Doctrine of suspension of rent on the basis of a force majeure event: the Delhi High Court view
Fox Mandal & Associates, Mumbai
Fox Mandal & Associates, Mumbai
On 21 May 2020, the High Court of Delhi delivered its landmark decision in the case of Ramanand and Ors v Dr Girish Soni and Anor, wherein it has dealt with the question as to whether the governmental lockdown imposed due to Covid-19 would entitle tenants to claim waiver or exemption from payment of rent or suspension of rent.
The tenanted property being the subject matter of the current petition is a commercial premises in Khan Market (New Delhi), one of the most expensive retail locations in India, which was given on rent through a lease executed on 1 February 1975. Sometime in the year 2008, the landlord filed an eviction petition and subsequently on 18 March 2017, a decree for eviction was passed against the tenants. The tenants filed an appeal against the above impugned order which was dismissed via an order dated 18 September 2017. Consequently, the tenants filed the present revision petition pursuant to which the Delhi High Court, on 25 September 2017, stayed the earlier order of eviction subject to the timely payment of the stipulated monthly rent by the tenants and to other terms and conditions.
Following the outbreak of Covid-19, the tenants filed an application for suspension of rent during the government-imposed lockdown period which, according to the tenants, had caused complete disruption of all business activities, including their business. The tenants further pleaded that the circumstances were force majeure and were beyond the control of the tenants. Hence, the tenants claimed that they were entitled to a waiver of the stipulated monthly rent, or at least some partial relief in terms of suspension, postponement or part-payment of the rental amount.
Reference to applicable law and judicial precedents
The single judge bench of the Delhi High Court comprising Justice Prathiba M Singh, prior to passing the verdict, has also carried out a detailed analysis of the extant applicable provisions of the Indian law namely:
- section 32 of the Indian Contract Act 1872 (the ‘Contract Act’) which deals with ‘enforcement of contracts contingent on an event happening’;
- section 56 of the Contract Act which embodies the principle of doctrine of frustration and, inter alia, states that ‘an agreement to do an act impossible in itself is void’;
- section 108(b)(e) of the Transfer of Property Act 1882 which, inter alia, states that ‘if by fire, tempest or flood, or violence of an army or of a mob, or other irresistible force, any material part of the property be wholly destroyed or rendered substantially and permanently unfit for the purposes for which it was let, the lease shall, at the option of the lessee, be void’; and
- section 108(b)(l) of the Transfer of Property Act 1882 which, inter alia, states that ‘the lessee is bound to pay or tender, at the proper time and place, the premium or rent to the lessor or his agent in this behalf’.
The Delhi High Court analysed the above legal provisions by, inter alia, relying on key landmark judgments passed by the Supreme Court of India, and an extract from the analysis is detailed below.
1. Energy Watchdog v CERC and Ors (2017) 14 SCC 80
The Delhi High Court opined that in this case it was clearly held by the Supreme Court that where the contract itself contains an express or implied term relating to a force majeure condition, the same shall be governed by section 32 of the Contract Act. On the other hand, section 56 of the Contract Act, which deals with impossibility of performance, would apply in cases where a force majeure event occurs outside the contract.
2. Raja Dhruv Dev Chand v Raja Harmohinder Singh and Anor AIR 1968 SC 1024
The Delhi High Court pointed out that in this judgment, the Supreme Court had laid down unequivocally 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.
3. Raichurmatham Prabhakar and Ors v Rawatmal Dugar (2004) 4 SCC 766
The Delhi High Court also placed reliance on this verdict wherein the Supreme Court held that suspension of rent may be claimed by the tenant if the lessee has been dispossessed. Thus, mere non-use may not always entitle the tenant for suspension of rent.
Relying on the above analysis, the Delhi High Court has considered the implication of the applicable provisions of law vis-à-vis the tenants’ prayer for suspension of rent with particular regard to the facts of the present case in the following manner:
Delhi High Court view in the present case
Section 32 of the Contract Act 1872
Since in the present case, there is no rental agreement or lease deed between the parties, the Delhi High Court opined that section 32 of the Contract Act has no applicability.
Section 56 of the Contract Act 1872
Since the present case is governed by the provisions of the Delhi Rent Control Act 1958 which deals with tenancies, the Delhi High Court opined that section 56 of the Contract Act would not apply.
Sections 108(b)(e) and 108(b)(l) of the Transfer of Property Act 1882
In the present case, the Delhi High Court observed that tenants have not argued that the tenancy is void under section 108(b)(e). The tenants are also not ‘lessees’ as an eviction decree has already been passed against them.
The Delhi High Court has further opined that:
‘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. 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).’
While determining the question as to whether the tenants were entitled to any relief of suspension of rent, the Delhi High Court has considered factors such as:
- nature of the property;
- financial and social status of the parties;
- amount of rent;
- other factors such as reasonability of the compensation;
- any contractual condition(s); and
- protection under any executive order(s).
The Supreme Court finally held that suspension of rent would not be permissible as per the facts of this particular case, however, some postponement or relaxation in the schedule of payment could be granted owing to the lockdown.
Though this verdict is a vital indicator with respect to the interpretation of important legal provisions during these unprecedented times, the same should not be considered as ‘one size fits all’ and its applicability would differ on a case-to-case basis. It has also been made abundantly clear that the right to seek waiver, suspension or any remission in rental payments is not an inherent right of the tenant. In cases where there is a contract in place, then the contractual terms, particularly the force majeure clause or any other condition granting such waiver, suspension or remission, would be considered. In the absence of such a contract or a contractual stipulation, then the same would have to be determined by the courts on the basis of the strict interpretation of applicable law and after considering the facts and circumstances of each case.