Counter Claim For Damages From Tenant No Defence To Escape Admitted Liability Of Refunding Tenant's Security Deposit: Bombay High Court

Owner filing a suit for damages from his licensee cannot be the only defense to the admitted liability of refunding a licensee’s security deposit, the Bombay High Court held while refusing to grant a company unconditional leave to defend a summary suit.

Justice Kamal Khata directed the owner of a 17,196 sq ft premises in Mumbai - Loran Leasing and Infotech Pvt.- to deposit the entire security deposit of over Rs. 90 lakh along with 18% interest in court and only then defend the suit filed by licensee Play Games 24X7 Pvt. Ltd.

If the defendant Loran fails to pay the amount, Play Games would be entitled to apply for an ex-parte decree against Loran, the court ordered.

“In the present case the defence is everything else but genuine or based on good faith… It is amply clear that the Defendant seeks to recover damages and compensation from the Plaintiff in its own suit which certainly cannot be a defence to the admitted liability of refunding the security deposit,” the court said.

Play Games 24X7 Pvt. Ltd. Filed a summary suit in the Commercial Division under Order XXXVII of the CPC to recover the security deposit having surrendered the premises in July 2020 under a Leave and License Agreement.

Play Games ran online games under the brand name “RummyCircle”, “My11Circle” and “Ultimate Games” for three years, ending in March 2020 with a security deposit of over Rs. 1.6 crore and monthly rental of over Rs. 18 lakh.

In March 2020, Play Games informed Loran about its inability to vacate the premises owing to the national wide lockdown announcement and finally handed over peaceful possession of the premises on July 1, 2023. Play Games then deducted additional three months of rent payable, and sought refund of the security deposit along with 18% interest.

Loran however resisted the claim and said the entire security deposit was forfeited and it was entitled to 3 times the rent for three months of overstay.

Advocate Shanay Shah for the plaintiff submitted that the defendant should have claimed breach of contract on April 1, 2020 itself and not waited till peaceful possession was handed over. Play Games hadn’t deliberately refused to vacate either. Therefore Play games was compelled to file the suit on March 15, 2021.

The defendant said it hadn’t relinquished it right under the contract merely for allowing peaceful exit. Significantly, the defence claimed they had instituted a separate commercial suit and were entitled to set off if any sum is found due and payable in this suit. Moreover, the reliefs sought need to be decided through a trial by leading evidence, therefore the summary suit wasn’t maintainable.

He submitted conditional leave could be granted only in a summary suit and would amount to an attachment before judgement in an ordinary suit. Therefore, he was entitled to unconditional leave.

Observations

“…This in my view is clearly an afterthought and a dishonest intent on the part of the Defendant to misappropriate the funds of the Plaintiff lying with them,” the court said.

The court noted that the defendant-maintained silence till it got possession of the premises without even a warning about its intent to charge three times the rent. Moreover, the contract was extended with the defendant’s consent.

Forfeiting the security deposit would be akin to seeking recovery of damages and compensation, the court said.

“It is amply clear that the Defendant seeks to recover damages and compensation from the Plaintiff in its own suit which certainly cannot be a defence to the admitted liability of refunding the security deposit,” the court said relying on the case of The Supreme Court in the case of Union of India vs Raman Iron Foundry.

While the court agreed a trial would be required, it refused to grant the defendant unconditional leave to defend the case.

“…Conditional leave is required to be granted upon deposit of ₹.90,41,825.34/- along with interest thereon @18% p.a. from 1st July 2020 till deposit in Court.”

Case Title - Play Games 24X7 Pvt. Ltd. Vs Loran Leasing And Infotech Pvt. Ltd.

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