This article is written by Chandana Pradeep, from the School of Law, University of Petroleum and Energy Studies, Dehradun. This article analyzes how arbitration clauses can apply to disputes arising out of leave and license agreements.
Table of Contents
A Leave and License Agreement is an agreement temporarily made by a licensor and a licensee which allows the licensee to use and occupy the licensor’s immovable property full or part of the same, for the purpose of carrying on business activity or residential use and pay a fixed amount of rent or as per their mutual understanding decided and accepted. In this type of agreement, there are only limited rights that are transferred to the other person and these rights cannot be transferred, hence it is not the same as a rental or lease agreement.
Licence is defined as “Where one person grants to another, or to a definite number of other persons, a right to do or continue to do, in or upon immovable property of the grantor, something which would, in the absence of such rights, be unlawful, and such right does not amount to an easement or an interest in the property, the right is called a license”.
The question of whether arbitration can be used in disputes which arise out of leave and license agreements have always been in question which will be further analysed in this article.
Arbitration is a widely used mode of settlement of disputes and it has much better benefits compared to the normal process of litigation. There are not many things that cannot be arbitrated but there are some specific categories that are said to be non-arbitrable, and these are checked based on the applicability of Section 8 of the Arbitration and Conciliation Act.
Types of disputes which arise from agreements of rent
There are many disputes which arise from the rental agreements, while people think that not many can exist, they are wrong. There are several areas where disputes can arise, some of the areas are:
- When the security deposit is returned or forfeited.
- When there is a damage caused to the property.
- When the agreement for rent ends before the date of expiry of the contract.
- When the rent is not paid on time.
- When there are a lot of unpaid dues.
In normal cases, these disputes usually arise at the time of the tenant leaving the rented premises and the landlord plays the power card of being in the dominant position and takes advantage either by asking the tenant to pay extra money or by forfeiting their security deposits, half of the time, these issues are not taken to court as they tenants are often fearful of what might happen if they do take legal action or because they do not want to be entangled in a long battle in the court.
Which court has jurisdiction to solve these disputes
According to Section 41 of the Presidency Small Causes Court Act, 1882, it states that the courts in the act do have the jurisdiction to hear matters in all suits between a licensee and a licensor, or between a landlord or a tenant relating to any matters such as the recovery of possessions of the immovable property, or to recover any rent or fee. But it is also stated that it will not apply to any proceedings which are under the ambit of some Acts such as the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, the Bombay Government Premises (Eviction) Act, 1955, the Bombay Municipal Corporation Act, the Bombay Housing Board Act, 1948.
The courts have created a difference about the jurisdiction of these cases based on two criteria which were whether it was right in rem or right in personam, and then it was accordingly given its jurisdiction. It was held that matters of right in personam could be decided by a private forum of dispute settlement such as the arbitration proceedings but the matters which related to the right to rem could only be dealt with in a public court.
How can arbitration solve these
Arbitration or any other methods are the most used types of dispute settlement in recent years as they have a lot of benefits compared to the regular process of public courts deciding the matters. The benefits of arbitration include:
- Fast process– The time taken to decide the cases much more speedily dealt with compared to that of cases that are dealt with in normal forums such as the courts. A case in the court can go on for years or even decades, but if a case has been opted to be solved through the process of arbitration promptly and does not prolong for a long period.
- Flexible– This process of dispute settlement is much more flexible compared to the other court procedures, and this allows the parties of the arbitration agreement to formulate their terms and conditions of the arbitration agreement.
- Private– The process of arbitration is a private one where only the parties that are involved in the dispute will be present, this would be a confidential discussion rather than what happens in a normal court where there will be other unrelated parties present.
- Inexpensive– This process is inexpensive compared to that of regular court proceedings and this is one of the reasons why arbitration is chosen more compared to normal court.
- Arbitrators can be selected– The parties can select the arbitrator they want to who can settle the discount for them, provided that the arbitrator has enough area of expertise to settle the dispute.
There have been recent developments that have been taking place concerning the applicability of arbitration clauses in disputes arising out of leave and license agreement and the same has been decided in various cases.
A Ayyasamy v. A. Paramasivam(2016)
In this case, the parties were two brothers who jointly run a business and in case of disputes, they had already agreed that an arbitration process would take place to settle the dispute and regardless of this, one party went ahead and filed a suit against the other party to seek for a permanent injunction. But the appellant went ahead and used section 8 of the Arbitration and Conciliation Act,1966 on the ground of maintainability of the civil suit that has been filed. It was held in this case that, there are two types of disputes that cannot be settled by the proceedings of arbitration and they are:
- Disputes which fall under a special jurisdiction and is according to a special Act.
- Disputes which the court thinks can be addressed in a public forum such as disputes which arise out of a right to rem.
Central Warehousing Corporation v Fortpoint Automotive Pvt. Ltd(2016)
This case had an issue whether or not to claim service and water charges came under the Small Causes Court and whether it had exclusive jurisdiction. It held by the Hon’ble Bombay High Court that Section 5 of the A&C Act cannot affect the laws for the time being in force by virtue of which certain disputes may not be submitted to arbitration, as stipulated in Section 2(3) of the said Act12 and that Section 41 of the Act of 1882 falls within the ambit of Section 2(3). Thus, even if the Licence Agreement contains the Arbitration Agreement, the exclusive jurisdiction of the Small Causes Court under Section 41 of the PSCC Act is not affected. An Arbitration Agreement in such cases would be invalid and inoperative on the principle that it would be against public policy to allow the parties to contract out of the exclusive jurisdiction of the Small Causes Courts.
Himangini Enterprises v Kamaljeet Singh Ahluwalia(2019)
The parties of this case had entered into a lease deed agreement for three years and after the expiry of the same, there was no renewal of the agreement. The party filed a suit to the District Court to evict the tenant and also for the fact that some dues were still unpaid. The court had held that based on the cases of Natraj Studios (P) Limited v Navrang Studios [1981 AIR 537] and Booz Allen & Hamilton Inc v SBI Home Finance Limited, it was already decided that “the well-recognized examples of non-arbitrable disputes are… eviction or 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.”
The court also held that in the case of Himanigi Enterprises, the arguments based on the Delhi Rent Act would not be applicable in the Arbitration and Conciliation Act due to the section 3 (1)(c) will not be able to be applied and just because, the defence is with the purview of the Delhi Rent Act, it by no way means that the arbitration and conciliation Act will govern this, cases like these are governed with the help of the Transfer of Property Act,1882. Hence, the court finally held that this case will be non-arbitrable as it is based on a dispute which arises out of a landlord and tenant.
Ashok Thapar v. Tarang Exports (P) Ltd(2018)
The appellant filed a suit where he could be allowed to make use of the property based on the leave and license agreement in 2012, and it was agreed that any dispute which arose out of this would be dealt with by the Arbitration and Conciliation Act. Bombay High Court has held that an Arbitration Clause survives even when the Leave and Licence Agreement was mutually terminated. After analyzing SMS Tea Estate (P) Ltd. v. Chandmari Tea Co. (P) Ltd. and Magma Leasing and Finance Ltd. v. Potluri Madhavilata, It was held that once parties have intended to refer their dispute to the Arbitrator, then any dispute relating to such agreement must necessarily go to Arbitrator, even if agreement containing such a clause gets terminated by mutual consent.
A.S Patel Trust & Ors. Vs. Wall Street Finance Ltd(2019)
In this case, the Bombay High Court held that the suit which was filed for the recovery of the security depository was a right in personam and not a right in rem and because of that section 41 of the PSCC Act will not be applicable which allows the arbitrator to have no jurisdiction in this case.
Henry Schein, Inc., et al. v Archer & White Sales, Inc. (2019)
This case was also looked upon while deciding the applicability of arbitration clauses in disputes which arise out of leave and license agreements. It was held by the court of the United States, that the issues which have to be dealt with by the arbitral tribunal will not be decided by other courts but by the arbitral tribunals themselves. Therefore with reference to India, section 16 determines whether a tenancy dispute is to be settled by the tribunal or not.
Vidya Drolia v. Durga Trading Corp(2020)
In this case, there was a dispute which arose regarding a landlord and tenant and it had already been decided by the court that any landlord-tenant disputes would not be arbitral and only the Transfer of Property Act,1882 had a role to play as per the judgement given in Himangi Enterprises v Kamaljeet Singh Ahluwalia. This was referred to a larger bench where it was held that it is not stated anywhere that disputes arising out of a landlord-tenant agreement could not be arbitrable. Hence the landmark judgement was made, and all disputes arising out of a landlord-tenant agreement was arbitrable.
Applicability of the Arbitration and conciliation Act has always been in question with regard to whether they are applicable to licence and leave agreements. After a series of cases that have been approaching the court and after a lot of conflicting views, it has finally been decided by the courts that arbitration clauses are applicable in cases that arise out of leave and license. It was finally decided in the case of Vidya Droliya v Durga Trading Corp.
LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join: