Tenancy Matters Governed Under Transfer Of Property Act Are Arbitrable, Reiterates Supreme Court

The Supreme Court has reiterated that the lease/tenancy matters which are not governed under the special statutes but under the Transfer of Property Act are arbitrable.

CJI SA Bobde led three judge bench observed thus while considering a petition under Section 11(5) of the Arbitration and Conciliation Act, seeking appointment of a Sole Arbitrator for resolving the disputes in relation to a lease deed.

The court noted that there is a clause in the lease deed which indicates that the disputes between the parties is to be resolved through Arbitration. The court further noted that since one of the parties is a citizen of Kenya and habitually is a resident of Nairobi, Kenya, the agreement qualifies as an 'International Commercial Arbitration' as defined in Section 2(f) of Act.

Referring to the provisions contained in Section 111, 114 and 114A of the TP Act,  the bench said that these provisions provide certain protection to the lessee/tenant before being ejected from the leased property. The bench also comprising Justices AS Bopanna and V. Ramasubramanian said:

"In our considered view, the same cannot be construed as a statutory protection nor as a hard and fast rule in all cases to waive the forfeiture. It is a provision enabling exercise of equitable jurisdiction in appropriate cases as a matter of discretion."

The court observed that such equitable protection does not mean that the disputes relating to those aspects between the landlord and the tenant is not arbitrable and that only a Court is empowered to waive the forfeiture or not in the circumstance stated in the provision. The bench added:

"In our view, when the disputes arise between the landlord and tenant with regard to determination of lease under the TP Act, the landlord to secure possession of the leased property in a normal circumstance is required to institute a suit in the Court which has jurisdiction. However, if the parties in the contract of lease or in such other manner have agreed upon the alternate mode of dispute resolution through arbitration the landlord would be entitled to invoke the arbitration clause and make a claim before the learned Arbitrator. Even in such proceedings, if the circumstances as contained in Section 114 and 114A of TP Act arise, it could be brought up before the learned Arbitrator who would take note of the same and act in accordance with the law qua passing the award. In other words, if in the arbitration proceedings the landlord has sought for an award of ejectment on the ground that the lease has been forfeited since the tenant has failed to pay the rent and breached the express condition for payment of rent or such other breach and in such proceedings the tenant pays or tenders the rent to the lessor or remedies such other breach, it would be open for the Arbitrator to take note of Section 114, 114A of TP Act and pass appropriate award in the nature as a Court would have considered that aspect while exercising the discretion."

The bench clarified that  disputes arising under the Rent Acts will have to be looked at from a different view point and therefore not arbitrable in those cases. This is for the reason that notwithstanding the terms and conditions entered into between the landlord and tenant to regulate the tenancy, if the eviction or tenancy is governed by a special statute, namely, the Rent Act the premises being amenable to the provisions of the Act would also provide statutory protection against eviction and the courts specified in the Act alone will be conferred jurisdiction to order eviction or to resolve such other disputes, the court said. It observed:

"In such proceedings under special statutes the issue to be considered by the jurisdictional court is not merely the terms and conditions entered into between the landlord and tenant but also other aspects such as the bonafide requirement, comparative hardship etc. even if the case for eviction is made out. In such circumstance, the Court having jurisdiction alone can advert into all these aspects as a statutory requirement and, therefore, such cases are not arbitrable. As indicated above, the same is not the position in matters relating to the lease/tenancy which are not governed under the special statutes but under the TP Act."

While appointing Justice (Retired) Mukul Mudgal, former Chief Justice of Punjab and Haryana High Court as the Sole Arbitrator to resolve the dispute between the parties in this case, the bench further referred to recent judgment in Vidya Drolia & Ors. vs. Durga Trading Corporation case and observed:

"In the backdrop of the above discussion, we are of the considered view that insofar as eviction or tenancy relating to matters governed by special statutes where the tenant enjoys statutory protection against eviction whereunder the Court/Forum is specified and conferred jurisdiction under 19 the statute alone can adjudicate such matters. Hence in such cases the dispute is non­arbitrable. If the special statutes do not apply to the premises/property and the lease/tenancy created thereunder as on the date when the cause of action arises to seek for eviction or such other relief and in such transaction if the parties are governed by an Arbitration Clause; the dispute between the parties is arbitrable and there shall be no impediment whatsoever to invoke the Arbitration Clause.  "

CASE: Suresh Shah vs. Hipad Technology India Private Limited [ARBITRATION PETITION (CIVIL) NO(S). 08/2020]

CORAM: CJI SA Bobde, Justices AS Bopanna and V. Ramasubramanian

Counsel: Advocate Vikas Dhawan

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