Is Lockdown a Force Majeure Effect

The Hon’ble High Court of Madras in R. Narayanan vs. The Government of Tamil Nadu and Others.[1], vide its order dated 01st February 2021granted relief to the licensee, being the petitioner in the forgoing matter, holding that the licensee is waived from the obligation to pay a license fee for the period during which the lockdown was promulgated by the Government of India from the period 24.03.2020 until 06.09.2020.

It was observed by the Hon’ble High Court that since there was a complete lockdown, the question of payment of license fee does not arise altogether, for which the licensee was entitled to a complete waiver. It was also observed by the Hon’ble High Court that for the period subsequent to 06.09.2020 there was a partial relaxation and lifting of lockdown restrictions, in respect to which it was ordered that the licensee is permitted to move the respondents for any further relief.

The facts of the matter in question were that the petitioner was a successful bidder for a shop constructed by the Nagercoil Municipal Corporation (“Corporation”) within the premises of Vadaseri Christopher Bus Stand. The Corporation issued a license to the petitioner for a period of three years and collected a one-year license fee from the petitioner in advance. Pursuant thereto, the State Government of Tamil Nadu issued G.O (Ms) No.152, Health and Family Welfare (P1) Department, dated 23.03.2020 imposing restrictions. As a result, Vadaseri Bus Stand and all the shops located within its premises came to be closed. The petitioner was prevented from accessing the shop and his business came to a standstill. Such a complete lockdown was in force from 24.03.2020 to 06.09.2020. Thereafter, there was partial lifting and relaxation of the restrictions.

Due to the financial loss suffered by the petitioner, a total waiver of the payment of the license fee for the period from 24.03.2020 to 06.09.2020 and partial waiver for the subsequent period was demanded by the petitioner by filing a writ of Mandamus under Article 226 of the Constitution of India, forbearing the respondents from demanding license fee from the petitioner for the period from 24.03.2020 to 06.09.2020 and to reduce, revise and re-fix the license fee in a manner proportionate with the opening time permitted for the period from 07.09.2020 onwards. However, the respondents stated that the contractual obligation to pay the monthly license fee is absolute and that it is not excused by any supervening event.

In consideration to the rival contentions, the single bench of Honourable Justice G.R. Swaminathan of the Madurai Bench of the Hon’ble Madras High Court deliberated on the fact that whether the performance of a contract is affected by the post-contract events and will have to be resolved either by invoking the doctrine of frustration or the principle of force majeure?
The Hon’ble Court while explaining the provisions, and applicability of the doctrine of frustration and the principle of force majeure, observed that there was no mention of a force majeure clause in the agreement. Further, in the tender notification, there was a stipulation that the licensee will not be excused from his payment obligation under any circumstances.

In furtherance to the above, the Hon’ble Court put itself a question that “whether notwithstanding the stipulation of absolute performance cast on the licensee, this Court would be justified in treating the “lockdown” as a force majeure event which will relieve the licensee from performing his obligation to the corresponding extent”. The question was answered in affirmative by the Hon’ble Court. The Hon’ble High Court further observed that:
“Section 51 of the Indian Contract Act, 1872 states that when a contract consists of reciprocal promise to be simultaneously performed, no promisor need perform his promise unless the promisee is ready and willing to perform his reciprocal promise. As per Section 54, performance cannot be claimed till the other has been performed. The local body must keep the bus stand open and in good repair. The licensee must be permitted to keep the licensed shop open. If the local body had directed the licensee to close down the shop, it cannot demand fee from the licensee for the period when the shop remained closed. Of course, the licensee must be free of any wrong-doing. If the licensee is made to suffer for no fault of his by direction to close down the shop, then, the question of payment of fee will not arise. This is clearly an implied term in the contract.”

The Hon’ble Court provided a greater reason for answering the above-mentioned question in affirmative, wherein it was stated that the petitioner did not contract with a private party but with the Corporation, which is a State instrumentality and being a local body has been given constitutional status. In the case on hand, their actions have been governed by the directives issued by the Central and State Governments. When one party to the contract is the local body, then this Court would be justified in applying the principles of reasonableness and fairness.
The Hon’ble High Court relying on the ration laid by the Hon’ble Supreme Court quoting the precedents held that:
“The terms of the license must be interpreted under the scanner of Article 14 of the Constitution of India. What applies to the landlord-tenant relationship when one party is State or its instrumentality, equally applies to the licensee-licensor relationship also. This sermon to the State is absolutely unnecessary. This is because the Government itself had recognized the lockdown as a force majeure event and issued G.O(D)No.298, Municipal Administration and Water Supply (MA.IV) Department, dated 02.09.2020 directing waiver for a period of two months from 01.04.2020 to 31.05.2020. There is absolutely no merit in the contention of the respondents that this G.O has not been challenged. There is no need to challenge the G.O. This is because it confers a benefit to the licensees/lessees. The only stand of the licensee is that the extent of the conferment is inadequate. It is seen that the said G.O was issued in response to the letter dated 18.06.2020 sent by the Commissioner of Municipal Administration. A letter sent in the month of June 2020 will obviously cover only the preceding months of April and May. No one would have anticipated that the lockdown would continue for several more months. Therefore, when the G.O was issued in September, it straightaway accepted the proposal which was confined only to April and May 2020. That is how bureaucracy functions. The Secretary to Government did not deem it necessary to go beyond the terms of the request made by the Commissioner of Municipal Administration. But a constitutional court cannot have a blinkered vision. It must take into account the position that prevails on the date when the list is adjudicated”.

The Hon’ble High Court further observed that since the respondents themselves have chosen to treat the lockdown restrictions as a force majeure event, they cannot absolve themselves by granting the licensees relief from the obligation to pay the fees for two months only. It was also observed that the waiver for the months of April and May would equally hold good for the entire “total lockdown” period since the Vadaseri Bus Stand remained closed from 24.03.2020 to 06.09.2020 and the respondents directed the petitioner not to open the shop till 06.09.2020.

Therefore, it is reiterated that the Hon’ble High Court allowed the writ petition, entitling the petitioner to the benefit of complete waiver for the total period from 01.06.2020 to 06.09.2020 and further allowed the petitioner to approach the authorities for the period subsequent to 06.09.2020 for further relaxation in the license fee.

Allowing the writ petition, the Hon’ble Court concluded by stating that “this Court believes in the principle of nudging as propounded by Richard H.Thaler. This Court would expect the authorities to take note of the ground realities and respond appropriately”.

[1] W.P.(MD)No.19596 of 2020 and W.M.P.(MD)Nos.16318 & 16320 of 2020