Arbitration Clauses in Trust Deeds

My Lord, Can a Trust Deed, including an Arbitration Clause, constitute an ‘Arbitration Agreement’ within the meaning of Sections 2(b) and 2(h) read with Section 7 of The Arbitration and Conciliation Act, 1996?

No.

Though the case of Vijay Kumar Sharma, (2010) 2 SCC 486 dealt with the execution of a ‘Will’ whereas the case at hand deals with execution of a ‘Trust Deed’ yet, in our considered view, it does not make any significant 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. If a ‘Will’ was 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.

The legislature intended to confer jurisdiction only on Civil Courts for deciding the disputes arising under the Trust Act. We are of the view that since sufficient and adequate remedy is provided under the Trust Act for deciding disputes in relation to a Trust Deed, Trustees and Beneficiaries, the remedy provided under the Arbitration Act for deciding such disputes is barred by implication.

In the case of Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532 (vi) categories of cases were held as not capable for being decided by Private Arbitration under the Arbitration Act. We add one more category of cases, i.e., category (vii), namely, cases arising out a Trust Deed and the Trust Act.”

Hon’ble Justice Abhay Manohar Sapre, Vimal Kishor Shah v. Jayesh Dinesh Shah, [Civil Appeal No. 8164 of 2016].

Readers may also refer to an article on ‘Arbitration of Trust Disputes’, (2012) 18 (4) Trusts and Trustees 296. It is noteworthy that a strong view that Trust Disputes are not arbitrable at all, has been put forward by a report of the Trust Law Committee authored by of John Wood, David Brownbill QC and Christopher McCall QC: one of the reasons being that the Trust Concept itself is the creature of the Courts of Equity, exercising discretion which can be exercised only by the Court: hence, the rights of Beneficiaries and Trustees can only be validly determined by Courts.

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