Introduction
In a recent order[1] the Supreme Court Bench consisting of Justice Nariman and Justice Saran raised questions on the correctness of the judgment of Himangni Enterprises v. Kamaljeet Singh Ahluwalia[2] holding lease disputes under the Transfer of Property Act, 1882 are non-arbitrable. The judges decided[3] to refer the Himangni Enterprises[4] decision to a larger Bench for review. In this background the authors analysing the Himangni Enterprises[5] decision argues that it is based on an orthodox and conservative approach limiting numerous subject-matters as non-arbitrable. The Court’s reason in Himangni Enterprises[6] that disputes arising under the Transfer of Property Act, 1882 involves a “right in rem” and thus non-arbitrable is seriously debatable. It reflects an unprogressive view on arbitration at a time when the public policy of India calls for increased reliance on alternate dispute resolution (ADR) mechanisms for resolution of civil and commercial disputes.
Brief Facts of the Case
In Himangni Enterprises[7] the respondent (Kamaljeet Singh Ahluwalia) filed an eviction suit in 2015 against the appellant (Himangni Enterprises) before the Additional District Judge, Saket, New Delhi. As per the respondents, the suit premises had been leased out to the appellants for a period of three years through a lease deed in 2010. The lease deed had lapsed due to passage of time and thereafter, no fresh lease deed was executed between the parties. The respondent prayed for the eviction of the appellants and recovery of arrear rent. The appellant responded by filing an application under Section 8 of the Arbitration and Conciliation Act, 1996 for referring the matter to arbitration since the lease deed contained an arbitration clause by virtue of which the disputes arising out of the suit premises had to be resolved through arbitration.[8] The respondents objected to this application on two principle grounds: first, that since the lease deed had expired, the arbitration clause in it cannot be enforced; second, that the subject-matter of the dispute cannot be resolved by arbitration. The District Court upheld the respondent’s objections and dismissed the Section 8 application. On an appeal, the High Court upheld the order of the District Court. Himangni Enterprises[9] appealed the to Supreme Court challenging the impugned order of the High Court.
Decision of the Supreme Court of India
The Supreme Court of India relying upon the judgment of Natraj Studios (P) Ltd. v. Navrang Studios[10] and of Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd.,[11] dismissed the appeal and held that the courts below were right in dismissing the application of the applicants to refer the dispute for arbitration under Section 8 of the Arbitration and Conciliation Act, 1996.[12]
With reference to Natraj Studios, the facts of which are similar to the facts in the instant case, the Supreme Court dismissed the application filed by the tenant under the Arbitration Act, 1940. Justice O. Chinnappa Reddy in his judgment held that “both by reason of Section 28 of the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947 and on the broader considerations of public policy” only the court and not the arbitrator has jurisdiction to hear the instant dispute.[13]
With reference to Booz Allen, the Supreme Court listed down the nature of disputes considered to be non-arbitrable in India.[14] One of the non-arbitrable matters recognised by the Court was “(vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.”[15]
The Supreme Court in its judgment in Himangni Enterprises relying upon the law laid down by it in the above two judgments, unhesitantly dismissed the appeal, and held that the civil suit filed by the respondents is maintainable despite the parties having an agreement to arbitrate.[16]
The Court also rejected the appellants’ argument that the above two judgments may not be relied upon as the judgments speak of those matters governed by the special statute. The appellants had contended in support of this argument that in the instant matter, the Delhi Rent Control Act, 1958 not applicable by virtue of its Section 3(1)(c) and hence, the law laid down by the Supreme Court in the above two judgments may not apply. Refusing to accept this contention of the appellants the Court held that the Delhi Rent Control Act, 1955 is a special Act that covers the disputes relating to rent and eviction. Even though the provisions of the Act is not applicable in the present matter by virtue of its Section 3, that does not ipso facto makes the Arbitration and Conciliation Act, 1996 applicable to the present dispute. In case of the inapplicability of the Delhi Rent Control Act, 1955, the matter shall be governed by the Transfer of Property Act, 1882, and shall be determined by the civil court and not by the arbitrator.[17] Accordingly, the Court dismissed the appeal and directed the concerned civil court to proceed with the trial of the suit on the merits of the case.[18]
Analysis of the Judgment and its Contradictions
The correctness of Himangni Enterprises[19] is now been referred to a larger Bench of the Supreme Court, and in the authors’ opinion, the decision is not compatible with the contemporary law of arbitration and adversely affects it. The authors rely on this proposition based on the re-examination of the following three issues viz. (i) Whether the Court was justified in its ruling on Section 3(1)(c) of the Delhi Rent Act, 1995? (ii) Whether the Court has rightfully interpreted the Booz Allen[20] judgment vis-à-vis right in rem versus right in personam? (iii) Whether the Court was justified in relying upon Natraj Studios[21] judgment?
I. The Court was not Justified in its Ruling on Section 3(1)(c) of the Delhi Rent Act, 1995:
The Court in Himangni Enterprises was not correct in its reasoning while dealing with the issue of the non-applicability of Section 3(1)(c) of the Delhi Rent Act, 1995. The Court held that if the Delhi Rent Act, 1995, by virtue of its Section 3(1)(c) is not applicable to the present case, then the civil suit shall be tried under Transfer of Property Act, 1882, by the civil court and not by the arbitrator.[22] The Court based its deduction on the reasoning that:
24. …by virtue of Section 3 of the Act [Delhi Rent Act, 1995], the provisions of the Act are not applicable to certain premises but no sooner the exemption is withdrawn or ceased to have its application to particular premises, the Act becomes applicable to such premises.[23]
But such a conclusion does not fit with the basic objective behind this enactment.
Section 3(1)(c) of the Delhi Rent Act, 1995 is enacted with an intent to protect the tenants who belong to weaker section of the society.[24] The Supreme Court of India in D.C. Bhatia v. Union of India[25] said that Section 3(1)(c) of the Delhi Rent Act, 1995 purposefully exclude its application over the premises rented higher than the specified limit, since the latter are used by relatively affluent tenants.[26] The Court further said that the enactments of Rent Control Acts are “temporary measures” in order to protect the tenants from arbitrary eviction and from landlord’s unprecedented enhancement of rent,[27] and hence, the application of Delhi Rent Act, 1995, in the wisdom of legislature, is restricted only to the premises those are rented up to Rs 3500.[28]
The same principle has been followed by the Delhi High Court in P.S. Jain Co. Ltd. v. Atma Ram Properties (P) Ltd.,[29] and in Atma Ram Properties (P) Ltd. v. Pal Properties (India) (P) Ltd.,[30] where the Court said that “the intention behind Section 3(c) is that a premises which fetches a rent of Rs 3500 per month should be exempt and that protection should be restricted to buildings fetching a rent less than Rs 3500 per month.”[31] Further, the Supreme Court in Parripati Chandrasekharrao and Sons v. Alapati Jalaiah,[32] also took the same view while dealing with the inapplicability of A.P. Rent Act,[33] over the premises rented out on above Rs 1000.[34]
Thus, it is quite clear that the Court’s reason in Himangni Enterprises on the issue of non-applicability of the Delhi Rent Act, 1995 over the premises is in question. According to the Court, the Act is applicable “no sooner the exemption is withdrawn or ceased to have its application”.[35] It is clear from the above discussion that the Rent Control Acts are special Acts, which are enacted as “temporary measures” for protection of special category of tenants. Since the parties in the instant case do not fall within the category of tenant for those the Act has been enacted for, neither the Act, nor the rights and liabilities arising out of it, shall be applicable over the appellant at any stage of time. Hence, the judgment of Booz Allen is also not applicable in the instant case. In Booz Allen, the Court held that “eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes” are non-arbitrable.[36] However, in this case, there is no protection granted to the appellant under the special statute, and hence, it can be inferred that the Court has inappropriately applied the rationale of Booz Allen[37] where it is certainly not applicable at all.[38]
II. That the Court has Incorrectly Interpreted the Booz Allen[39] Judgment vis-à-vis Right in Rem Versus Right in Personam
The Booz Allen judgment marks the difference between right in rem and right in personam.[40] The Court in Booz Allen held that all the disputes pertaining to right in rem are to be adjudicated by the Courts and public tribunal, while the disputes pertaining to right in personam can be considered to be resolved by arbitration.[41] However, the Court clarified, that it is not an “inflexible rule” for the “disputes relating to subordinate rights in personam arising out of right in rem have always been considered to be arbitrable.”[42] Hence, it is inferred that in the instant judgment of Himangni Enterprises[43], where even though the dispute between the parties is in a nature of right in rem, such dispute is arising out of contract/lease between the parties; and hence, the horizon of right to enjoy the property versus the ownership is completely between the lessee and lessor; and therefore, such dispute can be resolved by arbitration.
It was said by the Supreme Court of India in Olympus Superstructures (P) Ltd. v. Meena Vijay Khetan,[44] that disputes pertaining to specific performance of the contract can be resolved by arbitration,[45] and thus, the Court held that the arbitrator can pass an arbitral award granting the specific performance of the contract pertaining to immovable property.[46] Further, in Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums,[47] where the respondent resisted arbitration because the dispute was of criminal nature under special statute, the Supreme Court of India rejected the respondent’s plea, and held that the rights of the claimant under the contract is independent of the statutory provisions and therefore the contractual rights could be adjudged upon by the arbitrator.[48] The Court further noticed that “the existence of a dual procedure; one under the criminal law and the other under the contractual law is a well-accepted legal phenomenon in Indian jurisprudence.”[49]
Hence, it can be inferred from the above discussion that in Himangni Enterprises[50], the impugned dispute could have easily been referred to arbitration, and hence, the decision of the Court is representing the orthodox approach and sets an unfortunate impetus towards the non-arbitration regime in India.
That the Court is not Justified in Relying upon the Natraj Studios[51] judgment
Lastly, the reliance of the Natraj Studios (P) Ltd. v. Navrang Studios[52] by the Court in Himangni Enterprises[53] is also not well justified. The Natraj Studios[54] is 1981 judgment decided under the Arbitration Act of 1940, and it is a well-settled law in arbitration jurisprudence in India, that the cases decided on the basis of Arbitration Act of 1940, cannot be blindly relied upon as a valid precedent for the cases governed by Arbitration and Conciliation Act of 1996 for the objectives of both the acts are entirely different.[55] The Supreme Court of India in Sundaram Finance Ltd v. NEPC India Ltd.[56] said that the Acts of 1996 Act and 1940 are very different from each other and therefore the provisions of the 1996 Act have to be interpreted independently and separately from the 1940 Act to avoid any form of misconception.[57] Thus, it is concluded that the over-reliance on the Court in the judgment of Himangni Enterprises[58] on Natraj Studios[59] as a precedent was not appropriate.
This inference is further emphasised in light of the view on the mandatory nature of Section 8 of the Arbitration and Conciliation Act, 1996 as held by Justice Chandrachud in A. Ayyasamy v. A. Paramasivam[60]. Justice Chandrachud in his opinion has cautioned that for courts deciding a dispute is non-arbitrable under the law for the time being in force must carefully look into the facts and materials for the purpose of determining whether the defence is merely a pretext to avoid arbitration. He emphasises the importance of respecting the parties’ choice of arbitration by observing:
45.2. …Once parties have agreed to refer disputes to arbitration, the court must plainly discourage and discountenance litigative strategies designed to avoid recourse to arbitration. Any other approach would seriously place uncertainty on the institutional efficacy of arbitration. Such a consequence must be eschewed.[61]
Conclusion
The analysis of the judgment above reveals that this decision upholds a conservative approach not quite in line with the contemporary legislative and judicial reforms underway to strengthen arbitration in India. Also, this judgment is not in line with the pro-arbitration approach and may impede the growth of arbitration in India. Therefore, the authors most respectfully submit that it is both timely and essential to revisit the judgment by a larger Bench of the Supreme Court of India.
† Associate Professor of Law, Maharashtra National Law University, Nagpur.
†† III year student, BA LLB (Hons.), Maharashtra National Law University, Nagpur.
[1] Vidya Drolia v. Durga Trading Corpn., 2019 SCC OnLine SC 358.
[3] Vidya Drolia v. Durga Trading Corpn., 2019 SCC OnLine SC 358.
[8] Cl. (9.8) of the Arbitration Agreement, Himangni Enterprises v. Kamaljeet Singh Ahluwalia, (2017) 10 SCC 706.
[12] Himangni Enterprises v. Kamaljeet Singh Ahluwalia, (2017) 10 SCC 706.
[13] Natraj Studios (P) Ltd. v. Navrang Studios, (1981) 1 SCC 523, para 24.
[14] Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532, para 36.
[15] Ibid.
[16] Himangni Enterprises v. Kamaljeet Singh Ahluwalia, (2017) 10 SCC 706.
[17] Himangni Enterprises v. Kamaljeet Singh Ahluwalia, (2017) 10 SCC 706, para 24.
[18] Para 28, Id.
[22] Himangni Enterprises v. Kamaljeet Singh Ahluwalia, (2017) 10 SCC 706, para 24.
[23] Id., p. 712.
[24] D.C. Bhatia v. Union of India, (1995) 1 SCC 104; P.S. Jain Co. Ltd. v. Atma Ram Properties (P) Ltd., 1996 SCC OnLine Del 875 : (1997) 40 DRJ 220; Atma Ram Properties (P) Ltd. v. Pal Properties (India) (P) Ltd., 2001 SCC OnLine Del 438 : (2002) 62 DRJ 623.
[26] D.C. Bhatia v. Union of India, (1995) 1 SCC 104, para 11.
[27] Para 22, Id.
[28] Para 28, Id.
[29] 1996 SCC OnLine Del 875 : (1997) 40 DRJ 220.
[30] 2001 SCC OnLine Del 438 : (2002) 62 DRJ 623.
[31] P.S. Jain Co. Ltd. v. Atma Ram Properties (P) Ltd., 1996 SCC OnLine Del 875 : (1997) 40 DRJ 220; Atma Ram Properties (P) Ltd. v. Pal Properties (India) (P) Ltd., 2001 SCC OnLine Del 438 : (2002) 62 DRJ 623.
[33] A.P. Buildings (Lease, Rent and Eviction) Control Act, 1960.
[34] In Parripati Chandrasekharrao and Sons v. Alapati Jalaiah, (1995) 3 SCC 709, the Court held that “in the case of a tenant, the protective shield extended to him survives only so long as and to the extent the special legislation operates. The rights and remedies of the tenants are not vested and could be taken away”.
[35] Himangni Enterprises v. Kamaljeet Singh Ahluwalia, (2017) 10 SCC 706, para 24.
[36] Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532, para 36.
[38] Here, it is noteworthy that in Bharat Petroleum Corpn. Ltd. v. P. Kesavan, (2004) 9 SCC 772: AIR 2004 SC 2206, it was held that the Transfer of Property Act, 1882 is not a special statute and only codifies the general law of transfer of property. Thus, even if the present case falls within the purview of the Transfer of Property Act, 1882, the Booz Allen judgment cannot be relied upon. The same position has also been confirmed by the Calcutta High Court in Ambuja Neotia Holdings (P) Ltd. v. Planet M Retail Ltd., 2015 SCC OnLine Cal 7000, in which the Court held that the disputes governed by Transfer of Property Act are arbitrable as the Transfer of Property Act is not a special statute and only codifies the general law of transfer of property.
[40] Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532, para 37.
[41] Para 38, Id.
[42] Para 38, Id.
[45] Para 36, Olympus Superstructure (P) Ltd. v. Meena Vijay Khetan, (1999) 5 SCC 651.
[46] Para 33, Olympus Superstructure (P) Ltd. v. Meena Vijay Khetan, (1999) 5 SCC 651. The position that the arbitrator can grant specific performance of the contract has been reiterated in Lakshmi Narain v. Raghbir Singh,1956 SCC OnLine P&H 17: AIR 1956 P&H 249; in Fertilizer Corpn. of India v. Chemical Construction Corpn., 1973 SCC OnLine Bom 55 : ILR 1974 Bom 856, 858; in Keventer Agro Ltd. v. Seegram Comp. Ltd., Apo 498 of 1997 & APO 449 of (401) dated 27-1-1998 (Cal); the judgment of Delhi High Court in Sulochana Uppal v. Surinder Sheel Bhakri, 1990 SCC OnLine Del 250 : AIR 1991 Del 138 has been overruled.
[48] Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums, (2003) 6 SCC 503.
[49] Ibid.
[52] Natraj Studios (P) Ltd. v. Navrang Studios, (1981) 1 SCC 523.
[55] Sundaram Finance Ltd v. NEPC India Ltd., (1999) 2 SCC 479: AIR 1999 SCC 565; Union of India v. Arctic India, 2010 SCC Online Del 2518; McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181.
[56] (1999) 2 SCC 479 : AIR 1999 SCC 565.
[57] Sundaram Finance Ltd. v. NEPC India Ltd., (1999) 2 SCC 479: AIR 1999 SCC 565; Union of India v. Arctic India, 2010 SCC Online Del 2518.
[60] A. Ayyasamy v. A. Paramasivam, (2016) 10 SCC 386.
[61] Id., p. 415.