New Category added in Booz Allen List - Disputes relating to Trusts are Non-Arbitrable
reema rai 3 Feb 2017

New Category added in Booz Allen List - Disputes relating to Trusts are Non-Arbitrable


In the instant case (Vimal Kishor Shah and Others v. Jayesh Dinesh Shah and Others, Civil Appeal No. 8164 of 2016), an Appeal was filed against the Judgment of the High Court which had allowed the Application under Section 11 of the Arbitration Act of the Respondents and appointed an Arbitrator to decide the dispute between the parties.
The brief facts are that there was a Family Trust Deed made by the “Settlor”. The Settlor out of love and affections made his family members, who were minors, as Beneficiaries of the Trust and two other persons were appointed as the Managing Trustees.
Clause 20 of the Trust Deed laid down that all the disputes in relation to the Trust shall be decided in accordance with the provisions of the Indian Arbitration, 1940 and the decision of the Arbitrator shall be final and binding.
However, some differences cropped up in the functioning and management of the Trust. The parties could not agree to appointment of any Arbitrator and hence, an Arbitration Application for appointment of Arbitrator was filed by the Respondents. The Appellants contended that the Section 11 Application is not maintainable as neither the Beneficiaries nor the Trustees were parties to the Trust Deed as they did not sign the same and the Trust Deed cannot be termed as an ‘Agreement’ within the meaning of the Section 7 of the Arbitration Act of 1996. As per the Appellants, there must be a valid and enforceable agreement to invoke Section 11 of the Arbitration Act, 1996.
The High Court dismissed such contentions raised by the Appellants and held that since parties to the Application were minors at the time of execution of the Trust Deed, they were incapable of signing the Trust Deed and now that the parties have attained the majority, they could be termed as ‘Party’ to the Trust Deed within the meaning of Section 2 (h) of the Arbitration Act, 1996 and are free to invoke the Arbitration Clause under the Trust Deed. Hence, an Arbitrator was appointed and the Application was allowed. Aggrieved by this, the Appellants approached the Supreme Court.
Arguments raised by the Appellants in the Supreme Court
1. When parties to the Application, who are Beneficiaries of the Trust, did not sign the Trust Deed, they could not be held parties to such Trust Deed.
2. For filing an Application under Section 11 of the Arbitration Act, 1996, there must be in existence a valid and enforceable arbitration agreement and such agreement, should be reduced in writing and lastly, it must be signed by the parties to the application as provided under Section 2(h) read with Section 7(4) of the Act.
3. Trusts are governed by the Indian Trusts Act, 1882, which is a complete code to deal with the such matters. Thus, the provisions of the Arbitration Act for deciding any dispute relating to affairs of the Trust cannot be made applicable in such a situation where there is already a remedy available under the Trust Act.
Arguments raised by the Respondents in the Supreme Court
The Order of the Supreme Court merely states that the Counsel for the Respondents supported the reasoning and the conclusion arrived at by the designated Judge and prayed for its upholding calling no interference therein in this appeal. The Hon’ble Court further stated that he also elaborated his submissions by referring to some provisions of the Act and case laws.
Question of Law framed by the Court
Whether an Arbitration Clause in a Trust Deed, can constitute an “Arbitration Agreement” within the meaning of Section 2(b) and 2(h) read with Section 7 of the Arbitration Act, 1996?
The Court discussed Section 2 (h) and Section 7 of the Arbitration Act and said that to constitute an Arbitration Agreement, the requirements under Section 7 must be strictly satisfied i.e. firstly, there must be an agreement; secondly, it must be in writing; thirdly, the parties must sign such agreement and lastly, there must be an Arbitration Clause in the said Agreement.
To substantiate the abovementioned reasons, the Hon’ble Court relied on Vijay Kumar Sharma Alias Manju v. Raghunandan Sharma Alias Baburam & Ors., reported at (2010) 2 SCC 486. This case involved Arbitration Clause in a Will made by the Testator and it was held that if a Will contains a reference of disputes to Arbitration, it would be merely an expression of a wish by the Testator that the disputes should be settled by Arbitration and cannot be considered as an Arbitration Agreement among the Legatees/Inheritors.
The Hon’ble Court in the present case relied upon the abovementioned case law and stated that there is no significant difference so far as the applicability of the principle of law laid down in Vijay Kumar Sharma to the facts of the case at hand is concerned. According to the Court, in both the cases, the Testator/Settler is the one who signs the Document alone. The interest is conferred upon the Inheritors/Beneficiaries. Even though the Inheritors/Beneficiaries accept the Will/Trust Deed, they do not sign documents and are not regarded parties to such Will/Trust Deed.
The Hon’ble Court also drew analogy with the provisions of Contract Law where in there is always a Proposal and then its acceptance, to constitute any such arrangement as an Agreement. Same is not true in the case of Trusts because there is no Agreement between the Beneficiaries as such. Hence, the Hon’ble Court held that the Arbitration Clause in a Trust Deed does not satisfy the rigour of Section 2 (h) and Section 7 of the Arbitration Act, 1996.
The Hon’ble Court also took recourse to the Booz Allen & Hamilton Inc. v. SBI Home Finance Limited & Ors., reported at (2011) 5 SCC 532. In this case, the meaning of the term ‘Arbitrability’ was discussed and the Court laid down various categories of disputes that are non-arbitrable such as guardianship matters, insolvency matters, testamentary matters etc. that are governed by Special Statutes. According to the Hon’ble Court, the Trust Deed is also governed by the special law i.e. the Trust Act. The Court said that even though there is no express bar of applicability of other laws for deciding the disputes arising under the Trust Act, yet there exists an implied bar of exclusion of Arbitration Act, 1996 as there are sufficient remedies available under the Trust Act to deal with any such disputes.
Thus the Court held that the disputes relating to Trust, trustees and beneficiaries arising out of the Trust Deed and the Trust Act are not capable of being decided by the arbitrator despite existence of arbitration agreement to that effect between the parties. Hence the Appeal filed by the Appellants was allowed and the Order of the High Court was set aside and Application under Section 11 of the Arbitration Act, 1996 was held to be non-maintainable.
The Hon’ble Court vide this Judgment has added a new category to Booz Allen list of non-arbitrable disputes. The implications of this Judgment are going to have far reaching consequences in the future. A detailed critique of this Judgment shall be given in the post.
Author: Suyash Verma
Source: desikanoon
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