The Transfer of Property Act, 1882, a central legislation, contains the general law governing the transfer of property by the acts of parties including the lease of immovable properties. It specifies the rights and liabilities of landlord and tenant, in absence of contract to the contrary.
However, several States have enacted rent or tenancy laws which regulate the rights and obligations of landlord and tenant. These laws provide certain provisions for effectively handling the situations in terms of contract between landlord and tenant and issues revolving around them. These special laws often exclude ordinary jurisdiction of civil courts. Instead, they confer exclusive jurisdiction to special courts to adjudicate specified disputes between landlord and tenant.
Given the commercial nature of leasing transactions and the huge financial implications involved, parties alternatively concurred to resolution by arbitration. But as the Rent Control Acts of several States enshrines the Small Causes Court to have exclusive jurisdiction to entertain and try any suit or proceeding between a landlord or tenant relating to the recovery of rent or possession of any premises thereby excluding arbitration for resolving these issues/ disputes. The Supreme Court and various High Courts have had contradicting views on the same.
Over the years, various conflicting judgments were pronounced by various High Courts in India on the issue whether disputes arising under a special statue/general statue can be a subject matter of arbitration. Some of the relevant judgments are discussed herein below
The Supreme Court in its judgment of Natraj Studios (P) Ltd vs Navrang Studios & Anr. reported in (1981) 1 SCC 523 dismissed an application under Section 8 of the Arbitration and Conciliation Act, 1940 as the tenancy was protected under the Bombay Rents, Hotel & Lodging Houses Rates Control Act, 1947 and ruled out arbitration of lease disputes as they were to be adjudicated under special legislation and undermined public policy.
The aforesaid ruling was upheld in Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd reported in (2011) 5 SCC 532 (hereinafter referred to as ‘Booz Allen’ in short), wherein it was held that in eviction or tenancy matters which are governed by special statues and where tenant enjoys statutory protection, only the specified court has been conferred exclusive jurisdiction.
In another judgment, the Full Bench of the Delhi High Court in the case of HDFC Bank Ltd v. Satpal Singh Bakshi reported in 2013 (134) DRJ 566 (FB) took a contrary view and held that the disputes which are to be adjudicated by the DRT under the DRT Act, are arbitrable as there was no prohibition on jurisdiction by necessary implication.
In one case, the Andhra Pradesh High Court in the case of Penumalli Sulochana vs Harish Rawtani extended the rule evolved in Booz Allen and held that disputes under a lease deed, governed by the TP Act are no arbitrable.
However, the Calcutta High Court in the case Ambuja Neotia Holdings Pvt. Ltd. v M/S Planet M Retail Ltd. (AP No. 9 of 2015), held that lease deed disputes, governed by the TP Act are arbitrable, as the TP Act codifies the general law of transfer of property and is not a special statute.
Later in 2016, in the case of Vimal Kishor Shah v Jayesh Dinesh Shah reported in (2016) 8 SCC 788, again a contradicting view taken by the Supreme Court of India in holding that the disputes under the Trusts Act were held to be non-arbitrable by necessary implication, as the Trusts Act had conferred specific powers on the Principal Judge of the Civil Court. Further the principle was followed by another Division Bench of the Supreme Court of India in the matter of Emaar MGF Land Limited v. Aftab Singh reported in (2019) 12 SCC 751 wherein the Court clarified that in the event a person is entitled to seek an additional special remedy under the statutes does not opt for such additional special remedy and he is a party to an arbitration agreement, there is no inhibition in disputes being proceeded to arbitration. It is only in case where specific/special remedies are provided for and which are opted by an aggrieved person that a judicial authority can refuse to relegate the parties to arbitration.
Considering the above paradox, the Supreme Court in the case of Himangni Enterprises v. Kamaljeet Singh Ahluwalia reported in (2017) 10 SCC 706held that the suit was governed by the TP Act, and thus would be triable by the Civil Court and not by the Arbitrator.
In the said case, a suit was filed by the shop owner to seek tenant’s eviction from his shop and for recovery of unpaid arrears of rent and grant of permanent injunction. The tenant, on being served with the notice of the civil suit, filed an application under Section 8 of the Arbitration Act urging the Court to refer the parties to arbitration. The Trial Court upheld the objections of the owner and dismissed tenant’s application. The aggrieved tenant filed an appeal before the High Court. The High Court dismissed the appeal and upheld the order of the Trial Court giving rise to filing of the special leave to appeal by the tenant before Supreme Court.
The Supreme Court dismissed the appeal of the tenant and held that the Delhi Rent Act, which deals with the cases relating to rent and eviction of the premises, is a special Act. Though it contains a provision by virtue of which the provisions of the Delhi Rent Act did not apply to certain premises but that did not mean that the Arbitration Act, ipso facto, would be applicable to such premises conferring jurisdiction on the arbitrator to decide the eviction/rent disputes.
The judgment sounded as a death knell and effectively left no scope for arbitrating lease disputes in India irrespective of whether such disputes arose from special legislation.
The long due controversy surrounding arbitrability of tenancy disputes has been finally put to rest by the Hon’ble Supreme Court of India while deciding the matter of “Vidya Drolia and others v Durga Trading Corporation”.
After analysing the aforesaid jurisprudence, a coordinate bench of the Supreme Court in the case of Vidya Drolia and others v Durga Trading Corporation observed that the above issue needs to be authoritatively decided by a Larger Bench. Upon such reference, a bench comprising of Hon’ble Justice N.V. Ramana, Justice Sanjiv Khanna and Justice Krishna Murari has overturned the decisions of Himangi Enterprise and HDFC Bank ltd. to hold that the landlord-tenant disputes are arbitrable except when they are covered by specific forum created by rent control laws. The Court held further that:
Landlord-tenant disputes governed by the Transfer of Property Act are arbitrable as they are not actions in rem but pertain to subordinate rights in personam that arise from rights in rem. Such actions normally would not affect third-party rights or have ergaomnes affect or require centralized adjudication. An award passed deciding landlord-tenant disputes can be executed and enforced like a decree of the civil court. Landlord-tenant disputes do not relate to inalienable and sovereign functions of the State. The provisions of the Transfer of Property Act do not expressly or by necessary implication bar arbitration. However, landlord-tenant disputes covered and governed by rent control legislation would not be arbitrable when specific court or forum has been given exclusive jurisdiction to apply and decide special rights and obligations. Such rights and obligations can only be adjudicated and enforced by the specified court/forum, and not through arbitration.
Finally, the Apex Court after analysing the above principles, referred on the reasoning given by the Booz Allen Case ‘that subordinate rights in personam arising from rights in rem have always been considered to be arbitrable and basis the same, the Court explicitly held that the disputes under the TP Act are arbitrable as they are not actions in rem but pertain to subordinate rights in personam which arises from rights in rem.
In view of the above interpretation, the Court laid own a four-fold test for determining when the subject matter of dispute in an arbitration agreement is not arbitrable:
By virtue of the said judgment, the Supreme Court also took a proarbitration stance by overruling the ratio in N. Radhakirshnan v Maestro Engineers and Ors reported in (2010) 1 SCC 72and held that while deciding an issue of public policy or public interest, reference to dispute resolution mechanisms cannot be held foreclosed. The judgment also puts an end to a long debate regarding arbitrability of the tenancy disputes in India.
It can be argued that this judgment may lead to some debate on the issue whether the question pertaining to arbitrability of the subject-matter of dispute should be determined at the stage of section 11 or by the tribunal under section 16 of the Act. More so, it will be really interesting to see the effect of the judgment on the pending matters which are already filed in the court as parties may file section 8 applications requesting to refer the matter for arbitration.
However, this judgment reaffirms integrity and efficacy of arbitration as an alternative dispute resolution mechanism in India.
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