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Non-Arbitrability of Lease Disputes - Examining Himangi Enterprises

September 18, 2018

[Priya Gupta is a fourth-year student at GNLU, Gandhinagar.]

 

Over the course of time, India has focused on establishing itself as a pro-arbitration jurisdiction. The recent amendments to the Arbitration Act, 1996 (Act) and the conscious judicial approach have paved the way for ease of doing business. However, the development has been such that there exists a long list of disputes that are classified as non-arbitrable. One such recent issue making headlines is the arbitrability of lease disputes in respect of which the Supreme Court of India ruled, in Himangi Enterprises v. Kamaljeet Singh Ahluwalia (Himangi), that lease disputes cannot be arbitrated.

 

The general norm as regards inclusion of arbitration clauses in lease disputes has been discouraging or even prohibitory in some cases due to the divide between rights in personam and rights in rem, with the latter being in-arbitrable. This principle was first laid down in Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., and has since been applied by the Supreme Court as a straight-jacket formula. This post, therefore, tries to critically examine the rationale behind the judgment and offers some practical recommendations for insertion of such clauses.

 

In Himangi,  the appellant, after expiry of the lease agreement, failed to vacate the shop on time. Aggrieved, the respondent filed a civil suit in the district court which was contested by the appellant on the ground of an existing arbitration agreement between them. The application for arbitration, however, was not accepted by the subordinate courts, and hence an appeal was filed. The court, while ruling in favor of the respondents, acknowledged the principle laid down in Booz Allen. By quoting a list of non-arbitrable disputes, the court reaffirmed that tenancy or eviction matters were not arbitrable as they are governed by special statues attracting jurisdiction from specified courts. It also relied heavily on the case of Natraj Studios Ltd. v. Navrang Studios & Anr. wherein similar facts existed. The landlord, in this case, had licensed his property along with machinery through a “leave and license” agreement to the tenant. On the expiry of the lease term, the tenant failed to vacate the property consequent to which a suit was filed in the civil court. The court dismissed the application under section 8 of the Act by referring to Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, which granted exclusive jurisdiction to certain courts in lieu of up keep of public policy. The court applied the provisions of the Delhi Rent Act, 1995 by declaring it as a special law for governance of matters relating to eviction and rent.  It also went a step ahead by ruling that, in cases where the provisions of the rent legislation could not be applied, no other legislation than the Transfer of Property Act, 1882 (TP Act) should be applicable. Therefore, the applicability of the Arbitration Act, 1996 does not come into picture.

 

Even though the case at hand affirms the general rule of non-arbitrability of lease disputes, it sets a dangerous precedent for the future due to its logical fallacy. The court places an unfitting reliance on Booz Allen wherein non-arbitrability was never decided under the Transfer of Property Act. It has been held in A. Ayyasamy v. A. Paramasivam that disputes falling within the jurisdiction of a special court and involving public welfare only would be non-arbitrable. However, the court in Himangi has failed to clearly list certain disputes under any special act. Going by the language of the court, Delhi Rent Control Act is a special legislation only for certain clauses. The legislation fails to cover situations of a disputed property under section 3. Ironically, those premises will have to be covered under the TP Act which is a general legislation that makes the dispute devoid of protection under a special statute.

 

The confusion created by such a proposition is that a dispute falling under the TP Act will have to filed before a civil court as a civil suit. The Bombay High Court in Eros International Media Limited v. Telemax Links India Pvt. Ltd. and Ors. held that “unless specifically barred, what a civil court can do, an arbitrator can do.” Therefore, till the courts lay down an express bar for general legislation, they will have to rule in favor of arbitration. This would conflict directly with Booz Allen and Ayyasamy as only disputes covered under special statutes are non-arbitrable.

 

With the evolving jurisprudence of arbitration and the advantage it carries, it is suggested that certain aspects of tenancy disputes could be partly brought under arbitration to give regard to party autonomy. For example, every tenant has a right to peacefully enjoy his leasehold property without any interference from the landlord. If this use is allegedly disturbed during the specified lease period, the parties could execute a binding arbitration agreement without infringing the rights of any other third party. Moreover, there also exists a need to promote arbitration in respect of contracts of sale of property as parties are reluctant to add such clauses in the contract, though no bar by courts exists on their insertion. For instance, the court in Olympus Superstructure Pvt. v. Meena Vijay Khetan & Ors has observed that an arbitrator is well within his powers to grant specific performance for contracts relating to immovable property. A pro-arbitration approach in such a case would also prove to be advantageous to both the parties as they would be able to resolve matters on an urgent basis and save cost and time.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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