Trust & Arbitration; Vimal Kishor Shah Vs. Jayesh Dinesh Shah [Supreme Court of India, 17-08-2016]

Arbitration and Conciliation Act, 1996 – S. 11 – Trust Act, 1882 – Cases arising out of Trust Deed and the Trust Act can not be decided by the arbitrator(s) – 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 – the application filed by the respondents under Section 11 of the Act is not maintainable on the ground that firstly, it is not based on an “arbitration agreement” within the 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 the Trust Deed) yet the disputes specified therein are not capable of being referred to private arbitration for their adjudication on merits.


IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

[J. CHELAMESWAR] AND [ABHAY MANOHAR SAPRE] JJ.

August 17, 2016

CIVIL APPEAL NO.8164 OF 2016

(ARISING OUT OF SLP(C) No. 13369 of 2013)

Shri Vimal Kishor Shah & Ors. Appellant(s)

VERSUS

Mr. Jayesh Dinesh Shah & Ors. Respondent(s)

J U D G M E N T

Abhay Manohar Sapre, J.

1) Leave granted.

2) This appeal is filed against the final judgment and order dated 06.03.2013 of the High Court of Judicature at Bombay in Arbitration Application No. 278 of 2012 whereby the High Court allowed the arbitration application under

Section 11 of the Arbitration and Conciliation Act, 1996

(hereinafter referred to as “the Act”) filed by respondent Nos. 1 to 3 herein and appointed Shri S.R. Shah, former Judge of the Bombay City Civil Court, as sole Arbitrator to arbitrate the disputes between the parties.

3) In order to appreciate the issue involved in this appeal, which lies in a narrow compass, it is necessary to set out the relevant facts in brief infra.

4) One Shri Dwarkadas Laxmichand Modi executed a family Trust Deed called “Deed of Kaydee Family Trust” on 06.04.1983 as author of the Trust hereinafter called as “settlor” in relation to his properties. The settlor formed this Trust out of love and affection in favour of six minors (now major), namely, 1) Master Vimal Kishor Shah, 2) Master Nainesh Kishor Shah, 3) Kumar Grishma Kishor Shah, 4) Master Jayesh Dinesh Shah, 5) Master Utpal Dinesh Shah and 6) Master Monil Dinesh Shah, (hereinafter referred to as the “beneficiaries”) in the Trust Deed. To manage the affairs of the Trust and its properties, the settlor appointed two persons – Shri Dinesh Nandlal Shah and Smt. Saryu Kishor Shah as Managing Trustees.

5) Clause 20 of the Trust Deed, which is relevant for the disposal of this case, provides that every dispute or differences regarding the interpretation of any of the clauses or provisions or the contents of the Trust Deed or any dispute inter se trustees or disputes between the trustees and beneficiaries or disputes between beneficiaries inter se as and when arise, the same would be resolved in pursuance of the provisions of the Indian Arbitration Act, 1940 and the decision of arbitrator(s) shall be final and binding on the parties to the arbitration.

6) Unfortunately, as it appears from the record of the case and from the conduct of the parties, the wish of the settlor could not be fulfilled in letter and spirit for which he had formed the Trust and soon after its formation somewhere from 1989-90 onwards, the differences cropped up inter se beneficiaries with respect to the manner in which the affairs and the business of the Trust were being carried on. This led to tendering of the resignation by one trustee from Trusteeship. It was followed by exchange of legal notices inter se beneficiaries through their lawyers making therein allegations and counter allegations against each other about the manner of functioning of the Trust, its affairs and demanding accounts of the Trust etc. A demand was also made in the notice that since parties have not been able to amicably resolve their disputes/differences, therefore, all such disputes/differences be referred to the arbitrator for his decision as per clause 20 of the Trust deed.

7) Since the parties could not settle the disputes/differences and nor could they agree for the appointment of the arbitrator amicably, respondent Nos. 1 to 3 (one set of beneficiaries) filed an application under Section 11 of the Act being Arbitration Application No. 278/2012 in the High Court of Bombay against the appellants (other set of beneficiaries) praying for referring all disputes/differences, which had arisen between the parties, to the arbitrator in terms of clause 20 of the Trust Deed. The application was founded on the aforementioned facts for claiming the reliefs.

8) The appellants herein (respondents before the High Court) contested the application. Apart from other grounds, the main legal ground of contest was that the application filed under Section 11 of the Act is not maintainable. It was contended that when admittedly the appellants and the respondents are neither parties to the Trust Deed and nor its signatories having signed the Trust Deed, they cannot be termed as “party” to such Trust Deed and nor can such Trust Deed 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. It was contended that the sine qua non for invoking the jurisdiction under Section 11 of the Act is existence of a valid and enforceable arbitration agreement, which is lacking in this case, and hence the application filed under Section 11 of the Act is not maintainable and is liable to be dismissed on this ground alone.

9) The learned designated Judge, by impugned judgment, allowed the application. He 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. He further held that now all the parties have become major and have taken benefit of the Trust Deed as beneficiaries throughout their minority and then on attaining the majority, they should be held as “party” to the Trust Deed within the meaning of Section 2(h) of the Act. He also held that once the beneficiaries are held parties to the Trust Deed, they have a right to take recourse to proceedings under Section 11 of the Act for appointment of arbitrator by invoking clause 20 of the Trust Deed for deciding the disputes arising between them relating to the affairs of the Trust.

10) With these findings, the learned Judge proceeded to invoke clause 20 of the Trust Deed and appointed Shri S.R.Shah – former Mumbai City Civil Judge as a sole arbitrator for deciding the disputes/differences which had arisen between the parties to the application. It is against this order, the respondents, who as stated above, are other group of beneficiaries, have felt aggrieved and filed this appeal by way of special leave before this Court.

11) Heard Mr. Shekhar Naphade, learned senior counsel for the appellants and Mr. Gaurav Agrawal, learned counsel for the respondents.

12) Mr. Shekhar Naphade, learned senior counsel appearing for the appellants while assailing the legality and correctness of the impugned order has made three-fold submissions.

13) In the first place, learned senior counsel submitted that the learned designated Judge erred in allowing the application filed under Section 11 of the Act. In his submission, the application was liable to be dismissed as not maintainable.

14) In the second place, learned senior counsel submitted that when admittedly 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. Learned counsel urged that the first and foremost requirement for filing an application under Section 11 of the Act is that there has to be in existence a valid and enforceable arbitration agreement and such agreement, according to him, 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. It was urged that since the respondents have not been able to prove this basic requirement of law, the application filed by the respondents under Section 11 of the Act was liable to be dismissed for want of non-compliance of the requirement of Section 2(b) and 2(h) read with Section 7 of the Act.

15) In the third place, learned senior counsel submitted that apart from what is urged above, since the creation, affairs of the Trust, rights, obligations, removal, duties and legal remedies to seek redressal of grievances by the Settlor, Trustees and beneficiaries are governed by the