2023 (5) TMI 3 - SC - Indian Laws

Supreme Court Upholds Arbitration Clause in Development Agreement Dispute

The Supreme Court held that the dispute concerning cancellation of a Development Agreement falls within the scope of the arbitration clause, emphasizing ... Suit for a decree directing the appellant to execute a deed of cancellation in respect of the Development Agreement - prayer for the delivery of possession of the suit property - application under Rule 11 of Order VII of the Code of Civil Procedure, 1908 filed on the ground that in view of the arbitration clause in the Development Agreement, the dispute ought to be referred to arbitration - HELD THAT:- The dispute, whether the Development Agreement stands cancelled or whether the agreement can be lawfully cancelled, is a dispute arising out of or in connection with the Development Agreement. Therefore, as per the arbitration clause, if the issue concerning cancellation is not mutually resolved, the same must be referred to arbitration. The only ground on which the High Court has interfered is that the adjudication pursuant to invocation of Section 31 of the Specific Relief Act is an adjudication in rem. However, in the case of Deccan Paper Mills Company Limited1, this Court has categorically held that it is impossible to hold that an action instituted under Section 31 of the Specific Relief for cancellation of an instrument is an action in rem. In view of the applicability of the arbitration clause to the dispute subject matter of the suit filed by the respondent, the learned Trial Judge was justified in passing an order under Section 8 of the Arbitration Act by directing that the dispute be referred to the arbitration. The impugned judgment and order of the High Court is set aside - the judgment and order of the Trial Court is restored - appeal allowed. Issues involved:The issues involved in the judgment are the interpretation of an arbitration clause in a Development Agreement and the applicability of Section 31 of the Specific Relief Act in a dispute regarding cancellation of an agreement.Interpretation of Arbitration Clause:The respondent filed a suit seeking cancellation of a Development Agreement and possession of the suit property. The appellant invoked an arbitration clause in the agreement, seeking to refer the dispute to arbitration. The Trial Court directed the parties to arbitration, but the High Court set aside this order, stating that adjudication under Section 31 of the Specific Relief Act is an adjudication in rem. However, the Supreme Court held that the dispute concerning cancellation of the agreement falls within the scope of the arbitration clause. The Court emphasized that if the issue is not mutually resolved, it must be referred to arbitration as per the agreement.Applicability of Section 31 of the Specific Relief Act:The appellant argued that the High Court erred in setting aside the Trial Court's order, citing a previous Supreme Court decision that actions under Section 31 of the Specific Relief Act are not actions in rem. The respondent contended that the arbitration clause does not apply as the suit seeks cancellation of the agreement under Section 31 of the Specific Relief Act. However, the Supreme Court ruled that the arbitration clause in the Development Agreement covers disputes arising out of or in connection with the agreement, including the issue of cancellation. Therefore, the Trial Court's order directing arbitration was upheld, and the High Court's decision was set aside.