Arbitration Dispute on Rental Payment During COVID-19: Supreme Court’s Ruling

The legal dispute between Evergreen Land Mark Pvt. Ltd. and John Tinson & Company Pvt. Ltd. revolved around rental payments for leased premises during the COVID-19 pandemic. The case, originating under arbitration proceedings, reached the Supreme Court after the appellant contested orders requiring full rental payments during government-imposed lockdowns.

The appellant, running a restaurant and bar, argued that the pandemic-induced lockdown justified invoking the force majeure clause under Clause 29 of the lease agreement. This clause, they contended, relieved them from the obligation to pay rent due to complete or partial closure of their business. The Arbitral Tribunal, however, directed them to deposit the entire rental amount for the period between March 2020 and December 2021. This decision was subsequently upheld by the High Court.

Arguments by the Appellant

The appellant’s counsel, Ms. Aastha Mehta, emphasized that neither the Arbitral Tribunal nor the High Court adequately considered the force majeure argument. She asserted:

“Even the Arbitral Tribunal has specifically observed in para 39 of the order that at this stage, the Arbitral Tribunal is not deciding anything on the import and effect of the force majeure clause (No. 29) contained in the lease deed.”

Ms. Mehta argued that since the enforceability of the rental obligation during the lockdown was a disputed issue yet to be adjudicated, requiring the appellant to deposit 100% of the rent as an interim measure was unjust.

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Arguments by the Respondents

The respondents’ counsel, Ms. Shyel Trehan, countered that the appellant continued to occupy the leased premises while failing to pay the agreed rent. She contended:

“The business of the appellant may have been impacted due to the outbreak of COVID-19 pandemic, but that may not absolve the appellant from its contractual obligations to pay the lease rent.”

She further argued that force majeure did not apply as the appellant remained in possession of the premises and benefited from them during the disputed period.

Supreme Court’s Observations

The Supreme Court noted that the Arbitral Tribunal failed to provide even a prima facie opinion on the applicability of the force majeure clause. The Court emphasized:

“The applicability of the force majeure principle contained in clause 29 is yet to be considered by the Arbitral Tribunal at the time of final adjudication.”

The Court found merit in the appellant’s argument that requiring full rental deposit for the lockdown period was premature. Consequently, it modified the Tribunal’s order, ruling that rent should not be deposited for the periods of complete lockdown:

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• March 22, 2020, to September 9, 2020
• April 19, 2021, to June 28, 2021

For other periods, the appellant was required to deposit the full rental amount. The Court clarified that this partial relief did not determine the final adjudication of the force majeure claim, which remained under the jurisdiction of the Arbitral Tribunal.

Conclusion

The Supreme Court’s judgment provided partial relief to the appellant by exempting rental deposit for periods of full closure. However, it maintained that the Arbitral Tribunal must determine whether the force majeure clause ultimately absolves the appellant of rental obligations. The ruling balances business hardships due to the pandemic with contractual obligations under lease agreements.

Petitioner Name: Evergreen Land Mark Pvt. Ltd..
Respondent Name: John Tinson & Company Pvt. Ltd..
Judgment By: Justice M. R. Shah, Justice B. V. Nagarathna.
Place Of Incident: New Delhi.
Judgment Date: 19-04-2022.

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