Bombay High Court
Wework India Management Pvt. Ltd. vs Dimple Enterprises on 25 July, 2025
2025:BHC-OS:13153
Dimple v. WeWork - 13.CARBP.154.2022 - FINAL.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
COMMERCIAL ARBITRATION PETITION NO.154 OF 2022
WITH
INTERIM APPLICATION NO.1557 OF 2022
IN
COMMERCIAL ARBITRATION PETITION NO.154 OF 2022
Dimple Enterprises ....Petitioner/Applicant
Versus
Wework India Management Pvt. Ltd. ...Respondent
WITH
INTERIM APPLICATION NO.2950 OF 2021
IN
COMMERCIAL ARBITRATION PETITION NO.107 OF 2021
Wework India Management Pvt. Ltd. ....Applicant
Versus
Dimple Enterprises ....Respondent
Ms. Sneha Jaisingh a/w. Justin Bharucha, Akshay Ayush &
Neeraja Barve i/b. Bharucha & Partners, Advocates for
Petitioner.
Mr. Viraj Parikh, Advocate for Respondent.
CORAM: SOMASEKHAR SUNDARESAN, J.
DATE : JULY 25, 2025
ORAL JUDGEMENT:
Context and Factual Background:
1. Whether the declaration of law in Vidya Drolia1 about disputes
under bilateral lease deeds being arbitrable, has no relevance for
Digitally
signed by
AARTI
AARTI
GAJANAN
1 Vidya Drolia vs. Durga Trading Corporation – 2021 2 SCC 1
GAJANAN PALKAR Page 1 of 44
PALKAR Date:
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arbitrability of such disputes in Greater Mumbai is the key question
raised in these proceedings.
2. This Petition is essentially an Appeal under Section 37 of the
Arbitration and Conciliation Act, 1996 (“Arbitration Act“) challenging
an order / award dated October 6, 2020 ( “Impugned Order”) passed by
a Learned Arbitral Tribunal allowing an application under Section 16 of
the Arbitration Act, holding that disputes and differences between the
parties over a lease deed are not arbitrable.
3. The Petitioner, Dimple Enterprises, a partnership firm
(“Dimple”) entered into a Lease Deed with WeWork India Management
Pvt. Ltd. (“WeWork”) on May 28, 2018, leasing out 1,50,005 square feet
of carpet area in a building called K. Raheja Platinum for a period of ten
years. The lease rental payable was in the sum of Rs.~ 2.57 Crores per
month, escalated by 15% every three years.
4. To secure payment of lease rentals, electricity and other related
maintenance charges, a security deposit equivalent to lease rentals for
three months in the sum or Rs. ~7.71 Crores (“Security Deposit”) was
contracted. The Security Deposit is not subject to escalation to
correspond to the escalation of the lease rentals.
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5. Disputes and differences between the parties arose when the
Covid-19 Pandemic led to a lock-down all over India. WeWork would
assert that the invoice for April 2020 and May 2020 were not payable
on account of force majeure conditions having arisen, leading to
payment obligations being excused under Clause 21 of the Lease Deed.
WeWork also claimed that there was no obligation to pay lease rentals
for about seven days in June 2020. Dimple appropriated the amounts
claimed by WeWork as not being payable from the Security Deposit,
depleting the Security Deposit from Rs. ~7.71 crores to Rs. ~88.50
lakhs. Dimple called upon WeWork to replenish the Security Deposit
to the originally contracted size. WeWork would contend that the
appropriation of amounts from the Security Deposit was illegal and no
replenishment was necessary.
6. It is common ground that the Lease Deed contains an arbitration
agreement. Whether disputes and differences under the Lease Deed
are arbitrable is the core issue raised by WeWork under Section 16 of
the Arbitration Act, challenging the jurisdiction of the Learned Arbitral
Tribunal, which had been constituted in disposal of a Section 9 Petition
by this Court. The Learned Arbitral Tribunal has taken a clear view
that the appropriation from the Security Deposit constituted recovery
of lease rentals, and therefore the replenishment of the Security
Deposit is related to recovery of lease rentals. Dimple being the lessor
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is a “landlord”; WeWork, being the lessee is a “tenant”, and therefore,
the Learned Arbitral Tribunal has held, the recovery of lease rentals is
subject to exclusive jurisdiction of the Small Causes Court established
under the Presidency Small Cause Courts Act, 1882 (“Small Cause
Courts Act“).
7. It is apparent that the parties addressed the Learned Arbitral
Tribunal on a variety of issues, each party citing at least a dozen
judgments on how to read pleadings in the proceedings. The parties
addressed the Learned Arbitral Tribunal on whether merely because
the demand by Dimple is for replenishment of Security Deposit, which
also secures recovery of other ancillary and incidental amounts such as
electricity and outgoings, the subject matter of the dispute would cease
to be recovery of lease rental. Section 41 of the Small Cause Court Act
was held to vest exclusive jurisdiction over the dispute between the
parties in the Small Causes Court, ousting the arbitrability of the
dispute.
8. Another facet of the matter was whether the declaration of force
majeure was inherently invalid. The Learned Arbitral Tribunal found
that declaration of legality of force majeure is a prayer that is incidental
and ancillary to the core issue of recovery of lease rental. Answering
that question, the Learned Arbitral Tribunal found, would still
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necessitate returning findings on recovery of lease rentals. Therefore,
the Learned Arbitral Tribunal came to a view that this question would
squarely fall in the domain of the Small Causes Court.
Analysis and Findings:
9. I have had the benefit of hearing incisive submissions from both
Mr. Virag Tulzapurkar, Learned Senior Advocate representing Dimple
and Mr. Viraj Parikh, Learned Advocate representing WeWork. Having
considered the state of the law with their assistance, in my opinion,
adjudication of this Petition would necessitate examining the interplay
of provisions contained in the Arbitration Act, the Small Cause Courts
Act, and the Transfer of Property Act.
10. At the threshold, it must be stated that the Impugned Order was
passed when the law in Vidya Drolia was yet to be declared by a three-
judge bench of the Supreme Court answering a reference to a larger
bench owing to a conflict of views between two-judge benches.
11. It is noteworthy that the law declared in Vidya Drolia was a
significant departure from the position earlier in vogue, namely, that
even in personam disputes under bilateral lease deeds under the
Transfer of Property Act, 1882 (“Transfer of Property Act“) were not
arbitrable. The law then governing the field was the position declared
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by a two-judge bench of the Supreme Court in Himangni2, which, in
turn, had been based on the law declared in Natraj Studios3 (involving
disputes with a protectee under the Bombay Rents, Hotel and Lodging
House Rates Control Act, 1947 – ” Bombay Rent Act”) and Booz Allen4
(which commented on in rem disputes being non-arbitrable and while
doing so, referred to landlord-tenant disputes). Booz Allen had
indicated that such non-arbitrability would arise in cases covered by: (i)
special statutes; (ii) statutory protection for tenants; and (iii) specific
courts having jurisdiction ousting other jurisdictions.
12. In these proceedings, Dimple would contend that Vidya Drolia
puts paid to the issue, but Mr. Tulzapurkar would attack the Impugned
Order with equal vigour on the premise that seeking replenishment of
the Security Deposit is different from seeking recovery of lease rentals.
WeWork would contend that it is the decision of the Full Bench of this
Court in Central Warehousing5 that puts paid to the issue and that
Vidya Drolia is wholly irrelevant to lease deeds in Greater Mumbai.
According to Mr. Parikh, since Vidya Drolia dealt with a lease in West
Bengal, it is not dispositive of the position in Greater Mumbai, with
Section 41 of the Small Cause Courts Act being unique to Greater
2 Himangni Enterprises vs. Kamaljeet Singh Ahluwalia – (2017) 10 SCC 706
3 Natraj Studios (P) Ltd. Vs. Navrang Studios – (1981) 1 SCC 523
4 Booz Allen & Hamilton Inc. Vs. SBI Home Finance Ltd. – (2011) 5 SCC 532
5 Central Warehousing Corporation Vs. Fortpoint Automotive Pvt. Ltd. – 2010(1)
Mh.L.j.658
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Mumbai because it is the product of a State Amendment in
Maharashtra. He would contend that Section 41 of the Small Cause
Courts Act would still oust the jurisdiction of forums other than the
Small Causes Court.
13. Therefore, it would be necessary to examine, at the threshold, the
relevant provisions of Section 41(1) of the Small Cause Courts Act,
which are extracted below :-
41. Suits or Proceedings between licensors and licenses or landlords and
tenants for recovery of possession of immovable property and licence fees
or rent, except to those to which other Acts apply to lie in Small Cause
Court.–
(1) Notwithstanding anything contained elsewhere in this Act or in
any other law for the time being in force, but subject to the provisions of
sub-section (2), the Court of Small Causes shall have jurisdiction to
entertain and try all suits and proceedings between a licensor and
licensee, or a landlord and tenant, relating to the recovery of possession
of any immovable property situated in Greater Bombay, or relating to the
recovery of the licence fee or charges or rent therefor, irrespective of the
value of the subject matter of such suits or proceedings.(2) Nothing contained in sub-section (1) shall apply to suits or
proceedings for the recovery of possession of any immovable property, or
of licence fee or charges or rent thereof, to which the provisions of the
Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, the
Bombay Government Premises (Eviction) Act, 1955, the Bombay
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other law for the time being in force applies.
[Emphasis Supplied]
14. It is noteworthy that the nature of relationships covered by
Section 41(1) of the Small Cause Courts Act are those between: (i)
licensor and licensee; and (ii) landlord and tenant. The disputes
between persons falling within these relationships for purposes of
Section 41 are those relating to (i) recovery of possession of the
immovable property situated in Greater Mumbai; (ii) recovery of
license fee; and (iii) recovery of charges or rent. Under Section 41(2),
jurisdiction to try such proceedings under certain other legislation that
had exclusive jurisdiction were indicated as not being affected by
Section 41(1).
15. Since Section 41(1) would cover proceedings, among others,
between landlord and tenant; relating to recovery of rent, regardless of
value of the subject matter, WeWork would contend that this should
suffice for all leases in Greater Mumbai to be covered exclusively by the
law declared in Central Warehousing, rendering the entire analysis in
Vidya Drolia irrelevant to the matter at hand. Mr. Parikh would
contend that the relationship between lessor and lessee is the same as
the relationship between landlord and tenant – in other words, a lease
is the same as tenancy for purposes of Section 41(1) of the Small Cause
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Courts Act. Central Warehousing and Vidya Drolia are analysed in
more detail, later in this judgement.
16. A lease is defined in Section 105 of the Transfer of Property Act.
For felicity, the same is extracted below:-
A lease of immoveable property is a transfer of a right to enjoy such property,
made for a certain time, express or implied, or in perpetuity, in consideration
of a price paid or promised, or of money, a share of crops, service or any
other thing of value, to be rendered periodically or on specified occasions to
the transferor by the transferee, who accepts the transfer on such terms.
Lessor, lessee, premium and rent defined.– The transferor is called the
lessor, the transferee is called the lessee, the price is called the premium, and
the money, share, service or other thing to be so rendered is called the rent.
[Emphasis Supplied]
17. Therefore, while a tenant of a property is an occupant, a lessee is
a transferee of interest in the property for a price, to be discharged in
terms of the agreement between the parties. It is in this light that the
interplay between the Transfer of Property Act and the Small Cause
Courts Act in the context of the Arbitration Act needs to be considered.
Security Deposit Replenishment:
18. It cannot be forgotten that the instant dispute relates to
replenishment of security deposit. Indeed, the phrase “relating to”
used in Section 41(1) of the Small Cause Courts Act has been held in
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suits and proceedings connected with recovery of possession or of rent,
as held in Mansukhlal6. Indeed, phrases such as “relating to”,
“connected with”, “concerning” and the like have to be widely
construed as held in Renusagar7. Likewise, indeed the substance and
essence of the dispute must be examined as held in ING Vysya8 and in
Trent9 and clever drafting cannot be allowed to let a party seek a prayer
indirectly when it cannot be sought directly as held in Century
Textiles10.
19. It is equally true that even while the term “relating to” may be
used with a wide import, Courts have indeed examined arbitrability in
the context of disputes over security deposit to hold that even in leave
and license agreements that essentially provide for security deposit to
secure the license fees, disputes relating to security deposit are
arbitrable – for instance, in Brainvisa11 and Bafna Motors12, to cite just a
couple of cases. Brainvisa noticed the law declared in Central
Warehousing and held that the claim for recovery of security deposit
6 Mansukhlal Dhanraj Jain vs. Eknath Vithal Ogale – (1995) 2 SCC 665
7 Renusagar Power Company Ltd. Vs. General Electric Company – (1984) 4 SCC
679
8 ING Vysya Bank vs. Modern India Limited – 2008 (2) Mh.L.J. 519
9 Trent Ltd. Vs. Nanasaheb Govindrao – 2017 SCC OnLine Bom 7248
10 Century Textiles vs. Nusli Neville Wadia – 2014 SCC OnLine Bom 513
11 Brainvisa Technologies Pvt. Ltd. Vs. Subhash Gaikwad (HUF) – 2012 SCC
OnLine Bom 2003
12 Bafna Motors Pvt. Ltd. Vs. Amanulla Khan – 2022 SCC OnLine Bom 994
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would not be a claim relating to the nature of the disputes covered by
Section 41(1) of the Small Cause Courts Act. Both these were decisions
under Section 11 of the Arbitration Act rendered before the Supreme
Court, declaring that the earlier practice of weeding out “dead wood”
and looking through the “eye of the needle” should be shunned and that
the Section 11 Court must only examine the existence of a formally
executed arbitration agreement.
20. One could make one other differentiation – recovery of license
fees or rental is a claim pursued by the licensor (or the landlord) while
recovery of security deposit is a claim by the licensee (or the tenant).
However, this distinction should not make a difference if the phrase
“relating to” is meant to be of the widest import to create a “one
umbrella” forum in the Small Causes Court to deal with all disputes and
differences relating to the subject matter covered by Section 41(1) of the
Small Cause Courts Act between the persons referred to in that
provision. That apart, it cannot be contended that when suits and
proceedings relating to the specified subjects fall in the jurisdiction of
the Small Causes Court under Section 41(1), such jurisdiction is meant
to differentiate on the basis of character of the plaintiff and defendant.
It indeed is nobody’s case that landlords have to approach the Small
Causes Court while the tenants may go elsewhere.
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21. It is in this context that one must examine the march of the law
in the context of Central Warehousing and Vidya Drolia. At the outset,
it would be pertinent to note that issue framed for consideration by the
Full Bench in Central Warehousing:
Whether in view of the provision of Section 5 of the Arbitration and
Conciliation Act, 1996, if any Agreement between Licensor and Li-
censee contains a clause of arbitration, the jurisdiction of the Small
Causes Court under the Presidency Small Cause Courts Act,
1882 would be ousted?
[Emphasis Supplied]
22. The ratio to be discerned from Central Warehousing is in the
context of answering the aforesaid issue. Central Warehousing clearly
dealt with arbitration clauses contained in Leave and License
Agreements. Indeed, the Full Bench made observations about leases
under the Transfer of Property Act, and that is discussed later. The Full
Bench answered the question in the following terms:-
We hold that section 41 of the Act of 1882 falls within the ambit
of section 2(3) of the Act of 1996. As a result of which, even if the
Licence Agreement contains Arbitration Agreement, the exclusive
jurisdiction of the Courts of Small Causes under section 41 of the Act
of 1882 is not affected in any manner. Whereas, Arbitration
Agreement in such cases would be invalid and inoperative on the
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by virtue of section 41 of the Act of 1882.
[Emphasis Supplied]
23. In a nutshell, Central Warehousing has held that adjudication of
disputes between a landlord and occupants of the landlord’s properties
would lie in the jurisdiction of the Small Causes Court due to Section
41(1) of the Small Cause Courts Act. Other than special legislation of
the nature referred to in Section 41(2), it held that other law would not
exclude the jurisdiction of the Small Causes Court. Specifically, the
Arbitration Act would not permit contracting out of the Small Cause
Courts Act.
24. In the course of the exposition in Central Warehousing, the Full
Bench has also dealt with leases under the Transfer of Property Act at
the end of a discussion of public policy underlying Section 41(1) of the
Small Cause Courts Act. The need to discuss public policy arose to deal
with the contention that the policy choice underlying that provision was
to protect weak and underprivileged tenants and not to place hurdles in
the path of commercially savvy parties who contract with eyes open and
choose to resolve their disputes by arbitration. The allusion to public
policy by the licensors presenting contentions to the Full Bench was
premised on the proposition that it may be against public policy for
weak tenants deserving of statutory protection being protected from
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such public policy impediment would arise in relation to occupants who
are differently placed and not weak and deserving of statutory
protection.
25. Thereby, licensors who appeared before the Full Bench in Central
Warehousing sought to include the Arbitration Act within the meaning
of the phrase “or any other law for the time being in force ” used in
Section 41(2). By such argument, it was contended that Section 41(2)
permitted choice of arbitration under the Arbitration Act to be made
applicable to licensor-licensee disputes thereby ousting Section 41(1),
which is explicitly subject to Section 41(2). This entire line of reasoning
was squarely repelled in Central Warehousing in the following words in
Paragraph 27 of the judgement:
Insofar as the consideration of public policy, even if we may approve
the observation of the Division Bench, that insofar as tenants being
protected by the Rent Act would stand on a different footing than the
licensee who will have no such protection; but keeping in mind the
exposition of the Apex Court in Mansukhlal Dhanraj Jain‘s case
(supra) about the intent of this provision to invest exclusive
jurisdiction in the Court of Small Causes by virtue of Section 41 of the
Act of 1882, such argument cannot be countenanced. Indeed, the Apex
Court, while considering Mansukhlal Dhanraj Jain‘s case (supra) has
not specifically dealt with the aspect of public policy. Nevertheless,
since the said decision follows the view taken in the earlier decision in
Natraj Studio Pvt.Ltd. (supra) in toto and then proceeds to hold that
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try suits contemplated by Section 41(1), it is not open to this Court to
assume that in Mansukhlal Dhanraj Jain‘s case (supra), the Apex
Court was oblivious of the aspect of public policy behind such special
law. Significantly, Section 41(1) not only deals with matters between
licensor and licensee, but also between landlord and tenant. Indeed, it
does not take within its fold, matters between landlord and tenant
whose disputes would be governed by the provisions of Bombay Rent
Act, 1947 or Maharashtra Rent Control Act, 1999 as the case may be,
in respect of immovable property to which the said enactments apply.
It is possible to take the view that the expression “landlord and
tenant” appearing in Section 41(1) of the Act, therefore, would be one
ascribable to such relationship on account of provisions of Transfer of
Property Act or any other law on that subject, which is, however, not
excepted by virtue of sub-section (2) of Section 41 of the Act.
[Emphasis Supplied]
Mansukhlal and Natraj Studios:
26. The analysis in Central Warehousing (not only in the aforesaid
extract, but throughout the core content) is extensively based on
Mansukhlal, which in turn adopted the reasoning in Natraj Studios to
hold that Section 41(1) of the Small Cause Courts Act is in pari materia
with Section 28 of the Bombay Rent Act (Para 18 of that judgement),
thereby conferring exclusive jurisdiction on the Small Causes Court.
Mansukhlal (which dealt with a leave and license agreement) went on
to consider the law declared in Natraj Studios and interpreted Section
15-A of the Bombay Rent Act, by which a licensee in occupation as of
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February 1, 1973 would become a deemed tenant, to hold that the
jurisdiction over disputes would exclusively vest in the Small Causes
Court. Central Warehousing, leading up to the observation that ” it is
possible to take the view ” that the relationship of ” landlord and tenant”
used in Section 41(1) could be ascribed to relationships arising under
the Transfer of Property Act, heavily relies on the twin judgements of
Mansukhlal and Natraj Studios.
27. The Full Bench noted that while the issue of public policy may
not have been considered by the Supreme Court in Mansukhlal, since
the Supreme Court adopted from Natraj Studios, the public policy
considerations in Natraj Studios can be said to have been adopted in
Mansukhlal. Specifically, it was held that one cannot presume that
when declaring the law in Mansukhlal, the Supreme Court was
oblivious of the public policy issue.
Himangni and Vidya Drolia-I:
28. It is this very approach and analysis that weighed with the
Supreme Court in Himangni. Examining Natraj Studios and Booz
Allen, the Supreme Court held in Himangni that disputes relating to
even a bilateral lease under the Transfer of Property Act are simply not
arbitrable. This was disagreed with by a subsequent two-judge bench 13
13 Vidya Drolia v/s. Durga Trading Corporation – 2019 20 SCC 406
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(“Vidya Drolia-I”), leading to a reference being made to a three-judge
bench, resulting in the declaration of the law in Vidya Drolia by a larger
bench, disagreeing with the law declared in Himangni.
29. In Himangni the two judges of the Supreme Court returned a
specific finding that disputes relating to a lease deed, despite
apparently being in personam in nature would not be amenable to
arbitration. The facts in Himangni entailed a Lease Deed with the
tenant not being a statutorily protected tenant under Rent Laws
applicable in Delhi. The Supreme Court took a view that upon the
expiry of the Lease Deed, the lessee would get statutory protection and
therefore inferred that the dispute is not arbitrable, relying on the
approach in Natraj Studios (which, as stated earlier, had dealt with a
similar provision in Section 15-A of the Bombay Rent Act).
30. The flow of the legal position obtaining in this regard has been
well captured in Vidya Drolia-I, inherently quoting the relevant
portions of Himangni, as will be seen from the following extracts (at the
risk of a seemingly prolix extraction):
18. We now come to the sheet anchor of the appellants’ case be-
fore us, namely, the decision in Himangni Enterprises . This judg-
ment concerned itself with a landlord-tenant dispute in which the
Delhi Rent Act, 1995 was admittedly inapplicable. However, in
para 18 of the said judgment, this Court said: (SCC p. 710)
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“18. In our considered opinion, the question involved in the
appeal remains no longer res integra and stands answered
by two decisions of this Court in Natraj Studios (P)
Ltd. v. Navrang Studios and Booz Allen & Hamilton
Inc. v. SBI Home Finance Ltd. against the appellant and in
favour of the respondent.”
19. We may point out that the judgment in Natraj Studios is a
judgment in which Section 28 of the Bombay Rent Act, in the
context of arbitrability, arose for consideration. This section made
it clear that disputes between landlords and statutory tenants would
be referable only to the Small Cause Court in Bombay and “no
other court has jurisdiction to entertain any such suit, proceeding
or application or to deal with such claim or question”. Given this
provision, and the fact that the Bombay Rent Act is a welfare
legislation, this Court held: (SCC p. 532, para 17)
“17. 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 kinds 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.”
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20. It then concluded in para 24 as follows: (Natraj Studios
case
“24. In the light of the foregoing discussion and the
authority of the precedents, we hold that both by reason of
Section 28 of the Bombay Rents, Hotel and Lodging House
Rates Control Act, 1947 and by reason of the broader
considerations of public policy mentioned by us earlier and
also in Deccan Merchants Coop. Bank Ltd. v. Dalichand
Jugraj Jain , the Court of Small Causes has and the
arbitrator has not the jurisdiction to decide the question
whether the respondent licensor landlord is entitled to seek
possession of the two Studios and other premises together
with machinery and equipment from the appellant licensee
tenant.”
21. So far as Booz Allen is concerned, we have already
extracted para 36. Sub-para (vi) of this paragraph makes it clear
that only those tenancy matters that are (i) governed by special
statutes (ii) where the tenant enjoys statutory protection against
eviction, and (iii) where only specified courts are conferred
jurisdiction to grant eviction or decide disputes, are cases where
the dispute between landlord and tenant can be said to be non-
arbitrable.
22. A perusal of both the aforesaid judgments, therefore, shows
that a Transfer of Property Act situation between a landlord and
tenant is very far removed from the situation in either Natraj
Studios or in sub-para (vi) of para 36 of Booz Allen. We are,
therefore, of the respectful view that the question involved in a
Transfer of Property Act situation cannot possibly be said to have
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been answered by the two decisions of this Court, as has been
stated in para 18 of the said judgment.
23. The said judgment then goes on to state: (Himangni
Enterprises case)
“23. The learned counsel for the appellant, however,
argued that the provisions of the Delhi Rent Act, 1995 are not
applicable to the premises by virtue of Section 3(1)(c) of the
Act and hence, the law laid down in the aforementioned two
cases [Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd.,
(2011) 5 SCC 532 : (2011) 2 SCC (Civ) 781] , [Natraj Studios
(P) Ltd. v. Navrang Studios, (1981) 1 SCC 523] would not
apply. We do not agree.
24. 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.”
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24. It may be noticed that none of the provisions of the Transfer
of Property Act have been noticed by this judgment. In fact, none of
the aforesaid provisions would indicate that disputes under the said
Act are triable only by the civil court and not by arbitration, as has
been held in this paragraph. It is clear that the Transfer of Property
Act is silent on arbitrability, and does not negate arbitrability.
25. In a similar situation, this Court, in Olympus
Superstructures (P) Ltd. v. Meena Vijay Khetan [Olympus
Superstructures (P) Ltd. v. Meena Vijay Khetan, (1999) 5 SCC
651], held that when it came to the grant of specific performance,
there is no prohibition in the Specific Relief Act that issues relating
to specific performance cannot be referred to arbitration, unlike the
English statute [see para 34].
26. Equally, merely because a discretion had to be exercised by
the court on whether or not to grant specific performance, would
not militate against specific performance being granted [see para
44, in particular, of Booz Allen . It is clear, therefore, that the
judgment in Himangni Enterprises will require a relook by a Bench
of three Hon’ble Judges of this Court.
27. One more thing held in Himangni Enterprises is that the
mere fact that an exemption from the Rent Act is available does not
mean that the matter becomes non-arbitrable. The Court held that
as soon as the exemption is withdrawn, the Rent Act will apply, and
therefore, it cannot be contended that the Arbitration and
Conciliation Act would apply. This reasoning is also, in our
respectful view, not correct. Persons may be exempt from a Rent
Act not merely for a certain period but also because the rent
contained in the agreement between the landlord and tenant is
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above a certain amount. When the rent is fixed above the amount
stated by a statute, in the normal course of human conduct, such
rent can only be increased and not decreased so as to fall back
within the provisions of the Rent Act. Further, the exemption based
on a certain rent payable need not be withdrawn or cease to have
application to a particular premises for many years to come. For
all these reasons, we are of the view that this reason also does not
hold good.
[Emphasis Supplied]
Booz Allen:
31. It is noteworthy that the first statement on the interplay between
rent disputes and arbitration came about in an observation made in
Paragraph 36 (vi) of Booz Allen – the paragraph is extracted below:
“36. The well-recognised examples of non-arbitrable disputes are: (i)
disputes relating to rights and liabilities which give rise to or arise out of
criminal offences; (ii) matrimonial disputes relating to divorce, judicial
separation, restitution of conjugal rights, child custody; (iii)
guardianship matters; (iv) insolvency and winding-up matters; (v)
testamentary matters (grant of probate, letters of administration and
succession certificate); and (vi) 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.”
[Emphasis Supplied]
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32. The aforesaid analysis in Booz Allen had weighed with the
Supreme Court in Himangni, in addition to the declaration of the law in
Natraj Studios. In Vidya Drolia-I, the Supreme Court found that
Himangni did not consider the Transfer of Property Act at all, which
would show that the Transfer of Property Act did not negate
arbitrability in any manner whatsoever. The Supreme Court
considered Booz Allen too, distinguished bilateral private lease deeds
from the analysis in Himangni, and this led to the reference made to
the larger bench, resulting in Vidya Drolia.
Relevance of Vidya Drolia for Central Warehousing:
33. When seen in this light, the observation in Central Warehousing
that it would be possible to read into the relationship of “landlord and
tenant” for purposes of Section 41(1) of the Small Cause Courts Act, the
relationship between a lessor and lessee under the Transfer of Property
Act, stands out in sharp relief. The Full Bench held in Central
Warehousing that the public policy perspective flowing from Natraj
Studios informed the public policy considerations in Mansukhlal and
therefore held that it is a matter of public policy that the Arbitration Act
could not be made applicable even to bilateral lease deeds under the
Transfer of Property Act. Central Warehousing was not considering a
lease deed. It was dealing with an explicit licensor-licensee relationship
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in a Leave and License Agreement. The frame of reference in the
question formulated by the Full Bench has been extracted earlier in this
judgement – the interplay between Section 5 of the Arbitration Act and
Section 41 of the Small Cause Courts Act.
34. What is stated in Vidya Drolia-I, which led to Vidya Drolia when
the three-judge reference bench dealt with the reference, points to the
scope of consideration squarely covering the very issue of public policy
that was assumed in Central Warehousing, inferring it from
Mansukhlal’s reliance on Natraj Studios. Whether there is an element
of public policy involved in prohibiting large commercially savvy
parties who are not protectees under any special beneficial or
ameliorative tenancy-protection legislation that are intended to adjust
for inherent disadvantages of small and weak tenants, came in for
consideration by the three-judge bench of the Supreme Court in Vidya
Drolia.
35. Views similar to those expressed in Vidya Drolia-I had been
expressed by a Learned Division Bench of this Court, and those views
were alluded to and rejected by the Full Bench in Central Warehousing.
These portions have been extracted above when citing Central
Warehousing. This very issue squarely came back into consideration in
Vidya Drolia-I, which led to the reference that resulted in Vidya Drolia.
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Specifically, Vidya Drolia-I stated that the Transfer of Property Act had
not even been considered in Himangni. That is how the Transfer of
Property Act came into the zone of consideration in Vidya Drolia.
Central Warehousing too did not examine the Transfer of Property Act
at all, since it was considered unnecessary to do so, in view of the
inference that public policy considerations had been thought through in
Mansukhlal, in view of its reliance upon Natraj Studios.
36. Therefore, the absolutist terms in which Mr. Parikh would
contend on behalf of WeWork, that the law declared in Vidya Drolia has
no relevance whatsoever for the law declared in Central Warehousing is
simply untenable. Vidya Drolia squarely deals with the core analysis
that had been the foundation of Central Warehousing – even if the
specific judgement in Central Warehousing was not discussed, Vidya
Drolia has discussed threadbare what Central Warehousing discussed
and has returned a diametrically opposite declaration of the law.
37. Therefore, one must now examine the law declared by Vidya
Drolia insofar as it relates to in personam disputes under lease deeds
covered purely by the Transfer of Property Act. The three-judge
reference bench in Vidya Drolia explicitly noticed and dealt with the
law declared in Natraj Studios, Booz Allen, Himangni and Vidya Drolia-
I. Indeed, it did not specifically have to deal with Mansukhlal, but as
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stated earlier, Central Warehousing presumed that Mansukhlal had
consciously chosen to stay silent on public policy, inferring from Natraj
Studios the same policy considerations that weighed for protected
tenants in Natraj Studios and applying it to the rights of licensee in
Mansukhlal. Since Vidya Drolia has dealt with Natraj Studios and Booz
Allen and explained how the public policy considerations articulated in
Natraj Studios would not apply to in personam disputes under lease
deeds covered by the Transfer of Property Act, Vidya Drolia has
squarely dealt with the core content of the law declared in Central
Warehousing.
38. Vidya Drolia returned an emphatic finding that in personam
disputes under lease deeds under the Transfer of Property Act, which
do not entail any in rem repercussions (as can be the case with disputes
relating to say, a mortgage or succession or in rem intellectual property
rights) would be arbitrable, if the parties had consciously chosen to
have an arbitration agreement between the parties. This is a clear
expression of the law on the legislative policy choice and the facet of
public policy, which had been dismissed in Central Warehousing.
39. The following extracts from Vidya Drolia – they may appear
copious – contain it’s a resoundingly clear declaration of the law
overriding and overtaking the law declared in Central Warehousing:-
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67. Public policy in the context of non-arbitrability refers to public
policy as reflected in the enactment, that is, whether the enactment
confers exclusive jurisdiction to the specified court or the special
forum and prohibits recourse to arbitration. Public policy in the
context of sub-clause(ii) to Section 34(2)(b) refers to the public policy
of the enactment, defining and fixing rights and obligations, and
application of those rights and obligations by the arbitrator.
68. Statutes unfailingly have a public purpose or policy which is
the basis and purpose behind the legislation. Application of
mandatory law to the merits of the case do not imply that the right to
arbitrate is taken away. Mandatory law may require a particular
substantive rule to be applied, but this would not preclude arbitration.
Implied non-arbitrability requires prohibition against waiver of
jurisdiction, which happens when a statute gives special rights or
obligations and creates or stipulates an exclusive forum for
adjudication and enforcement. An arbitrator, like the court, is equally
bound by the public policy behind the statute while examining the
claim on merits. The public policy in case of non-arbitrability would
relate to conferment of exclusive jurisdiction on the court or the
special forum set up by law for decision making. Non-arbitrability
question cannot be answered by examining whether the statute has a
public policy objective which invariably every statue would have.
There is a general presumption in favour of arbitrability, which is not
excluded simply because the dispute is permeated by applicability of
mandatory law. Violation of public policy by the arbitrator could well
result in setting aside the award on the ground of failure to follow the
fundamental policy of law in India, but not on the ground that the
subject matter of the dispute was non-arbitrable.
69. However, the above discussion would not be a complete
answer to N. Radhakrishnan that if justice demands, then
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notwithstanding the arbitration clause, the dispute would be tried in
the open court. To accept this reasoning one would have to agree that
arbitration is a flawed and compromised dispute resolution
mechanism that can be forgone when public interest or public policy
demands the dispute should be tried and decided in the court of law.
The public policy argument proceeds on the foundation and principle
that arbitration is inferior to court adjudication as:
(i) fact finding process in arbitration is not equivalent to
judicial fact finding, which is far more comprehensive and in-depth;
(ii) there is limited or lack of reasoning in awards;
(iii) arbitrators enjoy and exercise extensive and unhindered
powers and therefore are prone in making arbitrary and despotic
decisions;
(iv) there is no appeal process in arbitration which combined
with the (iii) above and limited review of an arbitral award in post-
award court proceedings, arbitration may have devastating
consequences for the losing party and undermines justice;
(v) arbitration proceedings are usually private and
confidential;
(vi) arbitrators are unfit to address issues arising out of the
economic power disparity or social concerns;
(vii) business and industry, by adopting and compulsorily
applying arbitration process, leave the vulnerable and weaker
sections with little or no meaningful choice but to accept arbitration.
Few people realize and understand the importance of loss of their
right to access the court of law or public forum, which are impartial,
just and fair; and
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(viii) arbitration is expensive and costly in comparison to court
adjudication.
While it would not be correct to dispel the grounds as mere
conjectures and baseless, it would be grossly irrational and
completely wrong to mistrust and treat arbitration as flawed and
inferior adjudication procedure unfit to deal with the public policy
aspects of a legislation.
70. Arbitrators, like the courts, are equally bound to resolve and
decide disputes in accordance with the public policy of the law.
Possibility of failure to abide by public policy consideration in a
legislation, which otherwise does not expressly or by necessary
implication exclude arbitration, cannot form the basis to overwrite
and nullify the arbitration agreement. This would be contrary to and
defeat the legislative intent reflected in the public policy objective
behind the Arbitration Act. Arbitration has considerable advantages
as it gives freedom to the parties to choose an arbitrator of their
choice, and it is informal, flexible and quick. Simplicity, informality
and expedition are hallmarks of arbitration. Arbitrators are required
to be impartial and independent, adhere to natural justice, and follow
a fair and just procedure. Arbitrators are normally experts in the
subject and perform their tasks by referring to facts, evidence, and
relevant case law.
71. Complexity is not sufficient to ward off arbitration. In terms of
the mandate of Section 89 of the Civil Procedure Code and the object
and purpose behind the Arbitration Act and the mandatory language
of Sections 8 and 11, the mutually agreed arbitration clauses must be
enforced. The language of Sections 8 and 11 of the Arbitration Act are
peremptory in nature. Arbitration Act has been enacted to promote
arbitration as a transparent, fair, and just alternative to court
adjudication. Public policy is to encourage and strengthen arbitration
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to resolve and settle economic, commercial and civil disputes.
Amendments from time to time have addressed the issues and
corrected the inadequacies and flaws in the arbitration procedure. It
is for the stakeholders, including the arbitrators, to assure that the
arbitration is as impartial, just, and fair as court adjudication. It is
also the duty of the courts at the post-award stage to selectively yet
effectively exercise the limited jurisdiction, within the four corners of
Section 34(2)(b)(ii) read with Explanation 1 and 2 and check any
conflict with the fundamental policy of the applicable law. We would
subsequently refer to the ‘second look’ principle which is applicable in
three specific situations dealing with arbitrability as per the mandate
of Section 34 of the Arbitration Act.
72. Recently, the Supreme Court of Canada in TELUS
Communications Inc. v. Avraham Wellman, while conceding that
arbitration as a method of dispute resolution was met with “overt
hostility” for a long time on public policy grounds as it ousts
jurisdiction of courts, observed that the new legislation, the
Arbitration Act of 1991, marks a departure as it encourages parties to
adopt arbitration in commercial and other matters. By putting party
autonomy on a high pedestal, the Act mandates that the parties to a
valid arbitration agreement must abide by the consensual and agreed
mode of dispute resolution. The courts must show due respect to
arbitration agreements particularly in commercial settings by staying
the court proceedings, unless the legislative language is to the
contrary. The principle of party autonomy goes hand in hand with the
principle of limited court intervention, this being the fundamental
principle underlying modern arbitration law. Party autonomy is
weaker in non-negotiated “take it or leave it” contracts and,
therefore, the legislature can through statutes shield the weakest and
vulnerable contracting parties like consumers. This is not so in
negotiated agreements or even in adhesion contracts having an
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arbitration clause in commercial settings. Virtues of commercial and
civil arbitration have been recognised and accepted and the courts
even encourage the use of arbitration.
76. In view of the above discussion, we would like to propound a
four-fold test for determining when the subject matter of a dispute in
an arbitration agreement is not arbitrable:
76.1 (1) When cause of action and subject matter of the dispute
relates to actions in rem, that do not pertain to subordinate rights in
personam that arise from rights in rem.
76.2 (2) When cause of action and subject matter of the dispute
affects third party rights; have erga omnes effect; require centralized
adjudication, and mutual adjudication would not be appropriate and
enforceable;
76.3 (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; and76.4 (4) When the subject-matter of the dispute is expressly or
by necessary implication non-arbitrable as per mandatory statute(s).
76.5 These tests are not watertight compartments; they dovetail and
overlap, albeit when applied holistically and pragmatically will help
and assist in determining and ascertaining with great degree of
certainty when as per law in India, a dispute or subject matter is non-
arbitrable. Only when the answer is affirmative that the subject matter
of the dispute would be non-arbitrable.
76.6 However, the aforesaid principles have to be applied with care
and caution as observed in Olympus Superstructures Pvt. Ltd.:
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offences of a public nature, disputes arising out of illegal
agreements and disputes relating to status, such as divorce,
which cannot be referred to arbitration. It has, however, been
held that if in respect of facts relating to a criminal matter, say,
physical injury, if there is a right to damages for personal
injury, then such a dispute can be referred to arbitration (Keir
v. Leeman). Similarly, it has been held that a husband and a
wife may refer to arbitration the terms on which they shall
separate, because they can make a valid agreement between
themselves on that matter (Soilleux v. Herbst, Wilson v. Wilson
and Cahill v. Cahill).”
77. Applying the above principles to determine non-arbitrability, it
is apparent that insolvency or intracompany disputes have to be
addressed by a centralized forum, be the court or a special forum,
which would be more efficient and has complete jurisdiction to
efficaciously and fully dispose of the entire matter. They are also
actions in rem. Similarly, grant and issue of patents and registration of
trademarks are exclusive matters falling within the sovereign or
government functions and have erga omnes effect. Such grants confer
monopoly rights. They are non-arbitrable. Criminal cases again are
not arbitrable as they relate to sovereign functions of the State.
Further, violations of criminal law are offenses against the State and
not just against the victim. Matrimonial disputes relating to the
dissolution of marriage, restitution of conjugal rights etc. are not
arbitrable as they fall within the ambit of sovereign functions and do
not have any commercial and economic value. The decisions have
erga omnes effect. Matters relating to probate, testamentary matter
etc. are actions in rem and are a declaration to the world at large and
hence are non-arbitrable.
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78. In view of the aforesaid discussions, we overrule the ratio in N.
Radhakrishnan inter alia observing that 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. We have also set aside the Full Bench decision of the
Delhi High Court in the case of HDFC Bank Ltd. which holds that the
disputes which are to be adjudicated by the DRT under the DRT Act
are arbitrable. They are non-arbitrable.
79. Landlord-tenant disputes governed by the Transfer of Property
Act are arbitrable as they are not actions in rem but pertain to
subordinate rights in personam that arise from rights in rem. Such
actions normally would not affect third-party rights or have erga
omnes affect or require centralized adjudication. An award passed
deciding landlord-tenant disputes can be executed and enforced like a
decree of the civil court. Landlord-tenant disputes do not relate 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. Transfer of Property Act, like all other Acts, has a
public purpose, that is, to regulate landlord-tenant relationships and
the arbitrator would be bound by the provisions, including provisions
which enure and protect the tenants.
80. In view of the aforesaid, we overrule the ratio laid down in
Himangni Enterprises and hold that landlord-tenant disputes are
arbitrable as the Transfer of Property Act does not forbid or foreclose
arbitration. However, 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. Such rights and obligations can only be
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adjudicated and enforced by the specified court/forum, and not
through arbitration.
[Emphasis Supplied]
40. Even a plain reading of the aforesaid would chart the course of
the position in law in relation to arbitration agreements contained in
lease deeds, whether in relation to property located in Greater Mumbai
or elsewhere. Mr. Parikh would seek to rely on Paragraph 76.4 in Vidya
Drolia to contend that even now it should be stated that by necessary
implication, Section 41(1) read with Section 41(2) would lead to
disputes under lease deeds relating to properties located in Greater
Mumbai being non-arbitrable. This submission has to only be stated to
be rejected. Paragraph 76.5 in Vidya Drolia provides for these tests not
being water-tight compartments. Moreover, Paragraph 77 applies
these principles and Paragraph 79 squarely articulates in vivid detail
why in personam disputes under lease deeds are truly arbitrable. In
doing so, the core considerations that weighed in Central Warehousing
have been squarely considered to return a diametrically opposite
declaration.
41. In Central Warehousing, the legislative policy underlying
statutorily-protected tenants being protectees of the Small Cause
Courts Act that was sought to be pressed into service by the licensors
stood rejected. Vidya Drolia considers it thoroughly and returns a
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detailed articulated finding on the subject. Applying the law declared
in Vidya Drolia, statutorily protected tenants and even those engaged in
the specific licensor-licensee relationship referred to in Section 41(1) of
the Small Cause Courts Act, over properties located in Greater Mumbai
could be said to be covered by Section 41(1) read with Section 41(2) of
the Small Cause Courts Act, if the subject matter of the dispute relates
to recovery of possession of the property or recovery of licensee fees,
charges or rent. However, leases covered simply by the Transfer of
Property Act, without attracting any beneficial or ameliorative statutory
protection for under-resourced and weak class of occupants of
immovable property, cannot be read as being excluded from
arbitrability, after the declaration of the law in Vidya Drolia.
42. Therefore, the issue of whether replenishment of the Security
Deposit is but a means of recovery of lease rentals has been rendered
moot and irrelevant. Therefore, it is not necessary to deal with the
copious submissions made by both Mr. Parikh and Mr. Tulzapurkar in
reliance on a plethora of case law on what the true nature of the
litigation is. Evidently, the dispute being arbitrable, I do not feel the
need to state more than what is already stated in this regard – in
particular, on the approach of this Court in Brainvisa and Bafna Motors
holding disputes over recovery of security deposits under leave and
license agreements being arbitrable notwithstanding the law declared
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in Central Warehousing. The only point to be made is that the reliance
on decisions by a Learned Single Judge in each of Satish Bansal14 and
BXIN Office Parks15 are no longer relevant, quite apart from each of
them having been rendered in the context of leave and license
agreements and not lease deeds under the Transfer of Property Act.
Impugned Order and Shift in Law:
43. Having held the foregoing, a word about the Impugned Order
would be necessary. Vidya Drolia contains the following passage:
At this stage a word of caution needs to be said for arbitrators. They have
been given jurisdiction to decide on the subject matter arbitrability. They are
required to identify specific public policy in order to determine the subject
matter arbitrability. Merely because a matter verges on a prohibited territory,
should not by in itself stop the arbitrator from deciding the matter. He/she
should be careful in considering the question of non−arbitrability.
[Emphasis Supplied]
44. To be fair to the Learned Arbitral Tribunal, the findings it
returned were clearly based on the state of the law at the time the
Impugned Order was passed. The Impugned Order was passed on
October 6, 2020. Vidya Drolia was declared later on December 14,
2020. At the time the Impugned Order was passed, Vidya Drolia-I had
14 Satish Bansal vs. Herb Nutri Products – Judgement dated December 16, 2022 in
Arbitration Application No. 66 of 2022
15 BXIN Office Parks vs. Kailash Urja – 2022 SCC OnLine Bom 1689
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been pronounced (on February 28, 2019). In fact, the Learned Arbitral
Tribunal highlighted this development to the parties, particularly since
WeWork had relied upon Himangni. However, both parties indicated to
the Learned Arbitral Tribunal that neither Himangni nor Vidya Drolia-I
would not be relevant, and therefore, the Learned Arbitral Tribunal did
not deal with these judgements.
45. Indeed, that position only changed with Vidya Drolia which was
rendered two months later, on December 14, 2020. Vidya Drolia-I
could not have been followed by the Learned Arbitral Tribunal because
if two coordinate benches of the same strength had returned
diametrically conflicting views with the later co-ordinate bench making
a reference to a larger bench, the earlier existing view over which doubt
has been cast by the later bench would still hold the field. It is because
the previously declared position would be binding, that the next
coordinate bench makes a reference to a larger bench without simply
purporting to override the earlier view on its own. Until the reference
is answered the prevailing view of the earlier bench would still be good
law, although under doubt.
46. When the Impugned Order was passed, Himangni was good law
and there was no scope to consider if Central Warehousing was
disturbed. Central Warehousing had relied on Natraj Studios and on
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Mansukhlal, while Himangni too had adopted the same approach –
adopting from Natraj Studios and Booz Allen to hold that disputes
under lease deeds are simply not arbitrable. The law is now clearly
declared contrary to that position, by a three-judge bench in Vidya
Drolia. Indeed, Himangni and Vidya Drolia have not had occasion to
consider Mansukhlal, but that makes no difference. Mansukhlal’s
reliance on Natraj Studios forms the foundation of the judgement in
Central Warehousing, while the public policy perspective presented to
the Full Bench to differentiate Mansukhlal and Natraj Studios from
lease deeds under the Transfer of Property Act stood rejected by the
Full Bench. Natraj Studios has now been considered in Vidya Drolia
and there is a clear articulation of the public policy considerations to
hold that disputes between lessors and lessees who are not statutory
protected tenants do not constitute non-arbitrable disputes.
47. Therefore, by necessary implication, the protection envisaged
under Section 41 of the Small Cause Courts Act can be seen as not being
applicable for in personam disputes between parties to a lease deed
purely covered by the Transfer of Property Act. Consequently, in view
of Vidya Drolia, there is no public policy impediment for parties to a
lease deed to contract arbitration agreements. Thereby, Vidya Drolia
has clearly overtaken and overridden the law declared in Central
Warehousing.
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48. It is common ground that the lease deed between the parties does
not entail any statutory protection for WeWork as a tenant. WeWork
and Dimple fall in the ambit of a bilaterally executed lease deed purely
covered by the Transfer of Property Act alone, in which the parties
consciously chose arbitration as their mode of dispute resolution.
Vidya Drolia clearly holds that the exclusion of arbitration must be writ
large for it is sought to be inferred by necessary implication. The view
of the Learned Division Bench, which had been differed from by the
Full Bench is the view now flowing from Vidya Drolia.
49. If the view declared in Vidya Drolia is not adopted, the very
declaration of the law by the Supreme Court and that too by a larger
three-judge reference bench, would be rendered nugatory on the
strength of the reading by a three-judge Full Bench of this Court. The
view of the three-judge bench of the Supreme Court now holds the field
and has necessary implications for how to read Section 41 of the Small
Cause Courts Act in the case of in personam disputes over lease deeds
not attracting statutory protection. Therefore, in my respectful opinion,
the law declared by the Full Bench in Central Warehousing insofar as it
has implications for in personam disputes among parties to a lease
deed over property located in Greater Mumbai, stands overtaken and
overridden by the law declared by the three-judge reference bench of
the Supreme Court in Vidya Drolia.
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Plausible View Contention:
50. Another facet of the matter tabled by Mr. Parikh for WeWork is
that this Court must adopt a light-touch approach even under Section
37(2)(a) of the Arbitration Act, akin to approach under Section 37(2)
(b). In other words, if the view of the Arbitral Tribunal is plausible,
then that view must not be disturbed by another plausible view. I am
afraid such a proposition could be regarded to be an extreme and
implausible one where the jurisdictional question involves a pure
question of law. If a mixed question of fact and law or a question of the
existence of a jurisdictional fact had alone arisen for consideration by
the Learned Arbitral Tribunal under Section 16 of the Arbitration Act,
the aforesaid proposition would be appropriate. In the instant case, all
that had fallen for consideration by the Learned Arbitral Tribunal was
the interpretation of section 41(1) of the Small Cause Courts Act and the
implications for an otherwise validly executed arbitration agreement in
conformity with Section 7 of the Arbitration Act. The issue involved is
purely a question of law, and the Learned Arbitral Tribunal returned a
plausible view on the state of the law at the time he took the view.
Thereafter if the law got declared by the Supreme Court in a
diametrically opposite direction, without any caveat of having only
prospective interpretation, the argument canvassed by WeWork would
become untenable. This Court would have to ignore the position in law
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declared by the Supreme Court and applicable at the time the appeal is
considered.
51. There is neither any dispute over the facts involved at the Section
16 stage, nor is there any finding of fact rendered. Therefore, in my
opinion, this is not a case of one plausible view of the Learned Arbitral
Tribunal being merely replaced by another plausible view of the Court
sitting in appeal.
Conclusion and Direction:
52. In these circumstances, it is held that:-
a) Disputes over in personam obligations flowing from lease
deeds covered just by the Transfer of Property Act, without
any special statutory protection being enjoyed by the
lessee, in relation to any property situated in Greater
Mumbai would be amenable to arbitration;
b) For such lease deeds, the phrase “any other law” under
Section 41(2) of the Small Cause Courts Act would include
the Arbitration Act, thereby making Section 41(1) of that
legislation inapplicable;
c) For purposes of this judgement, I am restricting my
findings to the nature of features of the specific case at
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implications for leave and license agreements – Vidya
Drolia deals only with lease deeds and that precisely is the
feature of the factual matrix in the matter at hand;
d) The distinction and differentiation between a lease, which
is a transfer of interest under the Transfer of Property Act
and the mere right to occupy as a licensee or a tenant is
distinct and real. This too leads me to specifically confirm
that this judgement relates only to lease deeds in Greater
Mumbai and adjudication of in personam disputes under
such lease deeds; and
e) The public policy impediment perceived in Central
Warehousing has been squarely dealt with in Vidya Drolia,
and there is no scope for public policy considerations
posing a hurdle by treating arbitration agreements as
agreements to contract out of the implications of Section 41
of the Small Cause Courts Act.
53. In the result, the Impugned Order is quashed and set aside. The
parties shall revert to the Learned Arbitral Tribunal and present their
contentions on merits for due consideration by the Learned Arbitral
Tribunal. Considering the efflux of time, and being conscious about the
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fact that the parties would need to consider their respective positions
flowing from this judgement, the Learned Arbitral Tribunal is
requested to convene only after at least six weeks.
54. Likewise, the amounts deposited in this Court by WeWork shall
be released only after a period of six weeks from today and that too
after the Learned Arbitral Tribunal has had occasion to consider if any
variation, enhancement, substitution or counter-protection is
necessary. It shall be open to the Learned Arbitral Tribunal to direct
that the amounts shall remain in Court to abide by the outcome in the
arbitration proceedings. Nothing in this arrangement would preclude
the parties from making applications before the Learned Arbitral
Tribunal and for the Learned Arbitral Tribunal in its wisdom taking a
view on the merits of the case to direct such interlocutory arrangements
as thought fit by the Learned Arbitral Tribunal.
55. Before parting with the judgement, I must place on record my
appreciation for the assistance rendered by Learned Counsel for the
parties – in particular, despite this judgement rejecting his contentions,
Mr. Parikh’s thorough assistance is worthy of mention and
appreciation.
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56. All actions required to be taken pursuant to this order shall be
taken upon receipt of a downloaded copy as available on this Court’s
website.
[SOMASEKHAR SUNDARESAN, J.]
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