GUJARAT NATIONAL LAW UNIVERSITY

SEMESTER IX/BATCH
2018-2023

LAW RELATING TO TRUST AND NOT FOR PROFIT ORGANISATION

CONTINUOUS INTERNAL EVALUATION- 1

“CASE ANALYSIS”
VIMAL KISHOR SHAH & ORS. V. JAYESH DINESH SHAH & ORS.

SUBMITTED TO :
PROF. GARIMA GOSWAMI
ASSISTANT PROFESSOR OF LAW.
SUBMITTED BY :
DIVYANSH SHARMA, 18B182
 TABLE OF CONTENTS
INTRODUCTION....................................................................................................3
FACTS...................................................................................................................3
CONTENTIONS RAISED BY PARTIES.....................................................................4
COURT’S OBSERVATION......................................................................................4
DECISION..............................................................................................................4
CONCLUSION........................................................................................................6

2
INTRODUCTION

The Apex Court in Vimal Kishor Shah & ors. v. Mr. Jayesh Dinesh Shah & ors. 1  has carved
out a seventh category of non-arbitrable disputes namely cases arising out of trust deeds and
the Trust Act, 1882. The Court has ruled that the Act being a complete code in itself
impliedly bars the Application of the Arbitration and Conciliation Act 1996. The reasoning
applied by the Court in reaching upon its decision may lead to the creation of additional
categories of disputes which could be considered non-arbitrable. 

FACTS

One Shri Dwarkadas Laxmichand Modi executed a family Trust Deed on 06 April, 1983
forming a trust in favour of six minors, including Vimal Kishor Shah and Jayesh Dinesh
Shah. Clause 20 of the Trust Deed provided that if any dispute arise then it would be resolved
in pursuance of the provisions of the Indian Arbitration Act, and the decision of the
arbitrators would be binding on the parties to the arbitration. But soon after the formation of
the trust, differences cropped up between the beneficiaries and one of the trustees resigned
from the trusteeship. Finally a demand was made to amicably resolve the disputes/differences
by referring them to the arbitrator as per Clause 20 of the Trust Deed. As the parties could not
settle the differences and could not also appoint an arbitrator, one set of beneficiaries filed an
application under Section 11 of the Arbitration and Conciliation Act, in the High Court. The
other set of beneficiaries contested this application. It was contended that the beneficiaries
were neither parties to the Trust Deed nor its signatories, and Trust Deed could not be termed
as an “agreement” much less an “arbitration agreement” within the meaning of Section 2(b)
and 2(h) read with Section 7 of the Act. The designated Judge allowed the application and
held that since the parties were minor at the time of the execution of the Trust Deed and had
now become major, they should be held as party under Section 2(h) and further they had the
right to take recourse to proceedings under Section 11 of the Act for appointment of
arbitrator. Against this order of the Single Judge, one set of beneficiaries (the appellants) filed
the petition by Special Leave before the Apex Court. It was contended before the Apex Court
that the Trust Deed was not an “Arbitration Agreement”. Further, that since the affairs of the
Trust would be governed by the Indian Trusts Act, 1882 (“the Trust Act”), the Arbitration
1
Vimal Kishor Shah & ors. v. Mr. Jayesh Dinesh Shah & ors, 2016 SCC OnLine SC 825.

3
Act would not apply. The opposing party supported the reasoning of the Single Judge and
prayed for no interference by the Apex Court. 

CONTENTIONS RAISED BY PARTIES

In appeal, Vimal Kishor Shah apart from raising the issue of the beneficiaries not being
signatories to the trust deed also contended that disputes under the trust deed were not
arbitrable as the Act was a complete code in itself and provided for adjudication of disputes
between parties by the Civil Court, therefore arbitration was excluded.
Jayesh Dinesh Shah on his part relied upon the decision of the Bombay High Court for
support. 

COURT’S OBSERVATION

Supreme Court opined that there was no valid arbitration agreement. Court looked at the
relevant sections and held that the requirements for a valid agreement were (1) there has to be
an agreement (2) it has to be in writing (3) parties must sign such agreement or in other
words, the agreement must bear the signatures of the parties concerned and (4) such
agreement must contain an arbitration clause. Since these conditions were not met as there
was no agreement and the arbitration clause was inserted unilaterally by the “settlor” so the
requirements of Section 2(b) and 2(h) read with Section 7 were not fulfilled. Further, the
Trusts Act also conferred jurisdiction on Civil Courts, for adjudication in the matter of trusts.
Though there was no express bar towards the Arbitration Act, the Court opined that there was
an implied bar of exclusion of the applicability of the Arbitration Act for deciding the
disputes relating to trusts through private arbitration as the remedies provided in the Trusts
Act were adequate and sufficient. 

DECISION

The Supreme Court in its decision overruled the judgment of the Bombay High Court.
Relying upon § 2(b) & (h) as well as § 7 of the Arbitration Act which deal with the definition
of an arbitration agreement as well as parties to an arbitration agreement, it noted that since

4
these provisions barred the jurisdiction of Civil Courts they must be interpreted strictly. The
Court stated that for an arbitration clause to be valid and binding it must be in writing and
should be executed by parties.

The Court then ruled that a trust deed is executed by the testator and the beneficiaries to the
trust deed are not required to execute it, as such the beneficiaries are not parties to the trust
deed and the deed cannot be treated as an agreement between the beneficiaries. The Court
noted that the beneficiaries are only required to carry out the provisions of the trust deed and
in fact there is no agreement between the beneficiaries. Therefore no arbitration agreement
existed between the parties in this case.

The Court thereafter observed that its aforesaid finding was sufficient to decide the entire
dispute between parties, but nevertheless proceeded to rule on the issue of whether arbitration
was excluded by the provisions of the Act on grounds that it was a pure issue of law and
could be decided in Appeal.

Examining the scheme of the Act and the various provisions under it, the Court noted that the
Act was in a complete code in itself. Various provisions of the Act provided for the legal
remedies available to the author of the trust, trustees and the beneficiaries and jurisdiction
was specifically conferred upon a principal Civil Court of Original jurisdiction.

Further relying upon the Constitution Bench decision of Dhulabhai v. State of Madhya
Pradesh2 which lays down principles for determining express or/and implied bar on the
jurisdiction of Civil Courts, it ruled that since the Act provided the specific remedy of
adjudication of disputes by a Civil Court, any remedy through arbitration was impliedly
barred. The Court concluded its decision by specifically stating that it was now adding a
seventh category of disputes namely cases arising out of trust deed and the Act in the list of
disputes considered non-arbitrable that was specifically laid down in its decision in Booz
Allen & Hamilton.

2
Dhulabhai v. State of Madhya Pradesh, AIR 1969 SC 78.

5
CONCLUSION

The Supreme Court's decision in the present case highlights the evolving nature of the
arbitration landscape specifically as it relates to what matters would be held to be outside the
purview of arbitration. 
We note that the decision of the Court in relation to validity of the arbitration agreement as
well as parties thereto was under the old Arbitration Act. Under the Arbitration &
Conciliation (Amendment) Act 2015 parties claiming through or under signatories to
arbitration agreements are allowed to be joined in arbitration. It is therefore likely that if the
Arbitration & Conciliation (Amendment) Act 2015 was to be applied the decision of the
Court on this issue may have been different.