This article has been written by Dahlia Chadha, pursuing a Certificate Course in Arbitration: Strategy, Procedure and Drafting from LawSikho.

Introduction 

Arbitration is a mode of alternative dispute resolution which is governed by the Arbitration and Conciliation Act, 1996. Parties voluntarily choose this mode to get their dispute resolved. An award passed by an arbitral tribunal has the same effect as the decree passed by any court in India. There exists some matters that are out of the scope of the Arbitration. “The courts of India recognized some of the non – arbitrable disputes including :  

(i) Criminal Offences; 

(ii) Matrimonial issues; 

(iii) Guardianship matters; 

(iv) Matters related to insolvency and winding up; 

(v) Testamentary matters;

(vi) eviction or tenancy matters which are governed by special statutes.” 

So, here a question arises “Whether dispute mechanism available under lease or not?” The Arbitration and Conciliation Act, 1996 does not specify the matters that are arbitrable and non – arbitrable. 

The decision of the Supreme Court

In a well-known case of Natraj Studios (P) Limited Vs. Navrang Studios, the landlord had filed the case of eviction in the high court whereas, the tenant filed an application for arbitration considering the arbitration clause in the lease deed. The said application was rejected by the Supreme Court on 7th January 1981 stating “this type of dispute cannot be referred to the arbitration.”

In another famous case of  Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. Civil Appeal. In this case, the Hon’ble Supreme Court on 15th April 2011, laid down the list of matters that cannot be considered as arbitrable. Out of that, one category was “eviction or tenancy matters governed by special statutes where the tenant enjoys special protection against the eviction.” As per Indian laws, disputes arising out of lease deeds are governed by special acts like the Rent Control Act, Transfer of Property Act and thus are out of the scope of Arbitration proceedings.

In the recent case of Himangni Enterprises Vs. Kamaljeet Singh Ahluwalia on 12 October 2017 Supreme Court reaffirmed the non-arbitrability of disputes relating to tenancy and eviction. Further Supreme Court stated that tenancy disputes are arbitrable under the Transfer of Property Act but those tenancy disputes which are governed by special forums have been given jurisdiction to decide the special rights of the parties.

Decisions of the High courts 

According to Section 8 of the Arbitration and Conciliation Act, 1996, even if there is a valid arbitration agreement between the parties to the contract and also the dispute has been covered by the arbitration agreement, the court can refuse the application to the arbitration if the matter is under the jurisdiction of public forum or relief can be granted by a special court. 

In  Penumalli Sulochana v. Harish Rawtani, Andhra Pradesh high court on 25th July 2013 held that eviction of a tenant is a subject matter of special acts. A dispute which can be the subject matter of a special act cannot be the subject matter of Arbitration. 

In Ambuja Neotia Holdings Pvt. Ltd v. M/s Planet M Retail Ltd. case, it was held by Calcutta High Court on 1st April 2015 that lease deed disputes are governed by the Transfer of Property Act in India and thus is non-arbitrable. 

Theory of Right in Rem and Right in Personem

The entire theory of whether a landlord-tenant dispute is arbitrable or not is based on the theory of ‘right of rem’ and ‘right of personam’. Let us discuss these terms in a wider sense.

• Right in Rem – It refers to the right to be left alone. It means people should not interfere with anyone’s ownership. A right in rem is available against the world at large.
• Right in Personem – This right is available only against a person or persons, corresponds to a duty imposed on a determined individual.

There are various theories and interpretations in relation to this matter. Lease deed involves disputes concerning rights in rem. Indian courts recognized the rule that the rights of a person may be decided by the private forum including arbitration but disputes in regards to rights in rem shall be decided by the appropriate courts considering public courts. In the case of A. Ayyasamy v. A. Paramasivam, 4th October 2016 Supreme Court held that two categories of dispute were highlighted which cannot be the subject matter of arbitration: (i) Disputes which are in the jurisdiction of special courts and governed by special laws are non-arbitrable, and (ii) Disputes which should be considered as to decided by litigation are also non-arbitrable such as Rights in rem. But after reading many cases also mentioned above, it can be concluded that disputes that have arisen between landlord and tenant are non-arbitrable despite having an arbitration clause in the lease deed.

The four-fold test laid down by the Supreme Court

In the recent judgment held on 14th December 2020, in the case of Vidya Drolia & Ors v. Durga Trading Corporation, two major issues were considered by the court, (i) meaning of non-arbitrability when the subject matter cannot be resolved through arbitration and (ii) the “conundrum – who decides.” For this purpose, the court laid down the fourfold test and held that “these landlord-tenant disputes are arbitrable as Transfer of Property Act does not forbid arbitration.” This is a landmark judgment mark in the history of India and put a stop to all the vagueness revolving around the issue. The four-fold test is as follows-

“(1) when the cause of action and subject matter of the dispute relates to actions in rem, that do not pertain to subordinate rights in personam that arise from rights in rem.

(2) when the cause of action and subject matter of the dispute affects third party rights; have erga omnes effect; require centralized adjudication, and mutual adjudication would not be appropriate and enforceable;

(3) when the cause of action and subject matter of the dispute relates to the inalienable sovereign and public interest functions of the State and hence mutual adjudication would be unenforceable; and

(4) when the subject matter of the dispute is expressly or by necessary implication non-arbitrable as per mandatory statute(s).”

In another recent case of Suresh Shah Vs. Hipad Technology India Private on 18th December 2020 bench Supreme Court of Hon’ble Justice A.S Bopanna and V. Ramasubramania held that landlord-tenant dispute that arises under Transfer of Property Act is arbitrable but these arising under Rent Act are non-arbitrable.

Resolving the dispute through alternative mechanisms is in trend now and preferred over litigation. We all know the volume of the pendency suits in the courts of India. Property disputes are special matters that should be resolved on top priority. As these days due to the pandemic, courts are also facing running issues, it can be a better option to try arbitration proceedings to get the matter resolved on priority and in the short run.

Conclusion

Now, we can say that it is a better option to get the landlord-tenant dispute resolved through arbitration as it is valid, legal and binding the parties to the award announced by the arbitrator. Arbitration can provide better quality justice as the courts are already overloaded with pending cases. Arbitration proceedings are less time-consuming as well as less expensive than litigation. Alternate dispute resolution is a gap-filling mechanism that will eventually strengthen the judicial proceedings in India.

References

1. https://thefactfactor.com/facts/law/legal_concepts/jurisprudence/legal-rights/176/
2. http://arbitrationblog.kluwerarbitration.com/2018/02/19/arbitrability-lease-deed-disputes-india-apex-court-answers/
3. https://corporate.cyrilamarchandblogs.com/2021/03/dispute-mechanism-available-under-a-lease/
4. https://blog.ksandk.com/arbitration/vidya-drolia-and-the-four-fold-test/

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