Arbitrability of Tenancy Matters - Ironing Out the Wrinkles
Keywords: Arbitrability, Tenancy, Disputes, Transfer of Property Act, 1882
Rohan Marathe and Tapan Radkar[i]
The Hon’ble Supreme Court (“SC”) in Vidya Drolia and Ors. v. Durga Trading Corporation (“VidyaDrolia”) has referred the issue of arbitrability of tenancy disputes to a larger bench of the Court to settle the matter once and for all. In this case, the landlord (respondent) sought the tenants (appellants) to deliver vacant and peaceful possession of the property that was the subject of a lease entered into between them. The lease prescribed arbitration to resolve the disputes and had a clause to that effect in the agreement. The landlord invoked the same and filed a petition under §11 of the Arbitration and Conciliation Act, 1996 with the Calcutta High Court seeking appointment of an arbitrator. After the High Court rejected the§11 petition made by the tenants, an appeal to the Supreme Court was preferred. The Hon'ble SC, however, referred the matter to a larger bench to authoritatively and finally decide on the arbitrability of tenancy matters. In light of the same, this article argues that tenancy matters are arbitrable and examines the issue from all inter-related aspects.
Whether a dispute can be decided by a private forum, i.e. an arbitral tribunal, or not is known as the arbitrability of the dispute. Although the Arbitration and Conciliation Act, 1996 (“the Act”) does not define the term ‘arbitrability’, courts from time and again have tried to define the same and have enumerated a list of disputes that cannot be settled by arbitration. The SC in the landmark judgment of Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. (“Booz Allen”) laid down a list of disputes that would be deemed non-arbitrable. These included matrimonial disputes, criminal matters, insolvency, and winding-up matters, and, eviction and tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes. Ever since this judgment has been relied upon by courts to decide on the arbitrability of a dispute before them. The refusal to declare a dispute arbitrable is largely based on two grounds: i) Involvement of a right in rem, and ii) Jurisdiction conferred upon specified courts. Based on these two grounds, the arbitrability of tenancy and eviction matters falling under the Transfer of Property Act, 1882 (“TPA”) has been refused time and again. This article seeks to argue against these two grounds in the context of a tenancy and eviction dispute.
Involvement of a right in rem
The SC, while enumerating the list of non-arbitrable disputes in Booz Allen noted that the primary reason for all of the aforementioned disputes to be non-arbitrable was that, they involved rights in rem i.e., a right exercisable against the world at large.The court differentiated these disputes from those involving rights in personam which typically arise out of the interpersonal contractual relations and are capable of being settled by arbitration. It noted that since an arbitral tribunal is a private forum, it was not the appropriate forum to adjudicate disputes involving a right in rem. However, an analysis of the relevant sections under the TPA tells a different story. The rights given to the lessor and lessee under §108 of the TPA, such as the lessee’s right to recover certain expenses from the lessor, the lessor’s right to receive rent, etc. are those that are exercisable by the lessor and lessee strictly against each other. These rights necessarily arise out of a contract between the landlord and the tenant and are not available against the world at large. Thus, it is clear that the rights arising out of a landlord-tenant relationship are rights in personam and therefore should be arbitrable. Moreover, the argument that lessees are protected as a “class” under the TPA due to the remedies given to them from forfeiture of property in certain cases, under § 111, 114 and 114A has already been rejected by the SC in Vidya Drolia. The reason behind such rejection was that none of these provisions exclude the applicability of the Arbitration Act. Therefore, even if the tenant enjoys statutory protection from eviction, the nature of the dispute is such that it is certainly capable of being settled by arbitration as there is no involvement of a right in rem and also due to the fact that the arbitral tribunal is equipped with all the requisite powers of a civil court.
Demystifying the specified courts' conundrum
Legislations often confer jurisdiction upon specific courts to adjudicate disputes. Although conferring such jurisdiction does not make the dispute non-arbitrable, courts have still used this reasoning to reject the arbitrability of a dispute. In Vimal Kishore Shah v. Jayesh Dinesh Shah(“Vimal Kishore Shah”), the SC rejected the arbitration of a trust dispute by reasoning, inter alia,that under the Indian Trusts Act, 1882 jurisdiction was conferred upon a Civil Court, thereby making it non-arbitrable.
Perhaps the most inexplicable application of the specified courts' argument has been that by the SC in Himangni Enterprises v. Kamaljeet Singh Ahluwalia (“Himangni Enterprises”), wherein it refused the arbitrability of a tenancy dispute due to jurisdiction having been conferred upon the Civil Court under various provisions of the TPA. The underlying principle in both these cases was the same, that jurisdiction was exclusively conferred upon a specific court under the legislation and thus, the disputes were non-arbitrable. It is contended that a civil court is neither a special forum created for adjudicating tenancy disputes nor does it exercise any special powers as compared to an arbitral tribunal. The relief offered by a decree of a civil court is largely similar to that being offered by an arbitral award.
Exploring another aspect of this specific courts' conundrum, the Presidency Small Causes Court Act and the Provincial Small Causes Court Act confer jurisdiction upon the Small Causes Court over cases of a civil nature up to the value of Rs. 2000 and Rs. 500 respectively, entailing that those be the appropriate judicial authorities to be approached in case of tenancy disputes of the given value. Further, Maharashtra has amended the Presidency Small Causes Court Act to give exclusive jurisdiction to the Small Causes Court in matters of the tenancy. No such amended provision exists for the other two presidencies, namely Chennai and Kolkata. Thus, the applicability of these two acts to tenancy disputes is clear insofar as;
1. Provincial Small Causes Courts Act is applicable all over India where the tenancy disputes are of a value up to Rs. 500.
2. Presidency Small Causes Courts Act is applicable in West Bengal and Tamil Nadu for tenancy disputes of a value up to Rs. 2000.
3. § 41(1) of the Presidency Small Causes Courts Act (Maharashtra Amendment) gives exclusive jurisdiction to the Court of Small Causes in tenancy disputes in the Greater Bombay area.
Keeping in mind the existing jurisprudence regarding the arbitrability of tenancy disputes, and the various Small Causes Courts Acts, the authors argue that such matters are indeed arbitrable. The mere fact that jurisdiction may be conferred upon a specific court does not ipso facto make the dispute non-arbitrable. What needs to be ascertained is that in the absence of the involvement of a right in rem, whether these courts have been conferred with such powers that an arbitral tribunal or a civil court cannot exercise. The answer in most cases is in the negative. The Hon’ble Delhi High Court in HDFC Bank Ltd. v. Satpal Singh Bakshiused the same reasoning to declare that disputes falling under the Debt Recovery Tribunal’s jurisdiction can be settled by arbitration as the mere creation of a special forum does not make the dispute non-arbitrable. The disputes falling under welfare legislations like the various Rent Control legislations however have a different fate.
Tackling welfare legislations
In order to protect certain classes of persons, various welfare legislations have been enacted over the years. Disputes under these legislations are to be adjudicated by special courts only, thereby making disputes under them non-arbitrable.
There are various rent control legislations which are present in each state and have been said to be welfare legislations. This is because the common thread running through almost all Rent Control Acts is that they are intended to serve two purposes: i) To protect the tenant from eviction from the house where he is living except for defined reasons and on defined conditions, and ii) To protect him from having to pay more than a fair/standard rent.
A similar position exists in the Maharashtra Amendment to the Presidency Small Causes Courts Act, whereby § 41 (2) of the Act states that Small Causes Court shall not have exclusive jurisdiction in tenancy matters if the case falls under Bombay Rents, Hotels and Lodging House Rates Control Act, 1947, the Bombay Government Premises (Eviction) Act, 1955, the Bombay Municipal Corporation [the Maharashtra Housing and Area Development Act, 1976] or any other law for the time being in force. The intent behind using the words ‘any other law for the time being in force’ was to encompass all such enactments similar to those mentioned in the section, which provide for a specific remedy and procedure for the recovery of possession of specified immovable property governed by that act and not by the general enactments.
The SC in Natraj Studios v. Navrang Studios has stated that Acts like the Bombay Rents, Hotels and Lodging House Rates Control Act, 1947, are welfare legislations made as part of public policy of the government to protect poor tenants from harassment by landlords and thus, are not arbitrable.[i] In this context, the SC, in Booz Allen has held tenancy disputes under special legislations to be non-arbitrable, which has been misinterpreted by the SC itself in Himangni Enterprises.
Thus, this would indicate that matters falling within the purview of either rent control legislation or § 41(2) of Maharashtra Amendment of Presidency Small Causes Courts Act are non-arbitrable vide the decision in Booz Allen. Such is the case because the protection of tenants is a sovereign protectionist function of the government.
However, here the authors would like to draw a parallel to the recent landmark decision of the SC in the case of Emaar MGF Land Ltd. v. Aftab Singh where the SC while dealing with the arbitrability of matters falling under the Consumer Protection Act, 1986, opined that the parties may opt for arbitration. However, the court noted that this would be without prejudice to the consumer’s right to file a consumer complaint as per the provisions of the Consumer Protection Act. This comparison is relevant because the Consumer Protection Act too is a welfare legislation, much like the aforementioned Rent Control Acts.
A similar solution can be foreseen and suggested for the tenancy matters falling under either rent control legislation or under § 41(2) of the Maharashtra Amendment of Presidency Small Causes Courts Act, whereby, the parties can opt for arbitration, but the existence of an arbitration agreement will not act as a bar for the lessee to approach an alternative appropriate forum.
There are sufficient reasons that support the cause for tenancy disputes to be arbitrable. Even in cases where tenants are protected by welfare legislations, arbitration should not be completely barred if both the parties are willing to go down that route. Given that there are approximately 9 million pending civil cases as of July 2020, it is only sensible that arbitration is actively promoted in India.
[i] Rohan Marathe is a penultimate year law student at ILS Law College, Pune. His interests lie mainly in criminal and commercial laws. For any discussions or feedback related to the article he can be contacted at firstname.lastname@example.org.
Tapan Radkar is a penultimate year law student at ILS Law College, Pune, who is interested in the fields of litigation, insolvency law and arbitration law. For any discussion related to the article, he can be contacted via email at email@example.com.
[ii]Natraj Studios (P) Ltd. v. Navrang Studios, (1981) 1 SCC 523
The article co-edited by Deeksha Sahni (Managing Editor) and Ritika Acharya (Associate Editor).
Preferred Citation: Rohan Marathe and Tapan Radkar, "Arbitrability of Tenancy Matters-Ironing Out the Wrinkles", Arbitration and Corporate Law Review, Published on 14th July 2020