The court established that lease disputes, without special tenant protections, are arbitrable, overruling prior decisions and endorsing the Supreme Court's findings in Vidya Drolia.

JUDGEMENT :

Somasekhar Sundaresan, J.

Context and Factual Background:

1. Whether the declaration of law in Vidya Drolia[ Vidya Drolia vs. Durga Trading Corporation – 2021 2 SCC 1] about disputes under bilateral lease deeds being arbitrable, has no relevance for arbitrability of such disputes in Greater Mumbai is the key question raised in these proceedings.

2. This Petition is essentially an Appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) challenging an order / award dated October 6, 2020 (“Impugned Order”) passed by a Learned Arbitral Tribunal allowing an application under Section 16 of the Arbitration Act, holding that disputes and differences between the parties over a lease deed are not arbitrable.

3. The Petitioner, Dimple Enterprises, a partnership firm (“Dimple”) entered into a Lease Deed with WeWork India Management Pvt. Ltd. (“WeWork”) on May 28, 2018, leasing out 1,50,005 square feet of carpet area in a building called K. Raheja Platinum for a period of ten years. The lease rental payable was in the sum of Rs.~ 2.57 Crores per month, escalated by 15% every three years.

4. To secure payment of lease rentals, electricity and other related maintenance charges, a security deposit equivalent to lease rentals for three months in the sum or Rs. ~7.71 Crores (“Security Deposit”) was contracted. The Security Deposit is not subject to escalation to correspond to the escalation of the lease rentals.

5. Disputes and differences between the parties arose when the Covid-19 Pandemic led to a lock-down all over India. WeWork would assert that the invoice for April 2020 and May 2020 were not payable on account of force majeure conditions having arisen, leading to payment obligations being excused under Clause 21 of the Lease Deed. WeWork also claimed that there was no obligation to pay lease rentals for about seven days in June 2020. Dimple appropriated the amounts claimed by WeWork as not being payable from the Security Deposit, depleting the Security Deposit from Rs. ~7.71 crores to Rs. ~88.50 lakhs. Dimple called upon WeWork to replenish the Security Deposit to the originally contracted size. WeWork would contend that the appropriation of amounts from the Security Deposit was illegal and no replenishment was necessary.

6. It is common ground that the Lease Deed contains an arbitration agreement. Whether disputes and differences under the Lease Deed are arbitrable is the core issue raised by WeWork under Section 16 of the Arbitration Act, challenging the jurisdiction of the Learned Arbitral Tribunal, which had been constituted in disposal of a Section 9 Petition by this Court. The Learned Arbitral Tribunal has taken a clear view that the appropriation from the Security Deposit constituted recovery of lease rentals, and therefore the replenishment of the Security Deposit is related to recovery of lease rentals. Dimple being the lessor is a “landlord”; WeWork, being the lessee is a “tenant”, and therefore, the Learned Arbitral Tribunal has held, the recovery of lease rentals is subject to exclusive jurisdiction of the Small Causes Court established under the Presidency Small Cause Courts Act, 1882 (“Small Cause Courts Act”).

7. It is apparent that the parties addressed the Learned Arbitral Tribunal on a variety of issues, each party citing at least a dozen judgments on how to read plea