2012 (10) TMI 1147 - HC - Indian Laws

Arbitration award - Application for setting aside the Arbitral Award - insolvency proceedings - Held that - In the present case, admittedly, the Appeal against the order is pending. The effect and the power of the Appellate Court, under Section 37 is quite settled. The order passed under Section 34, may be set aside or modified. The modified award in no way can be stated to be the final decree and/or final order. The transaction in question is a commercial transaction. The stake, the parties name and fame cannot be overlooked. Merely because there is award passed against one party, that itself is not sufficient to invoke the provisions of Insolvency Act in such fashion at this stage, basically when, the award /order has not attained finality. The Court has modified and passed the Award against all the Directors. The Appeal was preferred by 3 Directors only. The present motion is taken out only by one Director. At this stage, in view of the above observations, the modified award itself has not attained finality, the challenge made by one Director, and not by others, in my view, should not be the reason to overlook the provisions of both the Acts. It is difficult to dissect, as contended by the learned counsel appearing for the Creditors that the Motion be maintained against the other Directors, for the simple reason that the modified award is against all the Directors but admittedly the Appeal is still pending. It is made clear that, once the modified award attains finality, the Creditors may take out the proceedings, if permissible, in accordance with law. Thus inclined to set aside the Insolvency Notice, in question.

Issues Involved:
1. Setting aside of Insolvency Notice.
2. Finality and enforceability of arbitral awards under the Arbitration and Conciliation Act, 1996.
3. Applicability of the Presidency Towns Insolvency Act, 1909 in relation to arbitral awards.
4. Legal implications of pending appeals on the enforceability of arbitral awards.

Issue-wise Detailed Analysis:

1. Setting aside of Insolvency Notice:
The motion was taken out by Judgment Debtor No. 3 to set aside Insolvency Notice No. N/19 of 2012. The notice was issued based on an arbitral award dated 2 May 2005, which directed the Judgment Debtors to pay Rs. 3,72,78,897 plus interest. The applicant challenged the issuance of the insolvency notice, arguing that it was impermissible and contrary to law. The court observed that the issuance of an insolvency notice has serious consequences and should only be issued after a decree or order for payment of money has become final. The court concluded that the insolvency notice was impermissible as the arbitral award had not attained finality due to the pending appeal.

2. Finality and enforceability of arbitral awards under the Arbitration and Conciliation Act, 1996:
The court examined the provisions of the Arbitration and Conciliation Act, 1996, particularly Sections 34, 35, 36, and 37. It noted that an arbitral award becomes final and enforceable only after the time for making an application to set aside the award has expired or such an application has been refused. In this case, the appeal against the arbitral award was still pending, and therefore, the award had not attained finality. The court emphasized that mere rejection of an application to set aside the award does not make it enforceable as a final decree or order.

3. Applicability of the Presidency Towns Insolvency Act, 1909 in relation to arbitral awards:
The court referred to the relevant sections of the Presidency Towns Insolvency Act, 1909, particularly Section 9(2) and (5). It highlighted that a creditor who has obtained a decree or order for payment of money, which has become final and whose execution has not been stayed, can apply for an insolvency notice. The court noted that the modified award had not attained finality due to the pending appeal, and therefore, the issuance of the insolvency notice was not permissible under the Insolvency Act.

4. Legal implications of pending appeals on the enforceability of arbitral awards:
The court discussed the impact of pending appeals on the enforceability of arbitral awards. It observed that the appeal under Section 37 of the Arbitration Act, unless decided finally, means that the award has not attained finality. The court noted that the pendency of the appeal cannot be overlooked, and the modified award cannot be treated as a final and executable decree or order. The court concluded that the modified award, being subject to an appeal, had not attained finality and was therefore unenforceable.

Conclusion:
The court set aside the Insolvency Notice dated 29 June 2012, concluding that the modified award had not attained finality due to the pending appeal. The motion was allowed, and the court emphasized that the creditors could take out proceedings in accordance with law once the modified award attains finality. The court also noted that the challenge made by one director should not be the reason to overlook the provisions of both the Arbitration Act and the Insolvency Act.

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