Landlord-Tenant Disputes Governed By Transfer Of Property Act Are Arbitrable In Nature: Reiterates Karnataka High Court

The Single Bench of Justice E.S. Indiresh observed that the Supreme Court in the case of Vidya Drolia versus Durga Trading Corporation (2020) had overruled its decision in Himangi Enterprises versus Amaljit Singh Ahulvalia (2017). The Court thus held that the landlord-tenant disputes between the parties under the lease deed, which was governed by the Transfer of Property Act, could be referred to arbitration.

The respondent / lessor Aries Agro - Vet Associates (Pvt) Limited entered into a lease deed with the petitioner Gokaldas Images Private Limited. The respondent filed a suit before the trial Court seeking ejectment of the petitioner from the leased property, along with arrears of rent and damages, and an injunction restraining the petitioner from subletting the leased property. Thereafter, the suit was transferred to the Commercial Court. The petitioner filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 (A&C Act) seeking reference of the dispute between the parties to arbitration as per the Arbitration Clause contained in the lease deed. The respondent filed an objection to the said application. The trial Court passed an order rejection the application filed by the petitioner. Against this, the petitioner filed a writ petition before the Karnataka High Court.

The petitioner Gokaldas Images submitted before the High Court that the trial Court dismissed the application filed by the petitioner by relying upon the decision of the Supreme Court in the case of Himangi Enterprises versus Amaljit Singh Ahulvalia (2017), wherein the Supreme Court had held that the issue relating to the lease is not arbitral in nature. The petitioner averred that the Supreme Court in the case of Vidya Drolia versus Durga Trading Corporation (2019) had ruled that the judgment rendered in the case of Himangi Enterprises (2017) was required to be reconsidered by a Bench of three Judges of the Supreme Court. Thus, the petitioner submitted that the order passed by the trial Court, by relying upon the judgment in Himangi Enterprises (2017), was incorrect.

The High Court noted that the trial Court, by placing reliance upon the judgment of the Supreme Court in Himangi Enterprises (2017), had ruled that since the lis between the parties was relating to eviction as well as arrears of rent, therefore, the said dispute was non-arbitrable.

The Court observed that the Supreme Court in the case of Vidya Drolia (2019) had ruled that the judgment rendered in Himangi Enterprises (2017) was required to be relooked by a larger Bench of the Supreme Court.

The Court noted that, thereafter, the Supreme Court in the case of Vidya Drolia versus Durga Trading Corporation (2020) had ruled that the landlord-tenant disputes governed by the Transfer of Property Act are arbitrable as they are not actions in rem but they pertain to subordinate rights in personam that arise from rights in rem. The Court observed that the Supreme Court had overruled the ratio laid down in Himangi Enterprises (2017) and had held that the landlord-tenant disputes are arbitrable in nature since the Transfer of Property Act does not forbid arbitration. However, the Court noted that the Supreme Court had held that the landlord-tenant disputes covered by rent control legislation would not be arbitrable, if a specific court or forum was given exclusive jurisdiction under the Statute to decide special rights and obligations.

Considering that the dispute between the parties under the lease deed was governed by the Transfer of Property Act, the Court thus held that the order passed by the trial Court could not be sustained. The Court, therefore, allowed the writ petition and set aside the order of the trial Court.

Case Title: Gokaldas Images Private Limited versus Aries Agro-Vet Associates (Pvt) Limited & Anr.

Citation: 2022 LiveLaw (Kar) 203

Dated: 13.04.2022 (Karnataka High Court)

Counsel for the Petitioner: Mr. Dhananjay V Joshi, Senior Counsel for Mr. Vachan H V, Advocate

Counsel for the Respondent: Ms. Bhavana G K, ADVOCATE

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