High Court Dismisses Appeal, Says Force Majeure is Applicable; Penal / Double-rent Claims Rejected

The present dispute arose out of a lease deed executed on 04.01.2018 in respect of premises consisting of a ground floor and basement for a period of nine years at a monthly rent of Rs. 27,00,000, accompanied by an interest-free refundable security deposit of Rs. 1,08,00,000. After the outbreak of the COVID-19 pandemic and the consequent lockdown measures, which compelled the closure of commercial establishments, the lessee addressed emails dated 30.03.2020 and 02.04.2020 requesting a waiver or suspension of rent for April and May 2020. The lessee, realising the situation, presented a reduced payment plan, but the lessee did not settle the arrears.

Notice was issued on 11.07.2020 requesting rent arrears of about Rs. 1.14 crore along with interest thereon, to which response was made by the lessee on 23.07.2020, invoking the force majeure clause under the lease. The lessor then revoked the lease by notice dated 19.08.2020 and instituted a commercial suit on 04.09.2020 for possession, recovery of arrears, mesne profits, and penal rent pursuant to Clause 14.2 and double rent pursuant to Clause 7.2.

Issue Raised: Whether the COVID-19 pandemic was covered under Clause 12 (force majeure) of the lease deed and whether full rent, penal rent and double rent claims could be held good during the lockdown period.

HC’s Ruling: The Division Bench, on appeal, went through the conditions of the lease, statutory provisions and the effect of government lockdown directives, and approved the findings of the single judge. It held that Clause 12 of the lease was broad enough to cover the pandemic in its terms as a force majeure event and, hence, apportionment of the liability by ordering payment of 50% rent only for April and May 2020 was reasonable. The Court further held that the lessor’s claims for penal rent under Clause 14.2 and double rent under Clause 7.2 could not be accepted since they were penal in nature, not supported by any pleading of actual loss and inconsistent with Sections 73 and 74 of the Indian Contract Act.
The Bench also observed that the 2018 amendment to Section 10 of the Specific Relief Act was not retrospective and hence inapplicable to a lease executed in January 2018. It found no infirmity in the summary adjudication under Order XIII-A CPC since the appellant itself had invoked that provision. Concluding that there was no ground to interfere, the Court dismissed the appeal and affirmed the decree passed by the single judge.

To Read Full Judgment, Download PDF Given Below