Rental Clause Preserved Civil-Court Option, Karnataka HC Upholds Rejection Of Tenant’s Arbitration Bid

The respondents filed Com.O.S. No. 29/2025 seeking possession of the schedule property or, alternatively, damages, together with arrears of rent and interest.

The defendant sought rejection of the plaint under Order VII Rule 11 of the Code of Civil Procedure and a reference to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996, relying on the dispute-resolution clause in the parties’ agreement.

The clause provided for reference to a sole arbitrator by mutual consent but also stated that the dispute might be resolved through a civil court at the parties’ option.

The trial court dismissed the application, reasoning in part that the defendant had earlier chosen the civil-court forum by instituting O.S. No. 131/2024.

The defendant challenged that order by writ petition.

Section 8 of the Arbitration and Conciliation Act, 1996 requires a reference to arbitration when its statutory conditions are met and a binding arbitration agreement exists; it does not make a permissive contractual arrangement compulsory.

In Wellington Associates Ltd. v. Mr. Kirit Mehta, 2000 (4) SCC 272, the Supreme Court held that a clause offering civil-court adjudication alongside arbitration may make arbitration an alternative requiring consent, rather than an obligatory forum; the clause must be read as a whole to determine whether the parties undertook to arbitrate.

A provision that contemplates a further agreement or consensus to arbitrate does not, by itself, establish a binding arbitration agreement.

The clause expressly permitted resolution either by arbitration, through an arbitrator appointed by mutual consent, or through a civil court at the parties’ option.

Read as a whole, it did not require every dispute to be arbitrated; arbitration was only an available course that the parties could adopt by agreement.

The defendant’s unilateral application could not supply the mutual assent necessary to make arbitration binding on the plaintiffs, whose decision to sue in court was consistent with the alternative expressly preserved by the clause.

The Court found it unnecessary to decide whether the earlier suit independently amounted to an election or waiver, observing that the application failed on the terms of the clause itself.

It dismissed the writ petition and directed that any pending interlocutory applications stand closed.