Our Blogs

Whether the licensee needs to pay the licensee fee to the Government during the lock down period declared by the Government due to COVID-19 pandemic.

Brief Facts:

Narayan (“Petitioner”) was the licensee for the shop No.12A in the Nagercoil Bus Stand pursuant to the license granted by the Municipal Corporation. The monthly license fee was Rs.1,15,000/- (Rupees One Lakh Fifteen Thousand only) and the license period was for three years commencing from November 1, 2019. As a pre-condition for the license, the Municipal Corporation collected one year license fee (i.e. Rs.13,80,000/-) from the Petitioner in advance. Additionally, the Municipal Corporation had also collected Rs.10 Lakhs as refundable deposit from the Petitioner.

The Petitioner started running his shop from November 2019. Due to the COVID–19 pandemic, the State Government of Tamil Nadu issued G.O (Ms) No.152 dated 23.03.2020 instructing the closing of the Bus Stand and all the shops located within its premises during the “total lockdown period” starting from March 24, 2020. The Government later promulgated another notification early September 2020 relaxing the lockdown measures, and the shops in the Nagercoil Bus Stand were allowed to open partially from September 6, 2020 onwards.

The Petitioner suffered considerable financial loss as the Petitioner could not run his shop from March 24, 2020 to September 6, 2020. The Petitioner made a representation before the Municipal Authorities to a grant total waiver of payment of license fee for the period from March 24, 2020 to September 6, 2020 and a partial waiver for the succeeding partial lockdown period. Since the Petitioner did not get a favorable decision from the Government Authorities, the Petitioner approached the Madras High Court with a Writ of Mandamus under Article 226 of the Constitution of India against (1) Government of Tamil Nadu; (2) Commissioner of Municipal Administration; (3) District Collector, Kanyakumari; and (4) Nagercoil Municipal Corporation (collectively “Respondents”).

Argument by the Parties

The Petitioner contended there was no “reciprocity” from the part of the Government for performing their part of the agreement and therefore, the Government should not charge the license fees. Petitioner pointed out that the Government had stopped him from doing business, and they have not provided him the means to carry out his business. The Petitioner demanded the court to stop the Respondents from collecting monthly license fees from March 24, 2020 to September 6, 2020, and to reduce, revise and re-fix the license fee for the partial lockdown period in a manner proportionate with COVID-19 Lockdown Regulations issued by the Government.

The Respondents totally based their arguments on license agreement executed between the parties. As per the terms of the agreement the Petitioner is duty-bound to pay the monthly license fee during the entire term of the license. Further, the Government pointed out that in the license agreement there is no force majeure clause and therefore, the Petitioner is bound to pay the entire license fee. The Respondents brought the attention of the Hon’ble Court to the Government issued G.O (D) No.298, which exempts the payment of lease/rental amount for the period from April 1, 2020 to May 31, 2020, and argued that this two months relief is a sufficient remedy.

Reasoning & Judgment

Justice G.R. Swaminathan, after hearing the parties, directed the Municipal Corporation to waive the license fee for running a shop during the entire period of total lockdown from March 24, 2020 to September 6, 2020. The High Court was of the view that the benefit of the G.O (D) No.298, issued by the Government, waiving the rental fee only for two months should be extended for the full period of the “total lockdown period” reasoning that the same reasons for allowing two months fee waiver would equally hold good for the entire total lockdown period. With respect to payment for the subsequent period of “partial lockdown”, the High Court directed the Petitioner to approach the local authorities for the relief.

The Court pointed out that although there is no 'force majeure' clause in the license agreement, still the COVID-19 pandemic should be treated as a 'force majeure' event based on Section 51 and Section 54 of the Indian contract Act, 1872. The High Court was of the view that since the Municipal Corporation itself closed the Nagercoil bus stand and the shops, it cannot demand license fee based on the principle of “reciprocity” of contract. The Court observed that if the licensee is directed by the licensor to close down the shop, then, the question of payment of fee will not arise, as this is clearly an implied term in the contract.

The High Court observed that there is a “greater reason” for giving relief to the Petitioner. The Court opined that the Petitioner has contracted with Nagercoil Corporation, which is a Government body, and since one of the parties to the agreement is a State instrumentality, the Court would be justified in applying the principles of reasonableness and fairness. The High Court pointed out the decisions of the Supreme Court in Jamshed Hormusji Wadia vs Board Of Trustees, Port Of Mumbai [(2004) 3 SCC 214], and Bharat Petroleum Corpn.Ltd vs. Maddula Ratnavalli [(2007) 6 SCC 81], and reiterated that the State and its authorities have to be just, fair and reasonable in all their activities.

The High Court ended its judgment by making a statement that the High Court would “expect the authorities to take note of the ground realities and respond appropriately”.