1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY O. O. C. J. ARBITRATION PETITION (LODG.) NO.748 OF 2007 ING Vysya Bank Limited ..Petitioner. Vs. Modern India Limited and another ..Respondents. ..... Mr. P.K. Samdani, Senior Advocate with Mr. Indranil Deshmukh i/b Amarchand & Mangaldas & S.A. Shroff & Co. for the Petitioner. Ms. Rajni Iyer, Senior Advocate with Ms. Sudeshna Guha Roy i/b Paras Kuhad & Associates for Respondents 1 and 2. ..... CORAM: DR. D.Y. CHANDRACHUD, J. 30th January, 2008. JUDGMENT: 1. The principal issue which falls for the determination of the Court is whether the provisions of Section 41 of the Presidency Small Cause Courts Act, 1882 would bar the jurisdiction of an arbitral tribunal to entertain a claim for specific performance of an agreement of renewal contained in an agreement of licence executed between a licensor and licensee. The relief which has been sought in these proceedings under Section 9 of the Arbitration and Conciliation Act, 1996 is an order of injunction 2 restraining the licensor from terminating the agreement of licence and acting upon a communication calling upon the licensee to hand over vacant possession and in particular, restraining the licensor from initiating proceedings for the recovery of possession of the licensed premises. An injunction has also been sought restraining the licensor from disturbing the use and occupation of the premises by the licensee; from entering into any third party rights in respect of the licensed premises. Other consequential reliefs restraining the licensor from interfering with the use of common facilities have been sought. 2. The Respondents are licensors and the Petitioner is a licensee in respect of commercial premises consisting of Unit No.7 in the A Wing on the first floor of a building known as Modern Centre situated at Mahalakshmi, Mumbai. The Petitioner has been in occupation of the premises from 1st January 2002. A leave and licence agreement is stated to have been initially entered into on 19th October, 2001 for a term of three years commencing from 1st January 2002 which was to expire on 31st December, 2004. 3 According to the Petitioner a right was conferred upon it of a refusal to renew the agreement for a further two terms of three years each commencing from 31st December, 2004. On 11th January, 2005 an agreement of licence was entered into between the parties under which a licence was granted by the Respondents to the Petitioner to utilize the facilities of a business center at the premises for a period of three years commencing from 1st January, 2005 and ending on 31st December, 2007. The licence fee under the agreement was fixed at Rs.5,75,000/- per month and a deposit of Rs.60 lacs was furnished free of interest for the due performance of the obligations under the agreement. Towards the provision of certain services and facilities, the Petitioner was to pay in addition an amount of Rs.14,510/- each month. Clause 5 of the agreement deals with renewal and made the following provisions : “5(a) Client shall have the right of refusal to renew this Agreement for further periods of three years from 1st January, 2008 to 31st December, 2010. (b) In the event of the Client opting for renewal, the charges under sub-clause (a) of Clause No.8 shall be increased by 15% i.e. to Rs. 6,61,250/- (Rupees six lacs sixty-one thousand two hundred fifty only) per month. (c ) In the event of the Client desiring to renew the 4 agreement after completion of three years (36 English calender months) beyond 31st December, 2007 the Client shall give to the Conductor advance notice of 6 months in writing before the expiry of the agreement. (d) All other terms and conditions herein shall remain the same during the extended period of agreement for renewal period.” 3. Clause 6 of the agreement provided that the agreement was terminable for a breach on the part of the other party. During the period of renewal the Petitioner was entitled to terminate the agreement with a notice of six months while on the other hand the Respondents did not have any right to terminate the agreement other than for a breach of the conditions of the agreement. Under clause 7(a)(i) the agreement was to be terminable by efflux of time. Sub clause ( c) of clause 7 provides that upon the termination of the agreement the Petitioner would hand over vacant and peaceful possession to the Respondents failing which the Respondents were entitled to remove the belongings of the Petitioner upon the expiry of seven days. In the event that the Petitioner continued to use the premises after the expiry of the agreement, it was provided that charges of Rs.50,000/- per day would be levied until possession was handed over. Sub clause (n) 5 of Clause 11 of the agreement provides for a reference to arbitration in the following terms : “(n) The Parties agree that all disputes arising out of or in connection with the Agreement, which cannot be settled amicably between the parties, shall be finally settled exclusively by Arbitration under the Arbitration and Conciliation Act, 1996 or any re-enactment, modification or amendment thereto by three arbitrators, one to be appointed by the Conductor and one by the Client each. The two appointed arbitrators shall appoint the third Arbitrator. The Arbitration may be conducted at Mumbai. The Award of the Arbitrators shall be final, conclusive of the settlement of the disputes and binding all parties.” 4.. The case of the Petitioner is that it has duly performed its obligations under the agreement without breach or default and the Petitioner has been desirous of occupying the licensed premises by exercising its option of renewal. According to the Petitioner, its representatives were in dialogue with the Respondents well before the commencement of the six months period of notice required for exercising the right of renewal. On 14th November, 2007 the Petitioner addressed a communication to the Respondents intimating an intention to renew the agreement for a period of three years from 1st January, 2008 to 31st January, 2010 on enhanced charges as envisaged in the agreement. The 6 contention of the Respondents is that the aforesaid letter was received on 29th November, 2007 prior to which on 27th November, 2007 the Petitioner was informed that the agreement would be expiring on 31st December, 2007 upon which peaceful and vacant possession of the premises would have to be granted. Upon receipt of the Petitioner's letter dated 14th November, 2007 on 29th November, 2007, the Respondents addressed a further communication dated 30th November, 2007 stating that since advance notice of six months had not been issued before the expiry of the agreement, the agreement would automatically stand terminated as of 1st January, 2008. The Respondents, however, stated that they were prepared, having regard to the long association of the parties, to enter into a new agreement on fresh terms and conditions with effect from 1st January, 2008. On 10th December, 2007 the Respondents, while drawing attention to their earlier letters recorded that no communication was received from the Petitioner and an appointment for a joint inspection of the premises was fixed. On 18th December, 2007 the Respondents furnished an offer to the Petitioner for a fresh agreement with effect 7 from 1st January, 2008. On 24th December, 2007 a further communication was addressed recording the absence of any response from the Petitioner and calling for vacant and peaceful possession on the expiry of the term of the agreement. 5. The contention of the Petitioner is that the Respondents were aware of the intention of the Petitioner to renew the agreement well prior to the commencement of the notice period of six months as contemplated in the provision for renewal; that there was a deemed exercise of the option of renewal by the Petitioner and that there was a waiver on the part of the Respondents of the condition that atleast six months' prior notice should be given for the renewal of the agreement. The Petition was instituted with an averment that the Petitioner was in the process of invoking the arbitration agreement and commencing arbitral proceedings against the Respondents. Subsequent to the institution of the present proceedings under Section 9 of the Arbitration and Conciliation Act, 1996, a further affidavit has been filed recording that by a letter dated 4th January, 2008 the Petitioner has invoked the provision for arbitration stating that in the arbitral proceedings, 8 the Petitioner would be seeking the following relief : “(i) that the Hon'ble Arbitral Tribunal be pleased to declare that our clients have a right of renewal under the Agreement and you are bound and liable to specifically perform the same and renew the Agreement for a further period of three years on agreed terms; (ii) that this Hon'ble Arbitral Tribunal be pleased to pass an award directing you and your servants, officers, assigns or agents to specifically perform your obligation contained in the Agreement by doing all things and taking all actions as are necessary to fully and effectively carry out its obligations thereunder including without limitation to execute fresh Leave and License Agreement in terms of the Agreement; (iii) that for the aforesaid purpose, you be ordered, decreed and directed to do all acts deeds and things and execute and register all writings necessary.” 6. An affidavit in reply has been filed on behalf of the Respondents in which it has been urged that the proceedings under Section 9 of the Act of 1996 are not maintainable by virtue of the provisions of Section 41 of the Presidency Small Cause Courts Act, 1882 under which jurisdiction has been conferred upon the Small Causes Court in respect of proceedings between licensors and licensees relating to the recovery of possession of immovable property or of licence fees. The contention of the Respondents is that based on an existing relationship of licensor 9 and licensee the Petitioner seeks the assistance of this Court to protect his possession and that the dispute would fall within the purview of Section 41 of the Act of 1882. The contention of the Respondents is that in the garb of seeking specific performance, the Petitioners actually seek a restraint against the Respondents from disturbing the use and occupation of the licensed premises. Such a dispute, it is contended is not arbitrable under the Arbitration and Conciliation Act, 1996 in view of an implied bar created by Section 41 of the Presidency Small Cause Courts Act, 1882. On merits, the contention of the Respondents is that under the terms of the agreement the Petitioner was required to furnish advance notice of an intention to renew the agreement before 30th June, 2007. Upon an enquiry by the Respondents in June 2007 of whether the Petitioner would be interested in a renewal of the agreement, the Petitioner had stated that a communication would be addressed to the Respondents which, however, never came. According to the Respondents, the Petitioner has acquired premises in the Bandra Kurla Complex and was, therefore, not desirous of continuing after 31st December 2007. The contention of 10 the Respondents is that in the absence of any communication from the Petitioner, it was the Respondent which had addressed a letter on 27th November, 2007 calling for vacant possession on the expiry of the agreement and it was thereafter on 29th November, 2007 that the letter purportedly dated 14th November, 2007 was received from the Petitioner evincing an intention to renew the agreement. Therefore, according to the Respondents there was no valid renewal of the agreement by the Petitioner and the Respondents are entitled to delivery of possession on the expiry of the agreement. In the rejoinder which has been filed by the Petitioner it has been contended that the Petitioner has been in use and occupation since 1st January, 2002 and it was within the contemplation of the parties that the Petitioner would be entitled to a right of refusal to renew the agreement of a further two terms of three years each expiring on 31st December, 2010. Consequently, it has been submitted that the Petitioner invested a large amount in the upkeep of the licensed premises. On 17th August, 2004 the Petitioner claims to have exercised the right to renew the agreement of licence pursuant to a clause to that effect contained 11 in the first agreement dated 19th October, 2001. It has been stated that at that stage, the Respondents had not asserted that the Petitioner had not furnished six months notice prior to the expiry of the agreement. Consequently, it has been submitted that parties had never intended that the exercise of the option of renewal within six months prior to the expiry of the agreement was of the essence of the contract. 7. The principal issue that falls for determination is whether the provisions of Section 41 of the Presidency Small Cause Courts Act, 1882 would bar the jurisdiction of the arbitral tribunal to consider the dispute that has been raised by the Petitioner. Chapter IV of the Presidency Small Cause Courts Act, 1882 deals with the jurisdiction of the Court in respect of suits. Under Section 18, the Small Causes Court has jurisdiction to try all suits of a civil nature, subject to the exceptions in Section19 when the amount or value of the subject matter does not exceed the pecuniary limit prescribed therein and the conditions prescribed in clauses (a), (b) and ( c) are fulfilled. Clauses (a), (b) and ( c) to which a detailed reference is unnecessary deal with the accrual of the cause of 12 action within the local limits of the jurisdiction and the place where the Defendants reside or carry on business. Section 19 provides that the Small Causes Courts shall have no jurisdiction in certain cases, among them in Clause (h) being suits for specific performance or rescission of contracts. Chapter VII of the Act deals with the recovery of possession of immovable property and certain licence fees and rent. Section 41 provides as follows : “41. (1)Notwithstanding anything contained elsewhere in this Act 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 Maharashtra Housing and Area Development Act, 1976 or any other law for the time being in force, apply.” 8. The first thing to be noted about Section 41 is that it is prefaced with a non-obstante provision as a result of which the 13 provisions of sub section (1) are given overriding force and effect notwithstanding anything contained elsewhere in the Act nonetheless, however, subject to sub-section (2). The jurisdiction to entertain and try all suits and proceedings between a licensor and a licensee and/or a landlord or tenant is conferred upon the Court of Small Causes where the suit relates to the recovery of possession of immovable property or to the recovery of licence fees or charges or rent therefore, irrespective of the value of the subject matter of such suit or proceeding. The words “irrespective of the value of the subject matter of such suits or proceedings” are intended to indicate that even though the value of the subject matter would exceed the pecuniary limits on the jurisdiction of the Court, it is the Court of Small Causes which is conferred with the jurisdiction to entertain and try suits of the descriptions specified in sub-section (1). However, sub-section (2) carves out an exception in respect of those suits for the recovery of possession or of licence fees, rent or charges to which the Rent Act, the other Acts enunciated or any other law for the time being in force apply. The non obstante clause in Sub section (1) of Section 41 has 14 overriding effect over all the other provisions of the Act. That would include the provisions contained in Section 18 defining the pecuniary limits of the jurisdiction of the Small Causes Court. Suits falling in the description contained in Sub section (1) of Section 41 would lie within the exclusive jurisdiction of the Small Causes Court notwithstanding the fact that the value of the subject matter exceeds the limits on its pecuniary jurisdiction. The non-obstante provision in Sub section (1) of Section 41 will also prevail over Section 19 because when the suit is of the description contained in the former provision that will prevail over the latter. The primary determination which the Court must make in every such case is whether the suit in substance and in essence is a suit relating to the recovery of possession or the recovery of licence fee, rent or other charges between a landlord and tenant or a licensor and licensee. The Court will decide the issue by looking at the kernel and disregarding the chaff. The existence of a jural relationship of licensor and licensee or, as the case may be, of landlord and tenant; the nature of the cause of action; the character of the reliefs sought and whether the claim of the Plaintiff arises from and out of 15 the obligations of the parties as licensor and licensee or, landlord and tenant are important considerations. The garb or cloak which is wrapped around the pleadings by an astute draftsman must be kept aside to deduce the pith and substance of the pleadings. If the suit relates to the recovery of possession, it is a suit to which Section 41(1) applies notwithstanding the fact that some of the reliefs or a portion of the cause of action is structured around a claim for specific performance. The Court must ask itself : Does the theme and the foundation relate to the recovery of possession? And in answering that question, the pleadings must be considered as a whole without severing its constituents or reading parts in isolation. 9. In Natraj Studios (P) Ltd. v. Navrang Studios1, the Supreme Court held that exclusive jurisdiction is given to the Court of Small Causes and jurisdiction is denied to other Courts to deal with suits and proceedings of the nature and character stipulated in the legislation. In the case before the Supreme Court a leave and licence agreement was entered into under which the First 1 (1981) 1 SCC 523. 16 Respondent granted a licence to the Appellant in respect of certain premises which was extended. The agreement was in force on 1st February, 1973 when Section 15-A was inserted into the Rent Act, the consequence of which was that a person who was in occupation as a licensee on the aforesaid date was deemed to have become a tenant of the landlord. The licence was terminated upon which the Appellant filed a declaratory suit in the Small Causes Court. The First Respondent filed an application for the appointment of an arbitrator for determining the dispute under the leave and licence agreement and an order was passed by this Court allowing the application. Prior thereto an application had been filed by the Appellant under Section 33 of the Arbitration Act for a declaration that the arbitration clause in the licence agreement was invalid. The application was dismissed by this Court. Dealing with the question as to whether a dispute of the nature could be arbitrable, the Supreme Court held as follows : “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 17 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 kind 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 Rents Act cannot be recognised by a court of law.” 10. Thereafter in Mansukhlal Dhanraj Jain v. Eknath Vithal Ogale2 the Supreme Court construed the provisions of Section 41 (1) of the Presidency Small Cause Courts Act, 1882. In a suit instituted by a person claiming to be a licensee of the premises for an injunction restraining the licensor from recovering the possession by forcible means, the Supreme Court held that the suit related to the recovery of possession and fell within the exclusive jurisdiction of the Small Causes Court. Observing that the words 'relating to the recovery of possession' were wider than 'for the recovery of possession', the Supreme Court held thus : “It is pertinent to note that Section 41(1) does not employ the words “suits and proceedings for recovery of possession of immovable property”. There is a good deal of difference between the words “relating to the recovery of possession” on the one hand and the terminology “for recovery of possession of any immovable property”. The words ' relating to' are of wide 2 (1995) 2 SCC 665. 18 import and can take in their sweep any suit in which the grievance is made that the defendant is threatening to illegally recover possession from the plaintiff – licensee. Suits for protecting such possession of immovable property against the alleged illegal attempts on the part of the defendant to forcibly recover such possession from the plaintiff, can clearly get covered by the wide sweep of the words “relating to recovery of possession” as employed by Section 41(1). 11. The Supreme Court reaffirmed the principle that the jurisdiction of the Small Causes Courts was exclusive and it was only that Court which could entertain suits of the description falling in Section 41(1) which was pari materia with Section 28 of the Rent Act of 1947. The Court upheld the correctness of the view taken in the judgment of the Full Bench of this Court in Dattatraya Krishna Jangam v. Jairam Ganesh Gore3 that a suit for injunction against a landlord for restraining him from forcibly evicting the tenant from possession of the premises would lie within the exclusive jurisdiction of the Small Causes Court. The Supreme Court held that once the Plaintiff contends that he is a licensee of the suit premises and the Defendant is a licensor and he seeks the assistance of the Court on that basis to protect his possession, it 3 AIR 1965 Bom 177. 19 would be a suit between a licensee and licensor relating to the recovery of possession. In a given case, the Supreme Court noted an injunction suit purely based on previous peaceful possession and a subsequent threatened dispossession may stand on an entirely different footing and may not attract the sweep of Section 41(1), but the suits before the Supreme Court in that case were based on the allegation that the Plaintiffs were licensees on monetary considerations who apprehended dispossession not in accordance with law at the hands of the licensors. Such a suit would attract the provisions of Section 41(1) by satisfying both the requirements viz. of being a suit between a licensor and a licensee and relating to the recovery of possession of immovable property. 12. In several judgments of Division Benches of this Court, this Court had occasion