Supreme Court Holds Arbitration Clause Valid Despite Special Jurisdiction Provision; Directs Arbitrator to Proceed

A bench of Justice J. B. Pardiwala and Justice K. V. Viswanathan heard an appeal against a Bombay High Court order that allowed a Section 11 petition and appointed an arbitrator to adjudicate a dispute arising out of a leave-and-license agreement. The principal question before the Court was whether the dispute was non‑arbitrable by reason of Section 41 of the Presidency Small Cause Courts Act, 1882, which conferred exclusive jurisdiction on the Small Causes Court in specified landlord–tenant or licensor–licensee matters.

The Court summarised that its jurisdiction under Section 11(6‑A) of the Arbitration & Conciliation Act, 1996 was confined to a prima facie examination of the existence of an arbitration agreement and that it should not embark on a laborious or contested inquiry into the merits. The Court held that an arbitration clause in the parties’ Clause 33 continued to exist and that the High Court erred in short‑circuiting the Section 11 enquiry on the basis that the dispute was non‑arbitrable under Section 41, as argued by the appellant. The appeal was dismissed and the arbitrator was directed to conclude the proceedings within six months. The Court, in its reasoning, observed: “Hence, it was very clear that our jurisdiction was only to inspect or scrutinize the dealings between the parties for determination about the existence of an Arbitration Agreement. We were not to launch a laborious or a contested inquiry.”

Background

The dispute arose from a Leave and License Agreement dated 6 October 2017 and an Addendum of 13 March 2020 in respect of commercial premises at Malad, Mumbai. The licence period was extended and later the licensee (appellant before this Court) asserted that it handed over vacant possession in September 2020 and claimed refund of its security deposit. The licensor (respondent) sought recovery of alleged arrears of licence fees for the balance lock‑in period. The respondent invoked Clause 33 (an arbitration clause) and filed a Section 11 application on 13 August 2023 for appointment of a sole arbitrator; the High Court allowed that application on 2 May 2024.

The appellant challenged the Section 11 order before the High Court and contended that Section 41 of the 1882 Act conferred exclusive jurisdiction on the Small Causes Court for suits “between a licensor and licensee … relating to the recovery of possession … or relating to the recovery of the licence fee or charges or rent” and therefore the dispute was non‑arbitrable. The appellant relied on the Bombay High Court Full Bench decision in Central Warehousing Corporation v. Fortpoint Automotive and on authority that special statutes conferring exclusive fora ousted arbitration. The respondent argued that the claim was for a debt/compensation and not for recovery of possession or licence fee within Section 41, relied on Globsport, and invoked Vidya Drolia jurisprudence on implied non‑arbitrability.

The Court analysed the legal position in light of Section 11(6‑A) and the Seven‑Judge decision in In re Interplay, holding that Section 11 required only a prima facie examination of the existence of an arbitration agreement and that substantive issues of arbitrability and validity should be left to the arbitral tribunal under Section 16. The Court addressed the Full Bench passage relied upon by the appellant, noting that paragraph 40 of Central Warehousing had held that an arbitration agreement would be “invalid and inoperative on the principle that it would be against public policy to allow the parties to contract out of the exclusive jurisdiction of the Small Causes Courts,” but clarified that that reasoning did not render Clause 33 non‑existent for the limited purpose of a Section 11(6‑A) examination in the present facts. The Court left open all other disputes for determination by the arbitrator and directed that remedies arising from any arbitral orders be pursued in accordance with law.

Case No.: CIVIL APPEAL NO. 36 of 2026 (@ Special Leave Petition (Civil) No. 5834 of 2025) Case Title: Motilal Oswal Financial Services Limited v. Santosh Cordeiro and Another Appearances: For the Petitioner(s): Chirag M. Shah, Advocate For the Respondent(s): Rishabh Shah, Advocate