Arbitration & Conciliation Act, 1996 – s.8 – Cancellation of written instrument u/s.31, 1963 Act – Arbitrability of – Agreement between appellant and respondent no.2 to develop a portion of the land owned by appellant – Respondent no.2 assigned the execution thereof to respondent no.1 vide another agreement containing arbitration clause – This was followed by a deed of confirmation – Appellant filed suit, alleging fraud by respondent no.3 (representing himself to be authorized partner of respondent no.1), inter alia for declaring the aforesaid agreements to be null and void – Relying on the arbitration clause, respondent no.1 filed application u/s.8 for referring the parties to arbitration – Allowed – Writ petition filed by appellant – Dismissed – On appeal, held: Post amendment, judicial authority before which an action is brought shall, if the other conditions of s.8 are met, refer the parties to arbitration unless it finds that prima facie, no valid arbitration agreement exists – In the present case, a valid arbitration agreement exists as the agreements that are sought to be cancelled are not stated not to have ever been entered into – Also, the suit is inter parties with no “public overtones”, thus the “fraud exception” would not apply in the present case – Further, action u/s.31(1) is strictly an action inter parties or by persons who obtained derivative title from the parties, and is thus in personam – Judgments of the District Court and the High Court need no interference – Specific Relief Act, 1963 – ss.26(1), (3), 27(1), (2)(c), 29, 30, 31(1), (2), 32-35 – Arbitration and Conciliation (Amendment) Act, 2015 – Contract Act, 1872 – s.17 – Arbitration Act, 1940 – s.20.
Specific Relief Act, 1963 – s.31 – Proceedings under, in rem or in personam – Discussed – Arbitration & Conciliation Act, 1996. Dismissing the appeal, the Court
HELD: 1.1 If the subject matter of an agreement between parties falls within section 17 of the Indian Contract Act, 1872, or involves fraud in the performance of the contract which would amount to deceit, being a civil wrong, the subject matter of such agreement would certainly be arbitrable. Merely because a particular transaction may have criminal overtones as well, does not mean that its subject matter becomes non-arbitrable. There is no averment that the agreement dated 20.05.2006 and the deed of confirmation dated 13.07.2006 were not entered into at all, as a result of which the arbitration clause would be non-existent. Further, it is equally clear that the suit is one that is inter parties with no “public overtones”, as a result of which this exception would clearly not apply to the facts of this case. There is a sea change between section 8 of the 1996 Act and section 20 of the Arbitration Act, 1940. Post amendment, it is clear that the judicial authority before which an action is brought shall, if the other conditions of section 8 are met, refer the parties to arbitration unless it finds that prima facie, no valid arbitration agreement exists. In the present case, the finding that is returned is correct – a valid arbitration agreement certainly exists as the agreements that are sought to be cancelled are not stated not to have ever been entered into. [Paras 4, 6][443-G-H; 444-A-B; G-H; 445-A] Avitel Post Studioz Limited & Ors. v. HSBC PI Holding (Mauritius) Ltd., Civil Appeal No. 5145 of 2016 – relied on.
1.2 A perusal of section 26(1) of the Specific Relief Act, 1963 would show that when, through fraud or mutual mistake of parties, a contract or other instrument in writing does not express the real intent of the parties, then either party or his representative in interest may either institute a suit to have the instrument rectified or as defendant, may, in addition to any defence open to him, ask for rectification of the instrument. Importantly, under section 26(3), a party may pray in a rectification suit for specific performance – and if the Court thinks fit, may after rectifying the contract, grant specific performance of the contract. Thus, what is made clear by this section is that the rectification of a contract can be the subject matter of a suit for specific performance, which can be the subject matter of an arbitral proceeding. Under section 27(1) of the Specific Relief Act, 1963, “any party interested” in a contract may sue to have it rescinded and such rescission may be adjudged by the Court in the cases mentioned in clauses (a) and (b) of sub-section (1). Sub-section
(2) of section 27 refers to four exceptions to this rule. Third parties to the contract are not persons who can be said to be “any person interested”, particularly when section 27(2)(c), which refers to third parties, is seen and contrasted with the expression “any person interested” in section 27(1) – under section 27(2)(c), third parties come in as an exception to the rule only when they have acquired rights in good faith, without notice and for value, during the subsistence of the contract between the parties to that contract. Sections 29 and 30 are also important, in that a plaintiff instituting a suit for specific performance may pray in the alternative that if the contract cannot be specifically enforced, it may be rescinded and be delivered up to be cancelled. In addition, on adjudging the rescission of the contract, the Court may require the party to whom such relief is granted to restore, so far as may be, any benefit which he may have received from the other party and to make any compensation to him which justice may require. These two sections would also show that following rescission of a contract, it has to be delivered up to the plaintiff to be cancelled – and all of this can be done in a suit for specific performance. Thus far, therefore, it is clear that an action for rescission of a contract and delivering up of that contract to be cancelled is an action in personam which can be the subject matter of a suit for specific performance, making such rescission and delivering up the contract to be cancelled, the subject matter of arbitration. [Paras 11-13][451-E-H; 752-C-G]
1.3 When it comes to section 31(1), the important expression used by the legislature is “any person against whom a written instrument is void or voidable…”. An instructive judgment of the Full Bench of the Madras High Court reported as Muppudathi Pillai v. Krishnaswami Pillai, AIR 1960 Mad 1 involved the determination of the scope of section 41 of the Specific Relief Act, 1877 (section 33(1) of the 1963 Act is the pari materia provision). This judgment, after referring to section 41, then referred to section 39 of the Specific Relief Act, 1877 (which is the pari materia provision to section 31 of the 1963 Act). A reading of the aforesaid judgment of the Full Bench would make the position in law crystal clear. The expression “any person” does not include a third party, but is restricted to a party to the written instrument or any person who can bind such party. Importantly, relief under section 39 of the Specific Relief Act, 1877 would be granted only in respect of an instrument likely to affect the title of the plaintiff, and not of an instrument executed by a stranger to that title. The expression “any person” in this section has been held by this Court to include a person seeking derivative title from his seller. The principle behind the section is to protect a party or a person having a derivative title to property from such party from a prospective misuse of an instrument against him. A reading of section 31(1) then shows that when a written instrument is adjudged void or voidable, the Court may then order it to be delivered up to the plaintiff and cancelled – in exactly the same way as a suit for rescission of a contract under section 29. Thus far, it is clear that the action under section 31(1) is strictly an action inter parties or by persons who obtained derivative title from the parties, and is thus in personam. [Paras 14, 16][452-G-H; 453-A-B; 456-A-D]
1.4 It is to be seen whether section 31(2) makes any difference to this position in law. According to the judgment in Aliens Developers, the moment a registered instrument is cancelled, the effect being to remove it from a public register, the adjudicatory effect of the Court would make it a judgment in rem. Further, only a competent court is empowered to send the cancellation decree to the officer concerned, to effect such cancellation and “note on the copy of the instrument contained in his books the fact of its cancellation”. Both reasons are incorrect. An action that is started under section 31(1) cannot be said to be in personam when an unregistered instrument is cancelled and in rem when a registered instrument is cancelled. The suit that is filed for cancellation cannot be in personam only for unregistered instruments by virtue of the fact that the decree for cancellation does not involve its being sent to the registration office – a ministerial action which is subsequent to the decree being passed. In fact, in Gopal Das v. Sri Thakurji, AIR 1943 PC 83, a certified copy of a registered instrument, being a receipt dated 29.03.1881 signed by the owner, was held not to be a public record of a private document under section 74(2) of the Indian Evidence Act, 1872 for the reason that the original has to be returned to the party under section 61(2) of the Registration Act, 1908 (see p. 87). Thus, the factum of registration of what is otherwise a private document inter parties does not clothe the document with any higher legal status by virtue of its registration. Also, it must be remembered that the Delhi High Court’s reasoning in Sulochana Uppal that it is the Court alone that can, under the Specific Relief Act, enforce specific performance of an agreement, is contra to the reasoning in Olympus which overruled it, stating that “the dispute or difference which parties to an arbitration agreement agree to refer must consist of justiciable issues triable civilly”. Since specific performance is a justiciable issue triable civilly, obviously, the expression “court” occurring throughout the Specific Relief Act will have to be substituted by “arbitrator” or “arbitral tribunal”. This part of the reasoning in Aliens Developers, in following the same reasoning as an overruled Delhi High Court judgment, would fly in the face of Olympus and would, therefore, not be good law. therefore, the same is overruled. [Paras 17, 18][456E-H; 457-A; 458-E-G]
Aliens Developers Pvt. Ltd. v. M. Janardhan Reddy (2016) 1 ALT 194 (DB) - overruled.
Olympus Superstructures v. Meena Vijay Khetan (1999)
5 SCC 651: [1999] 3 SCR 490 – relied on.
1.5 The proceeding under section 31 is with reference to specific persons and not with reference to all who may be concerned with the property underlying the instrument, or “all the world”. Clearly, the cancellation of the instrument under section 31 is as between the parties to the action and their privies and not against all persons generally, as the instrument that is cancelled is to be delivered to the plaintiff in the cancellation suit. A judgment delivered under section 31 does not bind all persons claiming an interest in the property inconsistent with the judgment, even though pronounced in their absence. A reading of sections 32 and 33 of the Specific Relief Act, 1963 would also show that the reasoning of the High Court in Aliens Developers is flawed. Where, for example, under section 32, an instrument is cancelled in part, the instrument which is otherwise only an instrument inter parties, cannot be said to be an instrument which remains inter parties, the cancelled portion being a cancellation to the world at large, i.e., in rem. Equally, under section 33, when compensation is required to be paid or restoration of benefit which has been received from the other party is required to be made, it is exactly the same as that which is required to be done under a contract which is rescinded and cancelled (see section 30): and it is clear that both sections 30 and 33 would apply only to contracts or instruments which are rescinded/cancelled in personam. When sections 34 and 35 are seen, the position becomes even clearer. Unlike section 31, under section 34, any person entitled to any legal character may institute a suit for a declaration that he is so entitled. Considering that it is possible to argue on a reading of this provision that the legal character so declared may be against the entire world, section 35 follows, making it clear that such declaration is binding only on the parties to the suit and persons claiming through them, respectively. This is for the reason that under section 4 of the Specific Relief Act, specific relief is granted only for the purpose of enforcing individual civil rights. The principle contained in section 4 permeates the entire Act, and it would be most incongruous to say that every other provision of the Specific Relief Act refers to in personam actions, section 31 alone being out of step, i.e., referring to in rem actions. [Paras 20-22][461-G-H; 462-A-G]
1.6 The reasoning in in an instructive judgment of this Court in Suhrid Singh v. Randhir Singh, (2010) 12 SCC 112, in the context of the Court Fees Act, 1870 would again expose the incongruous result of section 31 of the Specific Relief Act being held to be an in rem provision. When it comes to cancellation of a deed by an executant to the document, such person can approach the Court under section 31, but when it comes to cancellation of a deed by a non-executant, the non-executant must approach the Court under section 34 of the Specific Relief Act, 1963. Cancellation of the very same deed, therefore, by a nonexecutant would be an action in personam since a suit has to be filed undersection 34. However, cancellation of the same deed by an executant of the deed, being under section 31, would somehow convert the suit into a suit being in rem. All these anomalies only highlight the impossibility of holding that an action instituted under section 31 of the Specific Relief Act, 1963 is an action in rem. Given this finding of law, it is clear that the judgments of the District Court and the High Court in this case need no interference. [Paras 25, 26][464-B-E]
Ameet Lalchand Shah v. Rishabh Enterprises (2018) 15 SCC 678 : [2018] 6 SCR 1001; Mayavati Trading Pvt. Ltd. v. Pradyut Deb Burman (2019) 8 SCC 714; Emaar MGF Land Ltd. v. Aftab Singh, (2019) 12 SCC 751 : [2018] 14 SCR 791; Mohd. Noorul Hoda v. Bibi
Raifunnisa (1996) 7 SCC 767 : [1995] 6 Suppl. SCR 110; R. Viswanathan v. Rukn-ul-Mulk Syed Abdul Wajid (1963) 3 SCR 22; Satrucharla Vijaya Rama Raju v. Nimmaka Jaya Raju (2006) 1 SCC 212 : [2005] 4
Suppl. SCR 82; Razia Begum v. Sahebzadi Anwar
Begum 1959 SCR 1111; Suhrid Singh v. Randhir Singh (2010) 12 SCC 112 : [2010] 3 SCR 1121 – relied on. Avitel Post Studioz Limited & Ors. v. HSBC PI Holding (Mauritius) Ltd., Civil Appeal No. 5158 of 2016; Swiss Timing Ltd. v. Commonwealth Games 2010 Organising Committee (2014) 6 SCC 677:[2014] 6 SCR 514; N. Radhakrishnan v. Maestro Engineers (2010) 1 SCC 72:[2009] 15 SCR 371; S.B.P. & Co. v. Patel Engg. Ltd. (2005) 8 SCC 618 : [2005] 4 Suppl. SCR 688; Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. (2011) 5 SCC 532 : [2011] 7 SCR 310; Rashid Raza v. Sadaf Akhtar (2019) 8 SCC 710; State of A.P. & Anr. v. T. Suryachandra Rao (2005) 6 SCC 149 : [2005] 1 Suppl. SCR 809 – referred to.
Shravan Goba Mahajan v. Kashiram Devji, ILR (1927)
51 Bom 133; Muppudathi Pillai v. Krishnaswami Pillai AIR 1960 Mad 1 – approved.
Satish Sood v. Gujarat Tele Links Pvt. Ltd. 2014 (1) AIR Bom R 27; Sulochana Uppal v. Surinder Sheel Bhakri AIR 1991 Del 138; Gopal Das v. Sri Thakurji AIR 1943 PC 83; Rekha v. Ratnashree (2006) 1 MP LJ 103 – referred to.
P.Ramanatha Aiyar’s Advanced Law Lexicon (3rd Edn., Wadhwa Nagpur)–referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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