Lease Renewal Disputes with Public Sector Undertakings Arbitrable When Possession and Rent Continue Lawfully and Not Linked to Eviction under Public Premises Act: Karnataka High Court
Isabella Mariam
The High Court of Karnataka, Single Bench of Justice E.S. Indiresh, held that disputes concerning renewal of lease agreements with public sector undertakings are amenable to arbitration when the lessee remains in lawful possession and rent continues to be accepted by the lessor. The Court clarified that such matters do not fall within the bar of the Public Premises (Eviction of Unauthorised Occupants) Act, 1971. Finding the disagreement over lease renewal to be arbitrable, the Court allowed the petition filed under Section 11 of the Arbitration and Conciliation Act, 1996 and appointed a former judge of the Court as Sole Arbitrator.
The petitioner, a private company engaged in property management services, entered into a lease deed dated June 22, 2018, with a public sector undertaking for occupation of a commercial property in Bengaluru. The initial lease term was four years and eleven months, with an option for renewal under Clause 2.3 of the agreement. Upon nearing expiry of the lease period, the petitioner exercised its option to extend the lease, while the respondent contended that the rent stipulated was below the prevailing market rate. This disagreement led to correspondence between the parties, including a letter from the petitioner seeking renewal and a reply from the respondent seeking revision of rent.
The petitioner continued in possession of the premises and continued to remit rent, which was accepted by the respondent. A pre-institution mediation was initiated before the District Legal Services Authority, Bengaluru, but the proceedings did not result in a settlement. The petitioner thereafter invoked Clause 7.7 of the lease deed, which provided for resolution of disputes by arbitration, and proposed the name of a former judge as sole arbitrator. The respondent, in reply, opposed the invocation of arbitration, asserting that the dispute was governed by the Public Premises (Eviction of Unauthorised Occupants) Act, 1971, and therefore not arbitrable.
During arguments, the petitioner relied on Clause 2.3 and Clause 7.7 of the lease deed and cited decisions of the Supreme Court, including Central Warehousing Corporation v. Sidhartha Tiles & Sanitary Pvt. Ltd. and Datar Switchgears Ltd. v. Tata Finance Ltd., to support its contention that the matter was arbitrable. The respondent referred to Sections 2(g), 4, and 15 of the Public Premises Act and cited precedents such as International Amusement Ltd. v. ITPO and Vidya Drolia v. Durga Trading Corporation to argue that eviction-related issues of public premises fall within statutory jurisdiction and cannot be referred to arbitration.
The Court observed that “Clause 2.3 of the Lease Deed provides for the extension of the lease period at the option of the lessee, subject to an escalation of 10% on the rent last paid prior to such extension.” The judge held that the petitioner’s request for renewal, supported by continued rent payments and the respondent’s acceptance thereof, indicated that the issue was confined to the renewal clause and did not amount to unauthorised occupation.
Referring to the Supreme Court’s judgment in Vidya Drolia and Others v. Durga Trading Corporation (2021) 2 SCC 1, the Court cited the principle that “rights in personam are considered amenable to arbitration, whereas rights in rem, including tenancy matters governed by special statutes, are not.” The Court noted that the present case involved rights in personam concerning the extension of lease and therefore fell within the arbitrable domain.
The judgment further recorded that the Supreme Court’s decisions in Central Warehousing Corporation and Another v. Siddhartha Tiles & Sanitary Pvt. Ltd. (2024 SCC OnLine SC 2983) and Datar Switchgears Ltd. v. Tata Finance Ltd. (2008) 8 SCC 151 supported the view that disputes concerning renewal of lease agreements are arbitrable when such rights are based on contractual terms.
In contrast, the respondent relied on International Amusement Ltd. v. India Trade Promotion Organisation (AIR 2015 SC 749) and HLV Ltd. v. Airports Authority of India (Arbitration Appeal (Stamp) No.12153/2021), to argue that eviction-related disputes under the Public Premises Act are not arbitrable. However, the Court distinguished those precedents, stating that “the issue 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.”
Justice Indiresh held that since ITI Limited had accepted rent and the petitioner remained in possession lawfully under a subsisting agreement, “the petitioner cannot be considered as an unauthorised occupant under Section 2(g) of the PP-Act.” The Court therefore concluded that the arbitration clause under Clause 7.7 must govern the resolution of the dispute.
Justice Indiresh directed that “Hon’ble Mr. Justice Ram Mohan Reddy, former Judge of this Court, is appointed as the Sole Arbitrator to adjudicate the dispute between the parties at the Arbitration and Conciliation Centre, Bengaluru, in terms of Clause 7.7 of the Lease Deed dated 22nd June, 2008 (Annexure-A).”
The Registry to “communicate this order (by e-mail) to the Arbitration and Conciliation Centre, Bengaluru, and also to Hon’ble Mr. Justice Ram Mohan Reddy, former Judge of this Court forthwith.” The Court also instructed that since both parties were represented through counsel, they were to “appear before the Arbitration and Conciliation Centre, Bengaluru, on 30th October, 2025, at 11.00 a.m.”
Advocates Representing the Parties
For the Petitioner: Sri. R.V.S. Naik, Senior Counsel for Sri. Nitin Prasad, Advocate.
For the Respondent: Sri. Arvind Kamath, Additional Solicitor General of India for Ms. Varsha Hittinhalli, Advocate.
Case Title: Embassy Services Private Limited v. ITI Limited
Neutral Citation: 2025: KHC:39856
Case Number: CMP No. 303 of 2025
Bench: Justice E.S. Indiresh
