In the light of these principles, if we consider the provisions of sub-section (2) of Section 9 of the Insolvency Act, the essential condition is that the creditor must have obtained a decree or order against the debtor for the payment of money and that decree or order must be final and of which execution has not been stayed. Under the Arbitration Act, 1940 an award of the Arbitrator could not be enforced unless it was made rule of the Court. 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.
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Madras High Court
Mrs. N. Poongodi vs M/S. Tata Finance Limited on 18 April, 2005
(Judgment of the Court was delivered by P. Sathasivam, J.,) The Above Original Side Appeal has been filed against the order of the learned Single Judge dated 20-10-2004, made in Application No. 91/2004 in I.N.No. 183/2003 in and by which the debtors were asked to pay Rs.5 lakhs out of Rs.14 lakhs due on or before 29-10-20 04.
2. Heard Mr. R. Krishnamurthy, learned senior counsel for appellants and Mr. Vasudevan for respondent.
3. The respondent herein, namely, M/s. Tata Finance limited obtained an award for Rs.10,89,782/- as compensation on arrears of monthly hire charges being contract balance at 18 per cent per annum on the said principal amount of Rs.6,97,540/- with effect from 18-10-2000 and also Rs.17,250/- towards arbitration cost and fees by an arbitration award dated 24-7-2001. It is their claim that the said debtors have not paid any amount towards the award dated 24-7-2001 to the petitioning creditor. According to the petitioning creditor, as on 10-11-2003, a sum of Rs.14,91,615-42 was due from the debtors jointly and severally. It is also stated that there is no application filed to set aside the award dated 24-7-2001 to the knowledge of the petitioning creditors. Therefore, the petitioning creditor prayed to issue Insolvency Notice to the debtors under Section 9(2) of Presidency Town Insolvency Act and Form No. 14(a) of the Insolvency Rules. Questioning the said Insolvency Notice, the debtors/applicants made an Application No. 91/2004 before the Insolvency Court to set aside the Insolvency Notice No. 183/2003 dated 11-12-2003 issued under Section 9 (2) of the Presidency Towns Insolvency Act,1909 and also to condone the delay of 2 days in filing the said application. In the affidavit filed in support of the said application, it is stated that no money was due and payable by them to the petitioning creditor with regard to higher purchase transaction relating to the vehicle Y.01.E.27779, that the vehicle in question was purchased at Chennai and it was seized by the petitioning creditors at Chennai and that if at all any cause of action, it should be at Chennai having jurisdiction of this Court, but the petitioning creditor invoked the jurisdiction at Mumbai. Hence, any award/decree is inexecutable either at Mumbai or at Chennai. The so-called ex parte award is also inexecutable in any Court of law.
4. The petitioning creditor filed a counter affidavit stating that since the debtors committed default in payment of monthly instalments due despite repeated demands. The petitioning creditor in exercise of powers under the agreement repossessed the vehicle on 1-4-1998. Subsequently, the vehicle was sold for Rs.1,10,000/-. The balance short fall amount was not paid by the debtors in spite of demands. Hence the petitioning creditor was constrained to file a Arbitration Case, viz., Arbitration Case No.4 of 2000. Shri B.K. Barge, Advocate, was appointed as Arbitrator to decide the dispute. The debtors were served with Notice and filed a counter statement, however, they did not participate in the arbitration proceedings. The petitioning creditor proved its case and therefore an award was passed on 24-7-2001. The debtors even after the award, failed to pay any amount. Therefore, the petitioning creditor filed Insolvency Notice No. 183 of 2003 under Section 9 (2) of Presiden cy Towns Insolvency Act, demanding a sum of Rs.14,91,615-42 being the amount calculated as per the award. The debtor after service in I.N.No. 183 of 2003 belatedly filed Petition No. 544134 of 2004 before the High Court, Bombay to set aside the award dated 24-7-2001. The High Court dismissed the said petition by an order dated 28-7-2004. The debtors have filed an appeal in Appeal No. 506 and 507 of 2004. The said appeal was also dismissed by the Division Bench of the Bombay High Court on 17-8-2004. The award dated 24-7-2001 is, therefore, become final. Hence the application making allegations against the arbitration is not maintainable. The debtors have not furnished sufficient ground as contemplated under Section 9(5) of the Act to set aside the Insolvency Notice No. 183 of 2003.
5. (i) Mr. R. Krishnmurthy, learned senior counsel for the debtors/appellants would argue that the award under arbitration proceedings cannot be construed as a decree or order passed by the Court; hence the invocation of insolvency proceedings under the Presidency Towns Insolvency Act is not maintainable and before deciding the said issue, the learned Judge has committed an error in imposing a condition by directing the debtors for payment of Rs.5 lakhs.
(ii) On the other hand, Mr. Vasudevan, learned counsel appearing for the respondent-petitioning creditor, would submit that inasmuch as the arbitration proceedings has reached its finality and in view of Section 36 of the Arbitration and Conciliation Act, 1996 and in the light of default committed by the debtors, the petitioning creditor is fully justified in invoking the insolvency jurisdiction and the learned Judge is fully justified in imposing such condition.
6. It is not in dispute that by order dated 24-7-2001, the sole arbitrator has passed an award, directing the debtors to pay a sum of Rs.10,89,782/jointly and severally together with interest at 18 per cent per annum on the principal amount of Rs.6,97,540/- with effect from 18-10-2000 till payment in full together with cost of Rs.17,250/-. Though it is claimed that the Court at Bombay has jurisdiction, the fact remains that the petition filed before the Single Judge of the Bombay High Court questioning the award dated 24-7-2001 has been dismissed even on 28-4-2004. It was also affirmed by the Division Bench on 17-8-2004. As rightly pointed out by the learned counsel for the petitioning creditor, the award dated 24-7-2001 has become final.
7. Now the question before us is, whether the petitioning creditor is entitled to invoke insolvency jurisdiction under Section 9(2) of the Presidency Towns Insolvency Act ["P.T.I.Act" in short]. Section 2 (2) of the Code of Civil Procedure defines "decree" as the formal expression of an adjudication which, so far as regards the Court expressing it, conclusively determines the rights of the parties with regard to all or any of the mattes in controversy in the suit and may be either preliminary or final. Section 9 (2) of the P.T.I. Act is relevant which reads as follows:
"Section 9. Acts of insolvency:- (1) xx xx (2) Without prejudice to the provisions of subsection (1), 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 a notice (hereafter in this section referred to as the insolvency notice) as provided in subsection (3) and the debtor does not comply with that notice within the period specified therein:"
It is also useful to refer Section 36 of the Arbitration and Conciliation Act which reads as under:
"36. Enforcement Where the time for making an application to set aside the arbitral award under section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 in the same manner as if it were a decree of the Court."
As per Section 35 an arbitral award shall be final and binding on the parties and persons claiming under them respectively. We have already found that the arbitration award dated 24-7-2001 has reached its finality, since the same has been confirmed up-to the level of the Division Bench of the Bombay High Court. In such a circumstance, as per Section 36 of the Arbitration and Conciliation Act, the award shall be enforced under the Code of Civil Procedure, 1908 in the same manner as if it were a decree of the Court. In the light of the above mentioned provisions, we hold that the Insolvency Notice I.N.No. 183/2003 dated 11-12-2003 is valid and reject the objection regarding invocation of the insolvency proceedings.
8. Mr. R. Krishnamurthy, learned senior counsel for the debtors, by relying on a decision of the Bombay High Court in In Re: Siddharth Srivastava, reported in AIR 2002 Bombay 494, would submit that the award of arbitration is not a decree for the purpose of Section 9 (2) even though it may be enforceable as if it were decree. It is true that in that decision, the learned Single Judge of the Bombay High Court, after referring to Section 2 (2) of the Code of Civil Procedure and Section 9(2) of P.T.I. Act has held that, (para 20) "20....The only remedy for a party seeking its enforcement is to file a suit in Civil Court of competent jurisdiction and obtain a decree or order which can be executed under Order 21 read with Section 36 of the C.P.Code. Having regard to the provisions of S.9(1)(i) and sub-section (2) of the P.T.I.Act, decree or order contemplated therein are such which are executable...."
On going through the provisions of Section 9(2) of PTI Act and Section 2 (2) of C.P.C., Sections 35 and 36 of the Arbitration Act, we are unable to share the view expressed by the learned Single Judge of the Bombay High Court. It is also brought to our notice that the Division Bench of the Bombay High Court in the subsequent decision, has over-ruled the decision of the learned Single Judge in the case of In re: Sidharth Srivastava, reported in AIR 2002 Bombay 494. In 2003 (3) Arbitration Law Reporter 82(Bombay) (D.B), the Division Bench had an occasion to consider Section 9(2) of P.T.I.Act, Section 36 of the Arbitration and Conciliation Act and definition of the word "decree" in Section 2(2) of the Code of Civil Procedure. After considering those provisions, the Division Bench has held that 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, 190 8 in the same manner as if it were a decree of the Court. We are in respectful agreement with the said view. 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 and 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, (1) 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.
9. In the light of these principles, if we consider the provisions of sub-section (2) of Section 9 of the Insolvency Act, the essential condition is that the creditor must have obtained a decree or order against the debtor for the payment of money and that decree or order must be final and of which execution has not been stayed. Under the Arbitration Act, 1940 an award of the Arbitrator could not be enforced unless it was made rule of the Court. 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.
10. Under these circumstances, we hold that the Insolvency Notice issued under sub-Section (2)of Section 9 of the Presidency Towns Insolvency Act, 1909 can be sustained on the basis of arbitral award which has been passed under the Arbitration and Conciliation Act, 1996 which has also become final and in view of the fact that in spite of affording sufficient opportunity, the debtors have not paid any money, we are of the view that the learned Single Judge is perfectly right in directing the debtors to pay at least Rs.5 lakhs out of Rs.14 lakhs due on or before 29-10-2004. There is no merit in the appeal; consequently the same is dismissed. No costs. Connected miscellaneous Petitions are closed.
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