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M/S Asian Avenues Pvt Ltd vs Sri Syed Shoukat Hussain

Civil Appeal · 2023 INSC 454Decided 28 Apr 2023
Civil Appeal No. 2927 of 2023
Abhay S. Oka · Rajesh Bindal

Background

The respondent (plaintiff) owned a property that he had put into a Development Agreement-cum-General Power of Attorney with the appellant company in 2008, allowing the appellant to develop it. A dispute arose and the respondent cancelled the agreement, then sued for a court decree formally cancelling the agreement and for possession of the property. The appellant asked the trial court to send the dispute to arbitration under the agreement's arbitration clause, and the trial court agreed and rejected the plaint, but the High Court reversed this, holding that a suit for cancellation under Section 31 of the Specific Relief Act operates "in rem" (affecting the whole world) and so cannot be arbitrated.

Decision Breakdown

The Supreme Court held that the High Court was wrong. Relying on its earlier three-judge decision in Deccan Paper Mills v. Regency Mahavir Properties, the Court reiterated that a suit for cancellation of an instrument under Section 31 of the Specific Relief Act is not an action "in rem" and can be referred to arbitration. Since the dispute over whether the Development Agreement was validly cancelled arose directly out of that agreement, the arbitration clause squarely applied. The Court set aside the High Court's order and restored the trial court's order sending the parties to arbitration.

Lesson Learnt

A dispute over cancelling a contract (even one involving property) is generally a private dispute between the contracting parties, not a matter affecting the whole world, so if the contract has an arbitration clause, that clause can still be enforced instead of going straight to civil court.

Official source (sci.gov.in)View Judgment (PDF)

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