Alternative Dispute Resolution

Vidya Drolia v. Durga Trading Corporation

(2021) 2 SCC 1

Citation: (2021) 2 SCC 1
Court: Supreme Court of India
Date: 14 December 2020
Bench: N.V. Ramana, Sanjiv Khanna and Krishna Murari, JJ.

Facts

Vidya Drolia leased premises to Durga Trading Corporation.
The tenancy agreement contained an arbitration clause.
Disputes arose regarding rent and eviction.
The landlord invoked arbitration.
The tenant argued that:
landlord–tenant disputes were actions in rem;
eviction could be ordered only by civil courts;
the dispute was non-arbitrable; and
the arbitration clause could not be enforced.
A two-judge Bench doubted an earlier decision suggesting that tenancy disputes were categorically non-arbitrable.
The matter was referred to a larger Bench.
The Court also examined the proper scope of review under Sections 8 and 11.

Issue

What test determines non-arbitrability.
Whether ordinary tenancy disputes under the Transfer of Property Act are arbitrable.
What review a referral court should undertake.
Who should primarily decide arbitrability.

Rule

A dispute is generally non-arbitrable where:
it concerns rights in rem rather than subordinate rights in personam;
it affects third-party rights and requires centralised adjudication;
it involves sovereign or public functions;
a mandatory statute expressly or by necessary implication reserves exclusive jurisdiction to a special forum.
Ordinary tenancy disputes under the Transfer of Property Act are arbitrable.
Rent-control disputes are not arbitrable where special legislation:
grants statutory protection; and
confers exclusive jurisdiction on designated courts.
Referral courts undertake prima facie review.
When in doubt, they should refer and allow the tribunal to decide under Section 16.
The judgment’s observations treating unstamped agreements as nonexistent were later overruled by In Re: Interplay.

Application

The Court rejected a mechanical classification of every eviction action as a right in rem.
A lease creates proprietary interests, but disputes between landlord and tenant concerning:
rent;
termination;
possession; and
contractual obligations ordinarily determine rights only between those parties.
An arbitral award ordering possession binds the tenant and landlord.
It does not conclusively determine title against the entire world.
Therefore, ordinary TPA tenancy disputes are rights in personam and arbitrable.
A different result applies under rent-control statutes.
Those statutes often:
protect tenants beyond the contract;
prescribe limited grounds of eviction;
create specialised forums; and
reflect public policy.
Arbitration cannot bypass such mandatory statutory protection.
The Court then formulated the fourfold test to organise non-arbitrability analysis.
It cautioned that exceptions should remain narrow because arbitration is the chosen private forum.
At the referral stage, courts should reject arbitration only where non-arbitrability is manifest.
Complex factual and legal questions should ordinarily go to the tribunal.
This prevents:
mini-trials;
duplicative evidence;
delay in tribunal constitution; and
excessive judicial intervention.
The court performs a first look, while the tribunal ordinarily performs the full review.
The judgment also discussed validity of arbitration agreements and stamping.
Its endorsement of Garware Wall Ropes on stamping no longer represents the law after the seven-judge Interplayruling.
Its broader arbitrability and prima facie referral principles remain authoritative.

Conclusion

The Supreme Court held that ordinary landlord–tenant disputes governed by the Transfer of Property Act are arbitrable.
Tenancies governed by special rent-control statutes remain reserved to their statutory forums.
Courts should refer unless non-arbitrability is clearly established.
Use this case for: the fourfold non-arbitrability test and the principle that doubtful cases should ordinarily be left to the tribunal.