2020 (12) TMI 1227 - SC - Indian Laws

Scope of Arbitration - scope of landlord-tenant disputes governed by the provisions of the Transfer of Property Act 1882 - Doctrine of election to select arbitration as a dispute resolution mechanism by mutual agreement. As per SANJIV KHANNA J. HELD THAT - 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 - the 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 adjudicated and enforced by the specified court/forum and not through arbitration. Who decides non-arbitrability? - HELD THAT - Scope of judicial review and jurisdiction of the court Under Section 8 and 11 of the Arbitration Act is identical but extremely limited and restricted - The general Rule and principle in view of the legislative mandate clear from Act 3 of 2016 and Act 33 of 2019 and the principle of severability and competence-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 power of second look on aspects of 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 - Rarely as a demurrer the court may interfere at the Section 8 or 11 stage when it is manifestly and ex facie certain that the arbitration agreement is nonexistent invalid or the disputes are non-arbitrable though the nature and facet of non-arbitrability would to some extent determine the level and nature of judicial scrutiny. The restricted and limited review is to check and protect parties from being forced to arbitrate when the matter is demonstrably non-arbitrable and to cut off the deadwood. The expression existence of an arbitration agreement in Section 11 of the Arbitration Act would include aspect of validity of an arbitration agreement albeit the court at the referral stage would apply the prima facie test on the basis of principles set out in this judgment. In cases of debatable and disputable facts and good reasonable arguable case etc. the court would force the parties to abide by the arbitration agreement as the arbitral tribunal has primary jurisdiction and authority to decide the disputes including the question of jurisdiction and non-arbitrability. The issue of arbitrability to the Tribunal to decide and come to a conclusion on the same. Further the parties are at liberty to challenge the award if they are not satisfied with the same in this regard. As per N.V. Ramana J. Section 8 of the Act mandates that a matter should not be referred to an arbitration by a court of law unless it finds that prima facie there is no valid arbitration agreement. The negative language used in the Section is required to be taken into consideration while analyzing the Section. The Court should refer a matter if the validity of the arbitration agreement cannot be determined on a prima facie basis as laid down above. Therefore the Rule for the Court is when in doubt do refer - Courts while analyzing a case Under Section 8 may choose to identify the issues which require adjudication pertaining to the validity of the arbitration agreement. If the Court cannot Rule on the invalidity of the arbitration agreement on a prima facie basis then the Court should stop any further analysis and simply refer all the issues to arbitration to be settled. The conclusions reached by the learned brother is agreed with. Application disposed off.

Summary

Issues Involved:
1. Meaning of non-arbitrability and when the subject matter of the dispute is not capable of being resolved through arbitration.
2. Who decides non-arbitrability: whether the court at the reference stage or the arbitral tribunal in the arbitration proceedings.
3. Scope and ambit of jurisdiction of the court at the referral stage when an objection of non-arbitrability is raised to an application under Section 8 or 11 of the Arbitration and Conciliation Act, 1996.
4. Whether landlord-tenant disputes governed by the Transfer of Property Act, 1882, are arbitrable.

Detailed Analysis:

Non-Arbitrability:
Non-arbitrability is fundamental to arbitration as it pertains to the jurisdiction of the arbitral tribunal. Booz Allen & Hamilton Inc. outlines three facets of non-arbitrability:
1. Whether the disputes are capable of adjudication and settlement by arbitration.
2. Whether the disputes are covered by the arbitration agreement.
3. Whether the parties have referred the disputes to arbitration.

The court in Booz Allen & Hamilton Inc. held that civil or commercial disputes, either contractual or non-contractual, which can be decided by a court, are in principle capable of being adjudicated and resolved by arbitration unless the jurisdiction of the arbitral tribunal is excluded either expressly or by necessary implication.

Who Decides Non-Arbitrability:
The court's jurisdiction at the referral stage is limited to a prima facie examination of the existence of a valid arbitration agreement. The arbitral tribunal is the preferred first authority to determine and decide all questions of non-arbitrability. The court has a "second look" on aspects of non-arbitrability post the award in terms of Section 34 of the Arbitration Act.

The court can interfere at the Section 8 or 11 stage only when it is manifestly and ex facie certain that the arbitration agreement is non-existent, invalid, or the disputes are non-arbitrable. This limited review is to protect parties from being forced to arbitrate when the matter is demonstrably non-arbitrable and to cut off the deadwood.

Scope and Ambit of Jurisdiction of the Court:
The court's role at the referral stage is to perform a prima facie examination to weed out manifestly non-existent and invalid arbitration agreements and non-arbitrable disputes. The prima facie review is not a full review but a preliminary check to ensure that the arbitration agreement is valid and the disputes are arbitrable. The court should not conduct a detailed review or a mini-trial at this stage.

Landlord-Tenant Disputes:
Landlord-tenant disputes governed by the Transfer of Property Act are arbitrable as they pertain to subordinate rights in personam arising from rights in rem. Such disputes do not affect third-party rights or require centralized adjudication. The provisions of the Transfer of Property Act do not expressly or by necessary implication bar arbitration. However, landlord-tenant disputes covered and governed by rent control legislation are not arbitrable when a specific court or forum has been given exclusive jurisdiction to apply and decide special rights and obligations.

Conclusion:
The court's jurisdiction at the referral stage is limited to a prima facie examination of the existence and validity of the arbitration agreement. The arbitral tribunal is the preferred authority to decide on non-arbitrability, with the court having a secondary role to review such decisions post-award. Landlord-tenant disputes under the Transfer of Property Act are arbitrable, but those under rent control legislation are not.