Appellant: Shri Vimal Kishor Shah & Ors.
Respondent: Mr. Jayesh Dinesh Shah & Ors.
CIVIL APPEAL NO.8164 OF 2016.
(ARISING OUT OF SLP(C) No. 13369 of 2013)
Supreme Court of India
Abhay Manohar Sapre, J.
One Shri Dwarkadas Laxmichand Modi executed a family Trust Deed on 06.04.1983 forming a trust in favour of six minors, including Vimal Kishor Shah and Jayesh Dinesh Shah. Clause 20 of the Trust Deed provided that if any dispute arise then it would be resolved in pursuance of the provisions of the Indian Arbitration Act, and the decision of the arbitrators would be binding on the parties to the arbitration.
But soon after the formation of the trust, differences cropped up between the beneficiaries and one of the trustees resigned from the trusteeship. Finally a demand was made to amicably resolve the disputes/differences by referring them to the arbitrator as per Clause 20 of the Trust Deed. As the parties could not settle the differences and could not also appoint an arbitrator, one set of beneficiaries filed an application under Section 11 of the Arbitration and Conciliation Act, in the High Court.
The other set of beneficiaries contested this application. It was contended that the beneficiaries were neither parties to the Trust Deed nor its signatories, and Trust Deed could not be termed as an “agreement” much less an “arbitration agreement” within the meaning of Section 2(b) and 2(h) read with Section 7 of the Act. The designated Judge allowed the application and held that since the parties were minor at the time of the execution of the Trust Deed and had now become major, they should be held as party under Section 2(h) and further they had the right to take recourse to proceedings under Section 11 of the Act for appointment of arbitrator.
Against this order of the Single Judge, one set of beneficiaries (the appellants) filed the petition by Special Leave before the Apex Court.
It was contended before the Apex Court that the Trust Deed was not an “Arbitration Agreement”. Further, that since the affairs of the Trust would be governed by the Indian Trusts Act, 1882 (“the Trust Act”), the Arbitration Act would not apply. The opposing party supported the reasoning of the Single Judge and prayed for no interference by the Apex Court.
II. Court’s Observation:
Supreme Court opined that there was no valid arbitration agreement. Court looked at the relevant sections and held that the requirements for a valid agreement were (1) there has to be an agreement (2) it has to be in writing (3) parties must sign such agreement or in other words, the agreement must bear the signatures of the parties concerned and (4) such agreement must contain an arbitration clause. Since these conditions were not met as there was no agreement and the arbitration clause was inserted unilaterally by the “settlor” so the requirements of Section 2(b) and 2(h) read with Section 7 were not fulfilled.
Further, the Trusts Act also conferred jurisdiction on Civil Courts, for adjudication in the matter of trusts. Though there was no express bar towards the Arbitration Act, the Court opined that there was an implied bar of exclusion of the applicability of the Arbitration Act for deciding the disputes relating to trusts through private arbitration as the remedies provided in the Trusts Act were adequate and sufficient.
Apex Court clarified and added one more category of cases i.e. category (vii), namely cases arising out of Trust Deed and the Trust Act in the list of (vi) categories of cases specified by the Apex Court in para 36 of decision rendered in case of Booz Allen & Hamilton Inc. which cannot be decided by the arbitrators.
Apex Court allowed the appeal and held that application for arbitration under Section 11 of the Act was not maintainable and dismissed the said application and set aside the impugned order of the High Court.