SC overrules its order on Transfer of Property Act in Himangi Enterprises Judgment

SC overrules its order on Transfer of Property Act in Himangi Enterprises Judgment

The Supreme Court of India has passed an order that the dispute between the landlord and the tenant under the Transfer of Property Act, 1882, (TP Act) is arbitrable except those covered by the Rent Control Laws.

An appeal was filed before the Supreme Court of India (SC) by Vidya Drolia & Ors. (the appellants) against Durga Trading Corporation (the respondent) challenging the legal ratio of the earlier Himangi Enterprises Judgment of the SC.

In Himangni Enterprises vs Kamaljeet Singh Ahluwalia, a two Judge bench of the Supreme Court had held that the dispute between the landlord and the tenant that is governed by the provisions of the TP Act was not arbitrable in nature as this would violate of the public policy. The SC stated that "Such rights and obligations can only be adjudicated and enforced by the specified court/forum, and not through arbitration".

The appeal filed by Vidya Drolia was referred to a three-judge Bench of Justices NV Ramana, Sanjiv Khanna and Krishna Murari. After hearing the parties at length, the Bench decided that judgment given in Himangni Enterprises needed a relook.

The Bench relooked into two issues - one related to non-arbitrability of the dispute between the tenant and the landlord while another was regarding the competent authority who would decide the dispute between the two, whether it would be the Court or an arbitrator.

It stated that the first deciding and competent authority would be the arbitral tribunal who would look into the matter and determine the arbitrability of a matter. The Court would have the power to relook into the decision of the arbitrator. SC stated, "The principle of severability and competence is that the arbitral tribunal is the preferred first authority to determine and decide all questions of non-arbitrability. The court has been conferred the power of "second look" on aspects of the non-arbitrability post the award in terms of sub-clauses (i) (ii) or (iv) of Section 34(2)(a) or sub-clause (i) of Section 34(2)(b) of the Arbitration Act".

It was concluded that the landlord-tenant disputes governed by the TP Act are arbitrable in nature. It further clarified that it is not an action in rem (against the world) but contains rights in personam (personal rights) of the particular parties.

The Court passed an award wherein it overruled its previous judgment given in the matter of Himangi Enterprises and held that dispute between the landlord and the tenant is arbitrable in nature. It stated that the dispute could be executed and enforced as a decree of a civil court, and there is no bar on arbitration to decide such disputes.

The court observed that the respondent/defendant has to establish a prima facie case of non­existence of valid arbitration agreement, wherein it is to be summarily portrayed that a party is entitled to such a finding. If a party cannot satisfy the Court of the same on the basis of documents produced, and rather requires extensive examination of oral and documentary production, then the matter has to be necessarily referred to the Tribunal for full trial. Such limited jurisdiction vested with the Court, is necessary at the pre­reference stage to appropriately balance the power of the Tribunal with judicial interference.

The Court concluded, 'The Court, under Sections 8 and 11, has to refer a matter to arbitration or to appoint an arbitrator, as the case may be, unless a party has established a prima facie (summary findings) case of non­existence of valid arbitration agreement, by summarily portraying a strong case that he is entitled to such a finding.'