
Rs.128,71,79,129/- (Rupees One Hundred Twenty Eight Crores
Seventy One Lakhs Seventy Nine Thousand One Hundred and
Twenty Nine) from the plaintiff on the basis of the quantified
damages. Therefore, as the defendants had raised substantial
defences, they were entitled to an unconditional leave to defend
the suit.
5. The learned Judge, City Civil Court, after appraisal of the
pleadings of the parties and the clauses in the leave and licence
agreement, was persuaded to hold that, the defendants were
entitled to leave to defend the suit subject to the deposit of the
amount paid by the plaintiff to the defendants towards security
deposit, minus one month’s licence fee. The learned Judge, City
Civil Court, was of the view that, incontrovertibly the defendants
were holding the refundable security deposit; the question
whether the proposed recovery of the amount at the rate of Rs.
20,000/- per day for the default in payment of the licence fee
and service tax amounted to a reasonable recompense or
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constituted the penalty was required to be adjudicated at the
trial. Thus, there was a doubt regarding the good faith of the
defendants and the genuineness of the triable issues raised by
the defendants. Therefore, the defendants were liable to make
the deposit.
6. Being aggrieved, the defendants have invoked the writ
jurisdiction of this Court.
7. I have heard Mr. Rohan Savant, the learned Counsel for
the petitioners, and Mr. Jehangir Jeejeebhoy, the learned
Counsel for the respondent, at some length. With the assistance
of learned Counsel for the parties, I have perused the pleadings
and material on record.
8. Mr. Rohan Savant, the learned Counsel for the petitioners
submitted that, the learned Judge, City Civil Court did not keep
in view the principles that govern the grant of leave to defend
the suit and has unjustifiably directed the petitioners-
defendants to deposit the entire amount of the refundable
deposit, minus the licence fee for one month only. In the
process, Mr Savant would urge, the learned Judge, City Civil
Court completely discarded the claims of the defendants arising
out of the very terms of the leave and licence agreement.
Taking the Court through the relevant clauses of the leave and
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licence agreement, Mr. Savant would urge that, there were
reciprocal obligations on the parties. The plaintiff was under
obligation to pay the licence fee alongwith service tax on or
before due date and in the event of failure, the plainiff was liable
to pay the defendants a penalty of Rs.20,000/- per day for the
number of days such default in payment of the licence fee
continued and till the time the licence fee was paid to the
defendants. Banking upon Clause No. 3.9 of the leave and
licence agreement, Mr. Savant would urge that since the
defaults on the part of the licencee to pay the licence fee and,
more importantly the service tax, was rather indisputable, the
learned Judge, City Civil Court could not have imposed the
condition of deposit of the entire refundable deposit when the
defendants were entitled to recover the said amount of licence
fee and the service taxes from the plaintiff alongwith the penalty
quantified at Rs.20,000/- per day.
9. Secondly, Mr. Savant would urge, the plaintiff abruptly
stopped making the payment of service taxes to the defendants.
There was thus clear breach of the terms and conditions of the
leave and licence agreement. Mr. Savant would urge, the
subsequent developments sought to be brought on record by
way of an additional affidavit on behalf of the plaintiff were of no
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avail, especially in a summary suit. The rights of the parties are
to be ordinarily decided on the basis of the facts as they stood
on the date of the institution of the suit. Thus, the learned
Judge, City Civil Court could not have taken into account the
contentions on behalf of the plaintiff that they had cleared the
service tax liability pursuant to the orders passed by this Court
and the Supreme Court. To lend support to this submission,
Mr. Savant placed reliance on a judgment of the Supreme Court
1
in the case of Om Prakash Gupta Vs Ranbir B Goyal.
10. Mr. Savant further submitted that in the face of
uncontroverted non-payment of service taxes to the defendants,
the claim of the plaintiff cannot be said to be an undisputed
claim. The default on the part of the plaintiff to pay the licence
fee and the service tax, in accordance with the terms of the
contract, gave rise to the liability to pay penalty as stipulated by
the parties. Therefore, without adjusting the amount which the
defendants are entitled to recover from the plaintiff, an order of
deposit of the entire refundable deposit could not have been
made. To buttress this submission, Mr. Savant placed reliance
on a decision of the Supreme Court in the case of Oil & Natural
2
Gas Corporation Ltd Vs Saw Pipes Ltd.
1 (2002) 2 SCC 256.
2 (2003) 5 SCC 705.
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11. Mr. Jehangir Jeejeebhoy, the learned Counsel for the
respondent-plaintiff countered the submissions on behalf of the
petitioners. Mr. Jeejeebhoy would urge that the defences raised
by the defendants cannot be said to be bona fide .
Incontrovertibly, the plaintiff delivered possession of the licenced
nd
premises on 22 June 2010. Under Clause 5.3 of the leave and
licence agreement, the defendants were obligated to refund the
security deposit simultaneous with the handing over of the
vacant and peaceful possession of the licenced premises to
them. Yet, the defendants have withheld the security deposit for
over 15 years. Mr. Jeejeebhoy made a strenuous effort to drive
home the point that there has never been any sustainable
ground to withhold the security deposit.
12. Mr. Jeejeebhoy submitted that the defence sought to be
raised by the defendants that they are entitled to recover the
amount of service tax and penalty is a mala fide and moonshine
defence. At no point of time, till the delivery of possession of the
licenced premises, the defendants professed to terminate the
leave and licence agreement on the count of non-payment of
service tax. Instead, the term of the licence came to be further
extended.
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13. Mr. Jeejeebhoy further submitted that, the service tax, in
the strict sense, does not form part of the licence fee. Attention
of the Court was invited to Clauses 3.1 and 3.2 of the leave and
licence agreement. Emphasis was laid on the fact that the
licence fee has been defined separately in Clause 3.1, and the
liability to pay the service tax forms part of Clause 3.2 of the
leave and licence agreement. Mr. Jeejeebhoy would urge, the fact
that the defence is sham one becomes evident from the conduct
of the defendants, in as much as the defendants have not made
any claim for recovery of the amount of service tax for over 16
years.
14. In any event, Mr. Jeejeebhoy would urge, the amount of
service taxes was to be paid to the Government. The defendants
were in a sense a conduit through which the amount of service
tax was to be credited to the State Exchequer. There is no iota of
material to show that the defendants have paid the service tax
to the Government. That shows the disingenuousness of the
defendants defence. In these circumstances, the defendants did
not deserve even a leave to defend the suit and the summons for
judgment ought to have been made absolute, urged Mr.
Jeejeebhoy.
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15. I have given careful consideration to the submissions
canvassed across the bar. With the assistance of the learned
Counsel for the parties, I have also perused the material on
record.
16. To begin with few uncontroverted facts.
17. First, the jural relationship between the parties was not in
dispute. Second, there was not much controversy over the
execution of the leave and licence agreement and the material
terms thereof. Third, it was not in dispute that the plaintiff had
deposited a sum of Rs.92,50,000/-, by way of interest free
security deposit. Fourth, the delivery of possession of the
nd
licenced premises by the plaintiff to the defendants on 22 June
2010 is incontestable. Fifth, the defendants have not refunded
the security deposit.
18. In the backdrop of the aforesaid broad uncontroverted
facts, it is necessary to note that it is a crystallised position in
law that a claim for refund of security deposit is maintainable as
a summary suit.
19. The controversy between the parties revolves around the
question, as to whether the learned Judge, City Civil Court was
justified in granting leave to defend the suit on the condition of
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the deposit of the unpaid security deposit?
20. The position in law regarding the grant of leave to defend
is well settled. If the defendants make out a substantial
defence, with an element of success therein, the defendants are
entitled to an unconditional leave to defend. If the defendants
disclose, prima facie , fair and a reasonable defence, ordinarily,
the defendants are entitled to an unconditional leave. In
contrast to this, if the defence raised by the defendants appear
frivolous, false, or sham the leave to defend shall be refused,
and the plaintiff is entitled to judgment. The controversy,
however, arises in those matters where there is a doubt as to
whether the defendants have raised a triable issue, and the
nature of the conditions to be imposed, if the Court comes to
the conclusion to grant conditional leave to defend.
21. The principles have been restated by the Supreme Court
in the case of B. L. Kashyap and Sons Ltd. vs. M/s. JMS Steels
3
wherein the tests to grant the
and Power Corporation and Another,
leave to defend a summary suit, were reiterated as under:
“33. It is at once clear that even though in the case of
IDBI Trusteeship, this Court has observed that the
principles stated in paragraph 8 of Mechelec Engineers’
case shall stand superseded in the wake of amendment
3 (2022) 3 SCC 294.
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of Rule 3 of Order XXXVII but, on the core theme, the
principles remain the same that grant of leave to
defend (with or without conditions) is the ordinary
rule; and denial of leave to defend is an exception.
Putting it in other words, generally, the prayer for leave
to defend is to be denied in such cases where the
defendant has practically no defence and is unable to
give out even a semblance of triable issues before the
Court.
33.1 As noticed, if the defendant satisfies the
Court that he has substantial defence, i.e., a defence
which is likely to succeed, he is entitled to
unconditional leave to defend. In the second
eventuality, where the defendant raises triable issues
indicating a fair or bonafide or reasonable defence,
albeit not a positively good defence, he would be
ordinarily entitled to unconditional leave to defend. In
the third eventuality, where the defendant raises
triable issues, but it remains doubtful if the defendant
is raising the same in good faith or about genuineness
of the issues, the Trial Court is expected to balance the
requirements of expeditious disposal of commercial
causes on one hand and of not shutting out triable
issues by unduly severe orders on the other. Therefore,
the Trial Court may impose conditions both as to time
or mode of trial as well as payment into the Court or
furnishing security. In the fourth eventuality, where
the proposed defence appear to be plausible but
improbable, heightened conditions may be imposed as
to the time or mode of trial as also of payment into the
Court or furnishing security or both, which may extend
to the entire principal sum together with just and
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requisite interest.
33.2 Thus, it could be seen that in the case of
substantial defence, the defendant is entitled to
unconditional leave; and even in the case of a triable
issue on a fair and reasonable defence, the defendant
is ordinarily entitled to unconditional leave to defend.
In case of doubts about the intent of the defendant or
genuineness of the triable issues as also the
probability of defence, the leave could yet be granted
but while imposing conditions as to the time or mode
of trial or payment or furnishing security. Thus, even
in such cases of doubts or reservations, denial of leave
to defend is not the rule; but appropriate conditions
may be imposed while granting the leave. It is only in
the case where the defendant is found to be having no
substantial defence and/or raising no genuine triable
issues coupled with the Court’s view that the defence
is frivolous or vexatious that the leave to defend is to
be refused and the plaintiff is entitled to judgment
forthwith. Of course, in the case where any part of the
amount claimed by the plaintiff is admitted by the
defendant, leave to defend is not to be granted unless
the amount so admitted is deposited by the defendant
in the Court.
33.3 Therefore, while dealing with an application
seeking leave to defend, it would not be a correct
approach to proceed as if denying the leave is the rule
or that the leave to defend is to be granted only in
exceptional cases or only in cases where the defence
would appear to be a meritorious one. Even in the case
of raising of triable issues, with the defendant
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indicating his having a fair or reasonable defence, he is
ordinarily entitled to unconditional leave to defend
unless there be any strong reason to deny the leave. It
gets perforce reiterated that even if there remains a
reasonable doubt about the probability of defence,
sterner or higher conditions as stated above could be
imposed while granting leave but, denying the leave
would be ordinarily countenanced only in such cases
where the defendant fails to show any genuine triable
issue and the Court finds the defence to be frivolous or
vexatious.”
22. On the aforesaid touchstone, readverting to the facts of the
case, the thrust of the defence of the defendants was that on
account of the default in payment of the licence fee for one
month and the service tax, the plaintiffs were liable to pay the
said amount alongwith a penalty of Rs.20,000/- per day. Thus,
the entitlement of the defendants to recover the said amount
alongwith penalty would give rise to a triable issue if not a
substantial defence.
23. To appreciate the aforesaid contentions, it may be apposite
to consider few relevant clauses of the leave and licence
agreement.
24. Clausese 3.1 and 3.2 define the licence fee and the liability
to pay the service tax. They read as under:
“3.1 It is hereby agreed that the Licensors shall charge
and the Licensee shall pay to the Licensors, a fixed
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Lumpsum Monthly Fee of Rs.4,65,000/- (Rupees Four Lacs
Sixty Five Thousand Only) (hereinafter referred to as the
said “LICENSEE FEE”) per month for an initial period of 36
(Thirty Six) months from the Commencement Date and
Rs.5,34,750/- (Rupees Five Lacs Thirty Four Thousand
th
Seven Hundred And Fifty Only) from the 37 month
th th
onwards to the 60 month, on or before 7 day of each
calender month in advance (hereinafter referred to as the
said “Due Date”. The monthly License Fee so payable by
Licensee to the Licensors, shall be subject only to
applicable income tax deductions at source i.e. Income Tax
“TDS”.
3.2 In addition to the monthly License Fee, the Licensee
shall also pay to the Licensors, monthly Service Tax @
12.6% as currently applicable, or at whatever rates as
applicable in future as per the applicable Government law
and norms. It is clarified that no Income Tax TDS is
applicable on the payments of Service Tax by the Licensee
to the Licensors.”
25. Clause 3.9, on the import of which the learned Counsel for
the parties were at loggerheads, reads as under:
“3.9 The Licensee has agreed to diligently and sincerely
pay to the Licensors the above mentioned License Fees
along with Service Tax on or before the Due Date. In case
the Licensee neglects or fails to pay to the Licensors the
monthly License Fees and Service Tax dues on/or before
the Due Date and/or if any of the said Cheques are
returned unpaid by the Bankers of the Licensee, then in
such case the Licensors shall intimate to the Licensors
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about such breach of the terms and conditions of this
Agreement and to make amends in respect of the same
within one week from the Due Date and if for any reason
such breach committed by the Licensee is not
corrected/amended, the same shall be considered as a
default and upon the Licensee committing any two such
defaults the Licensors shall be at liberty to forthwith
terminate this Agreement without any notice to the
Licensee as the Licensee confirms to waiver of notice in
case of such two defaults and further without prejudice to
any of the rights and remedies available to the Licensors
under law. The Licensee shall further also be liable to pay
to the Licensors a penalty quantified @ Rs.20,000/-
(Rupees Twenty Thousand Only) per day for the number of
days such default in the payment of License fee continues
and the same shall be counted from the Due Date till the
time it is paid/credited into the account of the Licensors.”
26. The liability of the licensor to refund the security deposit
is governed by Clauses 5.3 (i) and 5.3(ii). They read as under:
“5.3 (i) The said Security Deposit shall be refunded by
the Licensors to the Licensee without interest (after
deducting the dues, if any) and subject to the provisions
herein contained, upon the expiry, or termminatio, or
sonner or earlier determnation of this License subject to
the Licensee simultaneously handing over the quiet,
vacant and peaceful possession of the said Licensed
Premises to the Licensors.
(ii) In the event the Licensors fail or neglect to refund
the Security Deposit to the Licensee on the expiry, or
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termination, or sonner or earlier determination of this
License, the Licensee being ready and willing to deliver
the quiet, vacant and peaceful possession of the said
Licensed Premies to the Licnesors in accordane with the
terms and conditions of these presents, subject to
deductions of all outstandings/dues if any, on account of
License Fees, electricity charges, water charges, other
utility charges, maintenance charges, taxes as agreed
herein to be paid by the Licensee etc, then automatically,
without prejudce to the other rights and remedies as
specifically agreed herein, the Licensee shall contine to
use the said Licensed Premises upon payment of Rs.1/-
(Rupee One Only) per month to the Licensors and this
postiion shall continue until such time the Licensors hae
refuned to the Licensee the entire Security Deposit (after
deducting the dues if any) together with simple interest
thereon @ 18% (Eighteen) percent per annum calculated
from the date of the expiry, or termination, or sooner or
earlier determination of this License till the Licensors have
handed over to the Licensee the Bank Draft/Pay Order for
refund of the said Security Deposit. It is also agreed that
immediately on receiving this refund as mentioned in this
Clause, the Licensee shall forthwith unconditionally
vacate the Licensed Premises and forthwith handover the
possession of the Licensed Premises to the Licensors
without any delay or demur whatsoever and the Licensee
shall have no claim/right of any kind whatsoever on the
Licensed Premises or against the Licensors.”
27. The aforesaid clauses if read in conjunction with the each
other and the other Clauses of the leave and licence agreement
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as a whole, would indicate that the parties had defined what
constituted the licence fee for a particular period with a
provision for enhancement therein after the expiry of 36
months.
28. In addition to the monthly licence fee, the licencee was
liable to pay monthly service tax @12.36%, as was then
applicable, or as may become applicable thereafter. In the event
of default in payment of the licence fee alongwith service tax on
or before due date, the licencee was to make amends within one
week from the due date and failure to do so would constitute a
default. That would give a right to the licensor to terminate the
agreement. In addition, the licencee was liable to pay the
licensor a penalty of Rs.20,000/- per day till the default
continued.
29. Likewise, the licensor agreed to refund the security deposit
simultaneous with the quiet and vacant delivery of possession
of the licensed premises. In the event of default, the licencee
was entitled to use and occupy the licenced premises, upon
payment of Rs.1/- only, until the licensor refunded the security
deposit, after deducting the dues, if any, together with simple
interest @18% per annum.
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30. If the controversy is appreciated in light of the aforesaid
terms of the contract, it becomes evident that out of the two
counts of the alleged defaults on the part of the plaintiff, the
first one, namely, the default in payment of licence fee for one
month, does not present much difficulty. Incontrovertibly, the
default in the payment of licence fee was for one month only.
th
The letter dated 18 June, 2010 makes it abundantly clear that
without prejudice to the claim of the plaintiff, it had agreed to
nd
pay the rent and amenity charges for the period 22 May, 2010
nd
to 22 June, 2010, upon the defendants refunding entire
security deposit to the plaintiff. It was reiterated therein that
the plaintiff was ready and willing to hand over possession of
nd
the licensed premises to the defendants on 22 June, 2010,
subject to simultaneous refund of the entire security deposit
amounting to Rs.92,50,000/-.
31. In the light of the aforesaid communication, once the
possession of the licensed premises was handed over to the
defendants, prima facie the liability to refund the security
deposit under Clause 5.3(ii) of the Leave and Licence Agreement
arose, albeit subject to deductions of the dues. Thus, the
defendants could have refunded the security deposit after
deducting the licence fee for the one month. Once, the
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possession of the licensed premises was handed over, prima
faice, the clause empowering the licenser to impose penalty on
unpaid licence fee ceased to operate as the simultaneous
liability to refund the security deposit kicked in.
32. The second count on which the defendants professed to
withhold the security deposit was the alleged default on the part
of the plaintiff to pay the service tax in accordance with Clause
3.2 of the Leave and Licence Agreement (extracted above). The
controversy arose on account of a general challenge to the
validity of the provisions of the Finance Act, 1994, as amended
by the Finance Act, 2007, providing for levy of service tax on
letting out of immovable property. In the year 2007, the Retailers
Association of India filed a writ petition before this Court and,
th
on 30 July, 2008, a Division Bench of this Court passed an
interim order, staying the recovery of service tax in respect of
the premises of the members of the Retailers Association of
India, upon furnishing of an undertaking.
33. While the proceedings were pending before the Supreme
th
Court, pursuant to an order dated 14 October, 2011, the
plaintiff claimed to have deposited 50% of the service tax
arrears. Eventually, Sabka Vishwas (Legacy Dispute Resolution)
Scheme, 2019, was introduced by the Ministry of Finance and
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the benefit of the said scheme was extended to the lessees who
were parties to the Supreme Court proceedings, by Circular
th
No.1073-06-2019 dated 29 October, 2019. The plaintiff relies
th
upon a discharge certificate dated 10 May, 2022, issued in
favour of the respondent under the aforesaid scheme.
34. Thus, the substance of the claim of the plaintiff is that it
has fully discharged the service tax liability. The payment of
50% of the service tax arrears has been made against the
service tax registration number of the defendants. No notice of
demand is made or recovery proceeding has ever been initiated
by the authorities against the defendants in relation to the
alleged service tax liability. In contrast, the defendants contend
that, whether the plaintiff has paid the service tax is a
contentious issue.
35. In the aforesaid context, Mr. Savant submitted that the
subsequent events in relation to the payment of the service tax
could not have been taken into account, and question of grant of
leave ought to have been determined on the basis of the facts as
they stood on the date of institution of the suit. In the case of
Om Prakash Gupta (supra), on which reliance was placed by Mr.
Savant, the Supreme Court enunciated that the ordinary rule of
civil law is that the rights of the parties stand crystallised on
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the date of the institution of the suit and, therefore, the decree
in a suit should accord with the rights of the parties as they
stood at the commencement of the suit. However, the Court has
the power to take note of subsequent events and mould the
relief accordingly, subject to the following conditions:
“(i) that the relief, as claimed originally has, by
reason of subsequent events, become inappropriate
or cannot be granted;
(ii) that taking note of such subsequent event or
changed circumstances would shorten litigation and
enable complete justice being done to the parties;
(iii) that such subsequent event is brought to the
notice of the Court promptly and in accordance with
the rules of procedural law so that the opposite
party is not taken by surprise.”
36. There can be no quarrel with the aforesaid proposition of
law. However, I am afraid, the aforesaid pronouncement
advances the cause of submission on behalf of the defendants.
The reason is not for to seek. The Court cannot lose sight of the
fact that the liability was to pay the service tax as applicable. As
noticed above, there were orders passed by this Court and the
Supreme Court pursuant to which the recovery of service tax
was stayed, upon depositing of certain amount and
undertakings. Eventually, pursuant to the Sabka Vishwas
(Legacy Dispute Resolution) Scheme, 2019, the plaintiff claimed
to have settled the dispute and a discharge certificate came to
th
be issued on 10 May, 2022. The defendants may dispute the
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factum and co-relation of the said payment and discharge
certificate to the liability to pay the service tax in respect of the
licensed premises. However, what is of critical salience is the
fact that, prima facice, no material could be placed on record to
demonstrate that the authorities have issued any notice or
demand in relation to the service tax qua the subject licensed
premises to the defendants, much less any recovery proceedings
has been initiated.
37. The defendants cannot be heard to urge that de hors their
liability to pay the service tax, the plaintiffs should have
continued to pay the service tax to the defendants for the plain
reason that the liability was to pay the service tax as applicable.
The licence fee was not inclusive of service tax. The liability to
pay service tax was in addition to the licence fee. Such liability
would arise provided the service tax was exigible. At any rate, it
was to be paid to the Government.
38. Even otherwise, in the absence of prima facie material to
show that the defendants were called upon to pay the service
tax by the authorities in respect of the licensed premises for the
period the plaintiff was in occupation thereof, the defendants
could not enforced the said payment. This factor significantly
bears upon the purported right of the licenser to recover the
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penalty at the rate of Rs.20,000/- per day. Undoubtedly, it could
be urged that the said stipulation was a measure of damages for
the breach of the contract, which the parties provided for. Yet, it
is trite, in the event of breach of the contract, a party is entitled
to compensation for any loss which naturally arises in the usual
course of things from such breach. In a given case, the parties
are free to provide for the compensation which, in their
estimation, is the loss which would be occasioned on account of
breach of contract.
39. The policy of law, as enshrined in Sections 73 and 74 of
the Indian Contract Act, 1872, is that a party who is entitled to
the compensation for the breach of contract ought to receive a
reasonable compensation, even where a sum is named in the
contract to be payable in the event of breach of contract, if the
Court finds that the said amount is in the nature of a penalty.
Where the parties have named a sum, the Court is competent to
award a reasonable compensation in case of breach, even if no
actual damage is proved to have been suffered in consequence of
breach of contract.
40. In the case of Oil and Natural Gas Corporation Ltd.
(supra) the Supreme Court culled out the propositions which
govern the award of damages. They read as under :
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“68. From the aforesaid discussions, it can be held that :
(1) Terms of the contract are required to be taken into
consideration before arriving at the conclusion whether the
party claiming damages is entitled to the same;
(2) If the terms are clear and unambiguous stipulating the
liquidated damages in case of the breach of the contract
unless it is held that such estimate of damages/
compensation is unreasonable or is by way of penalty,
party who has committed the breach is required to pay
such compensation and that is what is provided in Section
73 of the Contract Act.
(3) Section 74 is to be read along with Section 73 and,
therefore, in every case of breach of contract, the person
aggrieved by the breach is not required to prove actual loss
or damage suffered by him before he can claim a decree.
The Court is competent to award reasonable compensation
in case of breach even if no actual damage is proved to have
been suffered in consequences of the breach of a contract.
(4) In some contracts, it would be impossible for the Court
to assess the compensation arising from breach and if the
compensation contemplated is not by way of penalty or
unreasonable, Court can award the same if it is genuine
pre-estimate by the parties as the measure of reasonable
compensation.”
41. The aforesaid being the position in law, whether the
stipulation to pay a penalty at the rate of Rs.20,000/- per day,
even if one were to assume that the plaintiff was liable to pay
the service tax, (though the recovery of the service tax was
initially stayed and subsequently compounded and discharged),
was in terrorem or a reasonable pre-estimate of damages would
warrant adjudication at the trial.
42. In the totality of the circumstances, however, in the face of
the indisputable withholding of the security deposit, the defence
of recovery of the unpaid amount of one month's licence fee and
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service tax, alongwith the penalty at the rate of Rs.20,000/- per
day, appears to be a tenuous and, thus, constituted a defence
which appeared to be plausible but improbable. The trial court
was justified in holding that there was doubt about the
genuiness and bona fide of the defence set up by the
defendants. In such a situation, the trial court would have been
justified in imposing a condition to deposit the entire principal
sum, even together with interest at a just rate, especially in view
of Clause 5.3(ii) of the Leave and Licence Agreement, which
provides for payment of interest at the rate of 18% per annum.
43. Thus, viewed through the aforesaid prism, the learned
Judge, City Civil Court, cannot be said to have committed any
error in law in granting leave to defend the suit, subject to
deposit of the undisputed security deposit amount minus one
month's licence fee. The discretion to impose the condition of
deposit of amount cannot be said to have been exercised in an
unreasonable or capricious manner.
44. Resultantly, in exercise of writ jurisdiction, no interference
is warranted with the impugned order. The petition, therefore,
deserves to be dismissed.
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45. Hence, the following order:
: O R D E R :
(i) Petition stands dismissed.
(ii) Rule discharged.
No costs.
[N. J. JAMADAR, J.]
Time granted to the petitioners-defendants to deposit the
amount in terms of the order passed by the trial Court is
extended by four weeks from today.
[N. J. JAMADAR, J.]
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