Tenants, landlords are presently negotiating solutions to the lockdown and that is how it should be, but the outcome of their negotiation must depend on law.
Last Friday, as we celebrated a slight relaxation in the two-month-old lockdown enjoying a very short socially-distanced and sweaty game of golf, I was informed by a player friend that the Delhi High Court had rejected a tenant’s application for remission of rent on account of the Covid-19 lockdown. This was news that travelled faster than a driven golf ball. It affects most places of business. Seconds later, he sent me the order which I considered to be on expected lines. By that evening there were several comments on social media and an article online. Some described the judgement as “excessively bold and bound to be appealed”. The Bar and Bench article was naturally more tempered and the authors ended the article writing, “It is certainly possible that this judgement may not be the last word on this point. The authors eagerly await to see the legal developments of this issue”. In fact, as I have explained below, there should appear to be nothing bold about the judgement and the only problem seems to be our obsession with courts balancing equity against legal rights. I must confess upfront that I am a commercial lawyer and naturally incline towards certainty and predictability. I feel that somewhere on the journey that defined India’s legal system, our courts veered towards unpredictable equitable solutions (often confused with social justice) that cannot work harmoniously with India’s own perception of itself as a competitive participant in the global business community. I will explain below why Justice Pratibha Singh’s judgement is only sagacious, it is neither bold nor turbulent of wit. This judgement has only sustained consistency, predictability and consequently a legal system that respects its own foundations. We often proclaim these “common law” based foundations as virtues that might attract investment. Those foundations have no room for whimsical or capricious discretionary decision-making on the bedrock of what we call a “case-to-case basis” approach, that can easily become a “court-to-court” approach. They are highly scientific, intended to operate in keeping with harmonious and established rules of contract and now commercial law. It is time that we avoided judging our judges and we must allow them the freedom to apply the rule of law without balancing equities. The 21st May decision in the case of Ramanand & Others v. Dr. Girish Soni & Another is a great example to consider and I respectfully submit that the judgement of the Delhi High Court was not only right and predictable but consistent with the law of this country.
I must begin to explain that the Ramanand Case involved a shop in Khan Market, New Delhi. The rent being quite low, it fell under the Delhi Rent Control Act or “DRC Act”. In 2017, the tenant suffered an eviction order but an appeal in the same year resulted in a conditional stay subject to payment of Rs.3.5 lakh per month instead of Rs 300 per month. Feeling that Covid-19 had imposed a fresh onerous burden, the tenants approached the Delhi High Court seeking remission of rent or variation of the conditional stay order. They did not want to lose the benefit of that stay, but they also did not want to leave the premises, even though the interim rent was below the market rate. The High Court considered force majeure under Section 32 of the Indian Contract Act and the Supreme Court’s 2017 decision in the well-known Energy Watchdog case.
The learned judge examined the question of frustration under Section 56 of the Contract Act and reviewed Supreme Court precedents that effectively held that the doctrine of frustration cannot apply to a lease in similar circumstances for the simple reason that there is nothing to be frustrated in a conveyance (it is not what we call an executory contract). Property has been conveyed (by lease) and payment is due. I hasten to add one of my recent favourite lines – force majeure cannot apply to a payment obligation. The only time when a lease can be frustrated is if the property is destroyed and there is an excellently-worded provision for this, one that seems to have been part of the original 1882 law through sub-section 108(B)(e) of the Transfer of Property Act, 1882 or “TPA”. The sub-section kicks-in only when the property has been “wholly destroyed or rendered substantially and permanently unfit for the purposes for which it was let”. The lessee then has a choice to decide if he wants to treat the lease as void. If he does not exercise that option, he can continue to pay the rent and the lease survives along with his payment obligation (the lessor has no such choice). The Delhi High Court did not look at foreign precedents because of the excellent already existing Supreme Court authority, but there is a case decided by the House of Lords in 1981 that may be relevant. In National Carriers Ltd. (NCL) v. Panalpina (Northern) Ltd. a long lease was said to have been frustrated, according to the tenant, because the only access to the leased property was closed to vehicular traffic due to an unforeseen situation that was to persist for several months. The tenant (NCL) sought for remission of the rent and claimed frustration of the lease. The House of Lords ruled that the doctrine of frustration in principle could apply to a lease, but in the case at hand since the road closure was temporary there was no question of frustration. The NCL v. Panalpina judgement could be seen as squarely applying to the Covid-19 situation since properties rented to tenants at this time have not been rendered substantially and permanently unfit and in most cases lessees have not exercised rights of termination (sometimes provided for in the lease), they just want to avoid payment of rent for the period of lockdown. Unfortunately, it appears that Indian law does not favour them and there appears was nothing bold about the Delhi High Court ruling that the tenant must pay. The judge had some discretion in that case because the order to grant a stay was given in 2017, not on the basis of contract, but through exercise of the High Court’s power of balancing interests while an appeal was pending. In the normal course, where there is no question of rent control, appellate jurisdiction, etc., Section 108(B)(e) is very clear and the principles of law are even better encapsulated in India through cases that the Supreme Court decided 52 years ago one of which was cited by the Delhi High Court.
Why then is there still uncertainty? Why do friends in the legal community describe this decision as “bold”? More importantly, why is there scope for judicial interpretation to impose a middle-path balancing the interests of contesting parties? The answer lies in our approach to matters commercial and non-commercial–judges often tend to balance interests rather than strict legal rights. I advocate that our courts should take rights more seriously and the balancing process must be predictable. That would mean that in cases where the tenant is liable to pay rent, the court may only have recourse to the terms of the contract for an appropriate force majeure clause, but in the absence of such a clause, the tenant’s liability must be assumed to exist by operation of law. We know the reality that tenants and landlords are presently busy negotiating solutions to the lockdown and that is how it should be, but the outcome of their negotiations should not purely depend on how much one party can bully the other, it must depend on a clear statement of law like the one that just emerged from the Delhi High Court, even though that case has its own unique facets arising from rent control. If we want a middle path, then Parliament must enact one for Covid-19.
Contract enforcement in India remains slow and a matter of concern underscored by India’s annual World Bank Doing Business ratings. If we want to improve those ratings, there has to be less opportunity for judicial intervention, discretion and equitable considerations. Tenants may choose to terminate, pay the rent up-to-date or mutually resolve differences by agreement with their landlords, but they should not be looking towards the judges to act as amiable compositors for the good and the just or through equity and good conscience for every man and every woman’s conscience is different and we cannot abide the lottery of one court’s conscience being different from the conscience of another court.
We do not need judges to be “sagacious, bold and turbulent of wit”, a phrase used by the poet John Dryden for Oliver Cromwell one of Britain’s colourful statesmen in 1653, he styled himself as the “Lord Protector” and was often far from that description when it came to the rights of some of his people. We need our judges only to be sagacious, predictable and boring so as to apply the law as it exists.
Amir Singh Pasrich is Managing Partner of I.L.A. Pasrich & Company, Advocates. He is co-chair of the India Working Group of the International Bar Association (IBA) and is an elected member of the IBA’s LPD Council, he is also Chairman of the Law & Justice Committee of the PHD Chamber of Commerce.