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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.).

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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' \026 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.

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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\005\005and 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

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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\005..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 \026 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

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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:

"\005.the word 'suit' cannot be construed in the

narrow sense of meaning only the suit and not

appeal \005. 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

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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

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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.

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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).

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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."

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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 \026

"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) \026 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 \026 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."

"\005\005\005.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

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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\005\005\005for 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

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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 \026 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

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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 \026 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

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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 \005. 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'\005. 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\005\005"

"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 \026 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\005..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) "

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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

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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.