Landlord-Tenant Disputes Under Transfer Of Property Act Arbitrable Except When Covered By Rent Control Laws : Supreme Court

In a landmark judgment delivered on Monday, the Supreme Court overruled its 2017 judgment in Himangni Enterprises case to hold that landlord-tenant disputes are arbitrable except when they are covered by specific forum created by rent control laws. A three-judge Bench headed by Justice NV Ramana observed, "Landlord-tenant disputes are arbitrable as the Transfer of Property Act does not forbid or foreclose arbitration." The Bench was answering a reference made by a Division Bench in 2019, while considering the appeal against Calcutta High Court order appointing an arbitrator in a dispute between landlord and tenant(Vidya Drolia and others v Durga Trading Corporation). It was urged to determine the correctness of the judgment in Himangni Enterprises v. Kamaljeet Singh Ahluwalia, in which it was held that where the Transfer of Property Act, 1882 applied between landlord and tenant, disputes between the said parties would not be arbitrable.The three judge bench overruled the dictum in Himangi Enterprises case to hold that tenancy related disputes under the Transfer of Property Act are arbitrable.Transfer Of Property Act Disputes Between Landlord-Tenant Arbitrable? SC Refers To Larger Bench [Read Judgment] The three-Judge Bench, also comprising of Justices Sanjiv Khanna and Krishna Murari based its decision on the fact that landlord-tenant disputes are not actions in rem but pertain to subordinate rights in personam that arise from rights in rem. It further held that an award passed in such disputes can be executed and enforced like a decree of the civil court. "Such actions normally would not affect third-party rights or have erga omnes 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. Transfer of Property Act, like all other Acts, has a public purpose, that is, to regulate landlord-tenant relationships and the arbitrator would be bound by the provisions, including provisions which ensure and protect the tenants," the judgment authored by Justice Khanna observed. It however clarified that 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," the Court said."We overrule the ratio laid down in Himangni Enterprises and hold that landlord-tenant disputes are arbitrable as the Transfer of Property Act does not forbid or foreclose 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"(Paragraph 48)Four-fold test to determine arbitrabilitiyThe judgment laid down a four-fold test to determine arbitrability.(1) when cause of action and subject matter of the dispute relates to actions in rem, that do not pertain tosubordinate rights in personam that arise from rightsin rem.(2) when cause of action and subject matter of the dispute affects third party rights; have erga omnes effect; require centralized adjudication, and mutual adjudication would not be appropriate and enforceable; (3) when cause of action and subject matter of the dispute relates to inalienable sovereign and public interest functions of the State and hence mutual adjudication would be unenforceable; and (4) when the subject-matter of the dispute is expressly or by necessary implication non-arbitrable as permandatory statute(s). The Court clarified that these tests are not watertight compartments; they dovetail and overlap, albeit when applied holistically and pragmatically will help and assist in determining and ascertaining with great degree of certainty when as per law in India, a dispute or subject matter is non-arbitrable. Only when the answer is affirmative that the subject matter of the dispute would be non-arbitrable.Examples of non-arbitrable disputes.In paragraph 46, the Court cited certain instances of non-arbitrable disputes : Insolvency or intra-company disputes, Grant and issue of patents and registration of trademarks Criminal cases Matrimonial disputes relating to the dissolution of marriage,...

Landlord-Tenant Disputes Under Transfer Of Property Act Arbitrable Except When Covered By Rent Control Laws : Supreme Court

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The judgment on arbitration law decides several issues such as tests for arbitrability, who determines arbitrability, scope of enquiry under Sections 8/11, meaning of 'existence of arbitration agreement' etc.

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