continue to occupy and use the premises but it could carry
on retail trade during the period of lockdowns. However, it is
not necessary to examine this aspect in detail as the learned
counsel for the appellants fairly stated that the restrictions
imposed by the Disaster Management Authority and other
authorities on account of the outbreak of COVID-19 be
considered as force majeure. As noted earlier, both the
parties have agreed that the said force majeure subsisted for
a period of 252 days during the years 2020 and 2021. Thus,
the obligation of the defendant to pay rent for an aggregate
period of 252 days was suspended. And, the defendant
would be absolved from paying rent for an aggregate period
of 252 days. However, it would be liable to pay the rent for
the balance period that is, from 01.02.2020 to 15.12.2021
(less 252 days being 170 days in the year 2020 and 82 days
in the year 2021).
48. It is the defendant's case that it was not liable to pay any
rental on account of an oral understanding whereby, the
plaintiffs had agreed to accept 1/3rd rent for the period during
which the pandemic lasted.
- 28 -
49. We are unable to accept that the evidence led by the
defendant establishes that the parties had entered into any
such oral agreement. In our view, it is not open for the
defendant to set up a case of novation of a written
agreement on the basis of any oral understanding, which is
disputed. There is no document on record which refers to
any such oral understanding. Although, the defendant claims
that there was an agreement between the parties for
reduction of rent by 1/3rd, there is no evidence as to who are
the individuals who had orally agreed to such reduction; the
dates on which such oral understanding was arrived; or the
manner in which the oral agreement was entered into - was
it face to face or on telephone.
50. The Defendant (DW.1) in his affidavit furnished in lieu of
examination-in-chief affirmed that, there is no document to
show that during COVID-19 pandemic, it was agreed
between the parties that 1/3rd rent would be payable during
the time when the restrictions are in place prohibiting the
unhindered business of the defendant. He was cross
examined by the learned counsel for the plaintiffs. He was
specifically asked whether there was any document, which
- 29 -
would indicate that he and the plaintiffs had agreed that 1/3rd
rent would be payable during the COVID-19. He
acknowledged that there was no such document. However,
DW-1 stated that it was an oral agreement between our
company and the plaintiffs. DW.1 did not reveal any further
details as to this alleged oral understanding.
51. It is also material to note that plaintiff No.3 (P.W.1) had
expressly affirmed in his affidavit - which was furnished in
lieu of examination-in-chief - that the defendant was in
arrears of rent and had made part payments of rent
irregularly on different dates and for different sums without
furnishing proper details as to the deduction of TDS. The
said testimony remained unchallenged and no question was
put to him regarding any oral understanding between the
plaintiffs and the defendant.
52. We also note that the stand of the defendant as regards to
payment of 1/3rd rent is somewhat inconsistent with the
contents of the termination notice.
53. The defendant's stand in the termination notice was not that
there was any oral agreement whereby, 1/3rd rental was
- 30 -
payable during the period when the restrictions on account of
COVID-19 were in force. On the contrary, the defendant's
stand was that the amounts were credited to the designated
account of the plaintiffs "on mutual consultations and without
reference to the amounts stipulated in terms of the lease
agreement to meet exigencies communicated to us as being
medical in nature as also financial hardships." The defendant
claimed that no rent whatsoever was payable during March
2020 to September 2021 (both months inclusive) including
the notice period under Clause 17.
54. In any view of the matter, we cannot accept that the terms of
the written registered lease agreement were altered by any
such oral understanding.
55. In view of the above, except for the period of 170 (one
hundred and seventy) days in the year 2020 and 82 (eighty-
two) days in the year 2021, aggregating a total of 252 (two
hundred and fifty two) days; the defendant would be liable to
pay the rent for the demised premises till termination, that is,
till 15.12.2021. Admittedly, no rental were required to be paid
during the fit-out period, that is for first 60 days, in the term of
the lease agreement. There is also no dispute that the
- 31 -
defendant had paid the rent for the month of February, 2020.
Thus, the defendant was liable to pay the rental for the
balance period from 01.03.2020 to 15.12.2021, less the rent
payable for the period of 252 (two hundred and fifty-two)
days. The defendant would also be entitled to adjustment of
the aggregate amount of `17,24,100/-, which is admittedly
paid by the defendant.
56. The learned Commercial Court's conclusion, that an
assumption that the amount of `17,24,100/- paid by the
defendant was not on account of rent but other purposes,
could be drawn from the fact that the plaintiffs had not
terminated the tenancy is fundamentally flawed. No such
inference could be drawn by the learned Commercial Court.
57. A memo has been filed by the learned counsel for the
appellants, indicating that TDS of `35,688/- had been
deposited by the defendant for the financial year 2020-2021
and `31,900/- was deposited for the financial year 2021-
2022. Thus, TDS has been deducted under Section 194-I of
the Income Tax Act, 1961, which mandates deduction of
TDS on payment of rent. The Annual Information Statement
- 32 -
(AIS) generated from the website of Income Tax Department
establishes the same.
58. The learned Commercial Court had also gravely erred in
concluding that the plaintiffs had lost the right to claim
arrears of rent and damages as they had not terminated the
tenancy. This conclusion rests on Clause 14 of the lease
agreement, which entitles the lessor to terminate lease, if the
lessee fails to pay the agreed rent for the three consecutive
months.
59. Clause 14 of the lease agreement is reproduced below.
"14] TERMINATION:-
a. In the event, the LESSEE fail to pay the agreed rent
hereby reserved for 3 (Three) consecutive months or on the
LESSEE committing a breach of any of the other terms and
conditions of this Lease, the LESSORS shall call upon the
LESSEE in writing, under acknowledgement, to remedy /
rectify such defect/failure and if within 30 (Thirty) days, if
despite the Notice, the LESSEE fail to remedy or rectify the
said defect, then and in such an event, the LESSORS shall
be entitled to terminate this Lease. The termination and re-
delivery shall however be by due process of law."
60. A plain reading of the aforesaid clause indicates that the
same enables the lessor to terminate the lease, if the lessee
fails to pay the rents for three consecutive months and to
remedy the failure within a period of thirty days of the notice
- 33 -
calling upon the lessee to do so. The said Clause 14 cannot
be construed to mean that it is necessary for the lessor to
issue a notice and take steps for termination of the lease in
the event of failure on the part of the lessee to pay rents
failing which all other remedies are foreclosed.
61. The fact that the plaintiffs had not issued any such notice,
could not lead to the conclusion that they had lost their rights
to claim rent or damages.
62. Next question to be considered is whether the defendant was
entitled to withhold possession of the demised premises on
termination of the lease agreement in terms of the
termination notice.
63. The defendant relies on Clause 16 of the lease agreement in
support of its claim that it was entitled to withhold possession
of the demised premises without any liability to pay rent, till
refund of the security deposit. It is also relevant to refer to
Clause 3 of the lease agreement, in terms of which the
defendant had deposited a sum of `30,00,000/- as interest
free security deposit.
64. Clause 3 of the lease agreement is set out below:
- 34 -
"3) The LESSEE shall deposit a sum of Rs.30, 00,000/-
(Rupees Thirty Lakh only) to the LESSORS towards interest
free security deposit for the performance of the terms
and the covenants contained herein (hereinafter referred
to as "Security Deposit") and the same shall be refunded to
the LESSEE at the time of the LESSEE surrendering the
demised premises to the LESSORS after the expiration of 9
years. The LESSEE has already paid a sum of
Rs.30,00,000/- (Rupees Thirty Lakh only) by way of cheque
bearing No.000972, drawn on People's Urban Co-operative
Bank Ltd, Arakunnam Branch, dated 16-12-2019 in favour
of the joint account of the LESSORS maintained at The
Karnataka State Co-op. Apex Bank Ltd, Jayanagar,
Bangalore towards the aforesaid security deposit and the
LESSORS hereby acknowledges the receipt of the same."
[ emphasis added]
65. As is apparent from the plain language of Clause 3 of the
lease agreement, the defendant was required to pay a sum
of `30,00,000/- as security deposit for performance of the
terms and conditions of the lease agreement. The plaintiffs
were required to refund the said amount to the defendant at
the time of the defendant surrendering the demised premises
after expiry of nine years. It is obvious that since the security
deposit was furnished for due performance of the obligations,
it would be refundable only if the lessee had fully performed
its obligations under the lease agreement. This includes the
performance of its obligations to pay rent.
66. The plaintiffs were not obliged to return the security deposit
in case the defendant was in arrears of rent and other
- 35 -
charges. In such eventuality, the plaintiffs would be well
within their right to adjust the security deposit for making
good the deficiency in payment obligations.
67. We may also examine Clause 16 of the lease agreement.
The same is set out below:
"16) Notwithstanding anything contained herein, in the event
the LESSORS fails to refund/ pay the Security Deposit to
the LESSEE at the time of vacation of the demised
premises by the LESSEE, the LESSEE shall be entitled to
withhold possession of the Demised Premises by way of
security for the unpaid amount of the Security Deposit.
Such withholding of possession shall not constitute
unauthorized occupation by the LESSEE and the LESSEE
shall not during such period be liable in any manner
whatsoever in respect of the demised premises."
[emphasis added]
68. In terms of Clause 16 of the lease agreement, in the event,
the plaintiffs failed to refund or pay the security deposit to the
defendant "at the time of vacation of the demised premises",
the defendant would be entitled to withhold possession as
security for the unpaid amount of security deposit.
69. In the present case, the defendant was in arrears of rent.
Mr. C.K.Nandakumar, learned Senior Counsel appearing for
the defendant, did not dispute that if the defendant is found
liable to pay rental for the entire period prior to termination of
the lease, less the period of two hundred and fifty two days
- 36 -
during which COVID-19 restrictions subsisted, the amount
payable would far exceed the sum of security deposit.
70. Thus, as held earlier, the defendant was liable to pay the rent
for the period prior to termination of the lease; that is for the
period from 01.03.2020 till 15.12.2021 less rent for two
hundred and fifty two days. Thus, it was not open for the
defendant to withhold the possession of the demised
premises on account of non-refund of security deposit. This
is because the same was not refundable in view of the
default on the part of the defendant for fulfilling its obligations
under the lease agreement.
71. We may also note that demand for refund of security deposit
made by the defendant was also not at the time of handing
over of the demised premises. A plain reading of the
termination notice indicates that no date was fixed for
handing over of the demised premises. It is also relevant to
note that PW-1, in his cross-examination disputed that the
defendant had vacated the demised premises on termination
of the lease agreement. He has stated in unequivocal terms
that the defendant's items continued to remain inside the
shop. Thus, the defendant had not vacated the demised
- 37 -
premises before calling upon the plaintiffs to refund the
security deposit. This oral evidence remains uncontroverted.
There is no evidence on record to indicate that the defendant
had vacated the demised premises prior to 15.12.2021. The
affidavit of evidence filed by DW-1 also does not mention the
date on which the defendant had vacated the premises.
72. It is also necessary to note that in terms of the termination
notice the defendant had called upon the plaintiffs to pay a
sum of `47,48,500/- which comprised of `30,00,000/- of
security deposit and an amount of `17,48,500/- paid period
prior to the issuance of the termination notice. The defendant
also provided the details of its bank accounts, where the
amounts were to be remitted. The defendant stated that it
would hand over the possession of the property only on
confirmation of the receipt of payments. The relevant extract
of the termination notice is set out below:
"6. Upon expiry of the notice period, commencing from the
date of receipt of this notice, we request you to release our
security deposit of Rs. 30,00,000/- (Rupees Thirty Lakhs
Only); as also the amount of Rs. 17,48,500/- being amounts
covered by Clause 23 of the Agreement. The total payable
by the Lessor would be an amount of Rs. 47,48,500/-
(Rupees Forty Seven Lakhs Forty-eight Thousand Five
Hundred Only)
7. *** *** ****
- 38 -
8. Upon confirmation of receipt of the payments due to us
in terms of the present notice, we will handover possession
of the property;"
73. The lease agreement did not require the plaintiffs to remit the
security deposit in advance before the date of handing over
the possession. We also note from the language of the
termination notice that the defendant had withheld the
premises not only for seeking refund of security deposit but
also the additional sum of `17,48,500/- paid to the plaintiffs.
The said demand is clearly beyond the scope of Clause 16 of
the lease agreement. The lease agreement did not permit
the defendant to withhold possession on account of
demands other than the security deposit.
74. It is also relevant to refer to Section 108 of the Transfer of
Property Act, 1882 [TP Act]. The said Section sets out the
rights and liabilities of lessor and lessee. In terms of clause
(q) of Section 108 of the TP Act, a lessee is bound to put the
lessor into possession on determination of the lease. The
said clause is set out below.
"108. Rights and liabilities of lessor and
lessee. -
*** *** ***
- 39 -
(q) on the determination of the lease, the lessee
is bound to put the lessor into possession
of the property."
75. It is also settled law that a tenant cannot withhold possession
of the subject property till the security deposit is refunded.
The remedy available to the tenant is to sue the landlord for
refund of the security deposit after handing over possession.
76. In H.S.Bedi v. National Highway Authority of India (2015)
SCC Online 9524, the Delhi High Court has referred to
various decisions and summarised the law as under:
"10. Summary of Principles of law : From the
analysis of the above decisions and the
provisions with which we are concerned, the
following principles emerge : -
10.1. Determination of lease - Section 111 of the
Transfer of Property Act provides various modes
of determination of lease such as determination
by efflux of time [Section 111(a)]; expiry of the
period of notice of termination [Section 111(h)];
express surrender [Section 111(e)] and implied
surrender [section 111(f)].
10.2. Obligations of the landlord and the tenant
upon determination of lease - The tenant is
bound to handover the vacant and peaceful
possession of the tenanted premises to the
landlord upon determination of lease [under
Section 108(q)].
10.3. Duty of tenant to restore the tenanted
premises - The tenant is bound to restore the
- 40 -
tenanted premises in the same condition in
which it was taken.[Section 108(B)(m].
10.4. Remedy of landlord in the event of non-
restoration by the tenant - In the event of non-
restoration of the tenanted premises to their
original condition, the remedy of the landlord is
to adjust the damages in the security deposit or
sue the tenant for damages after taking over of
the possession.
10.5. Landlord cannot refuse to take over the
possession upon determination of lease and
offer of possession by the tenant - The landlord,
upon determination lease and offer of
possession by the tenant, cannot refuse to take
over the possession on the ground that the
property has been damaged or not restored to its
original condition.
10.6. Consequences of the landlord refusing to
take the possession offered by the tenant - In the
event of refusal of the landlord to take the
possession offered by the tenant, the possession
shall be deemed to have been delivered to the
landlord and the tenant shall not be liable to pay
the rent thereafter.
10.7. Consequences of the tenant refusing to
handover the possession - If the landlord is
ready to accept the possession but the tenant
refuses/fails to handover the possession, the
liability of the tenant to pay the rent shall
continue till the handing over of the possession.
10.8. Remedy of tenant in case of non-refund of
security deposit by the landlord-- The tenant
cannot refuse to hand over the possession till the
security deposit is refunded. In the event of
nonrefund of security deposit by the landlord, the
remedy of the tenant is to sue the landlord for
- 41 -
refund of security deposit after handing over the
possession.
77. It is material to note that the parties have filed a memo
informing the Court that the keys of the demised premises
were handed over to the plaintiffs on 04.09.2025 before the
Execution Court in the execution proceedings (being
Com.Ex.Pet.No.183/2025).
78. We may now refer to the computations of the amounts
payable as handed over by the parties.
79. The learned counsel for the appellants has handed over the
memo dated 29.10.2025 setting out the tabular statement:
AMOUNT DUE FROM RESPONDENT AS ON DATE
Particulars Amount paid Total amount
From Rs.42,00,000/-
01.12.2019 to
30.11.2020 @
Rs.3,50,000/-
Deduction for sit -Rs.7,00,000/-
out period of two
months @
Rs.3,50,000/-per
month for less
two months
From +Rs.45,00,000/- Rs.80,00,000/-
01.12.2020 to
30.11.2021 @
Rs.3,75,000/-
- 42 -
Amount paid on -Rs.17,24,100/- Rs.62,75,900/-
different dates
TDS paid by -Rs.35,688/-
lessee for the
financial year
2020-21
TDS paid by -Rs.31,900/- Rs.62,08,312/-
lessee for the
financial year
2021-22
01.12.2021 to +Rs.47,25,000/-
30.11.2022 @
Rs.3,93,750/-
From +Rs.49,61,250/-
01.12.2022 to
30.11.2023 @
Rs.4,13,437.50/-
From +Rs.52,09,312.44/-
01.12.2023 to
30.11.2024 @
Rs.4,34,109.37/-
From +Rs.36,46,514.64/-
01.12.2024 to
04.09.2025 @
Rs.4,55,814.33/-
Electricity +Rs.3,22,815/- Rs.2,50,73,204.08
charges paid by
applicant
Deduction of -Rs.28,97,500/-
Covid-19
lockdown for 252
days
Total amount due Rs.2,21,75,704.08/-
till the date of
deposit of
keys on
04.09.2025
- 43 -
80. The learned Senior Counsel appearing for the defendant had
examined the same and had stated on instructions, that
there is no error in computation of the said amount if it is held
that the plaintiffs were entitled to the rent and damages for
the period till the date of handing over of the possession of
the demised premises.
81. The learned counsel for the defendant has also filed memo
of calculations. According to the defendant, `28,88,236/-
is refundable by the plaintiffs to the defendant. The said
memo of calculation is reproduced below:
Total days of contract up to effect of termination 745
Fit-out period (no rent period as per contract) 60
Exclusion of period for which rent paid prior to 28
force majeure
Rent paid / payable as per oral contract after first 1,16,667.00
lockdown (monthly)
Rent paid / payable as per oral contract after first 3,835.61
lockdown (daily)
Rent payable for force majeure free period 15,53,422.05
TDS returns filed and accounted 67,558.00
Amount Paid as rent (as per oral agreement post 13,74,100.00
first lockdown)
Balance Amount payable 1,11,764
Security deposit 30,00,000.00
Amount payable to Respondents 28,88,236.00
82. It is clear from the above, that the defendant has calculated
the rent payable as `15,53,422.05/- for the period excluding
the period during which force majeure event subsisted. The
- 44 -
said rent is calculated on the basis of an alleged oral contract
reducing the rent to 1/3rd. We have rejected the defendant's
claim that any oral agreement existed between the parties,
whereby the terms of the lease agreement were altered.
83. In terms of the calculations stated above, the plaintiffs would
be entitled to an amount of `64,55,812/- as rent till
15.12.2021 after accounting for the TDS of `67,588/-
(35,688/- + 31,900/-). From the aforesaid amount, the rental
payable for 252 days during which restrictions imposed on
account of COVID-19 existed are required to be deducted.
This amount is computed at `28,97,500/-. After adjusting the
said amount a net of amount of `35,58,312/- was payable as
on 15.12.2021. Although the security deposit was required to
be adjusted on the date of handing over of possession, it
would be apposite to allow adjustment of the said amount
from the aforesaid amount as payable on 15.12.2021. Thus,
an amount of `35,58,312/- less `30,00,000/- is held as
payable to the plaintiffs as on the date as on 15.12.2021.
84. The defendant is also liable to pay interest on the said
amount. Clause 17 of the lease agreement provides for
- 45 -
payment of interest at the rate of 12% if the refund of security
deposit is delayed. Thus, we consider the said rate of
interest as a reasonable rate in respect of amounts payable
by the defendant. Thus, in addition to the arrears of rent, the
defendant would also pay interest at the rate of 12% per
annum on the said amount from 15.12.2021 till the date of
payment.
85. In addition, the defendant is also liable to pay damages for
withholding possession of the demised premises till its
surrender on 04.09.2025. Since the parties had already
agreed to the lease rentals as contemplated in the lease
agreement, the same are an apposite measure for
damages/mesne profits.
86. The said amount of `5,58,312/- and the mesne profits till
04.09.2025 shall be paid by the defendant along with interest
at the rate of 12% p.a. The interest on `5,58,312/- shall be
payable from 15.12.2021 till realisation and the interest at the
rate of 12% shall be payable on mesne profits from
04.09.2025 till realisation. The plaintiffs have already
- 46 -
recovered possession of the demised premises, therefore,
no orders are required to be made in this regard.
87. The impugned judgment is set aside. The suit is decreed in
the aforesaid terms.
88. The Appeal is accordingly allowed with costs.
89. Pending applications stand disposed of.
Sd/-
(VIBHU BAKHRU)
CHIEF JUSTICE
Sd/-
(C.M. POONACHA)
JUDGE
KPS
