Arbitrability of Disputes- Vidya Drolia II
Vidya Drolia & Ors. v. Durga Trading Corporation – 2020
SPECIAL LEAVE PETITION NO. 11877 OF 2020
In Vidya Drolia II court clarified the meaning of Arbitrability. In this case, the court directed and outlined what disputes are arbitrable in this landmark judgement court directed on arbitrability of tenancy dispute. In this case, the court clarified the question that tenant-landlord disputes, which are governed by the Transfer of Property Act 1882, are arbitrable or not.
The Court established four-part criteria to examine the arbitrability of disputes in the Vidya Drolia II Judgment. In this, It was decided that a dispute would be non-arbitrable if:
- The disputes relate to actions in rem or actions that do not concern subordinate rights in personam arising from rem rights.
- The dispute has an erga omnes (rights or obligations are owed toward all) aspect, necessitates centralised adjudication, and mutual adjudication would be inappropriate and unenforceable.
- The dispute concerns the state's inalienable sovereign and public-interest functions.
- According to mandatory statute, the issue is either expressly or impliedly non-arbitrable.
Applying the principles above to the current Transfer of Property Act landlord-tenant issue, and citing Sections 111, 114, and 114A of the Transfer of Property Act, the Court concluded that the Transfer of Property Act does not implicitly or directly prohibit arbitration. These were actions in personam that originated from rights in rem, not actions in rem. They had no erga omnes effect and did not affect the rights of third parties. They also have nothing to do with the sovereign powers of the state.
The Court gave an order that landlord-tenant issues covered by the Transfer of Property Act are arbitrable while concluding that concerns based on public policy can be brought before the arbitrator in the same way they can be brought before a civil court. The arbitrator would be restricted by the Transfer of Property Act and other legislature acts and would have to resolve conflicts following the advantages and protections given to tenants. The Court went on to say that an award in a landlord-tenant dispute is enforceable in the same way that a civil court decision is.
The Vidya Drolia II judgements have provided landlords and tenants issues with much-needed clarification on the tenancy disputes that can be referred to arbitration. The Court's four-pronged test for determining arbitrability in Vidya Drolia II would also help determine the arbitrability of disputes in general. Through this judgement, it is expected that the courts' workload would be reduced in the future when the arbitrability of landlord-tenant conflicts controlled by the Transfer of Property Act is clarified.
It's worth noting that some types of properties are often exempt from rent control regulations. For example, buildings let or sublet to banks, public sector firms, or any company constituted by any state or federal legislation, foreign missions, multinational companies, or international agencies are excused under the Maharashtra Rent Control Act 1999. The Maharashtra Rent Act also exempts properties leased to private limited and public limited businesses with a paid-up share capital of one crore rupees or more. Similarly, the Delhi Rent Act does not apply to any government-owned property or any tenancy established through a government grant. As a result of the recent decisions, many issues involving such exempted properties can now be directed to arbitration.
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