# DECCAN PAPER MILLS CO. LTD v. REGENCY MAHAVIR PROPERTIES & ORS

- **Citation:** [2020] 13 S.C.R. 427
- **Court:** Supreme Court of India
- **Decided:** 2020-08-19
- **Case number:** Civil Appeal No. 5147 of 2016
- **Bench:** R. F. Nariman, Navin Sinha, Indira Banerjee
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/deccan-paper-mills-co-ltd-v-regency-mahavir-properties-ors-34362
- **Pages:** 38

## Headnote

Arbitration & Conciliation Act, 1996 - s.8 - Cancellation of
written instrument u/s.31, 1963 Act - Arbitrability of - Agreement
between appellant and respondent no.2 to develop a portion of the
land owned by appellant - Respondent no.2 assigned the execution
thereof to respondent no.1 vide another agreement containing
arbitration clause - This was followed by a deed of confirmation -
Appellant filed suit, alleging fraud by respondent no.3 (representing
himself to be authorized partner of respondent no.1), inter alia for
declaring the aforesaid agreements to be null and void - Relying
on the arbitration clause, respondent no.1 filed application u/s.8
for referring the parties to arbitration - Allowed - Writ petition
filed by appellant - Dismissed - On appeal, held: Post amendment,
judicial authority before which an action is brought shall, if the
other conditions of s.8 are met, refer the parties to arbitration unless
it finds that prima facie, no valid arbitration agreement exists - In
the present case, a valid arbitration agreement exists as the
agreements that are sought to be cancelled are not stated not to
have ever been entered into - Also, the suit is inter parties with no
"public overtones", thus the "fraud exception" would not apply in
the present case - Further, action u/s.31(1) is strictly an action inter
parties or by persons who obtained derivative title from the parties,
and is thus in personam - Judgments of the District Court and the
High Court need no interference - Specific Relief Act, 1963 -
ss.26(1), (3), 27(1), (2)(c), 29, 30, 31(1), (2), 32-35 - Arbitration
and Conciliation (Amendment) Act, 2015 - Contract Act, 1872 -
s.17 - Arbitration Act, 1940 - s.20.
Specific Relief Act, 1963 - s.31 - Proceedings under, in rem
or in personam - Discussed - Arbitration & Conciliation Act, 1996.
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SUPREME COURT REPORTS
[2020] 13 S.C.R.
Dismissing the appeal, the Court
HELD: 1.1 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 which would
amount to deceit, being a civil wrong, the subject matter of such
agreement would certainly be arbitrable. Merely because a
particular transaction may have criminal overtones as well, does
not mean that its subject matter becomes non-arbitrable. 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 a result of which this exception
would clearly not apply to the facts of this case. There is a sea
change between section 8 of the 1996 Act and section 20 of the
Arbitration Act, 1940. Post amendment, it is clear that the judicial
authority before which an action is brought shall, if the other
conditions of section 8 are met, refer the parties to arbitration
unless it finds that prima facie, no valid arbitration agreement
exists. In the present case, the finding that is returned is correct
- a valid arbitration agreement certainly exists as the agreements
that are sought to be cancelled are not stated not to have ever
been entered into. [Paras 4, 6][443-G-H; 444-A-B; G-H; 445-A]
Avitel Post Studioz Limited & Ors. v. HSBC PI Holding
(Mauritius) Ltd., Civil Appeal No. 5145 of 2016 - relied
on.
1.2 A perusal of section 26(1) of the Specific Relief Act,
1963 would show that when, through fraud or mutual mistake of
parties, a contract or other instrument in writing does not express
the real intent of the parties, then either party or his
representative in interest may either institute a suit to have the
instrument rectified 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 perform

## Text

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 [2020] 13 S.C.R. 427
DECCAN PAPER MILLS CO. LTD.
v.
REGENCY MAHAVIR PROPERTIES & ORS.
(Civil Appeal No. 5147 of 2016)
AUGUST 19, 2020
[R. F. NARIMAN, NAVIN SINHA AND
INDIRA BANERJEE, JJ.]
Arbitration & Conciliation Act, 1996 - s.8 - Cancellation of
written instrument u/s.31, 1963 Act - Arbitrability of - Agreement
between appellant and respondent no.2 to develop a portion of the
land owned by appellant - Respondent no.2 assigned the execution
thereof to respondent no.1 vide another agreement containing
arbitration clause - This was followed by a deed of confirmation -
Appellant filed suit, alleging fraud by respondent no.3 (representing
himself to be authorized partner of respondent no.1), inter alia for
declaring the aforesaid agreements to be null and void - Relying
on the arbitration clause, respondent no.1 filed application u/s.8
for referring the parties to arbitration - Allowed - Writ petition
filed by appellant - Dismissed - On appeal, held: Post amendment,
judicial authority before which an action is brought shall, if the
other conditions of s.8 are met, refer the parties to arbitration unless
it finds that prima facie, no valid arbitration agreement exists - In
the present case, a valid arbitration agreement exists as the
agreements that are sought to be cancelled are not stated not to
have ever been entered into - Also, the suit is inter parties with no
"public overtones", thus the "fraud exception" would not apply in
the present case - Further, action u/s.31(1) is strictly an action inter
parties or by persons who obtained derivative title from the parties,
and is thus in personam - Judgments of the District Court and the
High Court need no interference - Specific Relief Act, 1963 -
ss.26(1), (3), 27(1), (2)(c), 29, 30, 31(1), (2), 32-35 - Arbitration
and Conciliation (Amendment) Act, 2015 - Contract Act, 1872 -
s.17 - Arbitration Act, 1940 - s.20.
Specific Relief Act, 1963 - s.31 - Proceedings under, in rem
or in personam - Discussed - Arbitration & Conciliation Act, 1996.
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SUPREME COURT REPORTS
[2020] 13 S.C.R.
Dismissing the appeal, the Court
HELD: 1.1 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 which would
amount to deceit, being a civil wrong, the subject matter of such
agreement would certainly be arbitrable. Merely because a
particular transaction may have criminal overtones as well, does
not mean that its subject matter becomes non-arbitrable. 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 a result of which this exception
would clearly not apply to the facts of this case. There is a sea
change between section 8 of the 1996 Act and section 20 of the
Arbitration Act, 1940. Post amendment, it is clear that the judicial
authority before which an action is brought shall, if the other
conditions of section 8 are met, refer the parties to arbitration
unless it finds that prima facie, no valid arbitration agreement
exists. In the present case, the finding that is returned is correct
- a valid arbitration agreement certainly exists as the agreements
that are sought to be cancelled are not stated not to have ever
been entered into. [Paras 4, 6][443-G-H; 444-A-B; G-H; 445-A]
Avitel Post Studioz Limited & Ors. v. HSBC PI Holding
(Mauritius) Ltd., Civil Appeal No. 5145 of 2016 - relied
on.
1.2 A perusal of section 26(1) of the Specific Relief Act,
1963 would show that when, through fraud or mutual mistake of
parties, a contract or other instrument in writing does not express
the real intent of the parties, then either party or his
representative in interest may either institute a suit to have the
instrument rectified 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
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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 can be the subject matter of an arbitral
proceeding. 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. 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. Sections 29 and 30 are also important, in that a
plaintiff instituting a suit for specific performance may pray in the
alternative that if the contract cannot be specifically enforced, it
may be rescinded and be delivered up to be cancelled. In addition,
on adjudging the rescission of the 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.
These two sections would also show that following rescission of
a contract, it has to be delivered up to the plaintiff to be cancelled
- and all of this can be done in a suit for specific performance.
Thus far, therefore, it is clear that an action for rescission of a
contract and delivering up of that contract to be cancelled is an
action in personam which can be the subject matter of a suit for
specific performance, making such rescission and delivering up
the contract to be cancelled, the subject matter of arbitration.
[Paras 11-13][451-E-H; 752-C-G]
1.3 When it comes to section 31(1), the important
expression used by the legislature is "any person against whom
a written instrument is void or voidable...". An instructive
judgment of the Full Bench of the Madras High Court reported
DECCAN PAPER MILLS CO. LTD. v. REGENCY MAHAVIR
PROPERTIES & ORS.
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as Muppudathi Pillai v. Krishnaswami Pillai, AIR 1960 Mad 1
involved the determination of the scope of section 41 of the
Specific Relief Act, 1877 (section 33(1) of the 1963 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).
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. 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 section 31(1) then shows
that when a written instrument is adjudged void or voidable, the
Court may then order it to be delivered up to the plaintiff and
cancelled - in exactly the same way as a suit for rescission of a
contract under section 29. Thus far, it is clear that the action
under section 31(1) is strictly an action inter parties or by persons
who obtained derivative title from the parties, and is thus in
personam. [Paras 14, 16][452-G-H; 453-A-B; 456-A-D]
1.4 It is to be seen whether section 31(2) makes any difference
to this position in law. According to the judgment in Aliens
Developers, the moment a registered instrument is cancelled, the
effect being to remove it from a public register, the adjudicatory
effect of the Court would make it a judgment in rem. Further,
only a competent court is empowered to send the cancellation
decree to the officer concerned, to effect such cancellation and
"note on the copy of the instrument contained in his books the
fact of its cancellation". Both reasons are incorrect. An action
that is started under section 31(1) cannot be said to be in
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personam when an unregistered instrument is cancelled and in
rem when a registered instrument is cancelled. The suit that is
filed for cancellation cannot be in personam only for unregistered
instruments by virtue of the fact that the decree for cancellation
does not involve its being sent to the registration office - a
ministerial action which is subsequent to the decree being passed.
In fact, in Gopal Das v. Sri Thakurji, AIR 1943 PC 83, a certified
copy of a registered instrument, being a receipt dated 29.03.1881
signed by the owner, was held not to be a public record of a private
document under section 74(2) of the Indian Evidence Act, 1872
for the reason that the original has to be returned to the party
under section 61(2) of the Registration Act, 1908 (see p. 87). Thus,
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. Also, it must be remembered
that the Delhi High Court's reasoning in Sulochana Uppal that it
is the Court alone that can, under the Specific Relief Act, enforce
specific performance of an agreement, is contra to the reasoning
in Olympus which overruled it, stating that "the dispute or
difference which parties to an arbitration agreement agree to refer
must consist of justiciable issues triable civilly". Since specific
performance is a justiciable issue triable civilly, obviously, the
expression "court" occurring throughout the Specific Relief Act
will have to be substituted by "arbitrator" or "arbitral tribunal".
This part of the reasoning in Aliens Developers, in following the
same reasoning as an overruled Delhi High Court judgment,
would fly in the face of Olympus and would, therefore, not be
good law. therefore, the same is overruled. [Paras 17, 18][456E-H; 457-A; 458-E-G]
Aliens Developers Pvt. Ltd. v. M. Janardhan Reddy
(2016) 1 ALT 194 (DB) - overruled.
Olympus Superstructures v. Meena Vijay Khetan (1999)
5 SCC 651: [1999] 3 SCR 490 - relied on.
1.5 The proceeding under section 31 is with reference to
specific persons and not with reference to all who may be
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concerned with the property underlying the instrument, or "all
the world". Clearly, the cancellation of the instrument under
section 31 is as between the 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. 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
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 rescinded/cancelled in personam. When
sections 34 and 35 are seen, the position becomes even clearer.
Unlike section 31, under section 34, any person entitled to any
legal character may institute a suit for a declaration that he is so
entitled. Considering that it is possible to argue on a reading of
this provision that the legal character so declared may be against
the entire world, section 35 follows, making it clear that such
declaration is binding only on the parties to the suit and persons
claiming through them, respectively. This is for the reason that
under section 4 of the Specific Relief Act, specific relief is granted
only for the purpose of enforcing individual civil rights. The
principle contained in section 4 permeates the entire Act, and it
would be most incongruous to say that every other provision of
the Specific Relief Act refers to in personam actions, section 31
alone being out of step, i.e., referring to in rem actions. [Paras
20-22][461-G-H; 462-A-G]
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1.6 The reasoning in 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 would again expose the
incongruous result of section 31 of the Specific Relief Act being
held to be an in rem provision. 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 Specific Relief Act,
1963. Cancellation of the very same deed, therefore, by a nonexecutant would be an action in personam since a suit has to be
filed undersection 34. However, cancellation of the same deed
by an executant of the deed, being under section 31, would
somehow convert the suit into a suit being in rem. All these
anomalies only highlight the impossibility of holding that an action
instituted under section 31 of the Specific Relief Act, 1963 is an
action in rem. Given this finding of law, it is clear that the
judgments of the District Court and the High Court in this case
need no interference. [Paras 25, 26][464-B-E]
Ameet Lalchand Shah v. Rishabh Enterprises (2018) 15
SCC 678 : [2018] 6 SCR 1001; Mayavati Trading Pvt.
Ltd. v. Pradyut Deb Burman (2019) 8 SCC 714; Emaar
MGF Land Ltd. v. Aftab Singh, (2019) 12 SCC 751 :
[2018] 14 SCR 791; Mohd. Noorul Hoda v. Bibi
Raifunnisa (1996) 7 SCC 767 : [1995] 6 Suppl. SCR
110; R. Viswanathan v. Rukn-ul-Mulk Syed Abdul Wajid
(1963) 3 SCR 22; Satrucharla Vijaya Rama Raju v.
Nimmaka Jaya Raju (2006) 1 SCC 212 : [2005] 4
 Suppl. SCR 82; Razia Begum v. Sahebzadi Anwar
Begum 1959 SCR 1111; Suhrid Singh v. Randhir Singh
(2010) 12 SCC 112 : [2010] 3 SCR 1121 - relied on.
Avitel Post Studioz Limited & Ors. v. HSBC PI Holding
(Mauritius) Ltd., Civil Appeal No. 5158 of 2016; Swiss
Timing Ltd. v. Commonwealth Games 2010 Organising
Committee (2014) 6 SCC 677:[2014] 6 SCR 514; N.
Radhakrishnan v. Maestro Engineers (2010) 1 SCC
72:[2009] 15 SCR 371; S.B.P. & Co. v. Patel Engg.
Ltd. (2005) 8 SCC 618 : [2005] 4 Suppl. SCR 688;
DECCAN PAPER MILLS CO. LTD. v. REGENCY MAHAVIR
PROPERTIES & ORS.
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Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd.
(2011) 5 SCC 532 : [2011] 7 SCR 310; Rashid Raza v.
Sadaf Akhtar (2019) 8 SCC 710; State of A.P. & Anr. v.
T. Suryachandra Rao (2005) 6 SCC 149 : [2005] 1
Suppl. SCR 809 - referred to.
Shravan Goba Mahajan v. Kashiram Devji, ILR (1927)
51 Bom 133; Muppudathi Pillai v. Krishnaswami Pillai
AIR 1960 Mad 1 - approved.
Satish Sood v. Gujarat Tele Links Pvt. Ltd. 2014 (1)
AIR Bom R 27; Sulochana Uppal v. Surinder Sheel
Bhakri AIR 1991 Del 138; Gopal Das v. Sri Thakurji
AIR 1943 PC 83; Rekha v. Ratnashree (2006) 1 MP
LJ 103 - referred to.
P.Ramanatha Aiyar's Advanced Law Lexicon (3rd Edn.,
Wadhwa Nagpur)-referred to.
Case Law Reference
[2014] 6 SCR 514
referred to
Para (1) (vi)
[2009] 15 SCR 371
referred to
Para (1) (vi)
[2005] 4 Suppl. SCR 688
referred to
Para 2
[2011] 7 SCR 310
referred to
Para 2
(2019) 8 SCC 710
referred to
Para 3
[2005] 1 Suppl. SCR 809
referred to
Para 5
[2018] 6 SCR 1001
relied on
Para 6
(2019) 8 SCC 714
relied on
Para 6
[2018] 14 SCR 791
relied on
Para 6
[1999] 3 SCR 490
relied on
Para 8
[1995] 6 Suppl. SCR 110
relied on
Para 16
[1963] 3 SCR 22
relied on
Para 20
[2005] 4 Suppl. SCR 82
relied on
Para 20
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1959 SCR 1111
relied on
Para 23
[2010] 3 SCR 1121
relied on
Para 24
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5147
of 2016.
From the Judgment and Order dated 18.03.2015 of the High Court
of Judicature at Bombay in Writ Petition No. 7838 of 2011.
Vinay Navare, Sr. Adv., Mrs. Meena Doshi, Nikhil Swami, Ms.
Divya Swami, Mrs. Prabha Swami, Ms. Abha R. Sharma, Ms. Jasmine
Damkewala, Sriniwas Joshi, Ms. Vaishali Sharma, Advs. for the appearing
parties.
The Judgment of the Court was delivered by
R. F. NARIMAN, J.
1. The hearing in this appeal followed in the wake of the hearing
in Civil Appeal Nos. 5145 of 2016, 5158 of 2016, and 9820 of 2016. The
brief facts necessary to appreciate the controversy in this appeal are as
follows:
i. By an agreement dated 22.07.2004 between the Appellant,
Deccan Paper Mills Co. Ltd. [hereinafter referred to as "Deccan"] and
the Respondent No. 2 company, M/s Ashray Premises Pvt. Ltd.
[hereinafter referred to as "Ashray"], Deccan, being the owner of
approximately 80,200 sq. meters of land bearing Survey Nos. 96B, 96C,
and 96D at village Mundhwa, District Pune, decided to develop a portion
of the said land, i.e., 32,659 sq. meters. It is not necessary to enter into
the nitty-gritty of the said agreement. However, it is enough to note that
this agreement contained clause 7(m), in which it is stated :
"7. The Owner and the Developer hereto covenant that upon the
execution of these presents:
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m. The Owner shall have no objection if at any stage during the
continuance of this agreement the Developer assigns, delegates
the rights, under this agreement or the Power of Attorney/writings
executed in furtherance hereof to any other person, firm or party
without violating or disturbing any of the terms and conditions of
this agreement."
DECCAN PAPER MILLS CO. LTD. v. REGENCY MAHAVIR
PROPERTIES & ORS.
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ii. This agreement did not contain any arbitration clause. Pursuant
to clause 7(m), on 20.05.2006, an agreement was entered into between
Respondent No. 2 - Ashray, 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
modification or re-enactment thereof for the time being in force."
iii. A deed of confirmation dated 13.07.2006 followed, by which it
was stated that this deed was to be treated as part of the 20.05.2006
agreement, in which the assignment by Ashray to Regency was
reaffirmed. According to Deccan, a fraud had been played by one Mr.
Atul Chordia, Respondent No.3 herein (Defendant No. 3 in the suit filed
by Deccan), which is pleaded in Special Civil Suit No. 1400 of 2010,
which was filed on 13.07.2010, as follows:
"6. In the year 2006 or thereabout, the Defendant No.3
approached directors of the Plaintiff Company and represented
to them that for diverse reasons, he intends to develop the said
property through a partnership firm by name Regency Mahavir
Properties. The Defendant No.3 further assured Plaintiff Company
that he will be one of the leading partners of the said M/s Regency
Mahavir Properties i.e. the Defendant No.1 and the development
of the said property and the same shall be carried out as quickly
as possible. The directors of Plaintiff Company, relying on the
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strength of assurance given by Mr. Atul Chordia agreed to be
joined a Consenting Party to a formal agreement of assignment to
be executed between Defendant No.1 and Defendant No.2.It is
pertinent to note that Defendant No.3 holding out to be an
authorized partner of Defendant No.1 has signed the said
agreement. The directors of Plaintiff Company under a bonafide
belief that the said agreement of assignment was formal and
Defendant No.3 will be responsible for development of the said
property. Now directors of Plaintiff Company realize that
Defendant No. 3 had different intentions."
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"8. Recently, the director of Plaintiff Company approached Mr.
Dilip R. Jain, one of the partners of Defendant No. 1. Directors
of Plaintiff Company inquired with Mr. Jain about the delay in
progress of construction and informed Mr. Jain that they will hold
Defendant No.3 responsible for the deal. Mr. Jain, to the shock
and surprise of directors of Plaintiff Company informed them that
Mr. Chordia was no more responsible for development of the said
property, since he has assigned development rights in respect
thereof, way back in the year 2006 itself. Directors of Plaintiff
Company took the said shock and approached Defendant No.3
and inquired with him about the aforesaid state of affairs. 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
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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 Company and by practicing fraud upon
the Plaintiff Company have obtained consent of Plaintiff Company
on the agreement of assignment and Deed of Confirmation.
Directors of Plaintiff Company therefore say that said agreement
of assignment and Deed of Confirmation being tainted with fraud
are ab initio null and void and not binding on Plaintiff Company.
Since the Plaintiff Company has recently come to know the
aforesaid fraud, they have decided to inform the Defendant that
the agreement dated 20.05.2006 and the Deed of Confirmation
dated 13.07.2006 in respect of the said property are not binding
upon the Plaintiff Company and hence Defendant No.1 has no
legal right to continue with further development of the said property.
10. Directors of Plaintiff Company, from reliable sources, have
come to know that Defendant No.1 has no intention to develop
the said property, further and hence Defendant No.1, again in
collusion with Defendant No.3 is negotiating to transfer/assign
development rights in respect of the said property to third person.
Since the agreement of assignment dated 20.05.2006 and Deed
of Confirmation dated 13.07.2006 are illegal and void, Defendant
No.1 has no right to deal with the suit property. Inspite of such
position, if Defendant No.1 attempts to transfer such rights, the
same shall be illegal and in any case shall not be binding upon
Plaintiff Company."
As a result of the fraud played, it was then stated:
"12. The cause of action for this suit first arose on or about
22.07.2004 when the Defendant No.1 obtained agreement for
development of the suit property, it further arose when the
Defendant No.1 and 2 obtained agreement of assignment dated
20.05.2006 and Deed of Confirmation dated 17.07.2006. It further
arose, in the month of April/May 2010, when the Plaintiff for the
first time came to know that the Defendant No.3 is no more partner
of the Defendant No.1 and that the Defendants have committed
fraud upon the Plaintiff. The cause of action also arose, when the
Defendants failed to comply with the demands made in notice
dated 10.07.2010.
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13. The present suit, being suit for declaration and cancellation, is
properly valued as per the provisions of Section 6(4)(h-a) of
Bombay Court Fee Act, 1959 and maximum court fee of
Rs.3,00,000/- is paid.
14. The suit property is situated at Pune. The cause of action for
the present 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.
B. 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 the suit may be awarded to the Plaintiff from the
Defendants.
G. Any other just and other equitable orders in the interest of
justice may be pleased to be passed."
It is important to note that Defendant No. 3 did not file any written
statement in the said suit.
iv. Almost immediately thereafter, by an application dated
19.07.2010 under section 8 of the Arbitration and Conciliation Act, 1996
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[hereinafter referred to as the "1996 Act"] on behalf of Regency, the
arbitration clause in the agreement dated 20.05.2006 was set out and
the Civil Judge (Senior Division), Pune was asked to refer the parties to
arbitration. The reply to the said application on behalf of the plaintiff,
Deccan, stated:
"2. The averments in para 1 of the application to the extent of
reproduction of clause No.14 of agreement dated 20.05.2006,
being matter of record are not disputed for the purpose of this
reply. The plaintiff shall rely upon and explain the true effect and
interpretation of the said clause at the proper time. It is pertinent
to note Defendant Nos.1 and 2 have avoided to make any
comment with regard to merits of their defense.
3. It is submitted that while considering the application u/s 8 of
Arbitration and Conciliation Act, 1996, the court has to consider
an issue that whether there exists any Arbitration Agreement
between the parties. Such right is certainly vested in Civil Court.
The Plaintiff is challenging the legality of agreement dated
20.05.2006 on the ground that the same is obtained by fraud and
is therefore seeking further declaration that the said agreement is
null and ab initio void. As such, the very Arbitration clause as
contained in the said agreement is not enforceable. In spite of the
fact that Section 16 of the said Act empowers the Arbitral Tribunal
to decide its own jurisdiction in view of particular circumstances
narrated in the plaint, the present application deserves to be
rejected."
v. By a judgment dated 19.07.2011, the Additional Judge, Small
Causes Court, Pune, after hearing both sides, held as follows:
"11.After perusing the above mentioned cited cases, it shows that
when there is a clause of arbitration it is mandated on the Civil
Court to refer the dispute and parties for arbitration as per
agreement. In present case the plaintiffs have materially contention
about playing fraud by Defendant No.3 but there is no 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
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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."
Finding thus, the learned Judge referred the parties to arbitration.
vi. A writ petition filed by Deccan in the Bombay High Court was
then disposed of by the impugned judgment dated 18.03.2015, in which it
was held, following the judgment of the Single Judge inSwiss Timing
Ltd. v. Commonwealth Games 2010 Organising Committee,
(2014) 6 SCC 677 [hereinafter referred to as "Swiss Timing"] that
the decision in N. Radhakrishnan v. Maestro Engineers, (2010) 1
SCC 72[hereinafter referred to as "N. Radhakrishnan"] being per
incuriam, it would not be possible to follow the same, as a result of
which the "fraud exception" was rejected. It was then held that there is
no conflict between the Division Bench judgment in Avitel Post Studioz
Limited & Ors. v. HSBC PI Holding (Mauritius) Ltd., Appeal
No. 196 of 2014 in Arbitration Petition No. 1062 of 2012(which is
the judgment under appeal in Civil Appeal Nos. 5145 and 5158 of 2016)
and another judgment in Satish Sood v. Gujarat Tele Links Pvt. Ltd.,
2014 (1) AIR Bom R 27 [hereinafter referred to as "Satish Sood"].
The Court felt that it would not be possible to follow the decision of the
Division Bench in the case of Satish Sood (supra) as it was rendered
prior to the judgment of the learned Single Judge of the Supreme Court
in Swiss Timing (supra). This being so, the writ petition was then
dismissed, with the result that the parties stood referred to arbitration.
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2. Smt. Meena Doshi, learned advocate appearing on behalf of
the Appellant, has taken us through the record and argued on the basis
of N. Radhakrishnan (supra) that when it comes to serious allegations
of fraud, an arbitrator's jurisdiction gets ousted and reading the pleadings
in the Special Civil Suit, it is obvious that serious allegations of fraud
being raised in the present case, the dispute is thus rendered nonarbitrable. She then referred to section 8 of the 1996 Act, as amended
by the Arbitration and Conciliation (Amendment) Act, 2015 [hereinafter
referred to as the "2015 Amendment Act"] to further argue that both
the District Judge as well as the High Court did not look into the
requirements of the amended section 8, and that the aforesaid judgments
are infirm on this count alone. She also argued, basing herself on the
seven-Judge Bench judgment in S.B.P. & Co. v. Patel Engg. Ltd.,
(2005) 8 SCC 618 that the correct application of section 8 is not 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 referred to as "Aliens Developers"]. On all these grounds,
therefore, the cryptic judgment of the Bombay High Court ought to be
set aside and the suit should be set down for hearing, to be disposed of
within a short timeframe.
3. Shri Vinay Navre, learned Senior Advocate appearing on behalf
of Respondent No.1, referred us to the case law on the "fraud exception"
and stated that after the judgment in Rashid Raza v. Sadaf Akhtar,
(2019) 8 SCC 710 (see paragraph 4), this exception would only apply
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if it can be stated that the agreement itself was never executed, in which
case the arbitration clause itself would fall, but not otherwise. Also, since
there are no public ramifications in the present proceeding, and in
particular, no ramifications of a criminal nature, neither of the conditions
precedent for the application of the "fraud exception" being present in
this case, it is clear that the judgments of the Courts below were correct
in law. When it came to section 31 of the Specific Relief Act, Shri
Navre stated that a correct reading of the section would show that the
Court's jurisdiction, being discretionary and for the benefit of the party
interested in setting aside a written instrument, the proceeding would
have to be considered to be one in personam. According to him, the
judgment in Aliens Developers (supra) does not lay down the law
correctly and should be overruled by us. In answer to the argument that
the agreement dated 22.07.2004, which did not contain an arbitration
clause, was also sought to be cancelled in the suit, he argued that this
was inserted only in the prayer clause in order to camouflage the suit so
as to get out of arbitration. If the body of the suit were to be seen, it is
clear that what was sought to be impugned was only the latter two
agreements, the first being of historical significance only. This being the
case, it is clear that the dispute is arbitrable. Further, all that is to be
seen under section 8 of the 1996 Act after its amendment is that prima
facie,a valid arbitration agreement exists. Here, as a matter of fact, it
was admitted, according to Shri Navre, in the affidavit filed in reply to
the section 8 application that the agreement between the parties did
exist, but was vitiated on account of fraud, which only made it voidable.
4. We have, in our judgment in Avitel Post Studioz Limited &
Ors. v. HSBC PI Holding (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
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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 been understood in paragraph 14 of Avitel (supra),
as a result of which this exception would clearly not apply to the facts of
this case.
5. Smt. Doshi then cited State of A.P. & Anr. v. T. Suryachandra
Rao, (2005) 6 SCC 149 and read paragraphs 8 to 16 of the judgment
to impress upon us that fraud vitiates every solemn act and that a
conspiracy with a view to deprive the rights of others in relation to a
property would render the transaction void ab initio. This case arose
out of an order of the Land Reforms Tribunal which held against the
respondent, stating that they had fraudulently taken advantage of the
ceiling limit under the Andhra Pradesh Land Reforms (Ceiling on
Agricultural Holdings) Act, 1973 by suppression of facts. In this case,
the Tribunal reopened the matter when it found that the land which was
surrendered had already been acquired in proceedings under the Land
Acquisition Act, 1898. The question was whether the Tribunal was
justified in modifying the earlier order and leaving out such land.