ATC TELECOM TOWER CORPORATION PVT. LTD. vs. VIDEOCON TELECOMMUNICATIONS LTD.

* IN THE HIGH COURT OF DELHI AT NEW DELHI

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% Judgment reserved on: 24 May, 2016
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Judgment pronounced on: 14 September, 2016
+ O.M.P.(I) (COMM.) No.107/2016, I.A. Nos.4955/2016,
4995/2016, 6253/2016 & 9017/2016

ATC TELECOM TOWER CORPORATION PVT. LTD. ..... Petitioner
Through Mr.Sandeep Sethi, Sr.Adv. with
Mr.Amar Gupta, Mr.Manish Jha,
Mr.Divyam Agarwal & Ms.Vandana
Anand, Advs.

versus

VIDEOCON TELECOMMUNICATIONS LTD. ..... Respondent
Through Mr.Sndeep S. Ladda, Adv. with
Mr.Soumik Ghosal, Ms.Shikha
Sarin, Mr.Nakul Mohta &
Mr.Devender Singh, Advs. for the
respondent.

Mr.Amit Singh Chadha, Sr.Adv.
with Mr.Anil Kumar Sangal,
Mr.Siddharth Sangal & Mr.Sahil
Mongia, Advs. for State Bank of
India.

CORAM:
HON'BLE MR.JUSTICE MANMOHAN SINGH

MANMOHAN SINGH, J.

1. The present petition has been filed under Section 9 of the
Arbitration and Conciliation Act, 1996 (for short, "the Act"), pending
arbitration, for seeking interim protection by way of an interim order,
directing the respondent to furnish reasonable security in the sum of
Rs.1,33,40,350/-.
OMP(I)(COMM.) No.107/2016 Page 1 of 40

2. The petitioner is also seeking relief restraining the respondent
from selling, transferring or otherwise alienating or creating any third
party interest in its spectrum in the State of Bihar, Gujarat, Haryana,
Madhya Pradesh, UP (East) and UP (West) Circle.
3. The petitioner, a "Telecom Infrastructure Service Provider",
makes available passive telecom infrastructure in the shape of mobile
towers to its customers for providing the communication services to
the public at large throughout India. Respondent is a telecom
operator providing telecom services pursuant to the Unified
Access Services Licenses (UASL) issued by the Department of
Telecommunications, Government of India, to establish, install
operate and maintain Unified Access Services and other Value Added
Services, in various telecom service areas/circles in India.
st
4. On 1 June 2009, a Passive Infrastructure Sharing Agreement
("ETIPL MSA") was entered into between Essar Telecom Infrastructure
Pvt. Ltd. (now ATC Telecom Tower Corporation Pvt. Ltd., the
petitioner herein) and Datacom Solutions Private ltd. (now Videocon
Telecommunication Limited, the respondent herein) for providing the
passive telecom infrastructure facilities and services all over India.
Subsequently, the petitioner and the respondent had entered into a
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Settlement Agreement on 15 December 2014 and a subsequent
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Addendum on 5 May 2015.
5. Relevant Terms in the Agreement:
i) The term "Anchor Site” has been defined as under:
"Anchor Site(s)” means Site(s) occupied by
Datacom or Service Order released by Datacom or
constructed for and on the instruction /requirement
OMP(I)(COMM.) No.107/2016 Page 2 of 40

of the Datacom after confirmation of the
nominal/co-ordinates from the Datacom."

ii) The term "Shared Telecom Site" has been defined as
under:
"Shared Telecom Site(s)” means the existing Site
(s) of the Infrastructure provider which are shared
by other Telecom operators or made available
simultaneously to one or more Telecom operators."

iii) The term "Services" has been defined as under:
"Services” Means provisioning of services at Site
along with Passive Telecom Infrastructure facilities
built thereon and the related operations and
maintenance services as more fully described in the
Schedule 1."

iv) Clause 1.5 states the 'Initial Term and Renewal' for the
parties as per the agreement. The Clause 1.5.1 reads as under:
"This Agreement shall come into effect from the
date first above written, and will remain valid for a
period of 15 years for each of the Anchor Sites as
well as Shared Sites with effect from the respective
commencement dates ("Term"). Upon the expiry of
the Term, in case any Site(s) are still under
operation under this Agreement, each such Site
shall be used by Datacom for a period not
exceeding 15 years for both Anchor Sites as well as
Shared Sites from its Commencement Data and
each such Site shall continue to be governed by the
term and conditions of this Agreement. For
avoidance of doubts it is clarified that those sites,
which have not completed 15 years of tenancy by
Datacom as on the date of expiry of 15 years from
the date of signing of this Agreement, shall be
operative and bound by the terms of this agreement
till the completion of 15 years of tenancy from their
respective commencement dates."

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v) For the Lock-in period between the parties, the Clause
1.5.3 states as under:
"Each Site shall have a lock-in period of 10 years
for Anchor site and 7 years for Shared site from the
Commencement Date of each Site ("Lock-in
Period"). Under the following circumstances, any
particular Site may be vacated by Datacom before
expiry of Lock-in Period:

(a) the final order of any Government
(Central/State) or any statutory body; subject to
submission of the relevant documents;

(b) Rejection of SACFA approval subject to
submission of the relevant documents;

(c) in the Event of Infrastructure Provider failing to
remedy any breach of terms & conditions of this
Agreement having a Material Adverse Effect on this
Agreement within 30 days of a written Notice
served by Datacom after the expiry of a cure period
of 15 days from the date of breach.

(d) Force Majeure as explained in details under
Clause 1.10 under "Force Majeure";

(e) The Infrastructure Provider ceases to be in
operation/existence or becomes bankrupt or
insolvent.

In the above cases (Clause 1.5.3), as long as such
circumstances are not caused due to the fault of
Datacom, the Lock-in-Period shall not be binding on
Datacom and Datacom shall be free to terminate its
Service Order with respect to a particular site
without incurring any liability whatsoever.”

vi) With respect to the 'Early Termination' between the
parties, the clause 1.5.5 states as under:
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"Subject to provisions of this Clause 1.5, if either of
the parties wishes to exit from any of the Sites
before completion of the lock-in period due to any
reason other than those mentioned above ('Early
Termination'), then the exiting party shall pay to
the other party as per the schedule provided in the
agreement. ”

6. The respondent in view of the agreement and terms thereof had
agreed to pay the Fees and Actual Costs according to the terms and
conditions of the Agreement as provided in Schedule 2 of the
Agreement. The fee is the infrastructure provisioning fees payable by
the respondent to the petitioner in consideration of the services
provided with respect to the Anchor sites and Shared sites.
7. The agreement provided the clause that in case the respondent
is to exit during the lock-in period, the respondent is liable to pay the
fee for the residual period of the lock-in for the sites as provided in
the said Agreement. The Agreement executed between the parties
also provided for no waiver by both the parties and no provision of
the agreement will be deemed to have been waived by either party
unless the waiver is in writing and has been signed by the party
against whom the enforcement is attempted.
8. The parties have agreed in Clause 9.2 of Schedule II of the
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Agreement dated 1 June 2009 about the Interest on Delayed
Payment which is stated as under:
"9.2 For delay in payment beyond 15 days after the
expiry of Payment timeline as detailed in Clause 9.3
below, the Infrastructure Provider shall be entitled for
interest of 15% per annum. The cure period as defined
under Clause 1.24(g) of the main Agreement shall not be
applicable in such cases."

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9. The petitioner further submits that despite of the agreements,
the respondent has defaulted in its obligations and payments in terms
of the agreements for providing the aforesaid services. Even
reminders and follow-ups were issued, but the respondent had failed
to clear its dues in the timeline provided under the Agreement.
10. It is mentioned in the petition that in December 2014, the
respondent's outstanding payment accumulated to more than
Rs.1 Crore which made it difficult for the petitioner to bear the day-
to-day expenses for maintaining the sites. In view of the aforesaid
outstanding, the respondent had approached the petitioner with a
request to enter into a Settlement Agreement for the payment of
outstanding contractual payments under the Principal Agreement. It
is stated by the petitioner that in order to resolve the issue for the
payment of outstanding contractual payments, the petitioner had
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entered into a Settlement Agreement dated 15 December 2014
("SA"). Under the SA, the respondent agreed to pay Rs.1 crore as
one time settlement amount. Since, the respondent had, under the
SA, agreed to increase the lock in period for a period of additional 23
months, the petitioner, in consideration thereof, had agreed to waive
off the claims for lock in charges for 150 telecom sites respondent
had exited.
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11. The respondent by its letter dated 27 November, 2015 had
informed the petitioner that it will be shutting down its mobile
operations in Gujarat Service Area with effect from the midnight of
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26 December, 2015 and the sites will be remotely switched off by
the Company. The respondent had further requested the petitioner to
immediately stop billing for its sites and allow the Company to
remove its telecommunication equipments without imposition of any
OMP(I)(COMM.) No.107/2016 Page 6 of 40

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exit penalty. Subsequently, the respondent by its letters dated 11
rd st th
December 2015, 23 December 2015, 21 January 2016 and 15
st
March 2016 had revised their exit dates to 31 May, 2016 as a
premature exit from the agreement. The said fact has not been
denied by the respondent.
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In reply, the petitioner by its letter dated 22 December 2015
had rejected the request of the respondent for an Early Exit without
imposition of the Exit cost. The petitioner had informed the
respondent of its consistent default and demanded the outstanding
amount of Rs.10 lakhs due to the petitioner as on December 2015.
Further, the petitioner had demanded an amount of Rs.50,11,369/-
towards the Exit fee under the terms of the MSA.
12. It is alleged by the petitioner that the respondent had
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discontinued its mobile services with effect from 24 May, 2016, after
selling its entire spectrum in all six circles to Bharti Airtel. The
communications between the parties show that the respondent is
indebted to the petitioner and has never denied its liability towards
the payment of the outstanding charges. Therefore, if the petitioner is
not secured, pending arbitral process, there is every possibility that
the Award which may be obtained would result in a paper decree or a
decree which cannot be enforced on account of financial inability of
the respondent to satisfy the decree.
13. It is stated that since the respondent has sold its spectrum to
Bharti Airtel for an aggregate consideration of Rs.4,428 crores and
now not in a financial position to clear the outstanding; and any
decree/award passed pursuant to the arbitration between the parties,
will remain a paper decree/award as the petitioner would not be able
to enforce the same. In view of the respondent's imminent exit from
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the telecom business and its weak financial condition, the petitioner
has filed the present petition for securing the amount claimed in the
arbitration.
14. The respondent has filed the reply to the petitioner’s petition
under Section 9 of the Act wherein the respondent inter-alia have
raised the following pleas:
a. Lack of jurisdiction under Section 9 of the Act.
b. Petitioner is guilty of suppressio veri, suggestio falsi as the
petitioner has concealed a fact that despite of the
cancellation of 2G Licenses, the respondent has continued to
make payments and till date has made substantial payments
of about Rs.31.3 Crores and also did not disclose the fact
that the respondent's assets are worth almost Rs.4.95 crore
which is in petitioner's possession.
c. There was a need of transfer of spectrum to reduce the
loan/liabilities of around Rs.3717 crore and interest liabilities
of Rs.450 Crore per year payable to the Secured Creditors
(Consortium of Banks). The said transfer is only of the
Spectrum and not of the entire company or entire assets of
the respondent-Company. Spectrum transfer is subject to
the payment of all statuary dues and subject to the
fulfillment of various conditions precedent and subsequent
obligations.
d. The transfer of spectrum is in larger public interest
enshrined in TRAI Report and DOT Guidelines. There is a
first charge of Secured Creditors (Consortium of Banks) on
the entire assets of the respondent's including the Spectrum.
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Therefore, the petitioner cannot claim the preference over
the Secured Creditors.
e. The claim of the petitioner is unexplained. The respondent
has also made all payments under the agreement. No
primacy ought to be given to the petitioner by granting any
interim protection without examining the counter claim of
the respondent.
15. In the rejoinder submissions, it is contended by the petitioner
that the petition is maintainable under Section 9 of the Act, as the
issue of maintainability of such a petition in case of disputes between
an Infrastructure Service Provider and a telecom operator is no more
a res-integra, as this Court in the matter of Viom Networks Ltd. v.
S-Tel & Ors. , AIR 2014 Del 31, rejected the aforesaid contention of
the respondent therein and held that the petition under Section 9 of
the Act would be maintainable in respect of a dispute concerning an
Infrastructure Service Provider and a telecom operator. The grounds
taken in the reply by the respondent herein in support of their
contention that TDSAT will have the exclusive jurisdiction to decide
the present dispute were specifically dealt and rejected by this Court.
The objection of the respondent S.Tel Pvt. Ltd. that Viom as
Infrastructure Providers are service providers within the meaning of
Section 2(1)(j) of the TRAI Act and that the disputes which have
arisen between the Viom Networks and S.Tel Pvt. Ltd. are within the
jurisdiction of TDSAT, was rejected by this Court. While deciding the
aforesaid case, this Court had also considered the decision of TDSAT
in the case of Reliance Infratel v. Etisalat DB Telecom Ltd.,
(2012) TDSAT 617. Therefore, the reliance of the respondent on the
aforesaid judgment of TDSAT in Reliance Infratel matter is misplaced.
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The judgment of the TDSAT is not binding upon this Court. The issue
of maintainability on the ground urged in the reply has already been
examined and decided by this Court in favour of the petitioner in the
aforesaid case. It is submitted that as far as this Court is concerned,
the aforesaid judgment of this Court in Viom Networks matter will
hold the field. In view of the aforesaid, it is submitted that the
present petition is maintainable.
16. Before dealing with the rival submissions of the parties, it is
necessary to first deal with the argument of the respondent for lack of
jurisdiction of this Court to entertain the petition. It is argued on
behalf of the respondent that the disputes raised by the petitioner are
not arbitrable. Admittedly, the petitioner holds IP-1 license/
authorization granted by the DOT and the respondent holds Unified
License granted by DOT under Section 4 of the Telegraph Act. The
petitioner and the respondent are providing telecommunication
services and they are the service providers/licensees as defined in
Section 2(e) and (j) of the TRAI Act.
17. Section 14 of the said Act provides that TDSAT shall have the
exclusive jurisdiction to adjudicate the disputes between the two
service providers/licensees. The dispute raised by the petitioner
pertains to MSAs entered into between the petitioner and the
respondent in capacity of being licensees/service providers. It is
submitted that in view of Section 14 of TRAI Act, only TDSAT, which
has been conferred exclusive jurisdiction, can adjudicate such
disputes and it cannot be a subject matter of Arbitration. Therefore,
the arbitration clause is also null and void.
18. The respondent has further relied upon the judgment passed by
TDSAT in Reliance lnfratel (supra) to state that the decision passed
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by TDSAT in the aforesaid case is the correct law, and not the law
pronounced by this Court in Viom Network Ltd. (supra). On the
strength of the TDSAT judgment, the contention has been made by
the respondent to reconsider the judgment passed by this Court in
Viom Network's matter.
19. The issue of maintainability of a petition under Section 9 of the
Act in case of disputes between an Infrastructure Service Provider and
a telecom operator has been considered by this Court in the matter of
Viom Networks Ltd. (supra), wherein the court had rejected the
aforesaid contention of the respondent therein and held that the
petition under Section 9 of the Act would be maintainable in respect
of a dispute concerning an Infrastructure Service Provider and a
Telecom Operator.
20. The judgment of Union of India v. Tata Teleservices , (2007)
7 SCC 517 cited by the respondent in support of its contention, on
maintainability, is inapplicable in the present case. In the aforesaid
case, the dispute was between the Central Government (licensor
under the TRAI Act) and Tata Tele Services (to whom licenses were
intended to be issued). In the said case, the question before the
Supreme Court was as to whether a person would become a licensee
under the Central Government only on the actual grant of a license
and whether only a dispute arising after the grant of a license would
come within the purview of the TRAI, Act. The Supreme Court, in
those circumstances, has held that a dispute commencing with the
acceptance of a tender leading to the possible issue of a license and
disputes arising out of the grant of license even after the period has
expired would all come within the purview of Section 14(a) of the
TRAI Act. To put it differently, the Supreme Court has held that
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Section 14 takes within its sweep the disputes following the issue of a
Letter of Intent pre grant of actual license as also disputes arising out
of a license granted between a quondam licensee and the licensor.
21. Another judgment of Andhra Pradesh High Court in Indus
Towers Limited v. The Commercial Tax Officer, 2012(4) ALT 755
cited by the respondent is also not applicable in the present facts as
the issue in the said case was as to whether in the factual context of
the Registration Certificate issued and the nature of the petitioner's
business (an infrastructure provider category-1), the goods purchased
by the petitioners/dealers (for the purposes of building, operating and
maintaining passive telecom infrastructure and where on the towers
erected and maintained but nonetheless continued to be owned by
the petitioner – the passive infrastructure provider; goods which are
indisputably integrally associated with the building and maintenance
of the cell towers), are goods falling within the ambit of Section 8(1)
read with the provisions of Section 8(3)(b) of the CST Act, and thus
eligible only at the concessional rate of tax provided in Section 8 (1).
Similarly, the judgment of State of Punjab v. Raghunath Dass, AIR
1963 Punjab 76 cited by the respondent is also not applicable. In this
case, the definition of licensee was examined in the context of the
Punjab Excise Act. This decision is of no help to the respondent in
support of its argument of non-maintainability of the present petition.
The judgment of Delhi High Court in Home Solutions Retails Ltd. v.
UOI , 182 (2011) DLT 548, is also not applicable in the present case
as the issue before the High Court in that case was a challenge to
Section 65(105)(zzzz) of the Finance Act, 1994 in as much as it
purported to levy service tax on renting of the immovable property to
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be used for commercial/business purposes. The facts and
circumstances are materially different.
22. The objection of the respondent about the maintainability of the
present petition was also urged by the respondent in Viom Networks
Ltd. (supra) which was duly examined and rejected by this Court. In
this matter also, this Court has considered the decision of TDSAT in
Reliance Infratel (supra) matter in para 28. Therefore, the reliance
of the respondent on the aforesaid judgment of TDSAT in Reliance
Infratel (supra) matter is misplaced. Even otherwise, the judgment
of the TDSAT is not binding upon this Court. As far as this Court is
concerned, the judgment of this Court in Viom Networks (supra) will
hold the field though I have been informed by the parties that an
appeal against the said judgment is subjudice. Once after considering
the similar objections, learned Single Judge has taken the view that
this Court has jurisdiction, I am not inclined to take a different view
although, I am informed that appeal is pending against the order
passed by the learned Single Judge. Both sides have confirmed that
the operation of the order has not been stayed. Thus, at this stage, in
my view, the said order is also applicable in the facts of the present
matter also.
23. The next submission of the respondent is that the respondent is
transferring only the Spectrum and not its entire assets. Even
otherwise, the respondent has sufficient asset base, is not a fly-by-
night operate and is not in a position of bankruptcy and as such no
cause for deposit of any security arises.
24. It is admitted in the reply by the respondent that through the
transfer of sale of spectrum, net receivable amount is only Rs.2,066
Crores, whereas the amount payable to the Banks and the Financial
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Institutions is Rs.4575.98 Crores. This clearly shows that the
respondent is in a huge financial crisis. Prima facie , it appears to the
Court that after having sold the Spectrum, the respondent may not be
able to satisfy all the liabilities of the Banks and Financial Institutions
as the respondent, in its reply, is not able to explain as to the source
of revenue/income from where they will be able to bridge the huge
gap of huge liabilities even after the sale of its spectrum. The
liabilities of the Banks and the Financial Institutions would split
thereby. Therefore, at this Prima facie stage, it cannot be assessed or
concluded that despite of having sold the Spectrum, the respondent
has sufficient funds to clear the liabilities in case the award is passed
against the respondent, as the respondent may not have any other
substantial business to generate resources and revenue for satisfying
its various liabilities including the claim of the petitioner. Even the
auditor's report of Videocon Industries does not clearly disclose that
the respondent may turn around on the basis of other businesses.
Thus, the submission of the respondent at present cannot be accepted
that the respondent is in sound condition to pay the amount if the
Award is published in favour of the petitioner in view of the other
business activities of the respondent, as admittedly, the petitioner has
provided the services under the Agreement and is liable to be paid.
Securing the payment which the petitioner has claimed in its
Section 9 petition has nothing to do with the claims of the Banks and
the Financial Institutions. There is no force in the submission of the
respondent in this regard because on one hand, the respondent
submits that the first charge is with the Banks and the Financial
Institutions and on the other hand, it is canvassed that the
respondent-Company is in solvent position and is able to fully revive
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in view of other businesses being carved out. At the same time, it is
pleaded that the Spectrum is being sold as the condition of the
respondent’s financial position is critical. There is no averment made
in the reply that the secured creditors are initiating or have initiated
any proceedings for enforcement of their securities against the
respondent. Therefore, the sale of spectrum by the respondent is a
commercial decision and not due to any proceeding initiated by the
lending banks, as had been argued by the respondent during the
hearing on last date. Even, admittedly the leading banks so far have
not taken any steps to recover the amount from the respondent.
Instead, a mere statement is made on their behalf that since the
parties were talking to each other with regard to selling of the
Spectrum, therefore, no action was taken.
25. It is rightly argued on behalf of the petitioner that it has a right
under Section 9 of the Act to seek injunctive as well as any other
relief for securing the amount in dispute in the Arbitration
proceedings if a valid case is made out. The Court has full power
under Section 9 of the Act to pass any interim order if it is the case of
admitted liabilities.
26. The respondent's reliance upon various judgments with regard
to Order XXXVIII rule 5 is misplaced as none of them are passed in
respect of Section 9 of the Act. The rigors of Order XXXVIII rule 5
CPC, as held by the Mumbai High Court, cannot be put into place to
defeat the grant of relief under Section 9 of the Act. Every case
depends upon its own circumstances. For admitted liabilities and
malafide intention of the non-applicant, this Court can pass the order
for securing the amount but in every case, the relief order under
Order XXXVIII Rule 5 cannot be granted.
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i) In Deccan Chronicle Holdings v. L & T Finance Limited ,
Appeal (Lodging) Nos.130 and 131 of 2013 in Arbitration
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Petition Nos. 1095 and 1321 of 2012; decided on 8 August,
2013 the Bombay High Court has specifically rejected the
contention that the grant of interim measures under
Section 9 of the Act would be governed by the underlying
principles for the grant of interim relief under Order XXXVIII
Rule 5 CPC. While rejecting the aforesaid contention the
Court held that:
''The principle is that when the Court decides a
petition under Section 9, the principles which have
been laid down in the Code of Civil Procedure,
1908 for the grant of interlocutory reliefs furnish a
guide to the Court. Similarly in an application for
attachment, the underlying basis of Order XXXVIII
Rule 5 would have to be borne in mind. At the
same time it needs to be noted that the rigors of
every procedural provision of the CPC cannot be
put into place to defeat the grant of relief which
would subserve the paramount interests of the
justice. The object of preserving the efficacy of
arbitration as an effective form of dispute
resolution must be duly fulfilled. This would
necessarily mean that in deciding an application
under Section 9, the Court would while bearing in
mind the fundamental principles underlying the
provisions of the CPC, at the same time, have the
discretion to mould the relief in appropriate cases
to secure the ends of justice and to preserve the
sanctity of the arbitral process.”

ii) Petitioner also relies upon the decision of Bombay High
Court in Nimbus Communications Limited Vs. Board of
Control for Cricket in India and another , 2012(4)
Arb.L.R. 113 for the aforesaid proposition of law.

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27. Let me now deal with the merit of the case. The present
petition is filed for the recovery of outstanding from the respondent
accumulated to Rs.1,33,40,350/- for the loss of revenue including exit
fee.
28. Out of the total sum of Rs.1.33 Crores claimed by the
petitioner, a sum of Rs.50.11 Lakhs has been claimed towards lock-in
liabilities. Further, the petitioner has claimed a sum of Rs.6,38,000
lakhs towards overdue invoices and Rs.50,11,369/- towards exit
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penalty in their letter dated 22 December, 2015 addressed to the
respondent. This sum was increased to a total claimed amount of
Rs.1.33 crores at the time of filing of their section 9 petition before
this Court.
UNPAID INVOICES
29. The actual claim of the petitioner on the date of filing of the
petition is Rs.6,38,000/- payable by the respondent. The petitioner
has not placed on record any document to prove the outstanding
amount claimed in the petition. The submission of the petitioner is
that the petitioner has clearly provided in the petition the heads under
which the respondent is liable to pay and the exact amount
outstanding under those heads. Annexure P-12 of petitioner's list of
documents is referred and the petitioner submits that the respondent
has failed to dispute the aforesaid calculations. It is stated that as far
as IP fee is concerned, there is no denial even in the reply filed by the
respondent that the same is not outstanding and payable by the
respondent herein. As far as the calculation of exit fee is concerned
the same is not disputed by the respondent. Only the applicability of
the exit fee has been disputed.
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30. It is correct that the respondent has for the first time, in their
reply to the petition, disputed their liability. Prior to the filing of the
reply, the respondent had never disputed their liability. Even in the
reply, the respondent has taken a vague plea of non-reconciliation of
outstanding invoices. The respondent has also failed to state in the
reply as to how much amount is outstanding as per their records. The
respondent, in the reply, has failed to place on record any of such
correspondence, wherein they have specifically denied the aforesaid
liabilities.
31. It is admitted by the petitioner that it has not only specifically
pleaded about the outstanding but has also filed a statement of
outstanding. It is stated that if the respondent was serious about
disputing the liability, they should have filed their statement of
accounts regarding the transaction. It is alleged that the
communications between the parties on record show that the
respondent never denied its liability. In this regard, the petitioner has
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referred the letter dated 13 April 2016 by the respondent.
32. The next plea raised by the respondent is that the petitioner
cannot claim the exit fee as of today as the agreement is not
terminated yet, and the clause for the exit fee will be triggered only
when the agreement is terminated. It is submitted on behalf of the
petitioner that the respondent has not disputed the amount of Exit fee
claimed. It is mentioned in the MSA that " Subject to provisions of
this Clause 1.5, if either of the parties wishes to exit from any of the
Sites before completion of the lock-in period due to any reason other
than those mentioned above ('Early Termination'), then the exiting
party shall pay to the other party as per the schedule provided in the
agreement. ” Thus, the entire Agreement need not be terminated for
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raising the exit claim. The exit fee claim was made by the petitioner
during the currency of the Agreement in 2014 also, which was not
disputed by the respondent, but was waived by the petitioner under
Supplementary Agreement in view of the respondent extending the
lock-in period.
33. As far as the claim of the petitioner of Rs.6,38,000 lakhs
towards overdue invoices is concerned, it is pleaded by the
respondent that the petitioner has retained the movable and
immovable assets of the respondent to the tune of Rs.4.95 crores as
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on 29 February, 2016 for the repayment of dues. Learned counsel
for the respondent submits that in case the petitioner is not agreeable
to return the equipments etc., the amount due if any has to be
adjusted. The petitioner has not denied the same except that the
value of assets is denied. During the course of hearing, it was stated
by the learned counsel for the petitioner that the said assets have no
market value and these are just junks and his client has no objection
if the same be removed. In the meanwhile, subject to the
reconciliation of the account, the said claim of the petitioner is
genuine as the same is liable to be secured. Subject to the other
adjustments, in case the said amount is already paid by the
respondent, both the parties are directed to verify the invoices within
two weeks from today and in case there is any outstanding, the same
shall be paid by the respondent within four weeks from the date of
the settlement of account. Once the amount is crystallized and paid
by the respondent, if due, the respondent is permitted to remove the
assets within two weeks after making the said payment.


OMP(I)(COMM.) No.107/2016 Page 19 of 40

EXIT FEE
34. It is submitted on behalf of the respondent that the exit fee as
provided in the MSAs are in the nature of liquidated Damages, and
which cannot be claimed without proving loss or legal injury. In the
present case, since the petitioner has not suffered any loss, as it has
already recovered its investment in the first five years of the
agreements itself, the exit fee cannot be claimed.
It is also submitted on behalf of the respondent that the exit fee
does not reflect a genuine pre-estimate of damage but it is in the
nature of penalty, which cannot be recovered under Section 74 of the
Contract Act. Even the petitioner in its communication as well as
pleadings has referred to the exit fee as ‘exit penalty'.
35. It is further submitted by the petitioner that the justification for
claiming the exit fee in the present case is not only the Capex
Recovery but the respondents unequivocal agreement to increase in
lock in period for further period of 23 months from the expiry of 10
years in case of anchor sites and 7 years in case of shared sites.
Therefore, the petitioner will suffer loss on account of premature exit
of the respondent from the petitioner's site. It is also submitted that
the petitioner, under the supplementary agreement, had agreed to
waive off the claims for Lock-in Charges in consideration of the
respondent extending the lock-in period for further 23 months.
36. On behalf of the petitioner, it is also submitted that the parties
while entering into the agreement had clearly made provision for
payment of fee in case of premature exit by the respondent from the
sites. At the time when the parties had entered into MSAs as well as
the Supplementary Agreement, they were aware that if the
OMP(I)(COMM.) No.107/2016 Page 20 of 40

respondent exits prematurely, the petitioner will suffer loss, and in
view thereof, a method to calculate that loss was provided in the
Agreement itself. Therefore, to say that it is in the nature of penalty
or not a genuine pre-estimate of damage is clearly untenable.
37. It is argued that merely using the word 'penalty' by the
respondent in the communication will not make the exit fee in the
nature of penalty. In support thereof, the judgments are referred by
the respondent in its reply, to the extent that the exit fee is in the
nature of penalty and it is inapplicable in the facts of the present
case. In the present case, the exit-fee envisaged in the Agreements,
is a genuine pre-estimate of damage suffered by the petitioner in case
the respondent prematurely exists the petitioner's sites. The genuine
nature of damage is apparent from the fact that the respondent had
itself agreed in the Settlement Agreement to pay the same in case of
prematurely exiting the sites.
38. In support of arguments, the petitioner has referred the
decision of the Supreme Court in ONGC v. Saw Pipes , AIR 2003 SC
2629 have while interpreting Sections 73 and 74 of the Contract Act
held that the party who is alleging that stipulated amount is not
reasonable compensation, has to prove the same. The relevant
excerpt of the judgment is as follows:
"46. From the aforesaid Sections, it can be held that
when a contract has been broken, the party who suffers
by such breach is entitled to receive compensation for
any loss which naturally arise in the usual course of
things from such breach. These sections further
contemplate that if parties knew when they made the
contract that a particular loss is likely to result from such
breach, they can agree for payment of such
compensation. In such a case, there may not be any
necessity of leading evidence for proving damages,
OMP(I)(COMM.) No.107/2016 Page 21 of 40

unless the Court arrives at the conclusion that no loss is
likely to occur because of such breach. Further, in case
where Court arrives at the conclusion that the term
contemplating damages is by way of penalty, the Court
may grant reasonable compensation not exceeding the
amount so named in the contract on proof of damages.
However, when the terms of the contract are clear and
unambiguous then its meaning is to be gathered only
from the words used therein. In a case where agreement
is executed by experts in the field, it would be difficult to
hold that the intention of the parties was different from
the language used therein. In such a case, it is for the
party who contends that stipulated amount is not
reasonable compensation, to prove the same.”
(Emphasis supplied)

39. In terms of Section 74 of the Indian Contract Act, 1872 where
the contract stipulates an amount that is payable by way of liquidated
damages/penalty, only reasonable compensation upto the maximum
of the amount stipulated in contract is recoverable. In other words,
Section 74 is disabling inasmuch as notwithstanding any such amount
stipulated in the contract, the Claimant is only entitled to reasonable
compensation for the loss it has suffered and for which compensation
cannot exceed the amount prescribed in the contract.
40. In this regard, the respondent has placed the reliance on the
following judgments:-
(i) In Kailash Nath Associates v. Delhi Development
Authority , (2015) 4 SCC 136, the Supreme Court has
observed the following:-
“43. On a conspectus of the above authorities, the
law on compensation for breach of contract Under
Section 74 can be stated to be as follows:
43.1. Where a sum is named in a contract as a
liquidated amount payable by way of damages,
OMP(I)(COMM.) No.107/2016 Page 22 of 40

the party complaining of a breach can receive
as reasonable compensation such liquidated
amount only if it is a genuine pre-estimate of
damages fixed by both parties and found to be
such by the Court. In other cases, where a sum
is named in a contract as a liquidated amount
payable by way of damages, only reasonable
compensation can be awarded not exceeding
the amount so stated. Similarly, in cases where
the amount fixed is in the nature of penalty,
only reasonable compensation can be awarded
not exceeding the penalty so stated. In both
cases, the liquidated amount or penalty is the
upper limit beyond which the Court cannot
grant reasonable compensation.
43.2. Reasonable compensation will be fixed on
well known principles that are applicable to the
law of contract, which are to be found inter alia
in Section 73 of the Contract Act.
43.3. Since Section 74 awards reasonable
compensation for damage or loss caused by a
breach of contract, damage or loss caused is a
sine qua non for the applicability of the Section.
43.4. The Section applies whether a person is a
Plaintiff or a Defendant in a suit.
43.5. The sum spoken of may already be paid or
be payable in future.
43.6. The expression "whether or not actual
damage or loss is proved to have been caused
thereby" means that where it is possible to
prove actual damage or loss, such proof is not
dispensed with. It is only in cases where
damage or loss is difficult or impossible to
prove that the liquidated amount named in the
contract, if a genuine pre-estimate of damage
or loss, can be awarded.
OMP(I)(COMM.) No.107/2016 Page 23 of 40

43.7. Section 74 will apply to cases of forfeiture
of earnest money under a contract. Where,
however, forfeiture takes place under the terms
and conditions of a public auction before
agreement is reached, Section 74 would have
no application”.
44 . The Division Bench has gone wrong in principle.
As has been pointed out above, there has been no
breach of contract by the appellant. Further, we
cannot accept the view of the Division Bench that
the fact that DDA made a profit from re-auction is
irrelevant, as that would fly in the face of the most
basic principle on the award of damages—namely,
that compensation can only be given for damage or
loss suffered. If damage or loss is not suffered, the
law does not provide for a windfall.”
(Emphasis supplied)
(ii) In Tower Vision India Pvt. Limited v. Procall P. Ltd.,
(2014) 183 Comp. Cases 364 (Delhi), this Court has
observed that:
“13. ………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 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…”
OMP(I)(COMM.) No.107/2016 Page 24 of 40

“24. ..….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”. (Emphasis supplied)


th
(iii) In the recent judgment dated 8 July, 2016 passed in
Indus Tower Limited v. Sistema Shyam Teleservices
Limited, O.M.P. (I) (Comm.) No.103 of 2016, it was held
as under:-
“ 81. From the entire gamut, prima facie it appears
that the liability of Exit Charges cannot be treated
as pre-estimated damages. The said charges are
payable in the event of termination of a service
contract under specific grounds as stipulated in
Schedule 5 Part 2 read with clause 18.2 of MSA.
After the trial, if the case is made out, then the
petitioner might be entitled for compensation.”

( iv) Vishal Engineering & Builders v. Indian Oil
Corporation Limited, 2012(1) Arb. LR 253 (Delhi) (DB)
[Paras 19,20,22,23,24,37&39]
“ 12. …..Section 74 of the Contract Act stipulates
that in case of such a broken contract if a sum is
named in the contract as the amount to be paid in
case of such breach, whether or not actual damage
or loss is proved to have been caused thereby, the
aggrieved party is entitled to receive from the
opposite party who has broken the contract, a
reasonable compensation not exceeding the amount
so named.
37. …..Merely because there is a clause of liquidated
damages that does not mean that the amount of
liquidated damages has to be recovered even when
OMP(I)(COMM.) No.107/2016 Page 25 of 40

no loss has been caused. The respondent had to
establish that loss was caused.”

41. Mr.Sandeep Sethi, learned Senior counsel appearing on behalf
of the petitioner has placed the reliance in this regard on ONGC Ltd.
(supra), particularly paras 64 to 68 which read as under:-
“64. It is apparent from the aforesaid reasoning recorded
by the Arbitral Tribunal that it failed to consider Sections
73 and 74 of the Indian Contract Act and the ratio laid
down in Fateh Chand case wherein it is specifically held
that jurisdiction of the court to award compensation in case
of breach of contract is unqualified except as to the
maximum stipulated; and compensation has to be
reasonable. 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 not actual loss is proved to have been caused,
thereby to receive from the party who has broken the
contract reasonable compensation not exceeding the
amount so named. Section 74 emphasizes that in case of
breach of contract, the party complaining of the breach is
entitled to receive reasonable compensation whether or not
actual loss is proved to have been caused by such breach .
Therefore, the emphasis is on reasonable compensation. If
the compensation named in the contract is by way of
penalty, consideration would be different and the party is
only entitled to reasonable compensation for the loss
suffered. But if the compensation named in the contract for
such breach is genuine pre-estimate of loss which the
parties knew when they made the contract to be likely to
result from the breach of it, there is no question of proving
such loss or such party is not required to lead evidence to
prove actual loss suffered by him. Burden is on the other
OMP(I)(COMM.) No.107/2016 Page 26 of 40

party to lead evidence for proving that no loss is likely to
occur by such breach. Take for illustration: if the parties
have agreed to purchase cotton bales and the same were
only to be kept as a stock-in-trade. Such bales are not
delivered on the due date and thereafter the bales are
delivered beyond the stipulated time, hence there is breach
of the contract. The question which would arise for
consideration is — whether by such breach the party has
suffered any loss. If the price of cotton bales fluctuated
during that time, loss or gain could easily be proved. But if
cotton bales are to be purchased for manufacturing yarn,
consideration would be different.........................

............... 66. In Maula Bux case the Court has specifically
held that it is true that 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 and the court is competent to award
reasonable compensation in a case of breach even if no
actual damage is proved to have been suffered in
consequence of the breach of contract. The Court has also
specifically held that in case of breach of some contracts it
may be impossible for the court to assess compensation
arising from breach.
67. Take for illustration construction of a road or a
bridge. If there is delay in completing the construction of
road or bridge within the stipulated time, then it would be
difficult to prove how much loss is suffered by the
society/State. Similarly, in the present case, delay took
place in deployment of rigs and on that basis actual
production of gas from platform B-121 had to be
changed................ In our view, in such a contract, it
would be difficult to prove exact loss or damage which the
parties suffer because of the breach thereof. In such a
situation, if the parties have pre-estimated such loss after
clear understanding, it would be totally unjustified to arrive
at the conclusion that the party who has committed breach
of the contract is not liable to pay compensation. It would
be against the specific provisions of Sections 73 and 74 of
the Indian Contract Act. There was nothing on record that
compensation contemplated by the parties was in any way
unreasonable. It has been specifically mentioned that it
OMP(I)(COMM.) No.107/2016 Page 27 of 40

was an agreed genuine pre-estimate of damages duly
agreed by the parties. It was also mentioned that the
liquidated damages are not by way of penalty...............
There was no reason for the Tribunal not to rely upon the
clear and unambiguous terms of agreement stipulating
pre-estimate damages because of delay in supply of
goods. ...........................

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 consequence 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, the court can award the same if it is
genuine pre-estimate by the parties as the measure of
reasonable compensation ............”

42. In reply to the said citation of Saw Pipes (supra), it is
submitted by the respondent that the aforesaid judgment would not
help the case of the petitioner since it is entitled without any proof of
OMP(I)(COMM.) No.107/2016 Page 28 of 40

damages/loss to the exit charges as stipulated in the contract,
inasmuch as the relevant clause at issue in the aforesaid judgment
expressly stipulated that the amount in question is a genuine pre-
estimate of damages as understood by the parties. The present case
is not a case where the issue of public utility is involved or it is also
not a case where it is difficult to assess the compensation. Therefore,
the petitioner is to prove the damages regarding the exit charges.
Further, this Court in Indus Tower Limited (supra) has held that
exit charges cannot be treated as damages as stipulated in Schedule
5 Part II with the clause of MSA.
43. It is correctly argued that no such stipulation is present in the
instant contract between the parties. In Kailash Nath (supra) which
considers various judgments on the point and also by a Division
Bench of this Court in Vishal Engineers (supra), it is only where
damages cannot be assessed and/or are impossible to prove, and the
contract in question contains a stipulation to pay a specified amount
by way of a genuine pre-estimate of damages, that such amount
would be payable without proof of the extent of actual loss/damage.
The Supreme Court in Saw Pipes (supra) has contemplated the onus
shifting to the defendant to establish the absence of loss/damage and
not otherwise. It is rightly observed in the said judgment that where
the contract in question is one relating to a public utility and for
instance the loss/damage to the public on account of delay in due
execution, the loss on account of the breach is not amenable to
precise quantification and assessment.
44. One instance of the application of the principle as articulated in
ONGC’s case, which in no manner deviates or indeed could have
deviated from the settled position in law under Section 74 as
OMP(I)(COMM.) No.107/2016 Page 29 of 40

enunciated by previous larger and co-ordinate Benches, is the
decision of the Supreme Court in Construction and Design
Services v. Delhi Development Authority , (2015) 14 SCC 263
which is related to a public utility and had contained an express
finding to the effect that the contractor had failed to execute the work
(construction of sewerage pumping station) (para 14). It is in this
context that the Supreme Court held that if the entire amount
stipulated is a genuine pre-estimate of damages, actual loss need not
be proved (para 16). The Court further premised this conclusion on a
finding that the evidence of precise amount of loss may not be
possible (para 17).
45. The dicta of the Constitutional Bench of the Supreme Court
rendered in Fateh Chand v. Balkishan Das, AIR 1963 SC 1405, is
quoted often in judgments dealing with the issue of liquidated
damages. In the said judgment, the Supreme Court held as under:
“ The section undoubtedly says that the aggrieved party is
entitled to receive compensation from the party who has
broken the contract, whether or not actual damage or loss
is proved to have been caused by the breach. Thereby, it
merely dispenses with the proof of ‘actual loss or damages’;
it does not justify the award of compensation when in
consequence of the breach no legal injury at all has
resulted…..”
46. A party, who has suffered breach, is entitled to compensation .
In State of Kerala & Ors. v. United Shippers and Dredgers, AIR
1982 Kerala 281, a Division Bench of Kerala High Court was
confronted with the question “ Whether even in the absence of legal
injury resulting from the breach of contract, claim for compensation
will lie in the light of Section 74 of the Contract Act.” Considering the
question, the Kerala High Court held:
OMP(I)(COMM.) No.107/2016 Page 30 of 40

“ Compensation is something that constitutes an equivalent
or recompense; making things equivalent; satisfying or
making amends”. This is how the word compensation has
been explained in Biswas’s Encyclopaedic Law Dictionary
and in Jowitt’s Dictionary of English Law. Black’s Law
Dictionary explains compensation as ‘indemnification;
payment of damages; making amends; making whole;
giving an equivalent or substitute of equal value; that which
is necessary to restore an injured party to his former
position. ‘Compensation’ signifies restoration of position or
making things equivalent or recompense. Necessarily,
something must have happened as a result of the breach of
contract which requires an act of recompense or restoration.
If the breach has not resulted in any harm, loss or
damage to the other party, the question of
recompensing him or restoring to him something
which he has lost would not arise. That is the reason
why Section 73 of the Act states 'compensation for any loss
or damage caused to him thereby'. However grievous or
serious an act of breach may be, if it does not lead to
any loss or damage caused to the other party Section
73 will not give rise to a right of compensation."
"14. ............The interpretation canvassed by the appellant
would go against the legislative purpose in using the word
compensation in all the three sections viz.; Ss. 73, 74 &
75 of Chapter VI of the Act. One cannot compensate a
person who has not suffered any loss or damage.
There may be cases where the actual loss or damage is
incapable of proof. Facts may be so complicated that it may
be difficult for the party to prove actual extent of the loss or
damages. Section 74 of the Act exempts him from such
responsibility and enables him to claim compensation inspite
of his failure to prove the actual extent of the loss or
damage, provided of course he establishes the basic
requirement for award of compensation viz the fact that he
had suffered some loss or damage. The proof of this basic
requirement is not dispensed with by Section 74 of the Act."
"18. That the party complaining of breach of contract and
claiming compensation is entitled to succeed only on proof
of 'legal injury' having been suffered by him in the sense of
some loss or damage having been sustained on account of
OMP(I)(COMM.) No.107/2016 Page 31 of 40

such breach, is clear from sections 73 & 75 of the Act.
Section 74 is only supplementary to section 73 of the
act and it does not make any departure from the
principle behind section 73 in regard to this matter.
Every case of compensation for breach of contract has
to be dealt with on the basis of section 73 of the Act .
In a particular case where the contract itself stipulates for
payment of sum of money on the breach of contract or
contains any other stipulation for penalty, the principle
additionally propounded by Section 74 also will have to be
applied and that is why irrespective of the amount
stipulated in the contract, the party suffering from the
breach is entitled only to reasonable compensation,
which, shall not exceed the amount so stipulated in
the contract. Whether it be a contract which stipulate sum
of money as being payable on breach of contract or whether
it contains any other penal clause, or whether it is a
contract which does not contain any such clause, the party
complaining of breach of contract cannot successfully
claim compensation unless he makes out loss or
damage referable to such breach. The best measure of
reasonable compensation would of course be the
extent of actual loss or damage sustained .
..........................If quantification of loss or damage is not
possible, the party who has suffered on account of the
breach is not without remedy. He can still request the Court
to assess reasonable compensation on the materials
available and award the same to him.................. I n a
case where the party complaining of breach of
contract has not suffered legal injury in the sense of
sustaining loss or damage, there is nothing to
compensate him for; there is nothing to recompense,
satisfy or make amends. Therefore he will not be
entitled to compensation."

47. This position was accepted and reiterated by a learned Single
Judge of this Court in Indian Oil Corporation v. Lloyds Steel
Industries Ltd., 2007 (4) Arb.L.R. 84 (Del) and a Division Bench of
this Court in Vishal Engineers (supra). The judgments of Lloyds
Steel and Vishal Engineers also considered the judgment of the
OMP(I)(COMM.) No.107/2016 Page 32 of 40

Supreme Court in Saw Pipes (supra) and has explained its
implication. In Llodys Steel (supra), this Court has held as under:
“51. Notwithstanding the above, the petitioner still wants
damages to be recovered from the respondent on the
spacious plea that liquidated damages mentioned in the
contract are pre-determined damages and, therefore, in
view of provisions of Section 74 of the Indian Contract Act,
the petitioner was entitled to these damages and it was
necessary for the petitioner to prove these damages. The
legal position, as explained by the Supreme Court in
ONGC v. Saw Pipes (supra), which has already
explained above, is not in doubt. However, it is only
when there is a loss suffered and once that is proved,
it is not for the arbitrator or the Court to examine the
actual extent of the loss suffered once there is a pre-
estimation thereof. Moreover, the compensation, as
stipulated in the contract, has to be reasonable. In a
particular case where the defaulting party is able to
demonstrate that delay/default has not resulted in
any loss being suffered by the other party, then that
party cannot claim the damages only because in the
contract there is a stipulation regarding liquidated
damages.
52. No doubt, the parties to a contract may agree at the
time of contracting that, in the event of breach, the party in
default shall pay a stipulated sum of money to the other.
However, the stipulated sum has to be a genuine pre-
estimate of damages likely to flow from the breach and is
termed as 'liquidated damages'. If it is not a genuine pre-
estimate of the loss, but a amount intended to secure
performance of the contract, it may be a
penalty ………...
x x x x
55. It is clear from the above that Section 74 does not
confer a special benefit upon any party, like the petitioner in
this case. In a particular case where there is a clause of
liquidated damages the Court will award to the party
aggrieved only reasonable compensation which would not
exceed an amount of liquidated damages stipulated in the
contract. It would not, however, follow there from that even
OMP(I)(COMM.) No.107/2016 Page 33 of 40

when no loss is suffered, the amount stipulated as liquidated
damages is to be awarded. Such a clause would operate
when loss is suffered but it may normally be difficult to
estimate the damages and, therefore, the genesis of
providing such a clause is that the damages are pre-
estimated. Thus, discretion of the Court in the matter of
reducing the amount of damages agreed upon is left
unqualified by any specific limitation. The guiding principle is
'reasonable compensation'. In order to see what would be
the reasonable compensation in a given case, the Court can
adjudge the said compensation in that case. For this
purpose, as held in Fateh Chand (supra) it is the duty
of the Court to award compensation according to
settled principles. Settled principles warrant not to
award a compensation where no loss is suffered, as
one cannot compensate a person who has not
suffered any loss or damage. There may be cases
where the actual loss or damage is incapable of proof;
facts may be so complicated that it may be difficult
for the party to prove actual extent of the loss or
damage. Section 74 exempts him from such
responsibility and enables him to claim compensation
inspite of his failure to prove the actual extent of the
loss or damage, provided the basic requirement for
award of 'compensation', viz. the fact that he has
suffered some loss or damage is established. The
proof of this basic requirement is not dispensed with
by Section 74. That the party complaining of breach of
contract and claiming compensation is entitled to
succeed only on proof of 'legal injury' having been
suffered by him in the sense of some loss or damage
having been sustained on account of such breach, is
clear from Sections 73 and 74. Section 74 is only
supplementary to Section 73, and it does not make
any departure from the principle behind Section 73 in
regard to this matter. Every case of compensation for
breach of contract has to be dealt with on the basis
of Section 73. The words in Section 74 'Whether or not
actual damage or loss is proved to have been caused
thereby' have been employed to underscore the departure
deliberately made by Indian legislature from the
complicated principles of English Common Law, and also to
OMP(I)(COMM.) No.107/2016 Page 34 of 40

emphasize that reasonable compensation can be granted
even in a case where extent of actual loss or damage is
incapable of proof or not proved. That is why Section
74 deliberately states that what is to be awarded is
reasonable compensation. In a case when the party
complaining of breach of the contract has not suffered
legal injury in the sense of sustaining loss or damage,
there is nothing to compensate him for; there is
nothing to recompense, satisfy, or make amends.
Therefore, he will not be entitled to compensation See State
of Kerala v. United Shippers and Dredgers Ltd. . Even in
Fateh Chand (supra) the Apex Court observed in no
uncertain terms that when the section says that an
aggrieved party is entitled to compensation whether actual
damage is proved to have been caused by the breach or
not, it merely dispenses with the proof of 'actual loss or
damage'. It does not justify the award of compensation
whether a legal injury has resulted in consequence of the
breach, because compensation is awarded to make good the
loss or damage which naturally arose in the usual course of
things, or which the parties knew when they made the
contract, to be likely to result from the breach. If
liquidated damages are awarded to the petitioner
even when the petitioner has not suffered any loss, it
would amount to 'unjust enrichment', which cannot
be countenanced and has to be eschewed.”

48. In the present case, there is no pleading by the petitioner that
the purported loss in the instant case is not capable of quantification
or the present case is the case of public utility, rather in the rejoinder,
it was pleaded that it is the subject matter of the Arbitral Tribunal.
Thus, the principles laid down in Saw Pipes (supra) are not
applicable in the facts of the present case, nor the said judgment
would help the case of the petitioner.
49. However, the respondent cannot deny the fact that the parties
have agreed between them in MSA that in the event where the
respondent exists from any site according to the terms of the Service
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Contract, it shall pay the amount as specified in the schedule. It is
also correct that no case of public utility is pleaded and the present
case is not that one wherein it is virtually not possible to assess the
pre-estimated genuine damage.
Under such situation, it is also not denied by the respondent
that in case it is proved, the petitioner may be entitled to reasonable
compensation. Therefore, I am of the view that at the best, if it is
proved before the Arbitral Tribunal, the petitioner may get the
reasonable compensation.
50. The term ‘stipulating payment of exit fee of Rs.50,11,369/-’
claimed by the petitioner in case of respondent’s prematurely exiting
the respondent's site, is unambiguous and therefore must be given
effect to while determining prima facie case of the petitioner. The
total amount was increased on both the heads which on the date of
filing of the petition was Rs.1,33,00,000/- as per the case of the
petitioner.
51. The submission of the petitioner’s counsel is that the
respondent should deposit the entire outstanding amount in view of
the reason that the Spectrum is sold. As the financial condition of the
respondent is not solvent, in view of the settled law referred by me,
the entire amount of exit charges cannot be secured, although I agree
with the argument of the petitioner that the petitioner is entitled for
reasonable compensation if the case is made out before the Arbitral
Tribunal. I also agree with the learned counsel for the petitioner that
the conduct of the respondent is not reasonable, as the respondent
has, despite of interim order/direction, sold the Spectrum contrary to
the order/direction passed by this Court. As far as the interest
claimed in the matter is concerned, I am of the view that the said
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aspect would also be considered by the Arbitral Tribunal. Counsel for
the respondent submitted that the petitioner has retained its
equipments as security for repayment of dues, in view of an
apprehension of the petitioner that after transfer of spectrum by the
respondent to any other entity, the respondent would have no
significant assets against which the petitioner can enforce its claims.
Copy of the Chartered Accountant's certificate showing list of Assets
of the respondent lying with the petitioner in each of the states of
Gujarat, Haryana, Madhya Pradesh-Chhattisgarh and Assam as on
th
29 February, 2016 is on record as Annexure R-1. All the said facts
are not mentioned by the petitioner in its petition, except it is stated
that the valuation of the equipment given by the respondent in
Annexure R-1 is unilateral and unsubstantiated. It is also submitted
on behalf of the petitioner that it has not retained the aforesaid
equipment as security for repayment of dues, even otherwise, the
said equipments have no commercial value for the petitioner, once
the same is removed from the site. Once the amount is deposited,
the respondent is at liberty to move the application for removal of
equipment in view of the stand taken by the petitioner. As far as the
exit fee is concerned, I agree with the submission of the petitioner
that if it is proved, the petitioner may be entitled to a reasonable
compensation. In the light of these facts and circumstances in the
present case, the prayer to secure the exit fee claimed by the
petitioner is allowed to the extent that without prejudice, the
respondent shall deposit Rs.10 lacs, which comes to 20% of the
actual amount claimed by the petitioner, with the Registrar General of
this Court within two weeks from today. As far as the interest
component and other miscellaneous charges are concerned, I am not
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inclined to pass any order, as the issue of entire exit charges is
disputed one. The said issue has to be considered by the Arbitral
Tribunal on merit.
52. The present petition is accordingly disposed of. I.A.
No.6253/2016 also stands disposed of. No costs.
53. The findings arrived at are tentative and the same shall have no
bearing in the arbitration proceedings which may be decided without
any influence of this order.
54. As far as the pending applications are concerned, I.A.
No.4955/2016 has been filed by the respondent for condonation of
delay in filing the reply. No objection was raised by the petitioner.
The delay is condoned. The said application is disposed of. As regards
th
I.A. No.9017/2016, the same is already listed on 5 October, 2016.
55. Pertaining to I.A. No.4995/2016, the said application has been
filed under Order 1 Rule 10 CPC for intervention on behalf of
applicant-State Bank of India, as Facility Agent, for and on behalf of
18-Banks’ Consortium, to become a party and to receive the
Spectrum amount. The prayer of this application is strongly opposed
by the petitioner, by stating that the application itself is not
maintainable. The basis of this application rests on the alleged fact
that the Spectrum of the respondent has been charged to the
applicant-Banks. No Deed of Mortgage has been annexed to the
application to prove the existence of any such charge. On the
contrary, the clause cited from the alleged indenture of mortgage
specifically states that the subject matter of the charge would exclude
the UASL (the Unified Access Spectrum License), which at the
relevant time included the Spectrum currently sold by the respondent
to Bharti Airtel.
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56. It is settled law that airwaves constitute public property and
must be utilized for advancing public good. No individual has a right
to utilize them at his choice and for the purposes of profit
( Secretary, Ministry of I&B v. Cricket Association of Bengal ,
1995(2) SCC 161, para 201(b). Therefore, any charge sought to be
created over the Spectrum by the respondent must be approved by
the Government. In this regard, paragraph 8 of the minutes of the
th
meeting dated 9 September, 2015 and page 4 of the minutes of the
th
meeting dated 19 December, 2015 between the respondent and the
applicant-Banks clearly states that the assignment of the Spectrum
license in favour of the applicant-banks was yet to be completed, as
the permission of the Department of Telecommunications for the
same was awaited. Therefore, the Banker’s application grossly fails
to establish that the Spectrum is charged in favour of the applicant-
Banks.
57. Under illustration (g) to Section 114 of the Indian Evidence Act,
1872, if evidence which could be produced is withheld, the Court may
presume that such evidence is unfavourable to the person withholding
it. The applicant-bankers are withholding the indenture of mortgage,
and their refusal to produce the same despite the same being pointed
out during the hearings, the Court must presume that the mortgage
does not extend to the Spectrum. The applicant-Banks have not
taken any steps for enforcement of the alleged security at the
appropriate forum for the last many years. Even assuming that the
Spectrum has been charged in favour of the applicant banks, it must
be noted that the priority of payments enjoyed by the secured
creditors is only relevant when paying off the debts of a Limited
Company in liquidation.
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58. The application is otherwise not maintainable as the applicant-
Banks are not a party to the Arbitration Agreement in the MSA. The
term ‘party’ as used in Section 9 of the Arbitration Act is defined as a
‘party to the Arbitration Agreement’.
59. It has been held in many judgments that Section 9 of the
Arbitration Act only contemplates the issuance of interim measures by
the Court at the instance of a party to an Arbitration Agreement with
regard to the subject-matter of the Arbitration Agreement and a third
party cannot be subjected to proceedings under Section 9 of the
Arbitration Act ( Shoney Sanil v. Coastal Foundations, AIR 2006
Ker. 206 , para 6; Deutsche Postbank Home Fin. Ltd v. Taduri
Sridhar , (2011)11 SCC 375, para 12; and S.N. Prasad v. Monnet
Finance Ltd., (2011) 1 SCC 320, para 19).
60. The Spectrum has also been sold. I have been informed that
the amount is deposited in an escrow account. The respondent has
failed to provide all the details despite of assurance given by them in
the Court. In the light of the above, the application of the applicant-
banks is dismissed, as the same is not maintainable.
61. Dasti , under the signatures of the Court Master.


(MANMOHAN SINGH)
JUDGE
SEPTEMBER 14, 2016
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