The Bombay High Court has clarified that contractual obligations for license fees in commercial arrangements are triggered only by actual commencement of business, not by promotional social media activity. This ruling reinforces the principle that performance, not representation, determines liability under license agreements.
Background & Facts
The Dispute
The dispute arose from a license agreement dated 1 February 2021, under which Origami Hospitality Private Limited was granted the right to operate a restaurant on premises owned by RB Wedding and Hotels Private Limited. A key peculiarity of the agreement was that license fees became payable only upon actual commencement of business operations, not upon signing or preparation.
Procedural History
- February 2021: License agreement executed; no business commenced due to pending amalgamation of adjoining premises.
- July 2021: Petitioner posted social media content indicating restaurant opening.
- February 2025: Premises attached by Municipal Corporation for non-payment of property tax.
- April 2025: Attachment lifted; business remained suspended.
- September 2025: Petitioner vacated premises.
- April 2025: Small Causes Court held no liability for license fees.
- July 2025: Appellate Bench reversed, ordering interim compensation from July 2021.
- March 2026: Bombay High Court heard writ petition challenging the interim order.
Relief Sought
The Petitioner sought to set aside the Appellate Bench’s order directing monthly interim payments of Rs.10 lakh to Rs.13 lakh from July 2021, arguing that no business had commenced and that the premises were under legal attachment for three months.
The Legal Issue
The central question was whether license fees become payable solely on the basis of social media announcements indicating business commencement, or whether actual operational commencement is a mandatory precondition under the terms of the agreement.
Arguments Presented
For the Petitioner
The Petitioner contended that the license agreement explicitly conditioned payment on actual commencement of business, which never occurred due to the bank’s attachment of the amalgamated premises and subsequent municipal attachment. Reliance was placed on the principle that contractual obligations must be interpreted according to their plain terms, and that promotional content cannot substitute for performance. The Petitioner also highlighted that the premises were under municipal attachment for three months, rendering operation impossible.
For the Respondent
The Respondent argued that the Petitioner’s social media posts from July 2021 constituted clear public representation of business commencement, which triggered the payment obligation under the license agreement. It further contended that the Appellate Bench had conducted a prima facie review and that interim relief under Order XV-A of the Code of Civil Procedure, 1908 was justified to preserve the status quo pending final adjudication.
The Court's Analysis
The Court rejected the notion that social media posts alone could establish business commencement. It emphasized that the agreement’s language - "license fees payable upon commencement of business" - required actual operational activity, not promotional declarations. The Court noted that the Appellate Bench’s reliance on social media content was legally insufficient to establish performance.
"The License does not contemplate any such amalgamation. The License Agreement provides for payment of license fees upon commencement of business."
However, the Court also declined to entirely absolve the Petitioner of liability. It acknowledged that the Petitioner had engaged in preparatory steps and had, at least initially, intended to operate. The Court therefore adopted a balanced approach under Order XV-A CPC, modifying the interim order to limit liability to payments up to January 2025, excluding the three months of municipal attachment (February - April 2025). The Court further directed that the Rs.1.95 crore already paid and the Rs.70 lakh security deposit be credited against future obligations.
The Court explicitly clarified that its observations were prima facie and non-binding on the trial court, preserving the parties’ rights to litigate the final liability on merits.
The Verdict
The Petitioner succeeded in part. The Bombay High Court modified the interim order, holding that license fees are payable only upon actual commencement of business, not based on social media posts. The Petitioner is liable for fees only up to January 2025, with full credit for prior payments and security deposit, and no liability for the three months of municipal attachment.
What This Means For Similar Cases
Actual Commencement, Not Promotional Claims, Triggers Payment
- Practitioners must now prove actual operational commencement - not advertisements, social media posts, or press releases - to enforce payment obligations under license or lease agreements.
- Courts will scrutinize the contractual language to determine whether performance is tied to physical operation or mere intent.
Municipal Attachment Suspends Contractual Obligations
- Where premises are rendered unusable due to statutory attachment, contractual obligations are suspended during the period of impossibility.
- Parties must document such impediments (e.g., attachment orders, notices) to claim relief.
Interim Relief Under CPC Order XV-A Requires Nuanced Application
- Courts may grant interim payments only where there is a prima facie case of performance, not speculation.
- Prior payments and security deposits must be accounted for in interim calculations to avoid unjust enrichment.
- Final adjudication remains unaffected by interim orders - courts must explicitly state that observations are non-binding.
