Holding

An arbitration award is not a decree or order within the meaning of the Presidency Towns Insolvency Act, 1909 and therefore no insolvency notice can be issued on its basis.

Summary

Paramjeet Singh Patheja, a guarantor, challenged an insolvency notice issued under Section 9(2) of the Presidency Towns Insolvency Act, 1909 on the basis of an arbitration award rendered under the Arbitration and Conciliation Act, 1996. The High Court had held that the award constituted a decree for the purpose of the Insolvency Act and upheld the notice. The Supreme Court examined whether an arbitration award can be treated as a 'decree' or 'order' within the meaning of the 1909 Act and whether a notice of insolvency may be issued on that basis. Relying on the strict construction of the Insolvency Act, the distinction between courts and arbitrators, and the limited purpose of the 'as if' fiction in Sections 15 of the 1899 Act and 36 of the 1996 Act, the Court held that an award is not a decree and cannot give rise to an insolvency notice. Consequently, the notice issued on the award was set aside and the appeal was allowed. The decision reaffirmed that enforcement of arbitration awards must follow the CPC and that the Insolvency Act’s severe consequences apply only to decrees or orders of courts.

Issues considered

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

Legislation cited

Arbitration Act, 1899s. 11, s. 15, s. 4(c)
Arbitration and Conciliation Act, 1996s. 35, s. 36
Code of Civil Procedure, 1908s. 2(14), s. 2(2)
Presidency‑Towns Insolvency Act, 1909s. 9, s. 9(2), s. 9(3)

Subjects

arbitration awarddecreeinsolvency noticePresidency Towns Insolvency Actcivil deathenforcementlegal fictionCPCcourt vs tribunal

Judgment

A 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 Towns-
lnsolvency Act, 1909; S. 9 and 9(2):

C 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 of civil 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
D could not be enforced as a decree-Issuance of Notice under the Insolvency
Act is fraught with serious consequences-Such a notice, therefore, could be
issued in pursuance of decree/order for payment of money passed by a Court/
Judicial organ established for di~pensation of justice-Notice under 1909
Act is not a mode of enforcing debt-I'-nforcement ~ould be done in terms of
provisions of CPC-No insolvency notice could be issued under Section 9(2)
E of the 1909 Act on the basis of an Arbitration Award-Hence, notice so
issued and order passed by the Division Bench of the 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:
F
'Decree'. 'order' and 'an award'-Distinction between.

'Courts', 'tribunal' and 'arbitrator'-Distinction benveen.

Words 'litigation', 'as if-Meaning of
G
The questions which arose for determination in this appeal were as to
whether an ?..rbitration award is a "decree" for the purpose of section 9 of the
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

H 178
PARAMJEET SINGH PATHEJA v. ICDS LTD. 179

arbitration award. A
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 of convenience, equity or justice; that the Indian B
Arbitration Act, 1899 clearly draws the distinction between Courts and
Arbitrators; that only for the purpose of enforcement of the 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 of enforcement of a decree;
that it is settled law that where the arbitration is governed by the Arbitration C
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 of Civil 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 D
'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 E
by way of abundant caution to make it clear that other proceedings in relation
to or arising out of suits 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 if a debt found F
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 G
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 of 1909 in 1978 on the lines of the 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 H
180 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R.

A form uses the words Court, decree and order.
Respondents submitted that if an 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
B 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 of Section
9(2) to 9(5) of the PTI A~t which are brought in by the amending Act of 1978
C in the Presidency Towns Insolvency Act have to be viewed in the light of the
statement of objects 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 of whether
D 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 "of Court" and has added the words "or Order".
E 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 (e) and
(h) of Section 9(1) of the said Act, 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; that it will be doing injury/offence
to the legislative intent if even for the purpose -0f taking out Insolvency Notice
F 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 of Civit Procedure Code, while interpreting and
giving effect to the provisions of PTI Act, in particular Sections 9(2) to (5) of
the Act.

G 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.
H 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 a A
'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 a B
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 of a dispute by a judgment pronounced by the Court It C
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, D
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 E
initiating insolvency proceeding is a manner of enforcing a decree under the
Code of Civil 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 F
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) G
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 H
182 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R.

A 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 of a dispute between two contracting parties
B 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)
C 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 of justice. (202-G)

D 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 of 1909 was amended by the Bombay Amendment
of 1939 and also by Parliament in 1978 when two laws, namely, the Arbitration
E 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)

F 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 of enforcement, the provisions of CPC were made
available for realizing the money awarded. However, the award remained an
G award and did not become a de.:ree either as defined in the CPC and much
less so far the purposes of an entirely different statute such as the Insolvency
Act. (204-B-C-DJ

4.1. Issuance of a notice under th.e Insolvency Act is fraught with serious
H 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 A
with all the attendant disabilities. Therefore, firstly, such a notice was intended
to be issued only after a regularly constituted court, a component of judicial
organ established for the dispensation of justice, has passed a decree or order
for 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 B
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] C
4.3. No insolvency notice can be issued. under Section 9(2) of the
Presidency Towns Insolvency Act, 1909 on the basis of an 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 D
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 E
• 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.
F
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
G
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.
H
184 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R.

A 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
B 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
C 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 of the Sick Industrial Companies
(Special provisions) Act, 1995.

An Award was rendered therein on 26th June 2000 by the Arbitrator /
D
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
E 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
F 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,}.).

G 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').
H
PARAMJEET SINGH PATHEJA v. !CDS LTD. [ LAKSHMANAN, J.] · 185

The appellant filed a Notice of Motion No. 72 of2002 in the High Court A
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 B
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 C
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.
D
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) E
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. F
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 G
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
H
186 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R.

A 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
B 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 of a Court
C 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 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.

D 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
E 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
F in the In re A Bankruptcy Notice (1907) I KB 478. A judgment obtained in
pursuance of an 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
G 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 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,
H 1889."
PARAMJEET SINGH PATHEJA v. ICDS LTD. [LAKSHMANAN, J.) 187

(e) Section 325 of the CPC of 1859 provides that 'the Court shall A
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
I 882 is in almost similar terms. Ghulam Khan v. Muhammad ( 190 I) 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 B
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 C
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 D
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 E
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 F
enforced in manner provided in this Code for the execution of decrees.
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 G
Court, Section 89 of the CPC of 1908 provided as follows:

"89. Save as otherwise provided by the Arbitration Act, I 899, 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 H
188 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R.

A 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
B 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
C case (supra). Hence, in the case of arbitration on agreement without the
intervention of the 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.
D
(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 of arbitrators was never intended to be comprehended in the meaning
E of the 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
F 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
G 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 if they were decrees
of Court. Moreover, so far the Arbitration Act of 1940 is concerned, the award
itself acquires force only after the Court pronounces judgment and passes a
H decree under Section 17.
PARAMJEET SINGH PATHEJA v. ICDS LTD. [ LAKSHMANAN, J.) 189

(k) The words 'suit or other proceeding in which the decree or order A
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) of the CPC. 'Proceeding' means a proceeding such appellate or B
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 C
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
D
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. E
(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 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. F
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. G
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." H
190 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R.

A ;<Arbitration has its center the stone that the builders of the Courts rejected
You can choose your own judge."

(p) It is, therefore, abundantly clear that the legislative intendment was
that only if a debt found due by the Courts in an action contested according
to the rules and principles that govern Courts, was not paid in spite of notice;
B it would amount to an act of insolvency. The Legislatures never contemplated
that a mere award given by persons chosen by parties to resolve their
disputes i.e. persons, who are outside the ordinary hierarchy of courts of civil
·.
judicature, should lead to an act of insolvency.

(q) It is noteworthy that Section 112 of the Bombay Insolvency Rules,
C 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. l 939 by introduction of clause
(i) in Section 9, Rule 52A and Form l-B were added by the Bombay High
Court. "
D
(r) Rule 52A(l) uses the words 'certified copy of the decree or order'.
It is plain that certified copies are given only by Courts or statutory authorities. i
Arbitrators only submit their award and are not empowered under any law to. t

furnish certified copies of the award.

E Sub-rule (2) mandates that the Insolvency Notice shall be in Form No.
1-B with such variations as the circumstances may require. The variations are
according to circumstances; it is impermissible to substitute the word 'Court'
with arbitrators and the words 'decree' or 'order'. Form 1-B un2.mbiguously
.
'
points to the fact that the decree or order has been obtained from a Court
in a suit or proceeding.
F
(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
G circumstances can bring in arbitrators and awards when the form uses the
words Court, decree and order.

In reply to the submissions made by the appellants, l~arned senior
advocate, Mr. L. Nageshwar Rao, appearing for the respondents submitted:

If an A ward rendered under the Arbitration and Conciliation Act,
H
. PARAMJEET SINGH PATHEJA v. ICDS LTD. [ LAKSHMANAN, J.]

1996 is not challenged within the requisite period, the same
191

A
becomes final and binding as provided under Section 35. Thereafter
the same can be enforced as a Decree as it is as binding and
conclusive as provided under Section 36. There is no distinction
between an Award and a Decree. In view thereof, there is no
impediment in taking out Insolvency Notice as contemplated B
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 C
Central Amendment introduced Section 9(2) to (5). The statement
of objects and reasons of amending Act of 1978, inter alia, reads
as follows :
"The main defect of the existing law lies in the absence of
any adequate powers to compel the production of assets. D
The primary object of the Act of 1948 was the protection of
debtors; the provision it makes for the discovery of the
property of Insolvents is treated as of secondary importance
and has long since been found insufficient to prevent fraud,
The protection of honest debtors should be one of the E
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 F
their liabilities while preserving their assets more or less
intact."

The objects th'Js sought to be achieved is to widen the scope for adopting
Insolvency proceedings. The provisions of Section 9(2) to 9(5) which are
brought in by the amending Act of 1978 have to be viewed in the light of G
the statement of objects and reasons. Therefore, it is evident that what was
contemplated was to permit Insolvency Notice being issued even on the basis
of the Arbitral Tribunal provided the same has become final, binding and
enforceable.

The amendment added a new act of Insolvency and in effect H
192 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R.

A provided that a Debtor commits an act of Insolvency if he fails
to comply with the requisitions of an Insolvency Notice served
up~m him by a creditor demanding from him (the Debtor) the

B
amounts due under the Decree 'lr 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 Insolvency Petition against
the Debtor for having him adjudicated Insolvent. An Insolvency
Notice is thus only a step in aid for filing the Insolvency Petition
c and the Debtor has opportunity to contest the Insolvency Petition
by taking up all available defenses.

Section 9(1) (e) and (h) of the PTIA use the phrase "in execution
of the Decree of any Court for the payment of money". Section
9(1) (e) and (h) have been in the PTIA since originally enacted
D in the year 1909 and enable a Creditor to directly file Insolvency
Petition against a debtor. When the Legislature enacted the
Bombay Amendment (in I 948) and the Central Amendment in
I 979, it had before iJ the express wordings of Section 9(1 )(e) and
(h), however a conscious departure was made while enacting
Sections 9(i) and 9A (introduced by the Bombay Amendment).
E The same constitute a complete code and provide for complete
machinery. The phraseolog·; used therein is:

"Decree or Order for the payment of money being a Decree
or Order which has become final and the execution whereof
has not been stayed."
F
Thus by the amendments, the wc,rds "or order" have been added, so
that even an Order can sustain a11 Insolvency Notice. Similarly the words "of
any Court" figuring in Section 9(1 )(e) and (h) are o!llitted. Thereby the
qualification that Decree should be "of any Court" has been conscioi;sly
G removed and/or omitted. The expression "Decree or Order" in Section 9(2) to
(5) brought 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
H or proceeding'' in which the Decree or Order was passed. Thus any Decree
PARAMJEET SINGH PATHEJA v. ICDS LTD. [ LAKSHMANAN, J.] 193

or Order can sustain an Insolvency Notice, irrespective of whether they are A
of Court or any other Authority or Tribunal.

It was further submitted that, "Decree" in clauses (e) and (h) has a
different connotation from a "Decree or Order" in Section 9(2), and,

(i) Even if an Award is held not to be a Decree, it is still an Order B
within the meaning of Section 9(2) of the PTIA, which can sustain
an Insolvency Notice.
(ii) It is clear from the statement of Objects and Reasons behind the
PTIA and the Central Amendments thereto as also from the
decisions reported in AIR 1977 Bombay 305, 1994(3) B.C.R. 223 C
that the provisions relating to issuance of Insolvency Notice
(Section 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 D
Notice within the prescribed period, to present an Insolvency
Petition against the Debtor for having him adjudicated Insolvent.

Mr. L.N. Rao invited our attention to the provisions of P.T.I. Act, Rules, C.P.C.,
Arbitration Act of 1899 and 1996 and also relied on the following judgments
reported in AIR 1956 SC 35 [The Member, Board of Revenue v. Arthur Paul E
Benthall] followed in TB. Guddalli v. Registrar or Co-op. Societies, AIR
(1994) Kar. 66 (FB), Oriental Insurance Co. Ltd. v. Hansrajbhai V. Koda/a,
AIR (200 I) SC 1832, Commissioner ofIncome-tax, New Delhi v. Mis East West
Import & Export (P) Ltd., Jaipur, AIR (1989) SC 836, Mis B.R. Enterprises
v. State of U.P. and Ors., AIR (199._9) SC 1867. p
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. Arguing further Mr. L.N. Rao submitted that G
the Presidency Towns Insolvency Act does not define the term "Decree" or
"Order". Therefore, any order, which has become final and enforceable,
irrespective of whether 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. Sin_ce the said Act does not define the word H
194 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R. ..
A "Decree" or "Order'', it will be offending the legislative 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
B Act of Insolvencx under Clause (e) and (h) of Section 9(1) of the said Act,
whereas Section 9(2) brought in by the Amendment Act does not mandate
that the Decree should be of any Court.

When two words of different import are used in a statute in two
c consecutive provisions, it would be difficult to maintain that they are used
in the same sequence.

If the intention of the legislature was to provide the same provision,
nothing would have been easier than to say so. When two words of different
import are used in a statute in two consecutive provisions, it would be
D 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
E to express a different. intention.

The use of different words in the two provisions is for a purpose. If the
field of two provisions are to be the same, the same words would have been
used. When the two provisions use different words, the different words used
could only be to convey different meaning.
F
Mr. L.N. Rao further submitted that in viev. of the same, the conclusion
must follrJw that the expression "decree or order for payment of money"
found in Section 9(1 )(i) (Bombay Amendment of 1948) and also in Section 9(2)
(l 978 Central Amendment) of the said Act is not restricted to a Decree or
G Order "of any Court" as found in Section 9(l)(e). Ordinarily, the rule of
construction i!' 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 Jays 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 seeiuence and the conclusion must follow that the
H expression "decree or order for payment of money" found in Section 9(1 )(i)
PARAMJEET SINGH PATHEJA v. ICDS LTD. [ LAKSHMANAN, J.] 195

and also in Section 9(2) of the said Act, is not restricted to a decree or order A
"of any Court" as found in Section 9(1 )(e).

... In view thereof, it will be doing injury/offence to the legislative intent
if even for the purpose of taking out Insolvency Notice under Section 9(2)
of the said Act "a Decree of Court" is made necessary.
B
It will be a misconception to borrow the definition of "Decree" or
"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.
c
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, 1909 D
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
operation. Therefore there can be seen that the law makers were conscious
of what a 'decree', 'order' and an 'award' are. Also the fundamental difference
between 'Courts' and 'arbitrators' were also clear as back as in 1909. E
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'. F
Section 15 provides for its enforcement. It <;an therefore be observed that it
is only for the purpose of enforcement of the award, the arbitration award is
treated as if it were a decree of the Court.

Section 15 reads as under:
G
"15. Award when filed to be enforceable as a decree (1) An award
on a submission, on being filed in the Court in accordance with the
foregoing provisions, shall (unless the Court remits it to for
reconsideration to the arbitrators or umpire, or sets it aside) be
enforceable as if it were a decree of the Court.
H
196 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R.

A (2) An award may be conditional or in the alternative."

Section 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
B
"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 may be either preliminary or final. It shall be deemed to
include the rejection of a plaint and the determination of any
c question within Section 144, but shall not include-

(a) any adjudication from which an appeal lies as an appeal from
an order, or
(b) any order of dismissal for default.

D Explanation : A decree is preliminary when further proceedings have
to be taken before the suit can be completely disposed of. It is final
when such adjudication completely disposes of the suit. It may be
partly preliminary and partly final."

The words 'Court', 'adjudication' and 'suit' conclusively show that
E 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 -
F
"the formal expression of any decision of a civil court which is not
a decree;"

The words 'decision' and 'Civil Court' unambiguously rule out an
award by arbitrators.
G
The above view has been consistently taken in decisions on Section 15
of the Indian Arbitration Act, 1899 viz. Tribhuvandas Kalidas v. Jiwan Chand,
(191 l) 35 Bombay 196, Manila/ v. The Bharat Spinning & Weaving,, (35)
Born. L.R. 94 l, Ramshai v. Joy/all, AIR (l 928) Calcutta 840, Ghulam Hussein
v. Shahban, AIR (l 938) Sindh 220.
H
PARAMJEET SINGH PATHEJA v. !CDS LTD. [LAKSHMANAN, J.] 197
In Ramshai v. Joylall (supra), the Calcutta High Court held as follows: A
"(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 B
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." C
In Ghulam Hussein v. Shahban, AIR (1938) Sindh 220, the Court
·observed as follows:

"Section 9(e) must be strictly construed in favour of the debtor
to whom the matter of adjudication as an insolvent under the D
Insolvency law is one of vital importance. Any inconvenience arising
out of such a construction is for the Legislature to consider and
remedy if they think proper by amendment; it is not for the Court to
enlarge the meaning of the words used by the Legislature. An
attachment in execution of an award is not an attachment in execution
of the decree of a Court within the meaning of S.9(e) for the purpose E
of creating an act of Insolvency: AIR 1928 Cal.840 approved and
followed; 35 Born. 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 F
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 complied with.

These are strong words and strong language, and as l have said
above the judgment of Rankin CJ. must be treated with the greatest G
respect. The case of Ramsahai v. Joy/all is referred to by Sir D. Mulla
in his Commentary on the Law of Insolvency at P. 94. In para 123 Sir
D. Mulla states:

"An award for the payment of money filed in Court under S. l l of
I.A.A. 1890 is not a 'decree' within the meaning of the present c\ause H
198 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R.

A although it is enforceable under that Act as if 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 c,ites the case of
Ramasahai v. Joy/all (supra). The commentator proceeds:
B
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
c the Law of Insolvency is universally regarded as an authority, and in
the course of his Commentary on the Law oflnsolvency Sir D. Mulla
has not hesitated in several places to record his respectful dissent
when he has considered that the judgment of any High Court in India
is doubtful or incorrect. It is significant that in referring to the case
in AIR 1928 Cal. 840, the learned commentator has not recorded any
D
dissent, but on the contrary states that it is for consideration whether
Cl.(e) should not be amended by adding the words '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 Born 196, where it was
held by a Bench of the Bombay High Court that an award filed in
E Court under S. l l, Arbittation 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 0.21, R.29, for stay of execution of
a decree. The application was dismissed on the following grounds set
out in the judgment of Sir Basil Scott C.J.:
F Now, such an order can only be made by the Court, if there is a
suit pending on the part of a person against whom a decree has been
passed, against the holder of a decree of the Court. It appears to me
that the petitioner is not a holder of a decree of the Court ......... for
the award, to which the applicants seek to give the force of a decree,
G is nothing more than an award, although it is enforceable as if it were
a decree."

The same view was taken on Section 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:
H
"Where the Award in favour of the petitioning creditor came to be
PARAMJEET SINGH PATHEJA v. ICDS LTD. [ LAKSHMANAN, J.) 199
passed on the basis of the consent terms and not on the basis of an A
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 as if it were a decree still it is not a decree within the
meaning of the term as defined in section 2(2) of the Civil Procedure B
Code and, therefore, obtaining of such as Award does not fulfil the
requisite conditions contemplated by clause (i) of section 9(1) of the
Presidency Towns Insolvency Act. Consequently, on that basis the
respondent cannot be said to have committed act of insolvency, either
under clause {i) of sub-section 9(1) or sub-section (2) of section 9 of
the Act. AIR 1928 Cal.840, AIR 1938 Sind 220, AIR 1975 Cal 169 and C
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. D
Section 36 of the Arbitration & Conciliation Act, 1996 which is in pari
materia with Section 15 of the 1899 Act, is set out hereinbelow:

"36. Enforcement - Where the time for making an application to set
aside the arbitral award under Section 34 has expired, or such application E
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. "

In fact, Section 36 goes further than Section 15 of the 1899 Act and
makes it clear beyond doubt that enforceability is only to be under the CPC. F
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 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 G
requisite period, the same beco_mes final and binding as provided under
J 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 and a Decree does not hold water.
H
200 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R.

A The PTIA, 1909 does not define 'decree' or 'order' for the simple reason
that the meaning these terms has been well settled since the CPC of 1859 and
1882 and had been again defined in CPC of 1908. The other indicators that
an award of arbitrators is not intended to be a 'decree' or 'order' are:

(i) Section 2(a) and (b) define 'creditor' to include a decree-holder
B and a 'debt' to include a judgment-debt and 'debtor' 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
C that Courts and Judges render judgments; arbitrators only make
awards.
(iii) Section 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 Act dealt only
D with debtors who had suffered decrees by any Court for the
payment of money.

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. Sectidn 9 speaks of
a 'decree' and introduces the word 'order'. After so many years of the CPC
E being in force the Bombay Legislature knew that meaning of 'decree' and
'order' and used those terms as understood under the CPC.

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
F No. 28of1978 which introduced sub-sections (2) to (5) in Section 9. The SOR
gazetted on 18-03-1978 reads, inter-a/ia, as under:

"The difficu1ties 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 Committee on
G Legal Aid. The law Commission in its Third Report on the Limitation
Act, 1908, has recommended that the most effective way of instilling
a healthy fear in the minds of dishonest judgment-debtor would be to
enable the Court to adjudicate him an insolvent if he does not pay the
decretal amount after notice by the decree-holder, by specifying a
H period within which it should be paid, on the lines of the amendment
PARAMJEET SINGH PATHEJA v. !CDS LTD. [ LAKSHMANAN, J.] 201

made to the Presidency-Towns Insolvency Act, 1909 in Bombay. This A
recommendation 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 ihe enactment of a comprehensive law B
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 with
the insolvency notice served on him by a crnditor, who has obtained C
a decree or order against him for the payment of money, within the
period specified in the notice. If the amount shown in the insolvency
notice is not correct, it would be invalidated ifthe debtor gives notice
to the creditor, disputing the amount. The debtor can, however, apply
to the Court to have the insolvency notice set aside on the ground, D
among others, that he is entitled to have the decree re-opened under
any law relating 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 E
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.

As already noticed, "Litigation" has been held to mean "a legal action, F
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
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 G
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 H
202 .SUPREME COURT REPORTS [2006] SUPP. 8"S.C.R.

A discharges legislative, executive and judicial function and can legitimately
claim corresponding powers which are legislative, executive and judicial.
Under our Constitution, the judicial functions and powers of the State are
primarily conferred on the ordinary courts which have been constituted under
its relevant provisions. The Constitution recognized a hierarchy of Court
B and to their adjudication are normally entrusted all disputes between citizens
as well as between citizens and the State. These courts can be described as
ordinary courts of civil judicature. They are governed by their prescribed
rules of procedure and they deal with questions 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
C 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
D pronounced by administrative bodies are similarly distinct and separate in
character from judicial decisions pronounced by Courts.

Tribunals occupy a special position of their own under the scheme of
our Constitution. Special matters are entrusted to them and in that sense they
share with the Courts one common characteristic; both the Courts and the
E tribunals are 'constituted by the State and are invested with judicial as
distinguished from purely administrative or executive functions>.. ... 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."
F
"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."
G
"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
H sovereign for the purpose of administering justice. It is a place where justice
PARAMJEET SINGH PATHEJA v. ICDS LTD. [ LAKSHMANAN, J.] 203

is judicially administered. It is a legal entity." A
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 B
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"
c
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 a
tribunal under Article 136. Even if some of the trappings of the Court D
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 E
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) [of the 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 G
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.
H
204 SUPREME COURT REPORTS (2006] SUPP. 8 S.C.R.

A 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 the one hand and decrees and orders on the other and
B 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
C 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.
D
Section 36 of the Arbitration and Conciliation Act of 1996 brings back
the same situation as it existed from 1899 to I 940. Only under the Arbitration
Act, I 940, the award was required to be m«de a rule of Court i.e. required a
judgment followed by a decree of Court.

E 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 of judicial
organ established for the dispensation of justice, has passed a decree or order
F
for 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
G 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 :

H (i) that no insolvency notice can be issued under Section 9(2) of the
PARAMJEET SINGH PATHEJA v. ICDS LTD. [ LAKSHMANAN, J.] 205

Presidency Towns Insolvency Act, 1909 on the basis of an A
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. B
(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 C
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
D
(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. E
(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.
F
(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 G
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
H
206 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R.

A 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
B 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
C 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
D (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
E in civil appeal by this Court.

The Civil Appeal stands allowed. The order dated 19.3.2003 passed by
the Division Bench of the High Court of Bombay in Notice of Motion No. 72/
2002, Notice No. N/180/2001 is set aside. No costs. '··

F S.K.S. Appeal allowed.