TaxTMI 
TaxTMI 
2016 (8) TMI 1315
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....y 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) Unfortunat....
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.... 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 t....
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....rum 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. 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 and whether the application filed by the respondents under Section 11 of the Act can be held as mai....
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....igned 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 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 appl....
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...., 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, 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 co....
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....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....
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..../trustees accepting the deed. Such deed, therefore, in our opinion, does not 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 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 Tru....
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....d 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 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....
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....ordships examined the issue in the context of 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 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 ac....
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....) 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 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 bu....
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....tion, 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 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 th....
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....urisdiction 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 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 implie....
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....ts upon a remedy of any other form of remedy than 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 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 ....