20 Apr 2121

If the owner has consented to pay the displacement rent instead of temporary housing until the landlord has turned over the substitute permanent lodging to the allottee, the owner cannot be deemed a landlord under Section 7(3) of the Maharashtra Rent Control Act, 1999 - Bombay High Court

Case : Mahendra Devilal Jain v. M/s. National (India) Contractors and Engineers and Ors. Commercial Appeal (L) No. 666 of 2021 With Interim Application (L) No. 668 of 2021

Court : Bombay High Court

Bench : Justice R. D. Dhanuka & Justice V. G. Bisht

Decided on : 20 Apr 2121

The Relevant Statutes

Article B25 of the Indian Stamp Act, 1899

Sections 9, 11, 11(6), 5, 34 and 37 of the Arbitration and Conciliation Act, 1996

Sections 41 (1), 41 (2) and 41 of the Presidency Small Causes Court Act, 1882

Sections 7(3), 7(15), 16(i), 16(k), 21(2)(a), 33, 18, 19 and 7(5) of the Maharashtra Rent Control Act, 1999

Section 28 of the Bombay Rent Act, 1947

Section 28 of the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947

Regulation 33 (7) of the Development Control Regulations, 1991

Maharashtra Ownership Flats (Regulation of the promotion of construction, sale, management and transfer) Act, 1963

Brief Facts & Procedural History

1. The appellant was a tenant of respondent No. 1 in respect of Shop No. 8 (old shop/tenanted premises) in the old building known as Mantri Chawl, which is located at Mahim Division's City Survey No. 1138 and measures around 4136 square metres. Respondents Nos. 2 and 3 are respondent No. 1's partners. The entire structure was occupied. The other appellants were tenants in various tenements in the same building, which was owned by respondent no.1.

2. The appellant claims that sometime in 2013, respondent No.1 approached him with a proposal for the redevelopment of the property under Regulation 33 (7) of the Development Control Regulations, 1991, which included destroying the existing building and erecting a new one on the same site. Respondent No.1 entered into an arrangement with the appellant and other tenants. Respondent No.1 promised to destroy the existing structure, construct a new building, and allocate to the appellant a self-contained new store measuring 269.12 sq. ft. on a free-of-charge ownership basis on the terms and circumstances set out in the agreement.

3. Respondent No.1 agreed to complete the construction of the new building within 11 months of the last tenant handing over possession of his tenement to respondent No.1 under clause 3 of the said agreement, with an additional grace period of three months from the date of the last tenant handing over possession of his tenement to respondent No.1. The agreement's other terms and conditions will be discussed in the latter portion of this ruling.

4. The appellant claims that the occupants of the abovementioned old building, including the appellant, departed their individual spaces in July of 2014. Following that, respondent No.1 destroyed the old building and began construction on the new one. Respondent No.1 failed to finish the construction of the new building on the land within the specified term of 11 months, as well as the three-month grace period, between 2015 and 2017. The appellant deposited the check for Rs. 1,13,068/- sitting in escrow, which was provided by respondent No.1 as compensation instead of temporary alternate lodging for the three-month grace period, in line with the provisions of the agreement.

5. The appellant claims that the parties met several times during which respondent No. 1 assured the appellant that the project would be completed by March 2017 and agreed to pay additional compensation instead of temporary alternate accommodations until the new building was handed over to the appellant. The respondents, on the other hand, did not fulfil their obligations under the agreement, as well as the promises made to the appellants. For December 2016 and February 2017, respondent No.1 provided three checks totalling Rs. 1,13,068/- as compensation instead of temporary alternative housing. According to the appellant, respondent No. 1 has neglected to provide compensation instead of temporary alternate lodging to the appellant and the other appellants since March of 2017.

6. There were two meetings between the parties. In place of temporary substitute accommodations, respondent No.1 assured the appellant and other tenants that the new building would be completed and that the arrears of compensation would be paid. The appellant and the other tenants invoked the arbitration clause in clause 16 of the agreement and selected the arbitrator through their attorneys' notice. The appellant requested that respondent No.1 confirm the identity of the only arbitrator chosen by the appellant. Respondent No.1 rejected the appellant's choice of the Sole Arbitrator and instead proposed another individual as the Sole Arbitrator, according to their advocates' letter.

7. Respondent No.1 did not argue in the said reply that the parties' disputes were not arbitrable and fell under the exclusive jurisdiction of the Small Causes Court as contemplated by Section 41 (1) of the Presidency Small Causes Court Act, 1882 or Section 33 of the Maharashtra Rent Control Act, 1999, according to the appellant. The appellant, through their advocate's letter, rejected the charges made by respondent No.1 in their advocate's letter and demanded that respondent No.1 complies with the requisitions included in the appellant's advocate's letter.

8. Under Section 9 of the Arbitration Act, 1996 the appellant filed Commercial Arbitration Petition and other connected matters, inter alia, praying for order and direction against respondent No.1 to pay/deposit the outstanding compensation instead of temporary alternate accommodation for the period March 2020 to October 2020, totalling Rs. 16,58,330.52. A similar argument was made in other Arbitration Petitions filed by other appellants against the respondents under Section 9 of the Arbitration Act. The appellant also filed a Commercial Arbitration Application under Section 11 of the Arbitration Act, requesting the appointment of an arbitrator, among other things.

9. In those petitions brought by the appellants under Section 9 of the Arbitration Act, a single judge of this Court ordered the respondents to entirely reveal the sum owing to each of the appellants in respect of their different premises. This affidavit must also state when the acknowledged sums will be paid, as well as a promise to pay the displacement compensation from November 2020 onwards. Respondent No. 1 filed an affidavit in response to the appellants' petitions filed under Section 9 of the Arbitration Act. Respondent No.1 admitted in the affidavit that it was obligated to pay the appellants' compensation arrears instead of temporary alternate housing. Respondent No.1 did not raise any point in his affidavit that this Court lacks jurisdiction to hear and decide petitions filed under Section 9 of the Arbitration Act.

10. The learned Single Judge issued an order stating that the appellants' complaints about specific execution of the agreement under which permanent alternate lodging on an ownership basis was to be given to them and the respondents' refusal to pay displacement compensation are not arbitrable. The Bombay Small Causes Court shall have sole authority to try and resolve the matter. The learned Single Judge made it plain, however, that the said judgement was limited to reliefs under Section 9 of the Arbitration Act and was not an evaluation of the merits of the appellants' case for interim or ad-interim relief, including compensation payment. The learned Single Judge has only addressed the issue of jurisdiction in the aforementioned decision. Each of those petitioners filed separate Commercial Arbitration Appeals under Section 37 of the Arbitration Act, which is being disposed of by this single judgement, after being aggrieved by the aforementioned order made by the learned Single Judge.

The Issue(s) of the Case

Whether the impugned order passed by the learned Single Judge dismissing the Arbitration Petitions filed by the appellants under Section 9 of the Arbitration Act on the ground of jurisdiction valid?

The Observations of the Court/Commission

1. Referring to the case of Brainvisa Technologies Pvt. Ltd. versus Subhash Gaikwad (HUF), 2012 SCC Online Bom 2003, the Honourable High Court of Judicature at Bombay dealt with an application filed under section 11(6) of the Arbitration & Conciliation Act 1996, holding that a suit for the recovery of a security deposit does not constitute a suit for the recovery of "licencing fee or charges or rent thereof." Periodic payments for usage and occupation are made in the form of licence fees, levies, and rent. The security deposit is a type of security that the landlord, as the licensor, collects from the licensee who is allowed to occupy the premises. Before the modification to section 11(6) of the Arbitration Act, the abovementioned order was issued by the Hon'ble Chief Justice's designee. The terms Chief Justice or his designee were replaced with ‘Court' in the 2015 Amendment. As a result, the aforementioned order did not set a precedent. Regardless, the stated order would not assist the respondents' case even if it were not issued. The premises were never in the hands of the petitioner in this case. There was no request for relief about the recovery of possession of any immovable property, nor for the recovery of licence fees, charges, or rent. As a result, the Hon'ble Chief Justice's learned designate judge ruled that the recovery of a security deposit would not fall under the jurisdiction of the Small Cause Courts.

2. Honourable High Court of Judicature at Bombay observes that the principles put down by the Hon'ble Supreme Court in the aforementioned ruling would not apply to the circumstances of this case since none of the reliefs sought by the appellant meet the four tests laid down by the Hon'ble Supreme Court to confer exclusive jurisdiction on the Court of Small Causes. The Hon'ble Supreme Court's proposal of law in the Natraj Studios (P) Ltd. versus Navrang Studios and Anr., (1981) 1 SCC 523 is beyond question.

3. Honourable High Court of Judicature at Bombay also observes that since none of the reliefs sought by the appellant in the said proceedings under section 9 of the Arbitration Act, 1996 and the nature of the dispute carved out in the notice invoking arbitration agreement falls within the exclusive jurisdiction of the Court of Small Causes, and such reliefs can be tried exclusively by the arbitral forum, the arbitration provision in the contract cannot be found invalid or contrary to legislation or public policy. As a result, the Full Bench's decision in the matter of Central Warehousing Corporation, Mumbai vs.Fortpoint Automotive Pvt. Ltd., Mumbai, (2010) 1 Mh LJ 658 will not help the respondents' argument.

4. Honourable High Court of Judicature at Bombay also observes that in the instance, the appellant does not seek to reclaim possession of the store in the new building as a tenant, but rather as an allottee of the shop in the new building on an ownership basis without payment of any expenses or charges, rather than as a tenant. The facts of this case would not even slightly draw Section 41 of the Presidency Small Causes Court, 1882, or the Maharashtra Rent Control Act.

5. Honourable High Court of Judicature at Bombay also observes that in the present case, the appellant sought recovery of possession on an ownership basis, as well as displacement rent and compensation, under the parties' agreement, rather than recovery of possession as a tenant of respondent No.1's new tenement erected in the new building. The provisions of Section 16 of the Maharashtra Rent Control Act, as well as Sections 18 and 19, would not apply in this situation.

6. Honourable High Court of Judicature at Bombay also observes that if the owner has consented to pay the displacement rent instead of temporary housing until the landlord has turned over the substitute permanent lodging to the allottee, the owner cannot be deemed a landlord under Section 7(3) of the Maharashtra Rent Control Act, 1999. Similarly, a tenant who receives such an allowance from the landlord in place of temporary housing until the landlord makes permanent substitute housing accessible to him on ownership cannot be deemed a tenant under Section 7(15) of the Maharashtra Rent Control Act, 1999. Though his client was paying displacement compensation or rent to the tenant instead of temporary accommodation until possession of the permanent alternate accommodation was handed over to the tenant on an ownership basis in the new building, learned counsel for respondent no.1 could not demonstrate how his client was a landlord within the meaning of Section 7(3).

The Decision Held by the Court/Commission

Honourable High Court of Judicature at Bombay held that

1. The Order passed by the learned Single Judge on 11th December 2020 is set aside.

2. The Commercial Appeal Nos. 669 of 2021, 670 of 2021, 686 of 2021, 705 of 2021, 732 of 2021, 747 of 2021, 755 of 2021, 770 of 2021, 777 of 2021, 779 of 2021 and 764 of 2021 are allowed.

3. The appellants' Commercial Arbitration Petitions have been reinstated.

4. The learned Single Judge will decide such petitions on their own merits, without regard to the learned Single Judge's observations in the challenged decision of December 11, 2020, and by the principles of law outlined in this Judgment.

5. The Interim Applications submitted by the Appellants do not survive the disposition of the Appeals and are thus disposed of.

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