Singh Patheja Vs. Icds Ltd  Insc 714 (31 October 2006)
Ar. Lakshmanan & Lokeshwar Singh Panta Dr. Ar. Lakshmanan, J.
appeal was filed against the impugned interlocutory judgment and order dated
19.3.2003 passed in Notice of Motion No. 72/2002 in Notice No. 180 of 2001 by
the High Court of Judicature at Bombay whereby the reference made by the learned single Judge with regard to
the question of law was answered against the appellant herein.
appellant herein is Paramjeet Singh Patheja(guarantor), judgment debtor and the
respondent is ICDS Ltd, a Company incorporated under the provisions of the
Companies Act, 1956.
30.10.1998 the said company was registered with the Board of Industrial
Financial Reconstruction (BIFR) under the provisions of the Sick Industrial
Companies (Special provisions) Act, 1995. The appellant was a party to
arbitration proceedings initiated by the respondents to recover amounts alleged
to be due and payable from one Patheja Forgings and Auto Parts Manufactures
Ltd. (hereinafter referred to as the 'company'). The appellant was sought to be
sued in his purported capacity as guarantor of the dues of the said company.
09.03.2000, a letter was sent informing the Arbitrators that the company has
been registered under section 15 of the Sick Industrial Companies (Special
provisions) Act, 1995.
Award was rendered therein on 26th June 2000
by the Arbitrator awarding Rs.3,81,58,821.47. However, according to the
appellant, no copy of the Award was served on the appellant.
16.01.2002, Insolvency notice was issued under section 9(2) of the Presidency
Town Insolvency Act, 1909 (PTIA) on the basis of the Arbitration Award. Section
9(2) provides that a debtor commits an act of insolvency if a creditor who has
obtained a "decree or order" against him for the payment of money
issues him a notice in the prescribed form to pay the amount and the debtor
fails to do so within the time specified in the notice. The appellant filed a
Notice of Motion in the High Court challenging the said notice, inter alia, on
the ground that an Award is neither a decree nor an order for the purpose of
the provisions of the Insolvency Act and that no notice can be issued under
Section 9(2) on the basis of an award. This contention has been upheld in the
case of Srivastava v. K.K. Modi Investments and Financial Services, 2002 (4)
Mh.L.J.281, by the Bombay High Court (J.A. Patil,J.).
of BIFR rejecting the reference of Company was passed on 05.04.2002. On
14.06.2002, Insolvency notice was served on the appellant.
appeal filed by the said Company is presently under consideration by the
Appellate Authority on Industrial and Financial Reconstruction ('AAIFR').
appellant filed a Notice of Motion No.72 of 2002 in the High Court challenging
the Insolvency Notice dated 16th January, 2002. When the above Notice of Motion came up for hearing the Learned Single
Judge (Dr. Chandrachud,J.) hearing the same differed with the view expressed by
the High Court (J.A. Patil,J.) in the matter of Srivastava v. K.K. Modi
Investments and Financial Services (Supra) on 14.10.2002 and referred the
question as to whether an insolvency notice may be issued under Section 9(2) of
the Insolvency Act on the basis of an Award for reconsideration by a Division
Division Bench answered the reference in the affirmative on 19.03.2003 and held
that an award is a "decree" for the purpose of section 9 of the
Insolvency Act and that an insolvency notice may therefore be issued on the
basis of an award passed by an arbitrator.
this order of the High Court this Appeal has been filed in this Court.
substantial questions of law of paramount importance to be decided by this
Whether an arbitration award is a "decree" for the purpose of section
9 of the Presidency Towns Insolvency Act, 1909? ii. Whether an insolvency
notice can be issued under section 9(2) of the Presidency Towns Insolvency Act,
1909 on the basis of an arbitration award? Counsel for both parties submitted
their case at length.
V.A. Bobde, learned senior advocate appeared for the appellant and Mr. L. Nageshwar
Rao, learned senior counsel appeared for the respondent.
V.A. Bobde, learned senior advocate, appearing for the appellants submitted
Presidency Towns Insolvency Act, 1909 is a statute fraught with the grave
consequence of 'civil death' for a person sought to be adjudged an insolvent.
The Act has to be construed strictly; it is impermissible to enlarge or
restrict the language having regard to supposed notions of convenience, equity
insolvency law for Presidency-Towns was enacted in 1909 when the Civil
Procedure Code, 1908 had recently been put on the statute book. At that time,
the Arbitration Act, 1899 was in force. It was clearly known to the law makers
what is a 'decree', what is an 'order' and what is an 'award'. It was equally
known that there is a fundamental difference between 'Courts' and 'arbitrators'
that Courts constitute the judiciary and exercise the judicial power of the
State whereas arbitrators are persons chosen by parties to a contract to
resolve their disputes.
Indian Arbitration Act, 1899 clearly draws the distinction between Courts and
Arbitrators. The preamble of the Act shows that it is an Act for dealing with
'arbitration by agreement without the intervention of a Court of Justice'.
4(a) defines 'Court' and various sections deal with the powers of the Court.
Section 11 provides for the making of an 'award'. Section 15 provides for its
enforcement. It was submitted that from a plain reading of the provision it is
evident that only for the purpose of enforcement of the award, it is treated as
if it were a decree of the Court.
plain reading of the above provision, it is apparent that only for the purpose
of enforcement of the award, it is treated as if it were a decree of the Court.
The only result is that for enforcement, i.e. execution, the provisions of the
CPC may be resorted to. Section 15 does not provide that an award shall be deemed
to be a decree for all purposes under all laws, past or future, passed by any
legislature. Learned senior counsel referred to various decisions of this court
in support of this contention.
Bobde, further submitted that, it was decided long ago in 1907 and has never
been doubted since then that issuance of a notice under the Insolvency or
Bankruptcy statutes is not a mode of enforcement of a decree in the In re A
Bankruptcy Notice (1907) 1 KB 478. A judgment obtained in pursuance of an order
purporting to be made under the Arbitration Act, 1889, to enforce an award on a
submission by entering judgment in accordance therewith, is not a final
judgment in an action upon which a bankruptcy notice can be founded within
section 4, sub-section 1(g), of the Bankruptcy Act, 1883. Per Vaughan Williams
and Fletcher Moulton L.JJ., "the Court has no jurisdiction under Section
12 of the Arbitration Act, 1889 which provides for the enforcement of an award
on a submission in the same manner as if it were a judgment, to order judgment
to be entered in accordance with the award." Per Fletcher Moulton L.J.,
"an application for a bankruptcy notice is not a method of enforcing an
award within Section 12 of the Arbitration Act, 1889."
Section 325 of the CPC of 1859 provides that 'the Court shall proceed to pass
judgment according to the awardand upon the judgment which shall be so given,
decree shall follow and shall be carried into execution in the same manner as
other decrees of the Court. Section 522 of the CPC of 1882 is in almost similar
terms. Ghulam Khan vs. Muhammad (1901) 29 Calcutta Series 167 at 173. It will be convenient at the outset to set out the
two sections, namely,325 of Act VIII of 1859 and 522 of Act XIV of 1882, in extense,
and in juxtaposition:
If the Court shall not see cause to remit the award or any of the matters
referred to arbitration for reconsideration in manner aforesaid, and if no
application shall have been made to set aside the award, or if the Court shall
have refused such application, the Court shall, proceed to pass judgment
according to the award or according to its own opinion on the special case, if
the award shall have been submitted to it in the form of a special case; and
upon the judgment which shall be so given decree shall follow and shall be
carried into execution in the same manner as other decrees of the Court. In
every case in which judgment shall be given according to the award, the
judgment shall be final." "522. If the Court sees no cause to remit
the award or any of the matters referred to arbitration for reconsideration in
manner aforesaid, and if no application has been made to set aside the award,
or if the Court has refused such application, the Court shall, after the time
for making such application has expired, proceed to give judgment according to
the award, or if the award has been submitted to it in the form of a special
case, according to its own opinion on such case.
the judgment so given a decree shall follow, and shall be enforced in manner
provided in this Code for the execution of decrees. No appeal shall lie from
such decree except in so far as the decree is in excess of, or not in
accordance with the award."
Since the Arbitration Act, 1899 made a departure from the above position in the
case of arbitration by agreement without the intervention of Court, Section 89
of the CPC of 1908 provided as follows:
Save as otherwise provided by the Arbitration Act, 1899, or by any other law
for the time being in force, all references to arbitration, whether by an order
in a suit or otherwise, and all proceedings shall be governed by the provisions
contained in Schedule 2." (Dinkarrai vs. Yeshwantrai AIR 1930 Bombay 98 at 101.)
second Schedule provided for three types of cases: Arbitration in Suit, from
Clauses 1 to 16, Order of reference on agreements to refer from Clauses 17 to
19 and Arbitration without the intervention of Court, from Clauses 20 to 23.
Clause 16 of the First part and Clause 21 of the Third part provide for the
Court to 'pronounce judgment according to the award..decree shall follow'.
is settled law that where the arbitration is governed by the Arbitration Act,
1899, the Second Schedule will not apply thereto Dinkarrai's case(supra).
Hence, in the case of arbitration on agreement without the intervention of the
Court, Section 15 of the Arbitration Act of 1899 will apply and there is no
requirement that a Court must pronounce judgment according to the award and
that decree shall follow. Under Section 15, the award itself is enforceable 'as
if' it were a decree; it does not become a decree.
Act of 1909 does not define 'decree' or 'order' for the simple reason that the
meaning of these terms had been well-known since the CPC of 1859 and 1882 and
had been again defined about one year ago in CPC of 1908. Learned counsel
submitted that there are other indicators to show that an award of arbitrators
was never intended to be comprehended in the meaning of the terms 'decree' or
as understood from 1909, the Insolvency Act dealt only with debtors who had
suffered decrees by any Court for the payment of money.
When the Bombay Amendment came into force on 19.6.1939 by Bombay Act No. 51 of
1948, clause (i) was added to Section 9. That clause again speaks of a 'decree'
and introduces the word 'order'. After so many years of the CPC being in force
the Bombay Legislature knew the meaning of 'decree' and 'order' and used those
terms as understood under the CPC. The words 'the execution of which is not
stayed' point clearly to the fact that decree or order mean those passed by a
Court for it is only under CPC that an appellate Court or executing Court can
stay the execution of a decree or order. These words are inappropriate for and
inapplicable to awards under the Indian Arbitration Act of 1899 or the
Arbitration and Conciliation Act, 1996, under which the Awards were
straightaway enforceable as if they were decrees of Court. Moreover, so far the
Arbitration Act of 1940 is concerned, the award itself acquires force only
after the Court pronounces judgment and passes a decree under Section 17.
words 'suit or other proceeding in which the decree or order was made' mean a
suit in which a decree is made or a proceeding under the CPC which results in
an order by a Civil Court which is not a decree. The word 'proceeding' does not
refer to arbitrations because they do not result in an 'order' but an 'award',
much less an order of a Civil Court as defined in Section 2(14) of the CPC.
'Proceeding' means a proceeding such appellate or execution proceedings or
applications under the CPC during the pendency of the suit or appeal.
words 'or other proceedings' were added not for covering arbitrations but by
way of abundant caution to make it clear that other proceedings in relation to
or arising out of suits were to be included. This Court has held that:
word 'suit' cannot be construed in the narrow sense of meaning only the suit
and not appeal . and the word 'suit' will include such appellate proceedings
words 'litigant', 'money decree', judgment- debtor', 'decretal amount' and
'decree-holder' plainly show that Parliament intended to deal with litigants
who do not pay amounts decreed by Civil Courts. There is no reference at all to
arbitrations and awards in the Statement of Objects and Reasons and in
sub-sections (2) to (5) of Section 9, which were introduced
in 1978 by Parliament.
"Litigation" has been held to mean "a legal action, including
all proceedings therein, initiated in a court of law".
therefore Parliament had in mind debts due to 'litigants' i.e. debts due by
reason of decrees of Courts. It is well settled that Courts, unlike arbitrators
or arbitral tribunals, are the third great organ under the Constitution:
legislative, executive and judicial. Courts are institutions set up by the
State in the exercise of the judicial power of the State will be seen from the
cases mentioned hereinbelow:
Arbitrators are persons chosen by disputants to be their judges. Arbitrators
are not tribunals set up by the State to deal with special matters. They are
not set up by the State at all but by the parties to a contract. They do not
deal with special matters; they deal with any matter referred to them under the
arbitration clause. They are not part of the judiciary exercising the judicial
power of the State. In this connection, learned senior counsel referred to the
following observation of Anthony Walton in his Preface to Russell on
Arbitration, 20th Ed." "Arbitration has its center the stone that the
builders of the Courts rejected. You can choose your own judge."
is, therefore, abundantly clear that the legislative intendment was that only
if a debt found due by the Courts in an action contested according to the rules
and principles that govern Courts, was not paid in spite of notice; it would
amount to an act of insolvency. The Legislatures never contemplated that a mere
award given by persons chosen by parties to resolve their disputes i.e.
persons, who are outside the ordinary hierarchy of courts of civil judicature,
should lead to an act of insolvency.
is noteworthy that Section 112 of the Bombay Insolvency Rules, 1910, empowers
the three Presidency-Town High Courts to frame Rules. In the exercise of this
power Rules were framed by the Bombay High Court in 1910. After the Bombay
Amendment to the act w.e.f. 1939 by introduction of clause (i) in Section 9,
Rule 52A and Form 1-B were added by the Bombay High Court.
Rule 52 A(1) uses the words 'certified copy of the decree or order'. It is
plain that certified copies are given only by Courts or statutory authorities.
Arbitrators only submit their award and are not empowered under any law to
furnish certified copies of the award.
(2) mandates that the Insolvency Notice shall be in Form No. 1-B with such
variations as the circumstances may require. The variations are according to
circumstances; it is impermissible to substitute the word 'Court' with
'arbitrators and the words 'decree' or 'order'. Form 1-B unambiguously points
to the fact that the decree or order has been obtained from a Court in a suit
Now, that Parliament has amended the Act of 1909 in 1978 on the lines of the
Bombay Amendment, it has expressly provided by Section 9(3) that the Notice
'shall' be in the prescribed form i.e. prescribed by the Rules. There is no
room left for the argument that variations according to circumstances can bring
in arbitrators and awards when the form uses the words Court, decree and order.
reply to the submissions made by the appellants, learned senior advocate, Mr.
L. Nageshwar Rao, appearing for the respondents submitted:
an Award rendered under the Arbitration and Conciliation Act, 1996 is not
challenged within the requisite period, the same becomes final and binding as
provided under Section 35. Thereafter the same can be enforced as a Decree as
it is as binding and conclusive as provided under Section 36. There is no
distinction between an Award and a Decree. In view thereof, there is no
impediment in taking out Insolvency Notice as contemplated under Section 9(2)
of the Presidency Towns Insolvency Act.
Section 9(1)(a) to (h) of the Presidency Towns Insolvency Act, 1909 set out the
different acts of Insolvency committed by a Debtor which acts of Insolvency
would form the ground or basis for filing an Insolvency Petition against the
Debtor under Section 12 of the PTIA for having him adjudicated Insolvent. The
1978 Central Amendment introduced Section 9(2) to (5). The statement of objects
and reasons of amending Act of 1978, inter alia, reads as follows :
main defect of the existing law lies in the absence of any adequate powers to
compel the production of assets. The primary object of the Act of 1948 was the
protection of debtors; the provision it makes for the discovery of the property
of Insolvents is treated as of secondary importance and has long since been
found insufficient to prevent fraud. The protection of honest debtors should be
one of the objects of every Insolvency Law, although it is of less importance
now than it was in 1948, when imprisonment for debt was more frequent. But it
is equally important in the interests of commerce that creditors should not be
defrauded and that dishonest debtors should not be able to make use of
insolvency proceedings merely to free themselves from their liabilities while
preserving their assets more or less intact." The objects thus sought to
be achieved is to widen the scope for adopting Insolvency proceedings. The
provisions of Section 9(2) to 9(5) which are brought in by the amending Act of
1978 have to be viewed in the light of the statement of objects and reasons.
Therefore, it is evident that what was contemplated was to permit Insolvency
Notice being issued even on the basis of the Arbitral Tribunal provided the
same has become final, binding and enforceable.
amendment added a new act of Insolvency and in effect provided that a Debtor
commits an act of Insolvency if he fails to comply with the requisitions of an
Insolvency Notice served upon him by a creditor demanding from him (the Debtor)
the amounts due under the Decree or Order for payment of money, which Decree or
Order has attained finality and the execution whereof has not been stayed. An
Insolvency Notice by itself does not lead to the adjudication of the Debtor as
Insolvent but the non-compliance thereof only results in an act of Insolvency,
which enable the creditor to file an Insolvency Petition against the Debtor for
having him adjudicated Insolvent. An Insolvency Notice is thus only a step in
aid for filing the Insolvency Petition and the Debtor has opportunity to
contest the Insolvency Petition by taking up all available defenses.
Section 9(1) (e) and (h) of the PTIA use the phrase "in execution of the
Decree of any Court for the payment of money". Sections 9(1) (e) and (h)
have been in the PTIA since originally enacted in the year 1909 and enable a
Creditor to directly file Insolvency Petition against a debtor.
the Legislature enacted the Bombay Amendment (in 1948) and the Central
Amendment in 1979, it had before it the express wordings of Sections 9(1) (e)
and (h), however a conscious departure was made while enacting Sections 9(i)
and 9A (introduced by the Bombay Amendment). The same constitute a complete code
and provide for complete machinery. The phraseology used therein is:
or Order for the payment of money being a Decree or Order which has become
final and the execution whereof has not been stayed." Thus by the
amendments, the words "or order" have been added, so that even an
Order can sustain an Insolvency Notice. Similarly the words "of any
Court" figuring in Section 9(1) (e) and (h) are omitted. Thereby the
qualification that Decree should be "of any Court" has been consciously
removed and/or omitted. The expression "Decree or Order" in Sections
9(2) to (5) brought in by the 1978 Central Amendment is not restricted to a
Decree or Order of any Court. Moreover, Section 9(5), which provides for
setting aside of Insolvency Notice, in sub-clause (a) thereof, again uses the
phraseology "decree or order", without making it conditional that the
same should be of the Court. Similarly the said sub-clause also uses the words
"suit or proceeding" in which the Decree or Order was passed. Thus
any Decree or Order can sustain an Insolvency Notice, irrespective of whether
they are of Court or any other Authority or Tribunal.
further submitted that, "Decree" in clauses (e) and (h) has a
different connotation from a "Decree or Order" in Section 9(2), and,
Even if an Award is held not to be a Decree, it is still an Order within the
meaning of Section 9(2) of the PTIA, which can sustain an Insolvency Notice.
It is clear from the statement of Objects and Reasons behind the PTIA and the
Central Amendments thereto as also from the decisions reported in AIR 1977
Bombay 305, 1994(3) B.C.R. 223 that the provisions relating to issuance of
Insolvency Notice (Sections 9(2) to (5) of the PTIA) are an equitable mode of
execution of a Decree or Order to enable a creditor to recover from a Debtor
the dues under a Decree or Order and upon failure of the Debtor to make payment
of the amount demanded by the Insolvency Notice within the prescribed period,
to present an Insolvency Notice within the prescribed period, to present an
Insolvency Petition against the Debtor for having him adjudicated Insolvent.
L.N. Rao invited our attention to the provisions of P.T.I. Act, Rules, C.P.C.,
Arbitration Act of 1899 and 1996 and also relied on the following judgments
reported in AIR 1956 SC 35 [The Member, Board of Revenue vs. Arthur Paul Benthall]
followed in T.B. Guddalli vs. Registrar or Co-op. Societies, AIR 1994 Kar. 66
(FB), Oriental Insurance Co. Ltd. vs. Hansrajbhai V. Kodala, AIR 2001 SC 1832,
Commissioner of Income-tax, New Delhi vs. M/s East West Import & Export (P)
Ltd., Jaipur, AIR 1989 SC 836, M/s B.R. Enterprises vs. State of U.P. and Ors., AIR 1999 SC 1867.
above decisions were cited for the proposition that the use of different words
in the two provisions is for a purpose and if the field of two provisions are
to be the same the same words would have been used and when two provisions use
different words the different words used could only be to convey different
meaning. Arguing further Mr. L.N. Rao submitted that the Presidency Towns
Insolvency Act does not define the term "Decree" or
"Order". Therefore, any order, which has become final and
enforceable, irrespective of whether passed by any Court, judicial authority,
quasi-judicial authority, Tribunal etc. could be the basis of an Insolvency
Notice under Section 9(2) of the said Act. Since the said Act does not define
the word "Decree" or "Order", it will be offending the
legislative intent to borrow the definition of "Decree" or
"Order" from any other Act or Code. In Section 9(1) clauses (c) and
(h), the legislature has used the phraseology "Decree of any Court"
in Section 9(2), the legislature has consciously omitted the prefix "of
Court" and has added the words "or Order". Thus the legislative
intent being to make it necessary to have a Decree of Court for the purpose of
conferring Act of Insolvency under Clause (e) and (h) of Sections 9(1) of the
said Act, whereas Section 9(2) brought in by the Amendment Act does not mandate
that the Decree should be of any Court.
two words of different import are used in a statute in two consecutive
provisions, it would be difficult to maintain that they are used in the same
intention of the legislature was to provide the same provision, nothing would
have been easier than to say so.
two words of different import are used in a statute in two consecutive
provisions, it would be difficult to maintain that they are used in the same
sense, and the conclusion must follow that the two different expressions have
legislative intention was not to distinguish, there would have been no
necessity of expressing the position differently. When the situation has been
differently expressed the legislature must be taken to have intended to express
a different intention.
use of different words in the two provisions is for a purpose. If the field of
two provisions are to be the same, the same words would have been used. When
the two provisions use different words, the different words used could only be
to convey different meaning.
L.N. Rao further submitted that in view of the same, the conclusion must follow
that the expression "decree or order for payment of money" found in
Section 9(1)(i) (Bombay Amendment of 1948) and also in Section 9(2) (1978
Central Amendment) of the said Act is not restricted to a Decree or Order
"of any Court" as found in Section 9(1)(e). Ordinarily, the rule of
construction is that the same expression where it appears more than once in the
same statute, more so in the same provisions, must receive the same meaning. It
lays down that when two words of different import are used in a statute in two
consecutive provisions, it would be difficult to maintain that they are used in
the same sequence and the conclusion must follow that the expression
"decree or order for payment of money" found in Section 9(1)(i) and
also in Section 9(2) of the said Act, is not restricted to a decree or order
"of any Court" as found in Section 9(1)(e).
view thereof, it will be doing injury/offence to the legislative intent if even
for the purpose of taking out Insolvency Notice under Section 9(2) of the said
Act "a Decree of Court" is made necessary.
will be a misconception to borrow the definition of "Decree" or
"Order" from the provisions of Civil Procedure Code, while
interpreting and giving effect to the provisions of the said Act, in particular
Section 9(2) to (5) which constitute a self contained code and has been
specifically brought in by Amending Act of 1978.
heard both the senior counsel appearing for the appellants and respondents, in extenso.
We have carefully perused through in detail all the material placed before us.
of the view that The Presidency Towns Insolvency Act, 1909 is a statute weighed
down with the grave consequence of 'civil death' for a person sought to be
adjudged an insolvent and therefore the Act has to be construed strictly.
Arbitration Act was in force when the PTIA came into operation. Therefore there
can be seen that the law makers were conscious of what a 'decree', 'order' and
an 'award' are.
the fundamental difference between 'Courts' and 'arbitrators' were also clear
as back as in 1909.
The Indian Arbitration Act, 1899 clearly draws the distinction between Courts
and Arbitrators. The preamble of the Act shows that it is an Act for dealing
with 'arbitration by agreement without the intervention of a Court of Justice'.
4(a) defines 'Court' and various sections deal with the powers of the Court. Section
11 provides for the making of an 'award'. Section 15 provides for its
enforcement. It can therefore be observed that it is only for the purpose of
enforcement of the award, the arbitration award is treated as if it were a
decree of the Court.
15 reads as under:
Award when filed to be enforceable as a decree
award on a submission, on being filed in the Court in accordance with the
foregoing provisions, shall (unless the Court remits it to for reconsideration
to the arbitrators or umpire, or sets it aside) be enforceable as if it were a
decree of the Court.
award may be conditional or in the alternative." Sections 2(2) and 2(14)
of the CPC define what 'decree' and 'order' mean. For seeing whether a decision
or determination is a decree or order, it must necessarily fall in the language
of the definition. Section 2(2) of the CPC defines 'decree' to mean "the
formal expression of an adjudication which, so far as regards the Court
expressing it, conclusively determines the rights of the parties with regard to
any of the matters in controversy in the suit and may be either preliminary or
final. It shall be deemed to include the rejection of a plaint and the
determination of any question within Section 144, but shall not include- (a)
any adjudication from which an appeal lies as an appeal from an order, or (b)
any order of dismissal for default.
: A decree is
preliminary when further proceedings have to be taken before the suit can be
completely disposed of. It is final when such adjudication completely disposes
of the suit. It may be partly preliminary and partly final." The words
'Court', 'adjudication' and 'suit' conclusively show that only a Court can pass
a decree and that too only in suit commenced by a plaint and after adjudication
of a dispute by a judgment pronounced by the Court. It is obvious that an
arbitrator is not a Court, an arbitration is not an adjudication and,
therefore, an award is not a decree.
2(14) defines 'order' to mean "the formal expression of any decision of a
civil court which is not a decree;" The words 'decision' and 'Civil Court' unambiguously rule out an award by
above view has been consistently taken in decisions on Section 15 of the Indian
Arbitration Act, 1899 viz. Tribhuvandas Kalidas vs. Jiwan Chand 1911(35) Bombay 196, Manilal vs. The Bharat
Spinning & Weaving (35) Bom. L.R. 941, Ramshai v. Joylall, AIR 1928 Calcutta 840, Ghulam Hussein vs. Shahban AIR
1938 Sindh 220.
v. Joylall(supra), the Calcutta High Court held as follows:
Presidency Town Insolvency Act, S.9 (e) Attachment in execution of award
is not one in executive of a decree.
in execution of an award is not attachment in the execution of a decree within
the meaning of S.9(e) for the purpose of creating an act of insolvency: Re.
Bankruptcy Notice, (1907) 1 K.B. 478, Ref.
Arbitration Act, S.15 Award, An award is a decree for the purpose of enforcing
that award only." In Ghulam Hussein vs. Shahban AIR 1938 Sindh 220, the
Court observed as follows:
9(e) must be strictly construed in favour of the debtor to whom the matter of
adjudication as an insolvent under the Insolvency law is one of vital
inconvenience arising out of such a construction is for the Legislature to
consider and remedy if they think proper by amendment; it is not for the Court
to enlarge the meaning of the words used by the Legislature. An attachment in
execution of an award is not an attachment in execution of the decree of a
Court within the meaning of S.9(e) for the purpose of creating an act of
Insolvency: AIR 1928 Cal.840 approved and followed; 35 Bom. 196 relied
on." ".The words: "In execution of the decree of any Court for
the payment of money" cannot be extended by analogy. They must be
extended, if at all, by the Legislature and we cannot hold that there has been
an act of Insolvency when the definition given by the Legislature has not been
are strong words and strong language, and as I have said above the judgment of
Rankin C.J. must be treated with the greatest respect. The case of Ramsahai vs.
Joylall is referred to by Sir D. Mulla in his Commentary on the Law of
Insolvency at P. 94. In para 123 Sir D. Mulla states:
award for the payment of money filed in Court under S.11 of I.A.A. 1890 is not
a 'decree' within the meaning of the present clause although it is enforceable
under that Act as if it were a decree. No Insolvency petition can therefore be
founded on an attachment or sale in execution of an award." In support of
this proposition Sir D. Mulla cites the case of Ramasahai v. Joylall (supra).
The commentator proceeds:
therefore for consideration whether Cl.(e) should not be amended by adding the
words 'or in execution of an award for the payment of money.' Now, it cannot be
disputed that Sir D. Mulla as a commentator on the Law of Insolvency is
universally regarded as an authority, and in the course of his Commentary on
the Law of Insolvency Sir D. Mulla has not hesitated in several places to
record his respectful dissent when he has considered that the judgment of any
High Court in India is doubtful or incorrect. It is significant that in
referring to the case in AIR 1928 Cal. 840, the learned commentator has not
recorded any dissent, but on the contrary states that it is for consideration
whether Cl.(e) should not be amended by adding the words 'or in execution of an
award for the payment of money.' In this part of his commentary Sir D. Mulla
has also referred to the case in 35 Bom 196, where it was held by a Bench of
the Bombay High Court that an award filed in Court under S.11, Arbitration Act,
was nothing more than an award although it was enforceable as if it were a
decree. In that case an application had been made under O.21, R.29, for stay of
execution of a decree. The application was dismissed on the following grounds
set out in the judgment of Sir Basil Scott C.J.:
such an order can only be made by the Court, if there is a suit pending on the
part of a person against whom a decree has been passed, against the holder of a
decree of the Court. It appears to me that the petitioner is not a holder of a
decree of the Courtfor the award, to which the applicants seek to give the
force of a decree, is nothing more than an award, although it is enforceable as
if it were a decree." The same view was taken on Section 36 of the 1996
Act in Sidharth Srivastava v. K.K. Modi Investment & Financial Service P.Ltd.
2002(4) Mah. L.J. 281. It was held thus:
the Award in favour of the petitioning creditor came to be passed on the basis
of the consent terms and not on the basis of an adjudication, the Award which
has the force of decree does not fulfil the essential conditions of decree as
contemplated by Section 2(2) of the Civil Procedure Code.
though the Award dated 5.9.1997 is enforceable as if it were a decree still it
is not a decree within the meaning of the term as defined in section 2(2) of
the Civil Procedure Code and, therefore, obtaining of such as Award does not fulfil
the requisite conditions contemplated by clause (i) of section 9(1) of the
Presidency Towns Insolvency Act.
on that basis the respondent cannot be said to have committed act of
insolvency, either under clause (i) of sub-section 9(1) or sub-section (2) of
section 9 of the Act. AIR 1928 Cal.840, AIR 1938 Sind 220, AIR 1975 Cal 169 and AIR 1976 SC 1503,
Ref." It is settled by decisions of this Court that the words 'as if' in
fact show the distinction between two things and such words are used for a
limited purpose. They further show that a legal fiction must be limited to the
purpose for which it was created.
36 of the Arbitration & Conciliation Act, 1996 which is in pari materia
with Section 15 of the 1899 Act, is set out hereinbelow:
Enforcement Where the time for making an application to set aside the arbitral
award under Section 34 has expired, or such application having been made, it
has been refused, the award shall be enforced under the Code of Civil
Procedure, 1908 in the same manner as if it were a decree of the Court."
In fact, Section 36 goes further than Section 15 of the 1899 Act and makes it
clear beyond doubt that enforceability is only to be under the CPC. It rules
out any argument that enforceability as a decree can be sought under any other
law or that initiating insolvency proceeding is a manner of enforcing a decree
under the CPC.
the contention of the respondents that, an Award rendered under the Arbitration
and Conciliation Act, 1996 if not challenged within the requisite period, the
same becomes final and binding as provided under Section 35 and the same can be
enforced as a Decree as it is as binding and conclusive as provided under
Section 36 and that there is no distinction between an Award and a Decree does
not hold water.
PTIA, 1909 does not define 'decree' or 'order' for the simple reason that the
meaning these terms has been well settled since the CPC of 1859 and 1882 and
had been again defined in CPC of 1908. The other indicators that an award of
arbitrators is not intended to be a 'decree' or 'order' are:
Section 2(a) and (b) define 'creditor' to include a decree-holder and a 'debt'
to include a judgment-debt and 'debtor' to include a judgment-debtor. Secondly
is quite clear from Section 33 of the CPC that a decree, being the formal
expression of adjudication by a Court, follows only upon pronouncement of
judgment by the Court. It is equally clear that Courts and Judges render
judgments; arbitrators only make awards.
Sections 9(e) and (h) put the matter beyond controversy by expressly mentioning
'decree of any Court for the payment of money'. Thus as enacted in 1909, the
Insolvency Act dealt only with debtors who had suffered decrees by any Court
for the payment of money.
the Bombay Amendment came into force on 19.6.1939 by Bombay Act No. 51 of 1948,
clause (i) was added to Section 9. Section 9 speaks of a 'decree' and
introduces the word 'order'. After so many years of the CPC being in force the
Bombay Legislature knew that meaning of 'decree' and 'order' and used those
terms as understood under the CPC.
fact that the Bombay Amendment and later the Central Amendment intended to
refer only to decrees and orders as defined in the CPC is clear from the Statement
of Objects and Reasons of the Central Amendment Act No.28 of 1978 which
introduced subsections (2)
to (5) in Section 9.
The SOR gazetted on 18-03-1978 reads, inter-alia, as under:
difficulties experienced by a litigant in India in executing even a simple money decree have been commented upon by the
Privy Council as well as the Law Commission and the Expert Committee on Legal
Aid. The law Commission in its Third Report on the Limitation Act, 1908, has
recommended that the most effective way of instilling a healthy fear in the
minds of dishonest judgment-debtor would be to enable the Court to adjudicate
him an insolvent if he does not pay the decretal amount after notice by the
decree-holder, by specifying a period within which it should be paid, on the
lines of the amendment made to the Presidency-Towns Insolvency Act, 1909 in
Bombay. This recommendation was reiterated by the Law Commission in its Twenty
Sixth Report on Insolvency Laws.
Expert Committee on Legal Aid was also of the view that the above
recommendation of the Law Commission should be implemented immediately without
waiting for the enactment of a comprehensive law of insolvency.
is, therefore, proposed to amend the Presidency Towns Insolvency Act, 1909,
and the Provincial Insolvency Act, 1920 to add a new act of insolvency, namely,
that a debtor has not complied with the insolvency notice served on him by a
creditor, who has obtained a decree or order against him for the payment of
money, within the period specified in the notice. If the amount shown in the
insolvency notice is not correct, it would be invalidated if the debtor gives
notice to the creditor, disputing the amount. The debtor can, however, apply to
the Court to have the insolvency notice set aside on the ground, among others,
that he is entitled to have the decree re-opened under any law relating to
relief of debtedness or that the decree is not executable under any such
law." The words 'litigant', 'money decree' , judgment-debtor', 'decretal
amount' and 'decree-holder' plainly show that Parliament intended to deal with
litigants who do not pay amounts decreed by Civil Courts. There is no reference
at all to arbitrations and awards in the Statement of Objects and Reasons and
in sub-sections (2) to
(5) of Section 9,
which were introduced in 1978 by Parliament.
already noticed, "Litigation" has been held to mean "a legal
action, including all proceedings therein, initiated in a court of law".
Obviously therefore Parliament had in mind debts due to 'litigants' i.e. debts
due by reason of decrees of Courts. It is well settled that Courts, unlike
arbitrators or arbitral tribunals, are the third great organ under the
Constitution: legislative, executive and judicial. Courts are institutions set
up by the State in the exercise of the judicial power of the State will be seen
from the cases mentioned hereinbelow:
expression 'Court' in the context (of Art.136) denotes a tribunal constituted
by the State as a part of the ordinary hierarchy of Courts which are invested
with the State's inherent judicial powers. A sovereign State discharges
legislative, executive and judicial function and can legitimately claim
corresponding powers which are legislative, executive and judicial. Under our
Constitution, the judicial functions and powers of the State are primarily
conferred on the ordinary courts which have been constituted under its relevant
provisions. The Constitution recognized a hierarchy of Court and to their
adjudication are normally entrusted all disputes between citizens as well as
between citizens and the State. These courts can be described as ordinary
courts of civil judicature. They are governed by their prescribed rules of
procedure and they deal with questions of fact and law raised before them by
adopting a process which is described as judicial process. The powers which
these Courts are judicial powers, the functions they discharge are judicial
functions and the decisions they reach are and pronounce are judicial
every State there are administrative bodies . But the authority to reach
decisions conferred on such administrative bodies is clearly distinct and
separate from the judicial power conferred on Courts, and the decisions
pronounced by administrative bodies are similarly distinct and separate in
character from judicial decisions pronounced by Courts.
occupy a special position of their own under the scheme of our Constitution.
Special matters are entrusted to them and in that sense they share with the
Courts one common characteristic; both the Courts and the tribunals are
'constituted by the State and are invested with judicial as distinguished from
purely administrative or executive functions'. The basic and fundamental
feature which is common to both the Courts and tribunals is that they discharge
judicial functions and exercise judicial powers which inherently vest in a
sovereign State." "By 'courts' is meant courts of civil judicature
and by 'tribunals' those bodies of men who are appointed to decide controversies
arising under certain special laws. Among the power of the State is the power
to decide such controversies.
is undoubtedly one of the attributes of the State, and is aptly called the
judicial power of the State." "All tribunals are not courts, though
all courts are tribunals. The word 'courts' is used to designate those
tribunals which are set up in an organized State for the administration of
justice" "It is common knowledge that a 'court' is an agency created
by the sovereign for the purpose of administering justice. It is a place where
justice is judicially administered.
a legal entity" That litigation is therefore very different from
arbitration is clear. The former is a legal action in a Court of law where
judges are appointed by the State; the latter is the resolution of a dispute
between two contracting parties by persons chosen by them to be arbitrators.
These persons need not even necessarily be qualified trained judges or lawyers.
This distinction is very old and was picturesquely expressed by Edmund Davies,
J. in these words:
years age, a top-hatted gentleman used to parade outside these law Courts
carrying a placard which bore a stirring injunction 'Arbitrate don't
Litigate" Moreover, the position that arbitrators are not Courts is quite
obvious and this Court noted the position as under in two decisions:
the fact that the arbitrator under Section 10A is not exactly in the same
position as a private arbitrator does not mean he is a tribunal under Article
136. Even if some of the trappings of the Court are present in his case, he
lacks the basic, essential and fundamental requisite in that behalf because he
is not invested with the State's judicial power..he is not a Tribunal because
the State has not invested him with its inherent judicial power and the power
of adjudication which he exercises is derived by him from the agreement between
parties.(Engineering Mazdoor Sabha & "There was no dispute that the
arbitrator appointed under Section 19(1)(b) [of the Defence of India Act, 1939]
was not a court.(Collector, Varanasi vs. Gauri Shankar Misra & Ors., AIR
1968 SC 384) " Thus the thrust of submissions made by both the learned
senior counsel can be summarized as under:
are institutions invested with the judicial power of the State to finally
adjudicate upon disputes between litigants and to make formal and binding
orders and decrees. Civil Courts pass decrees and orders for payment of money
and the terms 'decree and order' are defined in the CPC. Arbitrators are
persons chosen by parties to adjudge their disputes. They are not Courts and
they do not pass orders or decrees for the payment of money; they make awards.
Insolvency Act of 1909 was passed, and amended by the Bombay Amendment of 1939
and also by Parliament in 1978 when two laws were on the statute book: the
Arbitration Act, 1899 and the Civil Procedure Code, 1908. Parliament and the
Bombay Legislature were well aware of the difference between awards on the one
hand and decrees and orders on the other and they chose to eschew the use of
the word 'award' for the purposes of the Insolvency Act.
15 of the Arbitration Act, 1899 provides for 'enforcing' the award as if it
were a decree. Thus a final award, without actually being followed by a decree
(as was later provided by Section 17 of the Arbitration Act of 1940), could be
enforced, i.e. executed in the same manner as a decree. For this limited
purpose of enforcement, the provisions of CPC were made available for realizing
the money awarded. However, the award remained an award and did not become a
decree either as defined in the CPC and much less so far the purposes of an
entirely different statute such as the Insolvency Act.
36 of the Arbitration and Conciliation Act of 1996 brings back the same situation
as it existed from 1899 to 1940. Only under the Arbitration Act, 1940, the
award was required to be made a rule of Court i.e. required a judgment followed
by a decree of Court.
of a notice under the Insolvency Act is fraught with serious consequences: it
is intended to bring about a drastic change in the status of the person against
whom a notice is issued viz. to declare him an insolvent with all the attendant
disabilities. Therefore, firstly, such a notice was intended to be issued only
after a regularly constituted court, a component of judicial organ established
for the dispensation of justice, has passed a decree or order for the payment
of money. Secondly, a notice under the Insolvency Act is not a mode of
enforcing a debt; enforcement is done by taking steps for execution available
under the CPC for realizing moneys.
words "as if" demonstrate that award and decree or order are two
different things. The legal fiction created is for the limited purpose of
enforcement as a decree. The fiction is not intended to make it a decree for
all purposes under all statutes, whether State or Central.
the foregoing discussions we hold :
that no insolvency notice can be issued under Section 9(2) of the Presidency
Towns Insolvency Act, 1909 on the basis of an Arbitration Award;
execution proceedings in respect of the award cannot be proceeded with in view
of the statutory stay under Section 22 of the SICA Act.
such, no insolvency notice is liable to be issued against the appellant.
Insolvency Notice cannot be issued on an Arbitration Award.
arbitration award is neither a decree nor an Order for payment within the
meaning of Section 9(2). The expression "decree" in the Court Fees
Act, 1870 is liable to be construed with reference to its definition in the CPC
and held that there are essential conditions for a "decree".
the adjudication must be given in a suit.
That the suit must start with a plaint and culminate in a decree, and (c) That
the adjudication must be formal and final and must be given by a civil or
award does not satisfy any of the requirements of a decree. It is not rendered
in a suit nor is an arbitral proceeding commenced by the institution of a
legal fiction ought not to be extended beyond its legitimate field. As such, an
award rendered under the provisions of the Arbitration Act, 1996 cannot be
construed to be a "decree" for the purpose of Section 9(2) of the
An insolvency notice should be in strict compliance with the requirements in
Section 9(3) and the Rules made thereunder.
It is a well established rule that a provision must be construed in a manner
which would give effect to its purpose and to cure the mischief in the light of
which it was enacted.
object of Section 22, in protecting guarantors from legal proceedings pending a
reference to BIFR of the principal debtor, is to ensure that a scheme for
rehabilitation would not be defeated by isolated proceedings adopted against
the guarantors of a sick company. To achieve that purpose, it is imperative
that the expression "suit" in Section 22 be given its plain meaning,
namely any proceedings adopted for realization of a right vested in a party by
would clearly include arbitration proceedings.
In any event, award which is incapable of execution and cannot form the basis
of an insolvency notice.
light of the above discussion, we further hold that the Insolvency Notice
issued under section 9(2) of the P.T.I. Act 1909 cannot be sustained on the
basis of arbitral award which has been passed under the Arbitration &
Conciliation Act, 1996. We answer the two questions in favour of the appellant.
view of the above, the following two questions viz.,
Whether the award dated 26.6.2000 was ever served upon the appellant; and
Whether the Arbitration proceedings and resulting award are null and void in
view of the Sick Industrial Companies (Special Provisions) Act, 1995 may not
have to be decided by the High Court in view of the order passed in civil
appeal by this Court.
Civil Appeal stands allowed. The order dated 19.3.2003 passed by the Division
Bench of the High Court of Bombay in Notice of Motion No.72/2002, Notice No.
N/180/2001 is set aside. No costs.