Lease Renewal Disputes With PSU's Are Arbitrable If Not Related To Eviction Under Public Premises Act: Karnataka High Court
The Karnataka High Court held that renewal of lease agreements with public sector undertakings are arbitrable and such disputes are not prohibited under Public Premises (Eviction of Unauthorised Occupants) Act, 1971 (PP Act) when lessee continues in possession lawfully and the rent is being accepted by the lessor. Accordingly, the present application under section 11 of the Arbitration...
The Karnataka High Court held that renewal of lease agreements with public sector undertakings are arbitrable and such disputes are not prohibited under Public Premises (Eviction of Unauthorised Occupants) Act, 1971 (PP Act) when lessee continues in possession lawfully and the rent is being accepted by the lessor. Accordingly, the present application under section 11 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) seeking appointment of a sole arbitrator was allowed.
Justice E. S. Indiresh held that “in the instant case, the petitioner-Company is not an unauthorised occupant and further the respondent herein is receiving rents from the petitioner and proceedings initiated by the respondent by causing legal notice dated 12th September, 2025 is stayed by this Court. Hence, I am of the opinion that , as the issue involved between the parties is for renewal of the lease period and same has to be adjudicated by an Arbitrator as per clause 7.7 of the Lease Deed dated 22nd June, 2008, the petition, seeking appointment of Arbitrator deserves to be allowed.”
Background:
The dispute arose out of a lease deed where ITI Limited (Respondent) leased certain premises to Embassy Services Pvt. Ltd.(Petitioner) for four years and 11 months with a renewal option. Embassy had exercised its option of renewing the lease before expiry. However, the respondent refused to accept the renewal contending that the rent was below market value and that the petitioner had become an unauthorised occupant after expiry of the lease terms.
Embassy continued to pay rent which was accepted by the ITI Limited. Thereafter, an eviction notice was issued under the PP Act by the ITI Limited which was challenged before the High Court by filing a writ petition. The High Court stayed the eviction. Embassy also invoked the arbitration clause contained in the deed which was objected to by the respondent contending that the dispute is not arbitrable in view of the PP Act.
The Petitioner submitted that the dispute was related to renewal of lease and escalation of price and not related to eviction and thus contractual and arbitrable. Relying on Central Warehousing Corporation, it was submitted that the commercial lease disputes with public bodies are arbitrable when the lessee is not in an unauthorised possession.
Per contra, the Respondent submitted that once the lease deed expired, the petitioner became an unauthorised occupant. Therefore any dispute regarding possession or eviction fell within the exclusive domain of the Estate Officer under the PP Act. Relying on International Amusement Ltd., it was submitted that tenancy and eviction disputes under the special statutes are not arbitrable.
Findings:
The court at the outset noted that the core dispute between the parties was whether the petitioner had renewal right and whether the respondent's refusal was valid, not an eviction per se. The court further noted that the ITI Limited continued to accept rent even after the expiry of initial terms and the eviction proceedings were stayed by the High Court therefore the Embassy could not be treated as an unauthorised occupant under section 2(g) of the PP Act.
The court held that “the issue involved between the parties is for renewal of the lease period and not touching upon eviction proceedings initiated under the provisions of the PP Act”.
Relying extensively on Central Warehousing Corporation, the court observed that the disputes arising during subsistence of lease such as renewal and enhancement of rent are covered by the arbitration clause whereas disputes arising subsequent to expiry of the lease such as eviction must proceed under the PP Act. The Apex Court in the above case held that “the Public Premises Act authorises ejectment of unauthorised occupants but does not bar arbitration of disputes arising during the subsistence of the lease.”
The court held that “in the instant case, the petitioner-Company is not an unauthorised occupant and further the respondent herein is receiving rents from the petitioner and proceedings initiated by the respondent by causing legal notice dated 12th September, 2025 is stayed by this Court. Hence, I am of the opinion that , as the issue involved between the parties is for renewal of the lease period and same has to be adjudicated by an Arbitrator as per clause 7.7 of the Lease Deed dated 22nd June, 2008, the petition, seeking appointment of Arbitrator deserves to be allowed.”
Accordingly, the present petition was allowed.
Case Title: EMBASSY SERVICES PRIVATE LIMITED Versus ITI LIMITED
Case Number: CIVIL MISCELLANEOUS PETITION NO.303 OF 2025
Order Date: 09/10/2025