Introduction
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?
Held
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.
Opinion
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.
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