Without due process: Government orders on waiver of rents impinge on contractual rights

May 4, 2020 1:50 AM

By Abhinav Mukerji Recently, there have been a spate of news reports on measures issued through executive orders directing waiver of rents, reduction or freezing of school fees, continuation of employment, restriction on termination of employees, and restriction on reduction in salary in the wake of the Covid-19 pandemic. The government has also issued executive […]

All these orders restrict an individual’s contractual right or suspend contractual obligations.

By Abhinav Mukerji

Recently, there have been a spate of news reports on measures issued through executive orders directing waiver of rents, reduction or freezing of school fees, continuation of employment, restriction on termination of employees, and restriction on reduction in salary in the wake of the Covid-19 pandemic. The government has also issued executive instructions declaring the pandemic a force majeure event. All these restrict an individual’s contractual right or suspend contractual obligations, or even in some instances, encourage invocation of force majeure to terminate a private contract, all with a purportedly laudable objective to alleviate economic suffering brought about by the suspension of economic activity.

Such interventions and directions are extremely worrying from an industry point of view. India, a growing economic superpower, cannot afford to sanctify measures permitting contractual rights to be avoided except in accordance with law. Doing so would severely dent business confidence and dampen industry expectations. Let us not forget industry was already reeling under a slowdown and many sectors were in economic distress even prior to the pandemic.

There are already several entities that are on the verge of bankruptcy and such measures by the government may push them towards greater distress. Any measures by the government which justifies avoidance of contractual rights would be anathema to economic growth. Article 19(1)(g) of the Constitution guarantees a citizen the right to practise any profession or to carry on any occupation, trade or business. However, this is subject to reasonable restrictions embodied in Article 19(6) which allows the State to make any law imposing, in the interest of the general public, reasonable restrictions on the exercise of the right.

Clause (6) of Article 19 is intended to strike a balance between individual freedom and social control. The concept of reasonableness runs through the totality of Article 19 and requires that restrictions on the freedoms must at the least be reasonable. Measures adopted to tinker with contractual rights, which are perceived to be in favour of the masses at this time of a pandemic, though laudable, may not stand muster in Court. The Supreme Court in IITT College of Engineering v. State of H.P. (2003) had said that howsoever laudable the objective, it must have the sanction of the law.

It had done so setting aside directions of the High Court to appoint an administrator to a private educational institution to safeguard the interest of students. In the Cellular Operators Association of India & Ors. v. Telecom Regulatory Authority of India & Ors., (2016) the Court found the exercise of power by the State was manifestly arbitrary and fell foul of Article 19(1)(6); it failed to meet the test of reasonableness. The government had directed telcos to credit an amount to consumers on each call drop. The Court held that even though the intent of the impugned regulation was laudable, it would still fail the test under Article 19. The SC, in this context, found the government intervention in private contract to be unreasonable, as it failed to fulfil the constitutional scheme.

Interestingly, it had been argued that such a measure was made keeping in mind the small consumer and goes a long way to compensate such person.

In Vidya Devi v State of Himachal Pradesh and Ors. the SC explained the importance of the exercise of State’s power within the four corners of due process of law and reasonable restriction in context of the human right to property as set out in Article 300-A. While quashing state action wherein private property had been appropriated by the state without compensation, it observed that the state, being a welfare state governed by the rule of law, cannot arrogate to itself a status beyond what is provided by the Constitution.

It was held that the State could not deprive a person of his property except under procedure established by law. In fact the Supreme Court in the case of Delhi Airtech Services Pvt. Ltd. v. State of UP & Ors (2011) has inter alia held that “property itself is the seedbed which must be conserved if other constitutional values are to flourish..”
The government must think of an alternative which balances economic compulsions rather than rely on populist measures which can set a dangerous precedent. Else, as the late Margaret Thatcher opined “the problem with socialism is that you eventually run out of other people’s money”.

The author is an Advocate-on-record, Supreme Court Views are personal

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