[Cancellation Of Written Instruments] Action Instituted U/s 31 Specific Relief Act Is Arbitrable As It Is Not An Action In Rem: SC [Read Judgment]

The Supreme Court has held that an action instituted under section 31 of the Specific Relief Act, 1963 is not an action in rem, but an action in personam, and therefore arbitrable.

In this case, a suit was filed by Deccan Paper Mills Co. Ltd. against Regency Mahavir Property and others, One of the prayers was to set aside some agreements as well. The Court had allowed the application filed by Regency to refer the matter to Arbitration. The High Court also dismissed the writ petition filed by Deccan in this regard. Thus, before the Apex Court in appeal,  Deccan contended that since the prayer in the suit is for cancellation of three "written instruments", the proceeding under section 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. The contention was made referring to section 31 of the Specific Relief Act, 1963 and a Division Bench 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) in which it was held that the action under Section 31 is an action in rem and therefore non-arbitrable.

Referring to Muppudathi Pillai v. Krishnaswami Pillai, AIR 1960 Mad 1, the Apex Court bench comprising of Justices RF Nariman, Indira Banerjee and Navin Sinha observed that the expression "any person" in Section 31 does not include a third party, but is restricted to a party to the written instrument or any person who can bind such party. It said:

"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. "

Disagreeing with the interpretation made by the Division Bench in Aliens Developers, the court observed that 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.

An action that is started under section 31(1) cannot be said to be in 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.

Overruling Alien Developers, the bench dismissed the appeals and  further observed:

"The proceeding under section 31 is with reference to specific persons and not with reference to all who may be 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"

"..The reasoning in the aforesaid judgment 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 non-executant would be an action in personam since a suit has to be filed under section 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." 

Case details
Case no.: CIVIL APPEAL NO. 5147 OF 2016
Case name: DECCAN PAPER MILLS CO. LTD. vs. REGENCY MAHAVIR PROPERTIES & ORS.
Coram: Justices RF Nariman, Indira Banerjee and Navin Sinha
Counsel: Adv Meena Doshi and Sr. Adv Vinay Navre

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