DECCAN PAPER MILLS CO. LTD. versus REGENCY MAHAVIR PROPERTIES & ORS.
[2020] 13 S.C.R. 427, Supreme Court of India, 2020
Outcome: Dismissed (Dismissed)
Segment: Ratio
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   [2020] 13 S.C.R. 427
DECCAN PAPER MILLS CO. LTD.
v.
REGENCY MAHAVIR PROPERTIES & ORS.
(Civil Appeal No. 5147 of 2016)
AUGUST 19, 2020
[R. F. NARIMAN, NAVIN SINHA AND
INDIRA BANERJEE, JJ.]
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.
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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
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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
DECCAN PAPER MILLS CO. LTD. v. REGENCY MAHAVIR
PROPERTIES & ORS.
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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
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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][456-
E-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
DECCAN PAPER MILLS CO. LTD. v. REGENCY MAHAVIR
PROPERTIES & ORS.
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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]
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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 non-
executant 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;
DECCAN PAPER MILLS CO. LTD. v. REGENCY MAHAVIR
PROPERTIES & ORS.
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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.
Case Law Reference
[2014] 6 SCR 514  
referred to
Para  (1) (vi)
[2009] 15  SCR 371
referred to
Para  (1) (vi)
[2005] 4   Suppl.  SCR 688
referred to
Para  2  
[2011] 7  SCR 310 
referred to
Para  2
(2019) 8 SCC 710
referred to
Para  3
[2005] 1   Suppl.  SCR 809
referred to
Para 5
[2018] 6  SCR 1001
relied on
Para  6
(2019) 8 SCC 714
relied on
Para 6
[2018] 14 SCR 791 
relied on
Para  6
[1999]  3 SCR  490  
relied on
Para 8
[1995]  6  Suppl.  SCR  110
relied on
Para  16
[1963] 3 SCR 22
relied on
Para 20
[2005] 4  Suppl.  SCR 82
relied on
Para 20
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1959 SCR 1111
relied on
Para 23
[2010] 3 SCR 1121
relied on
Para 24
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5147
of 2016.
From the Judgment and Order dated 18.03.2015 of the High Court
of Judicature at Bombay in Writ Petition No. 7838 of 2011.
Vinay Navare, Sr. Adv., Mrs. Meena Doshi, Nikhil Swami, Ms.
Divya Swami, Mrs. Prabha Swami, Ms. Abha R. Sharma, Ms. Jasmine
Damkewala, Sriniwas Joshi, Ms. Vaishali Sharma, Advs. for the appearing
parties.
The Judgment of the Court was delivered by
R. F. NARIMAN, J.
1. The hearing in this appeal followed in the wake of the hearing
in Civil Appeal Nos. 5145 of 2016, 5158 of 2016, and 9820 of 2016. The
brief facts necessary to appreciate the controversy in this appeal are as
follows:
i. By an agreement dated 22.07.2004 between the Appellant,
Deccan Paper Mills Co. Ltd. [hereinafter referred to as “Deccan”] and
the Respondent No. 2 company, M/s Ashray Premises Pvt. Ltd.
[hereinafter referred to as “Ashray”], Deccan, being the owner of
approximately 80,200 sq. meters of land bearing Survey Nos. 96B, 96C,
and 96D at village Mundhwa, District Pune, decided to develop a portion
of the said land, i.e., 32,659 sq. meters. It is not necessary to enter into
the nitty-gritty of the said agreement. However, it is enough to note that
this agreement contained clause 7(m), in which it is stated :
“7. The Owner and the Developer hereto covenant that upon the
execution of these presents:
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m. The Owner shall have no
objection if at any stage during the
continuance of this agreement the Developer assigns, delegates
the rights, under this agreement or the Power of Attorney/writings
executed in furtherance hereof to any other person, firm or party
without violating or disturbing any of the terms and conditions of
this agreement.”
DECCAN PAPER MILLS CO. LTD. v. REGENCY MAHAVIR
PROPERTIES & ORS.
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ii. This agreement did not contain any arbitration clause. Pursuant
to clause 7(m), on 20.05.2006, an agreement was entered into between
Respondent No. 2 – Ashray, and Respondent No.1 – Regency Mahavir
Properties, a partnership firm [hereinafter referred to as “Regency”],
by which Ashray assigned the execution of the agreement dated
22.07.2004 to Regency. The aforesaid agreement contained an arbitration
clause, which is set out as follows:
“14. If during the continuance of the said Agreement/these presents
or at any time afterwards any difference shall arise between the
parties herein and the heirs, executors or administrators of the
other of them or between their respective heirs, executors or
administrators in regard to the construction of any of the articles
herein contained or to any division (..illegible) thing to be made or
done in pursuance hereto or to any other matter or thing relating
to the said Agreement/these presents the same shall be forthwith
referred to one arbitrator if the parties agree or otherwise to two
arbitrators, one to be appointed by each party to the reference or
to an Umpire to be chosen by the Arbiters before entering upon
the reference and every such reference shall be deemed to be an
Arbitration in accordance with and subject to the provisions of
The Arbitration & Conciliation Act, 1996 or any statutory
modification or re-enactment thereof for the time being in force.”
iii. A deed of
confirmation dated 13.07.2006 followed, by which it
was stated that this deed was to be treated as part of the 20.05.2006
agreement, in which the assignment by Ashray to Regency was
reaffirmed. According to Deccan, a fraud had been played by one Mr.
Atul Chordia, Respondent No.3 herein (Defendant No. 3 in the suit filed
by Deccan), which is pleaded in Special Civil Suit No. 1400 of 2010,
which was filed on 13.07.2010, as follows:
“6. In the year 2006 or thereabout, the Defendant No.3
approached directors of the Plaintiff Company and represented
to them that for diverse reasons, he intends to develop the said
property through a partnership firm by name Regency Mahavir
Properties. The Defendant No.3 further assured Plaintiff Company
that he will be one of the leading partners of the said M/s Regency
Mahavir Properties i.e. the Defendant No.1 and the development
of the said property and the same shall be carried out as quickly
as possible. The directors of Plaintiff Company, relying on the
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strength of assurance given by Mr. Atul Chordia agreed to be
joined a Consenting Party to a formal agreement of assignment to
be executed between Defendant No.1 and Defendant No.2.It is
pertinent to note that Defendant No.3 holding out to be an
authorized partner of Defendant No.1 has signed the said
agreement. The directors of Plaintiff Company under a bonafide
belief that the said agreement of assignment was formal and
Defendant No.3 will be responsible for development of the said
property. Now directors of Plaintiff Company realize that
Defendant No. 3 had different intentions.”
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“8. Recently, the director of Plaintiff Company approached Mr.
Dilip R. Jain, one of the partners of Defendant No. 1. Directors
of Plaintiff Company inquired with Mr. Jain about the delay in
progress of construction and informed Mr. Jain that they will hold
Defendant No.3 responsible for the deal. Mr. Jain, to the shock
and surprise of directors of Plaintiff Company informed them that
Mr. Chordia was no more responsible for development of the said
property, since he has assigned development rights in respect
thereof, way back in the year 2006 itself. Directors of Plaintiff
Company took the said shock and approached Defendant No.3
and inquired with him about the aforesaid state of affairs. The
Defendant No.3 avoided giving any explanation. The Directors
of Plaintiff Company, took a search in the office of Registrar of
Firms and for the first time came to know that
the Defendant
No.3 had opted to retire from business of Defendant No.1 with
effect from 30.05.2006. It is pertinent to note that the Defendant
No. 3 representing himself to be authorized partner of Defendant
No.1 has signed deed of Confirmation dated 13.07.2006, confirming
the terms and conditions of agreement dated 20.05.2006, executed
between Defendant No.1 and 2 in respect of development of the
suit property.
9. As stated earlier, Directors of Plaintiff Company have granted
development rights in respect of the said property to Defendant
No.2, only because Defendant No.3 was its leading Director. The
Plaintiff Company has joined the agreement of assignment dated
20.05.2006 and Deed of Confirmation dated 13.07.2006 executed
by Defendant No.2 in favour of Defendant No.1 with
DECCAN PAPER MILLS CO. LTD. v. REGENCY MAHAVIR
PROPERTIES & ORS. [R.F. NARIMAN, J.]
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understanding that Defendant No.3 was its partner. Directors of
Plaintiff Company therefore say that Defendant No.1 in collusion
with Defendant No.2 and in active concealment of material fact,
by misrepresenting Plaintiff Company and by practicing fraud upon
the Plaintiff Company have obtained consent of Plaintiff Company
on the agreement of assignment and Deed of Confirmation.
Directors of Plaintiff Company therefore say that said agreement
of assignment and Deed of Confirmation being tainted with fraud
are ab initio null and void and not binding on Plaintiff Company.
Since the Plaintiff Company has recently come to know the
aforesaid fraud, they have decided to inform the Defendant that
the agreement dated 20.05.2006 and the Deed of Confirmation
dated 13.07.2006 in respect of the said property are not binding
upon the Plaintiff Company and hence Defendant No.1 has no
legal right to continue with further development of the said property.
10. Directors of Plaintiff Company, from reliable sources, have
come to know that Defendant No.1 has no intention to develop
the said property, further and hence Defendant No.1, again in
collusion with Defendant No.3 is negotiating to transfer/assign
development rights in respect of the said property to third person.
Since the agreement of assignment dated 20.05.2006 and Deed
of Confirmation dated 13.07.2006 are illegal and void, Defendant
No.1 has no right to deal with the suit
property. Inspite of such
position, if Defendant No.1 attempts to transfer such rights, the
same shall be illegal and in any case shall not be binding upon
Plaintiff Company.”
As a result of the fraud played, it was then stated:
“12. The cause of action for this suit first arose on or about
22.07.2004 when the Defendant No.1 obtained agreement for
development of the suit property, it further arose when the
Defendant No.1 and 2 obtained agreement of assignment dated
20.05.2006 and Deed of Confirmation dated 17.07.2006. It further
arose, in the month of April/May 2010, when the Plaintiff for the
first time came to know that the Defendant No.3 is no more partner
of the Defendant No.1 and that the Defendants have committed
fraud upon the Plaintiff. The cause of action also arose, when the
Defendants failed to comply with the demands made in notice
dated 10.07.2010.
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13. The present suit, being suit for declaration and cancellation, is
properly valued as per the provisions of Section 6(4)(h-a) of
Bombay Court Fee Act, 1959 and maximum court fee of
Rs.3,00,000/- is paid.
14. The suit property is situated at Pune. The cause of action for
the present suit has arisen at Pune and therefore this Honourable
Court has got jurisdiction to entertain, try and decide this suit.
15. It is therefore prayed that:
A. It be declared that the Agreement dated 22.07.2004 and
Agreement dated 20.05.2006 and Deed of Confirmation dated
13.07.2006 are obtained by fraud and hence they are ab initio
null, void and not binding upon the Plaintiff.
B. It be declared that the Agreement dated 22.07.2004 and
Agreement dated 20.05.2006 and Deed of Confirmation dated
13.07.2006 are illegal.
C. The Defendants, by order of mandatory injunction directed
to execute and register Deed of Cancellation of Agreement
dated 22.07.2004 and Agreement dated 20.05.2006 and Deed
of Confirmation dated 13.07.2006.
D. The Defendants may be restrained by an order of perpetual
injunction from carrying out any further development activity
in the said property or to enter the same or remain therein,
either by themselves or through any person claiming through
it, or to create any third party interests therein or to deal with
the same in any manner whatsoever.
E. Interim orders in terms of Clause C above may be passed.
F. Costs of the suit may be awarded to the Plaintiff from
the
Defendants.
G. Any other just and other equitable orders in the interest of
justice may be pleased to be passed.”
It is important to note that Defendant No. 3 did not file any written
statement in the said suit.
iv. Almost immediately thereafter, by an application dated
19.07.2010 under section 8 of the Arbitration and Conciliation Act, 1996
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[hereinafter referred to as the “1996 Act”] on behalf of Regency, the
arbitration clause in the agreement dated 20.05.2006 was set out and
the Civil Judge (Senior Division), Pune was asked to refer the parties to
arbitration. The reply to the said application on behalf of the plaintiff,
Deccan, stated:
“2. The averments in para 1 of the application to the extent of
reproduction of clause No.14 of agreement dated 20.05.2006,
being matter of record are not disputed for the purpose of this
reply. The plaintiff shall rely upon and explain the true effect and
interpretation of the said clause at the proper time. It is pertinent
to note Defendant Nos.1 and 2 have avoided to make any
comment with regard to merits of their defense.
3. It is submitted that while considering the application u/s 8 of
Arbitration and Conciliation Act, 1996, the court has to consider
an issue that whether there exists any Arbitration Agreement
between the parties. Such right is certainly vested in Civil Court.
The Plaintiff is challenging the legality of agreement dated
20.05.2006 on the ground that the same is obtained by fraud and
is therefore seeking further declaration that the said agreement is
null and ab initio void. As such, the very Arbitration clause as
contained in the said agreement is not enforceable. In spite of the
fact that Section 16 of the said Act empowers the Arbitral Tribunal
to decide its own jurisdiction in view of
particular circumstances
narrated in the plaint, the present application deserves to be
rejected.”
v. By a judgment dated 19.07.2011, the Additional Judge, Small
Causes Court, Pune, after hearing both sides, held as follows:
“11.After perusing the above mentioned cited cases, it shows that
when there is a clause of arbitration it is mandated on the Civil
Court to refer the dispute and parties for arbitration as per
agreement. In present case the plaintiffs have materially contention
about playing fraud by Defendant No.3 but there is no any contents
in agreement as alleged by plaintiff in plaint about keeping faith
on Defendant No.3. It shows about signing by Defendant No.3
for agreement dated 20.05.2006 and he was also party to said
agreement. The plaintiff alleged about playing fraud after resigning
by Defendant No.3 from partnership firm of Defendant No.1 and
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signing the confirmation deed dated 13.07.2006 but as per
Partnership Act remedy is provided. Moreover, from the
documents, it shows that the confirmation deed dated 13.07.2007
was executed by Defendant No.3 as Authorized Partner of M/s
Regency Mahavir Properties and another partner Dilip Jain. The
fraud alleged by the plaintiff is in respect of the documents for
which the remedy is also provided. After considering the arbitration
clause I find that the application is to be allowed and the disputes
have to be referred for arbitration. Hence, I pass the following
order:
1)
Application is allowed.
2)
The plaintiff is directed to get the alleged dispute resolved
through the process of arbitration by referring the
plaintiff to invoke the process of arbitration as per the
arbitration clause 14 mentioned in the agreement dated
20.05.2006.”
Finding thus, the learned Judge referred the parties to arbitration.
vi. A writ petition filed by Deccan in the Bombay High Court was
then disposed of by the impugned judgment dated 18.03.2015, in which it
was held, following the judgment of the Single Judge inSwiss Timing
Ltd. v. Commonwealth Games 2010 Organising Committee,
(2014) 6 SCC 677 [hereinafter referred to as “Swiss Timing”] that
the decision in N. Radhakrishnan v. Maestro Engineers, (2010) 1
SCC 72[hereinafter referred to as “N. Radhakrishnan”] being per
incuriam, it would not be possible to follow the same, as a result of
which the “fraud exception” was rejected.
It was then held that there is
no conflict between the Division Bench judgment in Avitel Post Studioz
Limited & Ors. v. HSBC PI Holding (Mauritius) Ltd., Appeal
No. 196 of 2014  in Arbitration Petition No. 1062 of 2012(which is
the judgment under appeal in Civil Appeal Nos. 5145 and 5158 of 2016)
and another judgment in Satish Sood v. Gujarat Tele Links Pvt. Ltd.,
2014 (1) AIR Bom R 27 [hereinafter referred to as “Satish Sood”].
The Court felt that it would not be possible to follow the decision of the
Division Bench in the case of Satish Sood (supra) as it was rendered
prior to the judgment of the learned Single Judge of the Supreme Court
in Swiss Timing (supra). This being so, the writ petition was then
dismissed, with the result that the parties stood referred to arbitration.
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2. Smt. Meena Doshi, learned advocate appearing on behalf of
the Appellant, has taken us through the record and argued on the basis
of N. Radhakrishnan (supra) that when it comes to serious allegations
of fraud, an arbitrator’s jurisdiction gets ousted and reading the pleadings
in the Special Civil Suit, it is obvious that serious allegations of fraud
being raised in the present case, the dispute is thus rendered non-
arbitrable. She then referred to section 8 of the 1996 Act, as amended
by the Arbitration and Conciliation (Amendment) Act, 2015 [hereinafter
referred to as the “2015 Amendment Act”] to further argue that both
the District Judge as well as the High Court did not look into the
requirements of the amended section 8, and that the aforesaid judgments
are infirm on this count alone. She also argued, basing herself on the
seven-Judge Bench judgment in S.B.P. & Co. v. Patel Engg. Ltd.,
(2005) 8 SCC 618 that the correct application of section 8 is not a
mere mechanical incantation of the section, the Court having to apply its
mind as to whether there exists an arbitration agreement at all, which
would include whether the subject matter of the proceeding is at all
arbitrable. She also argued that the original agreement between Deccan
and Ashray did not contain an arbitration clause, and since the suit was
to set aside that agreement as well, the dispute could not be decided
piecemeal, and on this ground also,
ought not to have been referred to
arbitration. She then relied heavily upon section 31 of the Specific Relief
Act, 1963 and stated that a reading of the plaint and the prayers in the
suit would show that the suit is one for cancellation of three “written
instruments”. This being so, and the proceeding under section 31 being a
proceeding in rem, would fall within one of the exceptions made out in
Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5
SCC 532 [hereinafter referred to as “Booz Allen”]. For this purpose,
she relied heavily upon a judgment of the High Court of Judicature at
Hyderabad for Telangana and Andhra Pradesh in Aliens Developers
Pvt. Ltd. v. M. Janardhan Reddy, (2016) 1 ALT 194 (DB)
[hereinafter referred to as “Aliens Developers”].  On all these grounds,
therefore, the cryptic judgment of the Bombay High Court ought to be
set aside and the suit should be set down for hearing, to be disposed of
within a short timeframe.
3. Shri Vinay Navre, learned Senior Advocate appearing on behalf
of Respondent No.1, referred us to the case law on the “fraud exception”
and stated that after the judgment in Rashid Raza v. Sadaf Akhtar,
(2019) 8 SCC 710 (see paragraph 4), this exception would only apply
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if it can be stated that the agreement itself was never executed, in which
case the arbitration clause itself would fall, but not otherwise. Also, since
there are no public ramifications in the present proceeding, and in
particular, no ramifications of a criminal nature, neither of the conditions
precedent for the application of the “fraud exception” being present in
this case, it is clear that the judgments of the Courts below were correct
in law.  When it came to section 31 of the Specific Relief Act, Shri
Navre stated that a correct reading of the section would show that the
Court’s jurisdiction, being discretionary and for the benefit of the party
interested in setting aside a written instrument, the proceeding would
have to be considered to be one in personam. According to him, the
judgment in Aliens Developers (supra) does not lay down the law
correctly and should be overruled by us. In answer to the argument that
the agreement dated 22.07.2004, which did not contain an arbitration
clause, was also sought to be cancelled in the suit, he argued that this
was inserted only in the prayer clause in order to camouflage the suit so
as to get out of arbitration. If the body of the suit were to be seen, it is
clear that what was sought to be impugned was only the latter two
agreements, the first being of historical significance only. This being the
case, it is clear that the dispute is arbitrable.  Further, all that is to be
seen under section 8 of the 1996
Act after its amendment is that prima
facie,a valid arbitration agreement exists. Here, as a matter of fact, it
was admitted, according to Shri Navre, in the affidavit filed in reply to
the section 8 application that the agreement between the parties did
exist, but was vitiated on account of fraud, which only made it voidable.
4. We have, in our judgment in Avitel Post Studioz Limited &
Ors. v. HSBC PI Holding (Mauritius) Ltd.,Civil Appeal No. 5145
of 2016,laid down the law on invocation of the “fraud exception” in
some detail, which reasoning we adopt and follow. The said judgment
indicates that given the case law since N. Radhakrishnan (supra), it is
clear that N. Radhakrishnan (supra), as a precedent, has no legs to
stand on. 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, as has been held in the aforesaid
judgment, which would amount to deceit, being a civil wrong, the subject
matter of such agreement would certainly be arbitrable. Further, we
have also held that merely because a particular transaction may have
criminal overtones as well, does not mean that its subject matter becomes
non-arbitrable. We have no doubt that Shri Navre is right in his submission
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that 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 has been understood in paragraph 14 of Avitel (supra),
as a result of which this exception would clearly not apply to the facts of
this case.
5. Smt. Doshi then cited State of A.P. & Anr. v. T. Suryachandra
Rao, (2005) 6 SCC 149 and read paragraphs 8 to 16 of the judgment
to impress upon us that fraud vitiates every solemn act and that a
conspiracy with a view to deprive the rights of others in relation to a
property would render the transaction void ab initio. This case arose
out of an order of the Land Reforms Tribunal which held against the
respondent, stating that they had fraudulently taken advantage of the
ceiling limit under the Andhra Pradesh Land Reforms (Ceiling on
Agricultural Holdings) Act, 1973 by suppression of facts. In this case,
the Tribunal reopened the matter when it found that the land which was
surrendered had already been acquired in proceedings under the Land
Acquisition Act, 1898. The question was whether the Tribunal was
justified in modifying the earlier order and leaving out such land. It was
held, by a concurrent finding of fact, that the Tribunal was capable of so
varying the order. It
was in this backdrop that the general observations
on fraud were made. This case has no relevance to the exact issue
before this Court.
6. We are also inclined to accept Shri Navre’s argument on section
8 of the 1996 Act, in view of some of the recent judgments on section 8
after the 2015 Amendment Act. (SeeAmeet Lalchand Shah v. Rishabh
Enterprises, (2018) 15 SCC 678 at pp. 698-700,Mayavati Trading
Pvt. Ltd. v. Pradyut Deb Burman, (2019) 8 SCC 714 at pp. 724-
725, and Emaar MGF Land Ltd. v. Aftab Singh, (2019) 12 SCC
751at pp. 779-783). It is enough to state that there is a sea change
between section 8 of the 1996 Act and section 20 of the Arbitration Act,
1940, as has been held in paragraph 9 of Avitel Post Studioz Limited
& Ors. v. HSBC PI Holding (Mauritius) Ltd.,Civil Appeal No.
5145 of 2016. 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. As has been held hereinabove, in
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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.
7. This brings us to the interesting argument on behalf of Smt.
Doshi as to the applicability of section 31 of the Specific Relief Act and
the High Court’s judgment in Aliens Developers (supra) relied upon
by her. section 31 of the Specific Relief Act states as follows:
“31. When cancellation may be ordered.
(1) Any person against whom a written instrument is void or
voidable, and who has reasonable apprehension that such
instrument, if left outstanding may cause him serious injury, may
sue to have it adjudged void or voidable; and the court may, in its
discretion, so adjudge it and order it to be delivered up and
cancelled.
(2) If the instrument has been registered under the Indian
Registration Act, 1908 (16 of 1908), the court shall also send a
copy of its decree to the officer in whose office the instrument
has been so registered; and such officer shall note on the copy of
the instrument contained in his books the fact of its cancellation.”
Referring to section 31, a Division Bench of the High Court in
Aliens Developers (supra) held:
“14. ...Under Section 31(2) of the Specific Relief Act, Legislature
conferred the power on Courts to send a copy of the cancellation
decree to the officer in whose office the instrument has been so
registered and such
officer shall note on the copy of the instrument
contained in his books, the fact of its cancellation. It is evident
from the provision under Section 31(2) that the power of nullifying
the effect of registration is conferred only on the Court. In the
judgment in Booz Allens case (supra), the Hon’ble Supreme Court
has held that a right in rem is a right exercisable against the world
at large, as contrasted from a right in personam which is an interest
protected solely against specific individuals and actions in personam
refer to actions determining the rights and interests of the parties
themselves in the subject matter of the case, whereas, actions in
rem refer to actions determining the title to property and the rights
of the parties, not merely among themselves but also against all
persons at any time claiming an interest in that property. In the
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said judgment, it is clearly held that if the adjudicatory effect of
the Court is a judgment in rem, only public fora i.e. Courts and
Tribunals have to adjudicate such disputes, but not the Arbitral
Tribunals as agreed by the parties. As much as the Development
Agreement-cum-Irrevocable Power of Attorney is a registered
one and is relating to title of the property, any cancellation will
affect the removal of rights accrued to the parties, such cancellation
is to be communicated to the officer who has registered the
document, in view of the provision under Section 31(2) of the
Specific Relief Act. Therefore, we are of the considered view
that such adjudicatory function in cases like this will operate in
rem. In any event, having regard to the power conferred on Courts
by virtue of the provision under Section 31(2) of the Specific Relief
Act, only a competent Court is empowered to send the cancellation
decree, to the officer concerned, to effect such cancellation and
note in his books to that effect. When such Statutory power is
conferred on Courts, such power cannot be exercised by the
Arbitrator, in spite of the fact that there is an arbitration clause in
the agreement entered between the parties…”
8. It is now for us to examine whether a further exception can be
carved out based upon Booz Allen (supra) on the footing of the High
Court’s judgment in Aliens Developers (supra). In order to examine
the correctness of
Aliens Developers (supra), it is necessary to set
out certain sections of the Specific Relief Act. The relevant sections are
set out hereinbelow:
“4. Specific relief to be granted only for enforcing individual
civil rights and not for enforcing penal laws.—Specific relief
can be granted only for the purpose of enforcing individual civil
rights and not for the mere purpose of enforcing a penal law.”
xxx xxx xxx
“26. When instrument may be rectified.—(1) When, through
fraud or a mutual mistake of the parties, a contract or other
instrument in writing [not being the articles of association of a
company to which the Companies Act, 1956 (1 of 1956), applies]
does not express their real intention, then
(a)
either party or his representative in interest may institute
a suit to have the instrument rectified; or
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(b)
the plaintiff may, in any suit in which any right arising
under the instrument is in issue, claim in his pleading
that the instrument be rectified; or
(c)
a defendant in any such suit as is referred to in clause
(b), may, in addition to any other defence open to him,
ask for rectification of the instrument.
(2) If, in any suit in which a contract or other instrument is sought
to be rectified under sub-section (1), the court finds that the
instrument, through fraud or mistake, does not express the real
intention of the parties, the court may, in its discretion, direct
rectification of the instrument so as to express that intention, so
far as this can be done without prejudice to rights acquired by
third persons in good faith and for value.
(3) A contract in writing may first be rectified, and then if the
party claiming rectification has so prayed in his pleading and the
court thinks fit, may be specifically enforced.
(4) No relief for the rectification of an instrument shall be granted
to any party under this section unless it has been specifically
claimed: Provided that where a party has not claimed any such
relief in his pleading, the court shall, at any stage of the proceeding,
allow him to amend the pleading on such terms as may be just for
including such claim.
27. When rescission may be adjudged or refused.—(1) Any
person interested in a contract may sue to have it rescinded, and
such rescission may be adjudged by the court in any of the
following
cases, namely:
(a)
where the contract is voidable or terminable by the
plaintiff;
(b)
where the contract is unlawful for causes not apparent
on its face and the defendant is more to blame than the
plaintiff.
(2) Notwithstanding anything contained in sub-section (1), the court
may refuse to rescind the contract
(a)
where the plaintiff has expressly or impliedly ratified
the contract; or
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(b)
where, owing to the change of circumstances which
has taken place since the making of the contract (not
being due to any act of the defendant himself), the
parties cannot be substantially restored to the position
in which they stood when the contract was made; or
(c)
where third parties have, during the subsistence of the
contract, acquired rights in good faith without notice
and for value; or
(d)
where only a part of the contract is sought to be
rescinded and such part is not severable from the rest
of the contract.
Explanation.—In this section “contract” in relation to the territories
to which the Transfer of Property Act, 1882 (4 of 1882), does not
extend, means a contract in writing.”
xxx xxx xxx
“29. Alternative prayer for rescission in suit for specific
performance.—A plaintiff instituting a suit for the specific
performance of a contract in writing may pray in the alternative
that, if the contract cannot be specifically enforced, it may be
rescinded and delivered up to be cancelled; and the court, if it
refuses to enforce the contract specifically, may direct it to be
rescinded and delivered up accordingly.
30. Court may require parties rescinding to do equity.—On
adjudging the rescission of a 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.”
xxx xxx xxx
“32. What instruments may be partially cancelled.—Where
an instrument is evidence of different rights or different obligations,
the court may, in a proper case, cancel it in part and allow it to
stand for the residue.
33. Power to require benefit to be restored or compensation
to be made when instrument is cancelled or is successfully
resisted as being void or voidable.—
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(1) On adjudging the cancellation of an instrument, 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.
(2) Where a defendant successfully resists any suit on the ground—
(a)
that the instrument sought to be enforced against him in
the suit is voidable, the court may if the defendant has
received any benefit under the instrument from the other
party, require him to restore, so far as may be, such
benefit to that party or to make compensation for it;
(b)
that the agreement sought to be enforced against him in
the suit is void by reason of his not having been competent
to contract under section 11 of the Indian Contract Act,
1872 (9 of 1872), the court may, if the defendant has
received any benefit under the agreement from the other
party, require him to restore, so far as may be, such
benefit to that party, to the extent to which he or his
estate has benefited thereby.
34. Discretion of court as to declaration of status or right.—
Any person entitled to any legal character, or to any right as to
any property, may institute a suit against any person denying, or
interested to deny, his title to such character or right, and the
court may in its discretion make therein a declaration that he is so
entitled, and the plaintiff need not in such suit ask for any further
relief:
Provided that no court
shall make any such declaration where the
plaintiff, being able to seek further relief than a mere declaration
of title, omits to do so.
Explanation.—A trustee of property is a “person interested to
deny” a title adverse to the title of someone who is not inexistence,
and for whom, if in existence, he would be a trustee.
35. Effect of declaration.—A declaration made under this
Chapter is binding only on the parties to the suit, persons claiming
through them respectively, and, where any of the parties are
trustees, on the persons for whom, if in existence at the date of
the declaration, such parties would be trustees.”
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The very sheet anchor of Smt. Doshi’s case, namely, the judgment
in Booz Allen (supra), refers to the judgment of this Court in Olympus
Superstructures v. Meena Vijay Khetan, (1999) 5 SCC 651
[hereinafter referred to as “Olympus”], in which it was held that an
arbitrator has the power and jurisdiction to grant specific performance
of contracts relating to immovable property (see paragraphs 43 and 44).
9. A perusal of the judgment in Olympus (supra) would show
that this Court was faced with differing views taken by the High Courts
as to whether specific performance of a contract relating to immovable
property is at all arbitrable. The Delhi High Court in Sulochana Uppal
v. Surinder Sheel Bhakri, AIR 1991 Del 138 [hereinafter referred
to as “Sulochana Uppal”] had held that specific performance of an
agreement could not be granted by an arbitrator for the reason that:
“15. An agreement to refer a dispute to arbitration, the effect of
which would be to have an award directing specific performance
of an agreement to sell, would have for its object to defeat the
provisions of the Specific Relief Act, especially sections 10 and
20 thereof. It is clearly intended by the aforesaid provisions that it
is only courts, and courts alone who would have jurisdiction to
grant or refuse specific performance.”
The learned Single Judge thus disagreed with the contrary view
of the Bombay High Court and the Punjab High Court.1
10. It is
important to note that this Court referred to all the aforesaid
three judgments, including a judgment of the Calcutta High Court.  In
arriving at the conclusion that the Punjab, Bombay, and Calcutta High
Courts’ view is the correct one and that the Delhi High Court’s view,
being incorrect, is overruled, this Court referred to an important passage
in Halsbury’s Laws of England  as follows :
“35. It is stated in Halsbury’s Laws of England, 4th Edn.,
(Arbitration, Vol. 2, para 503) as follows:
“503. Nature of the dispute or difference.—The dispute or
difference which the parties to an arbitration agreement agree
to refer must consist of a justiciable issue triable civilly. A fair
1 This Court in Olympus Superstructures v. Meena Vijay Khetan, (1999) 5 SCC
651  wrongly refers to the Delhi High Court’s judgment as being the judgment in
“P.N.B. Finance Ltd. v. Shital Prasad Jain, AIR 1991 Del 13" (see paragraph 33).
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test of this is whether the difference can be compromised
lawfully by way of accord and satisfaction (Cf. Bac Abr
Arbitrament and Award A).”
36. Further, as pointed out in the Calcutta case [ Apo 498 of
1997 & Apo 449 of (401) dated 27-1-1998 (Cal)] merely because
there is need for exercise of discretion in case of specific
performance, it cannot be said that only the civil court can exercise
such a discretion. In the above case, Ms Ruma Pal, J. observed:
“… merely because the sections of the Specific Relief Act
confer discretion on courts to grant specific performance of a
contract does not mean that parties cannot agree that the
discretion will be exercised by a forum of their choice. If the
converse were true, then whenever a relief is dependent upon
the exercise of discretion of a court by statute e.g. the grant of
interest or costs, parties could be precluded from referring the
dispute to arbitration.”
We agree with this reasoning. We hold on Point 3 that disputes
relating to specific performance of a contract can be referred to
arbitration and Section 34(2)(b)(i) is not attracted. We overrule
the view of the Delhi High Court. Point 3 is decided in favour of
the respondents.”
11. 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, as we have
already seen, can be the subject matter of an arbitral proceeding.
12. 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
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four exceptions to this rule. In Shravan Goba Mahajan v. Kashiram
Devji, ILR (1927) 51 Bom 133, a Division Bench of the Bombay
High Court, with regard to section 35 of the Specific Relief Act, 1877
(which is the pari materia provision to section 27 of the 1963 Act) held
that an heir is a person interested in the contract which is sought to be
set aside, thus, making it clear that the expression “any person interested”
would include not just a party to the contract, but persons who may be
heirs of one of the parties to the contract. A reading of this section
would also show that all such actions in which a contract or instrument
may be rectified or rescinded, no judgment in rem follows, as what is
sought to be rectified or rescinded is by the parties to the contract or
persons who may be their heirs or legal representatives. 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.
13. 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.
14. 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
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Pillai, AIR 1960 Mad 1 involved the determinationof 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). The
Court then went on to notice the distinction between section 35 (which
is the pari materia provision to section 27 of the 1963 Act) and section
39 of the Specific Relief Act, 1877 as follows:
“11. ...It may be noticed that the above section applies not merely
to the case of an instrument which is voidable but also one that is
void. S. 35 provides for the case of rescission of voidable contracts.
It is evident that S. 39 covers not only a case contemplated under
S. 35, but also a wider field, that is, a case of a void document,
which under the law need not be set aside.”
15. In an extremely important paragraph, the Full Bench then set
out the principle behind section 39(1) of the Specific Relief Act, 1877 as
follows:
“12.The principle is that such document though not necessary to
be set aside may, if left outstanding, be a source of potential
mischief. The jurisdiction under S. 39 is, therefore, a protective or
a preventive one. It is not confined to a case of fraud, mistake,
undue influence etc. and as it has been stated it was to prevent a
document to remain as a menace and danger to the party against
whom
under different circumstances it might have operated. A
party against whom a claim under a document might be made is
not bound to wait till the document is used against him. If that
were so he might be in a disadvantageous position if the impugned
document is sought to be used after the evidence attending its
execution has disappeared. Section 39 embodies the principle by
which he is allowed to anticipate the danger and institute a suit to
cancel the document and to deliver it up to him. The principle of
the relief is the same as in quia timet actions.”
(emphasis added)
The Court then continued its discussion as follows:
“13. ...The provisions of Section 39 make it clear that three
conditions are requisite for the exercise of the jurisdiction to cancel
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an instrument : (1) the instrument is void or voidable against the
plaintiff; (2) plaintiff may reasonably apprehend serious injury by
the instrument being left outstanding; (3) in the circumstances of
the case the court considers it proper to grant this relief of
preventive justice. On the third aspect of the question the English
and American authorities hold that where the document is void on
its face the court would not exercise its jurisdiction while it would
if it were not so apparent. In India it is a matter entirely for the
discretion of the court.
14. The question that has to be considered depends on the first
and second conditions set out above. As the principle is one of
potential mischief, by the document remaining outstanding, it stands
to reason the executant of the document should be either the
plaintiff or a person who can in certain circumstances bind him. It
is only then it could be said that the instrument is voidable by or
void against him. The second aspect of the matter emphasises
that principle. For there can be no apprehension if a mere third
party asserting a hostile title creates a document. Thus relief under
S. 39 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.
15.Let us take an example of a trespasser purporting to convey
the property in his own right and not in the right of the
owner. In
such a case a mere cancellation of the document would not remove
the cloud occasioned by the assertion of a hostile title, as such a
document even if cancelled would not remove the assertion of
the hostile title. In that case it would be the title that has got to be
judicially adjudicated and declared, and a mere cancellation of an
instrument would not achieve the object. S. 42 of the Specific
Relief Act would apply to such a case. The remedy under S. 39 is
to remove a cloud upon the title, by removing a potential danger
but it does not envisage an adjudication between competing titles.
That can relate only to instruments executed or purported to be
executed by a party or by any person who can bind him in certain
circumstances. It is only in such cases that it can be said there is
a cloud on his title and an apprehension that if the instrument is
left outstanding it may be a source of danger. Such cases may
arise in the following circumstances: A party executing the
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document, or a principal in respect of a document executed by his
agent, or a minor in respect of a document executed by his guardian
de jure or de facto, a reversioner in respect of a document executed
by the holder of the anterior limited estate, a real owner in respect
of a document executed by the benamidar, etc. This right has also
been recognised in respect of forged instruments which could be
cancelled by a party on whose behalf it is purported to be executed.
In all these cases there is no question of a document by a stranger
to the title. The title is the same. But in the case of a person
asserting hostile title, the source or claim of title is different. It
cannot be said to be void against the plaintiff as the term void or
voidable implies that but for the vitiating factor it would be binding
on him, that is, he was a party to the contract.
16.There is one other reason for this conclusion. Section 39
empowers the court after adjudicating the instrument to be void
to order the instrument to be delivered up and cancelled. If the
sale deed is or purported to have been executed by a party, the
instrument on cancellation could be directed to be delivered over
to the plaintiff. If on the other hand such an instrument is executed
by a trespasser or a person claiming adversely to the plaintiff it is
not possible to conceive the instrument being delivered over not
to the executant but his rival, the plaintiff.”
The Court then concluded:
“18. In our
opinion, Sec. 39 will not apply to a case like the present
where the sale was executed by a person claiming title adverse to
that of Vinayagam Pillai, and therefore, the court would have no
jurisdiction under S. 41 to direct payment of compensation by the
plaintiff to the appellant before obtaining relief as to possession.
To hold otherwise would mean that a mere volunteer who paid
the debt of the plaintiff would be able to recover the same.”2
2 A Full Bench of the Andhra Pradesh High Court in  Yanala Malleshwari v. Ananthula
Sayamma,  AIR 2007 AP 57 followed this judgment and then sta ted the law thus:
“33. The law, therefore, may be taken as well settled that in all cases of void or voidable
transactions, a suit for cancellation of a deed is not maintainable. In a case where
immovable property is transferred by a person without authority to a third person, it
is no answer to say that the true owner who has authority and entitlement to transfer
can file a suit under Section 31 of the Specific Relief Act for the simple reason that such
a suit is not maintainable. Further, in case of an instrument, which is void or voidable
against executant, a suit would be maintainable for cancellation of such instrument and
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16. 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 (see Mohd. Noorul Hoda
v. Bibi Raifunnisa(1996) 7 SCC 767, at p. 771). 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.
17. Let us see whether section 31(2) makes any difference to this
position in law. According to the judgment in Aliens Developers
(supra),
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 inrem. 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 inpersonam 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
can be decreed only when it is adjudicated by the competent Court that such instrument
is void or voidable and that if such instrument is left to exist, it would cause serious
injury to the true owner.”
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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). This judgment
has been followed in Rekha v. Ratnashree, (2006) 1 MP LJ 103 by
a Division Bench of the Madhya Pradesh High Court, in which it was
held:
“8. A deed of sale is a conveyance. A deed of conveyance or
other document executed by any person is not an act nor record
of an act of any sovereign authority or of any official body or
tribunal, or of any public officer, legislative, judicial and executive.
Nor is it a public record kept in a State of any private documents.
A sale-deed (or any other deed of conveyance) when presented
for registration under the Registration Act, is not retained or kept
in any public office of a State after registration, but is returned to
the person who presented such document for registration, on
completion of the process of registration. An original registered
document is not therefore a public record kept by a State of a
private document. Consequently, a deed of sale or other registered
document will not fall under either of the two classes of documents
described in section 74, as ‘public documents’. Any document
which is not a public document is a private document. We therefore
have no hesitation in holding that a registered sale-deed (or any
other registered document) is not a public document but a private
document.
9. This
position is made abundantly clear in Gopal Das v. Shri
Thakurji, AIR 1943 Privy Council 83, wherein the Privy Council
considering the question whether a registered receipt is a public
document observed thus:
“It was contended by Sir Thomas Strangman for the
respondents that the receipt comes within para 2 of section 74,
Evidence Act, and was a “public document”; hence under
section 65(e) no such foundation is required as in cases coming
within clauses (a), (b) and (c) of that section. Their Lordships
cannot accept this argument since the original receipt of 1881
is not “a public record of a private document”. The original
has to be returned to the party. A similar argument would
appear at one time to have had some acceptance in India but it
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involves a misconstruction of the Evidence Act and Registration
Act and later decisions have abandoned it.” (emphasis supplied)
We may also refer to the following passage from Ratanlal’s Law
of Evidence (19th Edition-Page 237):
“Public document [Clause (e)] — This clause is intended to
protect the originals of public records from the danger to which
they would be exposed by constant production in evidence.
Secondary evidence is admissible in the case of public
documents mentioned in section 74. What section 74 provides
is that public records kept in any state of private documents
are public documents, but private documents of which
public records are kept are not in themselves public
documents. A registered document, therefore, does not fall
under either clause (e) or (f). The entry in the register book
is a public document, but the original is a private
document.”
(emphasis in original)
Thus, the factum of registration of what is otherwise a private
document inter parties does not clothe the document with anyhigher
legal status by virtue of its registration.
18. Also, it must be remembered that the Delhi High Court’s
reasoning in Sulochana Uppal (supra) 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 (supra) 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 (supra), in following
the same reasoning as an overruled Delhi High Court judgment, would
fly in the face of Olympus (supra) and would, therefore, not be good
law. We,  therefore, overrule the same.
19. P. Ramanatha Aiyar’s Advanced Law Lexicon (3rd Edn.,
Wadhwa Nagpur) describes an in rem proceeding as follows:
“In rem. adj. [Latin “against a thing”] Involving or determining
the status of a thing, and therefore the rights of persons generally
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with respect to that thing.-Also termed (archaically) impersonal.
(Black 7th Edn., 1999)
“An action in rem is one in which the judgment of the Court
determines the title to property and the rights of the parties, not
merely as between themselves, but also as against all persons at
any time dealing with them or with the property upon which the
Court had adjudicated.” R.H. GRAVESON, Conflict of Laws
98 (7th ed. 1974).
Against the king; against the property, not against a person.
This term is derived from the Roman law, but is not used in English
law in precisely the same sense as in that law. Indeed, Bracton,
limits proceedings in rem to actions to obtain possession of res by
which he understood real actions; (Bigelow on Estoppel 42, 43.)
A proceeding in rem is a proceeding instituted against a thing, and
not against a person.
A proceeding in rem, in a strict sense, is one taken directly against
property, and has for its object the disposition of the property,
without reference to the title of individual claimants but in a larger
and more general sense the term ‘proceeding in rem’ is applied to
actions between parties where the direct object is to reach and
dispose of property owned by them, or of some interest therein.
A judgement in rem is generally said to be a judgment declaratory
of the status of some subject matter, whether this be a person, or
a thing. Thus the probate of a will fixes the status of the document
as a will; so a decree establishing or
dissolving a marriage is a
judgment in rem, because it fixes the status of the person. A
judgment or forfeiture against specified articles of goods for
violation of the revenue laws is a judgment in rem. In such case
the judgment is conclusive against all the world, and, if the
expression ‘strictly in rem’ may be applied to any class of cases,
it should be confined to such as these. Chief Justice Marshall
says: ‘I have always understood that where a process is to be
served on the thing itself, and where the mere possession of the
thing itself, by the service of a process and making proclamation,
authorizes the Court to decide upon it without notice to any individual
whatever, it is a proceeding in rem, to which all the world are
parties. The claimant if a party, whether he speaks or is silent,
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whether he asserts his claim or abandons it. But usage has
distinguished as proceedings in rem a class of cases in which,
while the seizure of the thing will be in aid of jurisdiction, yet it is
essential that some form of notice be given to the particular person
or persons. The proceeding thus assumes a phase of actions in
personam, and a judgment will not be binding upon any one who
was not before the Court.
An act or proceeding is in rem when it is done or directed with
reference to no specific person and consequently against or with
reference to all whom it might concern, or ‘all the world’.
Lawsuits brought against property as compared with those against
a person; the Court’s jurisdiction does not depend on notice to the
property owner.”
20. In R. Viswanathan v. Rukn-ul-Mulk Syed Abdul Wajid,
(1963) 3 SCR 22, this Court set out the Roman law concept of jus in
rem as follows:
“Roman lawyers recognised a right either as a jusin rem or a jus
in personam. According to its literal meaning “jus in rem” is a
right in respect of a thing, a “jus in personam” is a right against
or in respect of a person. In modern legal terminology a right in
rem, postulates a duty to recognise the right imposed upon all
persons generally, a right in personam postulates a duty imposed
upon a determinate person or class of persons. A right in rem is
therefore protected against the world at large; a right in personam
against determinate
individuals or persons. An action to enforce a
jus in personam was originally regarded as an action in personam
and an action to enforce a jus in rem was regarded as an action
in rem. But in course of time, actions in rem and actions in
personam acquired different content. When in an action the rights
and interest of the parties themselves in the subject-matter are
sought to be determined, the action is in personam. The effect of
such an action is therefore merely to bind the parties thereto.
Where the intervention of the Court is sought for the adjudication
of a right or title to property, not merely as between the parties
but against all persons generally, the action is in rem. Such an
action is one brought in the Admiralty Division of the High Court
possessing Admiralty jurisdiction by service of process against a
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ship or cargo within jurisdiction. There is another sense in which
an action in rem is understood. A proceeding in relation to personal
status is also treated as a proceeding in rem, for the judgment of
the proper court within the jurisdiction of which the parties are
domiciled is by comity of nations admitted to recognition by other
courts. As observed by Cheshire in his “Private International
Law”, Sixth Edition at page 109, “In Roman law an action in rem
was one brought in order to vindicate a jus in rem,i.e., a right
such as ownership available against all persons, but the only action
in rem known to English law is that which lies in an Admiralty
court against a particular res, namely, a ship or some other res,
such as cargo, associated with the ship.” Dealing with judgments
in rem and judgments in personam. Cheshire observed at page
653, “It (judgment in rem) has been defined as a judgment of a
court of competent jurisdiction determining the status of a person
or thing (as distinct from the particular interest in it of a party to
the litigation); and such a judgment is conclusive evidence for and
against all persons whether parties, privies or strangers of the
matter actually decided. …… A judgment in rem settles the destiny
of the res itself ‘and binds all persons claiming an interest in the
property inconsistent with the judgment even though pronounced
in their absence’; a judgment in personam, although it may concern
a res, merely determines the
rights of the litigants inter se to the
res.”
(at pp. 43-44)
Also, a judgment in rem has been described in Satrucharla Vijaya
Rama Raju v. Nimmaka Jaya Raju, (2006) 1 SCC 212 as follows:
“10. ...A judgment in rem is defined in English law as “an
adjudication pronounced (as its name indeed denotes) by the status,
some particular subject-matter by a tribunal having competent
authority for that purpose”. Spencer Bower on Res Judicata
defines the term as one which “declares, defines or otherwise
determines the status of a person or of a thing, that is to say, the
jural relation of the person or thing to the world generally”...”
Judged by these authorities, it is clear that 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,
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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.
21. 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 (supra) 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.
22. 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.
23. As a matter of fact, this Court in Razia Begum v. Sahebzadi
Anwar Begum, 1959 SCR 1111 clarified that the predecessor to
section 35 of the 1963 Act, namely, section 43 of the Specific Relief Act,
1877, made it clear that both sections 42 and 43 of the Specific Relief
Act, 1877 go together and refer only to an action that is in personam.
This was felicitously stated by this Court as follows:
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“ ...Sections 42 and 43, as indicated above, go together, and are
meant to be coextensive in their operation. That being so, a
declaratory judgment in respect of a disputed status, will be binding
not only upon the parties actually before the court, but also upon
persons claiming through them respectively. The use of the word
“only” in Section 43, as rightly contended on behalf of the appellant,
was meant to emphasize that a declaration in Chapter VI of the
Specific Relief Act, is not a judgment in rem. But even though
such a declaration operates only in personam, the section proceeds
further to provide that it binds not only the parties to the suit, but
also persons claiming through them, respectively. The word
“respectively” has been used with a view to showing that the
parties arrayed on either side, are really claiming adversely to one
another, so far as the declaration is concerned. This is another
indication of the sound rule that the court, in a particular case
where it has reasons to believe that there is no real conflict, may,
in exercise of a judicial discretion, refuse to grant the declaration
asked for oblique reasons.”
(at p. 1131)
24. Also, 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 this Court held:
“7. Where the executant of a deed wants it to be annulled, he has
to seek cancellation of the deed. But if a non-executant seeks
annulment of a deed, he
has to seek a declaration that the deed is
invalid, or non est, or illegal or that it is not binding on him. The
difference between a prayer for cancellation and declaration in
regard to a deed of transfer/conveyance, can be brought out by
the following illustration relating to A and B, two brothers. A
executes a sale deed in favour of C. Subsequently A wants to
avoid the sale. A has to sue for cancellation of the deed. On the
other hand, if B, who is not the executant of the deed, wants to
avoid it, he has to sue for a declaration that the deed executed by
A is invalid/void and non est/illegal and he is not bound by it. In
essence both may be suing to have the deed set aside or declared
as non-binding. But the form is different and court fee is also
different. If A, the executant of the deed, seeks cancellation of
the deed, he has to pay ad valorem court fee on the consideration
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stated in the sale deed. If B, who is a non-executant, is in possession
and sues for a declaration that the deed is null or void and does
not bind him or his share, he has to merely pay a fixed court fee of
Rs. 19.50 under Article 17(iii) of the Second Schedule of the Act.
But if B, a non-executant, is not in possession, and he seeks not
only a declaration that the sale deed is invalid, but also the
consequential relief of possession, he has to pay an ad valorem
court fee as provided under Section 7(iv)(c) of the Act.”
25. The reasoning in the aforesaid judgment 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 non-executant would be an action in personam since a suit has to
be filed under section 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.
26. 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. This
appeal, therefore, stands dismissed.
Divya Pandey
Appeal  dismissed