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Almost a decade ago, the Apex Court held in the case of Booz Allen & Hamilton Inc. Vs. SBI Home Finance Ltd.1, that generally and traditional all disputes relating to rights in personam are arbitrable whereas all disputes relating to rights in rem are to be adjudicated by the courts and public tribunals. Recently, in the case of Deccan Paper Mills Co. Ltd. v. Regency Mahavir Properties & Ors2, the Apex Court, while deciding whether an action for cancellation of written instruments under Section 31 of Specific Relief Act (“SRA”), 1963 is arbitrable or not, re-visited its judgement in Booz Allen’s case in order to consider if a further exception can be carved out to the categories of non-arbitrable cases, laid down therein.
Facts of the Case
decided to develop a portion of the said land i.e. 32,659 sq. meters and for the same Deccan entered into an agreement dated 22.07.2004 with M/s Ashray Premises Pvt. Ltd. “Ashray”. This agreement did not contain any arbitration clause. However, clause 2(m) in the agreement permitted assignment of the right of 1 (2011) 5 SCC 532.
2 Civil Appeal No 5147 of 2016 decided by a larger bench of Hon’ble Justice R F Nariman, Hon’ble Justice Navin Sinha and Hon’ble Justice Indira Banerjee, on 19.08.2020 the developer to any other person.
declared illegal, ab initio null and void and not binding on them. In the prayer clause, they also sought cancellation of agreements and the deed.
Writ Petition before the Hon’ble Bombay High Court (“BHC”)
In a writ petition filed by Deccan, the BHC vide judgment dated 18.03.2015 upheld the decision of the trial court and referred the parties to arbitration. In doing so, the bench referred to numerous Apex Court judgments, especially the decision in Swiss Timing Ltd. v. Commonwealth Games 2010 Organising Committee3 holding that N. Radhakrishnan4 case was not correct in law and held that the allegations of fraud can be determined by arbitration where an arbitration agreement exists between the parties.
Proceedings before the Hon’ble Supreme Court of India (“SC”/“Apex Court”)
In its appeal before the SC, Deccan contended against the arbitrability of the dispute primarily on two grounds, firstly, disputes arising from the agreement allegedly executed on the basis of fraud are not arbitrable, secondly, as one of the prayers in the suit was for cancellation of three written instruments, which is a 3 (2014) 6 SCC 677 4 (2010) 1 SCC 72 proceeding under Section 31 of the SRA, 1963 and the same being a proceeding in rem, falling within one of the exception laid out in Booz Allen (supra), the dispute would not be arbitrable.
The Respondent, on the other hand, relying on the Apex Court’s judgment in the case of Rashid Raza v. Sadaf Akhtar5 contended that “fraud exception” would apply only if it can be stated that the agreement itself was never executed, and not otherwise. In response to the issue of an action under Section 31 of the SRA, 1963, Respondent contended that court’s discretion under the said provision is for the benefit of the party interested in setting aside a written instruments,therefore, proceedings would be in personam. It was also contended by the Respondent that in light of the recent amendments to the Act, only thing necessary to be seen while deciding an application under Section 8 of the Act is existence of a valid arbitration agreement.
Decision of the Apex Court
Firstly¸ on the issue of arbitrability of dispute in face of allegations of fraud, the SC, followed its recent judgment Avitel Post Studioz Limited & Ors. v. HSBC PI Holding (Mauritius) Ltd.6 and held that if an allegation between parties lies within Section 17 of the Indian Contract Act, or involves fraud in performance of contract, the subject matter would be arbitrable.
Secondly, in terms of Section 8 of the Act the SC made it clear that when an action is brought before the judicial authority to refer the parties to arbitration, such 5 (2019) 8 SCC 710 6 Civil Appeal No. 5145 and 5158 of 2016 decided on 19.08.2020.judicial authority shall do so unless prima facie, no arbitration agreement is found to exist.
Thirdly and most importantly, to determine whether the proceedings under Section 31 of the SRA, 1963 is one in rem or in personam, the SC set out to examine the correctness of the law laid down by a division bench of Hon’ble Delhi High Court in the case of Alien Developers Pvt. Ltd. Vs. M. Jamardhan Reddy7, which held that the action under Section 31 of the SRA, 1963 is an action in rem and therefore not arbitrable. After detailed analysis of law, the Apex Court held that the judgement in the case of Alien Developers is not a good law and overruled the same. For concluding that action under Section 31 of the SRA is not an action in rem , SC examined the issue from various angles, as highlighted below:
seek declaration that the deed is invalid (which can be done by filing of suit under Section 34 of the SRA, 1963). The SC held that it would be wholly incorrect to hold that cancellation of very same deed, if done under Section 31 would be an action in rem, however, if done under Section 34 of SRA would be an action in personam. On the basis of above discussion, the SC held that an action instituted under Section 31 SRA, 1963 is an action in personam and not an action in rem.
By virtue of this judgment, the Apex Court has put to rest most of the controversies surrounding arbitrability of the disputes seeking specific performance of contract. It has been clearly brought out that specific relief is granted only for the purpose of enforcing individual civil rights in light of Section 4 of the SRA, 1963 and hence all actions under the SRA are actions in personam. This determination of the apex court is in line with principle highlighted in Halsbury’s Laws of England to the effect that justiciable issues triable civilly are arbitrable and a fair test of this is whether difference can be compromised lawfully by way of accord and satisfaction. Accordingly, no exception was required to be carved out to the categories of non-arbitrable cases as mentioned in the case of Booz Allen.