Arbitration In IndiaDisputes regarding Cancellation of Instrument are Arbitrable in Nature

The Supreme Court, in the case of M/s Asian Avenues Pvt. Ltd. v. Sri Syed Shoukat Hussain, Civil Appeal No.  2927 of 2023 decided on 28.04.2023 held that the dispute of cancellation of   Development Agreement is action in rem and is arbitrable in nature.

FACTS

M/s Asian Avenues Pvt. Ltd. (hereinafter referred as the “Appellant”) entered into a Development Agreement – cum – Power of Attorney, (hereinafter referred to as the “Development Agreement”) with Sri Syed Shoukat Hussain (hereinafter referred as the “Respondent”) on 23.10.08  The Respondent granted permissive possession of the property to the Appellant to carry out the development work on the subject land.

Disputes arose between the parties, the Respondent cancelled the Development Agreement and issued a legal notice to Appellant to execute the Deed of Cancellation of the Development Agreement.

 The Respondent thereafter preferred a suit seeking direction to the Appellant to execute the Cancellation Deed and for delivery of possession of the subject property.

In the suit, the Appellant filed an application under Rule 11 Order VII of the Civil Procedure Code, 1908 (hereinafter referred to as “CPC”), on the ground that as there is an arbitration clause in the Development Agreement, the parties ought to invoke Arbitration. Hence, the dispute shall be referred to Arbitration. The Trial Court directed the parties to refer the dispute to Arbitration under Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the “A&C Act”) (hereinafter referred to as the “original order”)

The Respondent preferred a Revision Application against the original order before the High Court. The High Court set aside the order on the ground that the Cancellation of Development Agreement operates in rem and hence, Arbitration Clause cannot be invoked (hereinafter referred to as the “Impugned Order”).

Hence, aggrieved by the Impugned Order, the Appellant has preferred the present appeal.

ISSUES BEFORE THE SUPREME COURT

1. Whether an application under Section 31 of the Specific Relief Act, 1963 an action in rem is arbitrable in nature?

2. Whether the dispute of cancellation of the Development Agreement arbitrable in nature?

CONTENTIONS OF THE PARTIES

The Appellant relied on Deccan Paper Mills Company Limited vs. Regency Mahavir Properties and Ors.[ (2021) 4 SCC 786] and submitted that an action under Section 31 of the Specific Relief Act, 1963 (hereinafter referred to as the “Specific Relief Act”) is not an action in rem. Hence, the order of the Trial Court should be restored.

The Respondent submitted that the arbitration clause of the Development Agreement cannot be invoked as the prayer in the suit for cancellation of the Development Agreement is in accordance with Section 31 of the Specific Relief Act. Further, the issues arising out of Section 31 of the Specific Relief Act have to be adjudicated by the competent Civil Court.

DECISION AND FINDINGS

The Supreme Court of India observed the Arbitration Clause of the Development Agreement and held that the dispute regarding the cancellation of the Development Agreement is arbitrable in nature and hence, can be referred to Arbitration.  It further relied on  Deccan Paper Mills (Supra), and held that the action instituted under Section 31 of the Specific Relief Actfor cancellation of an instrument is not an action in rem.  Hence, the Trial Court was right in referring the parties to Arbitration vide the original order.

The Supreme Court allowed the Appeal and quashed and set aside the impugned order and restored the original order.

AMLEGALS REMARKS

The Supreme Court in the present case has very intrinsically interpreted the scope of Section 31 of the Specific Relief Act, 1963 by holding that an instrument for cancellation of an instrument is an action in rem. Moreover, the Arbitration Clause of the Agreement can be invoked even when the dispute is regarding the cancellation of the Agreement. Hence, the dispute of cancellation of an agreement is arbitrable in nature.

– Team AMLEGALS assisted by Ms. Aayushi Udeshi (Intern)

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