DECCAN PAPER MILLS CO. LTD. versus REGENCY MAHAVIR PROPERTIES & ORS.

[2020] 13 S.C.R. 427

DECCAN PAPER MILLS CO. LTD.

REGENCY MAHAVIR PROPERTIES & ORS.

(Civil Appeal No. 5147 of 2016)

AUGUST 19, 2020

[R. F. NARIMAN, NAVIN SINHA ANDINDIRA BANERJEE, JJ.]

Arbitration & Conciliation Act, 1996 – s.8 – Cancellation ofwritten instrument u/s.31, 1963 Act – Arbitrability of – Agreementbetween appellant and respondent no.2 to develop portion of theland owned by appellant – Respondent no.2 assigned the executionthereof to respondent no.1 vide another agreement containingarbitration clause – This was followed by deed of confirmation –Appellant filed suit, alleging fraud by respondent no.3 (representinghimself to be authorized partner of respondent no.1), inter alia fordeclaring the aforesaid agreements to be null and void – Relyingon the arbitration clause, respondent no.1 filed application u/s.8for referring the parties to arbitration – Allowed – Writ petitionfiled by appellant – Dismissed – On appeal, held: Post amendment,judicial authority before which an action is brought shall, if theother conditions of s.8 are met, refer the parties to arbitration unlessit finds that prima facie, no valid arbitration agreement exists – Inthe present case, valid arbitration agreement exists as theagreements that are sought to be cancelled are not stated not tohave ever been entered into – Also, the suit is inter parties with no“public overtones”, thus the “fraud exception” would not apply inthe present case – Further, action u/s.31(1) is strictly an action interparties or by persons who obtained derivative title from the parties,and is thus in personam – Judgments of the District Court and theHigh Court need no interference – Specific Relief Act, 1963 –ss.26(1), (3), 27(1), (2)(c), 29, 30, 31(1), (2), 32-35 – Arbitrationand Conciliation (Amendment) Act, 2015 – Contract Act, 1872 –s.17 – Arbitration Act, 1940 – s.20.

Specific Relief Act, 1963 – s.31 – Proceedings under, in remor in personam – Discussed – Arbitration & Conciliation Act, 1996.

428SUPREME COURT REPORTS

ADismissing the appeal, the Court

HELD: 1.1 If the subject matter of an agreement betweenparties falls within section 17 of the Indian Contract Act, 1872,or involves fraud in the performance of the contract which wouldamount to deceit, being civil wrong, the subject matter of suchBagreement would certainly be arbitrable. Merely because aparticular transaction may have criminal overtones as well, doesnot mean that its subject matter becomes non-arbitrable. Thereis no averment that the agreement dated 20.05.2006 and the deedof confirmation dated 13.07.2006 were not entered into at all, asa result of which the arbitration clause would be non-existent.CFurther, it is equally clear that the suit is one that is inter partieswith no “public overtones”, as result of which this exceptionwould clearly not apply to the facts of this case. There is seachange between section 8 of the 1996 Act and section 20 of theArbitration Act, 1940. Post amendment, it is clear that the judicialDauthority before which an action is brought shall, if the otherconditions of section 8 are met, refer the parties to arbitrationunless it finds that prima facie, no valid arbitration agreementexists. In the present case, the finding that is returned is correct– valid arbitration agreement certainly exists as the agreementsthat are sought to be cancelled are not stated not to have everEbeen 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 – reliedon.

F1.2 perusal of section 26(1) of the Specific Relief Act,1963 would show that when, through fraud or mutual mistake ofparties, contract or other instrument in writing does not expressthe real intent of the parties, then either party or hisrepresentative in interest may either institute suit to have theinstrument rectified or as defendant, may, in addition to anyGdefence open to him, ask for rectification of the instrument.Importantly, under section 26(3), party may pray in rectificationsuit for specific performance – and if the Court thinks fit, may

after rectifying the contract, grant specific performance of thecontract. Thus, what is made clear by this section is that therectification of contract can be the subject matter of suit forspecific performance, which can be the subject matter of an arbitralproceeding. Under section 27(1) of the Specific Relief Act, 1963,“any party interested” in contract may sue to have it rescindedand such rescission may be adjudged by the Court in the casesmentioned in clauses (a) and (b) of sub-section (1). Sub-section(2) of section 27 refers to four exceptions to this rule. Thirdparties to the contract are not persons who can be said to be“any person interested”, particularly when section 27(2)(c), whichrefers 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 theyhave acquired rights in good faith, without notice and for value,during the subsistence of the contract between the parties tothat contract. Sections 29 and 30 are also important, in that aplaintiff instituting suit for specific performance may pray in thealternative that if the contract cannot be specifically enforced, itmay be rescinded and be delivered up to be cancelled. In addition,on adjudging the rescission of the contract, the Court may requirethe party to whom such relief is granted to restore, so far as maybe, any benefit which he may have received from the other partyand to make any compensation to him which justice may require.These two sections would also show that following rescission ofa contract, it has to be delivered up to the plaintiff to be cancelled– and all of this can be done in suit for specific performance.Thus far, therefore, it is clear that an action for rescission of acontract and delivering up of that contract to be cancelled is anaction in personam which can be the subject matter of suit forspecific performance, making such rescission and delivering upthe 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 importantexpression used by the legislature is “any person against whoma written instrument is void or voidable…”. An instructivejudgment of the Full Bench of the Madras High Court reported

Aas Muppudathi Pillai v. Krishnaswami Pillai, AIR 1960 Mad 1involved the determination of the scope of section 41 of theSpecific Relief Act, 1877 (section 33(1) of the 1963 Act is thepari materia provision). This judgment, after referring to section41, then referred to section 39 of the Specific Relief Act, 1877(which is the pari materia provision to section 31 of the 1963BAct).A reading of the aforesaid judgment of the Full Benchwould make the position in law crystal clear. The expression “anyperson” does not include third party, but is restricted to partyto the written instrument or any person who can bind such party.Importantly, relief under section 39 of the Specific Relief Act,C1877 would be granted only in respect of an instrument likely toaffect the title of the plaintiff, and not of an instrument executedby stranger to that title. The expression “any person” in thissection has been held by this Court to include person seekingderivative title from his seller. The principle behind the sectionis to protect party or person having derivative title toDproperty from such party from prospective misuse of aninstrument against him. reading of section 31(1) then showsthat when written instrument is adjudged void or voidable, theCourt may then order it to be delivered up to the plaintiff andcancelled – in exactly the same way as suit for rescission of aEcontract under section 29. Thus far, it is clear that the actionunder section 31(1) is strictly an action inter parties or by personswho obtained derivative title from the parties, and is thus inpersonam. [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 differenceFto this position in law. According to the judgment in AliensDevelopers, the moment registered instrument is cancelled, theeffect being to remove it from public register, the adjudicatoryeffect of the Court would make it judgment in rem. Further,only competent court is empowered to send the cancellationdecree to the officer concerned, to effect such cancellation andG“note on the copy of the instrument contained in his books thefact of its cancellation”. Both reasons are incorrect. An actionthat is started under section 31(1) cannot be said to be inpersonam when an unregistered instrument is cancelled and inrem when registered instrument is cancelled. The suit that isfiled for cancellation cannot be in personam only for unregisteredinstruments by virtue of the fact that the decree for cancellationdoes not involve its being sent to the registration office – aministerial action which is subsequent to the decree being passed.In fact, in Gopal Das v. Sri Thakurji, AIR 1943 PC 83, certifiedcopy of registered instrument, being receipt dated 29.03.1881signed by the owner, was held not to be public record of privatedocument under section 74(2) of the Indian Evidence Act, 1872for the reason that the original has to be returned to the partyunder section 61(2) of the Registration Act, 1908 (see p. 87). Thus,the factum of registration of what is otherwise private documentinter parties does not clothe the document with any higher legalstatus by virtue of its registration. Also, it must be rememberedthat the Delhi High Court’s reasoning in Sulochana Uppal that itis the Court alone that can, under the Specific Relief Act, enforcespecific performance of an agreement, is contra to the reasoningin Olympus which overruled it, stating that “the dispute ordifference which parties to an arbitration agreement agree to refermust consist of justiciable issues triable civilly”. Since specificperformance is justiciable issue triable civilly, obviously, theexpression “court” occurring throughout the Specific Relief Actwill have to be substituted by “arbitrator” or “arbitral tribunal”.This part of the reasoning in Aliens Developers, in following thesame reasoning as an overruled Delhi High Court judgment,would fly in the face of Olympus and would, therefore, not begood 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 tospecific persons and not with reference to all who may be

Aconcerned with the property underlying the instrument, or “allthe world”. Clearly, the cancellation of the instrument undersection 31 is as between the parties to the action and their priviesand not against all persons generally, as the instrument that iscancelled is to be delivered to the plaintiff in the cancellationsuit. judgment delivered under section 31 does not bind allBpersons claiming an interest in the property inconsistent withthe judgment, even though pronounced in their absence. readingof sections 32 and 33 of the Specific Relief Act, 1963 would alsoshow that the reasoning of the High Court in Aliens Developersis flawed. Where, for example, under section 32, an instrumentCis cancelled in part, the instrument which is otherwise only aninstrument inter parties, cannot be said to be an instrument whichremains inter parties, the cancelled portion being cancellationto the world at large, i.e., in rem. Equally, under section 33, whencompensation is required to be paid or restoration of benefit whichhas been received from the other party is required to be made, itDis exactly the same as that which is required to be done under acontract which is rescinded and cancelled (see section 30): and itis clear that both sections 30 and 33 would apply only to contractsor instruments which are rescinded/cancelled in personam. Whensections 34 and 35 are seen, the position becomes even clearer.EUnlike section 31, under section 34, any person entitled to anylegal charactermay institute suit for declaration that he is soentitled. Considering that it is possible to argue on reading ofthis provision that the legal character so declared may be againstthe entire world, section 35 follows, making it clear that suchdeclaration is binding onlyon the parties to the suit and personsFclaiming through them, respectively. This is for the reason thatunder section 4 of the Specific Relief Act, specific relief is grantedonly for the purpose of enforcing individual civil rights. Theprinciple contained in section 4 permeates the entire Act, and itwould be most incongruous to say that every other provision ofGthe Specific Relief Act refers to in personam actions, section 31alone being out of step, i.e., referring to in rem actions. [Paras20-22][461-G-H; 462-A-G]

1.6 The reasoning in in an instructive judgment of this Courtin Suhrid Singh v. Randhir Singh, (2010) 12 SCC 112, in thecontext of the Court Fees Act, 1870 would again expose theincongruous result of section 31 of the Specific Relief Act beingheld to be an in rem provision. When it comes to cancellation ofa deed by an executant to the document, such person canapproach the Court under section 31, but when it comes tocancellation of deed by non-executant, the non-executant mustapproach the Court under section 34 of the Specific Relief Act,1963. Cancellation of the very same deed, therefore, by non-executant would be an action in personam since suit has to befiled undersection 34. However, cancellation of the same deedby an executant of the deed, being under section 31, wouldsomehow convert the suit into suit being in rem. All theseanomalies only highlight the impossibility of holding that an actioninstituted under section 31 of the Specific Relief Act, 1963 is anaction in rem. Given this finding of law, it is clear that thejudgments of the District Court and the High Court in this caseneed no interference. [Paras 25, 26][464-B-E]

Ameet Lalchand Shah v. Rishabh Enterprises (2018) 15SCC 678 : [2018] 6 SCR 1001; Mayavati Trading Pvt.Ltd. v. Pradyut Deb Burman (2019) 8 SCC 714; EmaarMGF Land Ltd. v. Aftab Singh, (2019) 12 SCC 751 :[2018] 14 SCR 791; Mohd. Noorul Hoda v. BibiRaifunnisa (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 AnwarBegum 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; SwissTiming Ltd. v. Commonwealth Games 2010 OrganisingCommittee (2014) 6 SCC 677:[2014] 6 SCR 514; N.Radhakrishnan v. Maestro Engineers (2010) 1 SCC72:[2009] 15 SCR 371; S.B.P. & Co. v. Patel Engg.Ltd. (2005) 8 SCC 618 : [2005] 4 Suppl. SCR 688;

ABooz 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] 1Suppl. SCR 809 – referred to.

BShravan Goba Mahajan v. Kashiram Devji, ILR (1927)51 Bom 133; Muppudathi Pillai v. Krishnaswami PillaiAIR 1960 Mad 1 – approved.

Satish Sood v. Gujarat Tele Links Pvt. Ltd. 2014 (1)AIR Bom R 27; Sulochana Uppal v. Surinder SheelCBhakri AIR 1991 Del 138; Gopal Das v. Sri ThakurjiAIR 1943 PC 83; Rekha v. Ratnashree (2006) 1 MPLJ 103 – referred to.

P.Ramanatha Aiyar’s Advanced Law Lexicon (3rd Edn.,Wadhwa Nagpur)–referred to.

Case Law Reference

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5147of 2016.

From the Judgment and Order dated 18.03.2015 of the High Courtof 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. JasmineDamkewala, Sriniwas Joshi, Ms. Vaishali Sharma, Advs. for the appearingparties.

The Judgment of the Court was delivered by

R. F. NARIMAN, J.

1. The hearing in this appeal followed in the wake of the hearingin Civil Appeal Nos. 5145 of 2016, 5158 of 2016, and 9820 of 2016. Thebrief facts necessary to appreciate the controversy in this appeal are asfollows:

i. By an agreement dated 22.07.2004 between the Appellant,Deccan Paper Mills Co. Ltd. [hereinafter referred to as “Deccan”] andthe Respondent No. 2 company, M/s Ashray Premises Pvt. Ltd.[hereinafter referred to as “Ashray”], Deccan, being the owner ofapproximately 80,200 sq. meters of land bearing Survey Nos. 96B, 96C,and 96D at village Mundhwa, District Pune, decided to develop portionof the said land, i.e., 32,659 sq. meters. It is not necessary to enter intothe nitty-gritty of the said agreement. However, it is enough to note thatthis agreement contained clause 7(m), in which it is stated :

“7. The Owner and the Developer hereto covenant that upon theexecution of these presents:

xxx xxx xxx

m. The Owner shall have no objection if at any stage during thecontinuance of this agreement the Developer assigns, delegatesthe rights, under this agreement or the Power of Attorney/writingsexecuted in furtherance hereof to any other person, firm or partywithout violating or disturbing any of the terms and conditions ofthis agreement.”

Aii. This agreement did not contain any arbitration clause. Pursuantto clause 7(m), on 20.05.2006, an agreement was entered into betweenRespondent No. 2 – Ashray, and Respondent No.1 – Regency MahavirProperties, partnership firm [hereinafter referred to as “Regency”],by which Ashray assigned the execution of the agreement dated22.07.2004 to Regency. The aforesaid agreement contained an arbitrationBclause, which is set out as follows:

“14. If during the continuance of the said Agreement/these presentsor at any time afterwards any difference shall arise between theparties herein and the heirs, executors or administrators of theother of them or between their respective heirs, executors oradministrators in regard to the construction of any of the articlesherein contained or to any division (..illegible) thing to be made ordone in pursuance hereto or to any other matter or thing relatingto the said Agreement/these presents the same shall be forthwithreferred to one arbitrator if the parties agree or otherwise to twoarbitrators, one to be appointed by each party to the reference orto an Umpire to be chosen by the Arbiters before entering uponthe reference and every such reference shall be deemed to be anArbitration in accordance with and subject to the provisions ofThe Arbitration & Conciliation Act, 1996 or any statutorymodification or re-enactment thereof for the time being in force.”

iii. deed of confirmation dated 13.07.2006 followed, by which itwas stated that this deed was to be treated as part of the 20.05.2006agreement, in which the assignment by Ashray to Regency wasreaffirmed. According to Deccan, fraud had been played by one Mr.Atul Chordia, Respondent No.3 herein (Defendant No. 3 in the suit filedFby 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.3approached directors of the Plaintiff Company and representedto them that for diverse reasons, he intends to develop the saidGproperty through partnership firm by name Regency MahavirProperties. The Defendant No.3 further assured Plaintiff Companythat he will be one of the leading partners of the said M/s RegencyMahavir Properties i.e. the Defendant No.1 and the developmentof the said property and the same shall be carried out as quicklyas possible. The directors of Plaintiff Company, relying on the

strength of assurance given by Mr. Atul Chordia agreed to bejoined Consenting Party to formal agreement of assignment tobe executed between Defendant No.1 and Defendant No.2.It ispertinent to note that Defendant No.3 holding out to be anauthorized partner of Defendant No.1 has signed the saidagreement. The directors of Plaintiff Company under bonafidebelief that the said agreement of assignment was formal andDefendant No.3 will be responsible for development of the saidproperty. Now directors of Plaintiff Company realize thatDefendant No. 3 had different intentions.”

xxx xxx xxx

“8. Recently, the director of Plaintiff Company approached Mr.Dilip R. Jain, one of the partners of Defendant No. 1. Directorsof Plaintiff Company inquired with Mr. Jain about the delay inprogress of construction and informed Mr. Jain that they will holdDefendant No.3 responsible for the deal. Mr. Jain, to the shockand surprise of directors of Plaintiff Company informed them thatMr. Chordia was no more responsible for development of the saidproperty, since he has assigned development rights in respectthereof, way back in the year 2006 itself. Directors of PlaintiffCompany took the said shock and approached Defendant No.3and inquired with him about the aforesaid state of affairs. TheDefendant No.3 avoided giving any explanation. The Directorsof Plaintiff Company, took search in the office of Registrar ofFirms and for the first time came to know that the DefendantNo.3 had opted to retire from business of Defendant No.1 witheffect from 30.05.2006. It is pertinent to note that the DefendantNo. 3 representing himself to be authorized partner of DefendantNo.1 has signed deed of Confirmation dated 13.07.2006, confirmingthe terms and conditions of agreement dated 20.05.2006, executedbetween Defendant No.1 and 2 in respect of development of thesuit property.

9. As stated earlier, Directors of Plaintiff Company have granteddevelopment rights in respect of the said property to DefendantNo.2, only because Defendant No.3 was its leading Director. ThePlaintiff Company has joined the agreement of assignment dated20.05.2006 and Deed of Confirmation dated 13.07.2006 executedby Defendant No.2 in favour of Defendant No.1 with

understanding that Defendant No.3 was its partner. Directors ofPlaintiff Company therefore say that Defendant No.1 in collusionwith Defendant No.2 and in active concealment of material fact,by misrepresenting Plaintiff Company and by practicing fraud uponthe Plaintiff Company have obtained consent of Plaintiff Companyon the agreement of assignment and Deed of Confirmation.Directors of Plaintiff Company therefore say that said agreementof assignment and Deed of Confirmation being tainted with fraudare ab initio null and void and not binding on Plaintiff Company.Since the Plaintiff Company has recently come to know theaforesaid fraud, they have decided to inform the Defendant thatthe agreement dated 20.05.2006 and the Deed of Confirmationdated 13.07.2006 in respect of the said property are not bindingupon the Plaintiff Company and hence Defendant No.1 has nolegal right to continue with further development of the said property.

10. Directors of Plaintiff Company, from reliable sources, havecome to know that Defendant No.1 has no intention to developthe said property, further and hence Defendant No.1, again incollusion with Defendant No.3 is negotiating to transfer/assigndevelopment rights in respect of the said property to third person.Since the agreement of assignment dated 20.05.2006 and Deedof Confirmation dated 13.07.2006 are illegal and void, Defendant

No.1 has no right to deal with the suit property. Inspite of suchposition, if Defendant No.1 attempts to transfer such rights, thesame shall be illegal and in any case shall not be binding uponPlaintiff Company.”

As result of the fraud played, it was then stated:

“12. The cause of action for this suit first arose on or about22.07.2004 when the Defendant No.1 obtained agreement fordevelopment of the suit property, it further arose when theDefendant No.1 and 2 obtained agreement of assignment dated20.05.2006 and Deed of Confirmation dated 17.07.2006. It furtherarose, in the month of April/May 2010, when the Plaintiff for thefirst time came to know that the Defendant No.3 is no more partnerof the Defendant No.1 and that the Defendants have committedfraud upon the Plaintiff. The cause of action also arose, when theDefendants failed to comply with the demands made in noticedated 10.07.2010.

13. The present suit, being suit for declaration and cancellation, isproperly valued as per the provisions of Section 6(4)(h-a) ofBombay Court Fee Act, 1959 and maximum court fee ofRs.3,00,000/- is paid.

14. The suit property is situated at Pune. The cause of action forthe present suit has arisen at Pune and therefore this HonourableCourt 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 andAgreement dated 20.05.2006 and Deed of Confirmation dated13.07.2006 are obtained by fraud and hence they are ab initionull, void and not binding upon the Plaintiff.

B. It be declared that the Agreement dated 22.07.2004 andAgreement dated 20.05.2006 and Deed of Confirmation dated13.07.2006 are illegal.

C. The Defendants, by order of mandatory injunction directedto execute and register Deed of Cancellation of Agreementdated 22.07.2004 and Agreement dated 20.05.2006 and Deedof Confirmation dated 13.07.2006.

D. The Defendants may be restrained by an order of perpetualinjunction from carrying out any further development activityin the said property or to enter the same or remain therein,either by themselves or through any person claiming throughit, or to create any third party interests therein or to deal withthe same in any manner whatsoever.

E. Interim orders in terms of Clause above may be passed.

F. Costs of the suit may be awarded to the Plaintiff from theDefendants.

G. Any other just and other equitable orders in the interest ofjustice may be pleased to be passed.”

It is important to note that Defendant No. 3 did not file any writtenstatement in the said suit.

iv. Almost immediately thereafter, by an application dated19.07.2010 under section 8 of the Arbitration and Conciliation Act, 1996

A[hereinafter referred to as the “1996 Act”] on behalf of Regency, thearbitration clause in the agreement dated 20.05.2006 was set out andthe Civil Judge (Senior Division), Pune was asked to refer the parties toarbitration. The reply to the said application on behalf of the plaintiff,Deccan, stated:

B“2. The averments in para 1 of the application to the extent ofreproduction of clause No.14 of agreement dated 20.05.2006,being matter of record are not disputed for the purpose of thisreply. The plaintiff shall rely upon and explain the true effect andinterpretation of the said clause at the proper time. It is pertinentto note Defendant Nos.1 and 2 have avoided to make anyCcomment with regard to merits of their defense.

3. It is submitted that while considering the application u/s 8 ofArbitration and Conciliation Act, 1996, the court has to consideran issue that whether there exists any Arbitration Agreementbetween the parties. Such right is certainly vested in Civil Court.DThe Plaintiff is challenging the legality of agreement dated20.05.2006 on the ground that the same is obtained by fraud andis therefore seeking further declaration that the said agreement isnull and ab initio void. As such, the very Arbitration clause ascontained in the said agreement is not enforceable. In spite of theEfact that Section 16 of the said Act empowers the Arbitral Tribunalto decide its own jurisdiction in view of particular circumstancesnarrated in the plaint, the present application deserves to berejected.”

v. By judgment dated 19.07.2011, the Additional Judge, SmallFCauses Court, Pune, after hearing both sides, held as follows:

“11.After perusing the above mentioned cited cases, it shows thatwhen there is clause of arbitration it is mandated on the CivilCourt to refer the dispute and parties for arbitration as peragreement. In present case the plaintiffs have materially contentionGabout playing fraud by Defendant No.3 but there is no any contentsin agreement as alleged by plaintiff in plaint about keeping faithon Defendant No.3. It shows about signing by Defendant No.3for agreement dated 20.05.2006 and he was also party to saidagreement. The plaintiff alleged about playing fraud after resigningby Defendant No.3 from partnership firm of Defendant No.1 and

signing the confirmation deed dated 13.07.2006 but as perPartnership Act remedy is provided. Moreover, from thedocuments, it shows that the confirmation deed dated 13.07.2007was executed by Defendant No.3 as Authorized Partner of M/sRegency Mahavir Properties and another partner Dilip Jain. Thefraud alleged by the plaintiff is in respect of the documents forwhich the remedy is also provided. After considering the arbitrationclause I find that the application is to be allowed and the disputeshave to be referred for arbitration. Hence, I pass the followingorder:

1)Application is allowed.

2)The plaintiff is directed to get the alleged dispute resolvedthrough the process of arbitration by referring theplaintiff to invoke the process of arbitration as per thearbitration clause 14 mentioned in the agreement dated20.05.2006.”

Finding thus, the learned Judge referred the parties to arbitration.

vi. writ petition filed by Deccan in the Bombay High Court wasthen disposed of by the impugned judgment dated 18.03.2015, in which itwas held, following the judgment of the Single Judge inSwiss TimingLtd. v. Commonwealth Games 2010 Organising Committee,(2014) 6 SCC 677 [hereinafter referred to as “Swiss Timing”] thatthe decision in N. Radhakrishnan v. Maestro Engineers, (2010) 1SCC 72[hereinafter referred to as “N. Radhakrishnan”] being perincuriam, it would not be possible to follow the same, as result ofwhich the “fraud exception” was rejected. It was then held that there isno conflict between the Division Bench judgment in Avitel Post StudiozLimited & Ors. v. HSBC PI Holding (Mauritius) Ltd., AppealNo. 196 of 2014 in Arbitration Petition No. 1062 of 2012(which isthe 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 theDivision Bench in the case of Satish Sood (supra) as it was renderedprior to the judgment of the learned Single Judge of the Supreme Courtin Swiss Timing (supra). This being so, the writ petition was thendismissed, with the result that the parties stood referred to arbitration.

A2. Smt. Meena Doshi, learned advocate appearing on behalf ofthe Appellant, has taken us through the record and argued on the basisof N. Radhakrishnan (supra) that when it comes to serious allegationsof fraud, an arbitrator’s jurisdiction gets ousted and reading the pleadingsin the Special Civil Suit, it is obvious that serious allegations of fraudbeing raised in the present case, the dispute is thus rendered non-Barbitrable. She then referred to section 8 of the 1996 Act, as amendedby the Arbitration and Conciliation (Amendment) Act, 2015 [hereinafterreferred to as the “2015 Amendment Act”] to further argue that boththe District Judge as well as the High Court did not look into therequirements of the amended section 8, and that the aforesaid judgmentsCare infirm on this count alone. She also argued, basing herself on theseven-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 amere mechanical incantation of the section, the Court having to apply itsmind as to whether there exists an arbitration agreement at all, whichwould include whether the subject matter of the proceeding is at allDarbitrable. She also argued that the original agreement between Deccanand Ashray did not contain an arbitration clause, and since the suit wasto set aside that agreement as well, the dispute could not be decidedpiecemeal, and on this ground also, ought not to have been referred toarbitration. She then relied heavily upon section 31 of the Specific ReliefEAct, 1963 and stated that reading of the plaint and the prayers in thesuit would show that the suit is one for cancellation of three “writteninstruments”. This being so, and the proceeding under section 31 being aproceeding in rem, would fall within one of the exceptions made out inBooz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5SCC 532 [hereinafter referred to as “Booz Allen”]. For this purpose,Fshe relied heavily upon judgment of the High Court of Judicature atHyderabad for Telangana and Andhra Pradesh in Aliens DevelopersPvt. 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 beGset aside and the suit should be set down for hearing, to be disposed ofwithin short timeframe.3. Shri Vinay Navre, learned Senior Advocate appearing on behalfof 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,H(2019) 8 SCC 710 (see paragraph 4), this exception would only apply

if it can be stated that the agreement itself was never executed, in whichcase the arbitration clause itself would fall, but not otherwise. Also, sincethere are no public ramifications in the present proceeding, and inparticular, no ramifications of criminal nature, neither of the conditionsprecedent for the application of the “fraud exception” being present inthis case, it is clear that the judgments of the Courts below were correctin law. When it came to section 31 of the Specific Relief Act, ShriNavre stated that correct reading of the section would show that theCourt’s jurisdiction, being discretionary and for the benefit of the partyinterested in setting aside written instrument, the proceeding wouldhave to be considered to be one in personam. According to him, thejudgment in Aliens Developers (supra) does not lay down the lawcorrectly and should be overruled by us. In answer to the argument thatthe agreement dated 22.07.2004, which did not contain an arbitrationclause, was also sought to be cancelled in the suit, he argued that thiswas inserted only in the prayer clause in order to camouflage the suit soas to get out of arbitration. If the body of the suit were to be seen, it isclear that what was sought to be impugned was only the latter twoagreements, the first being of historical significance only. This being thecase, it is clear that the dispute is arbitrable. Further, all that is to beseen under section 8 of the 1996 Act after its amendment is that primafacie,a valid arbitration agreement exists. Here, as matter of fact, itwas admitted, according to Shri Navre, in the affidavit filed in reply tothe section 8 application that the agreement between the parties didexist, 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. 5145of 2016,laid down the law on invocation of the “fraud exception” insome detail, which reasoning we adopt and follow. The said judgmentindicates that given the case law since N. Radhakrishnan (supra), it isclear that N. Radhakrishnan (supra), as precedent, has no legs tostand on. If the subject matter of an agreement between parties fallswithin section 17 of the Indian Contract Act, 1872, or involves fraud inthe performance of the contract, as has been held in the aforesaidjudgment, which would amount to deceit, being civil wrong, the subjectmatter of such agreement would certainly be arbitrable. Further, wehave also held that merely because particular transaction may havecriminal overtones as well, does not mean that its subject matter becomesnon-arbitrable. We have no doubt that Shri Navre is right in his submission

Athat there is no averment that the agreement dated 20.05.2006 and thedeed of confirmation dated 13.07.2006 were not entered into at all, as aresult of which the arbitration clause would be non-existent. Further, it isequally clear that the suit is one that is inter parties with no “publicovertones”, as has been understood in paragraph 14 of Avitel (supra),as result of which this exception would clearly not apply to the facts ofBthis case.

5. Smt. Doshi then cited State of A.P. & Anr. v. T. SuryachandraRao, (2005) 6 SCC 149 and read paragraphs 8 to 16 of the judgmentto impress upon us that fraud vitiates every solemn act and that aconspiracy with view to deprive the rights of others in relation to aCproperty would render the transaction void ab initio. This case aroseout of an order of the Land Reforms Tribunal which held against therespondent, stating that they had fraudulently taken advantage of theceiling limit under the Andhra Pradesh Land Reforms (Ceiling onAgricultural Holdings) Act, 1973 by suppression of facts. In this case,Dthe Tribunal reopened the matter when it found that the land which wassurrendered had already been acquired in proceedings under the LandAcquisition Act, 1898. The question was whether the Tribunal wasjustified in modifying the earlier order and leaving out such land. It washeld, by concurrent finding of fact, that the Tribunal was capable of sovarying the order. It was in this backdrop that the general observationsEon fraud were made. This case has no relevance to the exact issuebefore this Court.

6. We are also inclined to accept Shri Navre’s argument on section8 of the 1996 Act, in view of some of the recent judgments on section 8after the 2015 Amendment Act. (SeeAmeet Lalchand Shah v. RishabhFEnterprises, (2018) 15 SCC 678 at pp. 698-700,Mayavati TradingPvt. Ltd. v. Pradyut Deb Burman, (2019) 8 SCC 714 at pp. 724-725, and Emaar MGF Land Ltd. v. Aftab Singh, (2019) 12 SCC751at pp. 779-783). It is enough to state that there is sea changebetween section 8 of the 1996 Act and section 20 of the Arbitration Act,G1940, 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 authoritybefore which an action is brought shall, if the other conditions of section8 are met, refer the parties to arbitration unless it finds that prima facie,no valid arbitration agreement exists. As has been held hereinabove, inH

the present case, the finding that is returned is correct – valid arbitrationagreement certainly exists as the agreements that are sought to becancelled 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 andthe High Court’s judgment in Aliens Developers (supra) relied uponby her. section 31 of the Specific Relief Act states as follows:

“31. When cancellation may be ordered.

(1) Any person against whom written instrument is void orvoidable, and who has reasonable apprehension that suchinstrument, if left outstanding may cause him serious injury, maysue to have it adjudged void or voidable; and the court may, in itsdiscretion, so adjudge it and order it to be delivered up andcancelled.

(2) If the instrument has been registered under the IndianRegistration Act, 1908 (16 of 1908), the court shall also send acopy of its decree to the officer in whose office the instrumenthas been so registered; and such officer shall note on the copy ofthe instrument contained in his books the fact of its cancellation.”

Referring to section 31, Division Bench of the High Court inAliens Developers (supra) held:

“14. ...Under Section 31(2) of the Specific Relief Act, Legislatureconferred the power on Courts to send copy of the cancellationdecree to the officer in whose office the instrument has been soregistered and such officer shall note on the copy of the instrumentcontained in his books, the fact of its cancellation. It is evidentfrom the provision under Section 31(2) that the power of nullifyingthe effect of registration is conferred only on the Court. In thejudgment in Booz Allens case (supra), the Hon’ble Supreme Courthas held that right in rem is right exercisable against the worldat large, as contrasted from right in personam which is an interestprotected solely against specific individuals and actions in personamrefer to actions determining the rights and interests of the partiesthemselves in the subject matter of the case, whereas, actions inrem refer to actions determining the title to property and the rightsof the parties, not merely among themselves but also against allpersons at any time claiming an interest in that property. In the

Asaid judgment, it is clearly held that if the adjudicatory effect ofthe Court is judgment in rem, only public fora i.e. Courts andTribunals have to adjudicate such disputes, but not the ArbitralTribunals as agreed by the parties. As much as the DevelopmentAgreement-cum-Irrevocable Power of Attorney is registeredone and is relating to title of the property, any cancellation willBaffect the removal of rights accrued to the parties, such cancellationis to be communicated to the officer who has registered thedocument, in view of the provision under Section 31(2) of theSpecific Relief Act. Therefore, we are of the considered viewthat such adjudicatory function in cases like this will operate inCrem. In any event, having regard to the power conferred on Courtsby virtue of the provision under Section 31(2) of the Specific ReliefAct, only competent Court is empowered to send the cancellationdecree, to the officer concerned, to effect such cancellation andnote in his books to that effect. When such Statutory power isconferred on Courts, such power cannot be exercised by theDArbitrator, in spite of the fact that there is an arbitration clause inthe agreement entered between the parties…”

8. It is now for us to examine whether further exception can becarved out based upon Booz Allen (supra) on the footing of the HighCourt’s judgment in Aliens Developers (supra). In order to examineEthe correctness of Aliens Developers (supra), it is necessary to setout certain sections of the Specific Relief Act. The relevant sections areset out hereinbelow:

“4. Specific relief to be granted only for enforcing individualcivil rights and not for enforcing penal laws.—Specific reliefFcan be granted only for the purpose of enforcing individual civilrights and not for the mere purpose of enforcing penal law.”

xxx xxx xxx

“26. When instrument may be rectified.—(1) When, throughGfraud or mutual mistake of the parties, contract or otherinstrument in writing [not being the articles of association of acompany 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 institutea suit to have the instrument rectified; orH

(b)the plaintiff may, in any suit in which any right arisingAunder the instrument is in issue, claim in his pleadingthat 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 contract or other instrument is soughtto be rectified under sub-section (1), the court finds that theinstrument, through fraud or mistake, does not express the realintention of the parties, the court may, in its discretion, directrectification of the instrument so as to express that intention, sofar as this can be done without prejudice to rights acquired bythird persons in good faith and for value.

(3) contract in writing may first be rectified, and then if theparty claiming rectification has so prayed in his pleading and thecourt thinks fit, may be specifically enforced.

(4) No relief for the rectification of an instrument shall be grantedto any party under this section unless it has been specificallyclaimed: Provided that where party has not claimed any suchrelief 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 forincluding such claim.

27. When rescission may be adjudged or refused.—(1) Anyperson interested in contract may sue to have it rescinded, andsuch rescission may be adjudged by the court in any of the followingcases, namely:

(a)where the contract is voidable or terminable by theplaintiff;

(b)where the contract is unlawful for causes not apparenton its face and the defendant is more to blame than theplaintiff.

(2) Notwithstanding anything contained in sub-section (1), the courtmay refuse to rescind the contract

(a)where the plaintiff has expressly or impliedly ratifiedthe contract; or

(b)where, owing to the change of circumstances whichhas taken place since the making of the contract (notbeing due to any act of the defendant himself), theparties cannot be substantially restored to the positionin which they stood when the contract was made; or

(c)where third parties have, during the subsistence of thecontract, acquired rights in good faith without noticeand for value; or

(d)where only part of the contract is sought to berescinded and such part is not severable from the restof the contract.

Explanation.—In this section “contract” in relation to the territoriesto which the Transfer of Property Act, 1882 (4 of 1882), does notextend, means contract in writing.”

xxx xxx xxx

“29. Alternative prayer for rescission in suit for specificperformance.—A plaintiff instituting suit for the specificperformance of contract in writing may pray in the alternativethat, if the contract cannot be specifically enforced, it may berescinded and delivered up to be cancelled; and the court, if itrefuses to enforce the contract specifically, may direct it to berescinded and delivered up accordingly.

30. Court may require parties rescinding to do equity.—Onadjudging the rescission of contract, the court may require theparty to whom such relief is granted to restore, so far as may be,any benefit which he may have received from the other party andto make any compensation to him which justice may require.”

xxx xxx xxx

“32. What instruments may be partially cancelled.—Wherean instrument is evidence of different rights or different obligations,the court may, in proper case, cancel it in part and allow it tostand for the residue.

33. Power to require benefit to be restored or compensationto be made when instrument is cancelled or is successfully—resisted as being void or voidable.

(1) On adjudging the cancellation of an instrument, the court mayrequire the party to whom such relief is granted, to restore, so faras may be any benefit which he may have received from theother party and to make any compensation to him which justicemay require.

(2) Where defendant successfully resists any suit on the ground—

(a)that the instrument sought to be enforced against him inthe suit is voidable, the court may if the defendant hasreceived any benefit under the instrument from the otherparty, require him to restore, so far as may be, suchbenefit to that party or to make compensation for it;

(b)that the agreement sought to be enforced against him inthe suit is void by reason of his not having been competentto contract under section 11 of the Indian Contract Act,1872 (9 of 1872), the court may, if the defendant hasreceived any benefit under the agreement from the otherparty, require him to restore, so far as may be, suchbenefit to that party, to the extent to which he or hisestate 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 toany property, may institute suit against any person denying, orinterested to deny, his title to such character or right, and thecourt may in its discretion make therein declaration that he is soentitled, and the plaintiff need not in such suit ask for any furtherrelief:

Provided that no court shall make any such declaration where theplaintiff, being able to seek further relief than mere declarationof title, omits to do so.

Explanation.—A trustee of property is “person interested todeny” title adverse to the title of someone who is not inexistence,and for whom, if in existence, he would be trustee.

35. Effect of declaration.—A declaration made under thisChapter is binding only on the parties to the suit, persons claimingthrough them respectively, and, where any of the parties aretrustees, on the persons for whom, if in existence at the date ofthe declaration, such parties would be trustees.”

AThe very sheet anchor of Smt. Doshi’s case, namely, the judgmentin Booz Allen (supra), refers to the judgment of this Court in OlympusSuperstructures v. Meena Vijay Khetan, (1999) 5 SCC 651[hereinafter referred to as “Olympus”], in which it was held that anarbitrator has the power and jurisdiction to grant specific performanceof contracts relating to immovable property (see paragraphs 43 and 44).B

9. perusal of the judgment in Olympus (supra) would showthat this Court was faced with differing views taken by the High Courtsas to whether specific performance of contract relating to immovableproperty is at all arbitrable. The Delhi High Court in Sulochana Uppalv. Surinder Sheel Bhakri, AIR 1991 Del 138 [hereinafter referredCto as “Sulochana Uppal”] had held that specific performance of anagreement could not be granted by an arbitrator for the reason that:

“15. An agreement to refer dispute to arbitration, the effect ofwhich would be to have an award directing specific performanceof an agreement to sell, would have for its object to defeat theDprovisions of the Specific Relief Act, especially sections 10 and20 thereof. It is clearly intended by the aforesaid provisions that itis only courts, and courts alone who would have jurisdiction togrant or refuse specific performance.”

The learned Single Judge thus disagreed with the contrary viewEof the Bombay High Court and the Punjab High Court.[1]

10. It is important to note that this Court referred to all the aforesaidthree judgments, including judgment of the Calcutta High Court. Inarriving at the conclusion that the Punjab, Bombay, and Calcutta HighCourts’ view is the correct one and that the Delhi High Court’s view,Fbeing incorrect, is overruled, this Court referred to an important passagein 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 orGdifference which the parties to an arbitration agreement agreeto refer must consist of justiciable issue triable civilly. fair

1 This Court in Olympus Superstructures v. Meena Vijay Khetan, (1999) 5 SCC651 wrongly refers to the Delhi High Court’s judgment as being the judgment inH“P.N.B. Finance Ltd. v. Shital Prasad Jain, AIR 1991 Del 13" (see paragraph 33).

test of this is whether the difference can be compromisedlawfully by way of accord and satisfaction (Cf. Bac AbrArbitrament and Award A).”

36. Further, as pointed out in the Calcutta case [ Apo 498 of1997 & Apo 449 of (401) dated 27-1-1998 (Cal)] merely becausethere is need for exercise of discretion in case of specificperformance, it cannot be said that only the civil court can exercisesuch discretion. In the above case, Ms Ruma Pal, J. observed:

“… merely because the sections of the Specific Relief Actconfer discretion on courts to grant specific performance of acontract does not mean that parties cannot agree that thediscretion will be exercised by forum of their choice. If theconverse were true, then whenever relief is dependent uponthe exercise of discretion of court by statute e.g. the grant ofinterest or costs, parties could be precluded from referring thedispute to arbitration.”

We agree with this reasoning. We hold on Point 3 that disputesrelating to specific performance of contract can be referred toarbitration and Section 34(2)(b)(i) is not attracted. We overrulethe view of the Delhi High Court. Point 3 is decided in favour ofthe respondents.”

11. perusal of section 26(1) of the Specific Relief Act, 1963would show that when, through fraud or mutual mistake of parties, acontract or other instrument in writing does not express the real intent ofthe parties, then either party or his representative in interest may eitherinstitute suit to have the instrument rectified or as defendant, may, inaddition to any defence open to him, ask for rectification of the instrument.Importantly, under section 26(3), party may pray in rectification suitfor specific performance – and if the Court thinks fit, may after rectifyingthe contract, grant specific performance of the contract. Thus, what ismade clear by this section is that the rectification of contract can bethe subject matter of suit for specific performance, which, as we havealready seen, can be the subject matter of an arbitral proceeding.

12. Under section 27(1) of the Specific Relief Act, 1963, “anyparty interested” in contract may sue to have it rescinded and suchrescission 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

Afour exceptions to this rule. In Shravan Goba Mahajan v. KashiramDevji, ILR (1927) 51 Bom 133, Division Bench of the BombayHigh 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) heldthat an heir is person interested in the contract which is sought to beset aside, thus, making it clear that the expression “any person interested”Bwould include not just party to the contract, but persons who may beheirs of one of the parties to the contract. reading of this sectionwould also show that all such actions in which contract or instrumentmay be rectified or rescinded, no judgment in rem follows, as what issought to be rectified or rescinded is by the parties to the contract orCpersons who may be their heirs or legal representatives. Third parties tothe contract are not persons who can be said to be “any personinterested”, particularly when section 27(2)(c), which refers to thirdparties, is seen and contrasted with the expression “any person interested”in section 27(1) – under section 27(2)(c), third parties come in as anexception to the rule only when they have acquired rights in good faith,Dwithout notice and for value, during the subsistence of the contractbetween the parties to that contract.

13. Sections 29 and 30 are also important, in that plaintiffinstituting suit for specific performance may pray in the alternativethat if the contract cannot be specifically enforced, it may be rescindedEand be delivered up to be cancelled. In addition, on adjudging therescission of the contract, the Court may require the party to whomsuch relief is granted to restore, so far as may be, any benefit which hemay have received from the other partyand to make any compensationto him which justice may require. These two sections would also show

Fthat following rescission of contract, it has to be delivered up to theplaintiff to be cancelled – and all of this can be done in suit for specificperformance. Thus far, therefore, it is clear that an action for rescissionof contract and delivering up of that contract to be cancelled is anaction in personam which can be the subject matter of suit for specific

performance, making such rescission and delivering up the contract toGbe cancelled, the subject matter of arbitration.

14. When it comes to section 31(1), the important expression usedby the legislature is “any person against whom written instrument isvoid or voidable…”. An instructive judgment of the Full Bench of theMadras High Court reported as Muppudathi Pillai v. KrishnaswamiH

Pillai, AIR 1960 Mad 1 involved the determinationof the scope ofsection 41 of the Specific Relief Act, 1877 (section 33(1) of the 1963Act is the pari materia provision). This judgment, after referring tosection 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). TheCourt then went on to notice the distinction between section 35 (whichis the pari materia provision to section 27 of the 1963 Act) and section39 of the Specific Relief Act, 1877 as follows:

“11. ...It may be noticed that the above section applies not merelyto the case of an instrument which is voidable but also one that isvoid. S. 35 provides for the case of rescission of voidable contracts.It is evident that S. 39 covers not only case contemplated underS. 35, but also wider field, that is, case of void document,which under the law need not be set aside.”

15. In an extremely important paragraph, the Full Bench then setout the principle behind section 39(1) of the Specific Relief Act, 1877 asfollows:

“12.The principle is that such document though not necessary tobe set aside may, if left outstanding, be source of potentialmischief. The jurisdiction under S. 39 is, therefore, protective ora preventive one.It is not confined to case of fraud, mistake,undue influence etc. and as it has been stated it was to prevent adocument to remain as menace and danger to the party againstwhom under different circumstances it might have operated. Aparty against whom claim under document might be made isnot bound to wait till the document is used against him. If thatwere so he might be in disadvantageous position if the impugneddocument is sought to be used after the evidence attending itsexecution has disappeared. Section 39 embodies the principle bywhich he is allowed to anticipate the danger and institute suit tocancel the document and to deliver it up to him. The principle ofthe 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 threeconditions are requisite for the exercise of the jurisdiction to cancel

an instrument : (1) the instrument is void or voidable against theplaintiff; (2) plaintiff may reasonably apprehend serious injury bythe instrument being left outstanding; (3) in the circumstances ofthe case the court considers it proper to grant this relief ofpreventive justice. On the third aspect of the question the Englishand American authorities hold that where the document is void onits face the court would not exercise its jurisdiction while it wouldif it were not so apparent. In India it is matter entirely for thediscretion of the court.

14. The question that has to be considered depends on the firstand second conditions set out above. As the principle is one ofpotential mischief, by the document remaining outstanding, it standsto reason the executant of the document should be either theplaintiff or person who can in certain circumstances bind him. Itis only then it could be said that the instrument is voidable by orvoid against him. The second aspect of the matter emphasisesthat principle. For there can be no apprehension if mere thirdparty asserting hostile title creates document. Thus relief underS. 39 would be granted only in respect of an instrument likely toaffect the title of the plaintiff and not of an instrument executedby stranger to that title.

E15.Let us take an example of trespasser purporting to conveythe property in his own right and not in the right of the owner. Insuch case mere cancellation of the document would not removethe cloud occasioned by the assertion of hostile title, as such adocument even if cancelled would not remove the assertion ofthe hostile title. In that case it would be the title that has got to beFjudicially adjudicated and declared, and mere cancellation of aninstrument would not achieve the object. S. 42 of the SpecificRelief Act would apply to such case. The remedy under S. 39 isto remove cloud upon the title, by removing potential dangerbut it does not envisage an adjudication between competing titles.

That can relate only to instruments executed or purported to beexecuted by party or by any person who can bind him in certaincircumstances. It is only in such cases that it can be said there isa cloud on his title and an apprehension that if the instrument isleft outstanding it may be source of danger. Such cases mayarise in the following circumstances: party executing the

document, or principal in respect of document executed by hisagent, or minor in respect of document executed by his guardiande jure or de facto, reversioner in respect of document executedby the holder of the anterior limited estate, real owner in respectof document executed by the benamidar, etc. This right has alsobeen recognised in respect of forged instruments which could becancelled by party on whose behalf it is purported to be executed.In all these cases there is no question of document by strangerto the title. The title is the same. But in the case of personasserting hostile title, the source or claim of title is different. Itcannot be said to be void against the plaintiff as the term void orvoidable implies that but for the vitiating factor it would be bindingon him, that is, he was party to the contract.

16.There is one other reason for this conclusion. Section 39empowers the court after adjudicating the instrument to be voidto order the instrument to be delivered up and cancelled. If thesale deed is or purported to have been executed by party, theinstrument on cancellation could be directed to be delivered overto the plaintiff. If on the other hand such an instrument is executedby trespasser or person claiming adversely to the plaintiff it isnot possible to conceive the instrument being delivered over notto the executant but his rival, the plaintiff.”

The Court then concluded:

“18. In our opinion, Sec. 39 will not apply to case like the presentwhere the sale was executed by person claiming title adverse tothat of Vinayagam Pillai, and therefore, the court would have nojurisdiction under S. 41 to direct payment of compensation by theplaintiff to the appellant before obtaining relief as to possession.To hold otherwise would mean that mere volunteer who paidthe debt of the plaintiff would be able to recover the same.”[2]

2 Full Bench of the Andhra Pradesh High Court in Yanala Malleshwari v. AnanthulaSayamma, 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 voidabletransactions, suit for cancellation of deed is not maintainable. In case whereimmovable property is transferred by person without authority to third person, itis no answer to say that the true owner who has authority and entitlement to transfercan file suit under Section 31 of the Specific Relief Act for the simple reason that sucha suit is not maintainable. Further, in case of an instrument, which is void or voidableagainst executant, suit would be maintainable for cancellation of such instrument and

A16. reading of the aforesaid judgment of the Full Bench wouldmake the position in law crystal clear. The expression “any person”does not include third party, but is restricted to party to the writteninstrument or any person who can bind such party. Importantly, reliefunder section 39 of the Specific Relief Act, 1877 would be granted onlyin respect of an instrument likely to affect the title of the plaintiff, andBnot of an instrument executed by stranger to that title. The expression“any person” in this section has been held by this Court to include aperson seeking derivative title from his seller (see Mohd. Noorul Hodav. Bibi Raifunnisa(1996) 7 SCC 767, at p. 771). The principle behindthe section is to protect party or person having derivative title toCproperty from such party from prospective misuse of an instrumentagainst him. reading of section 31(1) then shows that when writteninstrument is adjudged void or voidable, the Court may then order it to bedelivered up to the plaintiff and cancelled – in exactly the same way asa suit for rescission of contract under section 29. Thus far, it is clearthat the action under section 31(1) is strictly an action inter parties or byDpersons who obtained derivative title from the parties, and is thus inpersonam.

17. Let us see whether section 31(2) makes any difference to thisposition in law. According to the judgment in Aliens Developers (supra),the moment registered instrument is cancelled, the effect being toEremove it from public register, the adjudicatory effect of the Courtwould make it judgment inrem. Further, only competent court isempowered to send the cancellation decree to the officer concerned, toeffect such cancellation and “note on the copy of the instrument containedin his books the fact of its cancellation”. Both reasons are incorrect. AnFaction that is started under section 31(1) cannot be said to be in personamwhen an unregistered instrument is cancelled and in rem when aregistered instrument is cancelled. The suit that is filed for cancellationcannot be inpersonam only for unregistered instruments by virtue of thefact that the decree for cancellation does not involve its being sent to the

registration office – ministerial action which is subsequent to the decreeGbeing passed. In fact, in Gopal Das v. Sri Thakurji, AIR 1943 PC 83,a certified copy of registered instrument, being receipt dated29.03.1881 signed by the owner, was held not to be public record of

can be decreed only when it is adjudicated by the competent Court that such instrumentis void or voidable and that if such instrument is left to exist, it would cause seriousHinjury to the true owner.”

private document under section 74(2) of the Indian Evidence Act, 1872for the reason that the original has to be returned to the party undersection 61(2) of the Registration Act, 1908 (see p. 87). This judgmenthas been followed in Rekha v. Ratnashree, (2006) 1 MP LJ 103 bya Division Bench of the Madhya Pradesh High Court, in which it washeld:

“8. deed of sale is conveyance. deed of conveyance orother document executed by any person is not an act nor recordof an act of any sovereign authority or of any official body ortribunal, or of any public officer, legislative, judicial and executive.Nor is it public record kept in State of any private documents.A sale-deed (or any other deed of conveyance) when presentedfor registration under the Registration Act, is not retained or keptin any public office of State after registration, but is returned tothe person who presented such document for registration, oncompletion of the process of registration. An original registereddocument is not therefore public record kept by State of aprivate document. Consequently, deed of sale or other registereddocument will not fall under either of the two classes of documentsdescribed in section 74, as ‘public documents’. Any documentwhich is not public document is private document. We thereforehave no hesitation in holding that registered sale-deed (or anyother registered document) is not public document but privatedocument.

9. This position is made abundantly clear in Gopal Das v. ShriThakurji, AIR 1943 Privy Council 83, wherein the Privy Councilconsidering the question whether registered receipt is publicdocument observed thus:

“It was contended by Sir Thomas Strangman for therespondents that the receipt comes within para 2 of section 74,Evidence Act, and was “public document”; hence undersection 65(e) no such foundation is required as in cases comingwithin clauses (a), (b) and (c) of that section. Their Lordshipscannot accept this argument since the original receipt of 1881is not “a public record of private document”. The originalhas to be returned to the party. similar argument wouldappear at one time to have had some acceptance in India but it

Ainvolves misconstruction of the Evidence Act and RegistrationAct and later decisions have abandoned it.” (emphasis supplied)

We may also refer to the following passage from Ratanlal’s Lawof Evidence (19th Edition-Page 237):

“Public document [Clause (e)] — This clause is intended toBprotect the originals of public records from the danger to whichthey would be exposed by constant production in evidence.Secondary evidence is admissible in the case of publicdocuments mentioned in section 74. What section 74 providesis that public records kept in any state of private documentsCare public documents, but private documents of whichpublic records are kept are not in themselves publicdocuments. registered document, therefore, does not fallunder either clause (e) or (f). The entry in the register bookis public document, but the original is privatedocument.”D

(emphasis in original)

Thus, the factum of registration of what is otherwise privatedocument inter parties does not clothe the document with anyhigherlegal status by virtue of its registration.

E18. Also, it must be remembered that the Delhi High Court’sreasoning in Sulochana Uppal (supra) that it is the Court alone thatcan, under the Specific Relief Act, enforce specific performance of anagreement, is contra to the reasoning in Olympus (supra) whichoverruled it, stating that “the dispute or difference which parties to anFarbitration agreement agree to refer must consist of justiciable issuestriable civilly”. Since specific performance is justiciable issue triablecivilly, obviously, the expression “court” occurring throughout the SpecificRelief Act will have to be substituted by “arbitrator” or “arbitral tribunal”.This part of the reasoning in Aliens Developers (supra), in followingthe same reasoning as an overruled Delhi High Court judgment, wouldGfly in the face of Olympus (supra) and would, therefore, not be goodlaw. 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 thing”] Involving or determiningHthe status of thing, and therefore the rights of persons generally

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 Courtdetermines the title to property and the rights of the parties, notmerely as between themselves, but also as against all persons atany time dealing with them or with the property upon which theCourt had adjudicated.” R.H. GRAVESON, Conflict of Laws98 (7th ed. 1974).

Against the king; against the property, not against person.

This term is derived from the Roman law, but is not used in Englishlaw in precisely the same sense as in that law. Indeed, Bracton,limits proceedings in rem to actions to obtain possession of res bywhich he understood real actions; (Bigelow on Estoppel 42, 43.)

proceeding in rem is proceeding instituted against thing, andnot against person.

proceeding in rem, in strict sense, is one taken directly againstproperty, and has for its object the disposition of the property,without reference to the title of individual claimants but in largerand more general sense the term ‘proceeding in rem’ is applied toactions between parties where the direct object is to reach anddispose of property owned by them, or of some interest therein.

judgement in rem is generally said to be judgment declaratoryof the status of some subject matter, whether this be person, ora thing. Thus the probate of will fixes the status of the documentas will; so decree establishing or dissolving marriage is ajudgment in rem, because it fixes the status of the person. Ajudgment or forfeiture against specified articles of goods forviolation of the revenue laws is judgment in rem. In such casethe judgment is conclusive against all the world, and, if theexpression ‘strictly in rem’ may be applied to any class of cases,it should be confined to such as these. Chief Justice Marshallsays: ‘I have always understood that where process is to beserved on the thing itself, and where the mere possession of thething itself, by the service of process and making proclamation,authorizes the Court to decide upon it without notice to any individualwhatever, it is proceeding in rem, to which all the world areparties. The claimant if party, whether he speaks or is silent,

Awhether he asserts his claim or abandons it. But usage hasdistinguished as proceedings in rem class of cases in which,while the seizure of the thing will be in aid of jurisdiction, yet it isessential that some form of notice be given to the particular personor persons. The proceeding thus assumes phase of actions inpersonam, and judgment will not be binding upon any one whoBwas not before the Court.

An act or proceeding is in rem when it is done or directed withreference to no specific person and consequently against or withreference to all whom it might concern, or ‘all the world’.

Lawsuits brought against property as compared with those againsta person; the Court’s jurisdiction does not depend on notice to theproperty 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 inrem as follows:D

“Roman lawyers recognised right either as jusin rem or jusin personam. According to its literal meaning “jus in rem” is aright in respect of thing, “jus in personam” is right againstor in respect of person. In modern legal terminology right inErem, postulates duty to recognise the right imposed upon allpersons generally, right in personam postulates duty imposedupon determinate person or class of persons. right in rem istherefore protected against the world at large; right in personamagainst determinate individuals or persons. An action to enforce ajus in personam was originally regarded as an action in personamFand an action to enforce jus in rem was regarded as an actionin rem. But in course of time, actions in rem and actions inpersonam acquired different content. When in an action the rightsand interest of the parties themselves in the subject-matter aresought to be determined, the action is in personam. The effect ofGsuch an action is therefore merely to bind the parties thereto.Where the intervention of the Court is sought for the adjudicationof right or title to property, not merely as between the partiesbut against all persons generally, the action is in rem. Such anaction is one brought in the Admiralty Division of the High Courtpossessing Admiralty jurisdiction by service of process against

ship or cargo within jurisdiction. There is another sense in whichan action in rem is understood. proceeding in relation to personalstatus is also treated as proceeding in rem, for the judgment ofthe proper court within the jurisdiction of which the parties aredomiciled is by comity of nations admitted to recognition by othercourts. As observed by Cheshire in his “Private InternationalLaw”, Sixth Edition at page 109, “In Roman law an action in remwas one brought in order to vindicate jus in rem,i.e., rightsuch as ownership available against all persons, but the only actionin rem known to English law is that which lies in an Admiraltycourt against particular res, namely, ship or some other res,such as cargo, associated with the ship.” Dealing with judgmentsin rem and judgments in personam. Cheshire observed at page653, “It (judgment in rem) has been defined as judgment of acourt of competent jurisdiction determining the status of personor thing (as distinct from the particular interest in it of party tothe litigation); and such judgment is conclusive evidence for andagainst all persons whether parties, privies or strangers of thematter actually decided. …… judgment in rem settles the destinyof the res itself ‘and binds all persons claiming an interest in theproperty inconsistent with the judgment even though pronouncedin their absence’; judgment in personam, although it may concerna res, merely determines the rights of the litigants inter se to theres.”

Also, judgment in rem has been described in Satrucharla VijayaRama Raju v. Nimmaka Jaya Raju, (2006) 1 SCC 212 as follows:

“10. ...A judgment in rem is defined in English law as “anadjudication pronounced (as its name indeed denotes) by the status,some particular subject-matter by tribunal having competentauthority for that purpose”. Spencer Bower on Res Judicatadefines the term as one which “declares, defines or otherwisedetermines the status of person or of thing, that is to say, thejural relation of the person or thing to the world generally”...”

Judged by these authorities, it is clear that the proceeding undersection 31 is with reference to specific persons and not with referenceto all who may be concerned with the property underlying the instrument,

Aor “all the world”. Clearly, the cancellation of the instrument under section31 is as between the parties to the action and their privies and not againstall persons generally, as the instrument that is cancelled is to be deliveredto the plaintiff in the cancellation suit. judgment delivered under section31 does not bind all persons claiming an interest in the propertyinconsistent with the judgment, even though pronounced in their absence.B

21. reading of sections 32 and 33 of the Specific Relief Act,1963 would also show that the reasoning of the High Court in AliensDevelopers (supra) is flawed. Where, for example, under section 32,an instrument is cancelled in part, the instrument which is otherwise onlyan instrument inter parties, cannot be said to be an instrument whichCremains inter parties, the cancelled portion being cancellation to theworld at large, i.e., in rem. Equally, under section 33, when compensationis required to be paid or restoration of benefit which has been receivedfrom the other party is required to be made, it is exactly the same as thatwhich is required to be done under contract which is rescinded andDcancelled (see section 30): and it is clear that both sections 30 and 33would apply only to contracts or instruments which are rescinded/cancelled in personam.

22. When sections 34 and 35 are seen, the position becomes evenclearer. Unlike section 31, under section 34, any person entitled to anyElegal charactermay institute suit for declaration that he is so entitled.Considering that it is possible to argue on reading of this provision thatthe legal character so declared may be against the entire world, section35 follows, making it clear that such declaration is binding onlyon theparties to the suit and persons claiming through them, respectively. Thisis for the reason that under section 4 of the Specific Relief Act, specificFrelief is granted only for the purpose of enforcing individual civil rights.The principle contained in section 4 permeates the entire Act, and itwould be most incongruous to say that every other provision of the SpecificRelief Act refers to in personam actions, section 31 alone being out ofstep, i.e., referring to in rem actions.G

23. As matter of fact, this Court in Razia Begum v. SahebzadiAnwar Begum, 1959 SCR 1111 clarified that the predecessor tosection 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 ReliefAct, 1877 go together and refer only to an action that is in personam.HThis was felicitously stated by this Court as follows:

“ ...Sections 42 and 43, as indicated above, go together, and aremeant to be coextensive in their operation. That being so, adeclaratory judgment in respect of disputed status, will be bindingnot only upon the parties actually before the court, but also uponpersons 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 declaration in Chapter VI of theSpecific Relief Act, is not judgment in rem. But even thoughsuch declaration operates only in personam, the section proceedsfurther to provide that it binds not only the parties to the suit, butalso persons claiming through them, respectively. The word“respectively” has been used with view to showing that theparties arrayed on either side, are really claiming adversely to oneanother, so far as the declaration is concerned. This is anotherindication of the sound rule that the court, in particular casewhere it has reasons to believe that there is no real conflict, may,in exercise of judicial discretion, refuse to grant the declarationasked for oblique reasons.”

24. Also, in an instructive judgment of this Court in Suhrid Singhv. Randhir Singh, (2010) 12 SCC 112, in the context of the CourtFees Act, 1870 this Court held:

“7. Where the executant of deed wants it to be annulled, he hasto seek cancellation of the deed. But if non-executant seeksannulment of deed, he has to seek declaration that the deed isinvalid, or non est, or illegal or that it is not binding on him. Thedifference between prayer for cancellation and declaration inregard to deed of transfer/conveyance, can be brought out bythe following illustration relating to and B, two brothers. Aexecutes sale deed in favour of C. Subsequently wants toavoid the sale. has to sue for cancellation of the deed. On theother hand, if B, who is not the executant of the deed, wants toavoid it, he has to sue for declaration that the deed executed byA is invalid/void and non est/illegal and he is not bound by it. Inessence both may be suing to have the deed set aside or declaredas non-binding. But the form is different and court fee is alsodifferent. If A, the executant of the deed, seeks cancellation ofthe deed, he has to pay ad valorem court fee on the consideration

Astated in the sale deed. If B, who is non-executant, is in possessionand sues for declaration that the deed is null or void and doesnot bind him or his share, he has to merely pay fixed court fee ofRs. 19.50 under Article 17(iii) of the Second Schedule of the Act.But if B, non-executant, is not in possession, and he seeks notonly declaration that the sale deed is invalid, but also theBconsequential relief of possession, he has to pay an ad valoremcourt fee as provided under Section 7(iv)(c) of the Act.”25. The reasoning in the aforesaid judgment would again exposethe incongruous result of section 31 of the Specific Relief Act being heldto be an in rem provision. When it comes to cancellation of deed by anCexecutant to the document, such person can approach the Court undersection 31, but when it comes to cancellation of deed by non-executant,the non-executant must approach the Court under section 34 of theSpecific Relief Act, 1963. Cancellation of the very same deed, therefore,by non-executant would be an action in personam since suit has toDbe filed under section 34. However, cancellation of the same deed by anexecutant of the deed, being under section 31, would somehow convertthe suit into suit being in rem. All these anomalies only highlight theimpossibility of holding that an action instituted under section 31 of theSpecific Relief Act, 1963 is an action in rem.

E26. Given this finding of law, it is clear that the judgments of theDistrict Court and the High Court in this case need no interference. Thisappeal, therefore, stands dismissed.

Divya Pandey

Appeal dismissed