
Vidya Drolia and Ors v.
Durga Trading Corporation
Civil Appeal No. 2402 of
2019
Decided on 14.12.2020
BENCH: Sanjiv Khanna, N V Ramana, Krishna
Murari, JJ.
FACTS:
A
reference was made by a division bench of Supreme Court in 2019 which was
considering an appeal against the order of Calcutta High Court wherein the High
Court appointed an arbitrator in dispute between landlord and tenant.
The
appeal was referred to the larger bench to determine the correctness of the
judgement in Himangini Enterprises v. Kamaljeet Singh Ahluwalia, wherein it
was held that where the Transfer of Property Act, 1882 applies between the
landlord and tenant, the disputes between the said parties would not be
arbitrable.
The
three judge bench in this case overruled its judgement in Himangi Enterprises
and held that landlord- tenant disputes under the Transfer of Property Act are
arbitrable.
ISSUES:
Whether
tenancy disputes are capable of being resolved through arbitration?
The Court over ruled the
ratio laid down in Himangini Enterprises case and held that landlord-tenant
disputes are arbitrable as the Transfer of Property Act does not forbid or
foreclose arbitration. The court however clarified 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.
The court held that the
landlord-tenant disputes are not actions in rem but pertain to subordinate
rights in personam that arise from rights in rem. It was observed that the
award passed in deciding landlord-tenant disputes can be executed and enforced
like a decree of the civil court. Landlord-tenant disputes do not related to
inalienable and sovereign functions of the State. The provisions of the
Transfer of Property Act do not expressly or by necessary implication bar
arbitration. TPA has a public purpose, that is, to regulate landlord-tenant
relationships and the arbitrator would be bound by the provisions, including
provisions which ensure and protect the tenants.
The judgement 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.
These tests are not
watertight compartments but they will help and assist in determining with
certainty whether a dispute is arbitrable or not.
Can
allegation of fraud be made a subject matter of arbitration?
The court overruled the
ratio in N. Radhakrishnan v. Maestro Engineers and ors. (2010) and observed
that the allegations of fraud can be made a subject matter of arbitration when
they relate to a civil dispute. This is subject to the caveat that fraud, which
would vitiate and invalidate the arbitration clause, is an aspect relating to
non-arbitrability.
When can the issue of
Non-arbitrability be raised?
The
issue of non-arbitrability can be raised at three stages:
1. Before
the court on an application for reference under Section 11 or for stay of
pending judicial proceedings and reference under Section 8 of the Arbitration
Act.
2. Before
the arbitral tribunal during the course of the arbitration proceedings.
3. Before
the court at the stage of the challenge to the award or its enforcement.
Who
decides non-arbitrability?
The court applied the
principle of severability and competence-competence with the Arbitration Act
and concluded that arbitral tribunal is the “preferred first authority” to determine
and decide all questions of non-arbitrability and the court has the power of
“second look” on aspects of non-arbitrability under the relevant clauses of
Section 34.