Arbitration Valid For Tenancy Disputes, Supreme Court Says

A recent judgment of the Supreme Court clarifying that tenancy matters falling under the Transfer of Property Act are arbitrable comes as a breather for both landlords and tenants, paving the way for faster adjudication of such disputes.

The ruling ends the uncertainty caused by the apex court itself three years ago. In the Himangni Enterprises case, the Supreme Court had said that tenancy disputes can only be resolved in civil courts. This position has now been reversed making way for parties to resolve disputes via arbitration.

These include landlord-tenant disputes concerning the recovery of rent, sufficiency or refund of a security deposit, damage to the property, interest on delayed payments or anything specifically arising from action by both parties to a lease deed -- can now be referred to arbitration, Nirav Shah, partner at DSK Legal explained.

Impact On Tenancy Matters

Arbitrability of landlord-tenant dispute was an established position in the real estate sector as lease deeds always incorporated dispute resolution clauses requiring reference to an arbitrator. But the Himangini Enterprises case upended this position.

Tine Abraham, partner at law firm Trilegal said that after this 2017 judgment of the apex court, there were numerous instances where parties started challenging arbitrability of lease disputes.

That meant, the only option an aggrieved party had was to file a civil suit or approach the Small Causes Court for adjudication of any dispute arising out of a lease agreement, Shah added.

A civil suit in a district or high court can take more than five years for the final decision and may involve higher costs for a party. In comparison, arbitration is likely to be much speedier and take 12-18 months or less depending on the complexity of the case.

The pro-arbitration stance taken by the apex court last week means that unless there is a designated court for tenancy disputes, parties can resort to arbitration, Shah pointed out.

Tenancy Disputes: What Continues To Be Non-Arbitrable?

While its scope has been widened, certain kinds of tenancy disputes will continue to remain outside the arbitration net and parties will have to approach a court or tribunal for their adjudication, experts cautioned. This since the apex court has held that only those tenancy disputes will be arbitrable that don’t affect the right of any third party or the world at large.

This means any dispute arising from a mortgage would be non-arbitrable, including that which relates to its foreclosure or redemption, Mayank Mishra, partner at Indus Law pointed out.

A foreclosure means that a lender takes over the mortgaged property of a debtor in order to sell and recover the outstanding amount on which a default has been committed. Disputes relating to such matters come under the jurisdiction of a Civil Court or the Debt Recovery Tribunal. On the other hand redemption allows a defaulter to reclaim a mortgaged property by paying the due amounts, subject to certain conditions.

Such disputes go against the test laid down by the apex court in its last week’s ruling and will thus be non-arbitrable, Mishra added.