COVID-19 a Force Majeure event justifying termination of lease deed: Arbitral Tribunal

A three-member arbitral tribunal has ruled that COVID-19 is a Force Majeure event which justified the termination of a lease deed. .The arbitration was between two sets of parties—private individuals (claimants) and Just Dial (respondents)..The claimants had leased out a property to the respondents for the period from March 2016 to March 2025..The respondents paid an interest-free refundable security deposit and the claimants spent on expenditure towards the interiors of the property..In March 2020, the respondent sent an email to the claimants seeking waiver of 50% of rental amounts for the months of April and May, which was agreed to by the claimants. .Subsequently, the respondent wrote to the claimants notifying the intention to surrender the property forthwith and sought the return of 50% of the security deposit..Following a series of email correspondences between the parties, the respondent invoked the Force Majeure clause in the deed and terminated the deed..Before the arbitral tribunal, the claimant stated that COVID-19 pandemic was not a Force Majeure event and the respondent was invoking the same was an afterthought..Stating that the private entities were permitted to operate with 33% strength, the claimants said that the respondent was in no manner prevented from using the property.Prayer was accordingly made for a direction to the respondent to pay more than Rs 3 crore as unpaid rent ..In defense, the respondent said that it was never in breach of the lease deed and sought refund of the security deposit..It was argued that the term “due to natural calamity” in the lease deed attracted Force Majeure clause and therefore, it was justified in terminating the lease deed without incurring any liabilities..The arbitral tribunal comprising Jutisce Ashok B Hinchigeri (Presiding Arbitrator) and Justices KN Phaneedra and Anand Byra Reddy analysed the relevant clause in the lease deed on Force Majeure before opining that it included “any other irresistible force or any other act beyond the control of the parties”. .The tribunal recorded that WHO declared COVID-19 as a pandemic, touching every sector of the society. .Since the respondent would have faced penal consequences for calling employees to the property during the period the lockdown was implemented in the country, the tribunal held that the respondent was prevented from using the property for a period exceeding two weeks..Calling "Force Majeure" events inevitable and enforceable, the tribunal noted that it was an exception to the breach of contract..“The fact that subsequently 33% of the personnel in an organization were permitted to resume the work or because the employees are permitted to work from home or because some of the employees of the Respondent were coming to the schedule premises for work, the termination cannot be resisted. As the pandemic is a cause of the Respondent’s inability to perform its obligations and as its non-performance is due to other circumstances beyond its control and as it has taken reasonable steps to mitigate the economic consequences of the termination of the lease on the claimants, it can be released from its liability of paying the full rent for the entire lock-in period," it said..The tribunal also rejected the argument of Force Majeure being an afterthought.“..just because the said email does not mention the words ‘Force Majeure’ and just because it is not in the form of a formal notice, it cannot be ignored. It is trite that what matters is the sum and sunsatnce of the communication and not the caption, form and format of the communication,” it said. .The tribunal, therefore, declared the termination of lease valid and sustainable stating that COVID-19 pandemic has upset the very foundation upon which he parties entered into the lease deed.Considering that the claimants were also suffering difficulties and hardships in the prevailing circumstances, the tribunal inter alia allowed the claimants to retain half of the security deposit and refund the remaining to the respondent..Claimants were represented by Advocate Joseph Anthony, JSM Law Partners.Respondent was represented by Advocate Nalina Mayegowda, Magnah Law Partners.