TaxTMI 
TaxTMI 
2020 (8) TMI 533
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....e Mundhwa, District Pune, decided to develop a portion of the said land, i.e., 32,659 sq. meters. It is not necessary to enter into the nitty-gritty of the said agreement. However, it is enough to note that this agreement contained clause 7(m), in which it is stated : "7. The Owner and the Developer hereto covenant that upon the execution of these presents: 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: "....
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....ment of assignment was formal and Defendant No.3 will be responsible for development of the said property. Now directors of Plaintiff Company realize that Defendant No. 3 had different intentions." 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 30.05.20....
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.... of action for this suit first arose on or about 22.07.2004 when the Defendant No.1 obtained agreement for development of the suit property, it further arose when the Defendant No.1 and 2 obtained agreement of assignment dated 20.05.2006 and Deed of Confirmation dated 17.07.2006. It further arose, in the month of April/May 2010, when the Plaintiff for the first time came to know that the Defendant No.3 is no more partner of the Defendant No.1 and that the Defendants have committed fraud upon the Plaintiff. The cause of action also arose, when the Defendants failed to comply with the demands made in notice dated 10.07.2010. 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 Dee....
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....ing the legality of agreement dated 20.05.2006 on the ground that the same is obtained by fraud and is therefore seeking further declaration that the said agreement is null and ab initio void. As such, the very Arbitration clause as contained in the said agreement is not enforceable. In spite of the fact that Section 16 of the said Act empowers the Arbitral Tribunal to decide its own jurisdiction in view of particular circumstances narrated in the plaint, the present application deserves to be rejected." v. By a judgment dated 19.07.2011, the Additional Judge, Small Causes Court, Pune, after hearing both sides, held as follows: "11. After perusing the above mentioned cited cases, it shows that when there is a clause of arbitration it is mandated on the Civil Court to refer the dispute and parties for arbitration as per agreement. In present case the plaintiffs have materially contention about playing fraud by Defendant No.3 but there is no any contents in agreement as alleged by plaintiff in plaint about keeping faith on Defendant No.3. It shows about signing by Defendant No.3 for agreement dated 20.05.2006 and he was also party to said agreement. The plaintiff alleged ....
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....2. Smt. Meena Doshi, learned advocate appearing on behalf of the Appellant, has taken us through the record and argued on the basis of N. Radhakrishnan (supra) that when it comes to serious allegations of fraud, an arbitrator's jurisdiction gets ousted and reading the pleadings in the Special Civil Suit, it is obvious that serious allegations of fraud being raised in the present case, the dispute is thus rendered non-arbitrable. She then referred to section 8 of the 1996 Act, as amended by the Arbitration and Conciliation (Amendment) Act, 2015 [hereinafter referred to as the "2015 Amendment Act"] to further argue that both the District Judge as well as the High Court did not look into the requirements of the amended section 8, and that the aforesaid judgments are infirm on this count alone. She also argued, basing herself on the seven-Judge Bench judgment in S.B.P. & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618 that the correct application of section 8 is not a mere mechanical incantation of the section, the Court having to apply its mind as to whether there exists an arbitration agreement at all, which would include whether the subject matter of the proceeding is at all arbitrable. S....
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.... that the agreement dated 22.07.2004, which did not contain an arbitration clause, was also sought to be cancelled in the suit, he argued that this was inserted only in the prayer clause in order to camouflage the suit so as to get out of arbitration. If the body of the suit were to be seen, it is clear that what was sought to be impugned was only the latter two agreements, the first being of historical significance only. This being the case, it is clear that the dispute is arbitrable. Further, all that is to be seen under section 8 of the 1996 Act after its amendment is that prima facie, a valid arbitration agreement exists. Here, as a matter of fact, it was admitted, according to Shri Navre, in the affidavit filed in reply to the section 8 application that the agreement between the parties did exist, but was vitiated on account of fraud, which only made it voidable. 4. We have, in our judgment in Avitel Post Studioz Limited & Ors. v. HSBC PI Holding (Mauritius) Ltd., Civil Appeal No. 5145 of 2016, laid down the law on invocation of the "fraud exception" in some detail, which reasoning we adopt and follow. The said judgment indicates that given the case law since N. Radhakrishn....
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....t Act. (See Ameet Lalchand Shah v. Rishabh Enterprises, (2018) 15 SCC 678 at pp. 698-700, Mayavati Trading Pvt. Ltd. v. Pradyut Deb Burman, (2019) 8 SCC 714 at pp. 724-725, and Emaar MGF Land Ltd. v. Aftab Singh, (2019) 12 SCC 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)....
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....s accrued to the parties, such cancellation is to be communicated to the officer who has registered the document, in view of the provision under Section 31(2) of the Specific Relief Act. Therefore, we are of the considered view that such adjudicatory function in cases like this will operate in rem. In any event, having regard to the power conferred on Courts by virtue of the provision under Section 31(2) of the Specific Relief Act, only a competent Court is empowered to send the cancellation decree, to the officer concerned, to effect such cancellation and note in his books to that effect. When such Statutory power is conferred on Courts, such power cannot be exercised by the Arbitrator, in spite of the fact that there is an arbitration clause in the agreement entered between the parties..." 8. It is now for us to examine whether a further exception can be carved out based upon Booz Allen (supra) on the footing of the High Court's judgment in Aliens Developers (supra). In order to examine the correctness of Aliens Developers (supra), it is necessary to set out certain sections of the Specific Relief Act. The relevant sections are set out hereinbelow: "4. Specific relief....
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....t is more to blame than the plaintiff. (2) Notwithstanding anything contained in subsection (1), the court may refuse to rescind the contract (a) where the plaintiff has expressly or impliedly ratified the contract; or (b) where, owing to the change of circumstances which has taken place since the making of the contract (not being due to any act of the defendant himself), the parties cannot be substantially restored to the position in which they stood when the contract was made; or (c) where third parties have, during the subsistence of the contract, acquired rights in good faith without notice and for value; or (d) where only a part of the contract is sought to be rescinded and such part is not severable from the rest of the contract. Explanation.-In this section "contract" in relation to the territories to which the Transfer of Property Act, 1882 (4 of 1882), does not extend, means a contract in writing." xxx xxx xxx "29. Alternative prayer for rescission in suit for specific performance.-A plaintiff instituting a suit for the specific performance of a contract in writing may pray in the alternative that, if ....
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....e plaintiff need not in such suit ask for any further relief: Provided that no court shall make any such declaration where the plaintiff, being able to seek further relief than a mere declaration of title, omits to do so. Explanation.-A trustee of property is a "person interested to deny" a title adverse to the title of someone who is not inexistence, and for whom, if in existence, he would be a trustee. 35. Effect of declaration.-A declaration made under this Chapter is binding only on the parties to the suit, persons claiming through them respectively, and, where any of the parties are trustees, on the persons for whom, if in existence at the date of the declaration, such parties would be trustees." 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) wou....
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....ed: "... merely because the sections of the Specific Relief Act confer discretion on courts to grant specific performance of a contract does not mean that parties cannot agree that the discretion will be exercised by a forum of their choice. If the converse were true, then whenever a relief is dependent upon the exercise of discretion of a court by statute e.g. the grant of interest or costs, parties could be precluded from referring the dispute to arbitration." We agree with this reasoning. We hold on Point 3 that disputes relating to specific performance of a contract can be referred to arbitration and Section 34(2)(b)(i) is not attracted. We overrule the view of the Delhi High Court. Point 3 is decided in favour of the respondents." 11. A perusal of section 26(1) of the Specific Relief Act, 1963 would show that when, through fraud or mutual mistake of parties, a contract or other instrument in writing does not express the real intent of the parties, then either party or his representative in interest may either institute a suit to have the instrument rectified or as defendant, may, in addition to any defence open to him, ask for rectification of the instrume....
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....granted to restore, so far as may be, any benefit which he may have received from the other party and to make any compensation to him which justice may require. These two sections would also show that following rescission of a contract, it has to be delivered up to the plaintiff to be cancelled - and all of this can be done in a suit for specific performance. Thus far, therefore, it is clear that an action for rescission of a contract and delivering up of that contract to be cancelled is an action in personam which can be the subject matter of a suit for specific performance, making such rescission and delivering up the contract to be cancelled, the subject matter of arbitration. 14. When it comes to section 31(1), the important expression used by the legislature is "any person against whom a written instrument is void or voidable...". An instructive judgment of the Full Bench of the Madras High Court reported as Muppudathi Pillai v. Krishnaswami 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 ....
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....orities hold that where the document is void on its face the court would not exercise its jurisdiction while it would if it were not so apparent. In India it is a matter entirely for the discretion of the court. 14. The question that has to be considered depends on the first and second conditions set out above. As the principle is one of potential mischief, by the document remaining outstanding, it stands to reason the executant of the document should be either the plaintiff or a person who can in certain circumstances bind him. It is only then it could be said that the instrument is voidable by or void against him. The second aspect of the matter emphasises that principle. For there can be no apprehension if a mere third party asserting a hostile title creates a document. Thus relief under S. 39 would be granted only in respect of an instrument likely to affect the title of the plaintiff and not of an instrument executed by a stranger to that title. 15. Let us take an example of a trespasser purporting to convey the property in his own right and not in the right of the owner. In such a case a mere cancellation of the document would not remove the cloud occasioned....
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...., Sec. 39 will not apply to a case like the present where the sale was executed by a person claiming title adverse to that of Vinayagam Pillai, and therefore, the court would have no jurisdiction under S. 41 to direct payment of compensation by the plaintiff to the appellant before obtaining relief as to possession. To hold otherwise would mean that a mere volunteer who paid the debt of the plaintiff would be able to recover the same."[ 2 A Full Bench of the Andhra Pradesh High Court in Yanala Malleshwari v. Ananthula Sayamma, AIR 2007 AP 57 followed 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 cancella....
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....the fact that the decree for cancellation does not involve its being sent to the registration office - a ministerial action which is subsequent to the decree being passed. In fact, in Gopal Das v. Sri Thakurji, AIR 1943 PC 83, a certified copy of a registered instrument, being a receipt dated 29.03.1881 signed by the owner, was held not to be a public record of a private document under section 74(2) of the Indian Evidence Act, 1872 for the reason that the original has to be returned to the party under section 61(2) of the Registration Act, 1908 (see p. 87). 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 offi....
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....therwise a private document inter parties does not clothe the document with any higher legal status by virtue of its registration. 18. Also, it must be remembered that the Delhi High Court's reasoning in Sulochana Uppal (supra) that it is the Court alone that can, under the Specific Relief Act, enforce specific performance of an agreement, is contra to the reasoning in Olympus (supra) which overruled it, stating that "the dispute or difference which parties to an arbitration agreement agree to refer must consist of justiciable issues triable civilly". Since specific performance is a justiciable issue triable civilly, obviously, the expression "court" occurring throughout the Specific Relief Act will have to be substituted by "arbitrator" or "arbitral tribunal". This part of the reasoning in Aliens Developers (supra), in following the same reasoning as an overruled Delhi High Court judgment, would fly in the face of Olympus (supra) and would, therefore, not be good law. We, therefore, overrule the same. 19. P. Ramanatha Aiyar's Advanced Law Lexicon (3rd Edn., Wadhwa Nagpur) describes an in rem proceeding as follows: "In rem. adj. [Latin "against a thing"] Involving or....
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....ther he speaks or is silent, whether he asserts his claim or abandons it. But usage has distinguished as proceedings in rem a class of cases in which, while the seizure of the thing will be in aid of jurisdiction, yet it is essential that some form of notice be given to the particular person or persons. The proceeding thus assumes a phase of actions in personam, and a judgment will not be binding upon any one who was not before the Court. An act or proceeding is in rem when it is done or directed with reference to no specific person and consequently against or with reference to all whom it might concern, or 'all the world'. Lawsuits brought against property as compared with those against a person; the Court's jurisdiction does not depend on notice to the property owner." 20. In R. Viswanathan v. Rukn-ul-Mulk Syed Abdul Wajid, (1963) 3 SCR 22, this Court set out the Roman law concept of jus in rem as follows: "Roman lawyers recognised a right either as a 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 ter....
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....f 'and binds all persons claiming an interest in the property inconsistent with the judgment even though pronounced in their absence'; a judgment in personam, although it may concern a res, merely determines the rights of the litigants inter se to the res." (at pp. 43-44) Also, a judgment in rem has been described in Satrucharla Vijaya Rama Raju v. Nimmaka Jaya Raju, (2006) 1 SCC 212 as follows: "10. ... A judgment in rem is defined in English law as "an adjudication pronounced (as its name indeed denotes) by the status, some particular subject-matter by a tribunal having competent authority for that purpose". Spencer Bower on Res Judicata defines the term as one which "declares, defines or otherwise determines the status of a person or of a thing, that is to say, the jural relation of the person or thing to the world generally"..." Judged by these authorities, it is clear that the proceeding under section 31 is with reference to specific persons and not with reference to all who may be concerned with the property underlying the instrument, or "all the world". Clearly, the cancellation of the instrument under section 31 is as between the parties to the actio....
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....c Relief Act, 1877 go together and refer only to an action that is in personam. This was felicitously stated by this Court as follows: " ... Sections 42 and 43, as indicated above, go together, and are meant to be coextensive in their operation. That being so, a declaratory judgment in respect of a disputed status, will be binding not only upon the parties actually before the court, but also upon persons claiming through them respectively. The use of the word "only" in Section 43, as rightly contended on behalf of the appellant, was meant to emphasize that a declaration in Chapter VI of the Specific Relief Act, is not a judgment in rem. But even though such a declaration operates only in personam, the section proceeds further to provide that it binds not only the parties to the suit, but also persons claiming through them, respectively. The word "respectively" has been used with a view to showing that the parties arrayed on either side, are really claiming adversely to one another, so far as the declaration is concerned. This is another indication of the sound rule that the court, in a particular case where it has reasons to believe that there is no real conflict, may, in ....