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Landlord-Tenant Disputes are arbitrable: SC overrules its previous judgment.
Introduction: The three-judge bench of the Supreme Court has overruled its previous 2017 judgment of Himangni Enterprises v. Kamaljeet Singh Ahluwalia[1], where it was decided that landlord-tenant conflicts governed by the Transfer of Property Act, 1882, are not arbitrable since it would be against the public policy. The SC, in its recent judgment of Vidya Drolia v. Durga Trading Corporation[2], held that landlord-tenant conflicts governed by the Transfer of Property Act of 1882 ("TP Act") are arbitrable since they do not involve actions in rem but rather subordinate rights in personam arising from rem rights. In this instance, the Court had responded to a request from a two-judge bench.
TP Act does not bar Arbitration: In the matter of Vidya Drolia, the Court emphasized that the TP Act's provisions do not directly or by inference prohibit arbitration. The TP Act, like other Acts, serves a public purpose by regulating landlord-tenant interactions, and the arbitrator would be bound by the provisions, which include measures that entitle and protect renters. However, when a specialized court or forum has been given exclusive authority to apply and adjudicate special rights and responsibilities, the Court explains that landlord-tenant conflicts covered and controlled by rent control laws would not be arbitrable. Such rights and duties can only be adjudicated and enforced by the designated court/forum in this matter rather than through arbitration.
Issues handled by the Court: The court expanded on the meaning of arbitrability when the subject matter cannot be resolved by arbitration. Further, the court stated who decides the question of non-arbitrability.
Decision: The court went through many cases and advanced four-fold tests to determine when the subject matter of the dispute is not arbitrable.
- When the cause of action and the subject matter of the dispute are actions in rem, subordinate rights in personam arising from rights in rem are not relevant.
- When the cause of action or the subject matter of the dispute has an erga omnes impact, centralized adjudication is required, and mutual adjudication is not suitable or enforceable.
- When the dispute's cause of action and subject matter is related to the State's inalienable sovereign and public-interest responsibilities, mutual adjudication is unenforceable.
- When the subject matter of the dispute is explicitly or obliquely non-arbitrable under statutory legislation(s).
On the second issue of who decides arbitrability, the court stated three stages for the same:
- Before the court, an application for reference under Section 11 of the Arbitration Act, or a stay of ongoing judicial procedures and reference under Section 8 of the Arbitration Act; or
- At the arbitration procedures, before the arbitral tribunal; or
- During the stage of the challenge to the award or its enforcement, before the court.
In conclusion, the arbitral tribunal, the Court finds, is the preferable first authority to determine and decide all non-arbitrability issues. Section 34 of the Arbitration Act gives the courts the power to take a "second look" at non-arbitrability matters after the award has been made.
[1] (2017) 10 SCC 706.
[2] Civil Appeal No. 2402 of 2019.
(This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, or Religion, Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts made to ensure the accuracy and correctness of the information published, White Code VIA Mediation and Arbitration Centre Foundation shall not be responsible for any errors caused due to human error or otherwise.)
- Introduction
- TP Act does not bar arbitration
- Conclusion
