COVID 19OP. ED.

The national lockdown imposed in India due to the coronavirus outbreak has paralysed the economy and had a devastating effect on lives and livelihoods across the country. In light of the crisis, a number of commercial tenants and tenant associations have been seeking complete waivers of rents due to their landlords, and many have resolved not to pay the same. The Doctrine of Frustration/force majeure/Act of God has been invoked by the tenants to justify non-payment of rent. This article shall seek to analyse the Doctrine of Frustration and explore whether such an invocation is permissible in the context of lease agreements, and what may be the consequences thereof.

The Doctrine of Frustration

The Doctrine of Frustration finds place under Section 56 of the Contract Act – which provides that a contract may become void if it becomes impossible to perform due to reasons not preventable by the parties. This “frustration” or discharge of contract occurs immediately at the time of the occurrence of the event, and does not depend upon the whims of the parties to the contract [1] . Section 56 is the statutory provision that enshrines the principles of act of God, force majeure and impossibility in Indian Law for general contracts. The key elements necessary for invoking the doctrine are (a) the occurrence of an event that could not be prevented and (b) the impossibility of performing obligations under the contract due to the occurrence of that event.

The impossibility to perform under Section 56 is not limited to physical or literal impossibility but also includes practical impossibility [2]. However, practical impossibility is not to be read to mean economic unviability or unprofitability. A mere increase in the cost of performing the contract does not frustrate the contract [3]. The rule enshrined under Section 56 of the Contract Act is a positive law, and does not need to be specifically spelt out in a contract [4]. Therefore, even if a contract does not explicitly specify the existence of a force majeure clause, the parties to the contract can still claim frustration of contract for the occurrence of an event beyond their control.

A number of experts trace the doctrine of force majeure back to Section 32 of the Contract Act that deals with the enforcement of contingent contracts. In this author’s opinion, such reliance is misplaced. The doctrine of force majeure (from civil law) is most similar to the Doctrine of Frustration under common law, and both work as an exception to the ordinary rule of absolute liability for contractual obligations. These doctrines come in effect to excuse parties from a contract on occurrence of an “unforeseeable” event. Contingent contracts on the other hand are contracts which come into effect on the occurrence of a foreseeable, yet “uncertain” future event. The mere existence of such a contingent, force majeure clause, does not automatically entitle a party to invoke it, nor does it automatically disentitle a party to seek discharge of obligation by claiming frustration under Section 56.

The determination of rights of the parties will thus depend upon the facts of the individual case and the terms of the contract therein. The Doctrine of Frustration is distinct from a force majeure clause; as most commercial lease agreements in India do not contain a force majeure clause, the scope of this article is limited to the doctrine.

Delving into the History of Frustration

Ironically, it was a case concerning rent arrears in 1647, that eventually resulted in the birth of the Doctrine of Frustration. In Paradine v. Jane (1647) [5], the UK House of Lords – when faced with a dispute concerning a landlord who was denied rent on the grounds that the Royalist forces in the English Civil War had occupied the property and rendered the lessee landless – established a rule of absolute liability for contractual debts. The Court held while deciding in favour of the landlord that, ‘when the party by his own contract creates a duty or charge upon himself, he is bound to make it good, if he may, notwithstanding any accident by inevitable necessity, because he might have provided against it by his contract.’

In order to soften this rigid rule of construction, the Queens Bench – for the very first time in Taylor v Caldwell in 1863 [6] – carved an exception, and established the doctrine of common law impossibility. When the Contract Act, 1872 came into force 9 years later, this doctrine of impossibility was given statutory force under Section 56. Thus, while the frustration of contract remains a common law exception under English Law, under Indian Law it commands statutory force.

Frustration and Commercial Lease Agreements

The application of the Doctrine of Frustration to lease agreements was discussed as part of the celebrated Cricklewood decision [7], where the House of Lords decided that a 99-year building lease wouldn’t be frustrated and the lessee wouldn’t be discharged from his obligations merely due to a temporary disability in utilising the property. The Court opined that a lease could rarely, if ever, be frustrated, and would require a ‘vast convulsion of nature’. The Courts in England have since held on multiple occasions, that a mere suspension in possessory rights for a period of time does not operate to frustrate the lease or discharge the lessee from his payment obligations[8] .

In India, the Supreme Court in Raja Dhruv Dev Chand v. Raja Harmohinder Singh [9] observed that generally Indian courts were of the view that Section 56 of the Contract Act is not applicable when the rights and obligations of the parties are under a transfer of property. The Court held that the Doctrine of Frustration would not apply to a contract of lease when there was transfer of a property by way of lease under the Indian Law, owing to the transfer of right to enjoy the land as well. If any material part of the property was wholly destroyed or rendered substantially and permanently unfit for the purpose for which it was let out, the Court held that the lessee had the option of avoiding the lease under Section 108(e) of the Transfer of Property Act.

Mulla [10] echoed the findings of the Court, and opined that as far as leases were concerned, there was no scope for the Doctrine of Frustration to apply as the rights and obligations of the parties in such cases are settled (subject to a contract to the contrary) according to the terms of Section 108(e). Thus, it is clear that Section 56 and the Doctrine of Frustration have very limited (if any) applicability to lease agreements. However, the lessees can – in appropriate circumstances – seek protection under Section 108(e) of the Transfer of Property Act.

Can tenants avoid payment of rent due to COVID-19?

The Transfer of Property Act, 1882 – the law that deals with tenancy rights – provides the right to discharge a lease under Section 108(e). The obligations under a lease may be discharged, at the lessee’s option, when:

an unforeseen event destroys either the entire, or material part of the property; or
an unforeseen event that makes the property substantially and permanently unfit for the purpose for which it was let.

Unlike Section 56 which automatically and necessarily terminates the agreement on occurrence of a frustrating event, discharge under Section 108(e) only occurs when the lessee elects to void the lease. The burden to prove the occurrence of either event falls on the lessee, who must establish that either a material part of the property is destroyed or that the property has been rendered ‘substantially and permanently’ unfit for use by the lessee.

If a lessee is able to show that the conditions in Section 108(e) are met, a mere refusal to pay rent is not sufficient for the lessee to avoid his payment obligations. The lessee must notify the lessor of his intent to invoke his option to void the lease in terms of Section 108(e). It is important to bear in mind that relief under Section 108(e) voids the entire agreement, and consequently, a lessee cannot continue to use the property and must forthwith hand over peaceful vacant possession of the property to the lessor. If the lessee fails to hand over the property, he will be liable for rent on (implied) tenancy by holding over [11]. Therefore it goes without saying that once the option under Section 108(e) is validly invoked, the lease comes to an end and the lessee has no right to continue possession of the property. The Madras High Court in Alanduraiappar Koil Chithakkadu v. T.S.A. Hamid [12], rejected a tenant’s claim for remission of rent on account of two cyclones that had caused suspension of his business. The Court held that a temporary suspension of business caused by cyclones in a 5-year lease agreement would not frustrate the contract.

Thus, in the context of the coronavirus outbreak, tenants may not be able to rely on Section 108(e) to justify default on payment of rent. The enforced lockdown does not meet the criteria for invocation of Section 108(e). Neither the lockdown nor the pandemic can be said to have resulted in the destruction of leased property, nor can it be claimed that the lockdown has left the property permanently unfit for use. Furthermore, an enforced suspension of business for a limited period of time cannot be said to have rendered the property substantially unfit for the purpose of the lease.

Even while the pandemic and resultant lockdowns across the world have caused tremendous financial distress and precipitated a steep global recession, revenue losses alone cannot be the grounds for the tenants to avoid their payment obligations. Unless the lease agreement itself provides for a discharge of payment obligations, it may not be possible for a commercial tenant to unilaterally refuse payment of rent. Tenancy being subject to contract, the tenants can always seek waivers of rent or deferrals in payment from the lessors. Only through negotiation and mutual consent therefore, can a tenant be discharged from his obligations under the lease without forcing the tenant to permanently shut shop. Parties looking for a quick solution in the form of a rent default would do well to bear in mind the consequences of being found in breach of contract, a shoddy quick fix may only exacerbate their financial condition.


*Ramchandra Madan is an Advocate, based in New Delhi. He holds a Master in Laws from The London School of Economics & Political Science. He currently practices the law in the courts of Delhi. He can be reached at Ramchandramadan@gmail.com

[1] Hirji Mulji v. Cheong Yue Steamship Co. Ltd., (1926) AC 497 

[2] Satyabrata Ghose v. Mugneeram Bangur & Co., 1954 SCR 310 

[3] Tsakiroglou & Co. Ltd. v. Noblee Thorl GmbH, 1962 AC 93 : 1961 (2) All ER 179, Energy Watchdog v. Central Electricity Regulatory Commission, (2017) 14 SCC 80 

[4] Supra Note 2

[5] Paradine v. Jane, [1647] EWHC KB J5

[6] [1863] EWHC QB J1

[7] Cricklewood Property and Investment Trust Ltd. v. Leighton’s Investment Trust Ltd.,[1945] A.C. 221 

[8] Matthey v. Curling (1922) 2 AC 180 (HL) , London & Northern Estates Co. v. Schlesinger (1916) 1 KB 20 , National Carriers Ltd. v. Panalpina,  1981 AC 675 

[9] (1968) 3 SCR 339

[10] Mulla DF, Mulla on Transfer of Property Act (Lexis Nexis 2013)

[11] Damodar  Coal Co. Ltd. v. Harmook Marwari, 1915 SCC OnLine Cal 48 

[12] 1962 SCC OnLine Mad 102 

Case BriefsHigh Courts

Rajasthan High Court: A Division Bench of Sangeet Lodha and Mahendar Kumar Goyal, JJ. dismissed an appeal regarding irregularity of a suit for declaration of land under Sections 88 and 188 of the Rajasthan Tenancy Act, 1955 belonging to a Scheduled Caste member while also finding no illegality in the earlier Single Bench Judgment of the same Court.

In this case, the appellant had filed a suit for declaration and was also seeking correction of the entry in the revenue record in the Court of Sub-Divisional Officer, Sikar. The appellant stated that there was an erroneous entry in the Jamabandi as neither the defendant 2 was in possession nor he was sold any land. The suit was eventually decreed by the Court of Sub-Divisional Officer. The appeal against it was subsequently rejected first by the Revenue Appellate Authority and then by the Board of Revenue. But later on, the District Collector allowed the application of the defendants setting aside the previous judgment. This was appealed against in the High Court in which a Single Bench upheld the Judgment, but then an intra-court appeal was preferred.

The counsel for the appellant R.K. Agarwal contended that the reference made under Section 82 or under Section 232 of the Rajasthan Tenancy Act, 1955 was not maintainable in absence of any public element involved. He also asserted that there was an inordinate delay of about 19 years in making the reference which was fatal. He also stated that since there was no transfer of the land in question, as stipulated under the Transfer of Property Act, 1882, by a member of Scheduled Castes/Scheduled Tribes in favour of a non-member, the judgment of Court of Sub-Divisional Officer could not have been set aside.

The counsel for the defendant R.P. Singh contended that the pleadings of the appellant have been self-contradictory, first that the land exists in two different places and again that there was no sale between the two. The counsel further contended that it is apparent that the judgment of the Sub-Divisional Officer was obtained by the appellant playing fraud and collusion, which was accepted by the Revenue Authorities as well as by the learned Single Judge of this Court and thus it cannot be sustained. Lastly, the learned Senior Counsel contended that the Court cannot restore the order of the Court of Sub-Divisional Officer which, per-se, was illegal and the Court would not like to restore an illegal order. He, therefore, prayed that the special appeal to be dismissed.

The Court observed that the appellant had consistently taken inconsistent pleas such as the stand that he was in the possession of the land; and that the land was not in two parts. Therefore, the Court opined that the appellant has come with a dishonest plea with regard to his possession over the disputed land and so his contention with regard to possession over half of the land, had no merit.

The Court also accepted the findings of the Revenue Authorities as well as by the learned Single Judge that the previous judgment of Sub-Divisional Officer obtained was a fraudulent one. The Court also remarked that there is no limitation prescribed under Section 82 of the Act to make reference although it has to be exercised within a reasonable time. Also, the Court found no illegality in an order dated passed by the Board of Revenue in 2001. The Court further relied on Pandey Oraon v. Ram Chander Sahu, 1992 Supp (2) SCC 77 and analysed the word ‘transfer’.

At last, the Court said that the judgment that was obtained by playing fraud, cannot be saved by applying the principle of the merger. They opined that the law will take its own course and no direction in this regard was warranted from the Court. For these reasons, the appeal was dismissed. [Vidhyadhar Sunda v. State of Rajasthan, 2020 SCC OnLine Raj 76, decided on 16-01-2020]

Corp Comm LegalExperts Corner

The doctrine of constructive notice is often criticised for being used extensively and harshly against the parties, particularly in property related matters. In certain situations, the parties might not have the means or resources to inquire or acquire knowledge about the title of a property and other related information.

In India, it is a major problem to prove the title of a property. This is because in India the system of “presumptive titles” is prevalent where title documents are not certified by the State. They remain private documents and do not get the status of public records.[1] This is because the present system under the Registration Act, 1908 only provides for registration of deeds and documents. Moreover even though the Transfer of Property Act, 1882 mandates compulsory registration of transfer of immovable property, there is still lack of proper documentation in this regard. More often than not, this contributes to unsatisfactory state of affairs in conveyancing the transfer of legal title of a property from one person to another.

Due to the lack of clarity in the title of ownership, the onus to inquire and confirm about the ownership and other title related facts lies with the buyer. It is difficult for a buyer to ascertain such facts due to the existing ambiguity and lack of conclusive ownership. A conclusive title may be defined as an unassailable and conclusive proof of ownership of property.[2] The Ministry of Rural Development had prepared a Model Land Titling Bill, 2011, wherein it proposed to set up a Title Registration Authority and an Appellate Tribunal. The conclusive title system provides for certainty of title to land. The proposed system registers the title gives finality and indefeasible rights which cannot be overturned or annulled. Therefore, it does away with repeated, imperfect and costly examination of past titles which is often a problem to the parties while acquiring all the information related to the property.

The court imputes constructive notice on parties in cases of failure to find out all facts related to the title of the party. In certain situations the implication of the doctrine of constructive notice can be harsh and unreasonable on the parties as this notice is implied irrespective of the difficulties in acquiring complete knowledge of the title deeds. The title documents are not certified by the State and therefore remain private, making it very difficult for the parties to locate the documents and find out all the information. The doctrine of constructive notice, however, fails to recognise the ground realities and practical difficulties and tends to arbitrarily impose notice on the parties on their failure to ascertain and verify certain facts for safeguarding his one interest.

Conclusive title of ownership removes the scope of bona fide mistakes as to the past titles or existing burdens affecting the subject property. It also removes the ever-present possibility of fraud by duplication or suppression of deeds, and gives State-guaranteed safety. A conclusive title system requires a single agency to handle property records. Moreover, such single agency should at any given moment mirror the ground reality of the property records. This is known as the mirror principle. In addition, the curtain principle should also be applicable. This principle requires that the record of a title should depict the conclusive ownership status and probing into past transactions and titles of the property should become unnecessary.[3]

Once a property is registered with the aforementioned land titling centre, there shall be a detailed title search including probing into past ownership, transactions and litigation history (if any) to establish non-encumbrance on the land. Thus, before purchasing a property, the buyer would have a clear understanding of the ownership issues and past record. Hence, granting of conclusive title of ownership will make the doctrine of constructive notice redundant and inapplicable to the parties because then there shall be no ambiguity with regard to the title of a property and a court shall not have to impute constructive notice on any party due to their failure to acquire the desired knowledge. This system is followed in Australia, Canada and the United Kingdom wherein one has to prove conclusive title of the property which is thereafter registered. Thereafter, the titleholder registered with the State cannot be dispossessed.

Constructive notice is the equity which treats a man who ought to have known a fact, as if he actually does know it. It presupposes, that in property transactions, a transferee ought to ascertain and verify certain facts for safeguarding his one interest. These facts may relate to the property or the transferor. The basic objective behind these inquiries and verifications is to find whether the property sought to be transferred is free from any charges or encumbrances and whether the transferor is eligible to convey a valid title to the transferee. The rule that applies here is that when a prudent man enters into the market, he would like to take the property free from any charge or encumbrances. Therefore, the rule of “caveat emptor” or “buyer beware” applies here and the transferee has to make inquiry about (a) whether the transferor is competent to make the transfer; (b) whether there is a charge due over the property; and (c) whether any person has temporary or permanent claim over the property.

Constructive notice is only imputed in situations where a person has means of knowing a particular fact but has failed to do so. There exists circumstances which ought to put him on an inquiry, which if prosecuted would lead to discovery of it.[4] However, if the person has no means or opportunities to obtain information about something, notice cannot be imputed on him about that thing. Thus, when the purchaser does not have the slightest idea or suspicion about any earlier agreement entered into, far away from the place where the property is situated, it cannot be said that there was any wilful abstention from the party.

Therefore, the theory upon which courts proceed in holding possession to be constructive notice of whatever rights the occupant may have in the premises is that possession, being prima facie evidence of some interest in the land by the tenant, should normally place a purchaser upon guard and lead him to investigate the extent and nature of such interest. Any failure on his part to make inquiry is, therefore regarded as an exhibition of negligence or bad faith which ought to place him in no better position than that of a purchaser with full knowledge of the adverse claim.[5]

However, in certain situations, this doctrine has been extended to cases hardly within its jurisdiction. For instance, in a case, it was held that possession by one tenant in common is constructive notice of an unrecorded conveyance to him from his co-tenant as against subsequent mortgagee of the latter who had no actual notice. As the object of registry system is to facilitate transfers of property, the purchaser ought, unless there is some potent reason to the contrary, to be able to rely upon the registered records.

In company law parlance, the effect of the doctrine of constructive notice is harsh on the outsider who is entering into a contract with the company because that person is deemed to have a constructive notice of the contents of the documents of the company. In case of default of any condition, the outsider cannot claim relief on the ground that he was unaware of the powers of the company in case of ultra vires of the company.

Moreover, this doctrine does not take notice of the realities of business life because people know a company mostly through the reputation of its promoters and officers and not through its documents. As an antithesis, a new theory called the doctrine of indoor management has been evolved by the courts.[6] The doctrine of constructive notice seeks to protect the company against the outsider; whereas the doctrine of indoor management operates to protect outsiders against the company. The rule of indoor management is based upon obvious reasons of convenience in business relations.

Firstly, the memorandum and articles of association are public documents, open to public documents. However, the details of internal procedures are not thus open to public inspection. Therefore, as per the application of this theory, an outsider is presumed to know the constitution of a company but not what may or may not have taken place within the doors that are closed to him. Moreover, as discussed above the passing of the Land Titling Bill proposed in 2008 shall provide conclusive title of ownership which would in turn reduce if not remove the ambiguity surrounding the information related to the past and present titles.

A shift from the presumptive titling system to the conclusive titling system for recording land titles will make the use of the doctrine of constructive notice redundant as the buyer will only have to prove the conclusive title of the property.


*Bhumesh Verma is Managing Partner at Corp Comm Legal and can be contacted at bhumesh.verma@corpcommlegal.in. **Abhisar Vidyarthi is a Student Researcher with Corp Comm Legal (4th-year student of Maharashtra National Law University, Mumbai)
[1]    Why You May Never Prove Ownership of Your Land, <http://www.indiaspend.com/snapshots/why-you-may-never- prove-ownership-of-your-land>, last accessed on 20-4-2019.

[2]    Dr Madalasa Venkataraman, What is Title Guarantee Worth in Land Markets, IIMB-WP N0. 473, <https://iimb.ac.in/ research/sites/default/files/WP%20No.%20473.pdf>.

[3]    Rita Sinha, Moving Towards Clear Land Titles in India: Potential Benefits, A Road Map and Remaining Challenges <siteresources.worldbank.org/INTIE/Resources/R_Sinha.docx> last accessed on 29-8-2017.

[4]    Ram Coomar Coondoo v. Mcqueen, (1872) 11 Beng LR 46.

[5]    Limitations of the Doctrine of Constructive Notice by Possession. Harvard Law Review 18, No. 3 (1905): 218-19. 33 Royal British Bank v. Turquand, (1856) 6 E&B 327.

[6]    Royal British Bank v. Turquand, (1856) 6 E&B 327.

Case BriefsSupreme Court

Supreme Court: A Bench comprising of CJ Ranjan Gogoi and Navin Sinha and K.M. Joseph, JJ. dismissed an appeal filed against the appellate order whereby interference in the order of Company Judge was declined.

The appellant was an assignee of debt by Industrial Finance Corpn. of India Ltd. for the outstandings of Mahendra Petrochemical Ltd. Earlier, a company petition was filed for winding up of MPL. Subsequently, after assignment of debt by IFCI in its favour, the appellant filed another company appeal for substitution of its name in place of IFCI as a secured creditor. The Company Judge rejected the application holding that the appellant was neither a bank or a banking company or a financial institution or a securitisation company or a reconstruction company, and therefore could not be substituted in place of IFCI as a secured creditor for the purpose of Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI). It was also held that in the nature of the relief sought under the SARFAESI Act, the appellant could not draw any benefit from Section 130 of the Transfer of Property Act. The review application filed to the Company Court under Section 9 of the Companies (Court) Rules, 1959 was rejected. The appellant submitted that it never sought substitution as a secured creditor, but simply desired substitution as a transferee of an actionable claim under Section 130 of Transfer of Property Act.

The Supreme Court, after considering the submissions and perusing the record, was of the view that the submissions made before the Company Judge left no room for doubt that as an assignee of debt from IFCI, the appellant essentially sought substitution as a secured creditor under SARFAESI Act and for that purpose sought to draw sustenance from Section 130 of Transfer of Property Act. After the claim of the appellant of being a secured creditor was rejected, it realised the unsustainability of its claim and made a complete volte face from its earlier stand contrary to its own pleadings. The contention of the appellant was belied from its own recitals before the Company Court. Referring to Amar Singh v. Union of India, (2011) 7 SCC 69 and Joint Action Committee for Airline Pilots’ Assn. of India v. Director General of Civil Aviation, (2011) 5 SCC 435, the Supreme Court held that a litigant can different stands at different times but cannot take contrary stands in the same cases. A party cannot be permitted to approbate and reprobate on the same facts and take inconsistent shifting stands. [Suzuki Parasrampuria Suitings (P) Ltd. v. Official Liquidator of Mahendra Petrochemicals Ltd.,2018 SCC OnLine SC 1798, dated 08-10-2018]