Judges Name: Hon’ble Judges N.V. Ramana, Sanjiv Khanna J, Krishna Murari J.

Order dated: 14.12.2020

“Landlord-tenant disputes are arbitrable as arbitration is not forbidden or foreclosed by the Transfer of Property Act. The provisions of the Transfer of Property Act do not bar arbitration expressly or by necessary implication.”

Facts of the Case: 

• In 2019, a reference was made by a division bench of the Supreme Court considering an appeal against the Calcutta High Court’s order in which the High Court appointed an arbitrator in a dispute between the landlord and the tenant.
• The appeal was referred to the larger bench to assess the validity of the judgment in Himangini Enterprises v. Kamaljeet Singh Ahluwalia, in which it was held that the disputes between the said parties will not be arbitrable where the Transfer of Property Act, 1882 applies between the landlord and tenant.
• The issue arises in this case is whether the Landlord -Tenant disputes can be resolved by arbitration?

Supreme Court held:

• The Court overruled the ratio set out in the case of Himangini Enterprises and held that landlord-tenant disputes are arbitrable as arbitration is not forbidden or foreclosed by the Transfer of Property Act. However, the court held that the landlord-tenant disputes covered and governed by rent control legislation would not be arbitrable when specific court or forum has been given exclusive jurisdiction to apply and decide special rights and obligations. It also held that such rights and obligations can only be adjudicated and enforced by the specified court/forum, and not through arbitration.
• The Supreme Court laid down a four-fold test to determine arbitrability:
  1. When cause of action and subject matter of dispute relates to action in rem, that do not pertain to subordinate rights in personam that arise from right in rem.
  2. When cause of action and subject matter of the dispute affects third party rights; have erga omnes effect; required centralized adjudication and mutual adjudication would not be appropriate and enforceable.
  3. When cause of action and subject matter of the dispute relates to inalienable sovereign and public interest functions of the State and hence mutual adjudication would be unenforceable.
  4. When the subject matter of the dispute is expressly or by necessary implication non-arbitrable as per mandatory statute.
• The court held that the disputes between the landlord-tenant are not actions in rem, but pertain to subordinate rights in personam that arise from rights in rem. It was noted that, like a civil court decree, the award passed in determining landlord-tenant disputes can be executed and enforced. Landlord-tenant disputes are not connected to the state’s inalienable and sovereign functions. The provisions of the Transfer of Property Act do not bar arbitration expressly or by necessary implication.  Transfer of Property Act has a public purpose, that is, to govern the relationships between landlord and tenant, and the arbitrator would be bound by the laws, including provisions that ensure and protect the tenants.
• Therefore, the Court overruled the ratio set out in the case of Himangini Enterprises and held that landlord-tenant disputes are arbitrable as arbitration is not forbidden or foreclosed by the Transfer of Property Act. However, the court held that the landlord-tenant disputes covered and governed by rent control legislation would not be arbitrable when specific court or forum has been given exclusive jurisdiction to apply and decide special rights and obligations. It also held that such rights and obligations can only be adjudicated and enforced by the specified court/forum, and not through arbitration.