In this article, Smita Singh discusses Arbitration in landlord and tenant disputes.
Lease of immovable property
Transfer of Property Act 1882, a central legislation, contains the general law governing lease of immovable property.[1] It specifies the rights and liabilities of landlord and tenant, in absence of contract to the contrary[2]. It also stipulates how the tenancy will come to an end.[3] After tenancy comes to end, in case the tenant fails to vacate the tenanted premises, the landlord is required to file civil suit for ejectment to obtain possession.
State enacted Rent Acts
Several States have enacted Rent or Tenancy laws[4] which regulate the rights and obligations of landlord and tenant. These laws have social objective of protecting the interest of certain class of tenants. Such protection is afforded usually based on quantum of rent or the nature, size or location of tenanted premises), so as to prevent arbitrary evictions from tenanted properties. Such legislation override the inconsistent provisions of Transfer of Property Act as well as terms of contract between landlord and tenant. These special laws often exclude ordinary jurisdiction of civil courts. Instead, they confer exclusive jurisdiction to special courts to adjudicate specified disputes between landlord and tenant including the grounds on which tenants could be ejected.
Arbitration in landlord and tenant disputes
Under the Arbitration and Conciliation Act 1996 (Arbitration Act), an arbitral award will be set aside if “the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force”[5].
The Supreme Court for long maintained that ehe Supreme Court where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the dispute, are non-arbitrable[6].
It has held that when under a special statute (for instance Rent or Tenancy statutes), exclusive jurisdiction is given to special court by denying jurisdiction to other courts, the parties by agreeing for arbitration could not opt out of the rights conferred under such special statutes or oust the jurisdiction of special courts.
In cases where the scheme of a statute show that pursuant to a social objective exclusive jurisdiction is conferred on special courts, the public policy has been construed to require that contracts to the contrary that nullify the rights conferred on beneficiaries of such statute including contract for arbitration by ousting jurisdiction of Special Courts, to be impermissible[7].
Decisions of Supreme Court[8] show that a dispute is considered incapable of arbitration only if following three conditions are fulfilled:
i) The matter is governed by a special statute;
ii) Under such special statute the tenant enjoys statutory protection against ejectment; and
iii) Such special statute confers exclusive jurisdiction on specified Courts.
The view of Supreme Court as aforesaid did not make every dispute between a landlord and tenant, incapable of adjudication through arbitration.
DICTUM OF SUPREME COURT IN HIMANGNI ENTERPRISES V. KAMALJEET SINGH AHLUWALIA
Recently however in Himangni Enterprises v. Kamaljeet Singh Ahluwalia, (2017) 10 SCC 706 the Supreme Court has ruled that even in respect of premises to which the application of special Rent Act is exempted, the parties could not enforce arbitration, even though they had agreed to get their disputes concerning such premises adjudicated through arbitration. Consequently, it is held that the civil suit filed by one of the parties, by giving a goby to an arbitration agreement is maintainable. It is held:
“24. The Delhi Rent Act, which deals with the cases relating to rent and eviction of the premises, is a special Act. Though it contains a provision (Section 3) by virtue of it, the provisions of the Act do not apply to certain premises but that does not mean that the Arbitration Act, ipso facto, would be applicable to such premises conferring jurisdiction on the arbitrator to decide the eviction/rent disputes. In such a situation, the rights of the parties and the demised premises would be governed by the Transfer of Property Act and the civil suit would be triable by the civil court and not by the arbitrator. In other words, though by virtue of Section 3 of the Act, the provisions of the Act are not applicable to certain premises but no sooner the exemption is withdrawn or ceased to have its application to a particular premises, the Act becomes applicable to such premises. In this view of the matter, it cannot be contended that the provisions of the Arbitration Act would, therefore, apply to such premises.”
THE PROBLEM
In humble submission of the author, the decision that even if tenanted premises/landlord-tenant relationship is governed by the Transfer of Property Act, the civil suit would be triable by the civil court and not by the arbitrator, appears to be inconsistent with the previously held view[9].
The rationale that Arbitration Act will not apply since the exemption from application of Rent Act to a premises could be withdrawn in future, appears to miss the point that a tenancy matter is considered incapable of determination by arbitration only if it is governed by a special statute; under such special statute the tenant enjoys statutory protection against ejectment; and such special statute confers exclusive jurisdiction on specified Courts.
So long as the matter is governed by general law, irrespective of any likelihood of special Rent Act becoming applicable in future, it remains capable of arbitration. Mere potential application of special law does impact the arbitrability of a dispute. In case of exemption from the application of special law being withdrawn the matter though may become incapable of arbitration, so long as exemption is available, the parties are free to agree to arbitration as dispute resolution mechanism as an alternative to civil court. Such agreement should be enforceable if while recourse is taken to arbitration proceedings, the exemption from special statute is available.
It is very common for many commercial and other leases to which application of Rent /Tenancy statutes is exempted, to contain an arbitration agreement. Landlord and tenant agree to arbitration clause so as to resolve their disputes by recourse to arbitration which could be expeditious and cost effective compared to traditional civil courts.
THE WAY FORWARD
Unless the position as regards the validity /enforceability of arbitration clause in tenancies governed by general law, is clarified to restore the previously prevailing view, the parties inspite of arbitration agreement, will be compelled to take recourse to time consuming and expensive ordinary civil proceedings. They are also likely to indulge in litigation over enforceability of arbitration agreement. This could be counterproductive.
References
[1] Chapter V of Transfer of Property Act 1882 comprising sections 105 to 117
[2] Section 108
[3] Section
[4] For instance Karnataka Rent Act 1999
[5] Sections 34(2)(b) and 48(2)
[6] Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532
[7] Natraj Studios (P) Ltd. v. Navrang Studios, (1981) 1 SCC 523 and Ranjit Kumar Bose v. Anannya Chowdhury (2014) 11 SCC 446
[8] Ibid 6 and 7
[9] Natraj Studios (P) Ltd. v. Navrang Studios, (1981) 1 SCC 523 and Ranjit Kumar Bose v. Anannya Chowdhury (2014) 11 SCC 446
