TaxTMI 
TaxTMI 
2020 (8) TMI 533
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.... 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: xxx xxx xxx 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." 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 a....
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....pment of the said property. Now directors of Plaintiff Company realize that Defendant 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. 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 ....
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....lopment 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. 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. ....
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....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 signing the confirmation deed dated 13.07.2006 but as per Partnership Act remedy is provided. Mor....
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.... 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, an....
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....it 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 involve....
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.... SCC 751 at 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 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 apprehens....
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....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.....
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....tract (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 ....
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.... 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." 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 ref....
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....gree 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 ....
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....n 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 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). 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 ....
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....es 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 inst....
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....lowed this judgment and then stated 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 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." ] 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,....
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....7). 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 ....
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....able 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 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....
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....s 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 jus in 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 subjectmatter a....
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....e 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, 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 rem....
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....ates 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 illustr....