IN THE IDGH·COURT OF DELID AT NEW DELJU CP Nos. 40 & 41 of 2004 DATEOFDECISION: 'j .05.2005 IN THE MA TIER OF : M/S NEHRU PLACE HOTELS LIMITED. PETITIONER Versus Through Mr.Jayant Bhushan, Sr. Advocate widt Ms. Veronica Mohan, Advocate. MIS BHUSHAN LIMITED RESPONDENf IN CP No.40/2004 MIS BHUSHAN STEEL & STRIPS LIMITED RESPONDENT IN CP N0.4112004 Tiuough Mr.Anil Airi, Advocate CORAM:- THE HON'BLE MRJUSTICE A.K.SIKRl 1. Whether Reporters of Local papers may be allowed to see the Judgment? 2. To be referred to the Reporter or nor? A 3. Whether the judgment should be reported in the Digest"? / U A.K. SIKRI, J. These petitions, though for winding up of the respondent company (hereinafter referred as 'the company), raise interesting and, at the same time, important questions. There is a decree passed by this court in a civil suit which is based on compromise/settlement between the CP Nos. 40 &41 of2004 Page No. 1 of 45 Digitally Signed By:AMULYA Certify that the digital file and physical file have been compared and the digital data is as per the physical file and no page is missing. Signature Not Verified parties. The company now refuses to make payment in terms of the said decree and dubs this agreement as contrary to the mandatory provisions of De1hi Apartment Ownership Act,l986 as well as against public policy. The company also states that the decree is a nullity and cannot be enforced and, therefore, it cannot be said that any "debt" is payable by the company to the petitioner in terms of the said decree. Whether the Company Court can raise all these issues in these proceedings is a moot question? 2. We may take note of the relevant facts in some detail in order to appreciate the controversy between the parties. 3. The petitioner is in the hotel business. One of its hotels is known as Park Royal Hotel. which is located at Nehru Place. New Delhi. Adjaoent to this hotel. the petitioner bas also built International Trade Tower. lt houses various commercial establishments as space is sold to such establisbtnents by the petitioner. The company had also entered into a Lease Agreement dated 16th April, 1993 and Agreement dated 1-rt' April, 1993 whereby the petitioner was to eventually sell. transfer and convey the title of flats No.l09.ll0.11 and 112. altogether admeasuring 4000 sq. ft. built up area, situated in Block-F. 1" 1 CP Nos. 40 &41 of 2004 Page No. 2 of 45 Floor of this trade tower to the company. The company also acquired an irrevocable right to use parking spaces No.17, 18, 19 and 20 vide a Space Buyers Agreement. Subsequently the company entered into a Space Buyers Agreement with the petitioner on 1Jih Derember, 1997 in terms of which the aforesaid flats were purchased by the company along with the aforementioned parking spaces.. 1be company paid the entire sale consideration as per the said Space Buyers Agreement (for short' the Agreement'). However, this Agreement also contained Clause 2(c) as per which 'recurring charge' was also to be borne by the company. This recurring charge is defined in Clause 2 (c) as under: .. 2 (c) Recurring Charge shall mean those amounts which are agreed to be paid and borne by the Space Buyer in future, that is, after the date of banding over possession and shall include: (v) consideration for any commQn area, common facility, amenity or advantage not herein specified but subsequently agreed in writing to be made available to the Space Buyer by the Company to which the Space Buyer may be found to be entitled or may become entitled under any law, rule, judgment or decree of any court; (vi) further agreed maintenance charges and contribution to sinkinglcapital replacement fund; CP Nos. 40 &41 of 2004 Page No. 3 of 45 (vii) . further agreed maintenance charges for running & maintenance of the Air-conditioning plant and contribution to sinking/capital replacement fund. (This would be applicable for such spaces where the air- conditioning facility is also agreed to be provided). (viii) amount due from ~pace in lieu of Ground Rent as specified in this Agreement from the date of execution of this Agreement.'' 4. In terms of Clause 10 of this Agreement, the company is also liable t~ pay the petitioner, the insurance premium of the apartment in proportion to the area sold to the company. Clause 25 of the Agreement , further stipulates that the company would pay maintenance charges at the rate of Rs.490. 96 paise per parking space per month for parking spaces .No.l7, 18, 19 and 20. This amount is payable on half yearly basis and the amount is liable to be increased annually on the basis of Living Index issued by the Delhi Administration. Clause 14 of the Agreement sets out all the payments which are to be borne by the company. This Clause is in the following terms: " Clause 14 (a). From the date of this Agreement, the Space Buyer would be liable to pay regularly maintenance and service charges for common areas and for the consumption of electricity and water in the CP Nos. 40 &41 of 2004 Page No. 4 of 45 common area. (b) In respect the spaces which are air-conditioned, the Space Buyer would be liable to pay the Company all charges such as for the consumption of electric and water and other consumables for the running of air- conditioning, plant, as well as for its repairs, maintenance, administrative expenses and management charges of the Company which are included in the Maintenance charges stipulated in Annexure. (c) The Space Buyer would be liable to pay annually the sinking fund for the replacement of capital goods like air-conditioning plant, generators, machinery, . electrical equipments, cables dueling, transformers, pumping-sets, fire fighting equipment, water-mains, toilets, ventilation equipments, lifts, escalators, etc. etc. the rate/s of sinking fund as payable would be worked out separately for air-conditioned areas and non air-conditioned areas. (d) That the rate/s of general Maintenance charges for common setvices, insurance and sinking fund for replacement of capital goods for the calendar year 1997 have been fixed on the basis of Living Index Points as issued by Delhi Administration in December, 1996. The above charges will be subject to annual increase in proportion to the rate of inflation to cover the increased cost of maintenance/materials expenses etc. The annual inflation/increase will be assessed on the basis of the increase in points of Living Index as regularly issued by the Delhi Administration from time to time. · The percentage of increase will be the same as the percentage of increase in the points of Living Index. Minimum increase annually would be 9 percent on the CP Nos. 40 &41 of 2004 Page No. 5 of 45 • ... ./ 5. last paid charges. The charges will be revised in the month of July every year on the basis of Living Index as issued by Delhi Administration 31st December of previous year and would normally be applicable for one year. (e) The payments towards the sinking fund would be payable annually in advance and charges for maintenance of the common seJVices and for ·Air conditioning plant (wherever applicable) would be payable within six monthly in advance. (f) The company at no point of time has to render any account to the Space Buyer for the actual expenses incurred by the Company." The Agreement also provides that all dues and charges are to be paid within .15 days of their becoming due and in case of non-payment of the "recurring charges" within stipulated time, interest at the rate of 24 per cent per annum with quarterly rates would be payable. 6. Some disputes arose between the parties regarding payment of these recurring charges. The company filed suit against the petitioner being Suit No.163911994. The petitioner also filed Suit No.151311995 against the company. Both these suits were filed in this court. 7. During the pendency of these suits, the parties arrived at a settlement in terms of compromise deed dated 17h December, 1997. By CP Nos. 40 &41 of 2004 Page No. 6 of 45 this compromise, the petitioner withdrew its action of cancellation of the Lease Agreement. It was also recorded that the petitioner had received full consideration of Rs.1.68 crores as sale consideration for the flats/spaces in question. In respect of recurring charges/maintenance charges, following clauses were incorporated in the compromise deed: "7. At the time of recording of this Compromise Agreement in Court BIL shall pay to NPHL a sum of Rs.22,47,302/- (Rupees twenty two lakhs fourty seven thousand three hundred and two only) in full and final settlement of NPHL's claim for maintenance charges, car parking charges, electricity and water charges in respect of the Apartments for the period prior to 30.6. 97 and advance for the period 1.7.97 to 31.12.97. 8. With effect from 1 it July, 1997 BIL shall be liable to pay to NPHL maintenance charges for the Apartments at the rate of Rs.29.03 (Rupees Twenty Nine and paise Three only) per square foot i.e. Rs.1,16,120/- (Rupees one lac sixteen thousand one hundred and twenty only) per month. 9. On every 1 it July commencing 1 sr July, 1998 the rate of Rs.29.03 per square foot shall be revised upwards according to the living index as on that date subject, however, to a minimum increase of 9% each year. 10. With effect from the date of recording of this Compromise Agreement in Court, NPHL shall be bound and obliged to supply back-up power (one kilowatt per one hundred square feet) to BIL. BIL shall be liable to CP Nos. 40 &41 of 2004 Page No. 7 of 45 pay to NPHL @ Rs.8 (rupees Eight only) per unit. The reading of units supplied by NPHL and consumed by BIL will be recorded in sub-meter which will be installed by NPHL at the Apartments for that purpose. 11. On every 1 sr July commencing 1 sr July, 1998 the rate of Rs.8 per unit shall be revised upwards according to the living index as on that date subject, however, to a minimum increase of 9% each year. .. 8. This compromise deed was filed in the aforesaid suits along with a joint application under Order XXIII Rule 3 read with Section 151 of the Code of Civil Procedure (CPC) for passing a decree in terms of the compromise. Statement of learned counsel for the parties was recorded on 1 ~ December, 19CJ7 and after recording following statement order was passed in the suit: .. In view of the above statement made by the learned counsel for the parties and the contents of the documents (Ex. C-I, C-ll, C-lll), compromise arrived at between the parties, which is lawful, is hereby accepted. The present suit filed by the plaintiff is decreed in terms of compromise arrived at between the parties and as reflected in documents (Ex.C-1, C-II and C-lll) that form part of the decree sheet. Decree sheet be drawn up accordingly." 9. After recording to the aforesaid agreement, the company made CP Nos. 40 &41 of 2004 Page No. 8 of 45 payment in accordance therewith~ towards maintenance charges for car parking till 31st December, 2002 and recurring charges were paid till 30th June~ 2003. However~ thereafter the company stopped payment. 10. The case of the petitioner is that this payment is due to it. Various reminders and call notices were sent to the company to make the payments. Invoices were also raised. Outstanding amount against these payments is Rs. 30,78,3711-, details whereof are as under: " Particulars Maintenance Charges Maintenance charges for car parking Ground Rent Building Insurance Sinking Fund Amount (Rs.) 24,26?160.00 41,047.00 57,600.00 10~960.00 1,75,200.00 Interest (up to 10rh November2003) 3,67,404.00 30,78,371.00 , 11. However, this payment was not made by the company in spite CP Nos. 40 &41 of 2004 Page No.9 of45 of statutory notice of demand dated 18th November, 2003 served upon the company under Sections 433 & 434 of the Companies Act, Instead the company, through its counsel, replied the said statutory notice on 3m February, 2004 rejecting the claim and disputing the demands. According to the petitioner, the liability is disputed on flimsy and frivolous grounds. Therefore, present petition is filed seeking winding up of the company on the ground that it be deemed that the company is unable to pay the admitted debt. 12. The demand is refuted by the company on the ground that the same is against the provision of the Delhi Apartment Ownership Act, 1986 (hereinafter referred to as 'the Act') which is applicable on all multi-storeyed buildings in Dellii, including the apartment in question and, therefore, provisions of this Act are binding on all apartment owners in view of Section 24 of the Act which specifically provides as under. " 24. Act to be binding on apartment owners, tenants etc.-( 1) The provisions of this Act shall have effect notwithstanding anything inconsistent therewith in any other law for the time being in force or in any contract, undertaking or other instrument and all apartment owners, tenants of owners, employees of owners and tenants, or any other person, who may, in any manner, CP Nos. 40 &41 of 2004 Page No. 10 of 45 13. use the property or any part thereof to which this Act applies, shall be subject to the provisions of Act and the bye-laws and the rules made thereunder: Provided that nothing contained in this sub-section shall affect the right, title or interest acquired by an allottee or other person in common areas and facilities from any promoter on or before the 28th day of February, 1986. (2) All apartments, divisions and determinations lawfully made by the Association of Apartments, Owners in accordance with the provisions of this Act and the bye-laws shall be deemed to be binding on all apartment owners." According to the company, the demand raised by the petitioner is illegal and contrary to the provisions of the Act. It is stated that the present petitions have been filed to coerce the company to pay staggering amount of Rs. 61,56,742/- which is not otherwise the liability of the company. Between 19rrl to 2003 the company has already paid more than Rs.2.25 crores towards maintenance. However, the petitioner has not been rendering the true accounts for maintenance although it would not have spent more than Rs.40 lacs towards maintenance. Therefore, there is already a recovery of Rs.1.80 crores in excess. The rates fixed for such maintenance are unfair and arbitrary which would be clear from the CP Nos. 40 &41 of 2004 Page No. 11 of 45 fact that maintenance charges payable in the year July, 19CJ7 were Rs. 29.03 per sq. ft and by addition of 8% I 9% every year, it has gone to Rs.48.37 per sq.ft. by 2002 and the company is now claiming maintenance charges and sinking fund at the rate of Rs.58 per sq. ft. per month. According to the company, the petitioner can claim maintenance charges on actual basis and cannot claim these charges by adding undue profits. It is also mentioned that the present petition is motivated and has been filed after the company had given legal notice dated 3rd February, 2004 calling upon the petitioner to execute sale deed in respect of the flats which had already been sold to the company by the petitioner. It is also the case of the company that the petitioner is harassing the company inasmuch as the company is not allowed to install dish antenna on the portion of the roof of F Block of the building although the company is 'y· specifically permitted to do so under clause 39 of the Agreement. It is further claimed that rates of maintenance in all other multi-storeyed buildings are ranging from Rs.5/- to Rs.15/- per sq. ft. depending upon AC and non-AC building. 14. Learned counsel for the company in support of the aforesaid CP Nos. 40 &41 of 2004 Page No. 12 of 45 plea that no such charges were payable in view of the provisions of the Act, took me through various provisions of the Act. 15. Learned counsel submitted that a conjoint reading of the aforesaid provisions would clearly reveal that absolute ownership of the apartment was vested in the person who is allotted, sold or. otherwise transferred the apartment and such a person is not only entitled to exclusive ownership and possession of the apartment but also entitled to such percentage of undivided interest in common areas and facilities as may be specified in the the Deed of Apartment which shall have permanent character. For maintenance of these common areas and facilities, the legislature intended that there should be an association of the apartment owners and the Administrator of the Union Territory of Delhi, namely, Lt. Governor is also under obligation to frame bye-laws in accordance with which the property is to be administered by the association of apartment owners. These bye-laws provided for various things including maintenance, repair and replacement of common areas and facilities and payment therefor as well as manner of collecting from the apartment owners or any other occupant of apartments, share of the CP Nos. 40 &41 of 2004 Page No. 13 of 45 common expenses. His submission was that it is only this association which can demand the monies from the apartment owners. The association is further under obligation to keep proper accounts of the monies so received, expenses incurred on the maintenance and render those accounts. Whatever is surplus is to be distributed among the apartment owners as 'common profits•. Thus not only such an association is required to maintain proper accounts, the underlying idea is to collect the expenses on actual basis and it is for this reason even surplus is to be refunded to the apartment owners. These were, submitted the counsel, the mandatory provisions as would be clear from non obstante clause appearing in .Section 24 of the Act already reproduced above. 16. In this backdrop, learned counsel submitted that not only the petitioner had no right to make any such collections, in the absence of an association and till such association is fonne~ but even if it is presumed that the petitioner had right to colleet the amounts, the petitioner was also bound by the provisions of the Act as per which it could collect the common expenses on actual basis. However, submitted the learned counsel, the Agreement provided for increase at the rate of 8% I 9% eve.ry CP Nos. 40 &41 of 2004 Page No. 14 of 45 year whether it was required or not Furthermore, the petitioner had never submitted any accounts to the apartment owners about the was not common expenses and common profits, if at all. In the process, the petitioner was charging much more than what was even the range of the area and had paid the entire.sale consideration. In spite of purchasing the apartment the effect of the clause in the agreement asking the apartment owners to pay such charges was to treat him as even worse than tenant forcing him to cough out much more than the prevalent market rent. Such provisions were against the Act and against public policy. On this basis, learned counsel ventured to submit that even Dee of Compromise dated 1 Th December, 1997 was unenforceable as contrary to the provisions of . the Act and violative of Section 23 of the Contract Act being opposed to public policy and, therefore, decree passed in terms of such compromise :...<_ deed was also null and void as such a decree could not be passed in the teeth of mandatory provisions of the Act. Therefore, argued the learned counsel, the shelter of the Agreement, Deed of Compromise or the decree passed consequent thereto is not available to the petitioner. In support of his plea that such a decree, though it was with the consent of the parties CP Nos. 40 &41 of 2004 Page No. 15 of 45 but in ignorance of the Act, would be nullity and in support of this proposition he relied upon the following judgments of the Supreme Court: (i) Haii Sk.Subhan Vs. Madhorao , AIR 1962 SC 1230. (ii) Smt. Kaushalaya Devi and others Vs. K.L.Bansal, AIR 1970 SC 838. (iii) Sabitri Dei and others Vs. Sarat Chandra Rout and others ' (1996) 3 sec 301. (iv) Dhurandhar Prasad Singh Vs. Jai Prakash University and others, (2001) 6 SCC 534. (v) Chiranjilal Shrilal Goenka (Deceased) through LRs. Vs. Jasjit Singh and others (1993) 2 SCC 507. 17. He further submitted that once the decree was nullity, it was open for the company to take such a plea in any co-ordinate proceedings, including in the present proceedings. 18. Mr.Bhushan, learned senior counsel for the petitioner, on the other hand, argued that the claim of the petitioner was based on the decree which was passed on the basis of consent agreement entered into between the parties. Therefore, it was not open for the company to argue that the terms contained therein were onerous. A demand based on the CP Nos. 40 &41 of 2004 Page No. 16 of 45 ... decree constituted the 'debt'. This decree was even acted uoon bv the J. ., parties inasmuch as the company paid the parking charges till December, 2002 and recurring charges till June, 2003. His further submission was that the remedy, if any, for the company was in the proceedings in suit wherein decree was passed and so long as this decree was existing, it was binding on the parties. Referring to various provisions of the Lease Agreement as well as the Agreement, he argued that maintenance and recurring charges were pre-estimated charges which were approximate to the actual expenses and were integral part of the sale consideration. His submission was that while fixing the sale consideration "recurring cost'' was kept in mind which were clear from clauses (14) and (21) of the Agreement. It was also made clear to the flat buyer that the payment of recurring charges was essence of the contract and the petitioner was not supposed to render any accounts therefor. In support of this submission, he relied upon the following clauses of the Lease Agreement: " 5 (e) The payment of recurring charges as detailed above is the essence of the contract. The lessor at no point of time has to render any account to the lessee for the actual expenses incurred by the lessor. CP Nos. 40 &41 of 2004 Page No. 17 of 45 9 (a) The lessee is fully aware of the fact that the building in which the lessee is going to have the space is ultra modern, prestigious building and is a part of 5 Star Hotel Complex and therefore in the common interest of all the occupants of the building and to maintain a higher standard of cleanliness beauty and esthetic value and better outlook of the building certain controls and discipline shall have to be strictly obseJVed by the lessee, his servants and occupiers. 14. In consideration of the rent herein agreed and all payments as payable to the lessor being paid by the lessee regularly and other terms and conditions and covenants being obseJVed and performed by the lessor the lessee shall peacefully enjoy the leased premises during the said term without any interruption by the lessor. 15. As the premises is part of a 5 Star Hotel Complex, the lessor will have the complete right to keep control and supremacy at all times to come for the general management of the building and maintenance of the seJVices as detailed in para 5 above. The lessor will have the rights to carry on the said seiVices itself or give from time to time any contracts to any other party/agency or premises whatsoever and the lessee shall have no objection to appoint any other agency or carrying out the said services. 21 (a) The lessor reserves its rights