Arbitration In IndiaCommercial Agreements & Contracts In IndiaPayment of Rent during Covid-19 Lockdown

DELHI HIGH COURT

Ramanand & Ors. v. Dr. Girish Soni & Anr.

 RC. REV. 447/2017 | DATE: 21.05.2020

FACTS 

The Respondent i.e. the Landlord had given the concerned shop on rent for commercial purposes vide a lease deed on 1^st February, 1975 to the Appellants i.e. the tenants.

The Respondent thereafter, filed for eviction of the Appellants under Section 14 (1) (e) of the Delhi Rent Control Act, 1958 and an order for eviction was passed on 18^th March, 2017 by the Ld. Senior Civil Judge – cum – Rent Controller.

The Appellants filed an appeal against the Order before the Ld. Rent Control Tribunal however, the same was dismissed on 18^th September, 2017. The Appellants had therefore, approached the Delhi High Court challenging the said decision. The Single Judge of the Delhi High Court on 25^th September, 2017 granted a stay on the order of eviction and directed to pay a rent of Rs. 3.5 Lakhs per months by the 10^th of English Calendar month.

An urgent application was filed in light of the various issues relating to suspension of payment of rent by tenants owing to COVID – 19 crisis and the legal questions rising regarding contracts and non-performance of obligations within those contracts.

Therefore, the Appellants seek for waiver of monthly payment of rent as directed on 25^th September, 2017 or partial relief in terms of suspension, postponement or part-payment of the rent amount as the situation was beyond the control of the parties and their business was disrupted.

ISSUE BEFORE THE DELHI HIGH COURT

The following issues were considered by the Delhi High Court:

Whether the lockdown would entitle tenants to claim waiver or exemption from payment of rent or suspension of rent?

OBSERVATION 

The Appellants submitted that since because of the lockdown, the business operations are shut down, the Appellants are entitled to some remission.

Whereas, the Respondent submitted that the Appellants were enjoying the possession of the property since 1975 and the Appellants are well-to-do business persons, the rent of the shop is way less compared to the prevalent market rate. The Respondent also contended that force majeure did not apply as the lease deed was governed by the Delhi Rent Control Act, 1958.

The Appellants had requested for a rebate for the period of lockdown.

The Court discussed the contractual relationship between a landlord and a tenant or a lessor and lessee where the rights and obligations of parties are determined by the terms of the Agreement. The Court mentioned that suspension or waiver of the rental payments would be different for different types of rental agreements. For example;

1. Contract having a force majeure clause – the contract shall be governed by the clause and can allow suspension / waiver within the said clause; and
2. Contract without a force majeure clause – the contract will have to consider the applicable laws to determine the issue.

The Court further discussed Section 32 and 56 of the Indian Contract Act, 1872, definition of Force Majeure and the relevant judgments to ascertain the situation. The case of Energy Watchdog v. CERC & Ors., (2017) 14 SCC 80 was referred which discussed Section 32 and 56 of the Indian Contract Act, 1872 in consonance with force majeure. The Supreme Court observed:

“34. “Force majeure” is governed by the Contract Act, 1872. Insofar as it is relatable to an express or implied clause in a contract, such as the PPAs before us, it is governed by Chapter III dealing with the contingent contracts, and more particularly, Section 32 thereof. Insofar as a force majeure event occurs dehors the contract, it is dealt with by a rule of positive law under Section 56 of the Contact Act.”

Under Section 32 of the Indian Contract Act, 1872, parties can include a force majeure clause that can exempt the parties from payment of monthly rent during the occurrence of the event and clause can also lead to declaring the Agreement void thereby, surrendering the premises. However if the tenant is willing to keep the premises and the Agreement ongoing, the payment of rent becomes mandatory.

On the other hand, Section 56 of the Indian Contract Act, 1872 suggests invocation of the doctrine of frustration because of the situation of ‘impossibility’. The Court referred to the case of Raja Dhruv Dev Chand v. Raja Harmohinder Singh & Anr., AIR 1968 SC 1024 where the Supreme Court laid down that;

“…a lease is a completed conveyance though it involves monthly payment and hence, Section 56 cannot be invoked to claim waiver, suspension or exemption from payment of rent. This view of the Supreme Court has been reiterated in T. Lakshmipathi and Ors. v. P. Nithyananda Reddy and Ors., (2003) 5 SCC 150, as also in Energy Watchdog (supra).”

While discussing upon immovable properties, it is impossible to not bring into picture the Transfer of Property Act, 1882. The Court interpreted and discussed Section 108 (B) (e) Transfer of Property Act, 1882 mentioning the doctrine of force majeure and Section 108 (B) (1) of the Transfer of Property Act, 1882 mentioning ‘Rights and Liabilities’ of the lessee. The Court observed that;

“Thus, for a lessee to seek protection under sub-section 108(B)(e), there has to be complete destruction of the property, which is permanent in nature due to the force majeure event. Until and unless there is a complete destruction of the property, Section 108(B)(e) of the TPA cannot be invoked….”

The Court thereafter, observed the instant issue in light of situations like the present pandemic of COVID – 19 and stated that the suspension or waiver of rent would depend upon the nature of the contract.

The Court opined that such facts and circumstances will not be governed by any force majeure event however, the consequence of the said event has led to the Appellants not earning any profits or not making any sales.

CONCLUSION 

The High Court  therefore, took into account the Appellants’ prayer without the applicability of Section 32 of the Indian Contract Act, 1872 as the same is governed by the Delhi Rent Control Act, 1958.

The Court also laid down factors to be considered to determine the questions as to whether the tenant is entitled to any relief or suspension of rent:

1. Nature of the property – the property was located in a prime location i.e. Khan Market of New Delhi;
2. Financial and social status of the parties – the landlord was a dentist and the tenants used to run a footwear shop within the premises since 1975;
3. Amount of rent – the rent amount was fixed Rs. 3.5 Lakhs by the Court and the amount paid by the tenants was at the lower side compared to the prevalent rates in the area;
4. Other factors – tenants were termed as ‘unauthorized occupants’ as the eviction notice was already passed and therefore, the landlord is entitled to get compensation of the loss caused due to the delay in execution of the eviction decree;
5. Any contractual conditions – non such condition within the deed; and
6. Protection under any executive order(s) – the case was not covered by the prevalent orders issued by the Government authorities during the lockdown.

Therefore, considering the situation and factors, the application of the Appellants was rejected. The Court concluded that suspension of rent was not in question however, certain relaxation of the schedule of payment can be granted.

The Court held that;

“It is accordingly directed that the Tenants shall now pay the use and occupation charges for the month of March, 2020 on or before 30th May 2020 and for the months of April, 2020 and May, 2020 by 25th June, 2020. From June 2020 onwards, the payment shall be strictly as per the interim order dated 25th September 2017. Subject to these payments being made, the interim order already granted shall continue. If there is any default in payment, the interim order dated 25th September, 2017 would be operational. The said interim order is very clear i.e., if there is any non-payment, the decree would be liable to be executed.”

AMLEGALS REMARKS 

The said judgment has brought out a different approach while dealing with the issues between tenants and landlords during the unforeseen situation like the current one. The Court emphasizes on the important of referring the agreements and contracts before resorting to the remedies available under the contract.

Laying down the factors to be considered would prove remarkable and would have put to rest many ongoing disputes on contractual obligations of payment of rent during Covid-19 Lockdown in India.It must be also noted that force majeure cannot be applied blindly unless it is provided categorically to justify its invocation under any contract.

Therefore, the Court while considering the provisions of the Transfer of Property Act, 1882 rightly observed;

“In view of the above settled legal position, temporary non-use of premises due to the lockdown which was announced due to the COVID-19 outbreak cannot be construed as rendering the lease void under Section 108(B)(e) of the TPA. The tenant cannot also avoid payment of rent in view of Section 108(B)(l).”

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