Arbitration

The Arbitrability Conundrum : An Assessment of Non-Arbitrability Of Lease Disputes in India

Reading Time: 3 minutes

Introduction-

India is considered to be a pro-arbitration centre by the world and is shaping its Arbitration and Conciliation Act, 1996 (“Act”) in order to become a hub for arbitration world-wide. There have been many improvements in the Act in order to achieve its goal but it is paradoxical that the horizon of disputes which are non-arbitrable have increased, one among them is lease disputes.

The Issue of Arbitrability:

The Arbitration and Conciliation Act does not specify which disputes are arbitrable or which are not. This issues has been left for the Courts to deliberate upon.

1) It was in Natraj Studio’s case[1] where the landlord filed a suit for eviction in Small Causes Court, Bombay and the Tenant had filed an application under Section 8 of Arbitration and Conciliation Act on the basis of the Arbitration clause in the Leave and License Agreement between the parties. The 3-judge bench of the Court ruled that the Court of small causes alone had the jurisdiction to settle the question whether the Licensor-Landlord is entitled to take possession of the studios.

2) Another pertinent case to be referred to here is the case of Booz Allen[2], where the division bench of the Court ruled that the non-arbitrable disputes are eviction or tenancy matters which have been governed by special statutes where the tenants generally enjoy the statutory protection against eviction and only some courts have jurisdiction to settle the disputes.

The Court also recognised a distinction between rights in rem and rights in personam. The disputes concerning rights in persona has to be decided by a private party (such as Arbitration) while disputes concerning rights in rem can be decided by a public forum such as Courts.

In the case of A. Ayyasamy v. A. Paramasivam[3], it was held that those cases where the subject-matter falls exclusively within the domain of Public forum such as Courts, such disputes would be non-arbitrable and cannot be decided by the Arbitral tribunal but by the Courts alone.

Further in Penumalli Sulochana v. Harish Rawtani[4], Andhra Pradesh High Court relied upon the case of Booz Allen and held that disputes governed under lease deed are non-arbitrable. It reasoned that the eviction of tenant governed by special statutes is not a subject-matter of arbitration.

The Decisive Case – Himangni Enterprises

The Division Bench of the Supreme Court in Himangni Enterprises v. Kamaljeet Singh Ahluwalia[5] settled the issue, reaffirmed the non-arbitrability of disputes related to tenancy and eviction matters and applying the law laid down in Navrang Studios and Booz Allen to this case, it was held that the Courts below were right in dismissing the appellant-tenant’s application filed under Section 8 of the Act and were right in holding that civil suit filed by the respondent-Landlord was maintainable despite parties agreeing to get the dispute settled by the Arbitrator.

The Court held that the disputes under the Transfer of Property Act have to be tried by a public court and not by an arbitrator.

Comment

 The question of Arbitrability of lease-disputes was not discussed either in Booz Allen or Navrang Studios and hence, the judgment of Himangni Enterprises based on these abovementioned cases seem to be misplaced. Booz Allen case dealt with the arbitrability of mortgage deed while Navrang Studios’ case dealt with lease and license agreement covered by special statutes.

The Court should have based its judgment of Himangni Enterprises on the angle of rights in rem and rights in personam. However, this case is in consonance with the decision of A. Ayyasamy.

It is clear that the disputes concerning lease either governed by Transfer of Property Act or special statutes involves transfer of interest in the property, and this transfer creates rights qua third parties, as the enjoyment of property is concerned.

A dispute of such a nature where the determination of rights of third parties are relevant, the matter has to be then decided by a public court. That would facilitate a chance to the parties concerned whose rights may be affected. A hearing should be given to all the persons whose rights may be afforded. An Arbitral Tribunal, settling disputes between two parties cannot decided on any dispute where third party is also interested. And further, the decision of the Tribunal would not binding on the third party who is also concerned with proceedings.

Hence, only the Courts, being public forum should be allowed to decide on the lease disputes as it would determine rights in rem and not by the Arbitral Tribunal.

[This article has been contributed by Mayank Jain, a third year law student of Rajiv Gandhi National University Of Law, Patiala.]

[1] Natraj Studios (P) Limited v Navrang Studios, 1981 AIR 537.

[2] Booz-Allen & Hamilton Inc vs Sbi Home Finance Ltd. & Ors, (2011) 5 SCC 532.

[3] (2016) 10 SCC 386.

[4] 2013 SCC OnLine AP 667.

[5] (2017) 10 SCC 706.

Please follow and like us:

Leave a Reply

Your email address will not be published. Required fields are marked *

Enjoy this blog? Please spread the word :)