ORDER
A. P. Shah, J.
1. These three Notice of Motions involving a common question of law have been referred to the division bench by Chandrachud J. The common question of law is whether an Insolvency Notice under Sub-section (2) of Section 9 of the Presidency Towns Insolvency Act, 1909, can be sustained on the basis of an arbitral award that has been passed under the Arbitration and Conciliation Act, 1996. In all the three cases arbitral award has been passed against debtors who have filed these motions and the arbitral award had not been challenged under Section 34 of the Arbitration and Conciliation Act, 1996. On the basis of the award, Insolvency Notices came to be issued by the Petitioning Creditors under Sub-section (2) of Section 9 of the Presidency Towns Insolvency Act, 1909. These notices are impugned on the ground that the arbitral award is neither a decree nor an order within the meaning of Section 9(2) of the Act and that, therefore, such an award cannot form the foundation of a valid Insolvency Notice. Chandrachud J held that the arbitral award which has attained finality is enforceable as if it were a decree of the Court. The award assumes the character of a decree for the purpose of enforcement. Therefore an award which is enforceable as if it were a decree can form the foundation of the Insolvency Notice provided its enforcement has not been stayed and it has attained finality. The learned Judge however, noticed that a contrary view has been taken by J. A. Patil J. in Re: Siddharth Srivastava, 2002 (4) Mh.LJ. 281 that though the award is enforceable as if it were a decree, it is not still a decree within the meaning of Section 2(2) of the Code of Civil Procedure and, therefore, obtaining of the award does not fulfil the requisite condition contemplated by Section 9(2) of the Insolvency Act. Chandrachud J. felt that the view taken by J.A. Patil J. requires reconsideration and accordingly the matter has been referred to the division bench.
2. On behalf of the applicants Mr. S. H. Doctor, learned counsel urged that the expression decree or order used in Section 9(2) does not include arbitral award. The term decree used in Section 9(2) is referable to a decree as defined in Section 2(2) of the Code of Civil Procedure. Under Section 36 of the Arbitration and Conciliation Act, 1996, an award can be enforced under the Code of Civil Procedure 'in the same manner as if it were a decree of the Court'. Consequently, it has been urged that an award is not a decree and that the fiction which has been enunciated in Section 36 is only for the limited purpose of making an arbitral award enforceable in accordance with the provisions of the Code of Civil Procedure. The fiction, it was urged, cannot be extended beyond the purpose for which it was engrafted by the legislature. Therefore, even if the Legislature has chosen to call such an award a 'decree', it cannot be regarded as a decree within the meaning of Section 9(2) of the Insolvency Act.
3. Section 9 of the Presidency Towns Insolvency Act, 1909 defines Acts of insolvency, Sub-section (1) of Section 9 defines in its eight clauses various Acts of insolvency and for the purpose of this proceeding Clause (e) and Clause (h) are material. Clause (e) refers to a situation in which any property of the debtor has been sold or attached for a period of not less than 21 days in execution of the decree of an Court for the payment of money. Similarly, Clause (h) refers to a situation where a debtor is imprisoned in execution of the decree of any Court for the payment of money. Sub-section (2) of Section 9 provides that a debtor commits an act of insolvency if a creditor, who has obtained a decree or order against him for the payment of money being a decree or order which has become final and the execution whereof has not been stayed, has served on him an Insolvency Notice and the debtor does not comply with that notice within the period specified therein. The Insolvency Act has not defined the expression 'decree or order'. Under the definition of a decree contained in Section 2(2) of the Code of Civil Procedure, three essential conditions are necessary, namely, (i) that the adjudication must be given in a suit; (ii) that the suit must start with a plaint and culminate in a decree; and (iii) that the adjudication must be formal and final and must be given by a civil or revenue Court. By Section 2(14) the expression 'order' is defined to mean the formal expression of any decision of a Civil Court which is not a decree.
4. The submission of Mr. Doctor is based on the hypothesis that expression 'decree' in Section 9(2) would not cover an award of an Arbitral Tribunal made under the provisions of the Arbitration and Conciliation Act, 1996. The Arbitration and Conciliation Act of 1996 defines the expression 'arbitral award' to include an interim award. Section 31 of the Act provides for the form and contents of an arbitral award and Section 34 provides for recourse against an arbitral award. Sub-section (2) of the Section 34 provides the grounds upon which an arbitral award can be set aside. Under Sub-section (3) of Section 34, a period of three months is provided to institute an application for setting aside an award and that period is reckoned from the date on which the arbitral award has been received by the party making an application. The Court is empowered to condone the delay in filing an application under Section 34 for a period not more 30 days beyond the stipulated period of three months. The power of the Court to condone delay is thus restricted to a period not exceeding 30 days provided sufficient cause is shown. Section 35 of the Act provides that an arbitral award shall, subject to the other provisions of Part I, be final and binding on the parties and on persons claiming under them respectively. Section 36 lays down that where the time for making an application to set aside the arbitral award under Section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 in the same manner as if it were a decree of the Court. Prior to the enactment of the Arbitration and Conciliation Act, 1996, an award had to be made a rule of the Court before it could be enforced. That requirement has now been dispensed with by providing that the award can be enforced under the Code of Civil Procedure in the same manner as if it were a decree, once the time for challenging the award has expired or, in the event that an application to challenge the award has been made within time, it has been refused.
5. Mr. Doctor strenuously contended that a fiction has been created by Section 36 of the Arbitration and Conciliation Act, 1996 and that fiction is for the limited purpose of the enforcement of the award. In construing the fiction it is not to be extended beyond the purpose for which it is created or beyond the language of the section by which it is created. According to Mr. Doctor, a legal fiction which is created for the purposes of enforcement of the award under the Code of Civil Procedure cannot be extended to cover another Act. In this connection reliance is placed upon the judgment of the Supreme Court in A. C. A. & I Society v. Workmen, : (1962)IILLJ621SC . In that case, a Constitution Bench of the Supreme Court construed the provisions of Section 25FF of the Industrial Disputes Act, 1947 which provides for the payment of compensation to workmen in an undertaking, the ownership of which was transferred. The compensation was liable to be paid 'as if the workmen had been retrenched' under Section 25FF. While construing the words 'as if the workmen had been retrenched', the Supreme Court held that the provision has been made for the purpose of calculating the amount of compensation payable to the said workmen, rather than provide for measure of compensation over again. Section 25FF makes a reference to Section 25F for that limited purpose, and therefore in all cases to which Section 25FF applies, the only claim which the employees of the transferred concern can legitimately make is a claim for compensation against their employer. No claim can be made against the transferee of the said concern.
6. In interpreting a provision creating a legal fiction, the Court has to ascertain for what purpose the fiction is created, and after ascertaining this, the Court is to assume all those facts and consequences which are incidental or inevitable corollaries to the giving effect to the fiction. In an off-quoted passage. Lord Asquith stated 'If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it... The statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs.' The observations of Lord Asquith were cited with approval in Maganlal v. Jaiswal Industries, Neemach and Ors. : [1989]3SCR696 . In that case the Court considered the provisions of Subsection (8) of Section 32 of the States Financial Corporations Act, 1951, which used the expression 'in execution of a decree as if the Financial Corporation were the decree holder'. The Court held that the provisions contained in Order 34 Rule 5 of the Code in substance permit the judgment debtor to redeem the mortgage even at the stage contemplated by Order 34, Rule 5 unless the equity of redemption has got extinguished. Therefore, there is no good ground to take the view that even though all the remaining provisions with regard to execution of a decree for sale of mortgage property will apply to execution of an order under Section 32 of the Act, the provision contained in Order 34, Rule 6 of the Code shall not apply.
7. In the light of these principles, if we consider the provisions of Subsection (2) of Section 9 of the Insolvency Act, the essential condition is that the creditor must have obtained a decree or order against the debtor for the payment of money and that decree or order must be final and of which execution has not been stayed. Under the Arbitration Act, 1940 an award of the arbitrator could not be enforced unless it was made rule of the Court. Under the new Act an arbitral award becomes enforceable as if it were a decree of the Court on expiry of the time for making an application to set it aside under Section 34, or where any such application has been made, on the same being refused. In construing the words 'as if it were a decree of the Court', the Court must be guided by the substance of the matter and not merely form. The substance of the matter is that when an award is made it is enforceable in exactly the same manner as a decree and is as binding and is as conclusive as any ordinary decree. If a question arises between the parties the award can be called in aid to prevent agitation of the question, which has already been decided by the award. That being so, it is difficult to appreciate any distinction of substance between an award which has the force of a decree under Section 36 and the decree passed by the Court. Under these circumstances, it is not possible to say that such an award which has the force of a decree is not a decree within the meaning of Section 9(2) of the Insolvency Act. Under Sub-section (2) of Section 9 of the Insolvency Act the emphasis is on the character of the enforceability of the decree. Hence, for that purpose, the statute has spelt out that the decree, or order as the case may be ought to be final and its execution ought not to have been stayed. Once an arbitral award has become final and binding upon the person or persons claiming under and bound by the award, the award is impressed with the character of a decree and can be enforced under the Code of Civil Procedure, 1908 in the same manner as if it were a decree of the Court. That being the position, an award which has become final and binding can be regarded as constituting a valid foundation for the issuance of an Insolvency Notice under Sub-section (2) of Section 9.
8. In Lyallpur Bank Ltd v. Ramjidas , the effect of Section 199 of the Companies Act, 1993, which was similar to Section 634 of the Companies Act, 1956, fell for consideration. The appellant-bank had put in execution, an order in its favour, passed under Section 186 of the Companies Act. This application was considered under Section 73 of the Code of Civil Procedure which provide that where the assets are held by a Court and more persons than one have before receipt of such assets made an application for execution of decrees for payment of money passed against the same judgment debtor, the assets shall be rateably distributed amongst all such persons. The Courts in India had held that an order made under Section 186 of the Companies Act which, inter alia, enables the Court to direct a contributory to make payment due from him to the company, did not come within the definition of decree. Therefore, a holder of such an order does not fulfil the requirement of Section 73 which only enables persons who have 'made application to the Court for the execution of decree' to apply for rateable distribution. Construing Section 199 of the Companies Act, the Judicial Committee held that the view taken was a very narrow view and that the application under Section 73 of the Code made by the Company must be deemed to be an application for execution of a decree for the purpose of that section. The Judicial Committee approved the earlier decision of the Lahore High Court in Radheshyam Beopar Co. v. Karam Chund AIR 1941 Lah 273 in which Lahore High Court observed :
'It does not appear to us to matter whether the order is or is not a decree and the discussion on that point appears to us to be purely academic. Section 199, as was pointed to in AIR 1918 Lah 211, puts the order on the same footing as the decree as far as the execution goes and rateable distribution under Section 73 is clearly a method of enforcement of a decree or of an order in the nature of a decree'.
9. In a recent judgment of the division bench of this Court in Re: Nilesh Lalit Parekh v. Pratibha Inderjit Kapur : 2002(1)BomCR357 , in a petition for winding up consent terms were recorded and an order was made in terms thereof. Upon the company admitting its liability and agreeing to pay in certain instalments, the respondent, who was the Managing Director of the company, agreed to an order guaranteeing the payment of the amounts due. He further agreed for the performance of the consent terms. Upon failure of the company to make payment in accordance with the order of the Company Court recording consent terms, the appellant applied for issue of Insolvency Notice to the respondent. One of the contentions raised by the respondent was that Section 634 of the Companies Act does not confer status of a decree on order passed by the Company Court and, therefore, such an order cannot be executed in accordance with Section 145 of the Code of Civil Procedure. It was urged that the Section 634 merely provides for manner in which the order made by the Company Court can be enforced and the section does not convert an order made by the Company Court into a decree. The division bench following the decision in the case of Lyallapur Bank Ltd. (supra) held that if an order passed by the Company Court could be said to have the force of a decree then the order binding the respondent would be executable under Section 145 of the Code of Civil Procedure. The order would therefore, be a decree of order for payment of money within the meaning of Section 9 of the Insolvency Act.
10. Mr. Doctor, however, heavily relied upon a decision of the Calcutta High Court in Rambhai Mull More v. Joylall : AIR1928Cal840 where the division bench presided over by Rankin C. J. held that an attachment in execution of an award is not an attachment in execution of a decree within the meaning of Section 9(e) of the Insolvency Act for the purpose of creating an Act of insolvency. That case arose under the Indian Arbitration Act, 1899 which provided that an award on submission, on being filed shall be enforceable as if it were a decree of the Court. The learned Chief Justice relying upon an English decision in Re: Bankruptcy Notice, (1) (1907) L.K.B. 452 held that although the award could be enforced as if it were a decree of the Court and therefore provisions of Order 21 and various other provisions of the Code of Civil Procedure were attracted, 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, therefore, it cannot be held that there has been an act of insolvency when the definition given by the Legislature has not been complied with. In the words of the learned Chief Justice '.......we cannot treat an award as a decree except for the purpose of enforcing that award'. With all respect to the learned Chief Justice we are unable to agree with his reading of the section. The decision in Re: Bankruptcy Notice was based on Section 12 of the English Arbitration Act which provided that an award 'made by leave of the Court or a judge be enforced.........'. The wording of Section 15 of the Indian Arbitration Act, 1899 was distinctly different where the words used were 'shall be enforceable as if it were a decree of the Court'. Similarly under Section 36 of the Arbitration Act 1996 expression used is '..... in the same manner as if it were a decree of the Court'. In our opinion the difference in wording is material. While under the English Act the Court was given discretion to grant leave or not and without leave award was not enforceable at all. Under the Arbitration Act, 1996 no such discretion is given to the Court and the words of Section 36 show that the award must be construed enforceable as if it were a decree. We therefore think that the English case decided under Section 12 of the English Arbitration Act and which section is materially different from the Arbitration Act, 1996 is of no assistance in deciding this question. We are of the opinion that keeping in view' the provisions of Section 36 of the Arbitration Act, 1996, Sub-section (2) of Section 9 can be invoked by a creditor in whose favour an arbitral award has been passed under the 1996 Act, when the award has become final and binding as a result, either of no challenge being preferred within the period of limitation or upon such a challenge being preferred it has been rejected.
11. We may also refer to the decision in the case of Tribhuwandas Kallindas Gajjar v. Jivanchand Lallubhai, (1911) 35 Bom 196. In that case provisions of Order 21 Rule 29 came to be considered in connection with an award. It is provided in Order 21 Rule 29 that a Court could stay the execution of the decree when the suit is pending before the Court against the holder of a decree. In support of their case the respondents relied on the decision of Tribhuwandas Kallindas Gajjar v. Jivanchand, (1910) 35 Bom 196, where the learned Chief Justice Sir Basil Scot relying upon the decision in Re: Bankruptcy Notice (supra) held that Section 15 of the Indian Arbitration Act, 1899 did not give power to the Court to turn an award into a judgment and it only gave the award same status as a judgment for the purpose of enforcement, but it left what it was before, namely, an award. Kania J. however, recorded a dissenting view and held that the Legislature by Section 15 of the Indian Arbitration Act clearly meant to give an award all the qualification of a decree in connection with enforcing the same. If the respondents contention, that award cannot be called a decree, which is passed by any Court, and the award, although it may be enforceable as a decree under Section 15 of the Indian Arbitration Act is not a decree, the result would be that, apart from the fact that where it is made against an individual or a firm an award would not be enforceable at all by execution. The logical result of accepting such a contention would, therefore, be to render wording of Section 15 of the Indian Arbitration Act, meaningless because the holder of the award would not be a decree-holder and in no case, decree of any Court having been passed in his favour he can apply for execution in any Court. The judgment of Kania J was confirmed by the division Bench. Mr. Justice Rangnekar who delivered the concurring judgment observed thus :
'It is not disputed that in the case of an award under the Indian Arbitration Act against an individual the award can be enforced in accordance with the provisions of Order XXI of the Code. That being the case, by reading the relevant provisions of the Act and the provisions of Order XXI, I think it must be held that in such a case the party applying to enforce an award is 'the holder of a decree' and the High Court in this particular case is the 'Court which passed the decree'. The result of holding otherwise would be to make Section 15 of the Indian Arbitration Act for all practical purposes a dead letter, prevent the parties from enforcing their rights summarily, and thus defeat the very object for which the law of arbitration is enacted. I think, therefore, this contention must also be overruled.'
12. Our attention was also drawn to a decision of the learned single Judge of the Calcutta High Court in Khusal Chand Sadani v. Balkissen Mohta, : AIR1975Cal169 wherein the learned Judge has held that order passed by the Company Court although it may involve an adjudication by a Court of the matters in controversy is an order which can be enforced under Section 634 in the same manner as a decree made by the Court, that it may have many attributes of a decree but it is not a decree. The learned single Judge in that case relied upon the observations of Rankin C. J. in Rambhai Mull More's case. The view taken by the Calcutta High Court is clearly contrary to the view taken by the division bench of this Court in Re: Nilesh Lalit Parekh.
13. Before concluding we must notice an argument advanced by Mr. Doctor that none of the forms which have been appended to the Insolvency Rules apply to an arbitral award on the basis of which an insolvency notice is issued. Rule 3 of the Insolvency Rules expressly provides that the forms in Appendix I shall be used with such variations as circumstances may require. Therefore the forms which have been prescribed under the Insolvency Rules will have to be suitably modified in relation to the issuance of an insolvency notice on the basis of an arbitral award. The forms contained in the Insolvency Rules cannot have an overbearing importance so as to supersede the mandate of Sub-section (2) of Section 9 of the Act.
14. In the light of the above discussion we hold that the Insolvency Notice issued under Sub-section (2) of Section 9 of the Presidency Towns Insolvency Act, 1909 can be sustained on the basis of arbitral award which has been passed under the Arbitration and Conciliation Act, 1996. Reference is answered accordingly.
The Notice of Motions may be placed before the learned single Judge for disposal in accordance with law.
Certified copy expedited.