2016 (8) TMI 1315 - SC - Companies Law

Supreme Court rejects arbitration in Trust Deed case, rules Trust Act applies

The Supreme Court set aside the High Court's decision to allow arbitration under Section 11 of the Arbitration and Conciliation Act, 1996, in a case ... Dispute capable of adjudication and settlement by arbitration - 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 and whether the application filed by the respondents under Section 11 of the Act can be held as maintainable? - 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. 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. 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 Inc. (2012 (10) TMI 459 - SUPREME COURT) which as held above can not be decided by the arbitrator(s). In the light of foregoing discussion, we are unable to agree with the reasoning and the conclusion arrived at by the learned designated arbitrator. Issues Involved:1. Maintainability of the application under Section 11 of the Arbitration and Conciliation Act, 1996.2. Existence and enforceability of an arbitration agreement within the meaning of Section 2(b) and 2(h) read with Section 7 of the Act.3. Applicability of the Trust Act for resolving disputes related to the Trust instead of arbitration.Issue-wise Detailed Analysis:1. Maintainability of the Application under Section 11 of the Arbitration and Conciliation Act, 1996:The appeal challenged the High Court’s decision to allow the arbitration application under Section 11 of the Arbitration and Conciliation Act, 1996, and appoint an arbitrator. The appellants contended that the application was not maintainable because the Trust Deed did not constitute an arbitration agreement within the meaning of the Act. The Supreme Court agreed with the appellants, concluding that the Trust Deed, despite containing an arbitration clause, did not meet the requirements of a valid and enforceable arbitration agreement under the Act.2. Existence and Enforceability of an Arbitration Agreement:The Court examined whether the clause in the Trust Deed, which provided for arbitration, constituted an 'arbitration agreement' under Sections 2(b) and 2(h) read with Section 7 of the Act. The Court highlighted that for an arbitration agreement to be valid, it must be in writing, signed by the parties, and contain an arbitration clause. The Court referenced the case of *Vijay Kumar Sharma Alias Manju vs. Raghunandan Sharma Alias Baburam & Ors.*, where a similar issue was addressed regarding a clause in a Will. The Court concluded that the Trust Deed, like the Will in the referenced case, did not constitute an arbitration agreement as it was not signed by the beneficiaries and was merely an expression of the settlor’s wish. Therefore, the Trust Deed did not satisfy the requirements of Sections 2(b) and 2(h) read with Section 7 of the Act.3. Applicability of the Trust Act for Resolving Disputes:The appellants argued that the disputes related to the Trust should be resolved under the Trust Act, which provides a comprehensive legal framework and remedies for such disputes, rather than through arbitration. The Supreme Court agreed, noting that the Trust Act is a complete code that provides adequate remedies and jurisdiction to Civil Courts for resolving disputes related to Trusts. The Court referenced the decision in *Booz Allen & Hamilton Inc. vs. SBI Home Finance Ltd. & Ors.*, which identified categories of disputes that are not arbitrable, and added Trust-related disputes to this list. The Court concluded that the disputes related to the Trust, trustees, and beneficiaries could not be settled through arbitration, even if there was an arbitration clause in the Trust Deed.Conclusion:The Supreme Court allowed the appeal, set aside the High Court’s order, and dismissed the application filed under Section 11 of the Act as not maintainable. The Court held that the Trust Deed did not constitute an arbitration agreement and that disputes related to the Trust should be resolved under the Trust Act and not through arbitration. The parties were advised to seek remedies through appropriate legal channels as provided under the Trust Act.