Official Liquidator Of M/S United Breweries (Holdings) Limited vs. M/S Ethos Limited

Facts

The Official Liquidator of M/s United Breweries (Holdings) Limited (in liquidation) filed a Company Application seeking directions for respondents, M/s Ethos Limited and its directors, to pay outstanding rental dues amounting to Rs. 51,94,344/- (with waiver) or Rs. 72,91,210/- (without waiver), including applicable taxes and interest, as per the lease agreement. The application also sought directions for the respondents to provide proof of security deposit and submit TDS certificates. The respondents' counsel contended that reconciliation of accounts had occurred, resulting in an amount of Rs. 33,86,728/-. They also argued that rental payments could not be made due to the non-issuance of invoices. The Official Liquidator sought payment of future rents and escalation as per the arrangement.

Held

The Court held that the respondents are liable to pay interest on delayed rental payments, irrespective of whether an invoice has been raised by the Official Liquidator. The Court found the respondents' contention that non-issuance of an invoice excused payment and interest to be contrary to Clause 3.3 of the lease agreement, which clearly states that payment is due by the seventh day of the month and that interest is payable for any delay. The Court reasoned that the obligation to pay rent and the liability to pay interest for delay are contractual obligations that arise from the lease agreement itself, not contingent on the issuance of an invoice. Therefore, the interest amount is to be calculated from the respective dates from which the amount fell due in terms of the agreement. The Court also held that the respondents would be liable to pay GST on the interest amounts. The Court directed the Official Liquidator to raise an invoice within one week, and the respondents to pay the invoice amount within 15 days of receipt, including interest and GST. Failure to comply would render the tenancy agreement liable for termination.

Key Issues

1. Whether the respondents are liable to pay interest on delayed rental payments, irrespective of whether an invoice has been raised by the Official Liquidator, as per Clause 3.3 of the lease agreement dated 02.12.2014? 2. Whether the respondents are liable to pay GST on the interest amounts accrued on delayed rental payments? Contentions of the Petitioner (Official Liquidator): The petitioner sought payment of the full outstanding rental dues with applicable taxes and interest as per the lease agreement. They argued that the respondents' contention regarding non-issuance of invoices as a reason for non-payment was contrary to the lease agreement, which mandates payment by the seventh day of the month. They also sought directions for the respondents to provide proof of security deposit and submit TDS certificates. Contentions of the Respondents (M/s Ethos Limited and others): The respondents' counsel submitted that a reconciliation of accounts had taken place, and the amount due was Rs. 33,86,728/-. They argued that since invoices had not been raised, the due rentals could not be paid, and consequently, interest should not be levied. They also sought waiver for certain periods due to the impact of COVID-19.