A three judge bench of the Supreme Court headed by Justice NV Ramana overturned a previous legal ratio expressed in Himangni Enterprises v. Kamaljeet Singh Ahluwalia which held that landlord-tenant disputes governed by the provisions of the Transfer of Property, are not arbitrable being against public policy. Earlier in March 2019, the issue emanating from the Himangni Enterprises case that whether disputes between landlord and tenant arising under the Transfer of Property Act are excluded from the scope of arbitration was referred to a three-judge Bench of the Supreme Court.
The bench referred in brief, to the legal reasoning and the ratio in Himangni Enterprises and the counter view expressed in the order of reference in Vidya Drolia. Himangni Enterprises upheld the decision of the High Court and the District Court rejecting the application filed by the defendant tenant under Section 8 of the Arbitration Act in a civil suit seeking its eviction from a shop in a commercial complex in New Delhi. The court noted that the suit was also for the recovery of arrears of rent and permanent injunction. The tenancy in question was not protected under the rent control legislation and the rights and obligations were governed by the Transfer of Property Act. Two Judges of this Court held that the issue of non-arbitrability is no longer res integra as it stood answered by decisions in Natraj Studios (P) Ltd. v. Navrang Studios and Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. In Natraj Studios (P) Ltd., wherein an application under Section 8 of the Arbitration Act, 1940 was dismissed as the tenancy was protected under the Bombay Rents, Hotel and Lodging Houses Rates Control Act, 1947, it was observed that on broader consideration of public policy, the arbitrator lacked jurisdiction to decide the question whether the licensee-landlord was entitled to seek possession. The dispute could be exclusively decided by the Court of Small Causes, which alone had jurisdiction. In Booz Allen & Hamilton Inc., it was held that in eviction or tenancy matters governed by special statutes and where the tenant enjoys statutory protection, only the specified court has been conferred jurisdiction. Himangni Enterprises relying on the said ratios holds that though the Delhi Rent Act is not applicable, it does not follow that the Arbitration Act would be applicable so as to confer jurisdiction on the arbitrator. Even in cases of tenancies governed by the Transfer of Property Act, the dispute would be triable by the civil court and not by the arbitrator. The exemption from the applicability of the Rent Act could be withdrawn and thereupon the rights would be governed by the rent control legislation. 5. In Vidya Drolia, another division bench referring to Section 11(6- A) has observed that the referral stage requirement is to only examine ‘existence of an arbitration agreement’ and not validity of the arbitration agreement. 246th Report of the Law Commission of India had suggested twin examination whether the agreement ‘exists’ or is ‘null and void’, albeit the Section 11(6-A), as enacted, requires ‘existence of an arbitration agreement’, and the
prerequisite that the arbitration agreement should not be ‘null and void’ was deliberately omitted. The wording of Section 11(6-A) was contrasted with Section 16(1) to draw distinction between ‘validity of an arbitration agreement’ and ‘existence of an arbitration agreement’. Reference was made to observations of Kurian Joseph, J. in Duro Felguera, S.A v. Gangavaram Port Limited, 5 to the effect that the scope of Section 11(6-A) is limited, only to see whether an arbitration agreement exists – nothing more, nothing less. The legislative policy and purpose are to essentially minimize judicial intervention at the appointment stage.
The bench while referring to Sections 111, 114 and 114A of the Transfer of Property Act observed that:
there is nothing in this Act and law to show that a dispute relating to the determination of lease, arrears of rent etc. cannot be decided by an arbitrator. The grounds predicated on public policy could be raised before the arbitrator as they could be raised before the court. The arbitrator could well abide by the provisions of Sections 114 and 114A, and apply the public policy considerations for the protection of tenants as a class. Referring to Booz Allen & Hamilton Inc., it was observed that the right in rem is a right exercisable against the world at large and is not amenable to arbitration, whereas in case of rights in personam an interest is protected against a specific individual, and is referable to arbitration. Further, subordinate rights in personam arising from rights in rem have always been considered to be arbitrable.
Read Judgement here