Bombay HC's 'Central Warehousing' Judgment Does Not Bar Arbitration Clauses In Leave & License Agreements : Supreme Court

The Supreme Court upheld a Bombay High Court order appointing an arbitrator in a dispute arising from a leave and licence agreement for office premises of Motilal Oswal Financial Services Limited at Malad, Mumbai, holding that an arbitration agreement existed between the parties.A bench of Justice JB Pardiwala and Justice KV Viswanathan held that the High Court was right in allowing the application filed by the licensor and appointing a sole arbitrator, as the court's jurisdiction at that stage was confined to examining the existence of an arbitration agreement under Section 11(6A) of the Arbitration and Conciliation Act, 1996.The Court rejected the licensor's objections based on Section 41 of the Presidency Small Cause Courts Act, 1882 at the stage of appointment of arbitrator.It further stated, “it will be clear that Section 41 is a provision conferring jurisdiction on the Small Causes Court for certain types of disputes and cannot be interpreted to mean that ex proprio vigore (by its own force), it neutralizes arbitration clauses in agreements.”The Court stated that the Full Bench ruling of the Bombay High Court in Central Warehousing Corporation v. Fortpoint Automotive Pvt. Ltd. does not render such arbitration clauses non-existent. The Central Warehousing judgment held that exclusive jurisdiction is conferred on the Court of Small Causes to entertain and decide all suits and proceedings between a licensor and licensee or a landlord and tenant relating to recovery of possession or recovery of license fee/rent in respect of premises situated in Greater Bombay.“We have been constrained to deal with the judgement in Central Warehousing (supra) only to decipher whether on account of the said judgement, Clause 33 of the Leave and License Agreement dated 06.10.2017, in the present case, containing the arbitration clause is non-existent. We hold that it is not and that an examination under Section 11(6-A) indicates that there exists an arbitration agreement between the parties”, the Court held.The dispute arose from a leave and licence agreement dated October 6, 2017 under which Motilal Oswal Financial Services Limited took on licence office premises admeasuring 2,925 square feet at Palm Spring Centre, Malad (West), Mumbai, for a period of 60 months from October 1, 2017 to October 30, 2022. Although the agreement was terminated on December 31, 2019, the termination was later reversed and an addendum dated March 13, 2020 extended the licence period to 96 months with a lock-in period of 72 months.Motilal Oswal claimed that due to the COVID-19 pandemic it invoked the force majeure clause, handed over keys and vacant possession of the premises on September 9, 2020, informed the licensor by email on October 10, 2020, and sought refund of the security deposit. On June 28, 2023, the licensor demanded Rs. 94,40,152 with interest at 24 percent towards alleged arrears of licence fees for the balance lock-in period from September 1, 2020 to June 14, 2023. The company denied liability on July 17, 2023 and sought refund of the Rs. 10 lakh security deposit.On the same day, Motilal Oswal received a notice issued under Section 21 of the Arbitration and Conciliation Act invoking Clause 33 of the agreement, which provided for reference of disputes to a sole arbitrator. An application under section 11 was thereafter filed before the Bombay High Court on August 13, 2023 seeking appointment of an arbitrator. Motilal Oswal opposed the application, relying on Section 41 of the Presidency Small Cause Courts Act, which confers exclusive jurisdiction on the Small Causes Court over disputes between licensors and licensees relating to recovery of possession or licence fees in Greater Bombay, and argued that such disputes were non-arbitrable.The High Court allowed the application on May 2, 2024 and appointed an arbitrator. During arbitral proceedings, the company raised a plea of non-arbitrability under Section 16 of the Arbitration Act, which was rejected by the arbitrator on the ground that the claim was in the nature of a debt and not a claim for licence fee. The Supreme Court stayed the proceedings on February 21, 2025 after the company filed a special leave petition against the High Court order.Dismissing the appeal, the Supreme Court held that Section 11(6A), which continues to remain in force, limits the court's inquiry at the appointment stage to examining the existence of an arbitration agreement. The Court said that questions on whether the claim was for licence fees, damages or a debt, and whether Section 41 of the 1882 Act barred arbitration, were matters to be decided by the arbitral tribunal under Section 16 and not by the court under Section 11.The Court declined to accept the appellant's reliance on the judgment Central Warehousing Corporation v. Fortpoint Automotive Pvt. Ltd., observing that the context of that case was different and that Section 41 of the 1882 Act could not, by its own force, be read as neutralising...

Bombay HC's 'Central Warehousing' Judgment Does Not Bar Arbitration Clauses In Leave & License Agreements : Supreme Court

Amisha Shrivastava

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Amisha Shrivastava

Bombay HC's 'Central Warehousing' Judgment Does Not Bar Arbitration Clauses In Leave & License Agreements : Supreme Court

Amisha Shrivastava

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Amisha Shrivastava

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