2020 (8) TMI 533 - SC - Indian Laws

Cancellation of assignment deed - section 31 of the Specific Relief Act - suit for specific performance - rectification of the instrument - arbitral proceeding - HELD THAT - 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 have been already seen, can be the subject matter of an arbitral proceeding. Under section 27(1) of the Specific Relief Act, 1963, any party interested in a contract may sue to have it rescinded and such rescission may be adjudged by the Court in the cases mentioned in clauses (a) and (b) of sub-section (1).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 four exceptions to this rule - Third parties to the contract are not persons who can be said to be any person interested , particularly when section 27(2)(c), which refers 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 they have acquired rights in good faith, without notice and for value, during the subsistence of the contract between the parties to that contract. The factum of registration of what is otherwise a private document inter parties does not clothe the document with any higher legal status by virtue of its registration. When it comes to cancellation of a deed by an executant to the document, such person can approach the Court under section 31, but when it comes to cancellation of a deed by a non-executant, the non-executant must approach the Court under section 34 of the Specific Relief Act, 1963. Cancellation of the very same deed, therefore, by a non-executant would be an action in personam since a suit has to be filed under section 34. However, cancellation of the same deed by an executant of the deed, being under section 31, would somehow convert the suit into a suit being in rem. All these anomalies only highlight the impossibility of holding that an action instituted under section 31 of the Specific Relief Act, 1963 is an action in rem. Appeal dismissed.

Issues Involved:
1. Validity and enforceability of the arbitration agreement.
2. Allegations of fraud and their impact on arbitrability.
3. Jurisdiction of the court under Section 31 of the Specific Relief Act, 1963.
4. Interpretation of actions in rem versus actions in personam.

Issue-wise Detailed Analysis:

1. Validity and Enforceability of the Arbitration Agreement:
The core issue revolved around whether the arbitration clause in the agreement dated 20.05.2006 was enforceable. The appellant argued that the original agreement between Deccan and Ashray did not contain an arbitration clause, and the subsequent agreements, tainted by fraud, rendered the arbitration clause void. The court held that the arbitration clause was valid and enforceable, as the agreements sought to be canceled were not stated to have never been entered into. The court emphasized that post the 2015 Amendment Act, the judicial authority must refer parties to arbitration unless prima facie no valid arbitration agreement exists.

2. Allegations of Fraud and Their Impact on Arbitrability:
The appellant contended that serious allegations of fraud rendered the dispute non-arbitrable, citing N. Radhakrishnan v. Maestro Engineers. The court, however, followed the reasoning in Avitel Post Studioz Limited v. HSBC PI Holding (Mauritius) Ltd., which clarified that fraud in the performance of the contract does not oust the jurisdiction of the arbitrator. The court found no averment that the agreements were never executed, thus the arbitration clause stood. It was also noted that the suit lacked public overtones or criminal ramifications, making the fraud exception inapplicable.

3. Jurisdiction of the Court under Section 31 of the Specific Relief Act, 1963:
The appellant argued that the suit for cancellation of agreements under Section 31 of the Specific Relief Act was a proceeding in rem and thus non-arbitrable. The court examined Section 31 and related provisions, concluding that actions under Section 31 are in personam, not in rem. The court reasoned that the cancellation of an instrument is between the parties to the action and their privies, not against all persons generally. The judgment in Aliens Developers Pvt. Ltd. v. M. Janardhan Reddy, which held such actions to be in rem, was overruled.

4. Interpretation of Actions in Rem versus Actions in Personam:
The court distinguished between actions in rem and actions in personam, emphasizing that a judgment in rem binds all persons claiming an interest in the property, while a judgment in personam binds only the parties to the suit. The court clarified that Section 31 actions are inter partes, as the instrument canceled is delivered to the plaintiff, and the judgment does not affect third parties. The court also noted that the registration of an instrument does not elevate its status to a public document, reinforcing that cancellation under Section 31 is an action in personam.

Conclusion:
The court upheld the validity of the arbitration agreement, dismissed the fraud exception, and clarified that actions under Section 31 of the Specific Relief Act are in personam. The appeal was dismissed, affirming the judgments of the District Court and the High Court.

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