I. Introduction
The spread of dreaded coronavirus has led to serious disruptions across the globe, India being no different. The virus has caused an unprecedented and incalculable damage to the economies worldwide, a situation equated to the Great Depression 1921, and caused deaths of millions of people across the globe. It has led to such a situation that even day to day activity such as access to print media is difficult.
The lack of demand and consequent lesser production has resulted in loss of millions of jobs worldwide apart from causing insurmountable damage to the social and economic conditions of the world. Among all these pertinent issues which are being faced by people, one of them is the effect of COVID-19 on businesses.
Even as the economy has virtually come to a standstill and people are being directed to remain quarantined in their respective homes, several tenants are being evicted by their landlords due to their inability to rental amount.
II. Intersection between landlord — Tenant Disputes due to COVID19
As most of these tenants, belonged to the lower stature of the society and were primarily migrants working in the unorganised sectors, were left stranded on the streets high and dry and thus resultantly the Government had to step in to provide them basic facilities through shelter home and hunger relief camps. Further, as majority of these tenants were living in the tenanted premises on the bases of oral agreement and with the understanding that rental dues would have to be paid on month to month basis were also deprived of many essential safeguards provided under the law.
Insofar as commercial leases are concerned such as those of shops in shopping complex, office spaces, etc. are concerned, it is bit unclear whether the tenant can take recourse to the force majeure clause, assuming that such a clause is present in the lease deed in the first place, to avoid paying the rental amount till the lockdown persists. There is lack of clarity on this issue due to lack of authoritative judicial precedent and even after the lockdown is lifted, the businesses as such may find it difficult to pay the rent as it will take considerable time for the economy to bounce back to the same level as it was prior to the lockdown, further it is also to natural to expect that there would be significant reduction in consumer spending post the lockdown due to reduced purchasing power of the consumer.
III. Statutory framework and force majeure clause
In India, the relationship between the landlord and the tenant is governed by various statues viz. the Contract Act, 1872[1] (hereafter, ‘the Contract Act’), the Transfer of Property Act, 1881[2] (hereafter, ‘the Property Act’), the Delhi Rent Control Act, 1958[3] (hereafter, ‘the Rent Control Act’) etc.
Section 56 of the Contract Act stipulates when a contractual obligations may be excused, an extract whereof is reproduced herein below –
‘S.56. Agreement to do impossible act.— An agreement to do an act impossible in itself is void.
Contract to do an act afterwards becoming impossible or unlawful.— A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.’
However, it may be a bone of contention if one take resource of the aforestated provision in order to wriggle out of its liability to contractual rent amount especially when the relationship between the parties should be governed by the Property Act or the Rent Control Act, as the case may be, as both these two statues are special statues and it is well-settled law the special law prevails over the general law[4]. Further, as the relationship of landlord and tenant are based upon the lease deed/lease agreement which is primarily a contractual agreement and the disputes, including non-payment of rent, if any, shall be governed strictly under the terms and conditions provided thereof.
In addition to the definition of force majeure clause provided under the respective lease deed, to understood its true import, one may refer to their definition in general sense –
Black’s Law Dictionary, 8th Edition, defines force majeure as ‘A contractual provision allocating the risk if performance becomes impossible or impracticable, esp. as a result of an event or effect that the parties could not have anticipated or controlled.’
Similarly, Oxford Dictionary defines force majeure as ‘unexpected circumstances, such as war, that can be used as an excuse when they prevent somebody from doing something that is written in a contract.’
It is to be noted that that term ‘force majeure’ is not to be equated as an ‘act of God’ as the former is of wider import than the latter. However, it has to borne in mind that since the former is an exception to the general rule of performance of contract, the same has to be construed narrowly.[5]
However, it is not the first time that the contracting parties have resorted to force majeure clause citing impossibility/frustration of performance, some of these cases wherein it has invoked earlier are –
In Bikram Chatterji v. Union of India[6], it has been opined by the Supreme Court that: (SCC Online para 129)
‘129. A blatant violation of the provisions of RERA has been done by the Amrapali Group. Since RERA contemplates timely completion of projects once registration has been granted Under Section 5 and extension of registration. Under Section 6, it is only in the event of force majeure in case there is no default on the part of the promoter, registration can be extended in aggregate for the period not exceeding one year. Force majeure shall mean a case of war, flood, drought, fire, cyclone, earthquake or any other calamity caused by nature…..’
(emphasis supplied)
Similarly, in another case Dhanrajamal Gobindram v. Shamji Kalidas and Co.[7], the Supreme Court has opined as under –
‘19. McCardie, J. in Lebeaupin v. Crispin[8], has given an account of what is meant by “force majeure” with reference to its history. The expression “force majeure” is not a mere French version of the Latin expression “vis major”. It is undoubtedly a term of wider import. Difficulties have arisen in the past as to what could legitimately be included in “force majeure”. Judges have agreed that strikes, breakdown of machinery, which, though normally not included in “vis major” are included in “force majeure”. An analysis of rulings on the subject into which it is not necessary in this case to go, shows that where reference is made to “force majeure”, the intention is to save the performing party from the consequences of anything over which he has no control. This is the widest meaning that can be given to “force majeure”, and even if this be the meaning, it is obvious that the condition about “force majeure” in the agreement was not vague. The use of the word “usual” makes all the difference, and the meaning of the condition may be made certain by evidence about a force majeure clause, which was in contemplation of parties…’
In a very recent judgment rendered by the Bombay High Court in ‘Standard Retail Pvt. Ltd. v. G.S. Global Corp.[9]’, the High Court has refused to accept the contention that COVID-19 pandemic and the lockdown declared by the Central/State Government would either tantamount to frustration, impossibility and impracticability of the contract or the same can be termed as a ‘force majeure clause’, and thus has declined to restrain the respondent therein from encashing the Letters of Credit opining inter alia that production of steel comes within the ambit of essential commodity and there was no restriction of movement of the same, an extract of the judgment is reproduced herein below –
”2. It is the case of the petitioners that in view of the COVID-19 pandemic and the lockdown declared by the Central/State Government, its contracts with Respondent1 were terminated as unenforceable on account of frustration, impossibility and impracticability. The petitioners have relied upon Section 56 of the Contract Act, 1872.
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4. Having heard learned counsel for the petitioners and learned Senior Counsel forRespondent1 (in the first 3 petitions), learned counsel forRespondent1 (in the last 2 petitions), the learned counsel forRespondent3, Bank (the first 3 petitions), in my view the petitioners are not entitled to any ad interim reliefs for the reasons stated herein-below:***
e. In any event, the lockdown would be for a limited period and the lockdown cannot come to the rescue of the petitioners so as to resile from its contractual obligations with Respondent 1 of making payments.
f. The judgments relied upon by the learned counsel for the petitioner in Energy Watchdog v. CERC[10]and Satyabrata Ghose v. Mugneeram Bangure & Co.[11] do not assist the case of the petitioners and are distinguishable on facts.”
However, the Delhi High Court in ‘Halliburton Offshore Services Inc. v. Vedanta Limited’[12] has opined in para 20 that ‘The countrywide lockdown, which came into place on 24th March, 2020 was, in my opinion, prima facie in the nature of force majeure’, and thus thereby granted an ad interim stay on invocation and encashment of the bank guarantees.
Pertinently, both the aforestated two cases where instituted under Section 9 petition of the Arbitration and Conciliation Act, 1996[13], seeking the relief of injunction against the respondent.
Although, these aforementioned cases can be distinguished on the basis of the facts and were not pertaining to landlord – tenant dispute but nevertheless do aid in interpreting the term ‘Force Majeure Clause’, as perhaps it has been the first time, since the Spanish Flu in 1919, that a disease has spread to such an unimaginable extent that it was termed as global pandemic by WHO, which further adds to the ambiguities due to lack of authoritative judicial precedent on the issue in hand i.e. if the spread of COVID-19 amounts to force majeure.
Also, one may argue that even if the lockdown is in continuance, the tenants have continued to enjoy the possession of the tenanted premise and thus have unjustly enriched themselves at the cost of the landlord, thus the tenant ought to have paid the rent and lack of business thereof shall not be a ground for non-payment of rent. In this regard the judgement rendered by the Andhra Pradesh High Court in ‘Gandavalla Munuswamy v. Marugu Muniramiah’[14], is quite apt, the relevant extract thereof is reproduced herein below –
“9…In my opinion, such an indirect and, what is more ambiguous course of action on the part of a lessee cannot be regarded as sufficient for conveying to the lessor his intention to treat the lease as void under section 108(e). The lessee must directly and categorically express to the lessor his intention to treat the lease as void. Otherwise, it will be legitimate for the lessor to regard the lease as subsisting. There is nothing in Section 108(e) of the Transfer of Property Act which compels a lessee to treat a lease as void. It is optional with him to do so or to refrain from doing so. This aspect of the matter makes it all the more necessary that an unambiguous declaration of the lessee’s intention to treat the lease as void must be communicated to the lessor. The lessor would not otherwise be able to take appropriate steps on the footing that the lease has come to an end and he is therefore at liberty to deal with the property as he chooses. What is even more important is that a mere declaration of intention to treat the lease as void is not sufficient. The lessee must also yield up possession of the property to the lessor as required by the provision of the section 108(q) of the Transfer of Property Act. He cannot continue in possession and yet declare that he has treated the lease as void. That would obviously be an inconsistent and impermissible position to adopt. So long as a lessee has not surrendered to his lessor the possession which he obtained from the latter at the time of the lease, he cannot rid himself of his obligations under the lease. His holding to the possession into which he was inducted by his lessor will estop him from disputing the right of his lessor to evict him and to recover possession from him...”
Recently, the Delhi High Court in Ramanand v. Dr. Girish Soni[15], has held in relation to a landlord–tenant dispute governed by the Rent Control Act, that suspension of payment of rent by tenants owing to COVID-19 lockdown crisis would not be justified though some relaxation may be given in the schedule of payment, the relevant extract is reproduced herein below:
“3. The urgent application under consideration, raises various issues relating to suspension of payment of rent by tenants owing to the COVID-19 lockdown crisis and the legal questions surrounding the same….
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31. Finally, in the absence of a contract or a contractual stipulation, as in the present case, the tenant may generally seek suspension of rent by invoking the equitable jurisdiction of the Court due to temporary non-use of the premises. The question as to whether the suspension of rent ought to be granted or not would depend upon the facts and circumstances of each case as held by the Supreme Court in Surendra Nath Bibran v. Stephen Court[16]. In the said case, the Court directed payment of proportionate part of the rent as the tenant was not given possession of a part of the property…”
The aforesaid case throws some light if one can rely upon the force majeure clause to justify non-payment of rental amount, however, the said case can be distinguished on the basis of the facts, as in that case the Court had already directed eviction of the tenant much prior to the coronavirus pandemic and the said judgment came to be delivered upon an application seeking suspension of rent. Moreover, the Court has itself noted in para 26 that ‘The question as to whether the suspension of rent ought to be granted or not would depend upon the facts and circumstances of each case as held by the Supreme Court in Surendra Nath Bibran v. Stephen Court[17], further the entire contract, if any, executed between the landlord and the tenant has to be kept in mind while deciding if non-payment of rent was justified or not.
IV. Government and Judicial Intervention
In the United Kingdom, the Government has passed the Coronavirus Act, 2020[18] w.e.f. 20th March, 2020, in view of the plight of tenants, with the objectives of protecting the tenant’s interest and thereby suspends the landlord’s right to evict business tenancies in England and Wales till normalcy is restored.
Similarly, even in India, the Ministry of Home Affairs (MHA) vide order dated 29th March, 2020 has inter alia directed the landlords of rented accommodation not to demand rent for a period of one month from workers including migrants. Further it also has been directed that the landlord shall not force labourers and students to vacate their premises and any violation thereof shall foist criminal action on them including but not limited to the Disaster Management Act, enforcement whereof is the responsibility of the respective State Government and Union Territory.
In addition to this, several PILs also have been filed before the Supreme Court and High Courts seeking exemption from paying rent during the lockdown, non-deduction of wages during the lockdown period, non-termination of workers/employees by the employers, waiver of Interest on EMIs during COVID lockdown, etc. Needless to say that the higher judiciary, which is already functioning in a limited capacity and conducting its proceedings through video conferencing, has become the hub of PILs.
V. Conclusion
In view of the aforesaid, it is difficult to say with certitude as whether the tenants can avoid paying rental amount for the period of lockdown citing force majeure clause, primarily due to lack of judicial precedent coupled with the factum that the interest of tenants are being protected by executive direction rather than legislative command. All in all, it is quite certain that once the lockdown is lifted and normalcy of courts is restored, several cases are going to be instituted either seeking eviction and/or arrears of rental amount from the tenants.
*Author is advocate by profession, practising and appearing before the High Court of Delhi and other tribunals and courts situated in Delhi. Author can be reached at advananthkini@gmail.com for any suggestions/comments.
[4] In Kidar Lall Seal v. Hari Lall Seal,1952 SCR 179, the Court had opined that “It is an established principle that where there is a general law and a special law dealing with a particular matter, the special excludes the general.” See also Dhruv Dev Chand v. Harmohinder Singh , (1968) 3 SCR 339.
[5] See Energy Watchdog v. CERC, (2017) 14 SCC 80
[8] [1920] 2 KB 714
[10] (2017) 14 SCC 80
[11] 1954 SCR 310
[13] Act No. 26 of 1996
[16] (1966) 3 SCR 458
[17] Ibid.
[18]Available at http://www.legislation.gov.uk/ukpga/2020/7/contents/enacted , last visited on 1st May, 2020.
[19] Noti. No. 40-3/2020-DM-I(A), dated March 29, 2020
[20] Many PILs have been filed on this subject such as Supreme Court Bar Association’s PIL on Government scheme for payment of office rent during lockdown; PIL to restrain landlords from evicting student and labourers; PIL on welfare schemes for migrant workers, etc.
Very Informative and knowledgeable article..kudos to the Author!!