Re: Dhirendra Bhanu Sanghvi vs ICDS Limited

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2003 Supreme(Bom) 346

IN THE HIGH COURT OF BOMBAY
Shah A.P. Deshmukh D.K., JJ.
Re: Dhirendra Bhanu Sanghvi .... Judgment debtor.
Ex parte
ICDS Limited.... Judgment creditors.
Notice of Motion No. 132 of 2001 in Notice No. N/164 of 2001 with Notice of Motion No. 59 of 2002 in Notice No. N/25 of 2002 with Notice of Motion No. 72 of 2002 in Notice No. N/180 of 2001, decided on 19-3-2003.
Advocates appeared :
J.P. Sen with Ms. K.A. Shah, in Notice of Motion 132/2001, for judgment debtors.
Navin Parekh with Kishore Jain, i/b. Thakore Govardhan, in Notice of Motion No. 132/2001, for judgment creditors.
H.N. Thakore with Ms. Jyoti Ghag i/b. Thakore Jariwalla Associates, in Notice of Motion No. 59/2002, for judgment debtors.
Mrs. Mamta Shah, in Notice of Motion No. 59/2002, for judgment creditors.
S.H. Doctor i/b. Mehta and Girdharlal, in Notice of Motion No. 72/2002, for judgment debtors.
Kishore Jain with G.R. Mehta, in Notice of Motion No. 72/2002, for judgment creditors.

Headnote:Arbitration and Conciliation Act, 1996 - Section 36 - Presidency Towns Insolvency Act, 1909, Section 9 (2) - Bombay Presidency Towns Insolvency Rules 1909, Rule 3 - Arbitral Award - Inssuance of insolvency notice under Section 9 (2) of Insolvency Act - Sustainability of - Held - Forms in Appendix I contained in Insolvency Rule 3, not have an overbearing importance - Cannot supersede mandate of Section 9 (2) of Insolvency Act. - Rule 3 of the Insolvency Rules expressly provides that the forms in Appendix I shall be used with such variations as circumstances may require. Therefore, the forms which have been prescribed under the Insolvency Rules will have to be suitably modified in relation to the issuance of an insolvency notice on the basis of an Arbitral Award. The forms contained in the Insolvency Rules cannot have an overbearing importance so as to supersede the mandate of sub-section (2) of Section 9 of the Act.
Arbitration and Conciliation Act, 1996 - Section 36 - Presidency Towns Insolvency Act, 1909, Section 9 (2) - Arbitral Award - Whether covered under expression "decree" or "order" - Insolvency notice under Section 9 (2) of Presidency Towns Insolvency Act on basis of arbitral Award - Sustainability of - Reference - Fiction created by Section 36 of Arbitration and Conciliation Act for enforcement of Award - Cannot be extended beyond purpose for which it created - Held - Award having force of a decree is a decree within meaning of Section 9 (2) of Insolvency Act - Award became final and binding - A valid foundation for issuance of an Insolvency notice under Section 9 (2). - Under the new Act an arbitral award becomes enforceable as if it were a decree of the Court on expiry of the time for making an application to set it aside under Section 34, or where any such application has been made, on the same being refused. In construing the words "as if it were a decree of the Court", the Court must be guided by the substance of the matter and not merely form. The substance of the matter is that when an award is made it is enforceable in exactly the same manner as a decree and is as binding and is as conclusive as any ordinary decree. If a question arises between the parties the award can be called in aid to prevent agitation of the question, which has already been decided by the award. That being so, it is difficult to appreciate any distinction of substance between an award which has the force of a decree under Section 36 and the decree passed by the Court. Under these circumstances, it is not possible to say that such an award which has the force of a decree is not a decree within the meaning of Section 9 (2) of the Insolvency Act. Under sub-section (2) of Section 9 of the Insolvency Act the emphasis is on the character of the enforceability of the decree. Hence, for that purpose, the statute has spelt out that the decree, or order as the case may be, ought to be final and its execution ought not to have been stayed. Once an Arbitral Award has become final and binding upon the person or persons claiming under and bound by the Award, the award is impressed with the character of a decree and can be enforced under the Code of Civil Procedure, 1908 in the same manner as if it were a decree of the Court. That being the position, an award which has become final and binding can be regarded as constituting a valid foundation for the issuance of an insolvency notice under sub-section (2) of Section 9.

JUDGMENT - SHAH A.P., J.:---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)1, 2002(5) Bom.C.R. (I.J.)620, 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

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2003 Supreme(Bom) 346

Cases Referred (2)