Arbitration of Landlord-Tenant Disputes: The Way Forward

By Rishav Ray and Subhadeepa Sen, Students at School of Law, Christ (Deemed to be University), Bangalore

Introduction

Disputes relating to property are a common occurrence in India since with the passage of time there has been a substantial and continuous hike in property prices and tenancy has increased in the urban areas leading to landlord-tenant disputes. Eviction cases are the most common kind of disputes between the landlord and the tenant. Landlords often try evicting tenants using unlawful force which causes a ground for legal dispute among the parties. This article however shall keep its scope restricted to only those cases wherein the landlord has the right to lawfully evict the tenant for his property.

There are two ways by which a tenant can be evicted- i) discharge of lease agreement; ii) landlord terminates the lease by sending a notice under Section 106 of Transfer of Property Act.

In case the tenant vacates then the issue is resolved and there is no need for any further legal proceeding. In cases where the tenant refuses to vacate the premises, the landlord will be entitled to file a suit for eviction in the district court. These disputes are very time consuming in nature and a lot of cost is incurred in litigation. Additionally, this causes the loss of mental peace and agony to the parties. The civil courts are already overloaded with such matter and thus are unable to provide expeditious relief.  In such conditions, it is required that disputes of this nature should be resolved outside the court premises in form of ADR which shall be beneficial, both to the parties as well as the court.

The cases relating to eviction of tenants are primarily governed by the respective rent control acts and in their absence- Transfer of Property Act. Arbitration is an alternative to the conventional court proceedings considering the overburdening of cases. Arbitration refers to a form of Alternative Dispute resolution wherein the dispute is settled out of the court by a third-party neutral. It enjoys several benefits in comparison to the traditional dispute resolution system. Lower costs, faster settlement, greater flexibility, choice of solutions, confidentiality to name a few. In India, the judicial bodies are already overloaded with both civil and criminal matters of a much more serious nature which is a primary reason why cases relating to eviction of tenants continue for years since their settlements keep getting delayed. Arbitration in India has been gaining popularity with the passage of time ever since its inception. Globally, there has been a transition towards the adjudication of several commercial as well as other civil disputes by means of arbitration.

Test of Arbitrability

The issue of arbitrability of tenancy disputes has been a debate, long under scrutiny. Numerous stances have been taken as to whether the disputes arising out of tenancy can be resolved with arbitration. Two recent judgments, Suresh Shah v. Hipad Technology India Private Limited 2021(218) AIC 89 and Vidya Drolia & Ors. v. Durga Trading Corporation AIR 2019 SC 3498 of the Hon’ble Supreme Court of India, successfully depict a clearer picture regarding the long-standing confusion revolving around arbitrability in the matters of Tenancy disputes. The judgments aforementioned have brought light into the present matter by upholding that the landlord-tenancy disputes that fall within the ambit of Transfer of Property Act shall be arbitrable under the Arbitration & Conciliation Act of 1996. Furthermore, the Apex Court has in this regard, projected a four–fold test to ascertain whether the subject matter under contention is arbitrable or not in the Vidya Drolia case.

As per the test, “the subject-matter shall not be arbitrable when :

  1. The matter of dispute constitutes Rights in rem, that do not pertain to subordinate rights in personam that arise from rights in rem.
  2. The matter of dispute affects third party rights; has erga omnes effect; requires centralized adjudication, and mutual adjudication would not be appropriate and enforceable;
  3. it relates to the inalienable sovereign and public interest functions of the state; and
  4. it is expressly or by necessary implication non-arbitrable as per mandatory statute(s).”

Conflicting Judgements

Another noteworthy aspect of this particular issue stems from the fact that there has been a history of conflicting judgments that have been pronounced by the honourable courts to discern whether landlord-tenancy disputes are at all arbitrable. This finds its root from the 1891 Supreme Court judgment, Natraj Studios (P) Ltd. v. Navrang Studios & Ors. AIR 1981 SC 537b which upheld that the disputes that arise between landlord and tenant under Bombay Rents, Hotel and Lodging House Rates Control Act, 1947 shall not be arbitrable because firstly, it was to be regulated by the Bombay Rents Act which constitutes a special, welfare legislation and secondly, it mandates the Court of Small Causes to have the jurisdiction to determine the disputes that arise thereunder. In 2011, another judgment, Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd AIR 2011 SC 2507. by the Supreme Court of India rendered a similar pronouncement and laid down that when the matters concerning eviction and tenancy are protected under special statutes, where tenant enjoys statutory protection, and wherein only the specified court has been conferred an exclusive jurisdiction, shall not be made arbitrable. These were referred to as the ‘Booze Allen Criterion’. After a few more judgments and deliberations regarding the arbitrability of Landlord Tenancy disputes, in the 2017 case of Himangni Enterprises v. Kamaljeet Singh Ahluwalia AIR 2017 SC 5137, this particular issue again rose to prominence. This was a case wherein; the landlord had sued the tenant in a civil court. The lease agreement under contention contained an arbitration clause. However, the landlord objected to referring this matter of dispute for arbitration citing the reason of the incapacity of the suit for reference to arbitration. Accordingly, in the light of the above facts, the court pronounced that the premises, even if are absolved from the pertinence of the Delhi Rent Act, shall not infer that the matter can allude to arbitration. In such a case, the matter shall be represented by the TP Act and adjudicated by the Civil Courts. This very judgment has restricted the scope of arbitrability in a major way.

Present Position

It was in 2019, the landmark judgment rendered by a two-judge bench in Vidya Drolia Case brought in a pro-arbitrability stance. It overruled the Himangni Enterprises case and upheld that the subject matter of dispute governed under the Transfer of Property Act can be decided by an arbitrator. The court analyzed the provisions of the TP Act which mainly dealt with the rights and liabilities specifically concerning landlords-tenants, Sections 111 dealing with determination of lease, 114 dealing with relief against forfeiture for non-payment of rent, and 114A dealing with relief against forfeiture in certain other cases in particular. Furthermore, the Court also held that there is nothing in the TP Act that forbids the arbitrability of these disputes. Subsequently, this matter of arbitrability was further referred to a three-judge bench that finally formulated the Fourfold test of determining arbitrability of landlord-tenancy disputes as discussed above in the Vidya Drolia II Judgment, 2020. It also held that the enforceability of an award in such disputes shall be similar to a decree of a civil court. A more recent judgment rendered in Suresh Shah v. Hipad Technology India Private Limited, 2020 further solidified its holding that the matters governing landlord-tenancy disputes in the TP Act shall be arbitrable and further elaborated that nothing in the Act expressly or impliedly bars arbitrability of such disputes.

Conclusion

After a thorough analysis of the judicial approach in this regard, it can be concluded that disputes between landlord and tenants can be arbitrable. The Vidya Drolia judgement has indeed been path-breaking in the sense that, it has enhanced the scope of Arbitration in the country as an effective dispute resolution mechanism. The test laid down by the hon’ble supreme court in the Vidya Drolia judgment might also be helpful in determining arbitrability of disputes in general. Additionally this would reduce the burden of the courts to a great extent. However, it must be noted that disputes which are governed by special statues (respective Rent Acts) or where tenant enjoys statutory protection against eviction or disputes resolvable by special courts which have sole jurisdiction over the matter shall not be arbitrable. Disputes governed by Transfer of Property Act can be said to be arbitrable provided they are actions in right in personam arising out of rights in rem which include the landlord-tenant disputes.

36 Replies to “Arbitration of Landlord-Tenant Disputes: The Way Forward”

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  2. In case of arbitration, only landlord loses. There are numerous judgements by the SC and various HC to consider eviction suits on priority. But even in very simple case, the civil court takes several years. I filed an eviction suit in May 2018. The case has reached nowhere. Why can’t we enforce a stringent law to punish the tenant severely. Why don’t laws send the errant tenant for three years of RI. My suggestion – deduct 1% salary of the concerned judge for each deferred date unnecessarily. Stop all income sources of the tenant and his family members. If we enforce stringent law, no arbitration will be required.

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