Delhi High Court
Ms. Chhaya Shriram vs Deepak C. Shriram And Ors. on 19 February, 2008
Author: Shiv Narayan Dhingra
Bench: Shiv Narayan Dhingra
ORDER Shiv Narayan Dhingra, J.
1. This application under Section 11 of the Arbitration and Conciliation Act, 1996 has been made by the applicant seeking appointment of sole Arbitrator for adjudication of the disputes between the applicant/petitioner and the respondents, arising out of or in connection with the Trust Deed dated 14th September, 1984.
2. Brief facts relevant for the purpose of deciding this application are that a trust in the name of 'Chinar Trust' was constituted on 14th September, 1984 between Brigadier Rajaratnam Lokranjan ( on one part) and Mr. N.R.Dongre and Mrs. Sumitra Charat Ram (on the other part). Brigadier Rajaratnam was the Settlor of the Trust and Mr. N.R.Dongre and Mrs. Sumitra Charat Ram were the two trustees of the Trust. This Trust with an amount of Rs. 5001/- was opened for the benefit of the beneficiaries as defined in the Trust. As per Trust, up to the period of 30th June, 1989 Vishvakarma Trust, a Trust settled by Mr. Prem Pandhi in terms of Trust Deed dated 26th June, 1984 was to be the beneficiary and from 1st July, 1989 the beneficiaries as stated in Vishvakarma Trust were to become beneficiaries under this Trust in the same proportion, extent and mode as under Vishvakarma Trust. The Trust also provided that after original trustees, the subsequent trustees shall be those as may be appointed under the provisions of the Trust Deed.
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.
4. The applicant in this case is one of the beneficiaries and respondents are also the beneficiaries under the Trust. It is submitted by the applicant that a dispute had arisen between the beneficiaries since the respondents wanted to part with their share of benefit under the Trust to a third party, for consideration and the spirit of the Trust as may be gathered from the Trust Deed is that it was a family Trust and the entire benefits must remain within the two families in the proportion mentioned in the Trust and no beneficiary can sell his/her benefit to a third party without giving first offer to other beneficiaries of the same family. It is therefore submitted that since Respondents intend to transfer their share without offering the same to the Petitioner, a dispute has arisen and in view of the Arbitration Agreement contained in the Trust Deed, the matter should be referred to the sole Arbitrator to be appointed by the Court.
5. The Counsel for the Respondents have submitted that there was no Arbitration Agreement between the petitioner/applicant and the respondents and the Arbitration Agreement relied upon by the applicant was not applicable between the applicant and respondents and therefore this application under Section 11 of the Arbitration and Conciliation Act was not maintainable. Learned Counsel for the applicant argued that it was not necessary that the parties must sign the agreement. It was sufficient that the agreement was in writing and was binding on the parties. He relied upon Babaji Automotive v. Indian Oil Corporation Limited 2006(1) Arb. LR 566 (Calcutta) and Dr. S.Z. Zafrey v. Modern Industrial Enterprises, Indore and Ors. to press this point and submitted that irrespective of the fact that beneficiaries had not signed the Trust Deed, the beneficiaries were bound by the Arbitration Agreement. He pleaded that under the Trust, the applicant and the respondents have been reaping benefits therefore they were bound by the terms of the Trust including the Arbitration Agreement, even if, the beneficiaries had not signed it.
6. Section 7 of the Arbitration and Conciliation Act reads as under:
Arbitration Agreement. - (1) In this part, ?arbitration agreement' means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in --
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or
(c) an exchange of statements of claim and defense in which the existence of the agreement is alleged by one party and not denied by the other.
(5) The reference in a contract of a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.
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 Settlor 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 Settlor and the beneficiary. A Trust is a contract between Settlor and Trustees, where Settlor 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 Settlor 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, Settlor 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.