Supreme Court Retaliates: Cancellation of Instrument is Not an Action in Rem under Section 31 of Specific Relief Act

Supreme Court Retaliates: Cancellation of Instrument is Not an Action in Rem under Section 31 of Specific Relief Act

The Supreme Court by its coram comprising of Justices Abhay S. Oka and Rajesh Bindal has categorically retaliated that it is impossible to hold that an action instituted under Section 31 of the Specific Relief for cancellation of an instrument is an action in rem.

An appeal was filed by the defendant in a suit filed by the respondent- Sri Syed Shoukat Hussain. The respondent-plaintiff claimed to be the owner of a certain suit property. A Development Agreement-cum-General Power of Attorney (for short ‘the Development Agreement’) was executed on 23rd October, 2008 by and between the appellant- M/s. Asian Avenues Pvt. Ltd. and the respondent.

By the Development Agreement, the appellant was granted permissive possession for the purposes of carrying out development work on the property subject matter of the Development Agreement. The respondent issued a legal notice to the appellant calling upon him to execute a deed of cancellation of the Development Agreement. The respondent prayed for a decree directing the appellant to execute a deed of cancellation in respect of the Development Agreement and also prayed for delivery of possession of the suit property.

After the suit summons was served, the appellant filed an application under Rule 11 of Order VII of the Code of Civil Procedure, 1908 (for short, ‘CPC’). The application was filed on the ground that in view of the arbitration clause in the Development Agreement, the dispute ought to be referred to arbitration. There was a prayer made for referring the dispute to arbitration. The Trial Court rejected the plaint.

The Trial Court exercised its power under Section 8 of the Arbitration and Conciliation Act, 1996 (for short ‘the Arbitration Act’). The Trial Court directed the parties to refer their dispute to arbitration.

However, in a revision application preferred by the respondent, the High Court interfered and set aside the order of the Trial Court.

The learned counsel appearing for the respondent submitted that the arbitration clause must not apply as the prayer in the suit was for cancellation of the agreement in accordance with Section 31 of the Specific Relief Act. Her submission was that the issues arising under Section 31 of the Specific Relief Act could be adjudicated only by a competent Civil Court.

The issue that came for consideration before the Apex Court was whether the arbitration clause in a development agreement could have been invoked in a suit which has been filed seeking cancellation of the very same agreement.

The interference by the High Court was done on the ground that the adjudication pursuant to invocation of Section 31 of the Specific Relief Act is an adjudication in rem.

However, the Supreme Court highlighted that in the case of Deccan Paper Mills Company Ltd. vs. Regency Mahavir Properties and others, “this Court has categorically held that it is impossible to hold that an action instituted under Section 31 of the Specific Relief for cancellation of an instrument is an action in rem.”

Therefore, the bench opined that in view of the applicability of the arbitration clause to the dispute subject matter of the suit filed by the respondent, the learned Trial Judge was justified in passing an order under Section 8 of the Arbitration Act by directing that the dispute be referred to the arbitration.

Accordingly, the impugned judgment and order of the High Court was set aside and the judgment and order of the Trial Court was restored.

The Court directed the Parties to act in accordance with the mandate of Section 8 of the Arbitration Act and allowed the appeal.