Are Landlord-Tenant disputes under TP Act arbitrable? Correctness of Himangni Enterprises to be decided by larger Bench of SC

Are disputes between landlord and tenant arising under the Transfer of Property Act excluded from the scope of arbitration. A three-judge Bench of the Supreme Court will now decide this question after the correctness of the judgment in this regard, Himangni Enterprises v. Kamaljeet Singh Ahluwalia [(2017) 10 SCC 706] has now been referred to a larger Bench..The order referring the matter to larger bench was passed by a Bench of Justices Rohinton Nariman and Vineet Saran..Facts.A Tenancy Agreement was entered into between the landlord’s predecessor-in-title and the appellants/tenant in 2006 in respect of certain godowns and other structures..In 2012, the tenancy was attorned in the name of the respondent, and the appellants paid rent to the respondent as the earlier landlord had surrendered his leasehold rights in favour of the respondent..In 2015, a letter was sent by the respondent calling upon the appellants to deliver vacant and peaceful possession of the premises on the expiry of the 10-year tenancy period, i.e., on February 1, 2016. A reminder to this effect was also sent on December 30, 2015. As the tenant did not vacate the premises, arbitration was invoked by the respondent by a notice sent to the appellants..The respondent filed the Section 11 petition before the Calcutta High Court for the appointment of an arbitrator..On September 7, 2016, the High Court passed an order appointing an arbitrator, after rejecting the appellants’ objections on the arbitrability of the dispute between the parties. After this, the arbitral proceedings began and eighteen sittings were held..Meanwhile, however, on October 12, 2017, a judgment was delivered by the Supreme Court in Himangni Enterprises v. Kamaljeet Singh Ahluwalia, in which it was held that where the Transfer of Property Act, 1882 applied between landlord and tenant, disputes between the said parties would not be arbitrable..Even though four arbitration sittings took place after this judgment, a review/recall application was filed by the appellants before the Calcutta High Court in June 2018 in the light of the above judgment. This review was dismissed by the Calcutta High Court leading to the appeal in Supreme Court..Arguments.Advocate Debajyoti Basu, appearing for the appellants argued that the Transfer of Property Act is an Act which created rights in rem insofar as the landlord and tenant are concerned. He further argued that the public policy contained in the statute in Sections 111(g), 114, and 114A, in particular, make it clear that by necessary implication the Arbitration & Conciliation Act, 1996 stands excluded. For this purpose, he also relied upon Section 2(3) of the Arbitration & Conciliation Act read with Section 5..It was also his argument that, in any event, grant of mesne profits would be outside the arbitration agreement inasmuch as mesne profits are to be decided by way of damages only after the agreement has come to an end..Most importantly, he placed reliance on the Court’s judgment in Himangni Enterprises contending that it would apply on all fours in the facts of his case. Thus, it would necessarily lead to an arbitrator in the present proceedings having no jurisdiction to decide disputes between landlord and tenant..He also argued that Section 11(6A) of the Arbitration & Conciliation Act should be read in a purposive manner and that “existence” of an arbitration agreement that is spoken of would also refer to disputes which are non-arbitrable..Advocate Saurav Agarwal appearing on behalf of the respondent submitted that Himangni Enterprises was wholly distinguishable as it did not apply to a situation of a lease expiring by efflux of time. He also pointed out that certain High Court judgments had, after Himangni Enterprises, distinguished the said judgment on this and other grounds. As an alternative submission, he said that, in any case, Himangni Enterprises would require reconsideration as it did not state the law correctly. He also said that the appellants had willingly participated in the arbitration proceedings in this case..Judgment.Arbitrability and Transfer of Property Act.The Court at the outset noted that there was nothing in the Transfer of Property Act to show that a dispute regarding the determination of a lease arising under Section 111 cannot be decided by arbitration..The Court analysed Sections 111, 114 and 114A in this regard and held 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..It also placed reliance on Booz Allen and Hamilton Inc. v. SBI Home Finance Limited and Others [(2011) 5 SCC 532] to explain the scope of arbitrability..Correctness of Himangni Enterprises.The Court then addressed the main contention which was regarding the correctness of Himangni Enterprises..This judgment concerned itself with a landlord-tenant dispute in which the Delhi Rent Act, 1995 was admittedly inapplicable. However, in paragraph 18 of the said judgment, this Court said:.“18. In our considered opinion, the question involved in the appeal remains no longer res integra and stands answered by two decisions of this Court in Natraj Studios (P) Ltd. vs. Navrang Studios, (1981) 1 SCC 523 and Booz Allen & Hamilton Inc. vs. SBI Home Finance Ltd. against the appellant and in favour of the respondent.”.Thus, the Court noted that the judgment in Himangni Enterprises was itself based on two other decisions – Natraj Studios and Booz Allen & Hamilton..The judgment in Natraj Studios is a judgment in which Section 28 of the Bombay Rent Act, in the context of arbitrability, arose for consideration. This section made it clear that disputes between landlords and statutory tenants would be referable only to the small causes court in Bombay and “no other court has jurisdiction to entertain any such suit..So far as Booz Allen was concerned, Sub-paragraph (vi) of paragraph 36 of that judgment made it clear that only those tenancy matters that are (i) governed by special statutes (ii) where the tenant enjoys statutory protection against eviction and (iii) where only specified courts are conferred jurisdiction to grant eviction or decide disputes, are cases where the dispute between landlord and tenant can be said to be non-arbitrable..Thus, the court said that the said judgments do not deal with a Transfer of Property Act situation between a landlord and tenant as in the current case..Thus, the question involved in a Transfer of Property Act situation cannot possibly be said to have been answered by the two decisions as held in Himangni Enterprises..“A perusal of both the aforesaid judgments, therefore, shows that a Transfer of Property Act situation between a landlord and tenant is very far removed from the situation in either Natraj Studios (supra) or in sub-paragraph (vi) of paragraph 36 of Booz Allen (supra). We are, therefore, of the respectful view that the question involved in a Transfer of Property Act situation cannot possibly be said to have been answered by the two decisions of this Court, as has been stated in paragraph 18 of the said judgment.”.The Court, therefore, ruled that the judgment in Himangni Enterprises will require a relook by a Bench of three Judges of the Supreme Court..Will preclusion of Rent Act mean that the dispute becomes arbitrable?.In Himangni Enterprises it was also held that mere preclusion of Delhi Rent Act will not mean that Arbitration Act automatically applies. It was held in that judgment 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..However, the Court in the present case held that said reasoning is incorrect..“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.”.The Court also dealt with the submission regarding Section 11(6A) of the Arbitration Act and the issue of whether “existence” of an arbitration agreement that is spoken of would also refer to disputes which are non-arbitrable..It proceeded to analyse Section 11(6A) of the Arbitration Act before stating that,.“One moot question that therefore, arises, and which needs to be authoritatively decided by a Bench of three learned Judges, is whether the word “existence” would include weeding-out arbitration clauses in agreements which indicate that the subject-matter is incapable of arbitration.”.The Court, therefore, proceeded to refer the matter to a three-judge Bench..Read the judgment below..Bar & Bench is available on WhatsApp. For real-time updates on stories, Click here to subscribe to our WhatsApp.