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Vimal Kishor Shah and Ors. v. Jayesh Dinesh Shah and Ors. - (Supreme Court) (17 Aug 2016)

Dispute cannot be decided by arbitrator, when Trust Act provides for sufficient remedies to aggrieved persons by giving them right to approach Civil Court



In facts of the present case, since parties could not settle disputes/differences and nor could they agree for appointment of arbitrator amicably, Respondent filed an Arbitration Application in High Court of Bombay against Appellants. Designated Judge, by impugned judgment, allowed application and held that since parties to application were minors at time of execution of Trust Deed, they were incapable of signing Trust Deed. Further, now all parties have become major and have taken benefit of Trust Deed as beneficiaries throughout their minority and then on attaining majority, they should be held as "party" to Trust Deed. He also held that once beneficiaries are held parties to Trust Deed, they have a right to take recourse to proceedings under Section 11 of Act for appointment of arbitrator by invoking Clause 20 of Trust Deed for deciding disputes arising between them relating to affairs of Trust. Appellant is aggrieved by impugned judgment wherein Judge invoking Clause 20 of Trust Deed and appointed arbitrator.

In order to constitute a valid, binding and enforceable arbitration agreement, requirements contained in Section 7 have to be satisfied strictly. These requirements, apart from others, are (1) there has to be an agreement (2) it has to be in writing (3) parties must sign such agreement or agreement must bear the signatures of the parties concerned and (4) such agreement must contain an arbitration clause. Four conditions are sine qua non for constituting a valid and enforceable arbitration agreement. Failure to satisfy any of four conditions would render arbitration agreement invalid and unenforceable and, in consequence, would result in dismissal of application filed under Section 11 of Act at its threshold.

Supreme Court observed that, there is no arbitration agreement between parties and the learned designate committed a serious error in allowing application. If the Will is held not to constitute an arbitration agreement despite containing an arbitration Clause therein-a fortiori, Trust Deed can also not be held to constitute an agreement much less an arbitration agreement despite containing an arbitration Clause therein. Trust Deed including arbitration Clause (clause 20) does not satisfy requirements of Section 2(b) and 2(h) read with Section 7 of Act and hence, Trust Deed cannot be construed as an "arbitration agreement" within meaning of Section 7 of Act. Clause 20 in Trust Deed, which provides for settlement of disputes/differences arising between beneficiaries of the Trust, does not constitute arbitration agreement inter se beneficiaries within meaning of Section 7 of Act.

When Trust Act exhaustively deals with Trust, Trustees and beneficiaries and provides for adequate and sufficient remedies to all aggrieved persons by giving them a right to approach Civil Court of principal original jurisdiction for redressal of their disputes arising out of Trust Deed and Trust Act then, any such dispute pertaining to affairs of the Trust including the dispute inter se Trustee and beneficiary in relation to their right, duties, obligations, removal etc. can not decided by arbitrator by taking recourse to provisions of Act. Such disputes have to be decided by the Civil Court as specified under Trust Act.

While allowing the appeal, Supreme Court held that, application filed by Respondents under Section 11 of Act was not maintainable on ground that firstly, it is not based on an "arbitration agreement" within meaning of Sections 2(b) and 2(h) read with Section 7 of the Act and secondly, assuming that there exists an arbitration agreement (clause 20 of Trust Deed) yet disputes specified therein are not capable of being referred to private arbitration for their adjudication on merits.

Relevant : Section 2, 7, 11 of Arbitration and Conciliation Act, 1996


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