No pecuniary liability arises in cases of breach of contract until the courts determine that there exists an entitlement to damages

Hyderabad High Court: While deciding the instant appeal under Section 483 of the Companies Act, 1956 read with Clause 15 of the Letters Patent against the admission of Company Petition No. 231 of 2015, filed for its winding-up under Section 433(e) read with Sections 434(1)(a) and 439 of the Companies Act, 1956, the Division Bench of Sanjay Kumar and Uma Devi, JJ., observed that it would not be true to say that a person who commits a breach of the contract incurs any pecuniary liability, nor would it be true to say that the other party to the contract who complains of the breach has any amount due to him from the other party. Thus no pecuniary liability arises till the Court has determined that the party complaining of the breach is entitled to damages.

The appellant company was awarded a contract by Surana Ventures Limited to set up a 35 MW per annum capacity photo-voltaic cell manufacturing plant at Fab City, Hyderabad. In turn, the appellant company engaged services of several sub-contractors and suppliers for discharging this contractual obligation. The respondent company was one of the sub contractors upon whom a Purchase Order dated 15.04.2011 was placed by the appellant company to manufacture and supply of certain water and waste-water plant components for use in the proposed manufacturing plant. The Purchase Order contained the terms and conditions of the contract as it contemplated that time was the essence of the work and all deliveries/works had to be completed. However Surana Ventures shelved the project in August, 2011 and the contract was frustrated thereafter. As a result the appellant company claimed that it could not proceed further thereafter, in so far as Purchase Order. The respondent company stated that it had invested its entire monies into the project and kept the plant ready and was at the disposal of the appellant company and thus requested them to pay the balance amount. With the appellant denying the liability to pay, the company petition for winding-up the appellant company was presented by the respondent on 01.05.2015. The Company Judge admitted the winding up petition stating that the appellant company’s defense of Surana Ventures shelving the project is unsustainable and did not make any observation on the issue as to whether there was breach of contract by the appellant company in respect of its obligation under the Purchase Order.

The Court observed that the Company Judge lost sight of such an important issue as to the presence of a breach of contract by the appellant company as this was a crucial aspect which was raised by way of a bonafide dispute by the appellant company and required to be addressed at the threshold to assess as to whether the respondent made out a prima facie case for admission of the winding-up petition. The Court also observed that when damages are assessed the Court in the firstly must decide that the defendant is liable and then it proceeds to assess what that liability is. But till that determination there is no liability at all upon the defendant. Noticing the existence of several debatable issues raised by the appellant which were ignored by the Company Judge, the Court thus set aside the order of admission dated 25.10.2017 and dismissed Company Petition No. 231 of 2015. [MW High Tech Projects India Pvt. Ltd. v. M/s. Grauer & Weil (India) Ltd., 2017 SCC OnLine Hyd 409, decided on 06.12.2017]

Join the discussion

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.