CASE NO.:
Appeal (civil) 4130 of 2006
PETITIONER:
Paramjeet Singh Patheja
RESPONDENT:
ICDS Ltd.
DATE OF JUDGMENT: 31/10/2006
BENCH:
Dr. AR. Lakshmanan & Lokeshwar Singh Panta
JUDGMENT:
J U D G M E N T
Dr. AR. Lakshmanan, J.
This 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.
The 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.
On 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.
On 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.
An 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.
On 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.).
Order of BIFR rejecting the reference of Company was
passed on 05.04.2002. On 14.06.2002, Insolvency notice was
served on the appellant.
An appeal filed by the said Company is presently under
consideration by the Appellate Authority on Industrial and
Financial Reconstruction ('AAIFR').
The 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 Bench.
The 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.
Against this order of the High Court this Appeal has been
filed in this Court.
The substantial questions of law of paramount
importance to be decided by this court are:
i. 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.
Mr. V.A. Bobde, learned senior advocate appeared for the
appellant and Mr. L. Nageshwar Rao, learned senior counsel
appeared for the respondent.
Mr. V.A. Bobde, learned senior advocate, appearing for
the appellants submitted that;
a) The 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 or justice.
b) The 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.
c) 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'.
Section 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.
On a 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.
d) Mr. 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."
e) Section 325 of the CPC of 1859 provides that 'the
Court shall proceed to pass judgment according to the
award 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. 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:
"325. 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.
Upon 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."
f) 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:
"89. 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.)
g) The 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'.
h) It 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.
i) The 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 'order'.
Thus as understood from 1909, the Insolvency Act dealt only
with debtors who had suffered decrees by any Court for the
payment of money.
j) 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.
k) The 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.
l) The 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:
" .the 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 ."
m) 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.
n) "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:
o) 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."
p) It 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.
q) It 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.
r) 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.
Sub-rule (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 or proceeding.
s) 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.
In reply to the submissions made by the appellants,
learned senior advocate, Mr. L. Nageshwar Rao, appearing for
the respondents submitted:
? If 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 :
"The 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.
? The 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.
When 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:
"Decree 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.
It was further submitted that, "Decree" in clauses (e)
and (h) has a different connotation from a "Decree or Order"
in Section 9(2), and,
(i) 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.
(ii) 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.
Mr. 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.
The 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.
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.
If the intention of the legislature was to provide the same
provision, nothing would have been easier than to say so.
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 sense, and the conclusion
must follow that the two different expressions have different
connotations.
If the 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.
The 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.
Mr. 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).
In 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.
It 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.
We 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.
We are 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.
The 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.
Also the fundamental difference between 'Courts' and
'arbitrators' were also clear as back as in 1909.
Further, 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'.
Section 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.
Section 15 reads as under:
"15. Award when filed to be enforceable as a decree (1) An
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.
(2) An 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.
Explanation : 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.
Section 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 arbitrators.
The 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.
In Ramshai v. Joylall(supra), the Calcutta High Court
held as follows:
"(a) Presidency Town Insolvency Act, S.9 (e) Attachment in
execution of award is not one in executive of a decree.
Attachment 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.
(b) 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:
"Section 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 importance.
Any 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
complied with.
These 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:
"An 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:
It is 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.:
Now, 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 Court for 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:
"Where 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.
Even 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.
Consequently, 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.
Section 36 of the Arbitration & Conciliation Act, 1996
which is in pari materia with Section 15 of the 1899 Act, is
set out hereinbelow:
"36. 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.
Therefore 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.
The 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:
i) 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
ii) It 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.
iii) 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.
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. 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.
The 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:
"The 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.
2. The 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.
3. It 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.
As 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:
"The 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
decisions.
In 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.
Tribunals 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.
This 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.
It is 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:
"Many 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:
"But 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 &
Anr. Vs. Hind Cycles Ltd., AIR 1963 SC 874.) "
"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:
Courts 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.
The 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.
Section 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.
Section 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.
Issuance 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.
The 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.
For the foregoing discussions we hold :
i) 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;
ii) that execution proceedings in respect of the
award cannot be proceeded with in view of the
statutory stay under Section 22 of the SICA Act.
As such, no insolvency notice is liable to be
issued against the appellant.
iii) Insolvency Notice cannot be issued on an
Arbitration Award.
iv) An 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".
(a) that the adjudication must be given in a suit.
(b) 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 revenue court.
An 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 plaint.
(v) 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 Insolvency Act.
(vi) An insolvency notice should be in strict
compliance with the requirements in Section
9(3) and the Rules made thereunder.
(vii) 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.
The 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 law.
This would clearly include arbitration
proceedings.
(viii) In any event, award which is incapable of
execution and cannot form the basis of an
insolvency notice.
In the 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.
In view of the above, the following two questions viz.,
(a) Whether the award dated 26.6.2000 was ever
served upon the appellant; and
(b) 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.
The 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.
