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TMI Blog2006 (10) TMI 419X X X X Extracts X X X X X X X X Extracts X X X X ..... ". Thus 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. - Appeal (civil) 4130 of 2006 - - - Dated:- 31-10-2006 - Dr. A.R. Lakshmanan and Lokeshwar Singh Panta, JJ. JUDGMENT 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivision 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nitiated 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 herein below: 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 legislat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inction 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. Bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er'. 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndamental 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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