Disputes arising out of Trust Deed and the Trust Act cannot be decided by Arbitration: SC [Read Judgment]

Disputes arising out of Trust Deed and the Trust Act cannot be decided by Arbitration: SC [Read Judgment]

Supreme Court of India Today 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.

The Bench comprising of Justices J.Chelameswar and Abhay Manohar Sapre was considering the question, 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?

At the outset, the Bench observed 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. 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.

The Bench opined that 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 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. 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. 

“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.”, said the Bench

The Bench said that, 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 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. 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 bar of exclusion of applicability of the Arbitration Act for deciding the disputes relating to Trust, trustees and 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. cannot 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. 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. , the Bench concluded.

Read the Judgment here.