In the matter of Vidya Drolia v. Durga Trading Corporation MANU/SC/0363/2019 (“Vidya Drolia Order”), the Hon’ble Supreme Court of India (“SC”) reanalyzed the position with regard to applicability of Arbitration and Reconciliation Act, 1996 (“Arbitration Act”), on landlord – tenant disputes that are regulated by the Transfer of Property Act, 1882 (“TPA”), while lifting the stay on arbitration proceedings dealing with disputes between a landlord and a tenant arising out of alleged violation of obligations under a lease agreement.

While the position with regard to landlord tenant disputes arising out of the special statutes like Maharashtra Rent Control Act, 1999 or Delhi Rent Act, 1995, is clear as the same cannot be arbitrated, the question and the position of law in the case of disputes under the provisions of TPA remained unanswered and open ended.

The SC in the Vidya Drolia Order, reviewed and examined its decision in the case of Himangni Enterprises v. Kamaljeet Singh Ahluwalia (2017) 10 SCC 706 (“Himangni”) wherein it had held that disputes between a landlord and tenant under the Transfer of Property Act, 1882 are not arbitrable.

In the case of Himangni, the appellants on being served with a notice to vacate the premises filed an application under Section 8 of the Arbitration Act on the premise that the lease deed contained a clause that provided for adjudication of disputes through arbitration. The SC referring to its decisions in Natraj Studios Private Limited v. Navrang Studios and Anothers 1981(1) SCC 523 (“Natraj”), and Booz Allen & Hamilton Inc. v. SBI Home Finance Limited and Others (2011) 5 SCC 532 (“Booz”), wherein the SC had held that only those tenancy matters that are (i) governed by special statutes; or (ii) where the tenant enjoys statutory protection against eviction; and, or (iii) where only specified courts are conferred jurisdiction to grant eviction or decide disputes, are the instances, where the dispute between a landlord and tenant can be said to be non-arbitrable. The SC in the Vidya Drolia Order, clarified that disputes arising out of any of the grounds stated in Section 111 (determination of lease), whether read with Section 114 and/or 114A of the Arbitration Act, can be adjudicated through arbitration. The relevant extracts of the Vidya Drolia Order read as follows:

“12. While appreciating that a lease is a transfer of an interest in property, and therefore, a conveyance, in law, there is nothing in the Transfer of Property Act to show that a dispute as to determination of a lease arising Under Section 111 cannot be decided by arbitration…”

” 14. …Thus, it is clear that every one of the grounds stated in Section 111, whether read with Section 114 and/or 114A, are grounds which can be raised before an arbitrator to decide as to whether a lease has or has not determined.”

In the Himangini judgment, it was further held that even if a landlord tenant dispute is not governed by any special statue, the same would not be amenable to arbitration.

However, in light of the above, the SC by way of the Vidya Drolia Order held that while appreciating that a lease is a transfer of an interest in property, and therefore, a conveyance, in law, there is nothing in the Transfer of Property Act to show that a dispute as to determination of a lease arising under Section 111 of the TPA cannot be decided by arbitration. What can be argued was that Sections 114 and 114A of the TPA, which provide for statutory reliefs against forfeiture for non-payment of rent and for breach of an express condition, would indicate that the statute itself is based on a public policy in favour of tenants as a class, which can be decided by the courts only. Interpreting the Booz case, SC observed that it is clear that the Transfer of Property Act is silent on arbitrability, and does not negate arbitrability. SC further observed in Booz case that every civil or commercial dispute, either contractual or non-contractual, which can be decided by the court, is in principle capable of being adjudicated and resolved by arbitration unless the jurisdiction of the Arbitral Tribunals is excluded either expressly or by necessary implication. The SC in the Vidya Drolia Order clarified that none of the provisions of the TPA have been noticed in Booz and Natraj and further none of the provisions of the TPA indicate that the disputes under the TPA are triable only by the civil court and not by arbitration. Similarly, interpreting the judgment in Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetan and Others,(1999) 5 SCC 651, the SC observed that when it came to the grant of specific performance, there is no prohibition in the Specific Relief Act, 1963 that issues relating to specific performance cannot be referred to arbitration.

The SC also referred to its decision in Vimal Kishor Shah and Ors. v. Jayesh Dinesh Shah and Ors. (2016) 8 SCC 788 and observed that disputes which arose under the Indian Trusts Act, 1882 (“Trusts Act”), which applies only to private trusts, were also not arbitrable as such disputes were excluded by necessary implication. The relevant extracts of the Vidya Drolia Order read as follows:

“26. The Indian Trusts Act, 1882, in fact, provides an excellent instance of how arbitration is excluded by necessary implication. It is important to bear in mind the fact that the statute, considered as a whole, must lead necessarily to a conclusion that the disputes which arise under it cannot be the subject matter of arbitration.”

In view of the above, the SC observed that the arbitration can be excluded only by necessary implication, which is so with the Trusts Act but not in the case of TPA.

The SC in the Vidya Drolia Order allowed the arbitration to continue only till the stage of the formation of the award and directed the execution of the final award to be done only with the permission of the SC. Further, the SC referred the matter to the larger bench.

In view of the aforesaid, it must be kept in mind that though the decision of the SC in the Vidya Drolia Order is not binding, however, the decision can be constituted as a turning point in the Indian jurisprudence, as it has opened the windows for referring the landlord tenants disputes under TPA to arbitration and also pronounced the test to determine if a particular statute is amenable to arbitration or not.