The Arbitrability Paradox: Arbitrability in Eviction/ Tenancy Matters in India

It is well-known that since 2012, the world is seeing India as a pro-arbitration jurisdiction. Courts have been rendering several pro-arbitration decisions since then. Even the legislature has attempted to improve the overall arbitration experience in India by bringing about amendments in 2015. Despite these developments, it is paradoxical that the scope of disputes that are not arbitrable has increased, and that too, not for the right reasons. One such species of disputes is the arbitrability of tenancy matters, as exemplified by a recent judgement of the Supreme Court in Himangni Enterprises v. KS Ahluwalia (SCI. 2017). We had provided a descriptive comment of the judgement in this blog a few days back in the form of a presentation, where we had raised certain issues with the judgement. In this post, we critically evaluate the law on this subject using the points raised in the presentation.

Rent Control Laws in India

A slew of legislation were passed in independent India under the rubric Rent Control Act where the interests of the tenants were sought to be protected. These laws were enacted when there was scarcity of available accommodations [see, Santosh Mehta vs Om Prakash AIR 1980 SC 1664. These laws provided that no court or tribunal could, irrespective of any contract or otherwise, order eviction in a proceeding by a landlord against a tenant, subject to limited exceptions.

These rent control laws conferred exclusive jurisdiction on select courts, such as the Court of Small Causes to deal with eviction matters. Natraj Studios (P) Ltd. v. Navrang Studios, AIR 1981 SC 537 is a typical example. Two commercial entities, studios, fought for possession of two studios. Navrang Studios (Navrang), the owner entered into a leave and licence agreement. The concerned law was the Bombay Rent, Hotel and Lodging House Rates Control Act, 1947. Under the said law, the licensor and the licensee were deemed to be governed under the said law and  the Small Causes court had the exclusive jurisdiction to decide the disputes between the parties. Since the Rent Control law was a social welfare legislation, the court held that only the Small Causes court had the jurisdiction to decide the issues under the said law and that an arbitral tribunal could not. The court observed:

"The Bombay Rent Act is a welfare legislation aimed at the definite social objective of protection of tenants against harassment by landlords in various ways. It is a matter of public policy. The scheme of the Act shows that the conferment of exclusive jurisdiction on certain Courts is pursuant to the social objective at which the legislation aims. Public policy requires that contracts to the contrary which nullify the rights conferred on tenants by the Act cannot be permitted. Therefore, public policy requires that parties cannot also be permitted to contract out of the legislative mandate which requires certain kind of disputes to be settled by special courts constituted by the Act. It follows that arbitration agreements between parties whose rights are regulated by the Bombay Rent Act cannot be recognised by a Court of law."

Curiously both the parties were commercial entities and yet the court chose to view the case as relating to social welfare and public policy.

Critique of the Rent Control Laws

These rent control laws were criticised for being heavily in favour of the tenants even at the cost of landlords. The Supreme Court recognised this in various decisions. In Prabhakaran Nair & Ors. Vs. State of Tamil Nadu & Ors. [(1987) 4 SCC 238, the court held: "Tenants are in all cases not the weaker sections. There are those who are weak both among the landlords as well as the tenants." [Also see, Ganpat Ram v Gayatri Devi AIR 1987 SC 2016].

[For a discussion on the evolution of the the law, see, for instance, Aditya Alok & Pankti Vora, Rent Control in India- Obstacles for Urban Reform, 4 NUJS Law Review 81 (2011)].

The law in many states moved forward in enacting a legislation that balanced the interests of both the landlord and the tenant and repealed the old rent control laws. Karnataka is a typical example. The Karnataka repealed the old rent control law and enacted the Karnataka Rent Act, 1999. The Statement of Objects and Reasons to the Karnataka Rent Bill, (which eventually became Karnataka Rent Act, 1999) stated:

"Economic Administration Reforms Commission and the National Commission on Urbanisation have recommended reform of the Rent Legislation in a way that balances the interests of both landlord and the tenant and also stimulates future construction. The Government of India have formulated a model rent control law and recommended to the State Governments to undertake amendments to existing rent control laws or enact new laws on the basis of the model law. It is considered necessary and expedient to bring about a new legislation to provide for regulation of rent and eviction in the spirit of modern economy in a manner more suited to our State, by adopting some provisions of the model rent control law and some of the existing law of Rent Control in the state."

Why such Disputes should be Non-Arbitrable?

The question is given that the new set of laws are concerned with balancing the interests of the landlords and the tenants. There are two connected issues here: the law and the policy underlying it has considerably changed. Considering this, there seems to be no basis for holding that such disputes are not arbitrable. Secondly, despite the pro-arbitration developments in the past five years in India, there seems to be a deep mistrust in the ability of arbitration to deliver justice. This distrust may be justified in certain cases and this might have led the Supreme Court in Himangni Enterprises to decide in favour of non-arbitrability. Such a conclusion needs re-visiting for the following reasons:

• As has been discussed above, the law has undergone changes owing to the change in economic policies of the country. Given this, is there a need to make such disputes non-arbitrable? Disputes under rent control laws were not arbitrable since the rent control laws were considered social welfare legislations. Given that the rent laws repealing the rent control regime balance the rights of the landlords and the tenants, the reasons for making disputes under such laws do not survive. Therefore, the bar should consequently not lie: cessante ratione legis cessat ipsa lex.
• This is true especially in the context of putting a property to commercial use. When a property is put to commercial use, the parties generally enjoy equal bargaining power. The decision of the Supreme Court in 1981 in Natraj Studios pertained to two commercial entities fighting over possession of two studios. Where is the question of applying the social welfare test in such cases? 
• Although in Booz Allen, tenancy disputes were recognised as well-known non-arbitrable disputes, the test of in rem-in personam distinction to decide arbitrability as laid down in Booz Allen allows arbitrability of tenancy disputes as tenancy creates rights in personam. This is all the more reason why such disputes should be arbitrable.

Does Himangni go Much Further?

When the counsel for the appellant argued that the Delhi Rent Act 1995 [Note: The Supreme Court in Himangni Enterprises wrongly refers to the Delhi Rent Act of 1955; it is 1995 and not 1955.] would not apply to certain premises as listed out in Section 3 thereof, the Supreme Court went much further and held that tenancy disputes under the Transfer of Property Act, 1882 were also not arbitrable:

"26. The Delhi Rent Act, which deals with the cases relating to rent and eviction of the premises, is a special Act. Though it contains a provision (Section 3) by virtue of it, the provisions of the Act do not apply to certain premises but that does not mean that the Arbitration Act, ipso facto, would be applicable to such premises conferring jurisdiction on the arbitrator to decide the eviction/rent disputes. In such a situation, the rights of the parties and the demised premises would be governed by the Transfer of Property Act and the civil suit would be triable by the Civil Court and not by the arbitrator. In other words, though by virtue of Section 3 of the Act, 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 a particular premises, the Act becomes applicable to such premises. In this view of the matter, it cannot be contended that the provisions of the Arbitration Act would, therefore, apply to such premises."

It is submitted that the Supreme Court has got this part of the decision completely wrong and the same deserves reversal or statutory abrogation. This reasoning is even contrary to Booz Allen. Note that Booz Allen talks about "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" and does not talk about cases where eviction or tenancy matters are not governed by special statutes. In the instant case, the Supreme Court held that even if the Delhi Rent Act did not apply by virtue of Section 3 thereof and the general law, that is, the Transfer of Property Act, 1882 applied, the dispute under the latter law would remain non-arbitrable. The court supplied a convoluted reasoning that if the exemption is withdrawn or if it ceases to have application to such premises the Act would become applicable. Obviously, if a premises ceases to fall within the exemption in Section 3, the Delhi Rent Act would apply. But so long as it falls within the exemption, the law would not apply. Thus, the Supreme Court's reasoning as regards non-arbitrability of tenancy disputes even under the general law is neither supported by the Supreme Court in Booz Allen nor is it supported by convincing reasoning.

The Way Forward

The way forward is for the Supreme Court to constitute a larger Bench and decide on all the issues that are noted above. At the least, the court has to exempt tenancy under the general law (not governed by special statutes) and commercial leases/ licences from the bar on arbitrability. Letting Himangni Enterprises to hold the field will do immense damage to Indian arbitration, which is otherwise on the right path.

Challenging Interim/ Partial Arbitral Awards in India: Recent Developments

On 23.01.2018, the Supreme Court of India delivered a judgement in the case of Indian Farmers Fertilizers Co-operative Ltd. v. Bhadra Products. The decision is significant because it clarifies the difference between an Interim Award on limitation and a decision on a challenge to the tribunal's jurisdiction. Both these determinations have different legal consequences. An Interim Award (partial award) dismissing an objection on limitation is an Interim Award which can be challenged under Section 34 of the Arbitration and Conciliation Act, 1996 soon after it is issued, while a determination dismissing jurisdictional objections can be challenged only after the award is passed [S. 16(6)]. 

This presentation (11 slides) provides a descriptive overview of the judgement and critically evaluates the judgement.

[Added after posting: Also see, this post in Bar & Bench which provided a descriptive comment of the decision soon after it was published]

Arbitrability of Tenancy/ Eviction Matters: Recent Developments

This presentation discusses the recent judgement of the Supreme Court in Himangni Enterprises v. KS Ahluwalia (SCI. 2017) where the Supreme Court reiterated the previously held position that tenancy/ eviction matters were not arbitrable. The presentation concludes raising questions as to whether it is sound policy to make such disputes non-arbitrable. If the dispute really is a dispute about rights in personam, should not such disputes be arbitrable? More on the law on this issue in another post. 

The decision of the Supreme Court can be accessed from here. 

(Nothing?) More on Reciprocal Arrangement Countries under the Arbitration & Conciliation Act, 1996

We did a post about four years back on the countries which the Government has notified as having made reciprocal provisions for the enforcement of the New York Convention.We mentioned there that countries which were so notified under the Section 2 of the Foreign Awards (Recognition and Enforcement) Act, 1961 were: Austria, Botswana, Bulgaria, Central African Republic, Chile, Cuba, Czechslovak Socialist Republic, Denmark, Ecuador, Arab Republic of Egypt, Finland, France, German Democratic Republic, Federal Republic of Germany, Ghana, Greece, Hungary, Italy, Japan, Kuwait, Republic of Korea, Malagasy Republic, Mexico, Morocco, Nigeria, The Netherlands, Norway, Philippines, Poland, Romania, San Marino, Spain, Sweden, Switzerland, Syrian Arab Republic, Thailand, Trinidad and Tobago, Tunisia, USSR, UK, United Republic of Tanzania, and USA (Justice Bachawat's Law of Arbitration & Conciliation (5th ed. 2010), P.2264 ff, 2296). We also mentioned that these notifications were valid even under the 1996 Act in view of Section 82(2)(b), which creates a fiction as if these notifications  were issued under the the 1996 Act.

In that post, we provided the links to the readers of notifications issued under the 1996 Act for Singapore, Malaysia, Canada, Australia, China, Hong Kong SAR and Macao SAR. Most of this information were sourced through an RTI Application seeking information on the notifications under Section 44(b) [see the post]. But what about the territories mentioned above? These must have been notified under the 1961 Act. Although the previous Application would have included all the territories mentioned above, in view of the deeming fiction, we nevertheless filed another RTI Application seeking the list of territories notified under the 1961 Act. None of the territories mentioned in the aforesaid commentary found its place in the reply of the PIO. In fact, the notifications given in the decision were those issued under the 1996 Act and not the 1961 Act. The Reply can be accessed from here. 

In addition to the countries mentioned in the previous RTI application, Mauritius has been notified vide Notification dt. 13.07.2015. 

It is possible that the Ministry has failed to trace notifications of the territories mentioned in the commentary, such as France, Spain, Switzerland, USA, etc. If so, how do petitioners seeking enforcement of arbitral awards satisfy the court that requirements under Section 44(b) have been met? 

We spoke to some of the practitioners in the field. They say that none of the respondents had raised such an objection. Even if they raise such an objection, it would be possible to cite previous judgements where awards for such territories have been enforced. But the question is whether such an objection has been raised in the first place in those decisions? 

As we noted in the previous post, the PIO did not give accurate information in reply to the query for information on this issue. Therefore, in order to put an end to this issue, a court hearing an objection of failure to comply with Section 44(b) should issue notice to the Government seeking their reply. 

We've filed an appeal against the decision of the PIO and we will keep readers updated on the outcome of the appeal. 

Critique of the Supreme Court's decision in Inox Wind v Thermocables (SCI: 05.01.2018)

Followers of this blog would've come across the previous post on the decision of the Supreme Court in Inox Wind v Thermocables. We had provided a comment on the decision in the form of power point presentations. Some readers did not like the idea of having to go through the power point presentations, although it was the easiest to make. The complaint was that the power point presentations lacked detailed analysis. In order to assuage feelings of dissatisfaction, we present critique of the said decision in the form of a blog post. For a descriptive comment on the decision, kindly bear with us and go through the presentation.

Prior to embarking on the exercise of raising questions on the judgement, it would do good to summarise what was held by the two judge Bench in Inox Wind.

• The decision of the Supreme Court in MR Engineers & Contractors Pvt. Ltd. v. Som Datt Builders Ltd. (2009) 7 SCC 696 held the field.
• MR Engineers relied on the 23rd edition of Russell on Arbitration and held that: "(iv) Where the contract provides that the standard form of terms and conditions of an independent Trade or Professional Institution (as for example the Standard Terms & Conditions of a Trade Association or Architects Association) will bind them or apply to the contract, such standard form of terms and conditions including any provision for arbitration in such standard terms and conditions, shall be deemed to be incorporated by reference.”
• Meanwhile the English law had evolved. In Habas Sinai etc. AS v. Sometal SAL [2010] EWHC 29 (Comm.), English courts have held that where the contract seeks to incorporate standard terms of a party to the contract, the arbitration clause found in such standard terms will bind the parties. The 24th edition of Russell on Arbitration updates the English law on the subject by taking into consideration the decision in Habas Sinai.
• MR Engineers restricted applicability of arbitration clause only when the standard forms of trade associations/ professional bodies were incorporated by reference.
• English law had evolved to the effect that general reference in a contract to a standard form of one of the parties will incorporate the arbitration clause contained in the standard form.
• Therefore, MR Engineers is correct except insofar as exclusion of binding force of arbitration clauses found in standard terms of contract of one of the parties when parties referred to such terms in their contract. 
• On facts, the Thermocables was aware of the arbitration clause contained in INOX’s Standard Terms, which were attached to the Purchase Order. Therefore, arbitration clause was binding.

Critique

Some questions on the reasoning of the decision are in order:

1) The Supreme Court was not correct in stating that MR Engineers excluded parties' standard terms containing the arbitration clause from applicability. Para 24(v) of MR Engineers contemplated a situation where the contract stipulated that Conditions of Contract of one of the parties to the contract shall form a part of the contract. In such a case, MR Engineers stated, the arbitration clause therein would apply. Para 124(v) reads:

“(v) Where the contract between the parties stipulates that the Conditions of Contract of one of the parties to the contract shall form a part of their contract (as for example the General Conditions of Contract of the Government where Government is a party), the arbitration clause forming part of such General Conditions of contract will apply to the contract between the parties.”.

[ There is no difference in the present context between Conditions/ General Conditions of Contract and Standard Terms and Conditions. ] Doesn’t this mean MR Engineers covered even the situation before the court in the instant case and treats the arbitration clause as binding? If so, wasn't the entire analysis of English law by the court in Inox Wind an unnecessary exercise?

2) Having agreed with the decision of the English Commercial Court in Habas Sinai etc. AS v. Sometal SAL [2010] EWHC 29 (Comm.), that where A & B made a contract incorporating terms previously made between them in another contract, a general reference to the previous contract will bind the parties to arbitration clause in that contract, why did the Supreme Court in the present case state: “We are of the opinion that though general reference to an earlier contract was not sufficient for incorporation of an arbitration clause in the later contract, a general reference to a standard form would be enough for incorporation of the arbitration clause.”? (Para 24). 

Note that if the Supreme Court had held correct this particular portion of Habas Sinai, it would amount to overruling MR Engineers, since for MR Engineers the arbitration clause from the previous contract between the parties had to be directly referred to in the agreement. Another possible reason why the Supreme Court would not have addressed this aspect it because the question did not arise in the case before it.

3. The above argument raises another point of critique: MR Engineers was a decision rendered by a two-judge bench of the Supreme Court. If the two judge Bench in the instant case disagreed (even partly) with MR Engineers, the ideal course would have been to refer the matter to the Chief Justice for constituting a larger Bench to decide the important issue. Instead, the court has now sought not to follow a part of MR Engineers, which may not be consistent with the doctrine of precedents and judicial discipline. 

4. Look at what the court has done in this case. The contracts between the parties are of December 2012 and February 2013. On those dates, the decision of the SC in MR Engineers (which purportedly did not cover standard forms agreed between the parties) governed the field. By relying on the English case of Habas Sinai, the Court has applied English law to the parties when the Indian law should have governed the transaction! In other words, the parties could be hypothetically assumed to have acted drafted their agreement as per MR Engineers (given the Supreme Court's reading of MR Engineers), which meant that the parties would not have chosen to incorporate the arbitration clause even if they sought to incorporate other terms of the contract. Instead of recognising such a choice, would not the Court's reasoning be seen as imposing the developments in English law retrospectively on an agreement which was entered into between the parties based on Indian law prevailing as on that date (MR Engineers)?

Closing Remarks

In conclusion, although the eventual conclusion of the decision on facts seem to be right, the approach in reasoning seems to be wanting. In fact, the entire law on the issue requires reconsideration, especially as regards the sufficiency of a general reference to an earlier contract containing an arbitration clause in order to bind the parties to arbitration under the later contract. 

Incorporation of Arbitration Clause by Reference: Inox Wind v Thermocables (SCI: 05.01.2018)

On 05.01.2018, the Supreme Court of India delivered an important judgement on the law on incorporation of arbitration clause by reference. The question before the Supreme Court was whether the arbitration clause forming a part of standard form of contract of a party is binding on the contracting parties if the standard form is incorporated by reference to govern their contract.

The court was of the view that the previous decision of the Supreme Court in MR Engineers & Contractors Pvt. Ltd. v. Som Datt Builders Ltd. (2009) 7 SCC 696 restricted incorporation only to standard forms of terms of trade associations/ professional bodies, and not to standard terms of a party. The court held that English law (which was relied on by the court in MR Engineers) had evolved and that a mere reference in the contract to the standard terms of one of the parties to the contract is sufficient to treat the arbitration clause containing in such standard terms as binding between the parties. 

This presentation critically evaluates the decision and raises significant questions on the efficacy of the current law on the subject. While it agrees with the conclusion of the Supreme Court on the main aspect before the case, it raises questions on the manner in which the change of law has been achieved without reference of the question to a larger Bench. The presentation also argues that the position on the law as regards incorporation in general is not satisfactory and requires detailed consideration by a larger Bench. 

For those readers who do not prefer PPTs, a pdf version of the presentation can be accessed from this link. The judgement of the Supreme Court is available here.

An Overview of the New Delhi International Arbitration Centre Bill, 2018

The Central Government has introduced an important Bill in the form of the New Delhi International Arbitration Centre Bill, 2018 in the Indian Parliament. The Bill, if enacted, has the potential to change the face of arbitration in India. The Bill seeks to introduce the reforms suggested by the High Level Committe to review institutionalisation of Indian arbitration of converting the ICADR into an International Arbitration Centre through a statute. 

This presentation (27 slides) provides a comprehensive overview of the said Bill. The presentation also gives a prelude to the developments leading to the Bill, including the relevant recommendations of the High Level Committee on the subject.  

The Bill can be accessed from here. Certain minor corrections have been made to the Bill, which can be accessed from here.

Nissan v. Government of India- Investor-State Arbitration

The Nissan v. Government of India dispute has been in the news recently. In a nutshell, Nissan had invoked arbitration against the Government of India for the failure by the State of Tamil Nadu (an Indian province) to provide Investment based Subsidies it allegedly promised in an agreement between the State and Nissan. This presentation provides a bird's eye view of the dispute.

[Note: Of late, persentations are being provided in this blog on developments in arbitration rather than posts. Presentations convey salient points to the reader thereby substantially improving the reading experience and are at the same time simpler and quicker to make. In case readers would like to read posts instead of presentations, please feel free to let us know.]