Introduction
The COVID-19 pandemic and subsequent government-imposed lockdowns triggered unprecedented disruptions to commercial activities worldwide, creating significant challenges for landlords and tenants bound by commercial lease agreements. As businesses faced prolonged closures, severe revenue reductions, and restrictions on physical operations, questions arose regarding the continued enforceability of lease obligations. This situation propelled the doctrine of frustration of contract in commercial leases—a relatively dormant concept in Indian lease jurisprudence—to the forefront of commercial litigation.
The pandemic presented a novel challenge for Indian courts: determining whether government-mandated lockdowns, temporary inability to use premises, and economic hardship constituted grounds for invoking the doctrine of frustration under Section 56 of the Indian Contract Act, 1872, or the doctrine of force majeure where explicitly provided in lease agreements.
This article examines the evolving jurisprudence on frustration of contract in commercial leases post-COVID, analyzing landmark judgments, identifying emerging judicial trends, and evaluating the factors courts consider when determining whether lease obligations can be excused, suspended, or modified due to pandemic-related disruptions. Through this analysis, the article aims to provide clarity on the current legal position while offering insights into potential future developments in this critical area of commercial contract law.
Doctrine of Frustration and Force Majeure in Lease Agreement
The Doctrine of Frustration of Contract under Section 56
Section 56 of the Indian Contract Act, 1872, codifies the doctrine of frustration, stating:
“A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.”
This provision embodies the principle that when performance becomes genuinely impossible due to supervening events beyond the parties’ control, the contract may be discharged. However, the application of this doctrine to lease agreements has been historically restricted in Indian jurisprudence.
In the seminal pre-COVID case of Raja Dhruv Dev Chand v. Raja Harmohinder Singh (1968), the Supreme Court established a crucial distinction between lease agreements and ordinary contracts, observing:
“A lease is a transfer of an interest in land. The interest in the land transfers to the lessee. When the interest is transferred to the lessee, the lease deed between the parties stands on a different footing from other executory contracts. In terms of Section 108(B)(e) of the Transfer of Property Act, the lessee cannot avoid the lease merely because the property is wholly or partly destroyed or rendered substantially unfit for use for which it was let due to fire, tempest, flood, violence of any army or of a mob, or other irresistible force.”
This distinction between lease deeds and ordinary contracts formed the foundation for subsequent judicial analysis of whether COVID-19 disruptions could trigger frustration of contract in commercial leases.
Force Majeure and Contractual Provisions
Alongside the statutory doctrine of frustration, force majeure clauses in lease agreements provide contractual mechanisms for addressing unforeseen events. The Supreme Court, in Energy Watchdog v. Central Electricity Regulatory Commission (2017), defined force majeure as:
“Force majeure is governed by the Indian Contract Act, 1872. In so far as it is relatable to an express or implied clause in a contract, it is governed by Chapter III dealing with the contingent contracts, and more particularly, Section 32 thereof. In so far as a force majeure event occurs de hors the contract, it is dealt with by a rule of positive law under Section 56 of the Contract Act.”
This distinction between contractual force majeure and statutory frustration became particularly relevant in COVID-19 lease disputes, as courts examined whether pandemic disruptions fell within the scope of contractual force majeure provisions or whether they constituted grounds for invoking Section 56.
Frustration of Lease Contracts Post-COVID: Landmark Judicial Rulings
Delhi High Court’s Foundational Approach
The Delhi High Court addressed several early cases that shaped the jurisprudence on lease frustration during the pandemic. In Ramanand & Ors. v. Dr. Girish Soni & Anr. (RC. REV. 447/2017, decided on May 21, 2020), Justice Pratibha M. Singh delivered a comprehensive judgment that became the touchstone for subsequent decisions nationwide.
The court examined whether tenants could claim waiver of rent during the lockdown period, laying down several significant principles:
“The fundamental principle would be that if the contract contains a clause providing for some sort of waiver or suspension of rent, only then the tenant could claim the same. The force majeure clause in the contract could be a contingency linked to the lockdown due to COVID-19, however, if there is no such clause, the tenant may generally seek suspension of rent by invoking the doctrine of frustration of contract or impossibility of performance, however, the same would be dependent on the facts and circumstances of each case.”
Importantly, the court distinguished between different types of contracts and properties:
“Tenants in different situations would be entitled to varying levels of relief, depending on the nature of the property, the financial status of the tenants/landlords, the provisions of the rent agreement, etc. While some tenants may be entitled to no waiver or suspension at all, others may be entitled to a partial or even complete waiver of rent during the lockdown period.”
This nuanced approach acknowledged the heterogeneity of lease arrangements and rejected a one-size-fits-all solution, establishing a precedent for case-by-case assessment of pandemic impacts on commercial leases.
Bombay High Court on Impossibility of Performance
The Bombay High Court considered the application of Section 56 to commercial leases in Sushila Bhimraj Shah v. Varsha Bharat Choraria (Writ Petition No. 235 of 2020, decided on December 8, 2020), where the court examined whether the temporary inability to use premises due to government restrictions could amount to frustration of contract in commercial leases.
Justice G.S. Patel’s judgment clarified the distinction between temporary and permanent impossibility:
“Temporary impossibility does not ordinarily result in determining a lease. For frustration to apply, there must be a demonstration that the very foundation of the agreement has been disturbed, or that the supervening events have rendered performance impossible in a manner not envisaged by the parties. Mere temporary impediments to the manner of enjoyment, while leaving the foundation and structure of the agreement intact, are insufficient to trigger the doctrine of frustration.”
The court further observed:
“A temporary restriction on the use of the premises due to a government-imposed lockdown does not render the lease permanently impossible to perform. The purpose of the lease remains achievable once restrictions are lifted, unlike cases where the leased property is permanently destroyed or its fundamental character is altered.”
This restrictive approach to frustration in temporary impossibility cases established an important precedent limiting the circumstances under which pandemic restrictions could discharge lease obligations.
Supreme Court’s Position on Commercial Hardship
The Supreme Court addressed the broader question of whether economic hardship or commercial difficulties could constitute grounds for frustration in South Indian Corporation (P) Ltd. v. Secretary, Board of Revenue (Civil Appeal No. 1021 of 2021, decided on February 15, 2021).
Though not specifically addressing lease agreements, the Court’s observations provided important guidance on frustration claims based on financial hardship:
“Commercial hardship, financial difficulties, or economic force are not valid grounds for invoking the doctrine of frustration under Section 56. The doctrine applies to situations where performance becomes genuinely impossible, not merely more onerous or economically challenging. Parties enter into commercial contracts with eyes open to potential fluctuations in market conditions and must bear the consequences of their bargain.”
This position significantly limited the ability of tenants to claim frustration based purely on business losses or revenue reductions during the pandemic, even when substantial.
Calcutta High Court on Supervening Illegality
The Calcutta High Court addressed the related question of whether government lockdown orders constituted supervening illegality sufficient to invoke frustration in SK Maniar v. Jalan Distributors Pvt. Ltd. (GA No. 1 of 2020, decided on August 25, 2020).
Justice Debangsu Basak analyzed whether temporary legal restrictions on business operations could trigger Section 56:
“The supervening illegality contemplated in Section 56 refers to situations where the fundamental purpose of the contract becomes permanently unlawful, not where there is temporary legal restriction on a particular mode of performance. The government’s lockdown orders temporarily restricted physical operation of businesses but did not render commercial leasing permanently illegal. Once restrictions were lifted, the underlying purpose of the lease remained achievable.”
The court further distinguished between impossibility of performance and mere hindrance:
“The lockdown created a hindrance to the enjoyment of the premises in a particular manner but did not render the fundamental purpose of the lease—providing premises for business activities—permanently impossible. A temporary restriction on the manner of enjoyment does not strike at the root of the contract so as to bring it within the ambit of Section 56.”
This distinction between temporary hindrance and fundamental impossibility further constrained the application of the frustration doctrine to pandemic-affected leases.
Specialized Treatment of Commercial Lease Types
Retail and Shopping Mall Leases
Courts have recognized the distinctive nature of retail leases, particularly those in shopping malls where footfall-based revenue models prevail. In Multiplex Association of India v. State of Maharashtra (Writ Petition No. 1169 of 2021, Bombay High Court, decided on October 7, 2021), the court acknowledged the unique challenges faced by mall tenants:
“Retail leases in shopping malls often operate on models where rent comprises a fixed component and a variable component linked to footfall or revenue. The business model inherently recognizes the relationship between physical presence of customers and commercial viability. Where such commercial understanding forms the basis of the contractual relationship, a more flexible approach to temporary impossibility may be warranted.”
The court, while not accepting frustration of contract in commercial leases in totality, recognized the potential for equitable rent adjustments:
“While not amounting to frustration under Section 56, the fundamental commercial basis of mall leases may justify judicial intervention for equitable adjustment during periods of government-mandated closure, particularly where leases contain provisions linking rent to footfall or revenue.”
This recognition of the distinctive commercial understanding in retail leases allowed for more nuanced relief in certain cases, despite the general reluctance to invoke the frustration doctrine.
Office Space Leases
Courts have generally been less receptive to frustration claims in office space leases, particularly where remote work remained possible. In Chiranjiv Jolly v. Jindal Aluminum Ltd. (O.M.P. (I) (COMM.) 112/2020, Delhi High Court, decided on September 10, 2020), the court observed:
“Office spaces, unlike retail establishments, could often continue functioning through remote work arrangements during the pandemic. The inability to physically occupy premises does not necessarily render an office lease frustrated where the fundamental purpose—housing the business operations—could be achieved through alternative work models.”
The court distinguished between different types of businesses:
“For businesses capable of operating remotely, the lockdown created inconvenience rather than impossibility. This differs from businesses requiring physical interaction with customers, though even in the latter case, temporary impossibility would rarely rise to the level required for frustration under Section 56.”
This distinction based on the nature of business operations further constrained the application of frustration doctrine to office leases during the pandemic.
Hospitality and Entertainment Venues
Courts have shown greater receptivity to claims involving premises exclusively licensed for purposes that became completely prohibited, such as hospitality and entertainment venues. In Inox Leisure Ltd. v. Supalite Pvt. Ltd. (Commercial Suit No. 59 of 2021, Karnataka High Court, decided on December 3, 2021), the court observed:
“Where premises are leased exclusively for purposes that became completely prohibited during lockdown, such as cinema halls or banquet venues, and no alternative use was permitted or possible, the case for temporary suspension of obligations becomes stronger, though not necessarily rising to complete frustration under Section 56.”
The court noted the distinction between multi-purpose commercial premises and single-use venues:
“Premises licensed exclusively for gathering-dependent activities such as cinemas, wedding halls, or exhibition centers present distinct considerations, as the very purpose for which they were leased became legally prohibited. While not constituting frustration in the strict sense, principles of equity and good conscience may justify proportionate relief during periods of complete prohibition.”
This recognition of purpose-specific impossibility created potential avenues for relief in narrowly defined categories of commercial leases.
Doctrinal Refinements and Emerging Principles in Lease Contract Frustration
Temporary vs. Permanent Impossibility
A consistent theme across judicial decisions has been the distinction between temporary and permanent impossibility. In M/s Polytech Trade Foundation v. M/s J.K. Cement Ltd. (Civil Appeal No. 5532 of 2021, Supreme Court, decided on September 28, 2021), the Court explicitly addressed this distinction:
“Temporary impossibility, particularly of a duration that is insignificant compared to the total term of the contract, does not ordinarily frustrate a contract. Frustration contemplates a permanent or prolonged inability to perform that strikes at the very root of the contract, rendering its fundamental purpose unattainable.”
This position was reinforced in Anil Gupta v. Manoj Agarwal (CS(COMM) 228/2020, Delhi High Court, decided on November 17, 2020), where the court observed:
“The pandemic-induced lockdown, while disruptive, was inherently temporary in nature. The jurisprudence on frustration consistently distinguishes between temporary impossibility, which may at best suspend obligations during the period of impossibility, and permanent impossibility, which may discharge the contract entirely.”
This distinction has significantly limited the scope for invoking Section 56 in most pandemic-affected lease cases.
Commercial Unprofitability vs. Impossibility
Courts have consistently maintained the distinction between commercial unprofitability and genuine impossibility. In Deepa Vidyut Pvt. Ltd. v. Gammon India Ltd. (2021 SCC OnLine Del 2706), the Delhi High Court emphasized:
“Financial hardship, commercial unprofitability, or business losses, however severe, do not constitute impossibility within the meaning of Section 56. The doctrine of frustration is not designed to relieve parties from bad bargains or economic difficulties. For frustration to apply, the very possibility of performance, not merely its commercial viability, must be affected.”
The Bombay High Court, in Transocean Offshore International Ventures Ltd. v. Hal Offshore Ltd. (2022 SCC OnLine Bom 89), further clarified:
“Economic force, no matter how compelling, does not constitute force majeure or trigger the doctrine of frustration absent specific contractual provisions. Business vicissitudes, market fluctuations, and economic hardship are inherent risks that contracting parties are presumed to have accepted.”
This position has precluded most claims based primarily on business losses or revenue reduction during the pandemic.
Contractual Risk Allocation and Force Majeure Clauses
Where lease agreements contained force majeure provisions, courts have generally prioritized contractual risk allocation over statutory frustration principles. In M/s Halliburton Offshore Services Inc. v. Vedanta Limited (O.M.P. (I) (COMM.) 88/2020, Delhi High Court, decided on May 29, 2020), the court observed:
“Where parties have specifically allocated risk through force majeure clauses, these contractual provisions take precedence over the general doctrine of frustration under Section 56. The court’s primary obligation is to give effect to the risk allocation agreed upon by the parties, unless doing so would contravene public policy.”
The Supreme Court, in Nabha Power Limited v. Punjab State Power Corporation Limited (2018) 11 SCC 508, had earlier established this principle:
“Commercial contracts between experienced parties are to be construed strictly, with the assumption that they have allocated risks deliberately. Courts should be slow to interfere with sophisticated commercial bargains, even in unprecedented circumstances, where parties have expressly addressed risk allocation.”
This judicial deference to contractual risk allocation has meant that outcomes in the frustration of contract in commercial leases during the pandemic have often been determined by the specific wording of force majeure clauses rather than general principles of frustration.
Equitable Interventions and Judicial Balancing
Proportionate Relief Approach
While generally rejecting total frustration, courts have in some cases developed a proportionate relief approach based on equitable principles. In Ramanand & Ors. v. Dr. Girish Soni & Anr., the Delhi High Court provided a framework for such equitable adjustments:
“The question of waiver of suspension of rent would depend on several factors – the nature of the property, the financial and social status of the parties, the nature of activity being carried out, whether any restrictions on carrying out that activity have been imposed by the government, the extent of such restrictions, etc. The tenant cannot just refuse to pay the rent for the lockdown period claiming frustration of contract, but some waiver or reduction could be justified by courts in certain circumstances.”
This approach was further developed in Gaurav Jain v. Union of India & Ors. (W.P.(C) 2977/2021, Delhi High Court, decided on May 6, 2021), where the court observed:
“While the doctrine of frustration may not apply in its strict legal sense to most commercial leases affected by COVID-19, principles of equity, good conscience, and fairness may justify judicial intervention for proportionate relief, particularly where the very purpose of the lease became temporarily illegal or impossible due to government directives.”
This proportionate relief approach has enabled courts to craft context-specific solutions without disrupting established legal principles on frustration of contract in commercial leases.
Balancing Tenant Hardship and Landlord Rights
Courts have consistently sought to balance tenant hardship against landlord property rights and financial needs. In Veena Chauhan v. Union of India & Ors. (WP(C) 3448/2020, Delhi High Court, decided on September 21, 2020), the court noted:
“While recognizing the genuine hardship faced by tenants during government-mandated lockdowns, courts must equally consider landlords’ legitimate interests, including their financial obligations, dependency on rental income, and fundamental property rights. The pandemic has affected both parties, often in different but equally significant ways.”
The Bombay High Court, in Udyog Mandir v. Ranu Arvind Sanghvi (Writ Petition No. 5235 of 2020, decided on December 13, 2020), further elaborated:
“Many landlords rely on rental income for their subsistence or have loan obligations secured against the property. A blanket waiver of rent would merely transfer hardship from tenant to landlord rather than equitably addressing the unprecedented situation. Courts must therefore seek solutions that distribute the unexpected burden in a manner that recognizes the legitimate interests of both parties.”
This balancing approach has led courts to favor partial rather than complete rent waivers, with the specific proportion often depending on the particular circumstances of each case.
Conclusion
The post-COVID jurisprudence on frustration of contract in commercial leases represents a significant development in Indian contract law, demonstrating both doctrinal continuity and practical adaptation to unprecedented circumstances. The cases examined reveal several consistent principles that now form the settled legal position in India.
First, courts have firmly maintained the established distinction between lease agreements and ordinary contracts, generally rejecting the application of Section 56 to leases in favor of the more specific provisions of the Transfer of Property Act. This doctrinal continuity reinforces the special status of leases as transfers of interest in property rather than merely executory contracts.
Second, courts have consistently distinguished between temporary impossibility of use and permanent impossibility of performance, holding that the inherently temporary nature of pandemic restrictions generally precludes application of the frustration doctrine. Even complete prohibitions on certain activities have been treated as temporary hindrances rather than fundamental frustrations.
Third, courts have maintained the crucial distinction between commercial unprofitability and legal impossibility, rejecting frustration claims based primarily on business losses or revenue reductions. This reinforces the principle that economic hardship, however severe, does not generally constitute grounds for discharge under Section 56.
Fourth, where lease agreements contain force majeure provisions, courts have prioritized contractual risk allocation over statutory frustration principles, emphasizing the primacy of the parties’ own arrangements for addressing unforeseen events. This has placed particular importance on the specific wording of force majeure clauses in determining outcomes.
Finally, while generally rejecting total frustration, courts have demonstrated willingness to intervene on equitable grounds in appropriate cases, crafting proportionate relief that balances tenant hardship against landlord rights. This balancing approach has enabled context-specific solutions without disrupting established legal principles.
The evolving jurisprudence reflects a thoughtful judicial response to an unprecedented situation, maintaining doctrinal integrity while finding pragmatic solutions to novel challenges. As the legal system continues to process pandemic-related lease disputes, these principles will likely be further refined, potentially creating lasting impacts on commercial lease arrangements and force majeure provisions in the post-COVID era.
The legal position established through these cases provides valuable guidance for landlords, tenants, and legal practitioners navigating the ongoing implications of the pandemic for commercial lease relationships. It suggests that while total frustration of contract in commercial leases remains an exceptional remedy limited to cases of permanent impossibility, courts retain flexibility to craft proportionate solutions based on equitable principles in truly extraordinary circumstances.
