Home Legal News Doctrine of Frustration under Section 56 of Indian Contract Act is not applicable to Lease Agreements: Delhi HC

Doctrine of Frustration under Section 56 of Indian Contract Act is not applicable to Lease Agreements: Delhi HC

by Muskan
doctrine of frustration

The Delhi High Court has held that the doctrine of frustration under Section 56 of the Indian Contract Act is not applicable to lease agreements.

This ruling in the case of Ramanand vs Dr GireeshSoni was based on SC precedents which stated that Section 56 is applicable only to “executory contracts” and not to “executed contracts”.

A contract for lease whereunder the lessee obtains possession from the lessor is an executed contract, noted the HC, referring to a divisional bench judgement in Hotel Leela Venture Ltd. v. Airports Authority of India.

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Referring to the SC precedent in the case Raja Dhruv Dev Chand v. Raja Harmohinder Singh &Anr., AIR 1968 SC 1024, Justice Prathiba M Singh noted that Section 56 (Doctrine of Frustration) would not apply to cases in which there is a completed transfer.

Justice Singh observed highlighting doctrine of frustration,

“The above judgment laid down unequivocally that a lease is a completed conveyance though it involves monthly payment and hence, Section 56 (Doctrine of Frustration) cannot be invoked to claim waiver, suspension or exemption from payment of rent. This view of the Supreme Court has been reiterated in T. Lakshmipathi and Ors. v. P. Nithyananda Reddy and Ors., (2003) 5 SCC 150, as also in Energy Watchdog (supra).”

The order came in an application which sought suspension of rent due to the COVID-19 lockdown. The application sought a suspension of the direction of the HC in 2017 to pay rent at the rate of Rs 3.5 lakhs per month for a property in Khan Market, New Delhi as a condition for staying the eviction order by the Rent Controller Court.

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Principle under Section 32 of the Contract Act not applicable

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Referring to the SC decision in Energy Watchdog v. CERC &Ors., (2017) 14 SCC 80, the HC observed that ifa contract itself contains an express or implied term relating to a force majeure condition, the same shall be governed by Section 32 of the ICA. Section 56 (Doctrine of Frustration) of the Contract Act, which deals with impossibility of performance, would apply only when a force majeure event occurs outside the contract.

It observed, “The force majeure clause in the contract could also be a contingency under Section 32 which may allow the tenant to claim that the contract has become 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.”

However, in the instant case as there was no rent agreementthe Court held that Section 32 was not applicable. Also, the applicant was already under an order of eviction, and was continuing occupation of the premises only on the basis of an interim order passed by the HC.

It stated, “There is no rent agreement or lease deed between the parties and hence Section 32 of the ICA has no applicability. The case is governed by the provisions of the Delhi Rent Control Act, 1958. Section 56 (Doctrine of Frustration) of the ICA does not apply to tenancies. The Tenants also do not urge that the tenancy is void under Section 180 (B)(e) of the TPA. The tenants are also not `Lessees’ as an eviction decree has already been passed against them.”

Temporary non-use of property will not render the lease void

The Court also held that temporary non-use of premises due to theCOVID-19 lockdown cannot be construed as rendering the lease void under Section 108(B)(e) of the Transfer of Property Act and hence the tenant cannot avoid payment of rent in view of Section 108(B)(l).

Mere non-use may not always entitle the tenant for suspension of rent, the Court said, referring to RaichurmathamPrabhakar and Ors. v. RawatmalDugar, (2004) 4 SCC 766, the court held that mere non-use may not always entitle the tenant for suspension of rent

No equitable grounds to suspend rent

It was noted that the premises were in the posh locality of Khan Market in Delhi, where the applicant had been running a footwear shop since 1975 at a monthly rent of Rs 350. The rent was enhanced to Rs 3.5 lakhs per month only in 2017 after the HC order, as a condition for grant of stay for continued use and occupation, after the decree of eviction was passed and hence there were no equitable grounds to suspend rent.

The amount being paid, was on the lower side when compared to the prevalent market rent in the area.

The Court said,

 “judicial notice can be taken of the fact that the prevalent rent in Khan Market is amongst the highest in the whole of Asia. The amount being paid by the Tenants, though substantial, is on the lower side as compared to other properties in Khan Market”.

The Court also observed that the present case was not covered by the protective orders passed by the Ministry of Home Affairs, as it was intended for the benefit of migrants, students and other stranded persons occupying rented premises.

However, providing some relief to the tenants, the Court granted postponement or relaxation in the of payment of rent owing to the lockdown.

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