2019 (2) TMI 2116 - SC - Indian Laws

Lease disputes under s.111 and s.114/114A may be arbitrated; some Trusts Act petitions (ss.34,46,74) non-arbitrable; Himangni revisited

Vidya Drolia and Ors. Versus Durga Trading Corporation

SC held that disputes about whether a lease has determined (including grounds under Sections 111, 114/114A) can be referred to arbitration and that ... Interpretation of statute - whether the word 'existence' would include weeding-out arbitration clauses in agreements which indicate that the subject-matter is incapable of arbitration? - Rights in rem - Applicability of decision in the case of Himangni Enterprises [2017 (10) TMI 566 - SUPREME COURT] - HELD THAT:- 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 - 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. In a similar situation, this Court, in OLYMPUS SUPERSTRUCTURES PVT. LTD. VERSUS MEENA VIJAY KHETAN [1999 (5) TMI 581 - SUPREME COURT], held that when it came to the grant of specific performance, there is no prohibition in the Specific Relief Act that issues relating to specific performance cannot be referred to arbitration, unlike the English statute. Equally, merely because a discretion had to be exercised by the court on whether or not to grant specific performance, would not militate against specific performance being granted. It is clear, therefore, that the judgment in Himangni Enterprises will require a relook by a Bench of three Hon'ble Judges of this Court - One more thing held in Himangni Enterprises is that the mere fact that an exemption from the Rent Act is available does not mean that the matter becomes non-arbitrable. The Court held that as soon as the exemption is withdrawn, the Rent Act will apply, and therefore, it cannot be contended that the Arbitration & Conciliation Act would apply. This reasoning is also, in our respectful view, not correct. Persons may be exempt from a Rent Act not merely for a certain period but also because the rent contained in the agreement between the landlord and tenant is above a certain amount. When the rent is fixed above the amount stated by a statute, in the normal course of human conduct, such rent can only be increased and not decreased so as to fall back within the provisions of the Rent Act. Further, the exemption based on a certain rent payable need not be withdrawn or cease to have application to a particular premises for many years to come. For all these reasons, we are of the view that this reason also does not hold good. A few Sections of the Indian Trusts Act will suffice to demonstrate how disputes under this Act cannot possibly be the subject matter of arbitration. Under Section 34 of the Indian Trusts Act, a trustee may, without instituting a suit, apply by petition to a principal Civil Court of original jurisdiction for its opinion, advice, or direction on any present questions respecting management or administration of trust property, subject to other conditions laid down in the Section. Obviously, an arbitrator cannot possibly give such opinion, advice, or direction. Under Section 46, a trustee who has accepted the trust, cannot afterwards renounce it, except, inter alia, with the permission of a principal Civil Court of original jurisdiction. This again cannot be the subject matter of arbitration. Under Section 74 of the Indian Trusts Act, under certain circumstances, a beneficiary may apply by petition to a principal Civil Court of original jurisdiction for the appointment of a trustee or a new trustee, and the Court may appoint such trustee accordingly. Here again, such appointment cannot possibly be by a consensual adjudicator. It can only be done by a petition to a principal Civil Court of original jurisdiction. Also, it is important to note that it is not any civil court that has jurisdiction, but only one designated court, namely, a principal Civil Court of original jurisdiction. All this goes to show that by necessary implication, disputes arising under the Indian Trusts Act cannot possibly be referred to arbitration. This case is referred to a Bench of three Hon'ble Judges - the stay that has been granted to the arbitral proceedings by order dated 13.08.2018 is lifted, and the proceedings may go on and culminate in an award. The award cannot be executed without applying to this Court. Issues Involved:1. Arbitrability of landlord-tenant disputes under the Transfer of Property Act.2. Applicability of the Himangni Enterprises judgment.3. Interpretation of Section 11(6A) of the Arbitration & Conciliation Act.4. Analysis of public policy and statutory reliefs under Sections 111, 114, and 114A of the Transfer of Property Act.5. Examination of precedents regarding arbitrability and public policy.Detailed Analysis:1. Arbitrability of Landlord-Tenant Disputes:The primary issue was whether disputes between landlords and tenants under the Transfer of Property Act are arbitrable. The court analyzed the provisions of the Transfer of Property Act, particularly Sections 111, 114, and 114A, to determine if they inherently exclude arbitration. It was held that these sections do not explicitly negate arbitrability, as they do not reserve exclusive jurisdiction for civil courts. The court emphasized that the Act is silent on arbitrability, and therefore, disputes under it can be referred to arbitration unless explicitly barred.2. Applicability of the Himangni Enterprises Judgment:The judgment in Himangni Enterprises was scrutinized, which had previously held that landlord-tenant disputes under the Transfer of Property Act are non-arbitrable. The court found that this judgment did not adequately consider the provisions of the Transfer of Property Act and was based on an incorrect reading of precedents like Booz Allen and Natraj Studios. The court noted that the Himangni Enterprises judgment requires reconsideration by a larger bench, as it incorrectly concluded that such disputes are inherently non-arbitrable.3. Interpretation of Section 11(6A) of the Arbitration & Conciliation Act:Section 11(6A) limits the court's role to examining the existence of an arbitration agreement. The court contrasted this with Section 16(1) of the Act, which allows the arbitral tribunal to rule on its jurisdiction, including the validity of the arbitration agreement. The court highlighted that the legislative intent was to minimize judicial intervention at the stage of appointing arbitrators, focusing solely on the existence of an arbitration agreement.4. Public Policy and Statutory Reliefs:The court examined whether the public policy underlying the statutory reliefs in Sections 114 and 114A of the Transfer of Property Act precludes arbitration. It concluded that these sections balance the rights of landlords and tenants and do not indicate a public policy that mandates exclusive court jurisdiction. The court emphasized that statutory reliefs do not imply non-arbitrability unless explicitly stated.5. Examination of Precedents:The court reviewed precedents such as Booz Allen and Natraj Studios, which deal with the arbitrability of disputes. It clarified that only disputes governed by special statutes providing statutory protection to tenants and exclusive jurisdiction to specific courts are non-arbitrable. The court distinguished the present case from these precedents, as the Transfer of Property Act does not provide such statutory protection or exclusive jurisdiction.Conclusion:The court referred the matter to a larger bench for reconsideration of the Himangni Enterprises judgment. It allowed the continuation of the arbitral proceedings, which had already seen 18 hearings, but stipulated that the award could not be executed without the court's permission. The appeal was disposed of accordingly, allowing the arbitration to proceed while awaiting further judicial clarification on the arbitrability of such disputes.