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Paramjit Singh Patheja Versus ICDS Ltd.

2006 (10) TMI 419 - Supreme Court of India

Whether an arbitration award is a "decree" for the purpose of section 9 of the Presidency Towns Insolvency Act, 1909? - 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? - Held 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. That execution proceedings in respect of the award cannot be proceeded with .....

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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 .....

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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 letter was sent informing the Arbitrators that the company has been reg .....

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or 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 alia, 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 o .....

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otice of Motion No.72 of 2002 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 .....

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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 .....

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e 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 reso .....

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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 that an award shall be deemed to be a decree for all purposes under .....

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bitration 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 of an award on a submission in the same manner as if it were a judgment, to order j .....

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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 referred to arbitration for reconsideration in manner aforesaid, and if no application shall have been made to set aside the award, or if the C .....

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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 if the award has been submitted to it in the form of a special case, according to its own opinion on such case. Upon the judgment s .....

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Act, 1899, 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 vs. Yeshwantrai AIR 1930 Bombay 98 at 101.) g) The second Schedule provided for three types of cases: Arbitration in Suit, from Clauses 1 to 16, Order of reference on agreements to refer from Clauses 17 to 19 and Arbitration without the intervention of Court, from C .....

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ment 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 indicat .....

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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 Arbitrat .....

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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) of the CPC. 'Proceeding' means a proceeding such appellate or execution proceedings or applications under the CPC during the pendency of the suit or appeal. l) The words 'or other proceedings' were added not for covering arbitrations but by way o .....

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ded 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 of law". Obviously therefore Parliament had in mind debts due to 'litigants' i.e. debts due by reaso .....

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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 .....

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d lead to an act of insolvency. q) It is noteworthy that Section 112 of the Bombay Insolvency Rules, 1910, empowers the three Presidency-Town High Courts to frame Rules. In the exercise of this power Rules were framed by the Bombay High Court in 1910. After the Bombay Amendment to the act w.e.f. 1939 by introduction of clause (i) in Section 9, Rule 52A and Form 1-B were added by the Bombay High Court. r) Rule 52 A(1) uses the words 'certified copy of the decree or order'. It is plain tha .....

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unambiguously points to the fact that the decree or order has been obtained from a Court in a suit or proceeding. s) Now, that Parliament has amended the Act of 1909 in 1978 on the lines of the Bombay Amendment, it has expressly provided by Section 9(3) that the Notice 'shall' be in the prescribed form i.e. prescribed by the Rules. 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, dec .....

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ree. 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 Sec .....

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ors 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. But it is equally important in the interests of commerce that creditors should not be defrauded and that dishonest debtors should not be able to make use of insolvency proceedings merely to free themselves from their liabilities while preserving their assets more or less intact." The objects thus sought to be achieved is to widen .....

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act of Insolvency if he fails to comply with the requisitions of an Insolvency Notice served upon him by a creditor demanding from him (the Debtor) the amounts due under the Decree or Order for payment of money, which Decree or Order has attained finality and the execution whereof has not been stayed. 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 .....

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ditor to directly file Insolvency Petition against a debtor. When the Legislature enacted the Bombay Amendment (in 1948) and the Central Amendment in 1979, it had before it the express wordings of Sections 9(1) (e) and (h), however a conscious departure was made while enacting Sections 9(i) and 9A (introduced by the Bombay Amendment). The same constitute a complete code and provide for complete machinery. The phraseology used therein is: "Decree or Order for the payment of money being a Dec .....

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ught 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 .....

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ereto as also from the decisions reported in AIR 1977 Bombay 305, 1994(3) B.C.R. 223 that the provisions relating to issuance of Insolvency Notice (Sections 9(2) to (5) of the PTIA) are an equitable mode of execution of a Decree or Order to enable a creditor to recover from a Debtor the dues under a Decree or Order and upon failure of the Debtor to make payment of the amount demanded by the Insolvency Notice within the prescribed period, to present an Insolvency Notice within the prescribed peri .....

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sioner of Income-tax, New Delhi vs. M/s East West Import & Export (P) Ltd., Jaipur, AIR 1989 SC 836, M/s B.R. Enterprises vs. State of U.P. and Ors., AIR 1999 SC 1867. The above decisions were cited for the proposition that the use of different words in the two provisions is for a purpose and if the field of two provisions are to be the same the same words would have been used and when two provisions use different words the different words used could only be to convey different meaning. Argu .....

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gislative intent to borrow the definition of "Decree" or "Order" from any other Act or Code. 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 "of Court" 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 of conferring Act of Insolvency under Clause .....

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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 .....

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tricted to a Decree or Order "of any Court" as found in Section 9(1)(e). Ordinarily, the rule of construction is that the same expression where it appears more than once in the same statute, more so in the same provisions, must receive the same meaning. It lays down that 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 and the conclusion must follow that the expression " .....

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t;Order" from the provisions of Civil Procedure Code, while interpreting and giving effect to the provisions of the said Act, in particular Section 9(2) to (5) which constitute a self contained code and has been specifically brought in by Amending Act of 1978. We heard both the senior counsel appearing for the appellants and respondents, in extenso. We have carefully perused through in detail all the material placed before us. We are of the view that The Presidency Towns Insolvency Act, 190 .....

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. 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 p .....

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ive." 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 necessarily fall in the language of the definition. Section 2(2) of the CPC defines 'decree' to mean "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 any of the matters in controversy in the suit and m .....

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y preliminary and partly final." 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 of a 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 award is not a decree. Section 2(14) defines 'order' to mean "the formal expression of any decisi .....

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upra), the Calcutta High Court held as follows: "(a) Presidency Town Insolvency Act, S.9 (e) Attachment in execution of award is not one in executive of a decree. Attachment in execution of an award is not attachment in the execution of a decree within the meaning of S.9(e) for the purpose of creating an act of insolvency: Re. Bankruptcy Notice, (1907) 1 K.B. 478, Ref. (b) Arbitration Act, S.15 Award, An award is a decree for the purpose of enforcing that award only." In Ghulam Hussein .....

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ot 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 c .....

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it were a decree. No Insolvency petition can therefore be founded on an attachment or sale in execution of an award." In support of this proposition Sir D. Mulla cites the case of Ramasahai v. Joylall (supra). The commentator proceeds: It is therefore for consideration whether Cl.(e) should not be amended by adding the words 'or in execution of an award for the payment of money.' Now, it cannot be disputed that Sir D. Mulla as a commentator on the Law of Insolvency is universally re .....

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39;or in execution of an award for the payment of money.' In this part of his commentary Sir D. Mulla has also referred to the case in 35 Bom 196, where it was held by a Bench of the Bombay High Court that an award filed in Court under S.11, Arbitration Act, was nothing more than an award although it was enforceable as if it were a decree. In that case an application had been made under O.21, R.29, for stay of execution of a decree. The application was dismissed on the following grounds set .....

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tion 36 of the 1996 Act in Sidharth Srivastava v. K.K. Modi Investment & Financial Service P.Ltd. 2002(4) Mah. L.J. 281. It was held thus: "Where the Award in favour of the petitioning 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 .....

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, 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 which is in pari materia with Section 15 of the 1899 Act, is set out herein below: "36. Enforcement Wh .....

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sought under any other law or that initiating insolvency proceeding is a manner of enforcing a decree under the CPC. Therefore the contention of the respondents that, an Award rendered under the Arbitration and Conciliation Act, 1996 if not challenged within the requisite period, the same becomes final and binding as provided under Section 35 and the same can be enforced as a Decree as it is as binding and conclusive as provided under Section 36 and that there is no distinction between an Award .....

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btor' to include a judgment-debtor. Secondly ii) It is quite clear from Section 33 of the CPC that a decree, being the formal expression of adjudication by a Court, follows only upon pronouncement of judgment by the Court. It is equally clear that Courts and Judges render judgments; arbitrators only make awards. iii) Sections 9(e) and (h) put the matter beyond controversy by expressly mentioning 'decree of any Court for the payment of money'. Thus as enacted in 1909, the Insolvency A .....

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nt 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 C .....

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ation was reiterated by the Law Commission in its Twenty Sixth Report on Insolvency Laws. 2. The Expert Committee on Legal Aid was also of the view that the above recommendation of the Law Commission should be implemented immediately without waiting for the enactment of a comprehensive law of insolvency. 3. It is, therefore, proposed to amend the Presidency Towns Insolvency Act, 1909, and the Provincial Insolvency Act, 1920 to add a new act of insolvency, namely, that a debtor has not complied w .....

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lating to relief of debtedness or that the decree is not executable under any such law." 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 .....

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tate in the exercise of the judicial power of the State will be seen from the cases mentioned herein below: "The expression 'Court' in the context (of Art.136) denotes a tribunal constituted by the State as a part of the ordinary hierarchy of Courts which are invested with the State's inherent judicial powers. A sovereign State discharges legislative, executive and judicial function and can legitimately claim corresponding powers which are legislative, executive and judicial. Un .....

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s 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 pronoun .....

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ic 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 .....

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t 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 us .....

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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. Vs. Hind Cycles Ltd., AIR 1963 SC 874.) " "There was no dispute that the arbitrator appointed under Section 19(1)(b) [of the .....

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re 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 of the difference between awards on .....

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e 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 1940. Only under the Arbitration Act, 1940, the award was required to be made a rule of Court i.e. required a judgment fo .....

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the payment of money. Secondly, a notice under the Insolvency Act is not a mode of enforcing 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 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. For the forego .....

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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 doe .....

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