Allowing an appeal in Shri Vimal Shah & Ors v Mr Jayesh Dinesh Shah & Ors, the Supreme Court has held that disputes relating to trusts, trustees and beneficiaries arising out of the trust deed and the Indian Trusts Act, 1882, are not capable of being decided by an arbitrator despite the existence of an arbitration clause in the trust deed.
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With this ruling the Supreme Court has added a seventh category of disputes that are inarbitrable in India to the six varieties of disputes that were held to be inarbitrable as per the ruling in Booz-Allen & Hamilton Inc v SBI Home Finance Ltd & Ors (2011).
The Shah dispute centred on a trust deed that contained an arbitration clause, executed in favour of six beneficiaries who were minors. When differences arose among the beneficiaries, some of them made an application under section 11 of the Arbitration and Conciliation Act, 1996, to refer the disputes to arbitration in accordance with the arbitration clause in the trust deed.
Bombay High Court allowed the application, and the remaining beneficiaries filed an appeal before the Supreme Court.The Supreme Court held that the beneficiaries of a trust are not parties to an arbitration agreement as they do not execute the trust deed containing the arbitration clause. Merely because the beneficiaries accept a trust deed and its benefits, it cannot be said that there is an agreement among the beneficiaries.
The Supreme Court found that the Trusts Act, which covers each subject pertaining to trust law, confers jurisdiction for the resolution of disputes on the civil courts. The court concluded that the presence of provisions in the Trusts Act specifically dealing with the forum for dispute resolution reflects the intention of the legislature to impliedly bar arbitration of such disputes.
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The dispute digest is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi.
The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.
