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Arbitration in Tenancy Disputes

Roopadaksha Basu

I. Introduction

A tenancy is created by virtue of an agreement between the landlord and tenant whereby the landlord leases or lets his premises to the tenant for occupation. Generally, such tenancies were governed under the Transfer of Property Act, 1882. However, these general rules governing the relationship between a landlord and tenant underwent a change after the Second World War due to the acute shortage of residential accommodations in urban areas.

Such shortage of residential accommodations coupled with the rise of welfare state made it expedient to regulate the relationship between landlords and tenants and grant protection to tenants from the enhancement of rents and forceful ejection from their residential premises. Thus, several rent control statutes were introduced across the country which afforded special protection to tenants and superseded the provisions of Transfer of Property Act. They offered limited scope to the landlords to evict the tenants and enhance the rents. These rent control statutes were welfare legislations intended to protect tenants against unscrupulous and profiteering landlords and ensure their basic rights of having accommodation.

The rent control legislations also empower specific courts (E.g. Small Causes Court) to deal with disputes between landlords and tenants. Such power/jurisdiction to try tenancy disputes are generally exclusive and no other court has the jurisdiction to try such disputes. Thus, the question which arose in several cases was whether such tenancy related disputes are arbitrable when the power to adjudicate has been exclusively vested in a public forum. This article sets out the various judgements pronounced by the Supreme Court on this issue and how the Apex Court has moulded this jurisdiction over time.

II. Judgements related to rent control legislations

i. Natraj Studios v Navrang Studios

One of the earliest judgements on this issue was pronounced by the Supreme Court in the matter of Natraj Studios v Navrang Studios. The issue before the Court was whether Section 28(1) of the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, which vests exclusive jurisdiction in the Small Causes Court Act to deal with disputes related to protected tenants within the limits of Greater Bombay, nullify any arbitration clause contained in any agreement executed between the parties.

The Supreme Court analysed the purpose and entire scheme of the Bombay Rent Act and observed that such disputes between landlords and statutory tenants (including protected Licensees) can be exclusively tried by the Small Causes Court. The Court observed that the Bombay Rent Act is a welfare legislation which was enacted with the specific purpose of protecting tenants against harassment from landlords. Hence, special courts have been vested with exclusive jurisdiction to decide any tenancy related disputes. This is a specific statutory intent and parties cannot be permitted to circumvent such legislative mandate through a private contract.

ii. Booz Allen and Hamilton Inc v SBI Home Finance Limited

This case arose out of an application under Section 8 of the Arbitration and Conciliation Act, 1996 in a suit related to the redemption of the mortgage. The question which was raised before the Supreme Court was whether a dispute related to enforcement of mortgage is arbitrable.

While answering this particular question, the Supreme Court analysed the broader concept of “arbitrability of disputes”. The Court observed that every civil or commercial dispute, which can be decided by a court, is in principle amenable to arbitration. The exception to this general principle is when the jurisdiction of an arbitral tribunal is barred by any statute either expressly or by necessary implications. Adjudication of certain categories of disputes is exclusively reserved for public fora as a public policy and such disputes are not arbitrable.

The Court then proceeded to illustrate some of the non-arbitrable disputes and one such illustration was a dispute related to the eviction of statutory tenants. Such observation of the Supreme Court further fortified the legal position that disputes related to tenancies (in case of protected tenants) are non-arbitrable and the designated courts under the respective rent control legislations have exclusive jurisdiction to adjudicate such dispute.

III. Expansion of concept – Conflicting Views

The aforementioned judgements set out the clear precedent that tenancy related disputes, which are governed under rent control legislation, are non-arbitrable and such disputes have to be mandatorily adjudicated before the courts designated under such rent control statute.

However, the question persisted regarding those tenancy related disputes where the tenants are not protected under any rent control legislation and are governed under the Transfer of Property Act. The answer to this question is not straightforward and divergent views have been taken by the Supreme Court

i. Himangni Enterprises v Kamaljeet Ahluwalia

This matter arose out of a civil suit filed for eviction of a Licensee. The premises were not covered under the Delhi Rent Control Act, 1958. The Defendant (Licensee) filed an application under Section 8 of the Arbitration & Conciliation Act, 1996 praying that the matter is referred to arbitration in terms of the Leave and License Agreement. The application was rejected by the District Court and the Delhi High Court. Hence, the Licensee preferred a Special Leave Petition before the Supreme Court.

The Supreme Court was posed with the question that whether this dispute is arbitrable considering that the premises are not covered under the rent control statute. The Supreme Court answered in the negative. The Court held that the ratio laid down in Nataraj Studio (supra) and subsequently followed in Booz Allen and Hamilton (supra) is applicable for all eviction related disputes notwithstanding whether the concerned premises is covered under rent control legislation or not. Even if the premises is governed under the Transfer of Property Act, any eviction related suit would lie before the Civil Court and not before the Arbitrator.

ii. Vidya Drolia v Durga Trading Corporation

A similar issue arose before the Supreme Court in the above matter where a Licensee objected to an arbitration proceeding initiated against her seeking for her eviction from the Licensed Premises. The Licensee contended that the issue is non-arbitrable and pressed into service the judgement rendered in Himangni Enterprises (supra).

The Supreme Court in this case analysed the correctness of the ratio laid down under the Himangni Enterprises as well as the judgements it relied upon i.e. Nataraj Studio and Booz Allen and Hamilton. The Court observed that both Nataraj Studio and Booz Allen and Hamilton dealt with licenses/tenancies which were protected under rent control legislations. It was on this backdrop that the Supreme Court (in the above matters) held that the tenancy related disputes are not arbitrable and have to be adjudicated by designated public fora.

The statute itself prohibits any other forum to adjudicate such issues. However, no such prohibition is envisaged under the Transfer of Property Act and hence tenancy related disputes governed under the Transfer of Property Act cannot be deemed as non-arbitrable disputes.

In light of such observation, the Supreme Court referred the issue for consideration of a Larger Bench. To the best knowledge of the author, as on the date of this article, this issue is still pending consideration of the Larger Bench.

IV. Tenancy Related dispute for Greater Bombay

In this section of the article, we will analyse the position of law which is prevalent for Greater Bombay with regard to the arbitrability of eviction related disputes arising out of Leave and License Agreement. This issue came up for consideration in a reference proceeding before a Full Bench of the Bombay High Court in the matter of Central Warehousing Corporation v Fort Point Automotive Private Limited.

The reference was made in connection with Section 41 of the Presidency Small Causes Courts Act, 1882. Section 41 prescribes that all disputes, arising between a Licensor and Licensee or a Landlord and Tenant in relation to eviction or recovery of rent from any immovable property situated in Greater Bombay shall be adjudicated by the Small Causes Court. Hence, the question posed before the Full Bench was whether Section 5 of the Arbitration and Conciliation Act, 1996 overrides Section 41 of the Presidency Small Causes Court Act, 1882 and consequently whether such disputes are arbitrable or not.

The Full Bench answered the reference in the negative. The High Court held that Section 41 of the Presidency Small Causes Court Act is pari materia to Section 28 (1) of the Bombay Rents, Hotel and Lodging House Rates Control Act and hence the ratio laid down in Nataraj Studio (supra) would be squarely applicable for disputes arising out of a leave and license agreement for properties situated within the limits of Greater Bombay. Thus, the Full Bench declared that any category of disputes prescribed under Section 41 of the Presidency Small Causes Court is non-arbitrable and any arbitration clause in a leave and license agreement, to that extent is inoperative.

V. Conclusion

The legal position that can be culled out from the above judgements are briefly summarized as under:

  1. Disputes arising out of tenancy which are protected under rent control legislations are non-arbitrable

  2. For tenancies which are not protected under any rent control legislations, the arbitrability of disputes arising out of such tenancies, is still pending consideration before a Larger Bench of the Supreme Court

  3. Disputes between licensor and licensee within the limits of Greater Bombay are non-arbitrable

In view of the author, rent control laws were framed keeping in view the dearth of residential accommodation post the Second World War. However, the housing situation in urban areas has changed significantly. Even though the dearth of housing continues to be a prevalent issue, the consequence has been led to an anomalous situation and disparity between classes of tenants. Whereas a regular licensee pays a substantial amount of money to secure his accommodation, a protected tenant ends up paying a meagre amount. In a city like Mumbai, this disparity is even greater.

Hence, the time may have come to reconsider Forum for adjudication of such dispute, particularly through arbitration which is speedier process compared to proceedings before Small Causes Court which generally take close to 10 years to conclude.

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