Deccan Paper Mills Co. Ltd. v. Regency Mahavir Properties

Nov 21, 2020

Case Background and Introduction

The case at hand revolves around the concept of Special relief and actions in personam and rem. An action in personam refers to an action or a judgement against a specific person. In contrast, an action in rem refers to a suit against an item of property that isn’t against a specific person but rather against the world at large. 

Case Facts

On 22nd July 2004, Deccan Paper Mills Co. Ltd. M/s Ashray Premises Pvt. Ltd. got into an agreement wherein Deccan who owned approximately 82,200 sq. meters of the land decided to develop 32,659 sq. meters. The agreement, in one of its clauses, stated that “The owner shall have to objection if at any stage during the continuance of the agreement the developer assigns, delegates the rights, under this agreement or the power of Attorney/writings executed in furtherance thereof to any other  person, firm or party without violating or disturbing any of the terms and conditions of this agreement.” [para. 1] In 2006, as per the agreement, a new agreement was entered into by Ashray and Regency Mahavir Properties by which Ashray granted the execution rights of the 2004 agreement to Regency. The 2004 agreement did not have an arbitration clause, but the 2006 agreement did. It stated that if during the agreement, the parties disagreed, they could appoint one common arbitrator or two separate arbitrators to settle the dispute subject to the Arbitration & Conciliation Act, 1996. On 13th July 2006, a deed of confirmation followed, stating that it had to be treated as part of the agreement. Deccan alleged that Mr Atul Chordia, one of the respondents, had committed fraud. He had assured Deccan that he would be one of the leading partners of M/s Regency Mahavir Properties and that the property would be developed as quickly as possible. He also signed the agreement for the disposal and transfer of executory powers. The directors of the plaintiff company went to one of the partners of Regency and enquired about the reason for the delay, stating that they would hold Mr Chordia responsible for it. They were informed that Mr Chordia was no longer in charge of this as he had chosen to retire in 2006. The Registrar of Firms further confirmed this. The plaintiff believed that Mr Chordia had colluded with Regency, concealed material facts and committed fraud. "Directors of Plaintiff Company, therefore say that said agreement of assignment and Deed of Confirmation being tainted with fraud are ab initio null and void and not binding on Plaintiff Company." [para. 9] They emphasized on collusion after they got to know that Regency had no intention of developing their property. Since the plaintiff is arguing that the agreement itself is void ab initio, its arbitration clause is essentially non-enforceable. The application of the plaintiff was allowed.

Observation and Decision

The respondents claimed that the issue was arbitrable since the preliminary 2004 agreement is what the appellant sought to avoid. The 2006 agreement, although had a valid arbitration clause and the appellants claim that the agreements and deeds were signed by fraud, only makes them voidable according to Section 8 of the 1996 Act. Furthermore, the contentions of the contract are civil, thereby making them arbitrable as held by Avital Post Studioz Limited & Ors. v. HSBC PI Holding (Mauritius) Ltd. This case also laid down that the allegations lie under Section 17 of the Indian Contract Act, and so fraud in the performance of the contract will be arbitrable. It was also held that just because a particular transaction might have been criminal, it doesn’t make the case non-arbitrable. Therefore, unless there is no existence of a prima facie arbitration agreement, the case will be arbitrable. Smt. Doshi argued the applicability of Section 31 of the Special Relief Act. The appellants argued that the proceedings were in rem, but the respondents claimed that it was in Personam. They referred to the Act and in saying that the court’s discretion according to the provision works in favour of the party interested in setting aside the written agreement, thereby making the proceedings in personam. The Supreme Court further examined the correctness of law laid down in Alien Developers Pvt. Ltd. v. M. Janardhan Reddy​ Which held that the action under Section 31 was an action in rem and thus nor arbitrable. The bench overruled this law as it was not good law in their opinion. It further held that it makes no difference whether or not the written instrument is registered. Regardless of this, the proceedings will be in rem or personal; It referred to Sections 32, 33, 34 and 35 read with Section 4 in saying that the actions under this provisions were actions in personam and that it would be incongruous to say that only Section 31 of the Act referred to a proceeding in rem. In contrast, the rest of the Act referred to actions in Personal. Lastly, it held that specific relief could be granted only to enforce individual civil rights and not merely for enforcing penal law according to Section 4 of the Act. 

Consequences of the Decision

This judgement has resulted in the sense of clarity on the issue and has put a lot of allegations and conflict to rest. Concerning Section 4 of the Special Relief Act, it has brought out that special relief is to be granted only for enforcing individual civil rights and hence, all actions are in personam and not in rem. It further made all these actions and cases arbitrable. 

Ending remarks and Suggestions

The court declared a few cases as per in curium and overruled a few other cases. This was done in the light of various amendments made to the Special Relief Act. Considering that amendments essentially show progress or rather a fine-tuning of the provisions as per changing circumstances, it was a sensible decision by the Supreme Court to make the case arbitrable. The arbitration clause was essentially valid, and since it was part of the 2006 agreement, it is legitimate. This is further ensured by the fact that the initial agreement which the appellant wanted to declare null and void was the 2004 agreement which did not have an arbitration clause and not the 2006 agreement. Making the case arbitrable before dismissing it seems to follow a logical train of thought.