Case Note & Summary
The appeal arose from a tenancy agreement dated 02.02.2006 between the appellants (tenants) and the respondent's predecessor-in-title for godowns and other structures. The lease was for a maximum of 10 years, with an initial term of 5 years and an option for renewal. The agreement contained an arbitration clause (Clause 23) referring disputes to a three-member arbitral tribunal under the Arbitration and Conciliation Act, 1996. On 16.10.2012, the tenancy was attorned in favor of the respondent. The respondent sent a notice on 24.08.2015 calling upon the appellants to vacate upon expiry of the 10-year period on 01.02.2016. As the appellants did not vacate, the respondent invoked arbitration on 29.02.2016 and filed a Section 11 petition before the Calcutta High Court for appointment of an arbitrator. The High Court appointed an arbitrator on 07.09.2016, rejecting the appellants' objections on arbitrability. Arbitral proceedings commenced, and 18 sittings took place. Meanwhile, on 12.10.2017, this Court in Himangni Enterprises v. Kamaljeet Singh Ahluwalia held that landlord-tenant disputes under the Transfer of Property Act are not arbitrable. The appellants filed a review/recall application before the High Court, which was dismissed on 08.06.2018. The appellants then appealed to the Supreme Court. The legal issues were whether landlord-tenant disputes, including those arising from lease expiry by efflux of time, are arbitrable, and whether the word 'existence' in Section 11(6A) of the Arbitration Act includes non-arbitrable subject-matters. The appellants argued that the Transfer of Property Act creates rights in rem and contains public policy provisions (Sections 111(g), 114, 114A) that impliedly exclude arbitration, and that participation in arbitral proceedings cannot cure inherent lack of jurisdiction. The respondent contended that the appellants had participated in the proceedings, that Himangni Enterprises was distinguishable as it did not apply to lease expiry by efflux of time, and alternatively, that the judgment required reconsideration. The Supreme Court analyzed Section 11(6A) and the relevant provisions of the Transfer of Property Act, and held that the word 'existence' in Section 11(6A) includes the question of whether the subject-matter is capable of arbitration. The Court further held that landlord-tenant disputes under the Transfer of Property Act are non-arbitrable as the Act creates rights in rem and contains provisions that impliedly exclude arbitration. The Court allowed the appeal, set aside the High Court's order appointing the arbitrator, and declared that the arbitrator had no jurisdiction to proceed with the matter.
Headnote
A) Arbitration Law - Non-Arbitrability - Landlord-Tenant Disputes - Transfer of Property Act, 1882, Sections 111(g), 114, 114A; Arbitration and Conciliation Act, 1996, Sections 2(3), 5, 11(6A), 16 - Disputes between landlord and tenant arising under the Transfer of Property Act are non-arbitrable as the Act creates rights in rem and contains public policy provisions that impliedly exclude arbitration - Held that the subject-matter of such disputes is incapable of arbitration, and the arbitration agreement is rendered void to that extent (Paras 9-15). B) Arbitration Law - Section 11(6A) - Existence of Arbitration Agreement - Scope - Arbitration and Conciliation Act, 1996, Section 11(6A) - The word 'existence' in Section 11(6A) includes the question whether the subject-matter of the dispute is capable of arbitration; if the dispute is non-arbitrable, the arbitration agreement does not exist in law - Held that the court must weed out arbitration clauses where the subject-matter is incapable of arbitration (Paras 5-8). C) Arbitration Law - Inherent Lack of Jurisdiction - Effect of Participation - Arbitration and Conciliation Act, 1996 - Where the arbitrator lacks inherent jurisdiction due to non-arbitrability of the dispute, participation in arbitral proceedings does not confer jurisdiction - Held that consent cannot confer jurisdiction, nor can waiver be inferred (Para 3).
Issue of Consideration
Whether disputes between a landlord and tenant arising under the Transfer of Property Act, 1882, including those relating to determination of lease by efflux of time, are arbitrable under the Arbitration and Conciliation Act, 1996.
Final Decision
Appeal allowed. Impugned order of Calcutta High Court dated 07.09.2016 appointing arbitrator set aside. Arbitrator declared to have no jurisdiction to proceed with the matter. The dispute between landlord and tenant under the Transfer of Property Act is non-arbitrable.
Law Points
- Non-arbitrability of landlord-tenant disputes under Transfer of Property Act
- 1882
- Scope of Section 11(6A) of Arbitration and Conciliation Act
- 1996
- Inherent lack of jurisdiction cannot be cured by participation
- Public policy exclusion of arbitration in tenancy matters
