Kaushik started a software business with two friends. They saw an advertisement for office space and visited the property. However, they disagreed on the lease terms with the owner, Manas. After negotiations, they agreed to a 5 year lease at INR 500,000 per month. Kaushik later faced legal issues regarding promises made to his wife, loans, and tax obligations for his business.

1. LEB0009
Legal Wrangles of Kaushik
Kaushik, an ambitious entrepreneur, after his MBA and acquiring experience in a software business
for a period of 3 years, decided to start a software business. He discussed his business proposal with
two of his friends who were willing to join him as partners in his venture. They decided to invest
towards their share and executed an agreement on the business venture.
Kaushik along with his friends started a software business ‘Exotica Software Solutions’ in a
small room on the first floor of his residence located at Plot No.152, Vayuvihar, Sainikpuri,
Secunderabad. He had to start the business in the small place as he could not find any place suitable
for his plan. However, one fine morning while reading the Deccan Chronicle Kaushik came across
an advertisement (Exhibit I).
Exhibit I
Commercial Space
“Ready to Occupy – Commercial space ideal for offices 16,500 sq.ft. spread in four floors with
adequate parking space, available for lease at Kavuri Hills, Phase 2, Madhapur, Hyderabad.
Minimum lease period will be 5 years and subject to renewal. Interested parties have to seek
appointment with the owner Manas on mobile No. 9492333165 or 9426333165 , to visit the place, and
finalise the deal in person.”
Compiled by the author
Kaushik was excited to see the advertisement as he was seriously searching for an office space.
Kaushik, informed his friends and called Manas to enquire about the said advertisement. “Hi, I am
Kaushik. I and my friends are interested in the office building you have advertised. We would like
to visit and see the building. When can we see the place?” Manas replied, “You can come around
10 a m on Saturday (August 1st). You can see the building and if satisfied, verify the lease agreement.
This case study was written by Sonia Katoch and Dr A.V. Narasimha Rao, Corporate Law, IBS, Hyderabad. It is intended to be used
as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. The case
was written from generalised experiences.
© 2009, IBSCDC.
No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium whatsoever
without the permission of the copyright owner.
License to use for the Class of 2012,
Semester II, IBS Hyderabad.
Course: Legal Environment Business

2. Legal Wrangles of Kaushik
If you agree to all the terms and conditions then we may proceed with the leasing of the office
space.” In the meantime Manas received various other proposals on phone and they started discussing
the terms. Some of the parties were even calling on his residence number. Few more people sent
their representatives or agents to his residence along with a letter containing the lease documents
and other terms. Manas was very frustrated on receiving calls from agents and parties without
giving their proper identity and also he was irritated against some people as they directly visited the
place (building) without seeking appointment as mentioned in the advertisement. He failed to
understand why some of the parties wrote letters to him when it was clearly specified in the
advertisement that the interested parties must contact Manas over the phone.
Manas gave appointment to another party who called him before Kaushik at 11 a m on July 30th.
They liked the building very much but, Manas could not come to any consensus regarding the monthly
rent, as the party was not ready to accept the quoted rent, norwas Manas ready to accept the rent
quoted by the party. On August1st, Kaushik and his friends reached the place on time where Manas
was waiting for them. He showed them the building and they spontaneously liked it. They sat down
to discuss the terms and conditions of the lease amount and other conditions attached to it. Manas
stated the following terms and conditions which were not acceptable to Kaushik and his friends –
• The change in the term of lease to 4 years (against 5 years as mentioned in the advertisement)
• Lease Rent as INR 700,000
• Termination of lease may be at any moment (no Lock-in-Period mentioned in the agreement)
• Earnest money of INR 3,000,000, and
• Enhancement of monthly rent every year by 20%.
Kaushik and his friends offered INR 400,000 as the monthly rent and insisted for a lock-in-period
of 6 years. But these terms were not acceptable to Manas. After intense deliberations and negotiations
both the parties came to a mutual agreement that –
• The term of the lease would be 5 years
• A clause on Lock-in-Period be added to the agreement, i.e., neither party can terminate the
lease agreement before 36 months. After completion of the Lock-in-Period, the lessee shall
have the right to terminate the lease without assigning any reason whatsoever to the lessor,
by giving 3 months’ notice
• The monthly rent agreed as INR 500,000
• Earnest money deposit as INR 2,000,000 instead of INR 3,000,000 which is refundable on
the termination of the lease without any interest
• Upon completion of the three years Lock-In Period, the monthly rent shall be enhanced by
30% on the last paid monthly rent. The enhanced rent shall be payable at the beginning of
37th month of the lease i.e., August 3rd 2012
• The lessee to pay rates, taxes, assessment, duties, cess, impositions, outgoings and burdens
whatsoever payable to State of Andhra Pradesh, the Municipal Corporation of Hyderabad,
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3. Legal Wrangles of Kaushik
local or other authority, which may at any time or from time to time during the term hereby
created be imposed or charged upon the building
• The lessee to pay the electricity bills for the electricity consumed for lighting the building
and for operation of air conditioners, fans, computers and electrical appliances in the demised
premises
• The lessee not to make any structural alterations in or upon the building or make any
alterations or addition to the external appearance or any part of the building without the
previous consent of the lessor in writing
• To use the building for office purposes of the lessee only
• The lessee not to place or keep or permit to be placed or kept on the building any offensive,
dangerous or highly inflammable or explosive material or any other article or things, which
may constitute a danger, nuisance or annoyance to the premises or surrounding premises or
the owners or occupiers thereof.
An agreement with the terms and conditions agreed was drafted and signed on August 4th and
registered according to the Indian Registration Act, 1908 by paying stamp duty of 2%. After
signing the agreement Manas told Kaushik, that they can take the possession of the building after
10 days and on payment of the earnest deposit, as there were certain minor repairs which required
at least 1week. Kaushik and his friends told Manas that they would come on August14th to take
the possession of the building, to which Manas agreed. On August14th, Kaushik and his friends
went to their new office building and handed over the demand draft for INR 2,000,000 towards
the earnest deposit and Manas handed over of the premises to them. All were very happy as they
got the possession of the building.
Kaushik wanted to bring new furniture including the computers into the new premises and informed
to Smart Cyber Café (SCC) through his contacts that he is ready to dispose his old computers at
INR 5,000 each, But, the owner of SCC said that he is ready to purchase the computer at INR 4,000.
Kaushik informed his idea of selling the computers at INR 5,000 to Ramdev Computer Training
Institute (RCTI) who in turn agreed to purchase at INR 4,500 Kaushik agreed to sell and took part
of the sale amount from RCTI. Meanwhile SCC approached him and informed that they were ready
to purchase at INR 5,000. But by that time Kaushik informed that the sale was completed, however,
he was in a dilemma whether he can cancel the agreement with RCTI as they have not paid the
entire amount and SCC was ready to purchase at higher price.
‘Exotica Software Solutions’ moved to their new office, bought new furniture and recruited new
staff, targets were set and everyone was busy in their work. Kaushik, the managing partner and
other partners along with the employees worked hard to achieve the set targets. After a year the
firm was established, Kaushik decided to take a break. He had promised his wife that he would take
her to Canada for a month. He purchased tickets and they were to take the flight at midnight.
Incidentally, Kaushik received a call from Australia that a delegation, which was expected since a
long time, was arriving within next 2 days to finalise a deal worth about AUS$2 billion. Kaushik
decided to cancel the programme against the protests from his wife. The Australian delegation, as
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4. Legal Wrangles of Kaushik
decided, came to Hyderabad and finalised a software project deal with the firm and paid an advance
amount to meet the expenditure required for pooling up the resources for starting the project. Next
morning, Kaushik’s wife left the house without informing him and sent a notice for not fulfilling his
promise. Kaushik was shocked and questioned himself, whether his promise to take her to Canada
amounts to a contract. He was not able to think beyond that.
One fine morning, when Kaushik was busy discussing the course of action of the Australian
project, an unknown person came to his office with some papers in his hands, and told Kaushik that
he had given INR 300,000 as personal loan on execution of a promissory note. However, due to
some personal reasons he could not come to take money during the last 4 years and requested him
to repay the money along with the interest. Kaushik’s friends inform him that the promissory note is
time barred, therefore there is no contract between them and amount need not be paid. But, Kaushik
having not accepted the plea; instead executed another promissory note for the principal and interest
due as on the date and requested him to give 1 month time for repayment which the other party
readily accepted. At the same time, Kaushik recollected a phone call that he received when one of
his partner was not in the office which informed him that other partners of the firm promised to pay
INR 200,000 to a temple to construct a compound wall which is located near to their office. All of
them, excluding the legal advisor who was present in the meeting, decided that there is no obligation
on them to pay the amount as it was a causal promise. But, the legal advisor told them that it will be
a binding contract on them as the temple has constructed the compound wall and they have to pay
the amount as promised.
The firm received a notice from income tax department for payment of advance tax as per the
provisions of the Income Tax. But, the partners were not interested to pay with a plea that they do
not have taxable income. They wanted to show the transaction of a gift of a car given to the father
of Kaushik towards the expenditure. But, Kaushik expressed a doubt that without having any
contract, how a gift can be given. They hired a chartered accountant to prepare accounts so that
they need not pay any tax and authorised to prepare some agreements in favour of some agencies
for payment of money as donations. With the consent of the partners of the firm, the chartered
accountant manipulated some of the transactions and accounts to evade the tax payment. They
arranged a residential flat at a very low cost compared to the open market rate with their influence
in the name of Income Tax officer’s wife and also arranged a housing loan from a nationalised
bank for him with an intention that he may bail them out of their problems. Finally, they filed their
financial statements and income tax assessment papers with the tax authorities and waited for the
approval of assessment copies.
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