VIMAL KISHOR SHAH Vs JAYESH DINESH SHAH .
Bench: HON'BLE MR. JUSTICE J. CHELAMESWAR, HON'BLE MR. JUSTICE ABHAY MANOHAR SAPRE
Judgment by: HON'BLE MR. JUSTICE J. CHELAMESWAR
Case number: C.A. No.-008164-008164 / 2016
Diary number: 10322 / 2013
Advocates: JAY SAVLA Vs
GAURAV AGRAWAL
Reportable
IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION
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
1
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
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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
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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.
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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
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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
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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,
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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
8
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
9
and legal remedies to seek redressal of grievances by the
Settlor, Trustees and beneficiaries are governed by the
Indian Trust Act, 1882 (hereinafter referred to as “the
Trust Act”), which is a complete code in itself to deal with
the aforementioned matters, the provisions of the
Arbitration Act for deciding any dispute relating to affairs
of the Trust including dispute inter se the stakeholders
mentioned above are not applicable and the remedy of
the stakeholders would be to take recourse to the
provisions of the Trust Act for ventilating their grievances
in an appropriate forum specified in the Trust Act.
16) It is these submissions, which were elaborated by
the learned senior counsel in his argument, with
reference to the Scheme of the Trust Act and its various
provisions and the decisions, which dealt with these
issues.
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17) In reply, Mr. Gaurav Agrawal, learned 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. He also elaborated his submissions by
referring to some provisions of the Act and case law.
18) Having heard learned counsel for the parties and on
perusal of the record of the case, we find force in the
submissions of Mr. Shekhar Naphade, learned senior
counsel for the appellants.
19) The basic question, which arises for consideration
in this appeal, is whether a clause in a Trust Deed,
which provides for resolving the disputes arising between
the beneficiaries of the Trust through arbitration, can
constitute an “arbitration agreement” within the meaning
of Section 2(b) and 2(h) read with Section 7 of the Act
11
and whether the application filed by the respondents
under Section 11 of the Act can be held as maintainable?
20) Section 2(b) and 2(h) and Section 7 of the Act are
relevant to examine the question involved in the case.
These Sections read as under:
2. Definitions.-(1)………………………………….. (a)……………………………………………..
(b) “arbitration agreement” means an agreement referred to in section7;
(h) “party” means a party to an arbitration agreement.
7. Arbitration agreement.-(1) In this Part, “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing. (4) An arbitration agreement is in writing if it is contained in-
(a) a document signed by the parties;
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(b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or
(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.
(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.”
21) Section 2(b) defines "arbitration agreement" and
stipulates that arbitration agreement means arbitration
agreement referred to in Section 7 whereas Section 2(h)
defines the word "party" to mean a party to an arbitration
agreement.
22) Section 7 defines “arbitration agreement”. It has
five sub-sections. Sub Section (1) provides that
arbitration agreement means an agreement by the
parties to submit to arbitration all or certain disputes
which have arisen or may arise between them in respect
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of a defined legal relationship, whether contractual or
not. Sub-section (2) provides that an arbitration
agreement may be in the form of an arbitration clause in
a contract or it may be in the form of a separate
agreement. Sub-section (3) says that an arbitration
agreement shall be in writing. Sub- section (4) which has
three clauses (a), (b) and (c) says that a document which
contains an arbitration agreement is to be signed by the
parties. Clause (b) recognizes an arbitration agreement
by exchange of letters, telex, telegrams or other means of
telecommunication which provide a record of such
agreement and clause (c) also recognizes an arbitration
agreement by an exchange of statements of claim and
defence in which existence of the agreement is alleged by
one party and not denied by the other.
23) A reading of the aforementioned sections in
juxtaposition goes to show that in order to constitute a
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valid, binding and enforceable arbitration agreement, the
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 in other words, the
agreement must bear the signatures of the parties
concerned and (4) such agreement must contain an
arbitration clause.
24) In other words, aforementioned four conditions are
sine qua non for constituting a valid and enforceable
arbitration agreement. Failure to satisfy any of the four
conditions would render the arbitration agreement
invalid and unenforceable and, in consequence, would
result in dismissal of the application filed under Section
11 of the Act at its threshold.
25) The question as to what are the conditions which
are necessary for constituting a valid and enforceable
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arbitration agreement came up for consideration before
this Court in Vijay Kumar Sharma Alias Manju vs.
Raghunandan Sharma Alias Baburam & Ors., 2010 (2)
SCC 486. In this case, a question arose in the context as
to whether a clause in a Will, which provides that in the
event of any dispute arising in relation to the properties
bequeathed by the testator would be settled by named
arbitrator, can such a clause or/and the Will be
considered as an arbitration agreement within the
meaning of Section 2(b) read with Section 7 of the Act for
the purpose of invoking the jurisdiction of the High Court
under Section 11 for appointment of an arbitrator for
resolving the disputes. This question arose on the
following facts.
26) The father executed a Will in favour of his one son
whereby he bequeathed to him his one house. He had
another son to whom he did not give any share in the
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said house. In the Will, father appointed two executors
and expressed that if any dispute arises in relation to the
bequeathed property, one named arbitrator will decide
such dispute. On the death of the father, one son filed a
suit for declaration of his 1/6th share in the bequeathed
property and also demanded partition whereas the other
son filed a suit on the strength of the Will and claimed
his exclusive ownership to the exclusion of all his
brothers and sisters. The suits were clubbed for trial.
27) The two executors, who were also made parties to
the suits, filed an application under Section 8 of the Act
contending therein that the testator had declared in the
Will as also in one separate declaration that in the event
of any dispute arising in relation to the bequeathed
house, the same will be referred to a named arbitrator for
his decision. It was, therefore, contended that in the light
of this, the two civil suits filed by the parties are liable to
17
be dismissed as being not maintainable with a liberty to
be granted to the parties to submit themselves to the
jurisdiction of the named arbitrator so as to enable the
arbitrator to decide the disputes as per arbitration clause
contained in the Will/declaration.
28) The Trial Court allowed the application filed by the
executors under Section 8 of the Act and, in
consequence, dismissed the suits with a liberty granted
to the parties to approach the named arbitrator. One
party, accordingly, submitted himself to the jurisdiction
of the named arbitrator and filed his claim whereas the
other party objected to the jurisdiction of the arbitrator.
He contended that there was neither any arbitration
agreement between the parties for appointment of any
arbitrator and nor he ever signed the Will or any
declaration, if made, by his late father and nor gave his
consent for appointment of any named arbitrator. He,
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therefore, challenged the very initiation of arbitration
proceedings before the arbitrator as being without
jurisdiction.
29) This led to named arbitrator withdrawing from the
arbitral proceedings which, in turn, gave rise to the filing
of the application by one son under Section 11 of the Act
before the High Court of Rajasthan. He prayed therein for
appointment of new arbitrator in place of earlier named
arbitrator. The application was contested by other son
reiterating the same objection, which he had raised
earlier, namely, that there is no valid and enforceable
arbitration agreement between the parties and neither
the Will and nor the declaration constitute any
arbitration agreement for deciding any dispute between
them in relation to the house in suit.
30) The learned designate of Chief Justice overruled the
objection and allowed the application and appointed new
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arbitrator for deciding the disputes arising between the
parties to the application in relation to the house. It is
this order, which was impugned in the special leave to
appeal before this Court. Allowing the appeal and setting
aside of the order of the High Court, this Court held that
firstly, the Will did not contain any such clause;
Secondly, even assuming that it had any such clause
then also it was merely an expression of the wish by the
testator that the disputes relating to bequeathed property
should be settled by the arbitrator and nothing more. It
was held that in no case the Will could be considered as
constituting an arbitration agreement; Thirdly, even if
there was some declaration made by the testator
subsequent to the execution of Will to this effect yet since
it was a unilateral declaration made by the father and
hence by no stretch of imagination such declaration
could be considered as an arbitration agreement among
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his children. It was further held that at best such
declaration could be taken as an expression of a fond
hope of a father that his children should get the disputes
settled in case if they arise between them by means of
arbitration but certainly it did not partake the nature of
an arbitration agreement within the meaning of Section
2(b) read with Section 7 of the Act. Justice Raveendran,
speaking for the Bench, succinctly dealt with this issue
in paras 18 to 22 and held as under:
“18. In this case, admittedly, there is no document signed by the parties to the dispute, nor any exchange of letters, telex, telegrams (or other means of telecommunication) referring to or recording an arbitration agreement between the parties. It is also not in dispute that there is no exchange of statement of claims or defence where the allegation of existence of an arbitration agreement by one party is not denied by the other. In other words, there is no arbitration agreement as defined in Section 7 between the parties.
19. In Jagdish Chander v. Ramesh Chander, (2007) 5 SCC 719, this Court held: (SCC p. 726, para 11)
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“11. The existence of an arbitration agreement as defined under Section 7 of the Act is a condition precedent for exercise of power to appoint an arbitrator/Arbitral Tribunal, under Section 11 of the Act by the Chief Justice or his designate. It is not permissible to appoint an arbitrator to adjudicate the disputes between the parties, in the absence of an arbitration agreement or mutual consent.”
20. While the respondents rely upon the will, the appellant denies the existence of any such will. The validity of the will is pending consideration in the two civil suits filed by the appellant and the first respondent, referred to above. The alleged will, admittedly, does not contain any provision for arbitration, though the learned designate has proceeded on an erroneous assumption that the will provides for arbitration. Even if the will had provided for 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.
21. In this case, according to the respondents, the provision for arbitration is not in the will but in a subsequent declaration allegedly made by Durganarayan Sharma, stating that if there is any dispute in regard to his will dated 28-12-2003, it shall be referred to his friend, U.N. Bhandari, Advocate, as the sole arbitrator whose decision shall be final and binding on the parties. A unilateral declaration by a father that any future disputes among the sons should be settled by an arbitrator named by him, can by no stretch of imagination be considered as an arbitration agreement among his children, or
22
such of his children who become parties to a dispute. At best, such a declaration can be an expression of a fond hope by a father that his children, in the event of a dispute, should get the same settled by arbitration. It is for the children, if and when they become parties to a dispute, to decide whether they would heed to the advice of their father or not. Such a wish expressed in a declaration by a father, even if proved, cannot be construed as an agreement in writing between the parties to the dispute agreeing to refer their disputes to arbitration.
22. We are therefore of the view that there is no arbitration agreement between the parties and the learned designate committed a serious error in allowing the application under Sections 11 and 15(2) of the Act and holding that there is an arbitration agreement between the parties to the dispute and appointing an arbitrator.”
31) When we examine the facts of the case at hand
keeping in view the facts and the law laid down in the
case of Vijay Kumar Sharma (supra), we find similarity
on facts and law.
32) Though case of Vijay Kumar Sharma dealt with a
case relating to execution of a "Will" whereas the case at
hand deals with execution of the "Trust Deed” yet, in our
considered view, it does not make any significant
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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.
33) The reasons are not far to seek. In the case of a
Will, the testator executes the Will in favour of legatee(s)
whereas in the case of a Trust, the settlor executes the
deed in favour of the beneficiaries. In both the cases, it is
the testator/settlor who signs the document alone. That
apart, both the deeds convey
the interest in the estate in favour of the legatees or/and
beneficiaries. However, since legatee/beneficiaries do not
sign the document or we may say are not required to sign
such document, they are not regarded as party to such
deed despite legatee/beneficiaries/trustees accepting the
deed. Such deed, therefore, in our opinion, does not
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partake the nature of an agreement between such
parties.
34) We are, therefore, of the view that if the Will is held
not to constitute an arbitration agreement despite
containing an arbitration clause therein - a fortiori, the
Trust Deed can also not be held to constitute an
agreement much less an arbitration agreement despite
containing an arbitration clause therein.
35) In the light of foregoing discussion, we hold that the
Trust Deed including the arbitration clause (clause 20)
does not satisfy the requirements of Section 2(b) and 2(h)
read with Section 7 of the Act and hence, the Trust Deed
cannot be construed as an “arbitration agreement” within
the meaning of Section 7 of the Act.
36) The aforesaid issue can be examined from yet
another angle as was examined by the High Court of
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Calcutta in Bijoy Ballav Kundu & Anr. Vs. Tapeti
Ranjan Kundu, AIR 1965 Calcutta 628.
37) The facts of the Bijoy Ballav Kundu’s case (supra)
were that One Dhananjay Kundu, a resident of Calcutta
was the owner of a house. He executed a
trust/settlement deed wherein he nominated two
trustees to manage the affairs of the Trust. He conveyed
his house together with Rs.500/- to the trustees as the
corpus of the Trust to carry on its activities for the
benefit of the beneficiaries. The Trust Deed had several
clauses providing therein as to how trustee and
beneficiaries should carry out the activities of the Trust,
how they should manage the Trust affairs and maintain
its accounts etc. Clause 12 provided that in the event of
any dispute/differences arising between the trustees
concerning management and the affairs of the Trust, the
same shall be referred to named arbitrator who would
26
decide the disputes in accordance with the provisions of
Indian Arbitration Act, 1940.
38) After some time, the disputes arose between the
trustees concerning the affairs and the management of
the Trust. They were accordingly referred to the
arbitrator in terms of clause 12 for his decision. One
trustee, however, objected to making of the reference to
the arbitrator. The arbitrator, however, delivered the
award. One trustee, who had objected to making of the
reference to the arbitrator, challenged the legality of the
award in the civil Court inter alia on the ground that
since there was no arbitration agreement between the
parties (trustees) to make reference to the arbitrator and
hence the award passed by the arbitrator is rendered
without jurisdiction and is, therefore, liable to be set
aside. The Court upheld the objection and set aside the
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award. The aggrieved trustee appealed to the Calcutta
High Court.
39) The Division Bench of the High Court, by their
well-reasoned judgment, examined the issue thread bear
in the context of the provisions of the Trust Act and the
Arbitration Act 1940 and while upholding the order of
the Trial Court dismissed the appeal. It is apposite to
mention the reasoning of Their Lordships hereinbelow:
“5. ………………… The question however in this case is, as to whether the trustees can be said to be a party to any agreement at all for referring their disputes to arbitration. The way Mr. Basak argues is this: He says that the deed of settlement directs that there shall be such a reference to arbitration and the trustees by their conduct in accepting the trusteeship and agreeing to act as trustees must be said to be parties to that agreement or to have become parties to the agreement by their conduct. In other words, once they accept the trust, they must be deemed to be parties to the agreement for reference to arbitration, which according to the learned counsel is contained in the arbitration clause. In my opinion, this contention is not sound. In order to become an agreement there must be a proposal and an acceptance. If we are to hold that the arbitration clause constitutes the written agreement, then we must hold that each trustee
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has, at some point of time, made a proposal to the other trustee or trustees as to whether the disputes should be referred to arbitration and each of them has accepted the same. In the circumstances of this case, it can never be said that any such incident has ever happened. By accepting a trust, a trustee merely undertakes to carry out the terms of the trust, in so far as the same may be in accordance with law. The reference to arbitration is only one of the many terms of the deed of settlement. There are other directions, for example, directions as to the amount that should be expended upon diverse matters or diverse acts done. It can never be said that in accepting the trust there is any question of the trustees agreeing among themselves that such amount should be expended or such acts done. Being trustees, they are bound to carry out the provisions of the deed of settlement. There can be no question of any agreement amongst themselves; otherwise we are faced with this absurd situation that with regard to every provisions in the deed of trust we have to visualize the trustees agreeing among themselves to carry it out by making a proposal and an acceptance. The learned Judge has pointed out that in order to accept a trust it is not necessary to signify to the other trustees any willingness to do so or to enter into any agreement to do or abstain from doing anything. In other words, no question of any proposal by one trustee or acceptance of the same by another arises. It may be an attractive argument to say that trustees having consented to accept trusteeship under a deed of trust must have agreed to carry out each and every term contained in it. That however is quite different from saying that they have entered into a written agreement amongst themselves to do so. The provision as to reference of disputes to
29
arbitration is a matter that concerns the jurisdiction of courts. Ordinarily, the Courts are zealous of their jurisdiction and can only allow it to be curtailed by some provision of law. The provisions of the Indian Arbitration Act constitute such a law, but the provision must be strictly construed. In order that there may be a reference to arbitration which ousts the jurisdiction of Courts, the parties must enter into an arbitration agreement. That is a matter that must be governed by the law and in a given case it must be shown that the parties have lawfully entered into such an agreement and there is in existence a lawful agreement. Nothing short of it can support such an agreement and any reference to arbitration or an award consequent thereon, in contravention of the provisions of the law cannot be supported and must be declared invalid. In our opinion, the conclusions reached by the learned Judge are correct on that point and must be upheld. In the facts of this case it must be held that there was no arbitration agreement and no valid reference to arbitration…….”
40) We find that the facts of the case at hand and the
one involved in the case of Bijoy Ballav Kundu (supra)
are identical. We are in agreement with the aforesaid
reasoning of Their Lordships which, in our opinion, lays
down the correct principle of law on the subject. Indeed,
Their Lordships examined the issue in the context of
30
definition of “arbitration agreement” as defined in Section
2(a) of Arbitration Act, 1940 whereas the case at hand is
required to be examined in the context of definition of
“arbitration agreement” as defined in Section 2(b) and
2(h) read with Section 7 of the Act 1996, which is quite
different from the earlier definition.
41) As rightly held by the Calcutta High Court in the
case of Bijoy Ballav Kundu (supra), there is always a
proposal and then its acceptance in the case of every
agreement, which is not required in the case of creation
of the Trust because in the case of a Trust, the trustee
and beneficiary though accept its creation but by such
acceptance, they merely undertake to carry out the terms
of the Trust Deed in so far as the same may be in
accordance with law. The clause relating to arbitration in
the Trust Deed is one of the several clauses. The other
clauses which deal with several types of directions to the
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trustees and beneficiaries such as how the Trust should
be managed, how the amount of the Trust should be
spent etc. are not in the nature of agreement between the
trustees or/and beneficiaries. In other words, by
accepting the Trust Deed, it cannot be said that the
trustees or beneficiaries have agreed amongst themselves
as to how they should spend the money or how they
should manage the affairs of the Trust or receive any
benefit.
42) Indeed, in such case, the trustees or/and
beneficiaries are only required to carry out the provisions
of the Trust Deed. There cannot, therefore, be any
agreement inter se trustees or beneficiaries to carry out
any such activity. If that were to be so then the
trustees/beneficiaries would have to give proposal and
acceptance in respect of each clause of the Trust Deed
32
inter se. It would be then a sheer absurdity and hence
such situation, in our view, cannot be countenanced.
43) As rightly held in Bijoy Ballav Kundu (supra) to
which we agree that the clause in an agreement, which
provides for deciding the disputes arising out of such
agreement through private arbitration, affects the
jurisdiction of the Civil Court and the ouster of
jurisdiction of Courts cannot be inferred readily. The
Arbitration Act is one such law, which provides for ouster
of jurisdiction of the Civil Courts. The Act, inter alia,
provides a forum for deciding the disputes inter se parties
to an agreement through arbitration. Such clause, in our
opinion, requires strict rule of interpretation to find out
whether it provides an ouster of jurisdiction and, if so, to
which Court/Tribunal/Authority as the case may be. In
the case at hand, when we apply this principle of
interpretation, we do not find that clause 20 enables the
33
arbitrator to assume the jurisdiction to decide the
disputes arising between the beneficiaries. In other
words, clause 20 does not satisfy the rigour of Sections
2(b), 2(h) and 7 of the Act.
44) In the light of what we have discussed above, we are
of the considered opinion that clause 20 in the Trust
Deed, which provides for settlement of
disputes/differences arising between the beneficiaries of
the Trust, does not constitute an arbitration agreement
inter se beneficiaries within the meaning of Section 7 of
the Act.
45) This takes us to consider the third argument of Mr.
Shekhar Naphade, learned senior counsel for the
appellants. Though in view of what we have held above, it
may not be necessary to consider this argument yet we
34
feel that since it arises out of this case and being a pure
legal question, the same can be decided in this appeal.
46) The argument of learned counsel was that any
dispute relating to the management and affairs of the
Trust including the disputes inter se trustees and the
beneficiaries in relation to the Trust, its affairs,
management and properties cannot be decided by the
arbitrator under the Act even though there may be a
clause to that effect in the Deed. It was his submission
that the remedy to get such disputes decided through
arbitration is impliedly barred, if not, expressly by virtue
of the scheme and the elaborate provisions of the Trust
Act. Learned counsel pointed out that the Trust Act is a
complete Code in itself and provides a comprehensive
machinery to deal with all issues relating to Trust, the
trustees and the beneficiaries including providing
adequate forum (Civil Court) for adjudication of all such
35
disputes arising between them and the Trust, and hence,
the jurisdiction of the Civil Court should be given
overriding effect to the exclusion of jurisdiction of private
arbitration under the Act by applying implied bar of
jurisdiction recognized in law.
47) Though learned counsel for the respondents
countered the aforesaid submission of learned senior
counsel for the appellants but we find merit in the
submission of the learned counsel for the appellants for
the reasons mentioned infra.
48) Before we examine the Scheme of the Trust Act, we
consider it apposite to take note of the case law, which
has bearing on this issue. The question came up for
consideration before this Court in the case of Booz Allen
& Hamilton Inc. vs. SBI Home Finance Ltd. & Ors.
(2011) 5 SCC 532 as to what is the meaning of the term
"arbitrability" and secondly, which type of disputes are
36
capable of settlement by arbitration under the Act. Their
Lordships framed three questions to answer the question
viz., - (1) whether the disputes having regard to their
nature could be resolved by a private forum chosen by
the parties (arbitral Tribunal) or whether such disputes
exclusively fall within the domain of public Fora (Courts);
(2) Whether the disputes are covered by the arbitration
agreement; and (3) whether the parties have referred the
disputes to arbitrator?
49) This Court speaking through Justice Raveendran
answered the questions. While answering question No. 1
with which we are concerned here, Their Lordships
carved out six categories of cases. These six categories of
cases were held as not capable for being decided by
private arbitration under the Arbitration Act even though
parties agreed for their settlement through private
37
arbitration. This is what Their Lordships held in Paras 35
and 36:
“35. The Arbitral Tribunals are private fora chosen voluntarily by the parties to the dispute, to adjudicate their disputes in place of courts and tribunals which are public fora constituted under the laws of the country. Every civil or commercial dispute, either contractual or non-contractual, which can be decided by a court, is in principle capable of being adjudicated and resolved by arbitration unless the jurisdiction of the Arbitral Tribunals is excluded either expressly or by necessary implication. Adjudication of certain categories of proceedings are reserved by the legislature exclusively for public fora as a matter of public policy. Certain other categories of cases, though not expressly reserved for adjudication by public fora (courts and tribunals), may by necessary implication stand excluded from the purview of private fora. Consequently, where the cause/dispute is inarbitrable, the court where a suit is pending, will refuse to refer the parties to arbitration, under Section 8 of the Act, even if the parties might have agreed upon arbitration as the forum for settlement of such disputes. 36. The well-recognised examples of non-arbitrable disputes are: (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody; (iii) guardianship matters; (iv) insolvency and winding-up matters; (v) testamentary matters (grant of probate, letters of administration and succession certificate); and (vi) eviction or tenancy matters governed by special statutes
38
where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.”
50) The question to be considered in this appeal is
whether the disputes relating to affairs and management
of the Trust including the disputes arising inter se
trustees, beneficiaries in relation to their appointment,
powers, duties, obligations, removal etc. are capable of
being settled through arbitration by taking recourse to
the provisions of the Act, if there is a clause in the Trust
Deed to that effect or such disputes have to be decided
under the Trust Act with the aid of forum prescribed
under the said Act.
51) Keeping in view the aforesaid principle of law, let us
now examine the Scheme of the Trust Act. The Trust Act
was enacted much prior to independence with an object
to define and amend the law relating to private Trusts
39
and the trustees. The Act consists of 93 Sections, which
are divided, in IX chapters.
52) Chapter I deals with short title, commencement,
repeal of enactments and interpretation of words
(Sections 1 to 3). Chapter II deals with the creation of a
Trust (Sections 4 to 10). Chapter III deals with the duties
and liabilities of the Trustees (Sections 11 to 30). Chapter
IV deals with the rights and powers of the Trustees
(Sections 31 to 45). Chapter V deals with the disabilities
of the Trustees (Sections 46 to 54). Chapter VI deals with
the rights and liabilities of the beneficiaries (Sections 55
to 69). Chapter VII deals with vacating the office of the
Trustee (Sections 70 to 76). Chapter VIII deals with
extinction of the Trusts (Sections 77 to 79) and Chapter
IX deals with certain obligations in the nature of Trust
(Sections 80 to 93).
40
53) Even cursory perusal of the headings of each
Chapter including what is provided in the Sections would
go to show that the legislature has dealt with and taken
care of each subject comprehensively and adequately. It
starts from the creation of the Trust, how it is required to
be created (deed), who can create (author of the
Trust/settlor), who can manage(trustees), for whose
benefit it can be created (beneficiaries), their
qualifications for appointment, grounds for removal,
rights and duties, restrictions on their exercise of powers,
obligations and legal remedies available to get the
grievances settled etc. are all specified in the Trust Act.
54) So far as legal remedies available to the author of
the Trust/settlor, Trustees and the beneficiaries for
ventilating their several grievances in respect of their
rights duties, removal and obligations under the Trust
Deed and the Trust Act are concerned, they are
41
specifically provided in Sections 7, 11, 34, 36, 41, 45, 46,
49, 53, 71, 72, 73 and 74 of the Trust Act. These
sections, in specific terms, confer jurisdiction on Civil
Court and provides that an aggrieved person may
approach the principal Civil Court of Original
Jurisdiction for adjudication of his grievances. This
clearly shows the intention of the legislature that the
legislature intended to confer jurisdiction only on Civil
Court for deciding the disputes arising under the Trust
Act.
55) The Constitution Bench of this Court in a leading
case of Dhulabhai etc. vs. State of Madhya Pradesh &
Anr., AIR 1969 SC 78 examined the question as to how
the exclusion of jurisdiction of Civil Court in the context
of express or implied bar created in any special law
should be decided. Their Lordships examined the
42
question in the context of Section 9 of the Code of Civil
Procedure, 1908 and the bar created in special law.
56) Justice Hidayatullah, the learned Chief Justice
speaking for the Bench laid down 7 conditions for
determining the question of bar for prosecuting the
remedies in the Civil Court or judicial
Tribunals/authorities constituted under any special law.
Though the issue examined in Dhulabhai's case (supra)
pertained to bar created in special law vis-a-vis filing of
the civil suit by an aggrieved party, yet the decision, in
our view, lays down the general principle as to how the
courts should decide the issue of express or/and implied
bar in the context of the remedies available in law.
57) So far as the question involved in the case at hand
is concerned, it is governed by condition No. 2 of
Dhulabhai’s case (supra) which reads as under:
“(2) Where there is an express bar of the jurisdiction of the court, an examination of the
43
scheme of the particular Act to find the adequacy or the sufficiency of the remedies provided may be relevant but is not decisive to sustain the jurisdiction of the civil court. Where there is no express exclusion the examination of the remedies and the scheme of the particular Act to find out the intendment becomes necessary and the result of the inquiry may be decisive. In the latter case it is necessary to see if the statute creates a special right or a liability and provides for the determination of the right or liability and further lays down that all questions about the said right and liability shall be determined by the Tribunals so constituted, and whether remedies normally associated with actions in civil courts are prescribed by the said statute or not.”
58) When we examine the Scheme of the Trust Act in
the light of the principle laid down in condition No. 2, we
find no difficulty in concluding that though the Trust Act
do not provide any express bar in relation to applicability
of other Acts for deciding the disputes arising under the
Trust Act yet, in our considered view, there exists an
implied exclusion of applicability of the Arbitration Act
for deciding the disputes relating to Trust, trustees and
44
beneficiaries through private arbitration. In other words,
when the Trust Act exhaustively deals with the Trust,
Trustees and beneficiaries and provides for adequate and
sufficient remedies to all aggrieved persons by giving
them a right to approach the Civil Court of principal
original jurisdiction for redressal of their disputes arising
out of Trust Deed and the Trust Act then, in our opinion,
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 be decided by the arbitrator by taking recourse
to the provisions of the Act. Such disputes have to be
decided by the Civil Court as specified under the Trust
Act.
59) The principle of interpretation that where a specific
remedy is given, it thereby deprives the person who
insists upon a remedy of any other form of remedy than
45
that given by the statute, is one which is very familiar,
and which runs through the law, was adopted by this
Court in the case of The Premier Automobiles Ltd. vs.
Kamlakar Shantaram Wadke & Ors., AIR 1975 SC 2238
while examining the question of bar in filing Civil suit in
the context of remedies provided under the Industrial
Disputes Act (See G.P. Singh, Principles of Statutory
Interpretation, 12th Edition, Pages 763-764). We
apply this principle here because, as held above, the
Trust Act creates an obligation and further specifies the
rights and duties of the settlor, Trustees and the
beneficiaries apart from several conditions specified in
the Trust Deed and further provides a specific remedy for
its enforcement by filing applications in Civil Court. It is
for this reason, we are of the view that since sufficient
and adequate remedy is provided under the Trust Act for
deciding the disputes in relation to Trust Deed, Trustees
46
and beneficiaries, the remedy provided under the
Arbitration Act for deciding such disputes is barred by
implication.
60) Though learned counsel for the respondents made
attempt to support the reasoning and the conclusion
arrived at by the High Court by making some
submissions but we find no merit in them especially in
the light of what we have held above. We, therefore, do
not consider it necessary to give our detailed reasoning
for rejection of his submission and nor consider it
necessary to deal with the decision cited by him (M.C.
Chacko vs State Bank of Travancore Trivandrum,
(1970) 1 SCC 658) which is distinguishable on facts.
61) We, accordingly, hold 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
47
by the arbitrator despite existence of arbitration
agreement to that effect between the parties. A fortiori –
we hold that 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.
62) We thus add 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 this Court in Para 36 at page 547 of the
decision rendered in the case of Booz Allen & Hamilton
48
Inc. (supra) which as held above can not be decided by
the arbitrator(s).
63) In the light of foregoing discussion, we are unable to
agree with the reasoning and the conclusion arrived at by
the learned designated Judge.
64) Before parting with the case, we consider it apposite
to mention that we have not examined the merits of the
case set up by the parties in these proceedings and
hence parties would be at liberty to take recourse to any
legal remedies, as may be available to them, for
adjudication of their rights.
49
65) The appeal thus succeeds and is hereby allowed.
The impugned order is set aside. As a result, the
application filed by the respondents under Section 11 of
the Act is dismissed as not maintainable.
.……...................................J. [J. CHELAMESWAR]
………..................................J. [ABHAY MANOHAR SAPRE]
New Delhi, August 17, 2016.
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ITEM NO.1A COURT NO.5 SECTION IX (For Judgment) S U P R E M E C O U R T O F I N D I A RECORD OF PROCEEDINGS Civil Appeal No...../2016 @ Petition(s) for Special Leave to Appeal (C) No(s). 13369/2013
VIMAL KISHOR SHAH & ORS. Petitioner(s) VERSUS JAYESH DINESH SHAH & ORS. Respondent(s) Date : 17/08/2016 This matter was called on for pronouncement of
judgment today. For Petitioner(s) Mr. Jay Savla,Adv.
Ms. Renuka Sahu,Adv. For Respondent(s) Mr. Gaurav Agrawal,Adv. *****
Hon'ble Mr. Justice Abhay Manohar Sapre pronounced the judgment of the Bench comprising of Hon'ble Mr. Justice J. Chelameswar and His Lordship.
Leave granted. The appeal is allowed in terms of the signed reportable
judgment. (Madhu Bala) (Suman Jain) Court Master Court Master
(Signed reportable reportable judgment is placed on the file)
51