Disputes arising out of a trust deed not arbitrable

The Supreme Court in its recent judgment in Vimal Kishor Shah & Ors v Jayesh Dinesh Shah & Ors held that disputes relating to trusts, trustees and beneficiaries arising out of the trust deed and the Indian Trusts Act, 1882, cannot be resolved through arbitration. The court thus added a seventh category of non-arbitral disputes to the list laid down in its judgment in Booz Allen & Hamilton Inc v SBI Home Finance Ltd (2011).

In the Shah case, one Mr Modi settled a trust in favour of his six children (then minors). Dinesh Shah and Saryu Shah were appointed as managing trustees of the trust. The trust deed at clause 20 provided that any disputes arising among the trustees, among the beneficiaries or between the trustees and beneficiaries were to be referred to arbitration.

Disputes arose among the beneficiaries in relation to the manner in which the affairs and the business were being conducted. This led to one set of beneficiaries filing an application under section 11 of the Arbitration and Conciliation Act, 1996 (Arbitration Act). The appellants contested the application on grounds that: (a) the parties were neither parties to the trust deed nor its signatories, as they had not signed the trust deed, so they could not be termed as a “party” to the trust deed; and (b) the trust deed could not be termed as an arbitration agreement within the meaning of sections 2(b) and 2(h) read with section 7 of the Arbitration Act.

Vivek Vashi is the mainstay of the litigation team at Bharucha & Partners, where Shaheda Madraswala is an associate.