Case at a Glance
Motilal Oswal took a Mumbai office on leave and licence with an arbitration clause and a 72-month lock-in, and handed back the premises in September 2020, citing COVID-19. The licensors claimed about ₹94.4 lakh for the lock-in period and sought appointment of an arbitrator; the company argued that Section 41 of the Presidency Small Cause Courts Act, 1882 gave the Small Causes Court exclusive jurisdiction. The Supreme Court upheld the Bombay High Court’s appointment of an arbitrator, holding that at the Section 11 stage the court examines only whether an arbitration agreement exists, that Section 41 does not by itself nullify arbitration clauses, and that arbitrability objections are for the arbitrator.
By a Leave and License Agreement of 6 October 2017, the respondents licensed Unit No. 718 in Palm Spring Centre, Malad (West), Mumbai to the appellant; clause 33 provided for arbitration. An addendum of 13 March 2020 extended the term to 96 months with a 72-month lock-in. The appellant says it handed over keys and vacant possession on 9 September 2020, invoking COVID-19 and the force majeure clause, and sought refund of its ₹10 lakh deposit.
On 28 June 2023 the licensors demanded ₹94,40,152 with interest for the lock-in period. They then applied under Section 11 of the Arbitration and Conciliation Act, 1996. The appellant objected that the dispute fell within the exclusive jurisdiction of the Small Causes Court under Section 41 of the 1882 Act, relying on the Bombay High Court Full Bench in Central Warehousing Corporation v. Fortpoint Automotive Pvt. Ltd., (2009) 12 BOM CK 0070 On 2 May 2024 the High Court appointed an arbitrator, who later rejected the appellant’s Section 16 objection; the Supreme Court had stayed the arbitrator’s order pending the appeal.
The Key Question Before the Court
Was the High Court right to appoint an arbitrator under Section 11 for a licensor’s money claim, despite the argument that Section 41 of the Presidency Small Cause Courts Act makes such disputes non-arbitrable?
At the Section 11 Stage, Only the Existence of the Arbitration Agreement Is Examined
Following the seven-judge bench in In Re: Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899, the Court held that its examination under Section 11(6-A) is confined to whether an arbitration agreement exists and is not a laborious or contested inquiry. It noted that Vidya Drolia v. Durga Trading Corporation, (2020) 12 SC CK 0030 had proceeded on the erroneous premise that Section 11(6-A) had been omitted, though that omission was never notified, while accepting from it that creating a specific forum is not, by itself, decisive of non-arbitrability.
The Court distinguished Central Warehousing, where the licensee was still in possession; here possession had been handed back in 2020 and the dispute was about money — the deposit and lock-in arrears. Section 41 of the 1882 Act was described as a jurisdiction-conferring provision that does not, by its own force, nullify arbitration clauses, and Central Warehousing had not considered the exceptions in Section 28 of the Contract Act that save arbitration agreements. Under the competence-competence principle, whether the claim is a ‘debt’ or a licence-fee claim within Section 41 is for the arbitral tribunal under Section 16. The Court expressly made no finding on the correctness of Central Warehousing, which is pending in a separate appeal.
What the Court Actually Held
- At the Section 11 stage, the court examines only the existence of an arbitration agreement, which was not in dispute.
- Section 41 of the Presidency Small Cause Courts Act, 1882 is a jurisdiction-conferring provision and does not by itself nullify the arbitration clause.
- Central Warehousing was distinguished because possession had been handed over and the dispute concerned money; its correctness was left open.
- The appeal was dismissed without costs; the arbitrator was directed to conclude proceedings within six months from 5 January 2026, with all other questions, including Section 41 arbitrability, left open.
Why This Judgment Matters
- Commercial leave and licence agreements in Mumbai often contain arbitration clauses and lock-ins; this ruling allows money claims under them to proceed to arbitration.
- It confirms the narrow scope of the court’s role at the arbitrator-appointment stage after In Re: Interplay.
- It keeps the larger question of Section 41 and arbitrability open for the pending appeal on Central Warehousing.
What Should Advocates Take Away From the Judgment?
For Licensors and Licensees
- If the premises have been handed back, lock-in and deposit disputes under an arbitration clause can go to arbitration.
- Arbitrability objections must be raised before the arbitrator under Section 16.
- Handing back premises early does not by itself end a lock-in claim; the merits remain to be decided.
For Counsel
- Do not expect a mini-trial on arbitrability at the Section 11 stage.
- Distinguish possession disputes from money claims when invoking Section 41.
- Watch the pending appeal on Central Warehousing, which may settle Section 41 arbitrability.
Key Takeaways
- Section 11 review is limited to existence of an arbitration agreement.
- Section 41 of the 1882 Act does not void arbitration clauses by itself.
- Arbitrability goes to the arbitrator under Section 16.
- Arbitration to conclude within six months.
Frequently Asked Questions
Can a lock-in rent dispute under a Mumbai leave and licence agreement go to arbitration?
In this case, yes. Because possession had been returned and the claim was for money, the Court upheld the appointment of an arbitrator and left the Section 41 arbitrability objection for the arbitrator.
Did the Supreme Court overrule Central Warehousing?
No. It distinguished it on facts and made no finding on its correctness, which is pending in a separate appeal.
Did the Court decide whether the licensee must pay the lock-in amount?
No. All questions other than the Section 11(6-A) issue were left open for the arbitrator.
Conclusion
Motilal Oswal, (2026) 01 SC CK 1822 applies the post-Interplay minimal-review approach to a common Mumbai commercial dispute, sending the licensors’ money claim to the arbitrator and leaving arbitrability and merits to be decided there.
Practical takeaway: In leave and licence disputes with an arbitration clause, raise Small Causes Court jurisdiction objections before the arbitrator under Section 16 rather than expecting the court to decide them at the appointment stage.
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