Arbitrability of Tenancy Disputes in India

The author Urja Mishra is pursuing B.A.LL. B from D.E.S’s Shri Navalmal Firodia Law College under the Pune University. She is in her Second Year of Study. She is very much keen and interested to work on the following topics: Cyber Law, Social-Media, Psycho-Legal issues, and Commercial Laws.

Arbitrability encompasses the subjectivity of different issues along with debating whether a dispute can be a subject matter of arbitration. The purview and extent of “Arbitrability” are faced with constant debates and discussions in India. The major reason for this has been due to lacunae which raise uncertainty owing to the absence of any explicit provision under the Arbitration and Conciliation Act 1996 (A&C Act) restricting the arbitrability of disputes arising out of specific legal relationships been. One of the victims of this uncertainty is the landlord-tenant relationship which is governed by the Transfer of Property Act 1882 (ToPA).

The fact that the arbitral proceedings are fairly private is quite certain. Consequently, the confidential nature of arbitration culminates puts under scrutiny the question of resolving public law issues via arbitration. Furthermore, the most debatable of all are the relationships that fall under the domain of ToPA. By taking an example of the case of Vidya Drolia and Others v. Durga Trading Corporation, the long-pending nature of tenancy matters can be observed because even after completing all the hearings, the Supreme Court is yet to give a concrete judgement.

Section 2(3) of the A&C Act explicitly affirms that the statute would not affect any other law in any way; thus, specifying that certain disputes wouldn’t be a matter of arbitration proceedings. Along with that, Section 34(2)(b) and 48(2) of the A&C Act also lay down the non-arbitrable nature of certain disputes by allowing the courts to set aside awards if 'the subject matter of the dispute is not capable of settlement by arbitration under the law for the time being in force'. Therefore, as there is no express statutory clarification on this point, the law has been developed by the courts.

The Apex Court in the influential decision of Booz Allen and Hamilton Inc. v. SBI Home Finance Limited ruled that all disputes arising out of violations of rights in personam are arbitrable, and those disputes arising out of rights in rem are not arbitrable and should be adjudicated by the courts and public tribunals only. The Bombay High Court in its decision in the case of Kingfisher Airlines Limited v. Prithvi Malhotra Instructor focused on his principle by holding that rights in personam would not be arbitrable as a matter of public policy if a statute vests exclusive jurisdiction upon a particular court or tribunal. Later, these two positions were recognised and upheld by the Supreme Court in the 2016 decision of the case of A. Ayyasamy v. A. Paramasivam and Others.

In the case of Vidya Drolia, The tenant and landlord entered into a lease deed wherein the tenant was supposed to peacefully give back the possession of a property to the landlord In case of any dispute between the two parties, the lease deed also included an arbitration clause. Further on, due to certain disagreements, the landlord brought a petition under Section 11 of the A&C Act before the Calcutta High Court for the appointment of an arbitrator. The Calcutta High Court rejected the application against which the landlord brought an appeal before the Supreme Court. Therefore, in order to resolve and settle the dispute of arbitrability, the Supreme Court passed the matter to a larger bench.

Following are the parameters due to which tenancy disputes are rendered non-arbitrable :

1) The right in rem and the right in personam conundrum

ToPA incorporates the issues under the domain of sale, mortgage, lease, license, etc. All of these are imperative in providing the interest holders the rights of qua third parties, thus forming and making them a part of the Rights in rem. Taking into consideration the Booz Allen test, all disputes which have aroused out of it, aren’t considered as the subject matter of the arbitration. At the same time, an agreement between a landlord and a tenant amounts to subordinate rights in personam, which can form the subject matter of the arbitration. For instance, Section 108 of ToPA dealing with rights and liabilities of the lessor and the lessee, are exercisable against each other only and not the world at large and thus forms a part of rights in personam. Additionally, the division bench decision in Vidya Drolia has already rejected the argument that tenants form a ‘class’ under ToPA due to the nature of remedies provided to them under Sections 111, 114, and 114A. Therefore, even though ToPA includes certain rights in rem, the landlord-tenant relationship is a subordinate right in personam and thus is capable of being resolved through arbitration. This gives rise to a conundrum between both of these, which further results in disputes.

2) The welfare legislation argument

There are differing judgments about matters of public welfare legislatures and matters of arbitration.

The Supreme Court in the case of Natraj Studios Private Limited v. Navrang Studios and Another ruled that the statutes guiding matters of rent and tenancy are given special status as they are counted as Public welfare legislations. Hence, the disputes forming the subject matter of these legislations cannot be arbitrable. It is also contended that merely because legislation serves a welfare purpose, does not mean that all disputes falling within its domain are non-arbitrable. The Supreme Court in the case of Emaar MGF Land Limited v. Aftab Singh dealing with a dispute arising out of the Consumer Protection Act 1986 (COPRA) which is also public welfare legislation, held that the parties may opt-in for arbitration, without prejudice to the rights of the consumer to approach the consumer forum.

Similar to COPRA, ToPA and rent control legislations are also under the domain of welfare legislation. These rent control legislations serve a two-fold purpose of protecting the tenants from eviction and protecting them from payment of unfair rent. The Emaar MGF case brings into the limelight, the fact that like the consumers, the tenants who are safeguarded by several rent control legislations should have an option to opt for arbitration. Although the rent control legislations seek to provide special remedies to tenants to promote their welfare, it should not serve as a ground to deter them from opting-in for arbitration. To sum up, the option to arbitrate the tenancy dispute should be without any prejudice to the remedy provided to them before the civil courts by these legislations.

3) The special court argument

With reference to the ruling of the Supreme Court for the decision of Natraj Studios and in the case of Himangni Enterprises v. Kamaljeet Singh Ahluwalia, the tenancy disputes fall under the category of non-arbitrable. The decision was inferred by observing various provisions of the ToPA, that confers jurisdiction upon the civil courts, following which the ultimate motive of ToPA could not be to allow arbitration. In essence, the decisions in both Natraj Studios and Himangni have been based on the principle as evolved by the Kingfisher Airlines case, which restricted arbitrability of a matter if jurisdiction is conferred explicitly to special tribunals by the statute. However, in HDFC Bank Limited v. Satpal Singh Bakshi, the Delhi High Court held that disputes forming the subject matter of the jurisdiction of the debt recovery tribunals could be arbitrable. The court thereby passed a concluding remark that the mere creation of a special forum for adjudication of disputes could not render these disputes non-arbitrable. The determining factor is whether these special courts have powers that arbitral tribunals or civil courts cannot exercise. Therefore, arbitrability of tenancy disputes cannot be denied solely based on the argument that jurisdiction is conferred to civil courts by specific provisions of the ToPA.

The landlord-tenant relationship seeks to fall under the category of rights in personam, implying that the parties can exercise only against each other. The presence of a special forum for adjudication should not be an obstruction in the bar the jurisdiction of arbitral tribunals. Along with the safeguard of public welfare legislature, the landlord/tenant or the parties must have a right to opt for arbitration as per their wishes. Owing to all these factors, it can be concluded that the tenancy disputes in India should be in the purview of Arbitration.

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References:

1. Vijayvergia C, 'Arbitrability Of Tenancy Disputes In India: Current Position And Expectations From The Future' (The Indian Review of Corporate and Commercial Laws (IRCCL), 2020) <https://www.irccl.in/post/arbitrability-of-tenancy-disputes-in-india-current-position-and-expectations-from-the-future>
2. Banerjee K, and Kulkarni R, 'Reconsidering the Arbitrability Of Tenancy Disputes In India' (Bar and Bench - Indian Legal news, 2019) <https://www.barandbench.com/news/reconsidering-the-arbitrability-of-tenancy-disputes-in-india>