Delhi High Court: Whether A Dispute Under Irrevocable License Of A Property Which Touches Upon The Transfer Of Property Act/Specific Relief Act/Easements Act Is Arbitrable?

Delhi-High-Court

Section 8 of the Arbitration & Conciliation Act, 1996 (‘Arbitration Act’) provides mechanism by which a party to a suit can seek stay of court proceedings in favour of arbitration if there exists an arbitration clause in the underlying agreement between the parties. However, the question then arises as to whether the court can go into the issue of arbitrability of the dispute while deciding an application under Section 8? This and other related issues were posed before the Delhi High Court in Charu Lodha vs Asian Hotels (North) Ltd, CS(COMM) 184/2020 & I.A. 4672/2020, wherein the Court was called upon to decide inter alia whether a party to a suit which is seeking stay of court proceedings in favour of arbitration basis an arbitration clause in the underlying agreement between the parties can be referred to arbitration without any application under Section 8 of the Arbitration Act being filed by such party to this effect. In case it is allowed then who amongst the court and the arbitrator has the power to decide the arbitrability of the dispute and whether a dispute, as in the case at hand, which is culminating out of an irrevocable license of a property and touching upon the Transfer of Property Act and/or the Specific Relief Act and/or the Easements Act is arbitrable under Indian law.

In respect of whether a party should be allowed to seek a remedy under Section 8 of the Arbitration Act without filing an application to that effect, the Court reiterated the position of law as settled in  Parasramka Holdings Pvt. Ltd. vs. Ambience Pvt. Ltd and another[1] following Booz Allen & Hamilton Inc. Vs. SBI Home Finance Limited & Ors.[2] and held that party invoking the arbitration clause does not have to file a formal application seeking a specific prayer for reference of the dispute to arbitration as long as it raises an objection in the written statement that the present suit is not maintainable in view of the arbitration clause in the agreement.

In respect of who amongst the Court and the Arbitrator should decide the arbitrability of the dispute if an objection is raised by a party under Section 8 of the Arbitration Act, the Court again relied on the Supreme Court dictum of Booz Allen wherein the Court while dealing with the issue of whether in an application under Section 8, the Court can go into the issue of arbitrability of the dispute or not, inter alia held that where the issue of arbitrability arises in the context of an application under Section 8 in a pending suit, all aspects of arbitrability will have to be decided by the court seized of the suit, and cannot be left to the decision of the arbitrator. Even if there is an arbitration agreement between the parties, and even if the dispute is covered by the arbitration agreement, the court where the civil suit is pending, will refuse an application under Section 8 of the Act, to refer the parties to arbitration, if the subject-matter of the suit is capable of adjudication only by a public forum or the relief claimed can only be granted by a special court or Tribunal.[3]

The Court further remarked that the Arbitral Tribunals are private fora chosen voluntarily by the parties to the dispute, to adjudicate their disputes in place of courts and tribunals which are public fora constituted under the laws of the country. Every civil or commercial dispute, either contractual or non-contractual, which can be decided by a court, is in principle capable of being adjudicated and resolved by arbitration unless the jurisdiction of the Arbitral Tribunals is excluded either expressly or by necessary implication. Adjudication of certain categories of proceedings are reserved by the legislature exclusively for public fora as a matter of public policy. Certain other categories of cases, though not expressly reserved for adjudication by public fora (courts and tribunals), may by necessary implication stand excluded from the purview of private fora. Consequently, where the cause/dispute is inarbitrable, the court where a suit is pending, will refuse to refer the parties to arbitration, under Section 8 of the Act, even if the parties might have agreed upon arbitration as the forum for settlement of such disputes.

Taking into account the aforesaid position of law, in the present case, the Delhi High Court held that in an application under Section 8 of the Arbitration Act, the Court is required to go into the issue of whether the dispute between the parties is an arbitrable dispute or not and if the dispute falls in “excepted matters” or relates to specific or special remedies, than there can be no reference to the arbitration and the civil suit has to be proceeded.

On the last issue as to whether a dispute under irrevocable license of a property which touches upon the Transfer of Property Act/Specific Relief Act/Easements Act is arbitrable or not, the Court observed that as per law settled by the Supreme Court in Olympus Superstructures vs. Meena Vijay[4], the relief of specific performance of an agreement can be awarded by an arbitrator. Thus if the arbitrator can direct creation of an interest in a property, the arbitrator can also award declaration of the interest of the parties in the property. Further, as noted in Booz Allen[5], an agreement to sell or an agreement to mortgage does not involve any transfer of right in rem but creates a personal obligation and, therefore, the claim for specific performance will be arbitrable contrary to a mortgage which is a transfer of a right in rem. Moreover, as noted by the Supreme Court in Vidya Drolia vs Durga Trading Corporation[6] there is nothing in the Transfer of Property Act or the Specific Relief Act which forbids the rights of the parties being decided by arbitration. Since the rights of the licensee at best are governed by the Transfer of Property Act or the Specific Relief Act, or that of an irrevocable licensee under the Easements Act, it can still be decided in arbitration. Consequently, the Court dismissed the licensee’s suit and granted the parties the liberty to avail the remedy of arbitration.

Disclaimer: The views expressed in this post are mine and do not reflect the views of the organisation(s) I am engaged with

[1] CS(OS) 125/2017, decided on 15th January, 2018

[2] (2011) 5 SCC 532

[3] at [33]

[4] Olympus Superstructures vs. Meena Vijay (1999) 5 SCC 651

[5] at [46]

[6] 2019 SCC OnLine SC 358

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