Are Tenancy Disputes Arbitrable?

 Introduction

Transfer of property which includes the lease of immovable properties is covered as general law under the Transfer of Property Act, 1882. It lists the rights and liabilities of landlord and tenant when a contract to the contrary does not exist. Several States have enacted separate laws for themselves in addition to this central law. These laws help handle situations of disputes between landlords and tenants. These special laws often exclude ordinary jurisdiction of civil courts and bestow exclusive special jurisdiction to adjudicate these specified disputes. Tenancy Disputes are increasing notoriously in India. Rent control laws have also resulted in the degradation of the quality of leasing. India after liberalization has seen an increase in a commercial business venture. In accordance with it, these leasing transactions and high financial implications parties agree to correspond to the resolution of their disputes by way of arbitration. In the State of Maharashtra, the Maharashtra Rent Control Act, 1999 provides the jurisdiction to exclusively entertain any proceedings of such types.

Arbitrability in the Indian context

The Arbitration and Conciliation Act Section 2(3) says that the statute will not have any effect on any other law which indicates that disputes cannot be subject to arbitration proceedings. Adding more to it the Section 34(2)(b) and 48(2) of these acts also agrees to this non-arbitrability of certain disputes by allowing courts to set aside awards when the subject matter dispute is incapable of settlement by arbitration under this act. As this point does have any statutory provisions at its base this concept is developed by the courts using precedents.

Arbitration and Tenancy Disputes

The landlord and tenant disputes often go to the courts which results in a lengthy, costly procedure which becomes frustrating for both landlords and tenants. However, if an alternative method of dispute resolution is used to resolve the disputes between them solving their issue becomes much easier and more convenient. However, as the Arbitration and Conciliation Act does not have specific terms and conditions which may exclude any category of disputes as non-arbitrable, the Supreme Court and High Courts are of the view that tenancy and eviction matters must be non-arbitrable.

 

The Right in rem and the right in personam

Subjects like sale, mortgage, lease and license are included in ToPA they provide rights qua and form a part of rights in rem as per the test laid down in the case of Booz Allen[1] and therefore these disputes are not arbitrable. ‘in rem’ and ‘in personam’ are both terms derived from Roman Language. In rem is a right accessible against the entire world and in personam is right accessible by a person against a specific individual. In rem is a pessimistic right which is practised as per obligations forced on individuals as a rule and in personam are positive rights practised against an explicit individual. This agreement between a landlord and tenant promotes subordinate right in personam which makes it subject to arbitration. Vidya Drolia’s case which is the landmark case through which this concept has affirmed itself has also denied to this contention of tenants being a class as they have remedies under transfer of property act. As a result of which though Transfer of property act includes rights in rem this issue of landlord and tenant relation is a subordinate right in personam and therefore capable of getting resolved via arbitration.[2]

Case laws

1.     Natraj Studios vs. Navrang Studios (1981)[3] – It was held that the tenancy matters in association with the Bombay Rent Control Act, 1947 come under the jurisdiction of small cause court and cannot be arbitrated in light of broad consideration of its public policy.

2.     Booz Allen & Hamilton Inc vs. SBI Home Finance Ltd (2011)[4] –The Supreme Court opined, “the prominent examples of non-arbitrable disputes are eviction or tenancy matters governed by special enactments where the tenant enjoys official protection against eviction and only the specified courts are conferred jurisdiction to acknowledge eviction or decide disputes.”

3.     Himangni Enterprises vs. Kamaljeet Singh Ahluwalia (2017)[5] – The Supreme court ruled that in respect of the application of special rent act premises which are exempted, the parties cannot enforce arbitration and it would have to be tried in a civil court.

4.     Eros International Media Limited vs. Telemax Links India (2016)[6] – The High court said “The Arbitration Act is not one that we should constantly try to short-circuit in the matter after the matter. Unless specifically debarred, what a civil court can do, an arbitrator can do.”

5.    Vidya Drolia and ors. vs. Durga Trading Corporation (2020)[7]– The Supreme Court in this recent judgement rejected the logic used in Himangni Enterprises case, they also upheld arbitrability of tenancy disputes.[8]

Conclusion

Commercial agreements are long term contracts. As the landlord and tenant disputes stand long-term preserving the business relation in such commercial contract stands essential. When disputes between them arise getting entangled into litigation will have a cascading effect for business, revenues, time, and resources. The real estate growth will certainly be harmed due to these factors. Arbitration is a powerful tool to overcome such problems in a short time and have benefits to both the parties. By way of alternate resolution of such disputes or by the Supreme Court or by the creation of suitable legislation parties will not be forced to take any counterproductive steps during their ongoing disputes.

We find right in personam in landlord-tenant disputes is exercisable only against each other. There is the existence of a special forum for adjudicating these disputes however keeping a bar on the jurisdictional practice of arbitral tribunals does not seem to be very useful. There must be an option for the parties to go for arbitration or to the courts as litigation is a time and money consuming process and so far, the issue of public welfare is concerned there can be terms and conditions for such private forums to follow certain duties and conditions during this process which has to be in favour of the public and not merely for resolution of private disputes between individuals. In light of all these factors, the tenancy disputes should be arbitrable in India.[9]

By

Titiksha Narkhede

III B.A. LL.B.

ILS Law College, Pune

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[1] Booz Allen & Hamilton Inc vs. SBI Home Finance Ltd (2011), (2011) 5 SCC 532

[2]Chitransh Vijayvergia, Arbitrability of Tenancy Disputes in India: Current Position and Expectations from the Future, https://www.irccl.in/post/arbitrability-of-tenancy-disputes-in-india-current-position-and-expectations-from-the-future

[3] 1981 AIR 537

[4] (2011) 5 SCC 532

[5] (2017) 10 SCC 706

[6] 2016 (6) Bom CR 321

[7] 2020 SCC OnLine SC 1018

[8] Pradeep Nayak & Vikas Mahendra, Vidya Drolia: A dollop of nectar and a few poison darts, https://www.barandbench.com/columns/vidya-drolia-dollop-of-nectar-few-poison-darts

[9] J Sagar Associates, Are tenancy-related disputes arbitrable?, https://law.asia/are-tenancy-related-disputes-arbitrable/