Jasmal Singh vs Shri Bhairu Singh & Ors.

The present application under section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act of 1996' for the sake of brevity) has been filed for appointment of Arbitrator for resolution of dispute arose between the parties arising out of agreements dated 1.12.2003 (annexure P/3 and P/8).

Brief facts of the case are that the an agreement dated 1.12.2003 (annexure P/8) of the land bearing Khasra No. 394/2/1/1 area 1.409 hectare (3.5 acre) and 394/2/1/2, 394/2/1/3, 395/2 area 1.408 hectare (3.5 acre) was executed between land owner Mukulchand Viswas and Usha Vishwas with respondent No.1 Bhairu Singh. On the same day, i.e. on 1.12.2003, another agreement (annexure P/3) was executed between Bhairu Singh (non-applicant no.1) and Rai Singh (non-applicant no.2) with Jasmal Singh (applicant) for land bearing Khasra No. 402/1 0.8906 hectare (2.20 Acre) and for Khasra no. 402/2 area 1.2140 hectare (3 acre) for Rs. 54,60,000/-. Third agreement dated 4.12.2023 (annexure P/1) was executed between applicant and non-applicants mentioning two separate properties inter-alia i) land bearing Khasra no. 402/1 of Bhairu Singh and 402/2 of Rai Singh and land bearing Khasra No. 394/2/1/1 area 1.409 hectare (3.5 Acre) and 394/2/1/2, 394/2/1/3, 395/2 area 1.408 hectare (3.5 Acre) for a total sale value of ₹1,27,68,000/-. The advance amount of Rs.14,00,000/- paid under the 1st agreement dated 1.12.2023 was adjusted as an advance for subsequent agreement dated 4.12.2023 (annexure A/1).

According to the terms of the executed sale agreement dated 04.12.2023 (annexure A/1), if any dispute arises between the parties, it shall be resolved through proceedings under the Act of 1996, and the resolution will be binding on both parties.

It is submitted that despite the terms of the sale agreement, the non-applicants failed to perform sub-division, demarcation, clear the bank mortgage on the property, and register the sale deed in favour of the applicant.

Because the non-applicants failed to provide any information regarding the sub-division, demarcation, or clearing of the bank mortgage, the applicant, through his advocate, served a legal notice on 11.04.2025 (annexure A/2). The notice demanded compliance with the sale agreement dated 04.12.2023, failing which an arbitrator should be appointed to resolve the dispute. Despite receiving the notice on 24.04.2025, the non-applicants did not submit any response. It is submitted that due to the applicant's lack of legal knowledge and erroneous advice given by his former advocate, Arbitration Case No. 52/2024 was filed earlier before this Court based on the initial agreement dated 01.12.2023. Upon objections raised by the non-applicants, this Court had dismissed that case vide an order dated 24.09.2024, due to non-production of the original copy of the sale agreement dated 04.12.2023.

Against the order dated 24.09.2024 passed by this Court, the applicant preferred a Special Leave Petition, SLP No. 2504/2025, before the Hon. Apex Court. The Hon. Apex Court dismissed the SLP vide its order dated 31.01.2025 (annexure A/7). It is submitted that with ill intention, the non-applicants are attempting to sell the disputed land to third parties. Consequently, the applicant has filed an application under Section 9 of the Act of 1996, before the District Court Bhopal seeking interim relief, which is currently pending. That due to an increase in the market value of the land and with a malicious intent to misappropriate the advance payment of ₹14,00,000/-, the Non-Applicants are willfully violating the terms of the agreement dated 04.12.2023 and refusing to register the sale deed. They have also ignored the legal notice and request for dispute resolution, hence, this application.

Learned counsel for the applicant submits that the non-applicants are avoiding the registration of the sale deed in favour of the applicant, in clear breach of the sale agreement dated 04.12.2023. It is further submitted that a dispute has arisen because the non-applicants failed to carry out the demarcation, sub-division, and registration. It is further submitted that the non-applicants have failed to appoint an arbitrator in violation of Clause 14 of the agreement.

Per contra, learned counsel for the non-applicants raised following legal issues for consideration before this Court :-

ii) even if is held that it could be referred to arbitration, when Section 20 of the Act provides the said discretion exercised is to be guided by judicial principle and capable of correction by a court of appeal, as no appeal is provided against arbitral award, can such matters be referred to arbitration ?

iii) When the agreement between the parties specifically state that the parties are at liberty to file a suit for specific performance of a contract, in view of the arbitration clause in the agreement, can it be said that such dispute also could be referred to arbitration?

iv) When the agreement (Annexure P-1) is executed between applicant and non-applicants for property belongs to Mukulchand Viswas and Uma Viswas can be enforced against them/ third party.

vi)When there is a cash transaction in agreement (Annexure P-1) of Rs. 5 lakhs in cash then whether such matter ought to have been referred to the Income Tax Department.

In reply to issue no.1 to 3 learned counsel for the respondents submits that a bare reading of section 20(1) of the Specific Relief Act clarifies that jurisdiction to seek specific performance it discretionary. The said discretion is to be exercised by the court. The discretion of the court is not arbitrary but required to be sound and reasonable, guided by judicial principles. It is capable of correction by a court of appeal. The question is whether the discretion to be exercised by the court could be exercised by an arbitrator appointed under the Arbitration Act. To bolster his submissions he has relied upon the judgment of Delhi High Court in the case of Sulochana Uppal v. Surender Sheel Bhakri reported in AIR 1991 Delhi 138 wherein it is held that a petition under Section 20 of the Arbitration Act, 1940 for enforcement of an agreement to sell is not maintainable. Reliance has also been placed upon the judgment of Apex court in the case of Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetan reported in AIR 1999 8C 2101. With regard to issue no.4 and 5, it is submitted that arbitration agreement Annexure A-1 nowhere bears the signature of respondent no.2 Bhairu Singh nor the signature of Mukulchand Viswas or Uma Viswas. Even Mukulchand Viswas and Uma Viswas are not parties to the litigant nor their signature are available over the agreement dated 04-12-2023. Such agreement executed in respect of property of some other person cannot be executed or decided by arbitrator and further as per settled law of Hon’ble Apex Court under specific performance of contract, no third party can file an application under order 1 rule 10 of CPC. With regard to issue no.6, it is submitted that the agreement provides the money transaction of near about Rs. 5 Lakhs in case as mentioned para 1 of the agreement which shows that above Rs. 2 Lakhs there is a cash transaction, therefore, in the light of judgment of Hon'ble Apex court in the case of the Correspondence, RBANMS Educational Institution versus B. Gunashekar & Another 2025 Live Law Supreme Court 429 has held ( Para 18 Last Paragraph), that whenever a suit is filed with a claim that Rs. 2,00,000/- and above is paid by cash towards any transaction, the courts must intimate the same to the jurisdictional Income Tax Department to verify the transaction and the violation of Section 269ST of the Income Tax Act, if any.

The question that arises for consideration is whether the dispute between the parties can be resolved by filing a suit for specific performance of contract or by appointment of the Arbitrator as per clause 14 of the agreement, this Court vide order dated 2.7.2026 has appointed Shri Qasim Ali as Amicus Curiae to address the court as to whether in purely civil disputes, Arbitrator can decide such dispute and though award is executable as decree by the civil court but whether such award can be passed circumventing substantive statute like Specific Relief Act, Transfer of Property Act and procedural Code like CPC and the Evidence Act.

The learned Amicus Curiae has placed reliance on judgments of the Hon'ble Apex court in the case of Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532, Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1, Olympus Superstructures (P) Ltd. v. Meena Vijay Khetan, (1999) 5 SCC 651, Sushma Shivkumar Daga v. Madhurkumar Ramkrishnaji Bajaj, (2024) 12 SCC 253, Rashid Raza v. Sadaf Akhtar, (2019) 8 SCC 710, Deccan Paper Mills Co. Ltd. v. Regency Mahavir Properties, (2021) 4 SCC 786, Rodemadan India Ltd. v. International Trade Expo Centre Ltd., (2006) 11 SCC 651 and submitted that the Hon'ble Apex court in the case of Booz Allen & Hamilton Inc. (supra) has established the criteria for assessing the arbitrability of disputes. The Apex Court has recognised three conditions that had to be satisfied for a subject matter to be referred to arbitration: (a) The disputes must be capable of adjudication and settlement by arbitration; (b) The disputes must be covered by the arbitration agreement; and (c) The parties must have referred the disputes to arbitration. The Court, among other things, also lay down six categories of disputes as incapable of being settled by arbitration - Disputes relating to rights and liabilities which give rise to or arise out of criminal offences, Matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody, Guardianship matters, Insolvency and winding up matters, Testamentary matters and Eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction. It is further held that the nature of rights involved is the basis for determining arbitrability. Rights in personam (rights and interests of specific persons) as prevalent in contracts are amenable to arbitration, whereas rights in rem (rights and interests exercisable against the world) require judicial intervention. The Court also held that subordinate rights in personam arising from rights in rem may be referred to arbitration. This test emphasised that certain categories of disputes are non-arbitrable due to the nature of implications resulting from the rights.

The Hon'ble Apex Court in the case of Vidya Drolia (supra) has laid down a fourfold test for determining when the subject-matter of a dispute in an arbitration agreement is not arbitrable. These were:

The Hon'ble Apex court in the case of Olympus Superstructures (P) Ltd (supra), the right to specific performance of an agreement of sale deals with contractual rights and it is certainly open to the parties to agree with a view to shorten litigation in regular Courts to refer the issues relating to specific performance to arbitration. There is no prohibition in the Specific Relief Act, 1963 that issues relating to specific performance of contract relating to immovable property cannot be referred to arbitration. Nor is there such a prohibition contained in the Arbitration and Conciliation Act, 1996.

The Hon'ble Apex court in the case of Sushma Shivkumar Daga (supra), has held that two Tripartite Agreements were the broader agreements and they formed the basis of the subsequent agreements including the Conveyance Deed and the Development Agreements signed between the appellant and the respondent. So, if there was an arbitral clause in the tripartite agreement it means that this clause applies to the Conveyance Deed as well as the Development Agreements also. There was no requirement of the two having separate arbitral clause in them. A similar reasoning was applied in the present case as well wherein the court held that the cancellation of the document related to an immovable property would amount in an action in personam and hence it is arbitral. It is further held that the suit filed by the appellants is for cancellation of a document relating to immovable property i.e. land and it therefore amounts to an action in rem and hence arbitration is not the remedy. This question however, is no more res integra. Elaborate analysis on this aspect has been done by the Hon. Apex Court in the case of Deccan Paper Mills v. Regency Mahavir Properties, (2021) 4 SCC 786, wherein after referring to all the relevant precedents and the case laws has held that whether it is a suit for cancellation of a deed or a declaration of rights rising from the deed, it would only be an action in personam and not in rem. The decision of the Division Bench of Andhra Pradesh High Court in Aliens Developers (P) Ltd. v. Janardhan Reddy, 2015 SCC Online Hyd 370, was held to be wrong wherein it was held that a suit under Section 31 of Specific Relief Act amounts to an action in rem and this adjudicatory function can only be done by the Competent Civil Court and the powers cannot be exercised by an Arbitrator. The basic foundation of the Court for holding that a Section 31 suit for cancellation of a document amounts to an action in rem was held to be wrong. The entire scope and ambit of the Specific Relief Act, 1963 was considered and in Deccan Paper Mills (supra), the anomalies in law for holding such to be an action in rem were discussed and it was held that a relief sought under the Specific Relief Act is nothing but an action in personam.

In the case of Rashid Raza (supra), the Hon'ble Apex Court laid down two conditions which must be satisfied before the Court can refuse to refer the matter to the Arbitrator, a forum consciously decided by parties in an agreement. The first is whether the plea permeates the entire contract and above all, the arbitration agreement, rendering it void or secondly, whether the allegation of fraud touches upon the internal affairs of the parties inter se having no implication in the public domain. The allegations must have some implication in public domain to oust the jurisdiction of an Arbitrator, if an allegation of fraud exists strictly between the parties concerned, the same will not be termed to be as a serious nature of fraud and hence would not be barred for arbitration.

The case of Deccan Paper Mills Co. (supra), deals with action in personam & action in rem. In the instant matter, the Hon’ble Apex Court has held that a suit for cancellation of a deed or a declaration of rights arising from the deed would only be an ‘action in personam and not in rem’.

From the above enunciation of law by the Hon'ble Apex Court in series of judgments, it is discerned that in any suit, if the rights/action of the parties are in personam and not in rem, then dispute arising out of such actions are arbitrable despite there being a separate remedy of filing a suit under the Specific Relief Act and agreed by the parties in the agreement.

However, it has also been laid down that any dispute, even if it is an action in personam, but is not arbitrable due to certain contingencies like the dispute affects the third party, have erga omnes effect, required centralized adjudication and mutual adjudication would not be appropriate and enforceable. Further, when cause of action and subject matter of the dispute relates to an action in rem, that too not pertains to subordinate rights in personam which arise from rights in rem and when the subject matter of dispute is expressly or by necessary implication non-arbitrable as per mandatory statutes, then it cannot be referred to arbitration.

When the facts of the present matter has been tested on the anvil of the principle laid down by the Hon'ble Apex Court in the catena of judgments, it is found that one part of the agreement in question is in respect of the land bearing survey No.394/2/1/1 area 1.409 hectare (3.5 acre) and 394/2/1/2, 394/2/1/3, 395/2 area 1.408 hectare (3.5 acre) which was earlier between the landowner Mukund Chand Biswas and Usha Biswas with respondent No.1 Bhairu Singh, meaning thereby, the Mukund Chand Biswas and Usha Biswas being the owner of the land are required to be party in any proceedings because the rights in their immovable land has not been transferred by the original owner to any of the agreement holder. So only on the basis of an agreement, a subsequent agreement has been made for sale of the land, which was never transferred to the party who has executed the subsequent agreement, is not enforceable against the true owner and such dispute cannot be said to be arbitrable dispute.

The rights in personam have not been crystallized by the agreement to give further cause of action to file an application for arbitration on the basis of agreement to sale, for which a valid conveyance deed of transfer is required. In absence of such, the matter cannot be said to be arbitrable when no rights in personam have been accrued in favour of the parties.

More so, when the dispute relates to third party, i.e. the true owner, who has not been made party to the agreement which contains a stipulation of arbitration, then cause of action and subject matter of dispute relates to a third party, and any decision thereon would affect the third party, have erga omnes effect and require centralized adjudication and mutual adjudication between the parties to the agreement of arbitration would not be appropriate and enforceable.

The Hon'ble Apex Court has held that the Specific Relief Act does not prohibits reference of the dispute arise between the parties on the basis of agreement for arbitration which can be done by the competent Civil Court.

2 3 . The basic principle was based on cancellation of a document which was found to be rights and action in personam and even if it is found that though it contains an element of fraud, but if that fraud doesn't affect any third party, then the arbitration can be done.

However, in the considered opinion of this Court, in the present case in hand, the dispute is not of specific performance simpliciter or element of fraud is involved, which is an action and rights in personam, but, from bare perusal of the agreement, it is found that there is a serious dispute of title in favour of the person who has executed the agreement to sell. Unless the title is decided by application and procedure of substantive and procedural statute respectively, then such dispute cannot be resolved by the arbitrator.

The Arbitration and Conciliation Act, though provides party autonomy and the procedure to conduct an arbitration is also the discretion of the arbitrator with the consent of the parties, but that will not oust the application of the Evidence Act, the Transfer of Property Act, and the Specific Relief Act.

Therefore, the Hon'ble Apex Court has also carved out an exception in the tenancy matters where there is an implication of statute which requires certain protection to the tenant and rights in favour of the landlord.

Therefore, there is no straight jacket formula which can be applied in the cases where the specific performance of an agreement is sought to be referred to arbitration by appointing an arbitrator. The said question has to be dealt by the referral court at the initial stage, because after conduction of arbitration, if the parties are back to square one and the disputes are not resolved in terms of the law, then it would be a futile exercise and waste of time.

Therefore, while referring the matter in such kind of issues, the Court is required to be convinced that the dispute, though relates to specific performance, but is arbitrable in the light of the principles laid down by the Hon'ble Apex Court and considering the facts and circumstances of the each case.

Therefore, this court is of the considered opinion that as the agreement contains various disputes which requires adjudication to crystallize title and rights between the parties which cannot be adjudicated by the Arbitrator in the background of the facts and circumstances of the present case. The application is hereby dismissed. The parties are at liberty to take recourse of law for adjudication of their dispute before the competent civil court.

Accordingly, application is dismissed with no order as to cost.

This Court appreciates the assistance rendered by Shri Qasim Ali as Amicus Curaie along with Shri Atul Nema, Advocate and Shri Ankit Saxena, counsel for the respondent.