TMI Blog2020 (8) TMI 533X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Specific Relief Act, 1963, any party interested in a contract may sue to have it rescinded and such rescission may be adjudged by the Court in the cases mentioned in clauses (a) and (b) of sub-section (1).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 Sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 at any time afterwards any difference shall arise between the parties herein and the heirs, executors or administrators of the other of them or between their respective heirs, executors or administrators in regard to the construction of any of the articles herein contained or to any division (..illegible) thing to be made or done in pursuance hereto or to any other matter or thing relating to the said Agreement/these presents the same shall be forthwith referred to one arbitrator if the parties agree or otherwise to two arbitrators, one to be appointed by each party to the reference or to an Umpire to be chosen by the Arbiters before entering upon the reference and every such reference shall be deemed to be an Arbitration in accordance with and subject to the provisions of The Arbitration Conciliation Act, 1996 or any statutory m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. 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 partner of Defendant No.1 has signed deed of Confirmation dated 13.07.2006, confirming the terms and conditions of agreement dated 20.05.2006, executed between Defendant No.1 and 2 in respect of development of the suit property. 9. As stated earlier, Directors of Plaintiff Company have granted development rights in respect of the said property to Defendant No.2, only because Defendant No.3 was its leading Director. The Plaintiff Company has joined the agreement of assignment dated 20.05.2006 and Deed of Confirmation dated 13.07.2006 executed by Defendant No.2 in favour of Defendant No.1 with understanding that Defendant No.3 was its partner. Directors of Plaintiff Company therefore say that Defendant No.1 in collusion with Defendant No.2 and in active concealment of material fact, by misrepresenting Plaintiff Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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. В. 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 illegal. C. The Defendants, by order of mandatory injunction directed to execute and register Deed of Cancellation of Agreement dated 22.07.2004 and Agreement dated 20.05.2006 and Deed of Confirmation dated 13.07.2006. D. The Defendants may be restrained by an order of perpetual injunction from carrying out any further development activity in the said property or to enter the same or remain therein, either by themselves or through any person claiming through it, or to create any third party interests therein or to deal with the same in any manner whatsoever. E. Interim orders in terms of Clause C above may be passed. F. Costs of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Moreover, from the documents, it shows that the confirmation deed dated 13.07.2007 was executed by Defendant No.3 as Authorized Partner of M/s Regency Mahavir Properties and another partner Dilip Jain. The fraud alleged by the plaintiff is in respect of the documents for which the remedy is also provided. After considering the arbitration clause I find that the application is to be allowed and the disputes have to be referred for arbitration. Hence, I pass the following order: 1) Application is allowed. 2) The plaintiff is directed to get the alleged dispute resolved through the process of arbitration by referring the plaintiff to invoke the process of arbitration as per the arbitration clause 14 mentioned in the agreement dated 20.05.2006. Findi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, and on this ground also, ought not to have been referred to arbitration. She then relied heavily upon section 31 of the Specific Relief Act, 1963 and stated that a reading of the plaint and the prayers in the suit would show that the suit is one for cancellation of three written instruments . This being so, and the proceeding under section 31 being a proceeding in rem, would fall within one of the exceptions made out in Booz Allen Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532 [hereinafter referred to as Booz Allen ]. For this purpose, she relied heavily upon a judgment of the High Court of Judicature at Hyderabad for Telangana and Andhra Pradesh in Aliens Developers Pvt. Ltd. v. M. Janardhan Reddy, (2016) 1 ALT 194 (DB) [hereinafter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 involves fraud in the performance of the contract, as has been held in the aforesaid judgment, which would amount to deceit, being a civil wrong, the subject matter of such agreement would certainly be arbitrable. Further, we have also held that merely because a particular transaction may have criminal overtones as well, does not mean that its subject matter becomes non-arbitrable. We have no doubt that Shri Navre is right in his submission that there is no averment that the agreement dated 20.05.2006 and the deed of confirmation dated 13.07.2006 were not entered into at all, as a result of which the arbitration clause would be non-existent. Further, it is equally clear that the suit is one that is inter parties with no public overtones , as has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 apprehension that such instrument, if left outstanding may cause him serious injury, may sue to have it adjudged void or voidable; and the court may, in its discretion, so adjudge it and order it to be delivered up and cancelled. (2) If the instrument has been registered under the Indian Registration Act, 1908 (16 of 1908), the court shall also send a copy of its decree to the officer in whose office the instrument has been so registered; and such officer shall note on the copy of the instrument contained in his books the fact of its cancellation. Referring to section 31, a Division Bench of the High Court in Aliens Developers (supra) held: 14. ... Under Section 31(2) of the Specific Relief Act, Legislature conferred the po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). 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. When instrument may be rectified.-(1) When, through fraud or a mutual mistake of the parties, a contract or other instrument in writing [not being the articles of association of a company to which the Companies Act, 1956 (1 of 1956), applies] does not express their real intention, then (a) either party or his representative in interest may institute a suit to have the instrument rectified; or (b) the plaintiff may, in any suit in which any right arising under the instrument is in issue, claim in his pleading that the instrument be rectified; or (c) a defendant in any such suit as is referred to in clause (b), may, in addition to any other defence open to him, ask for rectification of the instrume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 relief is 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. xxx xxx xxx 32. What instruments may be partially cancelled. -Where an instrument is evidence of different rights or different obligations, the court may, in a proper case, cancel it in part and allow it to stand for the residue. 33. Power to require benefit to be restored or compensation to be made when instrument is cancelled or is successfully resisted as being void or voidable.- (1) On adjudging the cancellation of an instrument, the court may require the party to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tracts 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 refer a dispute to arbitration, the effect of which would be to have an award directing specific performance of an agreement to sell, would have for its object to defeat the provisions of the Specific Relief Act, especially sections 10 and 20 thereof. It is clearly intended by the aforesaid provisions that it is only courts, and courts alone who would have jurisdiction to grant or refuse specific performance. The learned Single Judge thus disagreed with the contrary view of the Bombay High Court and the Punjab High Court.[ This Court in Olympus Superstructures v. Meena Vijay Khetan, (1999) 5 SCC 651 wrongly refers to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied 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 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. In Shravan Goba Mahajan v. Kashiram Devji, ILR (1927) 51 Bom 133, a Division Bench of the Bombay High Court, with regard to section 35 of the Specific Relief Act, 1877 (which is the pari materia provision to section 27 of the 1963 Act) held that an heir is a person interested in the contract which is sought to be set aside, thus, making it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 63 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 of voidable contracts. It is evident that S. 39 covers not only a case contemplated under S. 35, but also a wider field, that is, a case of a void document, which under the law need not be set aside. 15. In an extremely important paragraph, the Full Bench then set out the principle behind section 39(1) of the Specific Relief Act, 1877 as follows: 12. The principle is that such document though not necessary to be set aside may, if left outstanding, be a source of potential mischief. The jurisdiction under S. 39 is, therefore, a protective or a preventive one. It is not confined to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 instruments executed or purported to be executed by a party or by any person who can bind him in certain circumstances. It is only in such cases that it can be said there is a cloud on his title and an apprehension that if the instrument is left outstanding it may be a source of danger. Such cases may arise in the following circumstances: A party executing the document, or a principal in respect of a document executed by his agent, or a minor in respect of a document executed by his guardian de jure or de facto, a reversioner in respect of a document executed by the holder of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oid 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, 1877 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. The expression any person in this section has been held by this Court to include a person seeking derivative title from his seller (see Mohd. Noorul Hoda v. Bibi Raifunnisa (1996) 7 SCC 767, at p. 771). The principle behind the section is to protect a party or a person having a derivative title to property from such party from a prospective misuse of an instrument against him. A reading of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 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 any other registered document) is not a public document but a private document. 9. This position is made abundantly clear in Gopal Das v. Shri Thakurji, AIR 1943 Privy Council 83, wherein the Privy Council considering the question whether a registered receipt is a public document observed thus: It was contended by Sir Thomas Strangman for the respondents that the receipt comes within para 2 of section 74, Evidence Act, and was a public document ; hence under section 65(e) no such foundation is required as in cases coming within clauses ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : 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 law, but is not used in English law in precisely the same sense as in that law. Indeed, Bracton, limits proceedings in rem to actions to obtain possession of res by which he understood real actions; (Bigelow on Estoppel 42, 43.) A proceeding in rem is a proceeding instituted against a thing, and not against a person. A proceeding in rem, in a strict sense, is one taken directly against property, and has for its object the disposition of the property, without reference to the title of individual claimants b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 are sought to be determined, the action is in personam. The effect of such an action is therefore merely to bind the parties thereto. Where the intervention of the Court is sought for the adjudication of a right or title to property, not merely as between the parties but against all persons generally, the action is in rem. Such an action is one brought in the Admiralty Division of the High Court possessing Admiralty jurisdiction by service of process against a ship or cargo within jurisdiction. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 remains inter parties, the cancelled portion being a cancellation to the world at large, i.e., in rem. Equally, under section 33, when compensation is required to be paid or restoration of benefit which has been received from the other party is required to be made, it is exactly the same as that which is required to be done under a contract which is rescinded and cancelled (see section 30): and it is clear that both sections 30 and 33 would apply only to contracts or instruments which are resc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 illustration relating to A and B, two brothers. A executes a sale deed in favour of C. Subsequently A wants to avoid the sale. A has to sue for cancellation of the deed. On the other hand, if B, who is not the executant of the deed, wants to avoid it, he has to sue for a declaration that the deed executed by A is invalid/void and non est/illegal and he is not bound by it. In essence both may be suing to have the deed set aside or declared as nonbinding. But the form is different and ..... 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