This article is written by Millia Dasgupta, studying at Jindal Global Law School. This article covers the powers of the government with regards to wage payment and suspension of recovery of rent.
COVID-19 has paralyzed the entire world. Despite active actions from the government, society is still drowning under its consequences. Every day the death toll seems to keep rising and there seems to be no stopping. Despite it being an extreme Health crisis, it has stopped earning and economic progress as well. It is during these times that the government released a few guidelines in order to help with the general chaos.
Under the Disaster Management Act, 2005 the government released certain guidelines that must be followed. Two very controversial orders were released on 29th March that asked all employees to pay their workers wages, regardless of the economic standstill that was happening due to the lockdown and pandemic. Another controversial guideline that was enacted on March 29th as well was that landlords should not ask for rent during this period of the lockdown. In the present scenario, the government has now withdrawn the guideline of payment of wages to workers for the lockdown 4.0, and the Supreme Court has denied enacting the guidelines of the Ministry of Home Affairs that orders the suspension of payment of rent. Regardless of the updates, this article shall discuss and talk about whether the government was within their powers to enact such a guideline.
The Disaster Management Act, 2005
Before we delve in the powers of the Government with regards to the above-mentioned regulations, it is important to analyze the act under which such regulations have been passed. The Disaster Management Act, 2005, was passed in the Rajya Sabha on the 28th of November and Lok Sabha on the 12th of December. It spans across 11 chapters and 79 sections and is applicable to the whole of India. The reason why such an act was enacted in order to provide effective management of disasters. There is a nodal central body which coordinates disaster management which is called The National Disaster Management Authority (NDMA) and is under the chairpersonship of the Prime Minister.
It is the NDMA which lays down the guidelines that must be followed during such times of disaster. There are agencies of the NDMA beneath it such as the State, District and Local level Disaster Management Authorities. These are manned by high functionaries and their duties are to manage the guidelines which are formulated by the NDMA. The current announcements and instructions being given out by the Union and State Government are under the 2019 National Disaster Management Plan. This plan deals with biological disasters and health emergencies.
The powers which are bestowed upon the central government and the National Disaster Management Authorities are extensive. Irrespective of the laws in place, including any overriding powers that other facets of government, administration and authority may possess, the government has the power to issue any direction to any authority, to any area in India to ensure the management of the disaster. This power is provided under Section 35, 62 and 72 of the Disaster Management Act. And under the authority of sections such as 18(2)(b), 24(1), 36, 38(1), 38(2)(b), 39(a) and 39(d), the directions given out by the government must be followed by the Union Ministries, State Governments and State Disaster Management Authorities.
Under Section 6(3) of The Disaster Management Act, the Prime Minister can exercise all his powers under the National Disaster Management Act, Section 62 on Authorities. This is to make sure that there is political and constitutional gravity behind the decisions and orders given. The lockdown orders and the current Unlock 2.0 that is to be held from 1st to 31st July is imposed under the Disaster Management Act.
Payment of Wages
There was an order that came out in March 2020 with regards to the National Executive Committee under the Disaster Management Act. It stated that ‘ all employers shall make payment of the wages of their workers on due date without any deduction for the period of the establishment’. This was in light of all the lockdown that swept the nation on 24th March. This order was passed to manage the influx of migrant workers who were unable to go home.
The supreme court shall address the various challenges to this order in the case of Ludhiana Hand Tools Association v. Union of India. In the meantime, the supreme court has granted a stay to any coercive action against businesses that do not comply.
Many employers have argued that the Disaster Management Act does not grant any power to the central government to force employers to pay wages to their workers. Their contention is that Section 10(2)(I) of the Disaster Management Act, that was invoked in the order clearly applies to only government authorities and not private ones. The sections which do allow for the government to invoke private parties to ‘requisition resources’ is Section 65, which is followed by Section 66 (a section which can compel payment of compensation if such requisition is not done). They argue that these two sections can not be invoked for mandatory payment of wages. And even for the sake of the opposition if it is taken that they can, the terms of Section 66 were not complied with.
It can be said that the above argument is extremely flawed. First of all, it is flawed that Section 65 and the corresponding section, Section 66 was brought into the argument as the order was invoked under Section 10, more specifically Section 10(1) and Section 35 of the DMA. While they can be criticized for being overly broad, it would be a fallacy to say that these sections do not give the government the power to act. Section 35 especially gives power to the government to take measures that are expedient to the Act.
The order also puts other obligations on private parties.
- The order of closure of shops and establishments, which gave rise to this controversy in the first place.
- Orders restricting the movement of individuals between state borders.
- Orders imposing “night curfews”.
- Orders banning public gatherings.
- Orders mandating social distancing.
Thus the point that is trying to be made is that enforcing the payment of wages upon private employers is not the only order that the government has enforced on private parties. Lockdown in ever since is an order enforced upon private parties. If payment of wages was made unconstitutional, then lockdown would be unconstitutional. The government has imposed many hardships on private entities. It would be unfair if those restrictions were upheld and orders passed in order to protect marginalized sections of the society was mitigated.
A lot of employers from the private sector may also rebut the argument given above by saying the difference between the other orders and the orders about payment of wages is that there is already a settled law about the payment of wages. From example, the Industrial Dispute Act, 1947. However, such an argument is overridden by Section 72 of the DMA which is a non-obstante clause. It states that orders given under the DMA prevail over statutory provisions and laws that are inconsistent with it. To add to that, the Industrial Dispute Act itself has a clause which states that it shall allow for orders that are more beneficial for workmen. Thus, the order is justified not only under the Disaster Management Act but also the Industrial Dispute Act.
Many have also argued about the competence of the NEC in issuing such directions and have challenged it to be violative of Article 19(1)(g) i.e- freedom of trade and commerce. This is due to the fact that they are being forced to pay wages despite their shops being closed down. It is important to note that the root of this dispute is government or state action. While this is a valid concern, the flip side or alternate situation would be workers deprived of wages and livelihood. Many workers live from wages to wages and it is essential for them to work. The lockdown without the directive would have robbed them of a source of livelihood, thus being violative of Article 21. Others must also realize that the ability to work from home and to thus earn one’s salary depends on one’s socioeconomic resources. To deprive individuals of livelihood who can’t work from home would be violative of Article 14.
Thus, it is very evident from the above case that there is a class of two fundamental rights. The enactment of the order is violative of Article 19(1)(g), but not enacting such an order would be violative of Article 21 and 14. So how does one choose? In a recent case about the Right to Information Act, the Supreme Court addressed this issue. The judges of the Supreme Court rules that the doctrine of proportionality would be applied. While it is not sure whether a temporary order to pay workers wages would result in a permanent closure in businesses, thus violating Article 19(1)(g), but an inability to pay wages to the workers would inevitably entirely deprive workers of their livelihood, thus violating Article 21. While there is no doubt that such an order does apply a burden to employers through State action, the State also has a responsibility to protect those who have been deprived of their livelihood. It may ask for compensation for the burden caused but to revoke the order would throw marginalized sections of society to the wolves.
Suspension of rent
A lease is when one transfers to another, their right to enjoy an immovable property. This is usually for a certain time period in exchange for a certain consideration eg- an amount of money that shall be paid or shall be promised to be paid in the future. The rights and duties of a lessor and lessee are governed by Section 108 of the Transfer of Property Act, 1882. But parties are free to determine rights and liabilities through a written contract which they both consent to. Now we may assume that many of the written contracts between the lease and lessor do not have a force majeure clause. We may also assume that even if there is a Force Majeure clause, it does not have a specific clause which covers pandemics. In such cases, can the lessee reduce to pay the lessor i.e- can a tenant reduce to pay rent to his/her landlord considering the current economic times?
Force Majeure is not specifically defined by the India Contract Act. But by the Black Law Dictionary, it is defined as “an event or effect that can be neither anticipated nor controlled. It is a contractual provision allocating the risk of loss if performance becomes impossible or impracticable, especially as a result of an event that the parties could not have anticipated or controlled.” This pandemic could be considered an instance of force majeure. Section 56 of the Indian Contract Act, 1872 allows for the doctrine of frustration to be enacted when force majeure comes into play. It states that a contract shall become void if its performance becomes ‘impossible’. Here, it could be said that due to the lockdown and pandemic guidelines, many are unable to go to work or work at their previous pace, thus reducing their revenue stream. This sudden paucity of money due to an uncontrollable event could bring Section 56 into play.
But with regards to Section 56 being applicable to lease agreements, in the case of Raja Dhruv Dev Chand vs. Raja Harmohinder Singh, it was held that general provisions of the Contract Act shall not apply to lease agreements. Thus, section 56 is not an application. The Hon’ble Supreme Court further clarified that even otherwise the lease agreement will fall as a completed conveyance as opposed to the executory contract. This sentiment was again reiterated by the supreme court in the case of T T. Lakshmipathi v. P. Nithyananda Reddy (2003). It was observed that the Doctrine of Frustration belongs to the realm of contract, not to the Transfer of Property Act (TPA). The Transfer of Property Act deals with not only privity of contract but also the privity of estate. And by definition of Transfer of Property, defined by Section 5 of the TPA, along with Section 105 which defines a lease as a transfer of property, it seems that doctrine of frustration can not be invoked. Thus the lessee cannot take advantage of section 56 of the Indian Contract Act.
Can the landlord sue for rent?
Regardless of whether the doctrine of frustration can apply or not, payment of rent has been suspended for the period of lockdown under regulations given out by the government uber the Disaster Management Act. Section 3 of the Epidemic Disease Act, 1897 states that a person who disobeys the regulations made under this act shall clearly be punished under Section 188 of the Indian Penal Code. Section 4 of the Epidemic Disease Act, 1897 states that anyone following regulations shall not have any legal suits or proceedings against him. Thus, tenants following the government regulations shall be exempted from legal proceedings against them with regards to non-payment.
Section 73 of the Disaster Management Act states that there shall neither be any legal proceedings against the government for enacting regulations given under this act nor shall there be any legal proceedings against individuals who follow such regulations in good faith.
Thus, the lessee or the tenant is following the notifications of the government i.e.- that is they are not paying rent. The landlord can not initiate proceedings against such tenants. Thus rent can not be retrieved during the lockdown.
This epidemic has brought upon very difficult times for not only workers and tenants, but employers and landlords as well. As we can slowly see, while at first the government very commendably set out guidelines to help the weaker sections in society, those guidelines were not enacted properly and were even withdrawn late on during the other stages of lockdown. Be it migrant labourers not receiving their wages and being unable to go back to their hometowns, or the Supreme Court’s refusal to address landlords who continued to extract rent from students and workers, despite enacted guidelines.
It may be contemplated that enacting such guidelines were enough, but considering they were not executed properly, can it be absolutely proclaimed that justice was delivered? Many may also say that such guidelines are discriminatory towards employers and landlords. But in tough times like these, it is important that the government protect the weaker sections of society. It was in John Rawls Theory of Justice where he stated that for absolute social justice, it is imperative we protect the weaker sections of society. It is through practices like this, that we can attain true equality.
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