Bombay HC Upholds Rs 87 Lakh Deposit Condition For Landlords Defending Licensee’s 15-Year-Old Security Refund Suit

The respondent-plaintiff paid the petitioners-defendants a refundable security deposit of ₹92,50,000 under a leave and licence agreement for commercial premises.

After the plaintiff delivered possession on 22 June 2010, it sued for refund of the deposit.

The defendants sought leave to defend, alleging that the plaintiff owed one month’s licence fee and service tax, together with a contractual penalty of ₹20,000 per day.

The City Civil Court granted leave subject to deposit of ₹87,15,250, being the security deposit less one month’s licence fee.

The defendants challenged that condition under Article 227 of the Constitution.

Under the principles governing leave to defend a summary suit, unconditional leave is ordinarily appropriate where the defendant raises a substantial defence or a fair and reasonable triable issue; where the genuineness of the defence is doubtful or it appears plausible but improbable, the court may grant leave subject to appropriate conditions, including payment into court or security.

Refusal of leave is generally confined to cases where no genuine triable issue is raised and the defence is frivolous or vexatious (*B. L. Kashyap and Sons Ltd. v. M/s. JMS Steels and Power Corporation*, as quoted at para. 21).

Under Sections 73 and 74 of the Indian Contract Act, 1872, a claimant may receive reasonable compensation for breach, but a stipulated sum is not automatically recoverable if it is penal; the court may award reasonable compensation even without proof of actual loss, applying the principles in *Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd.*

Subsequent events may be considered in appropriate circumstances to mould relief, subject to the principles stated in *Om Prakash Gupta v. Ranbir B. Goyal*.

The Court treated the plaintiff’s delivery of possession and the defendants’ retention of the deposit as undisputed.

The agreement permitted deduction of outstanding dues from the deposit, so the one month’s unpaid licence fee could be accounted for.

As to service tax, the plaintiff relied on payments and a discharge certificate under the Sabka Vishwas scheme, while the defendants produced no prima facie material showing a tax demand or recovery proceedings against them for the licensed premises; the Court therefore regarded that part of the defence as tenuous.

Whether the ₹20,000-per-day stipulation was a reasonable pre-estimate of loss or a penalty required trial determination.

Considering the defence as a whole to be plausible but improbable, the Court held that the trial court was entitled to impose a deposit condition under the governing summary-suit principles.

It dismissed the petition, discharged the Rule, made no order as to costs, and extended the time to deposit the amount by four weeks from the judgment.