The Government of India has taken several proactive measures over the past month to prevent the spread of the novel Coronavirus.
In the midst of the lockdown that took effect from 24 March, the question of whether tenants around the country are excluded from paying rent for the duration of the event is prominent. Consider the Indian laws regulating the concept of the lease in order to get a better view.
Act governing Lease
When a contract is rendered under the Indian Contract Act of 1872, a land transfer occurs. The lease is therefore governed by the Property Transfer Act of 1881.
The lessee is in the possession and under Section 108(c) of the Transfer of Property Act, it is the responsibility of the landlord to allow the tenant to remain in possession without interruption. Therefore, the tenant is liable at the correct time and place to pay the rent to the lessor under Section 108 of the Act.
Whether a Lessee can avoid paying rent during a lockdown?
A comparative study of the doctrine of frustration under Section 56 of the Indian Contract Act and Section 108(e) of the Transfer of Property Act would be significant. This will help us to understand the obligation of the lessee in cases where the force majeure clause of the lease is missing. Let us look at both provisions.
Section 56 of the Contract Act-"The contract to perform an act which becomes impossible after the contract is made becomes void when the act becomes impossible.
Section 108(e) of the Transfer of Property Act-"If, by fire, storm or flood or violence of an army or mob or other irresistible force, any material part of the property is destroyed in its entirety or rendered substantially and permanently improper for the purpose for which it has been let, the lease shall, at the option of the lessor, be void, etc.
Section 108(e) of the Transfer of Property Act refers to "destructed entirely or rendered substantially and permanently improper," but section 56 of the Contract Act refers to "acts that become unlawful or impossible." There is, therefore, no doubt that the Contract Act covers a much wider field than the Transfer of Property Act does.
In the case of Court of Wards Dada Siba Estate v. Raja Dharan Dev Chand, it was held that,
“where a contract creates an estate in land, the rule of frustration is inapplicable to put an end to such an estate which has already been created in favor of one of the parties and that the doctrine of frustration is applicable only to purely contractual obligations”.
The argument that the issue of the frustration of the lease with the destruction of the property is to be decided under the Transfer of Property Act, but that other cases of the lease which have become impossible are to be judged under the Contract Act, seems rather difficult, as suggested in the present article. Mahadeo Prosad Shaw v. Calcutta Dyeing and Cleaning Co.
The reason for this is that the provisions of the Transfer of Property Act and the Contract Act have been dealt with by the Supreme Court in Kidar Lall Seal and And v. Hari Lall Seal,
"It is an established principle that where there are a general law and a special law dealing with a particular matter, the special excludes the general."
Since there is a special provision in the Transfer of Property Act concerning leases under Section 108(e), the general provision as enacted in Section 56 of the Contract Act would not apply.
In that view, Section 56 of the Contract Act has no application to leases and instead of that, Section108 (e) will apply so far as frustration relating to leases is concerned.
However, for the present crisis, even the provisions of Section108 (e) of the Transfer of Property Act are also inapplicable, because the land was neither destroyed nor became permanently unfit for the purposes of occupation.
To sum up, a contract of lease may be avoided at the option of the lessee on the happening of an event as contemplated under Section 108 (B) (e) of the Transfer of Property Act. In such a case, the lessee cannot continue to hold on to the premises or say that the lease continues but he will not pay the rent. The rights of the lessee in the demised property continue notwithstanding the fact that for a certain period, the lessee was prevented from deriving substantial benefits out of the lease due to the circumstances beyond the control of anybody.