Specific Performance Of Agreement To Lease Can Be Sought Before Arbitrator; Bar Of Section 41 of PSCC Act Will Not Apply: Bombay High Court

The bench of Justice N. J. Jamadar, however, observed that an Agreement to Lease merely contemplates to create a lease in the future and thus, the bar under Section 41 will not apply to the dispute arising under it. Thus, specific performance of the Agreement to Lease can be sought even before an Arbitrator, the Court held.

As per the Presidency Small Cause Courts Act, the Court of Small Causes shall have jurisdiction to entertain all suits and proceedings between a licensor and licensee, or a landlord and tenant, relating to recovery of possession of any immovable property situated within its jurisdiction.

Respondent No. 1 – 4, who represent the Birla Group, are the trustees of respondent no. 5-Birla Industries Group Charity Trust (BIG Trust), a public trust registered under Maharashtra Public Trust Act, 1950, which runs educational institutions.

The applicants- Eduserve as well Edufocus International Education LLP (Edufocus), were formed through separate Deeds of Limited Liability Partnership (LLP), executed between two family business groups- the Goenkas and the Birlas, to administer and manage the schools run by the respondent Trust.

The applicant Edufocus International executed various agreements with respondent no.5/Trust, namely a School Management Services Agreement (SMSA), and an MoU to grant the applicant license to use the respondent Trust’s school property, followed by a Leave and License Agreement. On the other hand, the applicant Eduserve and the respondent Trust executed an Agreement to Lease.

After certain disputes arose between the parties, with the respondent Trust allegedly proposing to terminate the arrangement and refusing to perform its obligations, the applicants invoked the arbitration clause and filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Bombay High Court.

The respondent- Birla Industries Group Charity Trust, submitted before the High Court that an arbitration clause was only contained in the SMSA and the Agreement to Lease. It averred that each of the agreements were executed between the applicants and the respondent Trust for a separate purpose. Thus, it argued that the arbitration clause contained in SMSA cannot be invoked to resolve the disputes arising under the MoU and/or the Leave and License Agreement.

With respect to the Agreement to Lease, the respondent contended that since the Agreement was executed with the applicant Eduserve before a certificate of incorporation was issued in its favour, the Agreement to Lease was void.

The respondent added that under the MoU, the Agreement to Lease, and the Leave and Licence Agreement, the applicants were seeking to enforce rights in relation to possession of an immovable property. Therefore, it argued that in view of the express bar contained in the Presidency Small Cause Courts Act, 1882, the disputes arising under the said agreements cannot be referred to arbitration, since there was a pre-existence relationship of a licensor and licensee between the parties.

The Court observed that an inquiry under Section 11 of the A&C Act involves a very limited review, to ascertain as to whether there is indeed no Arbitration Agreement between the parties and to ensure that the parties are not forced to arbitrate when the matter is demonstrably non-arbitrable.

Rejecting the contention of the respondent Trust that the Agreement to Lease was void as it was executed with a non-existent entity, the Court ruled that specific performance of contract can be sought by a juristic entity even where a contract was executed before its incorporation.

The bench referred to the decision of the Supreme Court in Suresh Shah versus Hipad Technology India Pvt. Ltd. (2020), where the Apex Court had drawn a distinction between a dispute which is governed by the provisions of the Transfer of Property Act, 1882 and a dispute arising under the Rent Act. The Supreme Court had ruled that while the former is arbitrable, the latter can be adjudicated only by the Courts having jurisdiction under the special enactment. If the eviction or tenancy is governed by a special statute, namely, the Rent Act, under which the tenant enjoys statutory protection against eviction, the courts specified in the special enactment alone will have jurisdiction to order eviction or to resolve the disputes, the Supreme Court had said.

Referring to Section 41 of the Presidency Small Cause Courts Act, the Court reckoned that jurisdiction for recovery of possession of any immovable property, which is situated within the local limits of the Small Causes Court, shall lie solely with it.

Noting that the Agreement to Lease merely contemplated to create a lease in the future, the bench held that the bar under Section 41 will not apply to the dispute arising under the Agreement to Lease. Thus, specific performance of the Agreement to Lease can be sought even before an Arbitrator, the Court said.

Perusing the MoU and the registered Leave and License Agreement executed by the respondent Trust with the applicant, Edifucous, the bench noted that the MoU incorporated an agreement to create the license and eventually, it culminated into execution of a registered Leave and License Agreement. Further, the said Leave and License Agreement established jural relationship of a licensor and licensee between the parties.

The Court thus, concluded that the dispute between the parties under the Leave and License Agreement emanated from the relationship of a licensor and licensee. In view of the bar contained in Section 41, the dispute under the MoU and the Leave and License Agreement was not amenable to arbitration, the Court ruled.

The applicant- Edufocus, argued before the Court that the SMSA executed by the parties was in the nature of a mother contract, and that the SMSA, the MoU and the Leave and License Agreement were a part of the composite transaction between the parties. Thus, in view of the arbitration clause contained in the SMSA, disputes arising under the MoU and the Leave and License Agreement must be referred to arbitration, the applicant averred.

Rejecting the arguments made by the applicant, the Court held: “In the case at hand, the real question is not as to whether the agreements in question collectively evidence a composite contract but the question is of existence of a statutory bar. Therefore, I am unable to accede to the submission on behalf of the applicant (Edufocus) that the dispute arising out of MOU and Leave and License Agreement are also required to be referred to arbitration.”

The Court thus partly allowed the application, referring only the disputes arising under the School Management Services Agreement (SMSA) and the Agreement to Lease to arbitration.

Case Title: Edufocus International Education LLP versus Yashovardhan Birla & Ors.

Citation: 2023 LiveLaw (Bom) 9

Dated: 23.12.2022 (Bombay High Court)

Counsel for the Applicant: Mr. Rohan Kelkar a/w. Mr. Chirag Bhatia, Mr. Rashi Shah i/b. Kartikeya & Associates

Counsel for the Respondent: Mr. Vishal Kanade a/w. Mr. Sumit Chakrabarti, Mr. Shantam Mandhyan i/b. Vidhi Partners

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