30 May 2020 2:53 AM GMT
The world seems to be beholding an aberrant situation, the effect whereof is not only glaringly visible in economic, political and organizational fronts but also had left a deep impact on our interpersonal and social relations. The economic impact of the COVID-19 pandemic in India has been quite disturbing. The World Bank and credit rating agencies have downgraded India's growth...
The world seems to be beholding an aberrant situation, the effect whereof is not only glaringly visible in economic, political and organizational fronts but also had left a deep impact on our interpersonal and social relations. The economic impact of the COVID-19 pandemic in India has been quite disturbing. The World Bank and credit rating agencies have downgraded India's growth for fiscal year 2021 with the lowest figures India has seen in three decades since India's economic liberalization in the 1990s.
In the last two months, the Central Government has taken a catena of proactive steps to contain the spread of the novel Coronavirus- primary amongest them being the two months national lockdown, bringing all economic activities to a total halt- the malls and shopping complexes are shut and the chances of them opening up in the near future for public at large seems to be grim. Further in all the major metropolitan cities, wherein here is relatively major population of migrant workforce- the daunting question seems to be the payment of rents by the lessee in these times both in respect of commercial as ell as residential properties. Amidst the lockdown that first came into effect from March 24, a prominent question doing the rounds is whether tenants across the country would be exempt from paying rent for the duration.
This article is an attempt to iron out the creases in respect of applicability of the relevant laws and coming up with plausible solutions for the same, more so in light of the recent decision by the Hon'ble Supreme Court, refusing to entertain a Public Interest Litigation pertaining to non payment of rent by lawyers.
The Au Courant Situation
Vide memorandum dated 29.03.2020, The Ministry of Home Affairs, in exercise of the powers conferred under Section 10(2)(l) of the Disaster Management Act, 2005, had directed all State and the Union Territory Governments take appropriate actions and issue necessary orders, inter alia, for waiver of rent specifically for the working class for a period of one month, however the same was silent upon suspension/waiver of rental for commercial leases entered into by business. In light of the aforesaid, many state Governments like Maharashtra, Uttar Pradesh, Karnataka, Tamil Nadu and Delhi have issued circulars for deferment of rent for atleast three months, and the tenants not to be ousted from the leased premises for merely non payment of rent.
However owing to lack of lucidity by the Government on the performance of obligations to pay lease rentals under commercial lease agreements, various retail outlets and business entities are on one hand straining with no sales and revenue and on the other hand they are being imputed with the ongoing rent cycles and employee payment obligations and thus vigorously imputing the most unobtrusive Force majeure clauses under their respective contracts.
The Legal Skeleton
Any Lessee- lessor/ tenant landlord relationship is merely a contractual relationship based on consensus ad idem. This relationship is governed by the mutual promise given by landlord and the tenants, brought down in writing in form of a lease deed or a rent agreement. These agreements are squarely covered by various provisions of the Indian Contract Act, 1872 like all other agreements This Agreement/ Deed is largely governed by the various provisions of the Indian Contract Act, 1872, pertaining to offer, acceptance, consideration, breach and frustration of contract. It is within the absolute domain of the contracting parties to agree to all conceivable current and anticipated conditions and exclusions to the Agreement, which when arises, gives a remedy to abstain from performing any of the promises under the covenant. However, when a lease is duly executed, though the same is a contract under the Indian Contract Act, 1872, there is an inherent transfer of property therein, thus provisions of the Transfer of Property Act, 1881 shall come into play.
It shall be germane at that instance to fathom what does the term "force majeure" actually means and further what constitutes a force majeure event. The Latin term 'force majeure' literally construes superior force, i.e. occurrence of an event which is outside the reasonable control of a party and which prevents that party from performing its obligations under a contract. It is a standard clause which invariably forms a part of more or less every agreement and there remains no iota of doubt that the force majeure clause cannot be implied under Indian law, it must be expressly provided for under the contract and ought to be agreed upon between parties and the benefit of the said solely depends upon the wording of the clause and the interpretation thereof.
Another important aspect that ought to be kept in mind is that a force majeure event does not give a blanket protection is respect non-performance of an obligation under an agreement and doesn't absolve the liabilities completely. Thus, it can be reasonably concluded that the force majeure event would not totally and absolutely exonerate the tenant of his liability to pay the rental, but the same is merely deferred. from his/her/its legal liability to pay the rent, it just suspends.
Further, it shall be germane at this juncture to understand the interplay of Section 32 and Section 56 containing the force majeure and doctrine of frustration respectively. The Hon'ble Apex Court recently in the case of Energy Watchdog vs. CERC reported in (2017) 14 SCC 80 , after carefully examining all the major case laws on the subject had categorically ruled out the doctrine of frustration shall only come into play in absence of a force majeure clause in the agreement will find that the courts have consistently ruled that the concept of frustration of contract can only be called into help when there is no any force majeure clause in the contract and furthermore, the parties to a contract cannot be absolved from their obligations merely on account of the performance being arduous owing to unforeseen turn of events, the event should be such which would make the performance absolutely impossible.
The Juxtaposition of The Indian Contract Act Vis-à-vis The Transfer Of Property Act
Most of the lease deeds/rent agreements drafted are silent upon the force majeure clauses and thus it shall be clamant to envision situations upon the applicability of doctrine of frustration wherein the force majeure clause is absent in the lease deed.
Section 56 of the Contract Act - "Contract to do an act which after the contract is made becomes impossible becomes void when the act becomes impossible".
Section 108 (e) of the Transfer of Property Act - "If by fire, tempest, or flood or violence of any army or of a mob or other irresistible force any material part of the property be wholly destroyed or rendered substantially and permanently unfit for the purpose for which it was let, the lease shall, at the option of the lessee, be void, etc.".
A bare perusal of the aforementioned provisions leave not an iota of doubt that Section 56 of the Indian Contract Act refers to impossibility of any act, whereas Section 108(e) of the Transfer of Property Act refers to the property being destroyed or being rendered permanently unfit for the purpose for which it was let clearly implying the ambit of the Contract Act is much wider than the Transfer of Property Act.
The Hon'ble Apex Court way back in the year 1952, whilst ceased with a matter pertaining to contributions arising out of a mortgage deed under Section 43 of the Contract Act and Section 82 of the Transfer of Property Act, in the case of Kidar Lall Seal & Anr. Vs. Hari Lall Seal reported in 1952 AIR 47 held-
"When there is a general law and a special law dealing with a particular matter, the special excludes the general."
In light of the aforesaid ratio propounded by the Hon'ble Apex Court, it can reasonably be concluded that since the Transfer of Property Act has a special provision pertaining to leases under Section 108(e), the general provision as enshrined under Section 56 of the Contract Act shall cease to apply. But, on a literal interpretation of the provisions of Section 108(e), the same seems to be ineffective in the current scenario of COVID-19 as neither the leased premises has been destroyed nor been rendered unfit for the purposes of occupation. In such precarious conditions, though the rights of the lessee in the demised property continues but only for a certain period the lessee is prevented from deriving substantial benefits out of the lease due to the circumstances beyond the control of anybody. Furthermore, the lessee in such a situation cannot continue to hold on to the premises or say that the lease continues but he will not pay the rent.
Unraveling the Plausible Solutions
On an analysis of the present factual situation and established legal position, the probable solution to the impending disputes, seems to lie with the parties themselves, who need to be more realistic and understanding to the emerging to these issues seems to lie with the parties themselves and with the executive and fairly not with the judiciary. The need of the hour for the parties (landlords/lessors & the tenants/ lessees) is to become realistic and to look at the present and transpiring future scenario practically, particularly the costs and court fees involved in litigation and the workload on the courts post resumption of work.
Another relevant point of consideration seems to be the recession that ought to be following this pandemic, wherein all the economic activities have been bough to an halt and the work from home culture is the new normal, the need for residential and commercial office spaces in all probabilities shall go down, thus leaving bleak chances for the landlords to search for new tenants on the current amount of lease rental. The factum that if in the present situations, the lessee vacates a premises, the possibility of the premises lying vacant for a long duration, resulting in loss of rental, cannot be negated.
Considering the factum that a tenant does not have any right to seek waiver or moratorium of lease rentals in the absence of an explicit Force Majeure clause, entailing the current pandemic situation entailing waiver of rentals, the only option seems to be to the tenants preferring notices to the landlords seeking waiver or deferment of payments owing to the pandemic and closure of all economic activities and the lessor ought to keep a benevolent approach keeping in mind the aforementioned considerations. Any unilateral resolution to refrain from paying rents would indeed be breach of the agreement, resulting into termination and consequential liability for damages. Thus, accordant planned decisions amongst the parties seems to be the only way out, unless the Government issues a notification deferring rental payments in the near future.
It can thus reasonably be concluded that the best suited solution seems to be amicable working out and negotiation of the lease rentals, and in cases of failure to reach an amicable solution to opt services of trained conciliators and mediators. It is best advised that rental for the period of operation of the pandemic be reduced as an interim measure for the next six months and reassess the situation post that, in such uncertain times.