Citation codes: 2020 SCC OnLine Del 635; AIR 2020 Del 80; 2020:DHC:1963
Date of Judgement: 21 May 2020
Court: Delhi High Court
Coram: Justice Prathiba M. Singh
Factual Background
On 1February 1975, Dr Girish Chand Soni (hereinafter “Respondent”) and Ramanand (hereinafter “Tenant”) entered a lease deed for a shop in Khan Market, Delhi for a monthly rent of Rs. 300. In 2008, an eviction petition was filed by the Respondent, which was eventually granted by the Rent Control. The appeal by the Tenant failed in the Rent Control Tribunal, pursuant to which the Tenant approached the Delhi High Court under a revision petition.
On the first hearing, an interim relief of stay on the order of eviction was granted by the Delhi High Court. This stay was subject to the condition that the Tenant pay rent of Rs. 3.5 lakhs per month to the Respondent.
Due to COVID-19, an application for suspension of rent was moved during the lockdown by the Tenant citing complete disruption of all business activities due to the lockdown constituting Force Majure. Thus, the Tenant prayed that either waiver or partial relief of suspension, postponement or part-payment of the amount of Rs.3.5 Lakhs/month shall be granted.
Issues
Can a Tenant seek suspension/waiver of rent under a lease agreement by placing reliance on Section 56 of the Indian Contract Act, 1872?
Whether temporary non-use of the premises due to the Covid-19 outbreak will entitle the Tenant to seek suspension/waiver of rent.
Tenant’s Position
The Tenant argued that they are willing to make part-payment of the monthly amount of Rs. 3.5 lakh. Some remission may be made only for the period of lockdown and the Tenants are ready to pay the monthly payments thereafter.
Alternatively, they pleaded that rent be suspended for one month as there has been no business during the lockdown period.
Respondent’s Position
The Respondent argued that the Tenant has been using the premises at a mere payment of Rs. 300/-. They have a well-to-do business having purchased a neighboring shop in the same market. The amount of rent fixed by the court is meagre compared to other shops of similar size.
Moreover, Force Majeure does not apply as the case is governed by the Delhi Rent Control Act.
The Respondent requires the premises for bona fide use. The Tenant can’t seek exemption of rent by the reason of disruption of business as the Respondent is also dependent on the income from the rent of the said shop.
Decision and Reasoning
The Court noted that the relationship between the Landlord-Tenant is governed by the rights and obligations under the contract or law. The question of suspension or waiver will also be dealt with in the terms and conditions of the contract. If there is a force majeure clause or any other condition regarding suspension or waiver of rent, it should be dealt with in the terms of the contract. However, if there is no contract at all or no specific force majeure clause, then issues would have to be determined based on applicable law [¶10-11].
The court relied on the Supreme Court decision in Energy Watchdog vs CERC, wherein it was held that in case if contract contains an express or implied term related to force majeure, the same will be dealt with the Section 32 of the Indian Contract Act, 1872 (hereinafter “ICA”). Section 56 of the ICA, dealing with impossibility of performance would apply in case of contracts with no stipulation relating to force majeure [¶32].
On Section 32 of the ICA
The outbreak of Covid-19 pandemic is a force majeure event. The force majeure clause can be also in the nature of a contingency, the tenant could claim the contract as void and surrender the premises. However, if tenant wishes to retain the premises and there are no stipulations of any waiver, the rent will be payable [¶14].
On applicability of Section 56 of the ICA
The court observed that in the absence of a force majeure or remission clause, a tenant may attempt to invoke the “Doctrine of Frustration” or Impossibility of Performance” as contained in Section 56 of ICA. However, the provision does not apply due to the settled legal position that it is only applicable to executory contracts, not executed contracts [¶15].
The court cited the Supreme Court decision in Raja Dhruv Dev Chand v. Raja Harmohinder Singh & Anr., wherein it was held that Section 56 of the ICA has limited application to lease agreements, with the court distinguishing between executed and executory contracts. While an agreement to lease may become impossible or void due to uncontrollable events, the transfer of property through a lease is not rendered void. Section 56 does not apply to contracts that have already been concluded, as in this case, where the transfer of land was completed through the lease agreement.
Further reliance was also placed on Hotel Leela Venture Ltd. v. Airports Authority of India, wherein the Delhi High Court observed that Doctrine of Frustration only applies to executory and not executed contracts. The court explained that if A purchases shoes from B, a manufacturer of shoes, the agreed quantity is delivered, only monthly payment is being made. Due to a change in import policy, the market is flooded with imported shoes of lesser price than of those purchased by A. In this case A cannot claim frustration and seek the reduction of the balance amount as the contract was already concluded and only the consideration was periodic [¶34].
On provisions governing Lease agreements under the Transfer of Property Act, 1882
The principle of force majeure is enshrined under Section 108(B)(e) of the Transfer of Property Act, 1882 (hereinafter “TPA”). The clause (e) states that if any material part of property is destroyed or rendered substantially and permanently unfit for the purpose it was leased, on account of conditions mentioned, it can be made void at the option of lessee.
The court relied on Raja Dhruv Dev Chand v. Raja Harmohinder Singh & Anr. wherein while interpreting the words substantially and permanently unfit, the Supreme Court observed that temporary non-use by the tenant on account of any factors will not entitle the tenant to declare the lease void.
The court concluded that until there is a complete destruction of the property, Section 108(B)(e) of the TPA cannot be invoked. Thus, temporary non-use of premises due to the lockdown cannot render the lease void under Section 108(B)(e) of the TPA.
Invocation of Equitable Jurisdiction
The Court observed that when contract does not stipulate suspension of rent, the Tenant can invoke equitable jurisdiction of the court. However, grant of such remedy will depend upon facts and circumstances of the case.
The court provided an instance of lease agreements wherein monthly payment is based on sales turnover or profit, then the Tenant may be able to secure suspension of rent, given that there is no sales or profits.
Conclusion
The court considered factors such as the nature of the property, which is commercial, that too in a market which has considerably high rents. The financial and social status of the parties, the landlord is a dentist who has sought eviction on grounds of bona fide use and the tenants run a shop in a mere rent of Rs. 300/-. The interim order of court increased the payable rent to Rs. 3.5 lakhs which is still on the lower side considering the lease deeds of similar properties in that locality. Moreover, in the absence of any contractual stipulations or protection under any executive orders, the court rejected the Appellants’ prayer for waiver or suspension of rent fixed by the interim order of the court.
Author(s)
Saumya Tripathi
Student at RMLNLU, Lucknow