Page 29 - GSTL_13th August 2020_Vol 39_Part 2

2020 ] RENT ON COMMERCIAL PREMISES DURING LOCKDOWN — GST IMPLICATION J37
Compensation for loss through non-performance of act known to be impossi-
ble or unlawful : Where one person has promised to be something which he
knew or, with reasonable diligence, might have known, and which the prom-
isee did not know to be impossible or unlawful, such promisor must make
compensation to such promisee for any loss which such promisee sustains
through the non-performance of the promise.”
Based on the provisions of Indian Contract Act above, an argument can be set forth
that the contract executed between landlord and tenant for rental of premises be-
ing a continuous supply of services becomes void for partial period due to the
complete halt of all economic activity during lockdown. Thus, the rental contract
becoming void, the rent is not payable for the lockdown period.
On the contrary, a view may be taken that no rent would be payable at
all during the period of the ongoing lockdown taking shelter under the laws in-
volving force majeure. Hence, it is important to examine the provision of force
majeure to analyse the issue of rent appropriately. The force majeure is an act that a
person has no control over and also includes man-made conditions such as Gov-
ernment policy. Therefore, the order of the Government to enforce lockdown in
the country would surely qualify as a force majeure. Now, the question may arise
that whether the aforesaid Section 56 of Indian Contract Act, would be applicable
to the instant rental arrangement? In the above issue, it is imperative to examine
the rent or lease agreement in the light of Transfer of Property Act, 1882. Since
Transfer of Property Act is a special Act and it is said to be a settled law that a
special statute would prevail over a general statute. Thus, the reliance may be
placed on Section 108B(e) of the Transfer of Property Act to decide whether or
not rent is payable by the lessee due to a force majeure clause. The said clause
talks about the rights and liabilities of the lessee contract. The relevant extract of
the said clause is given below;
“if by fire, tempest or flood, or violence of an army or of a mob, or other irre-
sistible force, any material part of the property be wholly destroyed or rendered
substantially and permanently unfit for the purposes for which it was let, the lease
shall, at the option of the lessee, be void :
PROVIDED that, if the inquiry be occasioned by the wrongful act or default
of the lessee, he shall be entitled to avail himself of the benefit of this provi-
sion;”
From the aforesaid provision, the fact that COVID-19 pandemic has been rendered
the leases property or premise permanently unfit for the purpose for which it was
leased out, and that COVID-19 is an instance of an ‘irresistible force’ as envisaged
in the said section, is of utmost importance. However, it is difficult to establish that
the said pandemic left the leased property or premises permanently unfit for us-
age. In terms of the relevant law, the lessee has the opportunity to determine if the
incident of COVID 19 would get covered under the ambit of Section 108B(e) of the
Act and in any way, impact permanently his ability to use the property. However,
if the lessee fails to give notice as prescribed under the said section, the lease is
considered to be not affected regardless of the force majeure event. In a nutshell, it
can be said that the issue may need judicial intervention for giving the problem a
required finality. However, it is apparent from the above discussion that the lease
or rental contract may not be eligible to take shelter under force majeure clause and
therefore, would be liable to pay rent as stated in the related agreement or contract.
Coming to the discussion of GST implication on the lease contract where
the rent amount has been restructured or waived on the basis of mutually agreed
GST LAW TIMES  13th August 2020  29