Arbitrating Disputes under the Transfer of Property Act, 1882

[Abhinav Sankaranarayanan is a III year B.A.L.L.B (Hons.) student at the West Bengal National University of Juridical Sciences, Kolkata (WBNUJS)]

Background

On 28 February 2019, a Division Bench of the Supreme Court in Vidya Drolia v. Durga Trading Corporation revisited the convoluted jurisprudence surrounding the arbitrability of disputes governed by the provisions of the Transfer of Property Act, 1882 (‘TP Act’). Whereas the position of law in Himangni Enterprises v. Kamaljeet Singh Ahluwalia is that disputes governed by the provisions of the Transfer of Property Act, 1882 (‘TP Act’) are inarbitrable, the Vidya Drolia decision casts serious doubts about the correctness of the Himangni Enterprises ratio and refers it to a larger bench for reconsideration.  

Analysis of jurisprudence regarding arbitrability of landlord-tenant disputes

Previously, in Booz Allen Hamilton Inc. v. SBI Home Finance, the Supreme Court articulated a broad distinction between disputes concerning rights in rem (those that are enforceable against the world at large) and those involving rights in personam (those that are only enforceable against specific individuals or entities). Here, it was ruled that rights in personam are generally arbitrable whereas rights in rem are generally incapable of settlement through arbitration.

Further, one specific category of disputes that Booz Allen regarded as inarbitrable were those that concerned “eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection”. This line of reasoning was endorsed subsequently in A. Ayyaswamy v. A. Paramasivam, wherein it was further clarified that disputes falling under the exclusive purview of a special adjudication forum under a special statute are to be deemed inarbitrable.

Hence, while the position on landlord-tenant disputes arising out of special statutes such as Maharashtra Rent Control Act, 1999 was clear, the question of whether similar disputes governed by the provisions of the TP Act can be arbitrated remained open ended. In this regard, after different High Courts delivered conflicting judgments on this question, the Supreme Court ruled upon this issue in Himangni Enterprises. Here, placing reliance upon the decisions in Natraj Studios v. Navrang Studios and Booz Allen, the Supreme Court concluded that even though the dispute in issue was not governed by any special statute, it was not amenable to resolution by arbitration. In this regard, it was observed that the dispute would have fallen under the purview of a special statute (the Delhi Rent Act, 1995) if not for an exemption incorporated within the statute itself. On this basis, it was reasoned, without further justification, that as the special statute would take application upon withdrawal of the exemption, the dispute was inarbitrable.

Factual matrix

In the instant case of Vidya Drolia, the landlord (respondent) sought the tenants (appellants) to deliver vacant and peaceful possession of the property that was the subject of a lease entered into between the parties. As the lease incorporated an arbitration clause, the landlord invoked the same and filed a petition under section 11 of the Arbitration and Conciliation Act, 1996 (‘Arbitration Act’) with the Calcutta High Court seeking appointment of an arbitrator. After the High Court rejected both the objections filed to the section 11 petition as well as the review and recall application made by the tenants, an appeal to the Supreme Court was preferred.

Decision and Analysis

After having undertaken a preliminary analysis of the scope and ambit of section 11 of the Arbitration Act, the Supreme Court proceeded to examine the primary issue in controversy. In response to the tenants’ plea that sections 111, 114, and 114A of the TP Act concerned matters of public policy and had the effect of excluding the Arbitration Act by necessary implication, the Court embarked upon an examination of the individual provisions. Noting that the relevant provisions related to the mode of determination of lease and relief in case of forfeiture and did not concern public policy, it reasoned that there was nothing to suggest that the Arbitration Act stood excluded.

Thereafter, the Supreme Court proceeded to scrutinize the ratio laid down in Himangni Enterprises, which placed reliance upon Natraj Studios and Booz Allen to arrive at its conclusion that disputes governed by the TP Act are inarbitrable. Observing that Natraj Studios concerned a dispute relating to a lease deed governed by the provisions of the Bombay Rents Act, 1947, which was a special statute that specifically provided for a separate adjudicating forum, the Court opined that it was not of relevance to the issues raised in Himangni Enterprises. Similarly, after having examined the relevant portion of the Booz Allen dictum, the Supreme Court opined that Booz Allen precludes the arbitration of only those tenancy matters: (i) that are governed by a special statute, (ii) that provided statutory protection against eviction, and (iii) where jurisdiction is solely conferred upon a special forum. As the disputes raised in both Himangni Enterprises as well as Vidya Drolia arise from the TP Act and are not governed by any other special statute, the Court ruled that the Booz Allen dictum could not be relied upon to justify the conclusion arrived at in Himangni Enterprises.

The Supreme Court then went on to articulate a conceptual distinction between statutes that exclude arbitration by necessary implication on the one hand and those that do not on the other. Referring to Vimal Kishor Shah v. Jayesh Dinesh Shah, the Court cited the Indian Trusts Act, 1882 (‘Trusts Act’) as “an excellent instance of how arbitration is excluded by necessary implication.” Observing that it is imperative to examine the statute as a whole before determining whether the statute excludes arbitration, the Court referred to specific sections of the Trusts Act to enunciate how disputes governed by the Trusts Act cannot be resolved through arbitration. For instance, section 34 of the Trusts Act allows trustees to petition a civil court for its opinion regarding the management of trust property. Similarly, according to section 74, a beneficiary may petition a civil court to appoint a new trustee under certain circumstances. Thus, the Supreme Court reasoned, the scheme contemplated by the Trusts Act is wholly incompatible with arbitration.  

On the other hand, the Supreme Court cited the Specific Relief Act, 1963 (‘Specific Relief Act’) as an example of legislation that is amenable to arbitration. Referring to Olympus Superstructures v. Meena Vijay Khetan, which had affirmed the same, the Court noted how there was no provision in the Specific Relief Act that suggested that arbitration be excluded. Similarly, it reasoned that the TP Act was analogous to the Specific Relief Act in this regard and it thus could not be said that disputes governed by the TP Act cannot be arbitrated.

While this decision is not binding per se and the issue in question has been referred to a larger bench, Vidya Drolia constitutes a watershed moment in Indian arbitrability jurisprudence for two primary reasons. First, it marks the articulation of a meaningful test to determine whether a particular statute is amenable to arbitration or not. Further, it clarifies with specificity when it can be said that a statute excludes arbitration by necessary implication. Moreover, the Supreme Court in Vidya Drolia effectively dismantles the conceptual foundation of Himangni Enterprises, thereby rendering it likely that a larger bench will affirm the Vidya Drolia dictum in the future.

– Abhinav Sankaranarayanan