Judgment:
Dr. D.Y. Chandrachud, J.
1. In or around November, 1995, the defendants requested the plaintiffs to grant financial accommodation against the security of shares. The defendants pledged with the plaintiffs collateral security consisting 1,25,000 equity shares of a Company known as Rama Pulp and Papers Ltd., together with the Bank transfer deeds duly signed by the holder of the shares with an irrevocable undertaking that the plaintiffs would be at liberty to dispose of the securities in the market upon the failure of the defendants to repay the amount advanced. In May 1996, the defendants for valuable consideration received, and in discharge of their liability issued a post-dated cheque, dated 19th August, 1996, for the amount of Rs. 26.25 lakhs drawn upon the Union Bank of India, in favour of the plaintiffs. The cheque was dishonoured upon presentation on the ground of insufficiency of funds. The plaintiffs have instituted proceedings under Section 138 of the Negotiable Instruments Act, 1881 and a criminal compliant is pending. It is common ground between the parties that by a letter, dated 31 st December, 1996, the Associate Company of the defendants furnished a revised schedule for the repayment of the dues of the plaintiffs. The said letter refers to the dues of the plaintiffs and a schedule for the repayment of the amount of Rs. 26 lakhs due to the plaintiffs and of Rs. 46 lakhs to an associate concern of the plaintiffs, by the name of Nath Pulp and Paper Mills Ltd was furnished. In the present Summary Suit, the dispute relates to the outstanding dues of the plaintiffs in the amount of Rs. 26.25 lakhs.
2. By a letter, dated 12th February, 1997 the defendants enclosed a cheque in the amount of Rs. 7 lakhs towards part payment of the principal amount as agreed. Thereafter, by a letter dated 7th April, 1997, a further cheque in the amount of Rs. 7 lakhs was furnished by the defendants to the plaintiffs, this being in part payment of the balance due of Rs. 19.25 lakhs. Thereafter, by a letter, dated 4th June, 1997 another cheque of Rs. 2 lakhs was paid by the defendants in part payment of the balance due of Rs. 12.25 lakhs. Eventually, by another letter, dated 8th September, 1997 the defendants while referring to the outstanding dues of the plaintiffs as being Rs. 10.25 lakhs sought a reduction of the rate of interest from 21 % per annum with effect from 1st April, 1997. On 25th September, 1997 a further payment of Rs. 1 lakh by cheque was made by the defendants against the outstanding balance of Rs. 10.25 lakhs.
3. By a letter, dated 7th November, 1997, the plaintiffs claimed from the defendants the payment of the balance of Rs. 9.25 lakhs together with interest @ 18% per annum. Insofar as the shares which were pledged were concerned the plaintiffs recorded that they were not saleable in the open market as brokers were not ready to take them as there was hardly any trading in the shares. The plaintiffs stated that they had received an offer for the sale of the shares at the rate of Rs. 1.50 per share. The defendants were given an option to release the pledged shares on the payment of the outstanding dues.
4. The claim in the summary suit is for an amount of Rs. 11,52,233/- comprising the outstanding principal amount of Rs. 9 lakhs together with interest thereon @ 18% per annum, until the date*of the suit with further interest thereon until realization. In the particulars of claim, the plaintiffs have given credit for the payments which were received until the date of the suit. It is to be noted here that an additional amount of Rs. 3 lakhs has been paid by the defendants after the suit was instituted. In paragraph 15 of the plaint has been averred that the plaintiffs have realized an amount of Rs. 1.25 lakhs on 10th December, 1997, upon the sale of the pledged shares upon which due credit has been given in the particulars of theclaim.
5. Two defences have been raised to the summons for judgment in the submissions made on behalf of the defendants :
(1) The letter dated 31st December, 1996, of the associate company of the defendants constituted a fresh agreement between the parties and the summary suit which has been filed on the basis of a dishonoured cheque is not maintainable. There is no substance whatsoever in the defence. The letter, dated 31st December, 1996 is not a fresh agreement but provides only a time schedule by which instalments of the outstanding dues would be cleared. The subsequent letter, dated 12th February, 1997 which is of the defendants makes it abundantly clear that the defendants acknowledged that the outstanding dues of the plaintiffs were in the amount of Rs. 12.25 lakhs and it was with reference to the said sum which was outstanding that the defendants made part payments. In the circumstances, I do not find any merit in the first defence.
(2) The second defence is that the plaintiffs ought to have sold the shares which were pledged to them in September, 1996 when the market rate of the securities was at the highest, namely, Rs. 18/- per share. Again, there is no merit in this defence for the simple reason that it was after September, 1996 that the defendants by their letter dated 31st December, 1996 (Exh. D) agreed to the time schedule for making payments. The defendants made part payments to the plaintiffs on 12th February, 1997, 7th April, 1997, 4th June, 1997 and 25th September, 1997. Since the defendants were making part payments of the outstanding there was no occasion for the plaintiffs to sell the shares and none of the letters of the defendants required the plaintiffs to sell the pledged securities.
6. The defendants acknowledged that a balance amount of Rs. 9.25 lakhs were outstanding, since by their letter dated 25th September, 1997, they made it clear that they were paying an amount of Rs. 1 lakh against the balance of Rs. 10.25 lakh. Apart from the factual position, it is well settled that a claim for damages docs not constitute a liquidated demand or a debt payable. Reliance in this regard may be placed on the judgment of the Supreme Court in Union of India v. Iron Foundry, : [1974]3SCR556 , where the Supreme Court referred with approval to the judgment of Chief Justice, M.C. Chagla, in Iron and Hardware (India) Co. v. Firm Shamlal and Bros. : AIR1954Bom423 . In para 9 of its judgment, the Supreme Court held as follows :
'Now the law is well settled that a claim for unliquidated damages does not give rise to a debt until the liability is adjudicated and damages assessed by a decree or order of a Court or other adjudicatory authority. When there is a breach of contract, the party who commits the breach does not Constantia incur any pecuniary obligation, nor does the parly complaining of the breach become entitled to a debt due from the other party. The only right which the party aggrieved by the breach of the contract has, is the right to sue for damages. That is not an actionable claim and this position is made amply clear by the amendment in Section 6(e) of the Transfer of Property Act, which provides that a mere right to sue for damages, cannot be transferred...... We may mention only afewof the decisions, namely, Jabed Sheikh v. Taher Mallik : AIR1941Cal639 , S. Milkha Singh v. N.K. Gopal Krishna Mudaliar, and Iron and Hardware (India) Co. v. Firm Shamlal and Bros, (supra). Chagla, C.J. in the last mentioned case, stated the law in these terms :
'In my opinion 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 parry to the contract who complains of the breach has any amount due to him from the other party.
As already stated, the only right which he has is the right to go to a Court of law and recover damages. Now, damages are the compensation which a Court of law gives to a party for the injury which he has sustained. But, and this is most important to note, he does not get damages or compensation by reason of any existing obligation on the part of the person who has committed the breach. He gets compensation as a result of the fiat of the Court. Therefore, no pecuniary liability arises till the Court has determined that the party complaining of the breach is entitled to damages. Therefore, when damages are assessed, it would not be true to say that what the Court is doing is ascertaining a pecuniary liability which already existed. The Court in the first place must decided that the defendants able and then it proceeds to assess what that liability is. But, till that determination there is no liability at all upon the defendant.
This statement in our view represents the correct legal position and has our full concurrence'.
The Supreme Court thus held that the law is settled that acclaim for unliquidated damages does not give rise to a debt until the liability is adjudicated and damages assessed by a decree or order of a Court or other adjudicatory authority. A learned Single Judge, of this Court, my learned Brother, Mr. Justice S. Radhakrishnan, has followed the aforesaid judgment, in Krishna Texport Industries Limited v. Phar-East Laboratories Ltd. reported in II (2001) BC 528: 2001(1) All. MR 147.
7. In paragraph 15 of the affidavit in reply the defendants have referred to the payments which were made by them from time-to-time. The last three payments in the amount of Rs. 3 lakh were made after the institution of the suit. The defendants would, therefore, also be entitled to credit in respect of the payments made after the suit was instituted. Consequently, out of the total principal amount of Rs. 9 lakh the defendants would be entitled to a further credit of Rs. 3 lakhs. In these circumstances, the following conditional order is passed :
ORDER
The defendants are granted conditional leave to defend the suit on the deposit of an amount of Rs. 6 lakhs in this Court within a period of 16 weeks from today. On such deposit, the suit shall be transferred to the list of commercial causes. The defendants shall file their written statement within 8 weeks from today. Inspection and discovery will be completed within 8 weeks thereafter.
In the event the amounts are deposited as aforesaid, the Prothonotary and Senior master to initially deposit the said amount in a nationalised Bank for a period of one year and thereafter for equal successive periods till the disposal of the suit.
On failure to deposit the aforesaid amount, liberty to the plaintiffs to apply for further orders.
Summons for judgment is disposed of in the aforesaid terms. No costs.