Cancellation Of Deed Is Action In Personam, Not In Rem; It Is Arbitrable : Supreme Court

Recently, the Supreme Court (December 15) allowed arbitration between the parties in a property dispute based on the broad language of the arbitration clause in the Tripartite Agreements. The Court rejected the argument that since the suit was for cancellation of a deed, the dispute was not arbitrable, as the action was in rem. The Court held that cancellation of a deed was an action in personam and hence arbitrable.

The Court observed that the Tripartite Agreements formed the basis of all subsequent agreements entered between the parties, including the ones that gave rise to the present dispute. 

In the instant case, cancellation of the Conveyance Deed and registered Development Agreements was sought. Pertinently, there was no arbitration clause in the Conveyance Deed and Development Agreements. However, considering that these agreements find their source in the two Tripartite Agreements, which, in turn, contained a broad arbitration clause, the view taken by the below court for referring the matter to arbitration was affirmed.

“The Trial Court and the High Court have rightly held that the broad language of the “arbitration clause” in the two Tripartite Agreements dated 31.03.2007 and 25.07.2008 would cover the dispute raised by the appellants before the Civil Court, and hence the case has been rightly referred for arbitration.,” Justices Aniruddha Bose and Sudhanshu Dhulia.

To provide a brief background, the present appellants were the plaintiffs in a civil suit. Therein, they sought a declaration that the Conveyance Deed be declared null and void and that the registered Development Agreements stand validly terminated.

However, the defendants, i.e., the present respondents, moved an application under Section 8 of the Arbitration & Conciliation Act, 1996. Section 8 provides that a judicial authority shall, based on the arbitration agreement between the parties, direct the parties to go for arbitration. The application was based on the arbitral clause in the two Tripartite Agreements entered between the parties. Against this backdrop, it was contended that these agreements formed the basis of the aforementioned Conveyance Deed and the Development Agreements.

The trial court allowed the Section 8 application and referred the matter for arbitration. When the same was challenged by the appellants / plaintiffs before the Bombay High Court, its petition was dismissed. Thus, the matter traveled to the Top Court.

Before we move on to the findings of the Apex Court, it is important to have a look at the arbitration clause contained in the Tripartite Agreements. It reads as:

“It is agreed between Parties that in the event of any disputes or differences between the Parties hereto in relation to this Agreement or in relation to any matter touching or arising from this Agreement, the parties shall refer such disputes and differences to the arbitration under the provisions of the Arbitration & Conciliation Act, 1996 or any statutory modification thereof.”

The Court, inter-alia, extensively discussed how the role of a 'Court' in arbitration matters is extremely limited. In view of this, the Court has also referred to the amendments that were made to the Act in 2015.

“The basic purpose for bringing an amendment in Section 8 (as well as Section 11 of the Arbitration Act) was to minimise the scope of judicial authority in matters of arbitration, except on the ground where prima facie, no valid arbitration agreement exists…. After the 2015 amendment, primarily the court only has to see whether a valid arbitration agreement exists.,” Court added.

Referring to the facts of the case, the Court observed that the Tripartite Agreement forms the basis for all subsequent agreements. Apart from this, the arbitration clause is also very wide in its scope.

Moving forward, the Court refused to accept the appellant's contention that the dispute raised in the civil suit was non-arbitrable. While relying upon several precedents, including Booz Allen and Hamilton Inc. v. SBI Home Finance Limited and Others, (2011) 5 SCC 532 and Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC, the Court held:

“Nevertheless, the case before the Civil Court does not fall in any of the categories, visualised in either Booz Allen (supra) or Vidya Drolia (supra) referred above.”

Lastly, the Court also considered two other objections of the appellant. First, was that the dispute amounts to an action in rem; hence, arbitration is not the remedy. To answer this, the Court relied on Deccan Paper Mills v. Regency Mahavir Properties (2021) 4 SCC 786. Therein, the court held that whether it is a suit for cancellation of a deed or a declaration of rights arising from the deed, it would only be an action in personam and not in rem.

With regard to the objection raised for fraud, the Court denied the same as it was unsubstantiated. It added:

“Except for making a bald allegation of fraud, there is nothing else. This Court has consistently held that a plea of fraud must be serious in nature in order to oust the jurisdiction of an Arbitrator.”

In view of these facts and circumstances, the Court refused to interfere with the findings of the below Courts and dismissed the appeal. 

Case Title: SUSHMA SHIVKUMAR DAGA vs. MADHURKUMAR RAMKRISHNAJI BAJAJ., Diary No.- 1164 - 2022

Citation : 2023 LiveLaw (SC) 984

Click here to read the Judgment