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ARBITRABILITY OF LANDLORD-TENANT DISPUTES

INTRODUCTION

The Transfer of Property Act[1] entered the legal system on July 1st, 1882. A “transfer of property” is an act in which a live person conveys property to himself, one or more other living persons, or both, in the present or the future, in accordance with Section 5 of Transfer of Property, 1882[2]. “To transfer property” implies the performance of such an act. It regulates both movable and immovable property and can also include bodies, corporations, companies, or any association. This act can effectively resolve disputes between landlords and tenants.

THE HISTORICAL ASPECT OF ARBITRABILITY OF TENANCY DISPUTES

The court dismisses the motion made under section 8 of the Arbitration & Conciliation Act, 1940[3] in the matter of Natraj Studios (P) Ltd. v. Navrang Studios & Ors.[4] since tenancy is governed by the Bombay Rent Control Act & the disputes can be tried at small causes court instead of arbitration.

Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. and Ors.[5] was another instance where it was determined that the application of enforcement of a mortgage was not by arbitration. Hence, the matters of tenant disputes are not arbitrable and will be governed under the Transfer of Property. Additionally, it was decided that while the right in personam, which protects interests against persons, is arbitrable, the right in rem is not. It goes with the decision of the Natraj Studios case.    

It was held in the case HDFC Bank Ltd v. Satpal Singh Bakshi[6] that the matters will be arbitrable and will not be restricted by any jurisdiction. In the case of Vimal Kishor Shah v. Jayesh Dinesh Shah[7], it was concluded that the Trusts Act was not arbitrable as they confer specific powers on the principal judge. A case related to Consumer Protection Act on which Arbitration Act will not apply, was held in Emaar MGF Land Ltd. v. Aaftab Singh[8].

Again, In the Supreme Court, the same question arose in the case of Himangi Enterprises v. Kamaljeet Singh Ahluwalia[9] whether or not landlord-tenant issues can be arbitrated. Since Section 3 of the Delhi Rent Act did not apply to the rented property in this instance, the tenant had filed a claim under Section 8 of the Arbitration & Conciliation Act[10]. Even in the situations when the Transfer of Property Act does not apply, it was determined; still, cases will not be considered arbitrable, and these cases will be tried under the civil courts.

THE FINAL VERDICT

The landlord and tenant entered into a lease arrangement for a few godowns and other buildings in Vidya Drolia & Ors. v. Durga Trading Corporation[11]. Ten years was the maximum term of the tenancy. There was an arbitration clause in the lease. The tenant was asked to leave the property by the landlord after ten years. After the tenant refused to free the area that which has acquired, the landlord handed them a notice of arbitration. Following Section 11 of the Arbitration Act[12], the landlord asked for the appointment of an arbitrator. The High Court of Calcutta rejected the tenant’s claims that the matter could not be arbitrated and instead submitted the case for arbitration.

A review/recall application was submitted in response to the judgment in Himangni Enterprises made against the arbitrator appointment order before the High Court of Calcutta. The High Court of Calcutta rejected this application, and the Court of Appeal has appealed.

Sections 111, 114, and 114A of the Transfer of Property Act[13], which specifically deals with the rights and responsibilities of landlords and tenants, were studied. The Court concluded that the Transfer of Property Act does not contain any provisions that forbid arbitration of matters about the Transfer of Property Act.

To assess whether disputes may be arbitrated, the Court established a four-part test. It was decided that a disagreement wouldn’t be subject to arbitration under the following situations:

  • It relates to activities taken in rem or actions taken in connection with rights in rem that are not subordinate in personam.
  • It impacts third-party rights, needs centralized adjudication, and mutual adjudication is neither suitable nor enforceable; it has an erga omnes effect;
  • It has to do with the state’s unassailable functions of the state and the public interest; and
  • According to the required statute, it is explicitly or logically implied to be non-arbitrable.

The court decided that the public policy concerns might be brought up before the arbitrator in the way they did before the court. Transfer of Property Act, as with other legislative acts, would bind the arbitrator, and they would be required to resolve disputes following the advantages and protections offered to renters. In addition, the court decided that a landlord-tenant dispute award would have the same legal standing as a civil court order. This led to the decision that disputes between landlords and tenants might be arbitrated under the Transfer of Property Act.

 An award that resolves landlord-tenant conflicts may be signed and enforced much like a civil court judgment. Landlord-tenant issues are unrelated to the State’s unalienable and sovereign powers. Arbitration is not expressly or necessarily impliedly prohibited under the Transfer of Property Act’s provisions. However, disputes between landlords and tenants covered and governed by rent control regulations would not be subject to arbitration when a specific court or forum has been granted exclusive jurisdiction to apply and decide on specified rights and obligations. These rights and obligations may not be determined or enforced by arbitration but only by the specific court or forum.

CONCLUSION & ANALYSIS

After several judgments, the judgment of Vidya Drolia puts an end to the long debate which resolves the doubt about the arbitrability of the Landlord-tenant dispute. It lay down that the disputes are arbitrable until they are not covered under any specific act. But if these disputes are not covered under those acts, then the disputes are arbitrable under Sections 8[14] & 11[15] of the Arbitration & Conciliation Act. Also, on the prohibition of Arbitration, the Transfer of Property Act is silent. Moreover, the court laid down four tests to determine whether the dispute is arbitrable or not. The arbitrators are experts in the subject matter, so arbitration should not be considered a faulty procedure. This judgment signifies that India will be an arbitrable friendly nation in near future with new specifications and developments in the law.

Author(s) Name: Garima Kamboj (University Institute of Legal Studies, Panjab University, Chandigarh)

References:

[1] The Transfer of Property, 1882

[2] The Transfer of Property, 1882, s.5

[3] Arbitration & Conciliation Act, 1940, s.8

[4] Natraj Studios (P) Ltd. v. Navrang Studios & Ors., (1981) 1 SCC 523

[5] Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. and Ors., (2011) 5 SCC 532

[6] HDFC Bank Ltd v. Satpal Singh Bakshi, 2013 (134) DRJ 566 (FB)

[7] Civil Appeal no. 8164 of 2016 (Arising out of SLP(C) No. 13369 of 2013)

[8] Emaar MGF Land Ltd. v. Aaftab Singh, Review petition (C) Nos. 2629-2630 OF 2018

[9] Himangi Enterprises v. Kamaljeet Singh Ahluwalia, (2017) 10 SCC 706

[10] Ibid 3

[11] Vidya Drolia & Ors. v. Durga Trading Corporation, 2019 SCC OnLine SC 358                    

[12] Arbitration & Conciliation Act, 1940, s.11

[13] The Transfer of Property, 1882, s.111, 114, 114A

[14] Ibid 3

[15] Ibid 12