By: Abhinav Gupta
This post is the first of a two-part series on the topic. Part 2 may be found here.
The global economy has witnessed wide-ranging impacts due to the COVID-19 pandemic and the resulting lockdowns. Many small businesses, such as local restaurants and other retailers, had to be closed due to the loss of profits and income. This loss of income reduced the ability of the leaseholders to utilise their leased property effectively and profitably. Consequently, several challenges had been filed for the relaxation of the rent payments due to such hardships. However, the Indian courts have refused to grant any relief citing the restrictive nature of the applicability of frustration, force majeure doctrines under the Transfer of Property Act, 1882 “(hereinafter ‘TPA’)”.
A strict approach to the aforementioned doctrines has been taken so far under the common law, and the result has been satisfactory. However, arguably, the pandemic and lockdowns due to COVID-19 have resulted in unforeseeable complexities in such tenancy agreements between the landlords and the tenants, and also highlighted inadequacies in the current law. One major difficulty is the applicability of frustration and force majeure under §108(B)(e) of the TPA in order to vitiate the tenancy agreement. The said provision, containing the rights and liabilities of the lessee, stipulates for a ‘substantial’ and ‘permanently’ destruction of the property rendering it unfit for usage in order for the lessee to claim any relief. This has resulted in the lessee, in the midst of a global economic recession, paying the same rate of rent as in normal circumstances. This blog-post argues for a better tenancy model for dealing with such situations of emergencies and pandemics in future.
Applicability of force majeure in tenancy contracts in India
The application of the doctrine of force majeure and frustration is materially different under the tenancy disputes from other contracts. In the former, the generic concept of frustration and force majeure incorporated under §56 of the Indian Contract Act, 1872, “(hereinafter ‘ICA’)” is not applicable. §56 of the ICA stipulates that when the performance of the contract becomes impossible or unlawful after the contract is made, the said contract is declared void. The non-application of this general concept is a settled law that has been stated in various cases, such as Saha Ratansi Khimji and Sons v. Proposed Kumbhar Sons Hotel. This is due to the fact that such tenancy contracts are covered by the special legislation, i.e. the TPA, and therefore will prevail over the ICA, which is a general legislation. More importantly, as observed in Dhruv Dev Chand v. Harmohinder Singh, “(hereinafter ‘Dhruv Dev’)” §56 of the ICA does not apply to cases where there has been a completed conveyance. Completed conveyance are situations where the transfer has already occurred. Therefore, the court in Dhruv Dev opined that since payment of rents usually occurs after the transfer of property and only requires monthly payments, the doctrine of frustration under ICA is not applicable.
Thus, the specific provision under §108(B)(e) of the TPA, as stated above, applies to frustration and force majeure events under a tenancy contract. This requires the property to be ‘substantially’ and ‘permanently’ damaged in order for the lessee to invoke frustration. However, parties may, of course, choose to add a force majeure clause specifically in their contract that may include more events such as lockdowns. This is expressly allowed under §111(b) of the TPA. In such cases, based on the drafting of the clause, a situation such as lockdowns due to the COVID-19 pandemic may be covered.
Various courts have held lockdowns as a force majeure event. For instance, in MEP Infrastructure Developers v. South Delhi Municipal Corporation, where the dispute was regarding a construction contract, the court relied on government notification which stipulated lockdowns as a force majeure event and affirmed the same. The court further crucially stated that the unforeseen lockdowns have resulted in a destruction of the contractual status quo which justifies reconsideration of the rights and obligations under the contract. Further, more recently, in R. Narayanan v. The Government of Tamil Nadu, the Madras High Court waived the payment of license fee by a State-owned shop for the lockdown period for similar reasons. The court, based on the general doctrine of force majeure under §56 of the ICA, opined the lockdowns due to COVID-19 to fall under the ambit of the said doctrine.
However, such a decision will not impact the tenancy contracts that do not have a specific force majeure clause. Instead, §118(B)(e) of the TPA will be attracted in such situations. The Delhi High Court dealt with this specific situation in Ramanand v. Dr. Girish Soni. The court reiterated that the general provision of frustration and force majeure under the ICA does not apply to tenancy disputes. This is due to the fact that a lease is a completed conveyance which is different from an executory contract contemplated under §56 of ICA. Thereby, in the absence of any particular force majeure clause in the agreement between the parties, the court proceeded to analyse §108(B)(e) of the TPA.
The Delhi High court relying on previous decisions such as Dhruv Dev concluded that for a lessee to seek the protection under §108(B)(e), there is a requirement for the complete and permanent destruction of the property caused by the force majeure event. Herein, the complete destruction of the leased property is a mandatory pre-requite in the TPA. Therefore, the court concluded that a temporary non-usage of the property due to a lockdown caused by COVID-19 would not render the lease void under §108(B)(e). Thereby, the tenant has to pay the required normal rate of the rent, and the same cannot be reduced. Though the court further opined that a temporary suspension could be granted based on the equitable jurisdiction of the court, the same will depend on the relevant facts and circumstances of the case. On merits, however, the court upheld the normal 3,50,000 lakh rent per month that had to be paid by the lessee since the rent was comparatively lower in the area.
The decision to stipulate the same enormous rent even in the times of a global pandemic, where there can be no daily earning, indicates the arbitrary and discretionary exercise of this equitable power of the court. There is evidently no statutory backing for the exercise of such power which can result in a lack of uniformity of application of such powers. Even in practical application, no court has lowered the rent under the TPA regime to date. The reasoning of the court that the rent is comparatively lower does not do away with the individual hardship that the lessee might face. Thus, under the current TPA structure, the lessees in tenancy contracts are mandated to pay the same prices while other forms of payments such as licensee fees are being waved-off due to the COVID-19 pandemic and the resulting lockdowns. Such measures drastically affect small and home businesses that do not possess high disposable incomes. Resultantly, they are forced to shut down. Therefore, there is an evident need for a more rigid and legislative reform to the current model for dealing with frustration and force majeure situations under tenancy contracts.
(Abhinav is currently a law undergraduate at the West Bengal National University of Juridical Sciences, Kolkata. He may be contacted via mail at email@example.com)
Cite as: Abhinav Gupta, ‘Reconceptualising Frustration and Force Majeure under tenancy in India post COVID-19: Lessons from Civil Law Jurisdictions’ (The RMLNLU Law Review Blog, 14 April 2021) <https://rmlnlulawreview.wordpress.com/2021/04/14/reconceptualising-frustration-and-force-majeure-under-tenancy-in-india-post-covid-19-lessons-from-civil-law-jurisdictions-part-1/> date of access.