Arbitration clause covers cancellation dispute; Section 31 cancellation action is not in rem and does not bar arbitration.

A broad arbitration clause covering all disputes arising out of or in connection with a development agreement extended to a dispute over whether the agreement stood cancelled or could be lawfully cancelled, so the controversy was referable to arbitration. A proceeding under Section 31 of the Specific Relief Act, 1963 for cancellation of an instrument is not an action in rem, and therefore does not exclude arbitration. The High Court's refusal to give effect to the arbitration clause was unwarranted, the referral order under Section 8 of the Arbitration and Conciliation Act, 1996 was restored, and the dispute was directed to proceed in arbitration.

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Issues: (i) whether the dispute relating to cancellation of the development agreement fell within the arbitration clause; (ii) whether a proceeding under Section 31 of the Specific Relief Act, 1963 is an action in rem so as to exclude arbitration.

Issue (i): whether the dispute relating to cancellation of the development agreement fell within the arbitration clause.

Analysis: The agreement contained a broad clause covering all disputes arising out of or in connection with the agreement. The controversy whether the development agreement stood cancelled or could be lawfully cancelled arose directly from that instrument and therefore answered the contractual expression governing referral of disputes.

Conclusion: The dispute was covered by the arbitration clause and was referable to arbitration.

Issue (ii): whether a proceeding under Section 31 of the Specific Relief Act, 1963 is an action in rem so as to exclude arbitration.

Analysis: The earlier decision relied upon by the Court had already clarified that an action for cancellation of an instrument under Section 31 is not an action in rem. That principle removed the sole basis on which the High Court had declined to give effect to the arbitration clause and the order under Section 8 of the Arbitration and Conciliation Act, 1996.

Conclusion: A Section 31 proceeding is not an action in rem and does not bar arbitration.

Final Conclusion: The High Court's interference was unwarranted, the trial court's referral order was restored, and the dispute was directed to proceed in arbitration.

Ratio Decidendi: A dispute arising out of or in connection with an agreement is arbitral where the parties have agreed to refer such disputes to arbitration, and an action for cancellation of an instrument under Section 31 of the Specific Relief Act, 1963 is not an action in rem.

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