DHIRENDRA BHANU SANGHVI Vs. ICDS LIMITED

JUDGEMENT

(1.) THESE three Notice of Motions involving a common question of law have been referred to the Division Bench by Chandrachud, J. The common question of law is whether an insolvency notice under sub-section (2) of section 9 of the Presidency Town Insolvency Act, 1909, can be sustained on the basis of an Arbitral Award that has been passed under the Arbitration and Conciliation Act, 1996. In all the three cases Arbitral Award has been passed against debtors who have filed these motions and the Arbitral Award had not been challenged under section 34 of the Arbitration and Conciliation Act, 1996. On the basis of the Award, insolvency notices came to be issued by the petitioning creditors under sub-section (2) of section 9 of the Presidency Town Insolvency Act , 1909. These notices are impugned on the ground that the Arbitral Award is neither a decree nor an order within the meaning of section 9 (2) of the Act and that, therefore, such an Award cannot form the foundation of a valid insolvency notice. Chandrachud, J. , held that the Arbitral Award which has attained finality is enforceable as if it were a decree of the Court. The Award assumes the character of a decree for the purpose of enforcement. Therefore an Award which is enforceable as if it were a decree can form the foundation of the insolvency notice provided its enforcement has not been stayed and it has attained finality. The learned Judge however, noticed that a contrary view has been taken by J. A. Patil, J. , in (Re. Siddharth Srivastava) 2002 (5) Bom. C. R. (I. J.)620 : 2002 (4) Mh. L. J. 281, that though the Award is enforceable as if it were a decree, it is not still a decree within the meaning of section 2 (2) of the Code of Civil Procedure and, therefore, obtaining of the Award does not fulfill the requisite condition contemplated by section 9 (2) of the Insolvency Act. Chandrachud, J. , felt that the view taken by J. A. Patil, J. , requires reconsideration and accordingly the matter has been referred to the Division Bench.

(2.) ON behalf of the applicants Mr. S. H. Doctor, learned Counsel urged that the expression decree or order used in section 9 (2) does not include Arbitral Award. The term decree used in section 9 (2) is referable to a decree as defined in section 2 (2) of the Code of Civil Procedure. Under section 36 of the Arbitration and Conciliation Act, 1996 an Award can be enforced under the Code of Civil Procedure "in the same manner as if it were a decree of the Court". Consequently, it has been urged that an Award is not a decree and that the fiction which has been enunciated in section 36 is only for the limited purpose of making an Arbitral Award enforceable in accordance with the provisions of the Code of Civil Procedure. The fiction, it was urged, cannot be extended beyond the purpose for which it was engrafted by the legislature. Therefore, even if the legislature has chosen to call such an Award a decree, it cannot be regards as a decree within the meaning of section 9 (2) of the Insolvency Act.

(3.) SECTION 9 of the Presidency Towns Insolvency Act, 1909 defines acts of insolvency, sub-section (1) of section 9 defines in its eight clauses various acts of insolvency and for the purpose of this proceeding Clause (e) and Clause (h) are material. Clause (e) refers to a situation in which any property of the debtor has been sold or attached for a period of not less than 21 days in execution of the decree of a Court for the payment of money. Similarly, Clause (h) refers to a situation where a debtor is imprisoned in execution of the decree of any Court for the payment of money. Sub-section (2) of section 9 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 being a decree or order which has become final and the execution whereof has not been stayed, has served on him an insolvency notice and the debtor does not comply with that notice within the period specified therein. The Insolvency Act has not defined the expression decree or order. Under the definition of a decree contained in section 2 (2) of the Code of Civil Procedure, three essential conditions are necessary, namely, (i) that the adjudication must be given in a suit; (ii) that the suit must start with a plaint and culminate in a decree; and (iii) that the adjudication must be formal and final and must be given by a civil or revenue Court. By section 2 (14) the expression order is defined to mean the formal expression of any decision of a Civil Court which is not a decree.