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Lessor/Lessee Disputes Whether Arbitrable

Kapil Madan
25 April 2020 2:04 PM GMT
Lessor/Lessee Disputes Whether Arbitrable
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Arbitration is a mechanism by which the parties to an agreement decides the mode and the manner by which the dispute between the parties may be adjudicated. Given the fact that our Judicial system is already overburdened, Arbitration as an alternate dispute resolution mechanism is undoubtedly a natural choice for the parties looking for expedited adjudication of their disputes.

One of the crucial aspects that merits attention while including an arbitration clause in any agreement is the issue of Arbitrability. Arbitrability means whether the subject matter of the dispute is capable of being adjudicated in a private fora i.e. Arbitration.

Although every civil or commercial dispute, either contractual or non-contractual, which can be decided by a 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. Adjudication of certain categories of proceedings are reserved by the legislature exclusively for public fora as a matter of public policy. Certain other categories of cases, though not expressly reserved for adjudication by public fora (courts and tribunals), may by necessary implication stand excluded from the purview of private fora.

LESSOR/LESSEE DISPUTE WHETHER ARBITRABLE

In the aforesaid context, the Hon'ble Supreme Court in Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532 by way of the example enumerated several kind of disputes that are not capable of being adjudicated by private fora i.e. Arbitration. The said classification inter-alia included eviction or tenancy matter governed by the special statutes where the tenant enjoys a statutory protection and it is only the specified courts are conferred jurisdiction.

While giving the said classification, the Hon'ble Supreme Court discussed the distinction between the right in rem and right in personam and observed as under:

"37. It may be noticed that the cases referred to above relate to actions in rem. A right in rem is a right exercisable against the world at large, as contrasted from a right in personam which is an interest protected solely against specific individuals. Actions in personam refer to actions determining the rights and interests of the parties themselves in the subject-matter of the case, whereas actions in rem refer to actions determining the title to property and the rights of the parties, not merely among themselves but also against all persons at any time claiming an interest in that property. Correspondingly, a judgment in personam refers to a judgment against a person as distinguished from a judgment against a thing, right or status and a judgment in rem refers to a judgment that determines the status or condition of property which operates directly on the property itself. (Vide Black's Law Dictionary.)"

Further, the issue of Arbitrability of the tenancy dispute directly came for consideration before the two-Judge Bench of the Hon'ble Supreme Court in Himangni Enterprises vs Kamaljeet Singh Ahluwalia 2017 10 SCC 706 where the Hon'ble Supreme Court reiterated and reaffirmed the view taken in Booz Allen's (Supra) as correct and held that the tenancy disputes are not capable of being adjudicated by way of Arbitration.

It is pertinent to note that the issue of Arbitrability of the tenancy dispute has taken an interesting turn as the Hon'ble Supreme Court in Vidya Drolia vs Durga Trading Corporation 2019 SCC ONLINE SC 358 has doubted the correctness of the earlier judgments and have referred the matter to a larger bench.

The Hon'ble Supreme Court in Vidya's case interpreted Booz Allen's case and stated that only those category of disputes where the tenancy is governed by the special statutes or that where tenant enjoys statutory protection or that only specified courts are conferred jurisdiction are cases that can be said to be non-arbitrable.

Further, the Hon'ble Supreme Court doubted the correctness of Himangni Enterprises a the Hon'ble Court raised following pertinent arguments indicating that the tenancy disputes (Unless covered by a special statute) are arbitrable:

  1. While interpreting Section Section 114 (Forfeiture of Non-payment of rent) of the Transfer of Property Act, the Hon'ble Court Prima-Facie observed that the said section does not provide for the relief of tenants as a class as a matter of public policy;

  1. The grounds stated in Section 111 (Determination of the lease)can be raised before an Arbitrator to decide as to whether a lease has or has not determined.

  1. None of the earlier decisions have decided on the Arbitrability of provisions of Transfer of Property Act has not been decided by Himangni and Natraj Enterprises.

  1. The Hon'ble Court drew strength from another decision Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetan, (1999) 5 SCC 651, where it was held that there is no prohibition in the Specific Relief Act that issues relating to specific performance cannot be referred to arbitration, unlike the English statute [see paragraph 34]. The Hon'ble Court drew a parallel from the said decision and held that the Transfer of Property Act is silent on arbitrability and does not negate arbitrability.

  1. The Hon'ble Court also differentiated the provisions of Transfer of Property Act from the Indian Trusts Act 1882 where the Hon'ble Court discussed that the Arbitration is excluded by 'necessary implication'. While deciding the exclusion by necessary implication, the following factors were considered:

  1. Whether the statute creates a special right or a liability;
  2. Whether the stature provides for determination of such right and liability by the tribunals so constituted;

  1. The Hon'ble Court discussed Section 34 of the Indian Trust Act where the trustee can apply to the court for an opinion without instituting any suit and observed that the Arbitrator cannot give such an opinion. Further, as per Section 46 of the Act, the trustee cannot renounce the trust without the permission of the Court and it is obvious that the Arbitrator cannot grant any such permission.

With the aforesaid observations, the Hon'ble Court has referred the question of arbitrability of tenancy disputes to a larger bench.

Conclusion

Tenancy covered by Special Statute (Ex. Delhi Rent Control Act,1958)

A conjoint reading of the decisions enumerated above, it is clear that the Lessor/Lessee disputes that are governed by a special statute are not arbitrable as held in Booz Allen and followed in Himangni and Vidya Drolia's case.

Tenancy covered by Transfer of Property Act, 1882

Further, till the time decision in Himangni case is not overruled by a larger bench, the law laid in Himagni's case shall prevail and the tenancy disputes cannot be said to be Arbitrable.

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