Case Note & Summary
The present appeal arises from a civil suit filed by the respondent-plaintiff against the appellant-defendant. The respondent claimed ownership of a suit property and had executed a Development Agreement-cum-General Power of Attorney (Development Agreement) on 23rd October 2008 with the appellant, granting permissive possession for development. A dispute arose, leading the respondent to cancel the Development Agreement and issue a legal notice calling upon the appellant to execute a deed of cancellation. The suit sought a decree directing the appellant to execute such a deed and deliver possession of the property. After service of summons, the appellant filed an application under Order VII Rule 11 of the Code of Civil Procedure, 1908 (CPC), contending that due to an arbitration clause in the Development Agreement, the dispute should be referred to arbitration. The Trial Court allowed the application, rejected the plaint, and exercised power under Section 8 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) to refer the parties to arbitration. The respondent filed a revision application before the High Court, which set aside the Trial Court's order, relying on a Division Bench decision of the same court that held that adjudication on cancellation of the Development Agreement operates in rem and thus the arbitration clause cannot be invoked. The appellant appealed to the Supreme Court. The appellant's counsel argued that the High Court's reliance on the in rem concept was erroneous, citing the Supreme Court's decision in Deccan Paper Mills Company Limited v. Regency Mahavir Properties and Ors., which held that an action under Section 31 of the Specific Relief Act, 1963 is not in rem. The respondent's counsel submitted that the arbitration clause does not apply because the prayer for cancellation of the agreement is not arbitrable. The Supreme Court, after hearing both sides, allowed the appeal, set aside the High Court's order, and restored the Trial Court's order rejecting the plaint and referring the dispute to arbitration. The Court held that the arbitration clause survives the cancellation of the agreement and that the dispute is arbitrable.
Headnote
A) Arbitration Law - Arbitrability - Survival of Arbitration Clause - Section 8, Arbitration and Conciliation Act, 1996 - Order VII Rule 11, Code of Civil Procedure, 1908 - Dispute pertained to cancellation of Development Agreement-cum-General Power of Attorney and delivery of possession - Trial Court rejected plaint and referred parties to arbitration under Section 8 - High Court set aside order relying on Division Bench decision that cancellation operates in rem - Supreme Court held that action under Section 31 of Specific Relief Act, 1963 is not in rem and arbitration clause survives cancellation - Appeal allowed, order of Trial Court restored (Paras 1-6).
Issue of Consideration
Whether a suit seeking cancellation of a Development Agreement and possession is arbitrable despite the presence of an arbitration clause, and whether the High Court erred in setting aside the Trial Court's order rejecting the plaint and referring the dispute to arbitration.
Final Decision
The Supreme Court allowed the appeal, set aside the High Court's order, and restored the Trial Court's order rejecting the plaint and referring the dispute to arbitration.
Law Points
- Arbitration clause survives cancellation of agreement
- Action under Section 31 Specific Relief Act is not in rem
- Order VII Rule 11 CPC for arbitration clause
- Section 8 Arbitration and Conciliation Act
- 1996
