ICFAI UNIVERSITY, DEHRADUN

ICFAI LAW SCHOOL

SUBMITTED BY:- SUBMITTED TO:-

ARBITRABILITY OF TRUST DISPUTES IN INDIA-

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ABOUT:-

A trust is basically nothing but a relationship where a so called property or any of the rights
associated or related to that property can be conferred to any of the secondary party for the
benefit of any other party. The trust is usually created by any settler who transfers this
property to a trustee. The trust’s beneficiaries are the people or the party on whose behalf the
property is held by in a trust. The duties have to be carried out with due transparency and
bona fide intent. The trust deed is the instrument or the paper work behind this, and under this
the rights and the liabilities are transferred. It is legally valid for the trustee to say that he is
the rightful owner of the property as the property is entrusted to him. It is the settler and the
trustee who are the one who execute the trust deed. The trustee should not be found to be
making any illegitimate profit out of the property and transfer all the secret profits if made to
the beneficiary of the property. If he pays any expenses out of his own pocket he can be
compensated for that, without any problem being aroused. The Indian Trusts Act, 1882 is the
one which basically deals with this and solves any disputes.

The parties whether beneficiary or trustee, or both beforehand only put an arbitration clause
in the trust deeds so that if in future any contingency arises it can be solved. The question of
arbitrability is something which generally arises in this. This is a widely used and very
effective dispute resolution mechanism. It is cost effective, it is speedy, confidential etc and
these are the reasons which make it so important in today’s time.

The author in this paper would determine and give his thesis as to how the disputes related to
trust deeds are resolved in India. The first thing that would be discussed in the paper would
the arbitrability and then the judicial stance as a link between trust deeds and arbitrability.
The other thing which is of importance and that would be discussed by the author is whether
the beneficiaries could be considered to be a party to a party or not. This author would leave
no tables unturned and provide an analysis and come to a valid conclusion.

ARBITRABILITY- IN SEARCH OF ITS ACCESS.

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The very first question which needs to be solved before we move forward is that in every case
a dispute has to be arbitrable to be brought under this. The arbitral tribunal does not take
those disputes into consideration which are supposed to be out of its ambit as these then
become non-arbitrable.1 There are laws internationally as well as domestically which let us
deal with these disputes, despite these being non-arbitrable. The disputes which though were
non arbitrable still by mistake an award is passed, then that award would not be considered
legally valid.2

The time an application is filed for the appointment of a legitimate arbitrator for the triggering
of the proceedings; the parties objecting to the arbitration in itself before the arbitration
tribunal; by filing an input for the dismissal of the award. These three are the sole basic
objections under which every other third parties tries to get dispersed of the arbitral
proceedings.

The next question with which the author would deal with is the criteria’s based on which a
dispute whether arbitrable or not can be judged. Sometime when ion public interest or in a
case where a third party is related the dispute is not considered to be arbitrable. The method f
adjudication instead of ADR works in the above-mentioned matters. It is basically the terms
of the contract or agreement and the public policy which allows the arbitrator to pass any
award.3 The discretion of the arbitrator has to be used wisely and should not affect any third
parties interest.4

The land mark case of Booz Allen5 is the case before the apex court where the apex court a
segregated list bifurcated between the disputes that which are arbitrable and which are not.
The subject matter, the nature and basically the fact analysis that, whether the dispute falls
within arbitrability or not was the thing which determined it. As per the law of the land any

1 ROEBUCK & B. DE FUMICHON, ROMAN ARBITRATION 772-778 (2004).

2 Ibid.

3 GARY B. BORN, INTERNATIONAL COMMERCIAL ARBITRATION 768 (2014

4 Ibid.

5 Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd & Ors., AIR 2011 SC 2507

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award which being non arbitrable can be set aside based on the section 48 and the section
32(2)(b)6 of the arbitration and conciliation act, 1996( ‘The act’).

In the Booz Allen case the indicative list of the non arbitrable issues was as follows; criminal
offences, matrimonial disputes, insolvency, divorce, eviction of a tenant are some of the
matters listed under this.7 However, with regards to the tenants only under specific courts
only the tenant can be evicted. The right in Rem (exercised against world at large) is affected
out of these non arbitrable disputes, this is the reason that they are termed a non arbitrable
issues. Thus the stance of the case of Deccan chronicles8 stand here which make all these
disputes non-arbitrable proscribing the tribunal to pass any sort of award on these matters.

On the other hand if there is any dispute which affects only a single individual party or right
in Personam then the matter is arbitrable and can be presented before the tribunal. Under the
majority or various sorts of cases that are presented before the Supreme Court it has come to
the notice of the court that majority is found out to be applicable to right in Rem and not
Personam.9 However, the author of his research still feels that this far more debatable as it
seems. Thus, one should not directly skip to any sort of conclusion.

This brings the author to the next important question, where the author would draw a link
between the arbitration in a relation to or maybe an interlink of arbitration with the judicial
stance.

INTERLINK- INSIGHT INTO JUDICIAL STANCE AND ARBITRATION.

6 Haryana Telecom Limited v. Sterlite Industries India Ltd., 1999 (5) SCC 688.

7 MUSTILL & BOYD, LAW AND PRACTICE OF INTERNATIONAL COMMERCIAL ARBITRATION 251(2001).

8 Tata Capital Financial Services Limited v. M/s. Deccan Chronicle Holdings Limited and Anr., (2) ARBLR
181 (Bom) (2013).
9 Narandas Karsondas v. S.A. Kamtam and Anr., AIR 1977 SC 774.

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Under various circumstances it has been found out that the there are clauses related to non
signatories which are included in the arbitration agreement. It is solely for the tribunal to
decide that, who are the true parties or privy to the apparent agreement. This is not meant to
cause any sort of inconvenience to the non-signatories. It is based on the underlining fact
analysis and the information that we come to the conclusion that whether the third party can
avail any benefits or not.10 The extent of the participation and the intention of the parties are
the most crucial things tend to help to come up to a conclusion. Section 8 and the section 45
of the act, deals with reference to the third party, as they let us know the joinder of parties and
other concepts.

The Supreme Court stepped up to solve this judicial confusion as various high courts were in
contrast to each other’s opinion also it was important that the judiciary comes up with
something that is as crucial as related to this. It was the landmark case of Vimal Kishore
Shah & Ors. v. Jayesh Dinesh Shah & Ors.11where the court sorted out the problem. Its
arbitration clause read as:-

“any dispute or differences dispute or difference arising regarding the

This case dealt with a dispute between the beneficiaries and other things related to the trust.
Therefore, as a result of this dispute the people went to the court based on section 11 of the
act so as to appoint an arbitrator as it was given under the arbitration clause of the trust deed.
The high court allowed the suit but the other beneficiaries went before the Supreme Court and
challenged this. The Supreme Court finally dismissed the judgement of the Bombay High
Court and did not allow the arbitration to happen as the arbitration agreement was invalid.

10 International Chamber of Commerce, Interim Award, Case No. 9517.

11 Vimal Kishore Shah & Ors. v. Jayesh Dinesh Shah & Ors, Civil Appeal 8164 of 2016 (Supreme Court of
India) (Unreported).
12 Ibid.

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Another case of Vijay Sharma v. Raghunandan Sharma & Ors 13 was also relied on as this
case stated that arbitration clause cannot be valid as “legatees are not signatories to a will”.
Same analogy has been drawn to state that the beneficiaries can also not be legatees thus they
can’t be a signatory to the arbitration agreement. So even if a beneficiary has impliedly
accepted the agreement still this does not imply that an arrangement exists between the
trustee and the beneficiary. Also this clause of arbitration may lead to absurdity as this clause
does not even satisfy the basic condition that is an offer and acceptance that is unqualified
between the parties.

The Indian Trusts Act, 1882 was also looked by the Judiciary to determine whether the
disputes related to trust are arbitrable or not. But, after completely going through the act the
court came to the conclusion the 1882 act is very exhaustive and it ranges from trust, duties,
rights and other benefits etc. The apex court also after perusing it came to the conclusion that
the 1882 act provides for dispute resolution and the civil courts can hear trust disputes. The
person however can resort to other remedies if he is resorting to this door. Therefore, the
arbitration of trust disputes is barred under the legislature but the 1882 act provides for this.

Arbitration is the faster means of dispute resolution under the ADR and it was meant for a
purpose that people tend to have an inclination towards it as it is really very speedy, cost
effective and save time and energy. The parties don’t have to go to court and save their
valuable time and save their pockets. But still certain matters are non-arbitrable and there is
nothing which can be done about it as they affect the right is Rem. The subject matter is the
best way to decide and come to a conclusion on the arbitrability issue. The Supreme Court
has also added the 1882 act in the list of the non-arbitrable issues decided upon in the case of
Booz Allen &Hamilton Inc. v. SBI Home Finance Ltd.

Thus, the position is still more clarifies and conspicuous after the Supreme Court has taken a
stance on this. This was a matter of utmost importance which was wisely and very
intellectually solved by the Supreme Court. The spirit of the act has also been maintained
throughout the judgements passed. Henceforth, the author can out rightly say one thing that if
one wants to arbitrate then in that case the intention should be clear and unqualified and that
too without any hindrance.

13 Vijay Sharma v. Raghunandan Sharma & Ors., 2010 (2) SCC 486

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This brings the author to his question that whether a beneficiary of a trust is a party to
anything or not. The author is optimistic that the reader would be compelled by the research
an the arguments thus put forth by the author.

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CONJECTURE: WHETHER BENEFICIARY’S FALLS AS A PARTY OR NOT.

There is no confusion as to this line of argumentation that the parties who are privy to the
arbitration agreement would only be considered to and would be bound by the arbitration
agreement. This as a matter of fact and as a matter of law has been accepted internationally
also.14 The scope or the ambit of the word ‘party’ cannot be expanded as to one’s own whims
and fancies as this would otherwise further lead to the purpose of the legislators. The section
2(h) of the act has also limited this term to the parties to the agreement. Earlier it was not
defined in the 1940 act but not with the advent of the act of 2013 this stance is further more
clearly. Nobody can challenge this that the benefits could only be construed by parties to the
agreement. In fact the section 11 which is in regards to the appointment of the arbitrator has
also emanated from this provision.

The beneficiary accrues the benefits out of any of the terms and conditions defined in the set
rules and regulation. The Delhi High Court has also accepted this stance and has dismissed
the Bombay High court judgment of Jayesh Shah v. Vimal Kish ore15 where the concept of
‘deemed acceptance’ was accepted. Thus, under no circumstances the contractual setting can
override the terms of the agreement. A person cannot override the above concept and
therefore become a self declatory beneficiary. The trustee as well the settler is also prohibited
to make a beneficiary who would later on for their own personal goals fail the objective of
trust. But even if forget all that has been discussed above, still one thing that would be of
utmost importance is the fact that there should be an existing arbitration clause in the
agreement at the very first place to sort things out.16

Talking about minors whether they can be a part of the trust or not, the answer is that based
on the section 10 of the Indian contract act, 1872 if any minor enters into contractual
agreement even though he is not supposed to be then in that case the contract would have to
be declared as void ab initio.17 Thus the beneficiaries if any of them are minors they would be
incompetent with regards to the contractual agreement. Thus, competency and consent are the

14 United Steelworks of Am v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582 (U.S. S.CT. 1960); Bridas
SAPIC v. Government of Turkmenistan, 345 F.3d 347, 353-54 (5th Cir. 2003).

15 Jayesh Shah v. Vimal Kishore, MANU/MH/0739/2013.

16 National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd. AIR 2009 SC 170.

17 MUSTILL & BOYD, LAW AND PRACTICE OF INTERNATIONAL COMMERCIAL ARBITRATION 251(2001).

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two of the most important things for consideration before proceeding to a tribunal. These two
are the provisions which are very intrinsic to any of the arbitration agreement which is
formed thus under no circumstances can be overridden.18

18 Patanjal and Anr. v Rawalpindi Theatres (P) Ltd., AIR 1970 Delhi 19.

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CONCLUSION: AN INSIGHT INTO AUTHORS ANALYSIS.

The author has come to a finding that all the trust which are public in nature are under no
circumstances governed by the act of 1882. We know that there are trusts which are public as
well as private. An example for the public trust can be the charitable trusts. The reasons why
they are not taken to alternate dispute resolution are because these are of public interest and
have to be adjudicated. Therefore, they are presented before the civil courts. However, when
we talk about private disputes then in that case the ADR is the best way to deliver or get
delivered justice. The private trust generally deal in regards to the pension schemes etc as
these are rights in personam and are really very convenient for both the parties to get it solved
before the tribunal.

In the past also and currently also it has been found out that arbitration has really made the
things easier for rich as well as the poor. Though there is still no awareness about this to the
general public still in relation to any of the private trust, this is the finest option one can resort
to. The arbitration clause in an agreement is always meant to protect the interest of the
rightful beneficiary, so even if there is a clause that does not mean that the court will always
give its judgement in favour of the beneficiary.19

The author’s views and argument are totally tilted towards what the Supreme Court has come
across with. But still there is one scenario where the author seems to be perplexed and against
to what the Supreme Court has stated. The dictum of disputes not being arbitrable per se, is
the thing which makes the author think against it. The Booz Allen case listed out few factors
that cannot stand before the tribunal; however the author thinks this to be a really very
preposterous deed. It is so because the time the beneficiaries are not allowed to enter into any
contractual deed this in no way serves the purpose of the trust of commercial nature. This is
also against the principles of public policy. Thus, the author thinks that there should be
permission which should be granted to the beneficiaries and the trustees to contract between
each other. Thus referring it based on section 8 of the act for the convenience of all.

Also the case of Vimal Kishore was made based on the 1996 act but now we have 2015 act
which is much different. Therefore, the law of land has changed so we cannot rely on the case
dating 3 decades back. Therefore, new outcome should be accepted benefitting the consumers
of the court. The author hence feel that an another amendment needs to passed for the 1882
19 Vimal Kishore Shah & Ors. v. Jayesh Dinesh Shah & Ors

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act so that the private trust of the commercial nature are accepted before a tribunal and the
advantages arising out of it are bestowed to the relevant parties.

Recently in the year 2016 a new landmark judgement was passed by the Supreme Court
where they tried to change the stance and clarified its opinion. Here also the court made
reliance on the fact that an arbitration agreement is the bare minimum requirement for going
to the tribunal. But as the interests of the stakeholders are of utmost importance there is a
need for a new law or an amendment to the old act with respect to the private trust of any
commercial nature. Last but not the least the author thinks that the decision would have been
different with respect to the section 8 if the 2015 amendment would have had come earlier.

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