Tejaswita
ARBITRATION AND TRUST DEEDS
Tejaswita 23 Oct 2016

ARBITRATION AND TRUST DEEDS

The Hon’ble Supreme Court in the case of Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532 had an occasion to deliberate upon the meaning of the term “arbitrability”. The court in the case was of the view that the term has different meanings in different contexts. The court held that every civil or commercial dispute, either contractual or non-contractual, which can be decided by a court, is in principle capable of being adjudicated and resolved by arbitration unless the jurisdiction of the Arbitral Tribunals is excluded either expressly or by necessary implication. However, adjudication of certain categories of proceedings were reserved by the legislature exclusively for public fora as a matter of public policy whereas there are few categories of cases, which though not expressly reserved for adjudication by public fora (courts and tribunals), may, by necessary implication stand excluded from the purview of private fora.

 

The court also categorised disputes that were not arbitrable. These were- 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 (grant of probate, letters of administration and succession certificate); and eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.

 

These categories above, relate to actions in rem. In other words, herein, a right exercisable against the world at large, as contrasted from a right in personam which is an interest protected solely against specific individuals.  The court held that all disputes relating to rights in personam are generally considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration. This rule, however is not a rigid or inflexible rule.

 

Following the principles laid in the above case, the Hon’ble Supreme Court in Vimal Kishor Shah v. Jayesh Dinesh Shah, (2016) 8 SCC 788 considered whether issues and disputes which arise out of a trust deed between the beneficiaries of the Trust could be resolved through arbitration.

The court examined the scheme of the Trusts Act, 1882 in the light of the principle laid down in Dhulabhai v. State of M.P., AIR 1969 SC 78and held that though the Trusts Act, 1882 does not provide any express bar in relation to applicability of other Acts for deciding the disputes arising under the Trusts Act, 1882 yet, there exists an implied bar of exclusion of applicability of the Arbitration Act for deciding the disputes relating to trust, trustees and beneficiaries through private arbitration.

The court further opined that case of will was similar to case of trust deed. In the case of a will, the testator executes the will in favour of legatee(s) whereas in the case of a trust, the settlor executes the deed in favour of the beneficiaries. In both the cases, it is the testator/settlor who signs the document alone. That apart, both the deeds convey the interest in the estate in favour of the legatees or/and beneficiaries. However, since legatees/beneficiaries do not sign the document or we may say are not required to sign such document, they are not regarded as party to such deed despite legatees/beneficiaries/trustees accepting the deed.the court considered the case of Vijay Kumar Sharma v. Raghunandan Sharma, (2010) 2 SCC 486 which dealt with execution of a will to arrive at this conclusion.

It was ultimately held that that the disputes relating to trust, trustees and beneficiaries arising out of the trust deed and the Trusts Act, 1882 are not capable of being decided by the arbitrator despite existence of arbitration agreement to that effect between the parties.

The judgements can be accessed here:

https://indiankanoon.org/doc/188958994/

https://indiankanoon.org/doc/1996908/

 https://indiankanoon.org/doc/1924231/

https://arymecom.files.wordpress.com/2016/09/2016-india-shri-vimal-v-jayesh-dinesh.pdf

 

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