Transfer Of Property Act Disputes Between Landlord-Tenant Arbitrable? SC Refers To Larger Bench [Read Judgment]

The bench comprising Justice Rohinton Fali Nariman and Justice Vineet Saran was considering the appeal against Calcutta High Court order appointing an arbitrator in a dispute between landlord and tenant, after objections on arbitrability of the dispute.

It observed that the Transfer of Property Act is silent on arbitrability, and it does not negate arbitrability.

"While appreciating that a lease is a transfer of an interest in property, and therefore, a conveyance, in law, there is nothing in the Transfer of Property Act to show that a dispute as to determination of a lease arising under Section 111 cannot be decided by arbitration."

The court said that two judgments referred in Himangni Enterprises, merely holds that that only those tenancy matters that are (i) governed by special statutes (ii) where the tenant enjoys statutory protection against eviction and (iii) where only specified courts are conferred jurisdiction to grant eviction or decide disputes, are cases where the dispute between landlord and tenant can be said to be non-arbitrable. The court said:

"A perusal of both the aforesaid judgments, therefore, shows that a Transfer of Property Act situation between a landlord and tenant is very far removed from the situation in either Natraj Studios (supra) or in sub-paragraph (vi) of paragraph 36 of Booz Allen (supra). We are, therefore, of the respectful view that the question involved in a Transfer of Property Act situation cannot possibly be said to have been answered by the two decisions of this Court."

The court also said that it is clear that every one of the grounds stated in Section 111, whether read with Section 114 and/or 114A, are grounds which can be raised before an arbitrator to decide as to whether a lease has or has not determined. It added:

"In fact, a close reading of Section 114 would show that the rights of landlord and tenant are balanced by the aforesaid provision. This is because where a lease of immoveable property has determined by forfeiture for non-payment of rent, and at the hearing of the suit, the lessee pays or tenders to the lessor the rent in arrears, together with interest thereon and his full costs within 15 days, the Court in its discretion may relieve the lessee against the forfeiture. This shows two things – one that the landlord's interest is secured not only by the deposit of rent in arrears but also interest thereon and full costs of the suit. The option given, of course, is that security may also be given but what is important is that the Court is given a discretion in making a decree for ejectment if this is done. The discretion may be exercised in favour of the tenant or it may not. This itself shows that Section 114 cannot be said to be a provision conceived for relief of tenants as a class as a matter of public policy. The same goes for Section 114A. Here again, a lessee is given one opportunity to remedy breach of an express condition, provided such condition is capable of remedy. However, the exception contained in this section shows that it is a very limited right that is given to a tenant, as this would not apply to assigning, sub-letting, parting with the possession, or disposing of the property leased, or even to an express condition relating to forfeiture in case of non-payment of rent. Thus, it is clear that every one of the grounds stated in Section 111, whether read with Section 114 and/or 114A, are grounds which can be raised before an arbitrator to decide as to whether a lease has or has not determined."

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