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Lessor /Lessee Dispute In The Context Of Covid19

Kapil Madan
3 April 2020 3:28 AM GMT
Lessor /Lessee Dispute In The Context Of Covid19
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The world has come to a halt due to the novel COVID 19 virus. It has forced even the mightiest Countries to come on its knees and they seem to be clueless. The Virus has not only impacted the Health sector, but it has impacted almost all the sectors like Travel, Agriculture, Automobile, Aviation, Manufacturing Logistics, FMCG, Real Estate etc. Though there is no certainty as to when this situation will be back to normal, however what is certain is that there will be a plethora of disputes as and when life and business comes to its usual self.

The Hon'ble Prime Minister of India urged the country men to observe a voluntary 'Janata curfew' on 22.03.2020. Thereafter, the Govt of NCT Delhi issued Delhi Epidemic Diseases Covid 19 Regulations 2020 (hereinafter referred to as 'Lockdown Regulations') by virtue of which several measures were announced by the Government that inter-alia included that all shops, commercial establishments, offices shall close their operations till 31.03.2020. The Government of Haryana also issued similar Haryana Covid 19 Regulations 2020 for the revenue District of Gurgaon, Faridabad, Sonipat,Panipat, Jhajjar, Panchkula. On 24.03.2020, the Central government announced a nationwide lockdown for a period of 21 days. The said notification was issued in exercise of the powers under the Disaster Management Act, 2005.

It needs to be noted that the entire Delhi-NCR has several commercial establishments which are leased out to retail stores, restaurants, corporate offices etc. Now given the situation where the businesses are closed down pursuant to the order of the government, it needs to be examined whether the lessees are under a legal obligation to pay the lease rent for the period of lock down or not. Before we proceed further, it is important to understand what a Lease is.

Lease is a transfer of right to enjoy an immovable property for a certain time in consideration of price paid or promised to be paid. Section 108 of the Transfer of Property Act provides rights and duties of the lessor and the lessee however the Parties are free to determine their right and liability by way of a written contract.

NATURE OF LEASE AGREEEMENT-WHETHER FORCE MAJEURE APPLICABLE

Assuming that the written lease entered between the parties does not have a Force Majeure clause or that the force Majeure clause does not specifically cover a Pandemic like this, can the lessee refuse to make payments towards this lockdown period is the millioinsist the tenant for the lease rent for the period of lockdown is the contentious question.

Though the Indian Contract Act does not specifically define what force majeure is, however it does provide for the doctrine of the frustration which is embodied in Section 56 of the Contract Act. Section 56 inter-alia provides that the contract becomes void if the performance of it becomes impossible, or becomes unlawful due to any reason which the promisor cannot prevent.

It is interesting to note here while dealing with the applicability of S.56 of the Contract Act to lease agreement, the Hon'ble Supreme Court in Raja Dhruv Dev Chand v. Raja Harmohinder Singh, (1968) 3 SCR 339 : AIR 1968 SC 1024 has held that by way of Section 4 of the Transfer of Property Act, all its provisions shall be read into the Contract Act and not vice-versa meaning thereby the general provisions of the Contract Act will not apply to the lease agreements The Hon'ble Supreme Court further clarified that even otherwise the lease agreement will fall be a completed conveyance as oppose to the executory contract

The aforesaid view was again reiterated and reaffirmed by the Hon'ble Supreme Court in T T. Lakshmipathi v. P. Nithyananda Reddy, (2003) 5 SCC 150 at page 160 wherein the Supreme Court observed as under:

"20. The tenancy cannot be said to have been determined by attracting applicability of the doctrine of frustration consequent upon demolishing of the tenancy premises. Doctrine of frustration belongs to the realm of law of contracts; it does not apply to a transaction where not only a privity of contract but a privity of estate has also been created inasmuch as lease is the transfer of an interest in immovable property within the meaning of Section 5 of the Transfer of Property Act (wherein the phrase "the transfer of property" has been defined), read with Section 105, which defines a lease of immovable property as a transfer of a right to enjoy such property"

Thus in view of the above, the Lessee can not take the benefit of Section 56 providing frustration of the contract since the said section has no applicability in the lease agreements.

WHETHER THE LANDLORD CAN INITIATE LEGAL PROCEEDINGS AGAINST THE TENANT FOR RECOVERY OF THE LEASE RENT FOR THE PERIOD OF LOCKDOWN

It is important to note here that Section 3 of the Epidemic Disease Act, 1897 clearly provides that a person disobeying any regulation made under this Act shall be punishable under Section 188 of the Indian Penal Code, 1860. Further, Section 4 of the Act provides that no suit or legal proceedings shall lie against any person for anything done by him under this Act.

Further Section 73 of the Disaster Management Act, also provides that there cannot be any proceedings against the Government or against any person acting in good faith in pursuance of regulations framed under the Act.

Since the lessee is acting in pursuance of the notifications by the Government and is observing a lockdown, no proceedings can be initiated against the lessee for the recovery of the lease rent for the period of lockdown in view of specific bar provided in Section 4 of the the Epidemic Diseases Act read with Section 73 of the National Disaster Management Act. The lease rent for the lockdown period will be akin to a time barred debt although payable, but proceedings cannot be initiated for its recovery.

Author is a practicing Advocate at Delhi

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