Recently, in an instructive pronouncement addressing the intersection of contractual rights and statutory restrictions, the Karnataka High Court examined whether a dispute over the renewal of a commercial lease, arising from a tender involving a public sector entity, falls within the scope of arbitration or is barred by the Public Premises (Eviction of Unauthorised Occupants) Act, 1971. The case invited a nuanced judicial determination on the arbitrability of lease renewal disputes where possession continues lawfully but the lessor asserts statutory control. Read on to know how the Court reconciled the competing contours of contractual autonomy and statutory authority in determining the arbitrability of such disputes.
Brief Facts:
The dispute arose when a property management company participated in a tender to lease a commercial property and was declared the successful bidder, leading to the execution of a lease agreement for an initial term of nearly five years, with an option for renewal. The petitioner exercised the renewal option, but the respondent contended that the rent was too low for commercial use, giving rise to a dispute. Despite continued occupation and rent payment, pre-institution mediation failed to produce a resolution. The petitioner then invoked the arbitration clause, nominating a sole arbitrator, which the respondent rejected, arguing that the matter was non-arbitrable and fell under the Public Premises (Eviction of Unauthorised Occupants) Act, 1971. Following an eviction notice, the petitioner approached the High Court seeking the appointment of a sole arbitrator under the Arbitration and Conciliation Act, 1996.
Contentions of the Petitioner:
The petitioner’s counsel argued that under the lease deed, the petitioner was entitled to an extension of the lease term, which had already been exercised after the initial renewal granted by the respondent. It was submitted that, owing to the disagreement over the fixation of rent for the extended period, the petitioner continues to remain in lawful possession of the premises. Emphasising the presence of an arbitration clause in the lease agreement, counsel contended that the provisions of the Public Premises (Eviction of Unauthorised Occupants) Act,1971, were inapplicable to the dispute, relying on a recent Supreme Court decision to support this position. It was further argued that disputes arising out of such lease agreements are arbitrable, as the parties are bound by their contractual terms, and therefore the petition deserved to be allowed.
Contentions of the Respondent:
The respondent’s counsel contended that under the Public Premises (Eviction of Unauthorised Occupants) Act, disputes concerning possession and eviction must be adjudicated by the competent authority, and therefore cannot be referred to arbitration. It was argued that the petitioner had become an unauthorised occupant upon expiry of the lease period and was consequently issued an eviction notice, making the petition untenable. Relying on Supreme Court precedents, counsel submitted that matters arising from lease agreements involving statutory authorities fall within the exclusive domain of the PP-Act and are not arbitrable. Reference was also made to judgments affirming that disputes relating to eviction or tenancy governed by special statutes are non-arbitrable, though ancillary issues such as arrears of rent or renewal of licence may still be subject to arbitration. On these grounds, dismissal of the petition was sought.
Observation of the Court:
The Court observed that the central controversy revolved around the extension of the lease period under Clause 2.3 of the Lease Deed rather than any proceedings for eviction under the Public Premises (Eviction of Unauthorised Occupants) Act, 1971. It noted, "I am of the view that the issue involved between the parties in the present petition is pertaining to the extension of the lease period and not touching the eviction proceedings initiated under the provisions of the PP-Act." Accordingly, the Court emphasised that the dispute was contractual in nature and amenable to arbitration.
The Court further relied upon the Supreme Court’s decision in Vidya Drolia and Others vs. Durga Trading Corporation, which draws a crucial distinction between rights in rem and rights in personam. It observed, "Booz Allen & Hamilton Inc. draws a distinction between actions in personam, that is, actions which determine the rights and interests of parties themselves in the subject-matter of the case, and actions in rem which refer to actions determining the title of the property and the rights of the parties not merely amongst themselves but also against all the persons at any time claiming an interest in that property. Rights in personam are considered to be amenable to arbitration and disputes regarding rights in rem are required to be adjudicated by the courts and public tribunals." The Court held that this principle was pivotal in classifying the present dispute as one concerning rights in personam and therefore arbitrable.
The Court also examined the Supreme Court’s judgment in Central Warehousing Corporation and Another vs. Sidhartha Tiles & Sanitary Pvt. Ltd., finding the same squarely applicable. It highlighted, "In the case of Central Warehousing Corporation (supra), perusal of the fact would indicate that the respondent therein had vacated the premises and further, the Estate Officer of the petitioner-Corporation therein sought for eviction of the respondent therein. In the instant case, the petitioner-Company is not an unauthorised occupant and further the respondent herein is receiving rents from the petitioner." The Court emphasised that the petitioner’s continued possession coupled with the respondent’s acceptance of rent clearly distinguished the case from one of unauthorised occupation.
The Court further addressed the respondent’s reliance on different case laws, observing that those cases involved eviction under special statutes, which are non-arbitrable. However, it clarified, "as far as the issue relating to the renewal of lease is concerned, the petitioner cannot be considered as an unauthorised occupant under Section 2(g) of the PP-Act." The Court thus held that the arbitration clause contained in the lease deed remained valid and enforceable, as the nature of the dispute did not attract the bar under the Public Premises (Eviction of Unauthorised Occupants) Act, 1971.
The decision of the Court:
In conclusion, the Court allowed the petition and appointed Justice Ram Mohan Reddy, former Judge of the High Court, as the Sole Arbitrator to adjudicate the dispute between the parties at the Arbitration and Conciliation Centre. The Registry was directed to promptly communicate the order to the Centre and the Arbitrator, while the parties were directed to appear before the Centre on the specified date for commencement of arbitral proceedings.
Case Title: Embassy Services Private Limited Vs. ITI Limited
Case No: Civil Miscellaneous Petition No.303 of 2025
Coram: Justice E.S. Indiresh
Advocate for Appellant: Advs. R.V.S. Naik And Nitin Prasad
Advocate for Respondent: Advs. Arvind Kamath And Varsha Hittinhalli
Read Order @Latestlaws.com
Picture Source :
