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07 November 2016

‘Trust Deed’ just like ‘Will’ is not an arbitration agreement

Supreme Court of India on 17-8-2016 has held that ‘Trust Deed’, which provides for resolving the disputes arising between the  beneficiaries of the Trust through arbitration, does not constitutes an ‘agreement’ much less an “arbitration agreement” within the meaning of Section 2(b) and 2(h) read with Section 7 of the Arbitration and Conciliation Act, 1996. The Apex Court in this regard noted the definitions of ‘arbitration agreement’ and ‘party’ as provided in Sections 2(b) and 2(h), and the provisions of the Section 7 listing out requirements for an agreement to constitute a valid and enforceable arbitration agreement.  Relying on decision in the case of Vijay Kumar Sharma Alias Manju v. Raghunandan Sharma Alias Baburam - 2010 (2) SCC 486, which dealt with the execution of ‘Will’, the court was of the view that the principles laid down in said case can also be applied in the present case dealing with ‘Trust Deed’ inasmuch as in both the cases, it is the testator/settlor who signs the document alone.

It was held that since legatee/beneficiaries do not sign the document or are not required to sign such document, they are not regarded as party to such deed despite the trustees accepting the deed, and hence ‘Deed’ does not partake the nature of an agreement between the parties. The Court in this case of  Vimal Kishor Shah v. Jayesh Dinesh Shah also held that the trustees are only required to carry out the provisions of the Trust Deed and hence there cannot be any agreement inter se trustees or beneficiaries to carry out any such activity. Lastly, the Court was of the view that that since adequate remedy is provided under the Trust Act for deciding disputes in relation to Trust Deed, trustees and beneficiaries, remedy provided under the Arbitration Act is barred by implication.