PARAMJEET SINGH PATHEJA v. ICDS LTD

Citation: [2006] SUPP. 8 S.C.R. 178

Court: Supreme Court of India

Bench: AR. LAKSHMANAN, LOKESHWAR SINGH PANTA

Case summary

PARAMJEET SINGH PATHEJA v. ICDS LTD.pdf

Judgment text

PARAMJEET SINGH PATHEJA v. ICDSLTD. OCTOBER 31, 2006 B~ [DR. AR. LAKSHMANAN AND LOKESH~AR SINGR. I_>ANTA, JJ. ] Arbitration and Conciliation Act, 1996; Ss. 35-36/Presidency Townslnsolvency Act, 1909; S.

9 and 9(2): Arbitration award-Nature of-Issuance of an insolvency notice in pursuance of an award-Correctness of-Held: Since 1909 Act is a statute weighed down with grave consequence ofcivil death for a person adjudged as an insolvent, it has to be construed strictly-Since an arbitration is not an adjudication, an award is not a decree/order for payment-Therefore, it could not be enforced as a decree-Issuance ofNotice under the Insolvency Act is fraught with serious consequences-Such a notice, therefore, could be issued in pursuance ofdecree/order for payment ofmoney passed by a Court/ Judicial organ established for di~pensation ofjustice-Notice under 1909 Act is not a mode ofenforcing debt-I'-nforcement ~ould be done in terms of provisions ofCPC-No insolvency notice could be issued under Section 9(2) of the 1909 Act on the basis of an Arbitration Award-Hence, notice so issued and order passed by the Division Bench ofthe High Court in Notice of motion set aside-Code of Civil Procedure, 1908-S.

2(2) and 2(14)- Indian Arbitration Act, 1899-Ss. 4(c:), 11 & 15. Words and Phrases: 'Decree'. 'order' and 'an award'-Distinction between. 'Courts', 'tribunal' and 'arbitrator'-Distinction benveen. Words 'litigation', 'as if-Meaning of The questions which arose for determination in this appeal were as to whether an ?.. rbitration award is a "decree" for the purpose ofsection 9 ofthe Presidency Towns Insolvency Act, 1909 and as to whether an insolvency notice could be issued under section 9(2) of the 1909 Act in pursuance of an PARAMJEET SINGH PATHEJA v. ICDS LTD. 179 arbitration award.

Appellants contended that the Presidency Towns Insolvency Act (PTI Act) is a statute fraught with the grave consequence of'civil death' for a person sought to be adjudged an insolvent, therefore, it has to be construed strictly; that it is impermissible to enlarge or restrict the language of the Act having regard to supposed notions ofconvenience, equity or justice; that the Indian Arbitration Act, 1899 clearly draws the distinction between Courts and Arbitrators; that only for the purpose ofenforcement ofthe award, it is treated as if it were a decree of the Court; that issuance of a notice under the Insolvency or Bankruptcy statutes is not a mode ofenforcement of a decree; that it is settled law that where the arbitration is governed by the Arbitration Act, 1899, the Second Schedule will not apply thereto; that PTI Act does not define 'decree' or 'order' for the simple reason that the meaning of these terms had been well-known since the enactment ofCivil Procedure Code; that 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; that 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; that the 'proceeding' means a proceeding such as appellate or execution proceedings or applications under the CPC during the pendeney of the suit or appeal; that the words 'or other proceedings' were added not for covering arbitrations but by way ofabundant caution to make it clear that other proceedings in relation to or arising out ofsuits were to be included; that "Litigation" has been held to mean "a legal action, including all proceedings therein, initiated in a court of law"; that Arbitrators are not tribunals set up by the State to deal with special matters as they are not part of the judiciary exercising the judicial power of the State; that the legislative intendment was that only ifa debt found due by the Courts and was not paid in spite of notice, it would amount to an act of insolvency; that the Legislatures never contemplated that a mere award given by persons chosen by parties to resolve their disputes should lead to an act of insolvency; that it is impermissible to substitute the word 'Court' with 'arbitrators' and the words 'decree' or 'order'; that the Insolency Notice shall be in Form 1-B; that Form 1-B unambiguously points to the fact that the decree or order has been obtained from a Court in a suit or proceeding; that since the Parliament has amended the Act of1909 in 1978 on the lines ofthe Bombay Amendment, it has expressly provided that the Notice 'shall' be in the · prescribed form; and that 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.

Respondents submitted that ifan 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 of the Act, thereafter, the same .

can be enforced as a Decree as it is as binding and conclusive as provided under Section 36 of the Act; that there exists 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 Insotvency Act; that the provisions ofSection 9(2) to 9(5) of the PTI A~t which are brought in by the amending Act of 1978 in the Presidency Towns Insolvency Act have to be viewed in the light of the statement ofobjects and reasons; that 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; that any order, which has become final and enforceable, irrespective ofwhether 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; that 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 "ofCourt" 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 ofconferring Act of Insolvency under Clause (e) and (h) ofSection 9(1) of the said Act, that when two words ofdifferent import are used in a statute in two consecutive provisions, it would be difficult to maintain that they are used in the same sequence; that it will be doing injury/offence to the legislative intent ifeven for the purpose-0f taking out Insolvency Notice under Section 9(2) of the said Act "a Decree of·Court" is made necessary; and that it will be a misconception to borrow the definition of "Decree" -Or "Order" from the provisions ofCivit Procedure Code, while interpreting and giving effect to the provisions of PTI Act, in particular Sections 9(2) to (5) of the Act. Allowing the appeal, the Court HELD: 1. 1.

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 O[>eration. PARAMJEET SINGHPATHEJA v. ICDS LTD. _. 181 Therefore there can be seen that the law makers were conscious of what 'decree', 'order' and an 'award' are. Also the fundamental difference between 'Courts' and 'arbitrators' were also clear as back as in 1909. [195-D-E) 1. 2. 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 Court of Justice'. It is only for the purpose of enforcement of the award, the arbitration award is treated as ifit were a decree of the Court. (195-E-F) 2. 1.

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 ofa 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 awa_rd is not a decree. (196-E-F) Tribhuvandas Kalidas v. Jiwan Chand, (1911) 35 Bombay 196, Manila/ v. The Bharat Spinning & Weaving (35) Born. L. R. 941; Ramshai v. Joy/al, AIR (1928) Calcutta 840 and Ghulam Hussein v. Shahban AIR (1938) Sindh 220, referred to. 2. 2. Section 36 of the Arbitration & Conciliation Act, 1996 makes it clear 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 ofenforcing a decree under the Code ofCivil Procedure. (199-F) 2. 3.

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. 28of1978 which introduced sub-sections (2) to (5) in Section 9 of the Presidency Towns Insolvency Act. (199-G-H] 2. 4. 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. [201-E) 2. 5. ·"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'. 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.

(201-F-G) 2. 6. It is clear that litigation is very different from arbitration. The former is a legal action in a Court of law where judges are appointed by the State; the latter is the resolution ofa 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. [203-A-B) · Engineering Mazdoor Sabha & Anr. v. Hind Cycles Ltd, AIR (1963) SC 874 and Collector, Varanasi v. Gauri Shankar Milra & Ors. , AIR (1968) SC 384, relied on. 2. 7. 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 ofjustice. (202-G) 2. 8. 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. [203-G-H) 3. 1.

The Insolvency Act of1909 was amended by the Bombay Amendment of1939 and also by Parliament in 1978 when two laws, namely, the Arbitration Act, 1899 and the Civil Procedure Code, 1908 were on the statute book. 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. [204-A-B) 3. 2. 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 ofenforcement, the provisions of CPC were made available for realizing the money awarded. However, the award remained an award and did not become a de.

:ree either as defined in the CPC and much less so far the purposes ofan entirely different statute such as the Insolvency Act. (204-B-C-DJ 4. 1. Issuance ofa notice under th. e Insolvency Act is fraught with serious consequences: it is intended to bring about a drastic change in the status of PARAMJEET SINGH PATHEJA v. ! CDS LTD. [ LAKSHMANAN, J. ] 183 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 ofjudicial organ established for the dispensation ofjustice, has passed a decree or order for the payment of money. Secondly, a notice under the Insolvency Act is not a mode ofenforcing a debt; enforcement is done by taking steps for execution available under the CPC for realizing moneys. (204-E-FI 4. 2. 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. (204-G] 4. 3. No insolvency notice can be issued. under Section 9(2) of the Presidency Towns Insolvency Act, 1909 on the basis ofan Arbitration Award; an insolvency notice should be in strict compliance with the requirements in Section 9(3) and the Rules made thereunder. Hence, the Insolvency Notice issued under section 9(2) of P. T. I. Act cannot be sustained on the basis of arbitral award which has been passed under the Arbitration & Conciliation Act, 1996. (204-H; 205-A; 205-F; 206-B-CI CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4130 of2003. From the Judgment and Order dated 19-3-2003 of the High Court of Judicature at Bombay in Notice of Motion No. 72/2002 in Notice No. N/180/ 2001. V. A. Bobde, Shrikant Shah, Mahesh Agrawal and E. C. Agarwala, for the Appellant. L.

Nageswara Rao,Subramonium Prasad, Kishore P. Jain, Raghavendra S. Srivastava, Gaurang P. Mehta, Vijay Sondhi and Karun Mehta for the Respondents. The Judgment of the court was delivered by 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 200 I by the High Court of Judicature at Bopibay 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 Jetter was sent informing the Arbitrators that the company has been registered under section 15 ofthe Sick Industrial Companies (Special provisions) Act, 1995. An Award was rendered therein on 26th June 2000 by the Arbitrator / awarding Rs. 3,81,58,82 l. 47. However, according to the appellant, no copy of the Award was served on the appellant. On 16. 0 l. 2002, Insolvency notice was issued under section 9(2) of the Presidency Tow 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 a/ia, 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,}. ). 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'). PARAMJEET SINGH PATHEJA v. ! CDS LTD. [ LAKSHMANAN, J. ] ·185 The appellant filed a Notice of Motion No. 72 of2002 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: 1. Whether an arbitration award is a "decree" for the purpose of section 9 of the Presidency Towns Insolvency Act, 1909? n. 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 th<>t it is an Act for dealing with 'arbitration by agreement without the intervention ofa Court ofJustice'. Section 4(a) defines 'Court' and various sections deal with the powers ofthe Court. Section 11 provides for the making ofan '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 tpat an award shall be deemed to be a decree for all pwposes under al/ 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) I KB 478. A judgment obtained in pursuance ofan 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 ofan 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 I882 is in almost similar terms. Ghulam Khan v. Muhammad (190I) 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 ifthe award has been submitted to it in the fonn 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 ofdecrees. 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 agree. nent without the intervention of Court, Section 89 of the CPC of 1908 provided as follows: "89.

Save as otherwise provided by the Arbitration Act, I899, 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 v. Yeshwantrai AIR (1930) Bombay 98 at 101. ) (g) The second Schedule provided for three types of cases: Arbitration in Suit, from Clauses I 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 ofthe 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 ofarbitrators was never intended to be comprehended in the meaning ofthe 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. G) 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 ~he Arbitration and Conciliation Act, 1996, under which the Awards were straightaway enforceable as ifthey were decrees ofCourt. 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) ofthe CPC. 'Proceeding' means a proceeding such appellate or execution proceedings or applications under the CPC during the pendency of the suit or appeal. (I) The words 'or other proceedings' were added not for covering arbitrations but by way of abundant caution to make it clear that other proce~dings 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 oflaw". 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. " ; .. ... 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 pla::ard which bore a stirring injunction 'Arbitrate - don't Litigate" Moreover, the position that arbitrators are :10t Courts is quite obvious and this Court noted the position as under in two decisions: "But the fact that the arbitrator under Section IOA is not exactly in the same position as a private arbitrator does not mean he is tribunal under Article 136.

Even if some ofthe 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. v. Hind Cycles Ltd, AIR 1963 SC 874. )" "There was no dispute that the arbitrator appointed under Section 19(l)(b) [ofthe Defence oflndia Act, 1939] was not a court. (Collector, Varanasi v. Gauri Shankar Misra & Ors. , AIR 1968 SC 384) " p 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 ofthe 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 I940. Only under the Arbitration Act, I940, the award was required to be m«de 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 ofjudicial organ established for the dispensation ofjustice, has passed a decree or order for the payment of money. Secondly, a notice under the Insolvency Act is not a mode ofenforcing 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 fation 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. :A..

n 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 leg<>! 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. lil the light of the above discussion, we further hold that the Insolvency Notice issued under section 9(2) of the P. T. l. 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 ofthe High Court of Bombay in Notice of Motion No. 72/ 2002, Notice No. N/180/2001 is set aside. No costs. '·· S. K. S. Appeal allowed.