Not Every Matter is capable of being submitted to the Arbitration. The international conventions and domestic jurisprudence assert that certain type of dispute to be adjudicated based on strict judicial scrutiny and procedures and not by a Private Resolution Mechanism. This principle is called 'Arbitrability'.
In India, Arbitrability is not specifically defined in the Statute, which is Arbitration and Conciliation Act, 1996 hereinafter referred as "The Act". Section 2(3) of The Act merely provides that "certain disputes may not be submitted to arbitration"1 and silent of categories and specific Matters to be considered Non – Arbitrable.
Further, Section 34(2)(b)2 and 48(2)3 of the Act authorize the High-Courts to set aside an award if the arbitral award is in conflict with public policy of India or incapable of being resolved by arbitration
Thus, tests and categories to determine Arbitrability in India has developed through Judicial Precedents like Booz Allen judgement and finally the Vidya Drolia Judgement which Laid the Four-Fold test to determine Arbitrability and declared Landlord-tenant arbitrable but with the exception that when Specific court or forum having Exclusive Jurisdiction for Landlord-tenant disputes covered and governed by rent control legislation, disputes are not arbitrable.
Thus, this essay conclude with Evaluating whether and which type of Landlord-Tenancy Disputes are provided exclusive jurisdiction under Maharashtra and Laying-Down the Arbitrability /Non Arbitrability of the Landlord-Tenancy Dispute.
Judicial Groundwork and Principles of Arbitrability/Non-Arbitrability
Non-Arbitrability has multiple meaning. In Booz-Allen & Hamilton Inc vs SBI Home Finance Ltd4 three facets of non-arbitrability were discussed, namely: -
- "Whether the disputes are capable of adjudication and settlement by arbitration? That is, whether the disputes, having regard to their nature, could be resolved by a private forum chosen by the parties (the Arbitral Tribunal) or whether they would exclusively fall within the domain of public fora (courts)." iv
- "Whether the disputes are covered by the arbitration agreement? That is, whether the disputes are enumerated or described in the arbitration agreement as matters to be decided by arbitration or whether the disputes fall under the "excepted matters" excluded from the purview of the arbitration agreement."iv
- "Whether the parties have referred the disputes to arbitration?"iv
Further Booz Allen case have discussed about, If the subject matter of the dispute is 'arbitrable', that it is capable of being adjudicated by a private forum (arbitral tribunal)
- Every dispute of civil or criminal nature, capable of being adjudicated by the court, is in principle capable to be submitted and resolved by the arbitration, except expressly or necessarily barred legislation and reserved exclusively for the public forum. some other disputes which may not be expressly barred in statutory provisions, may stand excluded from the adjudication of private forum by necessary implication
- Traditionally and in general sense all the disputes arising out of 'rights in personam' (against an individual) are capable being governed by the private fora including arbitral tribunal, however disputes arising from 'right in rem' are not arbitrable and should be resolved/adjudicated by courts and public forum.
- Court also stated that, "this rule wasn't unbreakable and that subordinate rights in personam arising from superior rights in rem may be arbitrable"iv
The Supreme Court stated six categories of disputes which are Non - Arbitrable:
"i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences;
ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody;
iii) guardianship matters;
iv) insolvency and winding up matters;
v) testamentary matters (grant of probate, letters of administration and succession certificate); and
vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction."iv
so, this case establishes the guidelines for determining the arbitrability and carved out certain categories disputes as 'Non-Arbitrable' which includes bar on the jurisdiction of Arbitral Tribunal, where Eviction or tenancy matter specifically governed by statutes, offering protection against eviction
This position is further clarified and strengthened by the Honourable Supreme Court in
Vidya Drolia vs Durga Trading Corporation5
This Judgement established a fourfold test to determine the non-arbitrability of a dispute:
(1) If subject Matter and cause action arising out of it is associated with action in rem (general liability) than dispute is non-arbitrable. However, Subordinate rights in personam (individual liability) arising out of right in rem is arbitrable.
(2) If dispute's cause of action and subject matter impacts third party having an 'erga omnus' effect than dispute is not arbitrable as it requires a centralized adjudication and arbitration which is based on the mutual consent of the parties is not suitable in that situation.
(3) If subject Matter and cause action arising out of it is associated with 'inalienable sovereign' fuctions of the state and its subsidiaries or may impact public interest policies of the state than a private mutual settlement mechanism is not suitable and hence not arbitrable
(4) "when the subject-matter of the dispute is expressly or by necessary implication non-arbitrable as per mandatory statute(s)"Error! Bookmark not defined..
Position on Landlord-Tenancy Disputes
This judgement also tested its own four-fold test reached to the conclusion that:
- Tenancy disputes are of individual nature i.e pertaining to actions in parsonam even though it emerged from rights in rem thus and such actions in normal circumstances would not be having any erga omnes effect or any impact on third party, thus no centralized adjudication requires hence it is arbitrable
- Arbitral award related to landlord-tenant disputes hold the same enforceability as that of civil court and must be treated as decree of the court.
- Tenancy disputes is not associated with sovereign functions of the state and its subsidiaries and the provision of Transfer of Property Act do not bar arbitral tribunal jurisdiction expressly or necessarily
- However, the Landlord- Tenancy dispute is arbitrable but it is bound by the provisions of Transfer of Property Act, as like all the other acts, Transfer of property act has a public purpose and it serve as tool to protect the interest of tenants which must be protected even in an private dispute resolution mechanism.
Disputes Arising Under Rent Act
The judgement Clearly states that "Landlord-tenant disputes are arbitrable as the Transfer of Property Act does not forbid or foreclose arbitration. However, landlord-tenant disputes covered and governed by rent control legislation would not be arbitrable when specific court or forum has been given exclusive jurisdiction to apply and decide special rights and obligations. Such rights and obligations can only be adjudicated and enforced by the specified court/forum, and not through arbitration ."v
Thus, from these Judgements it is established that Landlord -Tenant disputes in general are arbitrable however if specific court or forum is given exclusive jurisdiction by Rent Control Act than It would not arbitrable, as it is deemed barred from any other forum including the arbitration.
So the primary question of Whether Lease and License Agreement disputes are arbitrable or not in Maharashtra Is determined by If these agreements are given Exclusive jurisdiction to a particular court in rent control legislation
Status of Lease as well as Leave and License Agreement In Maharashtra and Its Arbitrability
A lease agreement id governed and defined under Transfer of Property Act,18826 while a license agreement is defined under section 52 of Indian Easement Act, 18827 and governed by the same act, however in the state of Maharashtra Leave and License agreement is governed and regulated by Maharashtra rent control act,19998 and defined as contractual obligations between the parties
Section 339 of Maharashtra Rent Control Act provides exclusive Jurisdiction related rent and possession related disputes for Court of Small Causes established under Presidency Small causes Court Act,188110 and Provincial Small Causes Court Act,188711. that is why Lease and License Agreement is to adjudicated exclusively by small causes court in Maharashtra and barred from any other forum other forum including Arbitration as determined by Vidya-Drolia and Booz Allen judgements
However, Maharashtra Rent Control Act only governs and control Leave and License agreement and not Lease Agreement thus, the lease Agreement is governed by Transfer of Property Act Itself, Thus it is capable of being submitted to Arbitration as In Vidya-Drolia judgement has specifically delivered that Landlord-Tenancy disputes governed by Transfer Of Property Act does not bar arbitration.
This essay dealt with defining the Arbitrability and How it is determined if a dispute could be submitted to Arbitration or not with the help of Booz Allen and Vidya Drolia judgements which Highlighted principles of 'Right in Rem' and 'Right in Parsonam' in determining the arbitrability/non- arbitrability and laid the Categories and four-Fold Test to determine the arbitrability.
It is now established that Landlord/Tenancy disputes are generally arbitrable unless exclusive jurisdiction to particular forum is provided under rent control legislations which ultimately makes Lease agreement in Maharashtra arbitrable as it is regulated by Transfer of Property Act itself and not by state rent control legislation in Maharashtra while ,Leave and License agreement in Maharashtra is Non-Arbitrable as it is governed by Maharashtra Rent Control Act,1999 and exclusive jurisdiction is provided under section 33 of Maharashtra Rent Control Act,199
References
- Jain, S. (2021, December 7). Lease or leave and license: Dynamics for commercial decisions. Mondaq. https://www.mondaq.com/india/landlord-tenant-leases/1149210/lease-or-leave-and-license-dynamics-for-commercial-decisions
- Sharma, N. (n.d.). Arbitrability of disputes under an unregistered and/or an unstamped lease agreement. Manupatra. https://articles.manupatra.com/article-details/Arbitrability-of-Disputes-Under-An-Unregistered-AndOr-An-Unstamped-Lease-Agreement
- Krishnan, J. (2021, January 7). Vidya Drolia case: Final chapter in the arbitrability of fraud saga. IndiaCorpLaw. https://indiacorplaw.in/2021/01/vidya-drolia-case-final-chapter-in-the-arbitrability-of-fraud-saga.html
- Singh, A. (2016, June 16). A false start? Uncertainty in the determination of arbitrability in India. Kluwer Arbitration Blog. https://arbitrationblog.kluwerarbitration.com/2016/06/16/a-false-start-uncertainty-in-the-determination-of-arbitrability-in-india/
Footnotes
1 (Arbitration and Conciliation Act, 1996 § 2(3))
2 (Arbitration and Conciliation Act, 1996 § 34(2)(b))
3 (Arbitration and Conciliation Act, 1996 § 48(2))
4 AIR 2011 SUPREME COURT 2507
5 AIRONLINE 2020 SC 929
6 (Transfer of Property Act,1882)
7 (Transfer of Property Act, 1882 § 52)
8 (Maharashtra rent control act,1999)
9 (Maharashtra rent control act,1999 § 33)
10 (Presidency Small causes Court Act,1881)
11 (Provincial Small Causes Court Act, 1887)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
