The Bench consisted of Justice R F Nariman, Justice Navin Sinha and Justice Indira Banerjee held that action under Section 31 of the Specific Relief Act, 1963 is directed to specific persons alone. Hence, all others concerned with such property are not to be taken into account as being an action “in rem.”
Brief facts of the case
The Appellant signed an agreement with the Respondent No. 1 to develop a plot of land. The agreement did not contain an arbitration clause. Respondent No. 1 then delegated the execution of the said agreement to Respondent No 2. This next agreement for execution contained an arbitration clause.
A case of fraud was involved leading to the filing of separate suits. A prayer for the setting aside of some agreements was made.
Arbitration was sought, and the lower courts directed the parties for arbitration. The said reference is a question in the present appeal.
Appellant’s Arguments
Section 8 of Arbitration & Conciliation Act, 1996 (“the Act, 1996”) requires the Court to determine if the subject matter of the dispute is arbitrable or not. When it comes to serious allegations of fraud, an arbitrator’s jurisdiction ceases to exist.
Also, the original agreement between Deccan (Respondent no. 1) and Ashray (Respondent No. 2) did not contain an arbitration clause.
The proceedings under Section 31 of the Specific Relief Act, 1963 are proceedings “in-rem”. And the present case is one for the cancellation of three “written instruments”. Thus, it would fall within one of the exceptions in Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532.
Respondent’s Arguments
The fraud exception would only apply only when the agreement was not executed. The present case is not of such nature. Also, no ramifications affect the public nor such ramifications are criminal, in the present case. These requirements are precedent to the application of the exception.
Under Section 31 of the Specific Relief Act, 1963 the Court’s jurisdiction, is discretionary. For setting aside a written instrument, the proceeding has to be considered to be one “in personam.”
Court’s View
If the subject matter of an agreement between parties falls within Section 17 of the Indian Contract Act, 1872, or involves fraud in the performance of the contract, being a civil wrong, the subject matter of such agreement would be arbitrable without question.
Further, because a particular transaction may have criminal overtones as well, does not mean that its subject matter becomes non-arbitrable. The present suit is also one that is inter parties with no “public overtones”.
It held that an action for rescission of a contract and delivering up of that contract to be cancelled is an action “in personam.” This can be the subject matter of a suit for specific performance, making it a valid subject matter of the arbitration.
The Bench opined that judgment under Section 31 does not bind all persons claiming an interest in the property inconsistent with the judgment, even though pronounced in their absence. The Bench stated that by the virtue of its registration, a private document between parties does not become a document of any higher status.
The cancellation of the instrument under Section 31 is between the parties to the action and their privies and not against all persons generally. This is because the instrument that is cancelled is to be delivered to the plaintiff in the cancellation suit.
Court’s Decision
Actions instituted under Section 31 of the Specific Relief Act are “in personam” and are hence arbitrable. The Court allowed Respondent No. 3 to be referred to arbitration.
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