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Case Number

Arbitration Application No. 278 of 2012

Attorney(S)

Ms. Yasmin Tavaria for Applicants.
Mr. P.K Sandhani, Senior Advocate/w Ms. Manorama Mohanty i/b M/s. S.K Srivastav & Co. for Respondent Nos. 1 to 3.
Mr. Chetan Kapadia a/w Ms. Manorama Mohaty and Murlidhar Gadge i/b M/s. S.K Srivasta & Co. for Respondent Nos. 4 to 6.

Judges

R.D Dhanuka, J.

Acts

SECTION 11 ARBITRATION AND CONCILIATION ACT 1996
ARBITRATION ACT 1940
provisions of Indian Arbitration Act

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Smart Summary

Judgment Summary

Factual and Procedural Background

This application was filed under Section 11 of the Arbitration and Conciliation Act, 1996 seeking appointment of an arbitrator by invoking Clause 20 of the Kaydee Family Trust Deed dated 6 April 1983 (Exhibit-A to the application).

The first respondent is a private family trust created by that Trust Deed for the benefit of six minors. Three of those minors are the applicants (now majors) and Respondent Nos. 4 to 6 are also beneficiaries and first cousins of the applicants.

The applicants allege that the respondents leased out trust premises and failed to pay the applicants their due share of lease rent and/or compensation. The applicants served an advocate's notice dated 23 October 2012 requesting appointment of a sole arbitrator under Clause 20. The respondents replied on 31 October 2012 raising issues concerning control and management of the trust but did not deny the applicants' right to invoke the arbitration clause. As respondents refused to appoint an arbitrator, the applicants filed the present application under Section 11(6) of the Act for appointment of an arbitrator.

The application was opposed by counsel for respondent Nos. 1 to 3 and respondent Nos. 4 to 6. The court considered submissions and legal authorities, concluded that the Section 11 application was maintainable, appointed Shri S.R. Shah (former Judge of Bombay City Civil Court) as sole arbitrator, disposed of the application, and stayed operation of the order for four weeks on an application by respondent counsel (Mr Kapadia). No order as to costs was made.

Legal Issues Presented

Whether beneficiaries who were minors at the time of execution of a Trust Deed (and therefore did not sign it) can be treated as "party" to the arbitration agreement contained in the Trust Deed and thereby invoke Clause 20 by way of an application under Section 11 of the Act.
Whether an arbitration clause contained in a Trust Deed can operate to refer disputes between beneficiaries inter-se, and between beneficiaries and trustees, to arbitration where beneficiaries were not signatories at the time of execution.
Whether a minor's incapacity at the time of execution of the Trust Deed prevents the minor, when he attains majority, from adopting or invoking the arbitration agreement entered into by the settlor on his behalf.
Whether issues concerning the existence of the arbitration agreement and arbitrability of claims should be referred to the Chief Justice or his designate under Section 11, with specific reference to the approach in SBP & Co. v. Patel Engineering Ltd. (paras 41–47).
Whether lack of mutuality between beneficiaries precludes reference of disputes inter-se to arbitration.

Arguments of the Parties

Applicants' Arguments

Applicants are beneficiaries under the 6 April 1983 Trust Deed and rely on Clause 20, which provides that disputes between trustees, trustees and beneficiaries, or beneficiaries inter-se regarding rights, titles or interests arising from the Trust Deed shall be resolved in accordance with the Arbitration Act.
Respondents leased out trust premises and failed to pay the applicants their due share; respondents refused to appoint an arbitrator despite the advocate's notice dated 23 October 2012, necessitating an application under Section 11(6) for appointment of an arbitrator.
The applicants did not dispute the existence of the arbitration clause in the Trust Deed.

Respondents' Arguments

The Section 11 application is not maintainable because the applicants were not signatories to the Trust Deed and hence are not "party" to the arbitration agreement as defined in Section 2(h) of the Act.
Reliance on Section 7 of the Act: an arbitration agreement must be in writing and signed by the parties; since applicants did not sign the Trust Deed, they cannot invoke the arbitration clause.
At the time of execution of the Trust Deed the applicants were minors and thus incapable of entering into a contract; any contract entered into by a minor is void (reliance on Mohori Bibee v. Dharmodas Ghose).
There is no mutuality between the applicants and the respondents for disputes inter-se to be referred to arbitration (reliance on Privy Council decision in Sarwarjan v. Fakhruddin Mahomed Choudhuri).
Reliance on Sections 40 and 45: in the event of death, representatives or those claiming through a party can invoke arbitration in Part II proceedings; but there is no comparable provision to allow invocation by persons claiming through a party under Section 7 read with Section 11.
Where existence of an arbitration agreement or arbitrability of claims is contested, the matter should be decided by the Chief Justice or his designate under Section 11 following the Supreme Court's approach in SBP & Co. v. Patel Engineering Ltd. (paras 41–47).
Reliance upon the Delhi High Court decision in Chhaya Shriram v. Deepak C. Shriram to argue that a Trust Deed is a contract between settlor and trustees and that arbitration clauses in such deeds are not binding on beneficiaries who were not parties to the deed.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
SBP & Co. v. Patel Engineering Ltd., (2005) 8 SCC 618	Authority for the proposition that where existence of arbitration agreement or arbitrability is challenged, the Chief Justice or his designate must decide such questions under Section 11 (paras 41–47 relied upon by respondents).	The court noted respondents relied on this authority but did not accept that the questions in the present case required referral to the Chief Justice/designate under SBP; the court proceeded to determine maintainability and found the Section 11 application maintainable.
Sarwarjan v. Fakhruddin Mahomed Choudhuri, XXXIX Indian Law Reporter 232 (Privy Council)	Invoked to support the submission that for want of mutuality between beneficiaries, disputes cannot be referred to arbitration.	The court recorded reliance by respondents but, in its reasoning, did not treat this authority as determinative; it found the particular Clause 20 in the Trust Deed permitted beneficiaries to invoke arbitration inter-se and thus the submission lacked substance.
Mohori Bibee v. Dharmodas Ghose, 5 Bom. L.R. 421	Principle that any contract entered into by a minor is void; relied upon to argue that minors at the time of execution cannot be bound by the Trust's arbitration clause.	The court considered the argument but held Mohori Bibee not to be of assistance in this case because beneficiaries, having attained majority, could adopt the arbitration agreement entered on their behalf by the settlor and the trust was acted upon.
Chhaya Shriram v. Deepak C. Shriram & Ors., Delhi High Court (19 Feb 2008)	Holds that Trust Deed is a contract between settlor and trustees and arbitration clause in such deed is not binding on beneficiaries who were not signatories; paragraphs 3, 7, 8 and 9 relied upon.	The court distinguished that decision on facts and clause-language: it found Clause 20 here differs from the clause in Chhaya Shriram, the applicants did not dispute existence of the arbitration clause, and therefore the Delhi HC decision was of no assistance to the respondents.

Court's Reasoning and Analysis

The court proceeded step-by-step from the text of the Trust Deed and Clause 20:

Examination of Clause 20: The clause expressly provides that disputes regarding interpretation of the Trust Deed, disputes between trustees and beneficiaries, or disputes between beneficiaries inter-se regarding rights, titles or interests arising from the Trust Deed "shall be resolved in pursuance of the provisions of Indian Arbitration Act, 1940 or any other Statute in force in its place" and that the arbitrator's decision "shall be final and binding".
Characterisation of parties: Although beneficiaries (including the applicants and respondent Nos. 4 to 6) were minors at the time of the Trust Deed and thus did not sign the deed, the court held that the trust was created by the settlor for their benefit and the deed was acted upon by the parties. The court rejected the submission that absence of signatures by minors excludes them from being considered parties to the arbitration agreement.
Harmonious interpretation of statutory definition: Noting the definition of "party" under Section 2(h), the court held that the definition must be interpreted harmoniously so as to include beneficiaries referred to in the Trust Deed where the deed itself expressly provides for reference of disputes between beneficiaries and trustees and beneficiaries inter-se to arbitration.
Capacity and adoption upon majority: The court reasoned that beneficiaries who were minors at execution but who have now attained majority can claim independently under the Trust Deed and are entitled to adopt and invoke the arbitration agreement that the settlor entered into on their behalf when they become major.
Distinguishing authorities relied upon by respondents: The court examined the Delhi High Court decision relied upon (Chhaya Shriram) and found the arbitration clause in that case materially different from Clause 20 in the present Trust Deed; it therefore held that the Delhi HC decision was not helpful to respondents. The court also held that Mohori Bibee was not of assistance, given the present factual matrix where beneficiaries now claim independently and the deed was acted upon.
On respondents' reply: The court observed that respondents' reply to the advocate's notice did not raise the issue of non-existence of the arbitration agreement.
Conclusion of analysis: Given Clause 20's clear wording, the conduct of the parties (acting upon the deed), and that the applicants did not dispute the existence of the arbitration clause, the court found no merit in respondents' submissions and held that the Section 11 application was maintainable; an arbitrator needed to be appointed.

Holding and Implications

HOLDING: The court held that the application under Section 11 of the Arbitration and Conciliation Act, 1996 was maintainable and appointed Shri S.R. Shah (former Judge of Bombay City Civil Court) as sole arbitrator. The application was disposed of and there was no order as to costs. The operation of the order was stayed for four weeks on an application by respondent counsel.

Implications:

Direct effect on the parties: The immediate consequence is the appointment of a sole arbitrator (Shri S.R. Shah) to resolve the disputes referred to arbitration under Clause 20 of the Trust Deed. The application under Section 11 is disposed of subject to a four-week stay of operation.
Broader precedent: The opinion does not announce that it is setting a new binding precedent beyond its reasoning. The court distinguished prior authorities relied upon by respondents and explained why they were not applicable on the facts of this case; it did not purport to overrule or broadly restate law beyond its interpretation of Clause 20 and the specific facts (i.e., beneficiaries who were minors at execution but now major and acting under the Trust Deed are entitled to invoke the arbitration clause).

This summary is based exclusively on the provided judgment text and does not add information beyond what appears in that text.

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Jayesh Dinesh Shah v. Kaydee Family Trust

JUDGMENT:

By this application filed under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter ‘the Act’ for short), applicants seek appointment of arbitrator invoking Clause-20 of the Deed of Kaydee Family Trust executed on 6th April 1983 which is at Exhibit-A to the application. Clause 20 of the said Trust Deed reads as under:

20) subject to contents of para 9 of this trust deed, every dispute or differences regarding the interpretation of any of the lcauses or provisions or the contents of this Trust Deed or between the Trustees, or the Trustees and beneficiaries, or the beneficiary inter-se regarding the rights, titles or interest flowing or arising from this Trust Deed or consequential thereto shall be resolved in pursuance of the provisions of Indian Arbitration Act, 1940 or any other Statute in force in its place and the decision of arbitrator or arbitrators, as the case may be, shall be final and binding to the parties to such arbitration.

2. The applicants are beneficiaries of the first respondent trust which is a private family trust formed by Deed of Trust dated 6 April 1983 for the benefit of six minors. Out of six minors, three of whom, are the applicants, are now MAJOR. Respondent Nos. 4 to 6 who are also beneficiaries under the said Deed of Trust dated 6 April 1983 are also major and are first cousins of the applicants.

3. It is the case of the applicants that the respondents have leased out the trust premises and are not paying the due share of the applicants from the amounts received by way of lease rent and/or compensation. Dispute arose between the parties. The applicants, vide their Advocate's notice dated 23rd October 2012 to the respondents, requested for appointment of sole arbitrator by invoking clause-20 of the Trust Deed. The respondents vide their Advocate's reply dated 31st October 2012, raised various issues about the control and management of the first respondent trust. The respondents, however, did not deny the rights of the applicants to invoke arbitration clause in the said reply. As the respondents refused to appoint an arbitrator, applicants have filed the present application under Section 11(6) of the Act for appointment of arbitrator.

4. Mr. Samdhani, the learned senior counsel appearing for respondent Nos. 1 to 3 and Mr Kapadia, the learned counsel appearing for respondent Nos. 4 to 6 opposed this application on various grounds.

5. The learned counsel submits that the present application filed under Section 11 is not maintainable on the ground that applicants were not signatories to Trust Deed dated 6 April 1983. Reliance is placed on Section 2(h) of the Act which defines party as under:

2(h) “party” means a party to an arbitration agreement.

6. The learned counsel also placed reliance upon Section 7 of the Act in support of their plea that arbitration agreement has to be in writing and shall also be signed by the parties. The learned counsel submits that as the applicants were not admittedly signatories to the Trust Deed, thus not being party to the arbitration agreement and therefore present application for appointment of arbitrator under Section 11 is not maintainable.

7. Mr Kapadia, the learned counsel appearing for respondent Nos. 4 to 6 invited my attention to Section 40 and Section 45 of the Act in support of his plea that in case of death of a party to the arbitration agreement, arbitration clause would survive and can be invoked by the legal heirs or representatives of the deceased. Reliance is placed on Section 45 in support of the plea that in case of the proceedings pending before the judicial authority, request can be made by the parties to the agreement or parties claiming through or under him to refer the parties to arbitration. The learned counsel submits that intention of legislature is clear that the parties claiming through a party to arbitration agreement can apply for referring the dispute to arbitration under Section 45, in case of the arbitration provided in Part-II of the Act, whereas no such provision for invoking arbitration clause through a party claiming through a party to arbitration agreement is contemplated in Section 7 r/w Section 11 of the Act.

8. The learned counsel submits that in any event, applicants admittedly at the time of execution of Trust Deed by the Settlor, were minor and were incapable of entering into any contract, thus, no reliance on such Trust Deed can be placed by the applicants. The learned counsel also submits that in so far as the dispute inter-se between the applicants and respondent Nos. 4 to 6 is concerned, the same also cannot be referred to arbitration, as there is no mutuality between the applicants and the respondents. The learned counsel submits that as the issue of existence of arbitration agreement is raised by the respondents and also whether claims as would be made by the applicants, would be arbitrable or not, such issue has to be decided by the Chief Justice or his designate under Section 11 of the Act in view of the law laid down by the Supreme Court in case of SBP & Co. v. Patel Engineering Ltd. Reported in (2005) 8 SCC 618. The learned counsel placed reliance upon paragraphs 41 to 47 of the said judgment.

9. The learned counsel also placed reliance upon the judgment of Privy Council in case of MIR Sarwarjan v. Fakhruddin Mahomed Choudhuri reported in XXXIX Indian Law Reporter 232 in support of his plea that for want of mutuality between the applicants and other beneficiaries under the Trust Deed, matter cannot be referred to arbitration. Reliance is placed on the Judgment of Privy Council in case of Mohori Bibee v. Dharmodas Ghose reported in 5. Bom.L.R 421 in support of the plea that any contract entered into by a minor would be a void contract. The learned counsel placed reliance upon the judgment of Delhi High Court in case of Chhaya Shriram… v. Deepak C. Shriram & Ors.… delivered on 19 February 2008 under Section 11 of the Act in support of the plea that Trust Deed is a contract between Settlor and Trustees and arbitration clause contained in such Trust Deed is not binding on the beneficiaries. Paragraphs 3, 7, 8 and 9 of the said Judgment read thus:

3. The Trust Deed contained an Arbitration Clause which reads as under:

All disputes and questions whatsoever which shall arise either during the continuation of this TRUST between the SETTLOR, TRUSTEES and Beneficiaries to the income or to the Corpus of their respective representatives or any of them touching this Deed or the construction or the application thereof or any clause or thing herein contained or any account, calculation or dividend or division of assets or liabilities to be made hereunder, as to any act, deed or omission of any one of the TRUSTEES or as to any other matter in any way relating to the Deed of Trust or any affairs thereof or the rights, duties and liabilities of any person under this Deed shall be referred to a single arbitrator in case the parties agree upon or otherwise to two arbitrators, one to be appointed by each party to the dispute, in accordance with and subject to the provisions of Indian Arbitration Act or any statutory modification thereof for the time being in force. In case the two arbitrators so appointed do not agree upon the matter, it shall be referred to an umpire to be appointed by the two arbitrators representing each of the parties to the dispute.

7. As per the provisions of section 7, an Arbitration Agreement is an agreement by the parties to submit to arbitration all or certain disputes. Thus, wherever one party invokes Arbitration Clause vis-a-vis other party, both parties must have agreed to submit all their disputes to the arbitration. An Arbitration Agreement to be a valid agreement, the parties to the agreement must be ad-idem to the fact that if there is a dispute between the parties, the same shall be referred to the Arbitrator.

8. It is not disputed that none of the parties to this application were signatories of the Trust Deed and the only signatories to the Trust Deed were settler and Trustees. The beneficiaries were not signatories to the Trust Deed. The question arises, can a person reaping benefit under the Trust, becomes bound by the Arbitration Clause given in the Trust and his disputes with the other beneficiaries is to be referred in terms of the Arbitration Clause? There is no doubt that a beneficiary can have benefits of the Trust only in accordance with the terms of the Trust and in the same ratio and proportion which is provided under the Trust. But he is granted benefits by the Trust not out of any contract between him and the Trustees and the Settlor. He is not made beneficiary out of his choice but because of the desire of the Settlor. The Trust is not a contract between settler and the beneficiary. A Trust is a contract between settler and Trustees, where settler places some property in the hands of Trustees and gives power to the Trustees to manage the property in a specified manner and to give benefit of the property to certain persons. A Trust may be a Private Trust or a Public Trust and a similar arbitration clause can be there even in a Public Trust. In Public trust or Trust of religious nature, the beneficiaries would be innumerable persons, who are not even known to the Trustees. I consider that the settler and Trustees together cannot enter into a contract on behalf of the beneficiaries. Any dispute between the beneficiaries can be referred to the arbitration only if there is an independent Arbitration agreement between the beneficiaries for referring the dispute to the arbitration.

9. It is settled law that in order to enter into a contract, the parties must be legally competent. A minor or a person of unsound mind cannot enter into an agreement, but under the Trust relied upon by the applicant, a minor as well as a person of unsound mind can become beneficiary. No Arbitration Agreement can become binding on them because they are not even competent to enter into the agreement. Moreover, an Arbitration Agreement is binding on the parties who by their own will and consent agree to refer the dispute to the Arbitrator. Two persons cannot bind their successive generations to a contract entered into between them. Similarly, a person may while making a Will and appointing somebody as Executor of the Will, provide for an arbitration clause that any dispute between the beneficiaries of the Will, will be decided by the Arbitrator. Such a clause would not be binding on the beneficiaries, because they were not party to the Arbitration Agreement although they may be getting benefits out of the Will. A person can dispose of his property by Will but a person cannot create a contract between two other persons by his Will. Similarly, settler and Trustees can create a Trust and specify who will be the beneficiaries under the Trust but they cannot create a binding contract between the beneficiaries in respect of settlement of dispute and cannot say that all disputes between the beneficiaries shall be decided by arbitration. The arbitration clause relied upon by the applicant is Therefore not binding on the beneficiaries and this application is not maintainable and is hereby dismissed as such.

10. Perusal of Trust Deed dated 6 April 1983 executed by the Settlor and Trustees indicates that the said Trust was created by the Settlor for the benefit of six beneficiaries who were minor at that time. It is not in dispute that the applicants in the present proceedings and respondent Nos. 4 to 6 to 5 to the said Trust Deed were shown as beneficiaries under the said Trust Deed. It is also not in dispute that various benefits were availed of by the beneficiaries under the said Trust Deed and the said deed is acted upon. Under the said trust Deed, the Trustees were empowered to deal with the properties of the trust in a manner set out therein. Perusal of Clause-20, in my view, clearly indicates that if disputes, differences regarding the interpretation of any of the clauses or provisions or the contents of the said Trust Deed or between the Trustees, or the Trustees and beneficiaries, or the beneficiary inter-se regarding the rights, titles or interest flowing or arising from the said Trust Deed or consequential thereto or arising shall be resolved in accordance with the Arbitration Act. In my view, there is no substance in the submission made by the learned counsel appearing for respondents that the applicants, being minor at the time of execution of the Trust Deed, were not party to the arbitration agreement. In my view, the minors who were beneficiaries, could not have signed the said Trust Deed, as were not capable of executing the said document on their own. It is, however, clear that Trust was created by the Settlor for their benefit, which contains arbitration clause and which agreement is acted upon by the parties not only when applicants and respondent Nos. 4 to 6 wre minor and even after they became major. In my view, the definition of ‘party’ under Section 2(h) of the Act has to be interpreted harmoniously and the beneficiaries, who were referred in the said Trust Deed as beneficiaries which provides for referring all disputes to arbitration between the beneficiaries and Trustees and also beneficiaries inter-se, has to be construed as if the beneficiaries were also party to the arbitration agreement. It is not in dispute that the beneficiaries who are applicants in the present proceedings and respondent Nos. 4 to 6 are now major. In my view, beneficiaries under the said Trust Deed are not only claiming through the Trustees when they were minor, but are claiming independently under the Trust Deed after attaining the age of majority and are thus, entitled to agitate the dispute having arisen between the applicants beneficiaries and the Trustees as well as beneficiaries inter-se by invoking arbitration clause recorded in the Trust Deed.

11. In so far, Judgment of Delhi High Court relied upon the learned counsel for respondents is concerned, perusal of arbitration clause set out in paragraph 3 of the said Judgment and Clause-20 of the Trust Deed relied upon in this matter, indicates that these clauses are totally different. In this case, applicants beneficiaries who are entitled to apply for appointment of arbitrator are not disputing the existence of arbitration clause. The issue before the Delhi High Court was whether arbitration clause entered into by the Settlor would be binding on the beneficiaries or not. In this application, as the applicants are not disputing the existence of arbitration agreement and the clause provides for resolution of dispute through arbitrator in case of dispute between beneficiaries and Trustees and beneficiaries inter-se, reliance placed by the respondents on the Judgment of Delhi High Court is of no assistance to the respondents.

12. Similarly, in view of the decision taken by me in earlier paragraphs of this order that the applicants beneficiaries were not only claiming through the Trustees, but are claiming independently as now applicants having become major are entitled to adopt the arbitration agreement entered into by the Settlor on their behalf on their attaining age of majority. In my view, Judgment relied upon by the respondents in case of Mohori Bibee (supra) is of no assistance to the respondents.

13. Perusal of reply given by the respondents to the notice of invoking arbitration by the applicants indicates that no such issue about existence of arbitration agreement has been raised in the said reply.

14. In my view, there is no merit in any of the submissions made by the respondents. In view of the existence of arbitration clause and in view of the respondents refusing to appoint an arbitrator, present application under Section 11 is maintainable and the arbitrator is required to be appointed.

15. Shri S.R Shah, former Judge of Bombay City Civil Court, is appointed as sole arbitrator. Application is disposed of. No order as to costs.

16. Mr Kapadia, the learned counsel appearing for respondent Nos. 4 to 6 applies for stay of operation of this order. Operation of this order is stayed for a period of four weeks from today.

Jayesh Dinesh Shah v. Kaydee Family Trust

Judgment Summary

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Applicants' Arguments

Respondents' Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Jayesh Dinesh Shah v. Kaydee Family Trust

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