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In the month of December 2020, a Judgement was passed by a 3-Judge Bench of the Hon’ble Supreme Court in the matter of Vidya Drolia & Ors. V. Durga Trading Corporation, which has put rest to the controversies that have been revolving around the concept of Arbitration Law Jurisprudence ever since the Act of 1996 came into force.
In this Judgement, the Hon’ble Court has discussed the issue of Arbitration in landlord-tenant disputes, which are governed by the Transfer of Property Act, 1882 (“TPA”). The Court focussed on the subject matter arbitrability and scope and ambit of the jurisdiction of the Court while dealing with an application made under Section 8 or 11 of the Arbitration and Conciliation Act, 1996.
Additionally, the Court also resolved the question of Arbitration of fraud in the recent Judgement of Avitel.
The instant case was an Appeal challenging the legal ratio stated by a division bench of the same Court in the matter Himangni Enterprises v. Kamaljeet Singh Ahluwalia (2017), which stated that landlord-tenant disputes which are regulated by the provisions of the Transfer of Property Act, 1882 (“TPA”) are non-arbitrable based on the ruling that such would be against the public policy.
In Himangini Enterprises, the Court primarily made reference to Natraj Studios (P) Ltd. v. Navrang Studios and Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd.
Over several years the Supreme Court of India has explained in depth the jurisprudence on arbitrability of tenancy disputes in three landmark cases, namely: Natraj Studios, Booz Allen and Himangni Enterprises that made the law governing arbitrability of tenancy disputes prior to Vidya Drolia.
In the year 1981, the Supreme Court, specifically in the matter of Natraj Studios, held that wherein a landlord-tenant agreement is covered under the statute of rent control, then the disputes arising from landlords and tenants be protected by the statute, and these can only be decided by such special courts. In simple language, it means that such disputes are non-arbitrable.
In the year 2011, in the matter of Booz Allen, the Supreme Court reiterated the same principle that when Tenancy matters are regulated by specific statutes, where a tenant enjoys immunity from eviction under such law, then only the special courts have jurisdiction in such matters.
In the year 2017, in the matter of Himangni Enterprises, it was confirmed that matters related to lease and eviction and even the matter dealt with under the TPA
will be tried by the Civil Court, and only the Civil courts will have jurisdiction in such matters.
The Vidya Drolia Judgement sets a landmark in the determination of arbitrability of landlord-tenant disputes wherein the Hon’ble Supreme Court has ruled that the tenancy disputes governed by the TPA are very much arbitrable.
By restricting the scope for the allegations of fraud to roar against the arbitrability of a dispute, the Court prevented a whole lot of trouble from getting in the way of efficient and smooth arbitration proceedings. Further, the Court clarified that the Indian Judiciary has trust in the process of Arbitration, though there are few inconsistencies which are yet to be resolved and which would require detailed explanation in the coming future. Nonetheless, the Judgement has largely pushed India’s arbitration-friendly jurisprudence further ahead and has demonstrated that a similar approach may be expected from Indian courts in the future.
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