Doctrine of Frustration Not Applicable for Suspension of Rent during COVID-19 Lockdown

Shaunak Choudhury | SVKM’s NMIMS Kirit P. Mehta School of Law | 23rd May 2020

Ramanand v. Dr. Girish Soni (CM APPL. 10847/2020) Delhi High Court

Facts

The Appellants/Tenants in this case asked for the suspension of payment of rent owing to the COVID-19 lockdown. The premises in question is owned by a dentist (Respondent) and it is situated in the popular shopping hub of Khan Market. The tenants run a shoe shop in the premises and the space was given on rent for commercial purposes through a lease deed executed on 1^st February 1975 at Rs 300/- per month. In 2008 the Respondents filed an eviction petition under section 14 (1) (e) of the Delhi Rent Control Act 1958. The Senior Civil Judge-cum-Rent Controller passed a decree for eviction on 18^th March 2017. When the Tenants appealed to the Rent Control Tribunal, they were dismissed. When the matter came before the Delhi High Court, the Court decided that the tenants would have to pay an amount of Rs. 3.5 lakhs per month from October 2017, otherwise the order for eviction would come into action. 

The Tenants were unable to work on the premises due to the COVID-19 lockdown and thus claimed that in a situation of force majeure, waiver of rent or at least some partial relief in terms of suspension, postponement or part-payment of the said amount, is warranted. 

Issues 

1. Whether the appellant can seek relief under the Indian Contract Act, 1872.
2. Whether doctrine of force majeure in the Transfer of Property Act, 1882 can allow suspension of rent during COVID-19 lockdown.
3. Whether the rent can be suspended on contractual grounds.
4. Whether the doctrine of suspension of rent can be applicable in this case.

Judgement

1. When force majeure is invoked, the sections that are relevant for the tenant to avail a suspension of rent would be sections 32 and 56. Section 32 speaks of contingent contracts. If there exists a force majeure clause in the contract, then the suspension of rent would be contingent upon that specific clause. But when there is no force majeure clause in the contract for lease, the matter would have to be decided on the basis of section 56. The court pointed to the Supreme Court judgement in Raja Druv Dev Chand v. Raja Harmohinder Singh (AIR 1968 SC 1024) which clearly stated that the doctrine of frustration as given under section 56 of the ICA is not applicable for lease agreements. The rationale behind this is that, a lease agreement is an ‘executed agreement’ or a ‘completed conveyance’ not an ‘executory contract’. A contract for lease whereunder the lessee obtains possession of the land is an executed contract as opined in Hotel Leela Venture Ltd. v. Airports Authority of India (2016 (160) DRJ 186). 
2. The rights and liabilities of the lessor and lessee are mentioned in the TPA in section 108(B). Sub-section (e) describes the force majeure circumstances under which the lessee could declare the lease void. The requirement by the sub-section is that the premises become “substantially and permanently unfit”. The explanation for the same was looked for in Raja Druv (supra), Laksmipathi v. P. Nithyananda Reddy ((2003) 5 SCC 150) and Shaha Ratansi Khimji v. Kumbhar Sons Hotel ((2014) 14 SCC 1). The Supreme Court has laid down that only the permanent and absolute destruction of the property and the land the premises stand on, can give the lessee the right to claim anything under subsection (e). Thus, the TPA could not help the appellants.
3. The Court found that suspension of rent on the grounds of the terms of the contract would depend on the nature of the agreement between the lessee and the lessor. If the rent were paid on a profit sharing basis then the tenant could have claimed that since there was no profit, he cannot pay. But the case here is that the payment of rent is fixed as per the order of the Delhi High Court and is not dependent on any profits, so the tenants cannot avail that contractual benefit. 
4. The tenants pled for the application of the doctrine of suspension of rent due to the COVID-19 crisis. Several factors surrounding the lease were examined. The premises is in a prime spot in Delhi. The rent being paid was raised by the Delhi High court from Rs 300/- a month to Rs 3.5 lakhs, which was still lower than the going rate in the area. The tenants did not wish to leave the premises. There were no clauses in the contract that allowed non payment or suspension and the tenants were not protected under any order of the Government during the COVID-19 crisis. Hence the application for suspension of rent was rejected. But the Court allowed a delay in the payments for the rent in lieu of the crisis.