Dimple Enterprises v. Wework India Management Pvt. Ltd

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 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 Municipal Corporation Act, the Bombay Housing Board Act, 1948 or any 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

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 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.

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 multiple judgements to be of the wide import bringing within its sweep suits and proceedings connected with recovery of possession or of rent, as held in Mansukhlal[6]. Indeed, phrases such as “relating to”, “connected with”, “concerning” and the like have to be widely construed as held in Renusagar[7]. Likewise, indeed the substance and essence of the dispute must be examined as held in ING Vysya[8] and in Trent[9] 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 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 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. Central Warehousing:

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 Licensee contains a clause of arbitration, the jurisdiction of the Small Causes Court under the Presidency Small Cause Courts Act, 1882 would be ousted?

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 principle that it would be against public policy to allow the parties to contract out of the exclusive jurisdiction of the Small Causes Courts by virtue of section 41 of the Act of 1882.

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 contracting out of the jurisdiction of the Small Causes Court Act, but no 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 the Court of Small Causes has exclusive jurisdiction to entertain and 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. 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 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 bench13

13 Vidya Drolia v/s. Durga Trading Corporation – 2019 20 SCC 406 (“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 before us, namely, the decision in Himangni Enterprises. This judgment 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)

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.”

20. It then concluded in para 24 as follows: (Natraj Studios case

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 nonarbitrable.

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 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)

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 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. 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.”

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 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. 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 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:-

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 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 postaward 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

(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 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 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; and 76.[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 nonarbitrable. 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.: “35...Reference is made there to certain disputes like criminal 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.

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 nonarbitrability. 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 adjudicated and enforced by the specified court/forum, and not through arbitration.

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 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 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. −

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 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 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.

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. 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 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 hand i.e. bilateral lease deeds and not commenting upon 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 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.

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.]