DECCAN PAPER MILLS CO. V. REGENCY MAHAVIR PROPERTIES & ORS
Deccan Paper Mills Co. Ltd. v. Regency Mahavir Properties, (2021) 4 SCC 786
Whether disputes involving allegations of fraud in the execution of agreement can be arbitrated?
Whether proceedings under Section 31 of the Specific Relief Act, 1963 would be treated as proceedings in personam or proceedings in rem?
Section 31 of the Specific Relief Act 1963 states when a cancellation may be ordered;
a) 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.
b) 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.
Deccan Paper Mills Co. Ltd. (“Deccan”) and Ashray Premises Pvt. Ltd. (“Ashray”) entered into an agreement on July 22, 2004, to develop a portion of land owned by Deccan. The parties agreed that Deccan would not object if Ashray assigned or delegated the rights or the Power of Attorney/writings executed in furtherance of the Agreement to any other person, firm, or party at any time during the Agreement’s continuation, without violating the T&Cs of the Agreement.
As a result, Ashray entered into a partnership agreement with Regency Mahavir Properties (“Regency”). Ashray delegated the Agreement’s execution to Regency. The Regency Agreement had an arbitration clause, despite the Agreement not having one. A deed of confirmation then confirmed the Regency Agreement. The Deccan Directors agreed to this assignment based on assurances given by Mr. Atul Chordia, who had orchestrated the entire transaction fraudulently. Mr. Atul Chordia chose to retire on May 30 2006, shortly after Ashray assigned development work to Regency and before he fraudulently signed the Deed as an authorised partner of Regency.
Deccan informed Ashray that the Regency Agreement and Deed are not binding upon it and filed a suit for declaration praying,among other things, for a declaration that the Regency Agreement and Deed are illegal, null, void and not binding upon Deccan and for cancellation of the Agreement, Regency Agreement as well as the Deed. Soon after, Regency applied under Section 8 of the Arbitration and Conciliation Act, 1996 seeking arbitration of the dispute, which was granted. Deccan filed a writ petition in the High Court of Bombay, which was dismissed. The matter was then appealed before the Supreme Court.
The Supreme court held that “a person” referred to in Section 31 of Specific Assistance Act 1963 does not include third parties but are limited to the written statement or any other instrument that may possibly bind a third party.
The Court also relied on the Avitel case and held that because a transaction has criminal overtones does not make it non-arbitrable. The Court additionally explained that when an unregistered instrument is dropped, an activity brought under Area 31(1) of the Particular Alleviation Act can’t be supposed to be in personam. At the point when an enlisted instrument is dropped, being in rem can’t be said.
It was likewise expressed that the factum of enrollment of what is generally a confidential record between parties presents no higher legitimate status on the report because of its enlistment. The High Court likewise checked out at various choices. It reached the determination that a judgment passed under Segment 31 of the Particular Help Act ties the gatherings to the suit, as opposed to each and every individual who has a case to the property.