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Vimal Kishor Shah & Ors. v. Jayesh Dinesh Shah & Ors.

Civil Appeal · 2016 INSC 608Decided 17 Aug 2016
Civil Appeal No. 8164 of 2016
Justice J. Chelameswar · Justice Abhay Manohar Sapre

Background

A family trust ("Deed of Kaydee Family Trust") created in 1983 named several beneficiaries, including the parties here, and provided in Clause 20 that any disputes among trustees or beneficiaries would be resolved by arbitration under the Arbitration Act. Disputes broke out among the beneficiaries from around 1989-90 over how the trust's affairs were being run. The respondents applied to the Bombay High Court under Section 11 of the Arbitration and Conciliation Act, 1996 to have an arbitrator appointed, and the High Court allowed it, appointing a retired judge as sole arbitrator, prompting this appeal.

Decision Breakdown

The Supreme Court held that disputes arising out of a trust deed and governed by the Trusts Act are not capable of being resolved through private arbitration, adding this as a new (seventh) category of non-arbitrable disputes to the list the Court had earlier laid down in Booz Allen & Hamilton Inc. It further held that Clause 20 of the Trust Deed did not even qualify as a valid "arbitration agreement" under Sections 2(b), 2(h) and 7 of the Arbitration Act. On both grounds, the Section 11 application for appointment of an arbitrator was not maintainable. The Court set aside the High Court's order and dismissed the arbitration application, while clarifying it had not examined the underlying merits of the beneficiaries' dispute, leaving the parties free to pursue other legal remedies (e.g., a civil suit) for that.

Lesson Learnt

Not every dispute that parties agree to arbitrate can actually be resolved by an arbitrator: disputes about how a family trust is being administered fall outside the scope of private arbitration and must instead be taken to a civil court or under the Trusts Act, regardless of what the trust deed itself says.

Official source (sci.gov.in)View Judgment (PDF)

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