The disruption caused by Covid-19 is within everyone’s reach. Businesses in all sectors have been severely affected as a result of the varying versions of lockdown orders issued from time to time by central and state governments. Since all businesses continue to strive to conserve cash and reduce costs, one of the main payments that all businesses are actively trying to avoid or minimize exposure to is rental payments. Two of the most obvious questions in this regard are:
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effectuation of force majeure in contracts related to rents; and
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In the absence of pre-determined provisions of the contract, can the tenants waive off their duty to pay rent during this lockdown period?
The discussions on the first question were numerous and as recent as on May 21, 2020, when the Delhi High Court in the case of Ramanand and others v. Dr Girish Soni and another notably decided that force majeure must be interpreted strictly on the basis of the terms of the contract. The Court also declared that the doctrine of frustration as it is understood in contract law is foreign to the rules governing transfers of real estate. Therefore, this blog is limited to exploring the second question, namely the doctrine of rent suspension and how the Indian courts have dealt with it, as this is the relief that most tenants seek in the current circumstances.
The doctrine of suspension of rent is a principle of common law administered by English courts which allows the tenant to suspend the payment of rent to the landlord in certain circumstances. In this blog, I have examined the judicial position on the applicability of the doctrine in India and its relevance in the current circumstances surrounding the commercial uncertainty that Covid-19 has highlighted.
JUDICIAL POSITION: INDIAN CONTEXT
The doctrine of suspension of rent was first discussed in Katyayani Debi v. Udoy Kumar Das of the Privy Council. In this case, the Privy Council affirmed that the doctrine was relevant in the situation where the tenant was not given the possession of part of the leased premises. The doctrine was then discussed by the Calcutta High Court in Nilkantha Pati v. Kshitish Chandra Satpati and others. In the above-stated case, the Calcutta High Court held that when the acts of the owner were tortuous in nature, it was for the Court to examine whether or not the rule of equity for the total suspension of rent should be applied. This was later discussed by the Punjab High Court in the case of Hakim Sardar Bahadur v. Tej Prakash Singh that when the owner tortuously deprives a tenant of the use of part of the rented premises, insofar as the deprivation continues, the owner cannot even claim the rent for the rest of the premises that the tenant continues to occupy. The Punjab High Court further stressed that the tenant, in such a case, is entitled to retain the entire rent of the rented premises as long as he is deprived of part of the rented premises and that he cannot be forced to pay the rent part of the rented premises still under its occupation.
DEVELOPMENT OF THE DOCTRINE
Although the position was that a tenant should not pay the entire rent if the landlord partially refused a tenant some of the leased space, the Supreme Court of India in Surendra Nath Bibra v. Stephen Court Ltd. modified the application of this doctrine to include the proportional payment of rent. In this case, the Supreme Court held that the applicability of the rent suspension doctrine would depend on the circumstances of each case and that a factual examination was necessary to determine whether a tenant would have the right to suspend the payment of the rent. It was also held that a tenant could be required to pay proportionate rent if he had access to a substantial part of the premises. The Supreme Court further noted that it would amount to an unfair act if a tenant was asked to pay rent for a property if he had not been granted possession or the right to use a substantial part of the property.
Later in the case of PK Roy v. Bimala Mukherjee, the Calcutta High Court outlined the parameters to be looked upon while applying this doctrine of suspension of rent. The standards decreed by the Calcutta High Court were as follows:
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In case of eviction of the tenant of the transferred property, the tenant will have the right to a suspension or a partial reduction of the rent.
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To constitute such an eviction, it is not necessary that there is physical dispossession of the tenant of the property or part of it. Any act or encumbrance with the enjoyment or possession of the property by the renter or any part thereof because of the intentional and tortious act of the owner or his agent will be regarded as eviction for the purposes of the doctrine of suspension of rent.
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Such encumbrance in the tenant’s right to enjoy property ought to be of a grave and consequential nature.
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The decision on whether there should be a suspension rent or partial abetment of rent will depend on the fact and circumstances of each case.
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The tenant is free to request the suspension or proportional reduction of the rent in an action brought against him by the owner and the recourse is not limited to an action for damages from the tenant against his owner.
The High Court of Calcutta also stressed that the actions of the owners refusing to the tenants the use of electricity in the property would also constitute a deliberate and tortuous act involving a substantial interference in the enjoyment of the rented premises.
There have been various cases afterwards, where the courts have applied the doctrine, but the circumstances of its applicability have been largely limited to cases where the owner/lessor had voluntarily obstructed the possession of the tenant and where due process of law was not respected. At this instance, it will be apt to mention the case of Ramendra Nath Ganguly v. Ashutosh Saha and others, where the Calcutta High Court held that the lockout of the shop due to a court order (which is by law enforcement) that was triggered due to the deliberate non-payment of rent by the tenants, the owners can neither be held responsible nor cause suffering and the doctrine of the suspension of the rent will not come to the aid of the tenants in such a case.
However, the issue of disturbance of rental rights due to a circumstance not directly attributable to the owner was addressed in Budge Budge Co Ltd. vs. Jute Corporation of India Limited, before the Calcutta High Court. In this case, the tenants were unable to access the rented property and there was a substantial interference with the free movement of tenants due to a lockout triggered by the employees of the owner. The Calcutta District Court, with regard to the lease contract between the parties, was pleased to consider that the tenant was entitled to the suspension of the rent. However, and more importantly, the Calcutta High Court, in this case, appeared to have broadened the applicability of the doctrine by stating: “we, therefore, consider that it can only be considered to be in the event dispossession of a tenant of part of his lease by the owner by physical force that this tenant can only benefit from the suspension of the rent.”
THE WAY AHEAD
An examination of the judicial decisions mentioned above would suggest that the doctrine of suspension of rent only applies to cases where there is a deliberate and criminal act by the landlord which caused the tenant to be dispossessed. The Delhi High Court in Ramanand and others v. Dr Girish Soni and another also refused to apply the doctrine of rent suspension on fairgrounds since the tenant was in particular in possession of one-to-one premises at much lower rental prices compared to the actual market rate. However, the observations made by the Supreme Court in Raichurmatham Prabhakar and others v. Rawatmal Dugar seems to suggest that rent suspension cases can be encouraged when it comes to justice, fairness and good conscience.
Furthermore, the conclusion reached by the Calcutta Court in Budge Budge Co Ltd. that the applicability of the rent suspension doctrine is not limited to cases where the tenant is dispossessed of the leased premises. It would also imply that the courts are capable of considering the facts and circumstances on a case-by-case basis while applying the fair law doctrine of suspension of rent. The further evolution of the jurisprudence around this common law principle and the way in which the courts can interpret and apply the doctrine in light of the blockages and disruptions of activity following Covid-19 is something that we will have to watch to move forward.
BY- Milind Anand
National University of Study and Research in Law, Ranchi