Ramanand v Dr Girish Soni (2020)

The COVID-19 lockdown produced one question in tens of thousands of tenancies at once: must a tenant who cannot trade still pay rent? This judgment is the answer that the Indian courts settled upon, and it is set out as a structured framework rather than as a decision on one shop.

The Court itself says why the framework was needed. Whether the lockdown entitles tenants to claim waiver, exemption or suspension of rent, it observed, "is bound to arise in thousands of cases", and although no standard rule could be prescribed, "some broad parameters can be kept under consideration, in order to determine the manner in which the issues that arise can be resolved."

For Contract I it is the cleanest available statement of two propositions: that an express force majeure clause is governed by s. 32 and not s. 56, and that s. 56 does not apply to a lease at all, a lease being an executed conveyance rather than an executory contract.

The tenants ran a shoe store called 'Baluja' at Shop No. 30-A, Khan Market, New Delhi, held on a lease deed executed on 1 February 1975 at Rs. 300 per month for commercial purposes. The landlord, a dentist, filed an eviction petition in 2008 under s. 14(1)(e) of the Delhi Rent Control Act on the ground of bona fide requirement. A decree of eviction was passed on 18 March 2017, and the tenants' appeal was dismissed by the Rent Control Tribunal as not maintainable. The revision petition against the eviction order was pending.

On 25 September 2017 a learned Single Judge had stayed the eviction on terms: from October 2017 the tenants were to pay Rs. 3.5 lakhs per month in advance by the 10th of each month, the order recording that "If there is any default in payment, the stay of execution of the order of eviction shall stand vacated", and that the payments were "subject to the final adjudication of this petition and are repatriable in the event of the petitioners succeeding in this petition."

After the outbreak of COVID-19 the tenants applied for suspension of that monthly payment, pleading complete disruption of business and that the circumstances were force majeure and beyond their control. They asked for waiver, or at least postponement, part-payment or one month's suspension. The landlord replied that the case was governed by the Rent Control Act so that force majeure did not apply, that Rs. 3.5 lakhs was meagre against prevailing Khan Market rents, and that mere disruption of business could not exempt the tenants when he too depended on that income.

The Court began with the contract. Tenancies take many forms — oral month-to-month tenancies, short-term agreements, long leases with force majeure clauses, revenue-sharing structures, and payments fixed as a percentage of turnover — and "The question of waiver, suspension or any remission in the rental payments would operate differently for each category of agreements."

Where there is a contract, the terms govern; "If, however, there is no contract at all or if there is no specific force majeure clause, then the issues would have to be determined on the basis of the applicable law."

Energy Watchdog v CERC supplies the dividing line, and the Court quoted it: "Insofar as it is relatable to an express or implied clause in a contract, such as the PPAs before us, it is governed by Chapter III dealing with the contingent contracts, and more particularly, Section 32 thereof. Insofar as a force majeure event occurs dehors the contract, it is dealt with by a rule of positive law under Section 56 of the Contact Act."

Hence the practical rule: "The fundamental principle would be that if the contract contains a clause providing for some sort of waiver or suspension of rent, only then the tenant could claim the same." A force majeure clause may also operate as a contingency under s. 32 allowing the tenant to treat the contract as void and surrender the premises — "However, if the tenant wishes to retain the premises and there is no clause giving any respite to the tenant, the rent or the monthly charges would be payable."

Without a clause, the tenant's next resort is frustration, and here it fails for a structural reason. The Court took the point from Raja Dhruv Dev Chand v Raja Harmohinder Singh, where a lessee of agricultural land in Punjab, unable to use it after the Partition of 1947, sought a refund of rent. Section 56, the Supreme Court had held, "lays down a positive rule relating to frustration of contracts and the Courts cannot travel outside the terms of that section", and it drew the decisive distinction: "There is a clear distinction between a completed conveyance and an executory contract, and events which discharge a contract do not invalidate a concluded transfer."

The rights of the parties, once a lease is granted, no longer rest in contract; and though the second paragraph of s. 56 "has a limited application to covenants under a lease", the transfer of property resulting from the lease "is not declared void". In Raja Dhruv itself there was no covenant relieving the lessee of rent if he could not remain in possession, and his inability to cultivate "cannot in the events that transpired clothe him with the right to claim refund of the rent paid".

From this the present Court drew its holding: "The above judgment laid down unequivocally that a lease is a completed conveyance though it involves monthly payment and hence, Section 56 cannot be invoked to claim waiver, suspension or exemption from payment of rent."

The Division Bench in Hotel Leela Venture Ltd. v Airports Authority of India had put the same point sharply: "executory contracts alone are capable of being frustrated and not executed contracts", and a contract is not discharged merely because it turns out to be difficult or onerous for one party to perform, so that "none can resile from a contract for said reason."

Where there is no contractual stipulation, the Transfer of Property Act governs, and it contains its own, narrower, force majeure provision. Section 108(B)(e) makes the lease voidable at the option of the lessee where "by fire, tempest or flood, or violence of an 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 purposes for which it was let". Clause (l) states the answering obligation: "the lessee is bound to pay or tender, at the proper time and place, the premium or rent to the lessor or his agent in this behalf".

Two words do the work: substantially and permanently. In Raja Dhruv the Supreme Court had held that "Where the property leased is not destroyed or substantially and permanently unfit, the lessee cannot avoid the lease because he does not or is unable to use the land for purposes for which it is let to him." In T. Lakshmipathi v P. Nithyananda Reddy it approved Woodfall: where the lessee covenants to pay rent without any exception in case of fire, "he is bound to pay it, though the house be burnt down; for the land remains, and he might have provided to the contrary by express stipulation, if both parties had so intended."

The conclusion follows: "temporary non-use of premises due to the lockdown which was announced due to the COVID-19 outbreak cannot be construed as rendering the lease void under Section 108(B)(e) of the TPA. The tenant cannot also avoid payment of rent in view of Section 108(B)(l)." And the option is the lessee's to exercise: unless he avoids the lease, he cannot escape clause (l).

Beyond statute, a tenant may ask the Court's equitable jurisdiction to suspend rent for temporary non-use, the answer turning on the facts of each case. In Surendra Nath Bibran v Stephen Court proportionate rent was directed where the tenant had not been given possession of part of the property; in Raichurmatham Prabhakar v Rawatmal Dugar suspension was said to be available where the lessee has been dispossessed. mere non-use "may not always entitle the tenant for suspension of rent." The Delhi decision in Aranya Hospitality Management Services adds the practical principle: a tenant "would have no right to continue enjoying the property and seek suspension of rent at the same time."

The application was rejected so far as suspension was sought, and allowed only as to time. There was no rent agreement between the parties, so s. 32 had no application; the case was governed by the Delhi Rent Control Act; s. 56 does not apply to tenancies; the tenants did not urge that the tenancy had become void under the Transfer of Property Act; and, an eviction decree having already been passed, they were unauthorised occupants rather than lessees, the monthly sum being use and occupation charges fixed under Atma Ram Properties (P) Ltd. v Federal Motors (P) Ltd.

Weighing the nature of the property, the parties' positions, the level of the payment against prevailing Khan Market rents, the absence of any contractual condition and the absence of any applicable executive order, the Court found the balance to tilt completely in the landlord's favour. Decisively, "the Tenants do not intend to surrender the tenanted premises."

"While holding that suspension of rent is not permissible in these facts, some postponement or relaxation in the schedule of payment can be granted owing to the lockdown." The charges for March 2020 were to be paid by 30 May 2020 and those for April and May 2020 by 25 June 2020, payments from June 2020 reverting to the interim order, default reviving the liability to execution of the decree.