Claim For Recovery Of Security Deposit Or Damages Under License Agreement Is Arbitrable & Not Barred By Section 41 Of The Small Cause Courts Act: Bombay High Court
The Bombay High Court has reiterated that where the parties to a Leave and License Agreement are governed by an Arbitration Agreement, determination of the dispute relating to recovery of the security deposit under the said License Agreement through arbitration is legally permissible. The Single Bench of held that the expression "charges" as provided under Section 41 of the...
The Bombay High Court has reiterated that where the parties to a Leave and License Agreement are governed by an Arbitration Agreement, determination of the dispute relating to recovery of the security deposit under the said License Agreement through arbitration is legally permissible.
The Single Bench of held that the expression "charges" as provided under Section 41 of the Presidency Small Cause Courts Act, 1882, which confers exclusive jurisdiction to the Small Causes Court with respect to a dispute between a licensor and a licensee relating to recovery of an immovable property situated in Greater Bombay or recovery of licence fee, charges or rent, cannot subsume in its fold a claim for damages.
The Court added that a claim for recovery of security deposit and damages/compensation would not fall within the exclusive jurisdiction of the Court of Small Causes under Section 41 of the Presidency Small Cause Courts Act.
The applicant Bafna Motors Private Limited and the respondent Amanulla Khan executed a Leave and License Agreement. The licensee/applicant gave a notice to the licensor/respondent, intimating that it would be vacating the licensed premises. The applicant also made a demand for refund of security deposit. The respondent did not agree to the termination of the agreement. After a dispute arose between the parties under the agreement, the applicant filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Bombay High Court seeking appointment of an Arbitrator to arbitrate all the disputes between the parties in relation to the Leave and License Agreement.
The respondent Amanulla Khan submitted before the High Court that the disputes arising out of Leave and License Agreement were exclusively amenable to the jurisdiction of Court of Small Causes, Mumbai under Section 41 of the Presidency Small Cause Courts Act, 1882. The respondent contended that reference to arbitration would be against the public policy and, therefore, the Arbitration Agreement contained in the Leave and License Agreement was invalid and inoperative.
The respondent averred that the applicant/licensee had unilaterally vacated the subject premises and had either taken away the valuable equipments from the licensed premises or damaged them. The respondent submitted that he had incurred huge expenses towards repairing the damaged equipments and was in the process of instituting a suit for the recovery of the amount in the Court of Small Causes, Mumbai.
The applicant Bafna Motors Private Limited submitted that since it claimed refund of the security deposit under the terms of the Leave and License Agreement, the dispute would not fall within the exclusive jurisdiction of the Court of Small Causes under Section 41 of the Presidency Small Cause Courts Act.
The applicant averred that the bar under Section 41 of the Presidency Small Cause Courts Act applied only when the dispute is relating to recovery of possession of the licensed premises, rent or license fee. Thus, the applicant contended that claim for refund of the security deposit does not fall within the ambit of exclusive jurisdiction of the Court of Small Causes.
The Court noted Section 2(3) of the A&C Act provides that Part I of the A&C Act shall not affect any other law for the time being in force by virtue of which certain disputes may not be submitted to arbitration.
The Court observed that Section 41(1) of the Presidency Small Cause Courts Act, 1882 provides that the Court of Small Causes shall have jurisdiction to entertain and try all suits and proceedings between a licensor and licensee, or between a landlord and tenant, relating to the recovery of possession of any immovable property situated in Greater Bombay, or relating to the recovery of the licence fee, charges or rent.
The Court thus ruled that in view of the conjoint reading of Section 2(3) of the A&C Act and Section 41 of the Presidency Small Cause Courts Act, if a special law provides for resolution of the disputes exclusively through a machinery created thereunder, and implies that such disputes are not amenable to arbitration, Part I of the A&C Act will not be attracted.
The High Court observed that a Full Bench of the Bombay High Court in the case of Central Warehousing Corporation versus M/s. Fortpoint Automotive Pvt. Ltd (2009) had ruled Section 41 of the Presidency Small Cause Courts Act falls within the ambit of Section 2(3) of the A&C Act and, therefore, even if the Licence Agreement contains an Arbitration Agreement, the exclusive jurisdiction of the Courts of Small Causes under Section 41 is not affected in any manner. The Court had held that the Arbitration Agreement incorporated in the License Agreement, in such cases, would be invalid and inoperative since it would be against public policy to allow the parties to contract out of the exclusive jurisdiction of the Small Causes Courts.
However, the Court observed that the Bombay High Court in the case of Brainvisa Technologies Pvt. Ltd versus Subhash Gaikwad (HUF) (2012) had ruled that a suit for recovery of security deposit does not constitute a suit for recovery of "licence fee or charges or rent" as provided under Section 41(1) of the Small Cause Courts Act. The Court had held that though licence fees, charges and rent are periodical payments made for use and occupation, a security deposit is a form of security obtained from the licensee. Thus, the Court had ruled that a claim for recovery of security deposit and damages/compensation would not fall within the exclusive jurisdiction of the Court of Small Causes.
The Court reiterated that a dispute over the refund of security deposit, as per the terms of a License Agreement, does not fall within the ambit of the exclusive jurisdiction of the Court of Small Causes under Section 41 of the Presidency Small Cause Courts Act.
The Court held that where the parties to a Leave and License Agreement were governed by an Arbitration Agreement, determination of the dispute relating to recovery of the security deposit under the said License Agreement through arbitration is legally permissible.
The Court observed that the respondent did not claim that any amount was due to it towards license fee or other charges. The Court noted that the respondent essentially claimed the cost of items which were allegedly lost or damaged by the applicant/licensee. The Court ruled that the claims raised by the respondent were primarily in the nature of damages, and the expression "charges" as provided under Section 41 of the Small Causes Courts Act cannot subsume in its fold a claim for damages.
Therefore, the Court ruled that the claim raised by the respondent, with respect to withholding of security deposit on the ground that the applicant was liable to pay damages to the respondent, did not fall within the exclusive jurisdiction of the Court of Small Causes. Thus, the Court ruled that the said dispute was amenable to arbitration.
The Court therefore allowed the application and appointed an Arbitrator.
Case Title: Bafna Motors Private Limited versus Amanulla Khan
Citation: 2022 LiveLaw (Bom) 185
Dated: 05.05.2022 (Bombay High Court)
Counsel for the Applicant: Mr. K.L. Vyas i/b. Karan Vyas
Counsel for the Respondent: Mr. Mangesh Patel