This article is written by Bhavyika Jain, a student of Symbiosis Law School, Noida. This article talks about the arbitrability of disputes that arise under the Transfer of Property Act, 1882 and the recent amendments made to the existing rules.
Transfer means a conversion of one thing to another and property may be defined as any virtual or physical entity owned by a person or a group of people. The scope of this Act is limited as it applies only to the acts of parties and not to operations of law. Also, it involves both movable and immovable property but the major portion of the act covers immovable property.
The term ‘transfer of property’ is defined under Section 5 of the Transfer of Property Act, 1882. Earlier, the transfer of immovable property was governed by the principles of English law and equity. Transfer of property is done by a living person who conveys property to one person or more people or can do it himself or by one or more living persons in the present or the future. A company, an association, or body of individuals whether incorporated or not together constitute living people.
Disputes under Transfer of Property Act
The manner of determination of leases along with the grounds for forfeiture due to breach of the express covenants in the lease agreement is laid down in Sections 111, 114, and 114A of the Transfer of Property Act. The forfeiture of the lease deed due to non-payment of rent is also governed by the aforementioned sections. According to Section 114 of the Transfer of Property Act, the Court may allow the lessee to hold the property if the forfeiture has not occurred and also if the lessee pays or tenders to pay the rent in arrears to the lessor. The lessor may also be prevented from pursuing a suit of ejectment by the Court upon examination and deliberation of the facts of the case.
In case of a dispute regarding the determination of the lease, the landlord must institute a suit before a court which has jurisdiction over the matter. However, parties are allowed to pursue alternate modes of dispute resolution including an arbitration or conciliation mechanism depending on the express conditions of the lease deed or the terms of the agreement. The landlord is entitled to invoke the arbitration clause and seek remedy under an arbitrator.
Rules laid down in various case laws
The dispute that arose in Himangi Enterprises Vs. Kamaljeet Singh Ahluwalia (2017) was a lease dispute that was not arbitrable under the Transfer of Property Act,1882. The case was moved to the larger bench for review. The reason given by the Court was that the disputes that have been raised under the Transfer of Property Act,1882 involve a ‘right in rem’ and the question for debate is non-arbitrability. This has been reflected as an unprogressive view given on arbitration at the time when the public policy of India has asked to increase the reliance on Alternate Dispute Resolution(ADR) mechanisms for commercial and civil disputes.
The appeal was dismissed by the Supreme Court of India relying upon the judgment given in the case of Natraj Studios (P) Ltd. vs. Navrang Studios (1981) and of Booz Allen & Hamilton Inc. vs. SBI Home Finance Ltd.(2011) and held that the court was right in taking the decision of dismissing the application of the applicant to refer the dispute under arbitration under Section 8 of the Arbitration and Conciliation Act, 1996.
Regarding Natraj Studios, the facts of which are similar to that of the instant case, where the tenant application filed under the Arbitration Act, 1940 was dismissed by the Supreme Court. It was held in the judgment by Justice O. Chinnappa Reddy that “both by reason of Section 28 of the Bombay rents, Hotel and Lodging House Rates Control Act,1947 and on the broader considerations of public policy” the jurisdiction to hear instant disputes lies in the hands of the Court and not the arbitrator.
With reference to Booz Allen, the nature of disputes that are non-arbitrable in India were listed down by the Supreme Court. One such dispute observed by the Court was “eviction or tenancy matters governed by the 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”.
In Himangi Enterprises, the Supreme Court relied upon the above given two judgments. It dismissed the appeal without being hesitant and it was held that despite the parties having the right to arbitrate, the civil suit that is filed by the respondent is still maintainable. The appellant argued that the two judgments should not be taken into consideration as they speak of the matters that are governed by some special statute. This was also dismissed by the Court stating that if the Delhi Rent Control Act, 1955 is inapplicable the matter shall be governed by Transfer of Property Act, 1882 and the civil suit maintained shall be heard by the Court and not the arbitrator.
In Vidya Drolia & Ors.vs. Durga Trading Corporation (2019), there was a tenancy agreement between the landlord and the tenant where the maximum period for tenancy was 10 years. An arbitration clause was mentioned in the tenancy agreement. After the maximum period, the tenant was asked to vacate the premises which he failed to do, following which the landlord issued a notice of arbitration to the tenant. For the appointment of an arbitrator, the landlord applied under Section 11 of the Arbitration Act. The tenant’s objection relating to the non-arbitrability of the dispute was rejected by the High Court of Calcutta and the matter was referred to arbitration.
Finding itself at odds with its judgment in Himangi enterprises, the matter of this case was shifted to a larger bench. The larger bench took the matter and the Court held that the matters of tenancy are arbitrable except those which fall under some special rent-control laws.
Suresh Shah vs. Hipad Technology India Private Limited, ( 2020), is the most recent case. In this case the parties entered into a sub-lease agreement that contained an arbitration clause. Some dispute arose between the parties under the sub-lease agreement for which an application was filed under Section 11 of the Arbitration Act, in the Court. The Court elaborated on the arbitrability of disputes relating to lease or tenancy agreements before taking into consideration the appointment of an arbitrator. The Court held that the tenancy was governed by some special statutes, where the tenant is enjoying the statutory powers and where under a specific Court is conferred the jurisdiction, the disputes will be non-arbitrable. It held that the landlord-tenancy disputes under the Transfer of Property Act are arbitrable.
Test for arbitrability of an issue
The Court in the Vidya Drolia case (2020) held that there are four rules in determining the non-arbitrability of the subject matter dispute:
- Relates to action in rem, that do not pertain to subordinate rights in personam that arises out of right in rem;
- Impacts the rights of the third party, have erga omnes effect, require centralized adjudication, and mutual adjudication would not be appropriate and enforceable;
- By expressly or through necessary implication not arbitrable because of the mandatory statute;
- Relates to the inalienable sovereign and public interest functions of the State and therefore mutual adjudication would not be enforceable.
These rules are not rigid, however, they can be of some help in ascertaining the arbitrability of disputes. The Court held that public policy issues might be raised before the arbitrator in the same manner that they could be raised before a Civil Court. An award passed in the landlord tenant’s dispute would be enforceable in the same manner as that of Civil Court. It was held that the landlord-tenant disputes covered under the Transfer of Property Act would be arbitrable.
Occurrences of non-arbitrable disputes
- Bankruptcy or internal conflicts.
- Patents are granted and issued, and trademarks are registered.
- Cases involving criminal charges.
- Matrimonial conflicts involving the dissolution of marriage, restitution of conjugal rights, and other similar issues.
- Probate and other testamentary matters.
- When it comes to a civil dispute, allegations of fraud might be made the topic of arbitration. This is subject to the caveat that non-arbitrability includes the issue of fraud, which would be void and nullify the arbitration clause.
- Disputes referred to the recovery of debts and bankruptcy for resolution under the DRT Act, 1993.
When can the issue of non-arbitrable disputes be raised
The issue regarding the non-arbitrable disputes be raised under the following conditions:
- Appearing in Court on an application for reference under Section 11 of the Arbitration Act, or for a stay of current judicial procedures and reference under Section 8 of the Arbitration Act;
- During the course of the arbitration procedures before the arbitral tribunal; or
- Before the court at the time of the award’s challenge or enforcement.
The aspect of judicial review in relation to arbitration
The power is given to the court to refer the matter to Alternate Dispute Resolution methods as per Section 89 of the Civil Procedure Code,1908 when it appears to the Court that there exists an element of settlement which would be accepted by the parties and then such settlement can be formulated by the court and the parties could be referred to an alternate means of setting the dispute such as arbitration, Lok Adalat, mediation or conciliation.
In most of the developed countries, the concept of Alternate Dispute Resolution has been already established and the methods they adopt are also successful to the extent that almost 90% of the cases are being solved outside the Court. The main purpose of this resolution is to provide speedy justice to the parties involved despite the law’s delays and the limited number of judges available. Parties can go for dispute resolution methods for resolving their dispute instead of indulging themselves in litigation.
The judgment is taken in the right direction and is a positive step to put an end to a long-time debate regarding the arbitrability of the tenancy disputes in India. The judgment has ensured a pro-arbitration position and has also created a protective shield for all the unresolved issues as was in the case of Bina Modi v Lalit Modi (2020) which was decided on 3rd March 2020 wherein the arbitrability of disputes that are governed under the Trust Deeds and the (Indian) Trust Act, 1882 remains unsolved.
The judgment is likely to open up some debatable concerns. It will be really interesting to see the impact of the judgment on the pending cases which are already filed in the Court as the parties can file Section 8 applications requesting to refer the matter for arbitration. In this landmark judgment, the tenant’s rights will be protected from protracted litigation keeping the interest of countrymen in mind.
LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join: