In OMP (I) (COMM.) NO.288/2022-DEL HC- Contract is inherently determinable unless there is clause in Lease Agreement providing for termination of agreement on happening of certain event: Delhi HC 
Justice Neena Bansal Krishna [15-12-2022]

Read Order:M/S AFFORDABLE INFRASTRUCTURE AND HOUSING PROJECTS PRIVATE LIMITED v. M/S SEGROW BIO TECHNICS INDIA PRIVATE LIMITED 

Mansimran Kaur

New Delhi, December 17, 2022: Almost all Contracts can be terminated by a party, if the other party fails to perform its obligations. Such a contract cannot be stated to be determinable solely because it can be terminated by a party if the other party is in breach of the obligations, the Delhi High Court has held.

A Single-Judge Bench of Justice Neena Bansal Krishna  dismissed the present  petition  instituted under Section 9 of the Arbitration & Conciliation Act, 1996 which was  preferred for seeking ad-interim injunction against the respondent from acting upon the Termination Notice and to desist from making any direct communication with the petitioner’s sub-tenants.

The Bench was of the view that no prima facie case was made out in favour of the petitioner and no relief as sought could be granted. The petitioner executed a Lease Deed with the respondent for the commercial property in respect of the front portion of the fifth floor of Industrial Plot situated in Gurugram, Haryana.  

The petitioner’s business model involved leasing out commercial properties on long term lease permitting further sub-lease of the property to prospective sub-tenants at a higher rental by refurbishing the property and providing fully customized commercial space as per the specifications and requirements of its clients/ sub-tenants. 

One of the mandatory preconditions under the Lease Deed was for the respondent to obtain an Occupation Certificate (OC) within thirty days plus grace period of 15 days from the execution of the Lease Agreement. However, the OC was not procured putting the petitioner under high risk due to the Indemnification Clause contained in the sub-leases executed by it with the sub-tenants.

After considering the submissions, the Court noted that this was a petition under Section 9 of the Act wherein the scope of enquiry was limited to grant of interim relief.

Referring to the judgments in T.O. Abraham vs. Jose Thomas 2017 SCC OnLIne Ker 19872, N.H. & Co. vs. S.M.E. Pvt. Ltd. 2020 (5) Mh.L.J. 173 &  Intercontinental Hotels Group India Pvt. Ltd. Vs. Shiva Satya Hotels Pvt. Ltd., 2013 SCC OnLine Guj 8678,the Court noted, “The law in regard to termination of the Lease Agreement is thus, well settled. A Contract is inherently determinable unless there is a Clause in the Lease Agreement providing for termination of the Agreement on the happening of an event as is explained in the judgements above. The Contract would be non-determinable except on the happening of that event.”

In the present case the petitioner undertook huge expenditure by creating an infra-structure to augment the utility of the premises to be able to further sub-let it to the tenants and for this reason the Lock-in period of five years was envisioned in the Lease Agreement. However, this controversy of whether the respondent could have terminated the Lease through the  Termination Notice d despite the Lock-in period needs to be adjudicated.

Reference at this stage was placed on the cases namely, Bharat Catering Corporation Vs. Indian Railways Catering & Tourism Corporation Limited,Adhunik Steels Ltd. Vs. Orissa Manganese and Minerals Pvt. Ltd. and  Indian Oil Corporation Ltd. Vs. Amritsar Gas Service & Ors. 

It was not disputed on behalf of the petitioner that no rent has been paid in respect of the leased premises till date. The specious ground taken for non-payment was that in terms of the Lease Deed, the respondent was supposed to provide the Occupation Certificate, which it has failed to do and no copy of the same has been provided till date. 

The other reason given for non-payment of rent was that a certain portion of the leased premises had been taken by the respondent for his own use as its Office for which he was under an obligation to make the payment, however he  failed to do so. Also, the Maintenance Charges were not paid by the respondent, the Court noted. 

“The law  mandates against grant of stay against Termination Notice in respect of the Contracts which are determinable”, the Court opined. 

Thus, the question whether the Contract is in its nature determinable must be answered by ascertaining whether the party against whom it is sought to be enforced would otherwise have a right to terminate or determine the Contract even though the other party is ready and willing to perform the Contract and is not in default, the Court stated. 

However, neither equity lies with the petitioner nor  a prima facie case made out by the petitioner who despite having occupied the rented premises since the commencement of the tenancy, has failed to pay the rent. The delay if any, in getting the “OC” or non-payment of Maintenance Charges or of Office space occupied by the respondent, may give a right to the petitioner to adjust or claim the charges payable by the respondent, but definitely the petitioner could not have denied the respondent the due rent despite the premises being used by the petitioner, the Court observed. 

In view of such observations and finding that no prima facie case was made out in favour of the petitioner, the Bench dismissed the petition under Section 9.