India - Can Suspension Of Rent Due To Lockdown Be Claimed By A Lessee?
Legal News & Analysis - Asia Pacific - India - Regulatory & Compliance
22 June 2020
The appellants/tenants (hereinafter “Tenants”) had taken on lease a shop bearing number 30-A in Khan Market, New Delhi to run a shoe store since February 1, 1975 at INR 300/- per month. The respondent/landlord (hereinafter “Landlord”) filed an eviction petition under Section 14(1)(e) of the Delhi Rent Control Act, 1958 in 2008 and on March 18, 2017, a decree of eviction was passed against the Tenants. The Tenants obtained a stay on the eviction decree with respect to the leased premises, passed against them by the rent controller, from the DHC vide its order dated September 25, 2017 (“Stay Order”) subject to the condition that the Tenants shall pay a sum of INR 3,50,000/- per month in advance for each month with effect from October, 2017 as rent to the Landlord. The Stay Order further directed that any default in payment of the monthly rent by the Tenants shall lead to execution of the eviction decree.
Thereafter, the Tenants filed an application before the single bench of the DHC seeking suspension of the monthly rent directed to be paid by them to the Landlord vide the Stay Order due to the outbreak of COVID-19 and consequential disruption of business of the Tenants due to the lockdown imposed by the government. The Tenants pleaded that the outbreak of COVID-19 being a force majeure circumstance was beyond their control and therefore claimed waiver of the monthly rent.
Analysis: The DHC analysed the rights and obligation of the landlord and tenant qua force majeure under the provisions of ICA and TPA while determining whether a lessee has a right to claim suspension of rent due to occurrence of a force majeure event.
Applicability of the provisions of ICA:
The DHC, relying on the order of the Supreme Court in Energy Watchdog Vs. CERC & Ors. [(2017) 14 SCC 80, observed that in case 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 ICA and such a force majeure clause in the contract could also be a contingency under Section 32 which may allow the tenant to claim that the contract has become void and surrender the premises. In case where a force majeure event occurs outside the contract then Section 56 of the ICA dealing with impossibility of performance would apply. The fundamental principle is that if the contract contains a clause providing for some sort of waiver or suspension of rent, only then the tenant can claim the same.
The DHC considered the views of the Supreme Court in the case of Raja Dhruv Dev Chand Vs. Raja Harmohinder Singh & Anr. [AIR (1968) SC 1024 and the views of DHC in the case of Hotel Leela Venture Ltd. Vs. Airports Authority of India [2016 (160) DRJ 186] and observed that the provisions of Section 56 of ICA by its express terms excludes completed transfers from its purview. A lease results in creation of a privity of estate inasmuch as a lease is the transfer of an interest in immovable property within the meaning of Section 5 of TPA and therefore being a completed transfer even though it involves monthly payment, it is expressly excluded from the application of Section 56 of ICA and it cannot be invoked to claim waiver, suspension or exemption from payment of rent.
Applicability of the provisions of TPA:
The DHC relying on the observations of the Supreme Court in various cases and its own observation in another case of Sangeeta Batra Vs. VND Foods & Ors. [(2015) 3 DLT (Cri) 422], held that for a lessee to seek protection under Section 108(B)(e) of TPA, there has to be a complete destruction of the property which is substantial and permanent in nature due to the force majeure event and not just a temporary non-use of the property and then at the option of the lessee, thelease would be void. 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).
In view of the aforesaid and the prayer sought by the Tenants for suspension of rent, the DHC held that in the absence of a contract or a contractual stipulation, the tenant can seek suspension of rent by invoking the equitable jurisdiction of the court due to temporary non-use of the premises and question as to whether the suspension of rent ought to be granted or not would depend upon the facts and circumstances of each case. Relying on the aforesaid observation and other factors relevant to the case of the Tenants, the DHC directed the Tenants to pay the use and occupation charges for the month of March 2020 on or before May 30, 2020 and for the months of April and May, 2020 by June 25, 2020.
From June 2020 onwards, the payment of rent shall be strictly in accordance with the Stay Order.
As discussed in our earlier newsletter (which may be accessed here https://lexcounsel.in/wpcontent/uploads/2020/04/Newsletter-April-08 2020.pdf), temporary suspension of lease rent bythe lessee for the occurrence of a force majeure event can be sought if the same is stipulated under the contract and not under Section 108(B)(e) of TPA. As per Section 108(B)(e), the lease can be declared void at the option of the lessee if the property is rendered substantially and permanently unfit for the purpose for which it was let as a result of fire, tempest or flood, or violence of an army, or of a mob, or other irresistible force. In the absence of a complete destruction of property of a permanent nature that enables the lessee to declare the lease void, the lessee will have no option but to seek equitable jurisdiction of the court for temporary relief.
For further information, please contact:
Seema Jhingan, Partner, Lex Counsel Law Offices