Bombay High Court

Services Pvt. Ltd. vs ::: Downloaded On - 09/06/2013 ... on 16 October, 2012

Bench: Anoop V.Mohta

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             IN THE HIGH COURT OF JUDICATURE AT BOMBAY




                                                                          
                                IN INSOLVENCY

                    NOTICE OF MOTION NO. 47 OF 2012




                                                  
                                  IN
                  INSOLVENCY NOTICE NO. N/19 OF 2012 

    1     Rajendra N. Mehta, Adult




                                                 
          Resident of A/36, Roopdarshan, 
          3rd Floor, Juhu Lane, 
          New India Colony, Andheri (West),
          Mumbai-400 058.




                                        
    2     Mr. Ashok G. Ramchandani, Adult,
                          
          resident of 101, Fabian Building II,
          St. Martin's Road, Bandra (West),
                         
          Mumbai-400 050.

    3     Mr. Harshad Moorlidhar Shah, Adult
          resident of E-7 Kalpana, S.V.P. Road,
           

          Tilak Nagar, Mumbai -400 004.
        



    4     Mr. Arjun Ramchandra Pawar, Adult,
          resident of 3/14, Puspa Niwas,
          Han Alley Village, Vikroli Village,
          Mumbai-400 083.





          All of Mumbai, all adult Indian
          Inhabitants and carrying or deemed to
          be carrying on business or occupied as 
          The Directors of Shivam Multimedia





          Services Pvt. Ltd., at 206/A, Trade
          Corner, Saki Naka Junction,
          Andheri (E), Mumbai-400 072             ....Applicant/
                                                  Judgment Debtors.

                Vs.

    Prabhudas Liladhar Pvt. Ltd.
    a Company incorporated under the



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    provisions of the Indian Companies
    Act, 1956, having its registered office




                                                                                
    at 915, Maker Chamber V. Nariman Point,
    Mumbai-400 021 and Corporate/
    Correspondence office at 3rd Floor,




                                                       
    Sadhana House, P.B. Marg,
    Worli, Mumbai-400 018.                              ......Respondents.
                                                        Judgment Creditors. 




                                                      
    Mr. P. V. Shah for the Judgment Creditors.
    Mr.   Sandip   Parikh   i/by   Fox   Mandal   Partners   for   Judgment   Debtor 
    No.3.




                                           
                                CORAM   :-        ANOOP V. MOHTA, J.

                                DATE    :-        16 OCTOBER 2012.   
                              
    ORAL JUDGMENT:-
                             
            Heard finally. 
          


    2       One Mr. Harshad Moorlidhar Shah, Judgment Debtor No. 3 has

taken out this Motion to set aside Insolvency Notice No. N/19 of 2012

dated 29 June 2012, which was issued by the Insolvency Registrar on

the basis of Award dated 2 May 2005 in Arbitration Petition No. 543

of 2003/ There was no stay of execution. Therefore, called upon to

furnish the security for the awarded amount of Rs.3,72,78,897/- along

with interest at the rate of 15% p.a. from 12 June 2005.

3 The basic admitted position is as under:

On 24 September 2003, Award for Rs.3,72,78,897/- plus interest

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thereon @ 15% p.a. from 1 December 2002 till payment against

Shivam Multi-Services Private Limited, was passed, but rejected the

Judgment Creditors' claim against the Judgment Debtors (the

Directors). On 2 December 2003, Arbitration Petition No. 545 of

2003 filed by the Judgment Creditors, challenging the aforesaid

rejection against the Judgment Debtors. On 6 January 2004,

Arbitration Petition under Section 34 of the Arbitration and

Conciliation Act, 1996 (for short, the Arbitration Act) was admitted.

4 On 2 May 2005, the Court modified the Award, by allowing

Arbitration Petition No. 545 of 2003, and the Judgment Debtors were

directed to pay Rs. 3,72,78,897 plus interest thereon @ 15 % p.a.

from 1 December 2002 till payment and further directed to pay costs

of Rs.66,150/- also. On 7 July 2005, Judgment Debtor Nos. 1, 3 and

4 preferred Appeal No. 625 of 2005 under the Arbitration Act and

challenged the modified award. On 30 July 2005, Judgment Debtor

Nos. 1,3 and 4 took out Notice of Motion No. 2121 of 2005 in the

Appeal for stay of execution of the Award/Decree. On 8 August

2005, the Division Bench of this Court admitted the Appeal. On 3

March 2010, the Notice of Motion was dismissed.

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    5      On   29   June   2012,   Insolvency   Notice   No.   N/19   of   2012   was

issued. The same was served on the Judgment Debtor on 26 July

2012. On 14 August 2012, Judgment Debtors filed affidavit in

support of Notice of Motion No. 47 of 2012, registered on 16 August

2012 and served on 24 August 2012.

6 The learned counsel appearing for the Applicant has read and

referred Paramjeet

Singh Patheja Vs. ICDS Ltd. 1 ; the Presidency

Towns Insolvency Act, 1909 (for short, Insolvency Act) Section 9 read

with Section 2 and 15 of the Code of Civil Procedure (for short

"CPC"); and the provisions of Arbitration and Conciliation Act, 1996

(for short "the Arbitration Act") and challenged the issuance of notice

in question. The relevant observations are as under:-

"58. 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 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 1 AIR 2007 SC 168

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available under the CPC for realizing moneys.

61. In the light of the above discussion, we further hold that the Insolvency Notice issued under Section 9(2) of the P. T. I. Act 1909 cannot be sustained on the

basis of arbitral award which has been passed under the Arbitration & Conciliation Act, 1996. We answer the two questions in favour of the appellant."

7 The learned counsel appearing for the Judgment Creditors, on

the other hand, has relied on Section 9(2) of Insolvency Act and

contended that if any order passed by the Court which is executable,

such insolvency notice can be issued. He further contended that by

order dated 3 March 2010, against the order passed by the Single

Judge confirming and modifying the award, the Division Bench of this

Court not granted any stay and therefore, the modified award so

passed, can be the foundation for insolvency notice as the Judgment

Debtors, admittedly not paid the amount so awarded.

8 He relied on the judgment in Sharad R. Khanna and Ors. Vs.

Industrial Credit and Investment Corporation of India Ltd. and

Ors. 2 . In this Judgment, this Court after considering the situation and

the case read with the Sections, dismissed the similar motion. The

Arbitration Act was not considered. The facts and circumstances were

distinct and distinguishable.

    2 1993(1) Bom. C.R. 546





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    9     The relevant Sections 9 (2) and (5) of the Insolvency Act, are as 

    under:-




                                                             
           "9 (2)     Without   prejudice   to   the   provisions   of   sub-

section (1), a debtor commits an act of insolvency if a creditor, who has obtained a decree or order against

him for the payment of money (being a decree or order which has become final and the execution whereof has not been stayed), has served on him a

notice (hereafter in this section referred to as the insolvency notice) as provided in sub-section (3 ) and

the debtor does not comply with that notice within the period specified therein:

provided that where a debtor makes an application under sub-section (5) for setting aside an insolvency notice-

(a) in a case where such application is allowed by the Court, he shall not be deemed to have committed an

act of insolvency under this sub-section; and

(b) in a case where such application is rejected by the

Court, he shall be deemed to have committed an act of insolvency under this sub-section on the date of rejection of the application or the expiry of the period specified in the insolvency notice for its compliance, whichever is later:

Provided further that no insolvency notice shall be served on a debtor residing, whether permanently or temporarily, outside India, unless the creditor obtains the leave of the Court therefor."

"9 (5) Any person served with an insolvency notice may, within the period specified therein for its compliance, apply to the Court to set aside the

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insolvency notice on any of the following grounds, namely:-

(a) that he has a counter-claim or set off against the creditor which is equal to or is in excess of the

amount due under the decree or order and which he could not, under any law for the time being in force, prefer in the suit or proceeding in which the decree or

order was passed;

(b) that he is entitled to have the decree or order set aside under any law providing for the relief of indebtedness and that-

(i) he has made an application before the competent

authority under such law for the setting aside of the decree or order; or

(ii) the time allowed for the making of such application has not expired;

c) that the decree or order is not executable under the

provisions of any law referred to in clause (b) on the date of the application.]"

10 The Insolvency Act and the provisions so referred above itself

contemplates that a Creditor, who has obtained a decree or

order against the Debtor for the payment of money, which has

become final and the execution whereof has not been stayed, can

apply for Insolvency Notice. The Debtor if failed to comply with the

same within a period prescribed, further steps will be taken in

accordance with law. The provision itself permits the later to

move an application under Section 5, for seeking Insolvency notice

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itself. Section 9 Sub-clause (5) provides the conditions where the

Court can set aside the Insolvency Notice. It provides that the Debtors

are entitled to apply for setting aside the insolvency notice on the

various grounds, (a) to show that his Application to set aside the

decree and/or order as filed is pending; (b) he is also entitled to

challenge the decree and/or order under other law; and (c) he is also

entitled to demonstrate that the decree or order is unexecutable under

the provisions of law.

11 In the present case, admittedly, the Judgment Creditors

challenged the award, as it was not passed against the individual

Directors. By order dated 2 May 2005, the learned Single Judge of

this Court has modified the order and held that all the Directors of the

Company are also liable to pay the awarded amount. Some of the

Directors preferred the Appeal under Section 37 of the Arbitration Act.

The Appeal was admitted on 8 August 2005 and the same is pending

for final hearing since then. By order dated 3 March 2010, the Motion

taken out by the Directors in the Appeal, was dismissed by observing

that "In our opinion, with the passage of time, this Motion has become

infructious."

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    12    In this background, therefore, we have to consider the scheme of

the Arbitration Act also. Once the award is passed, an Application for

setting aside the Arbitral Award is filed in the Court under Section 34

of the Arbitration Act unless it is decided finally, it is not enforceable.

The relevant portion of Sections 35, 36 and 37 of the Arbitration Act

are as under:-

"35. Finality of arbitral awards.- Subject to this Part an arbitral award shall be final and binding on the

parties and persons claiming under them respectively.

36. Enforcement.- Where the time for making an

application to set aside the arbitral award under section 34 has expired, or such application having been made, it has been refused, the award shall be

enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of the Court.

37. Appeals orders.- (1) An appeal shall lie from the following orders (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order, namely:-

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(a) granting or refusing to grant any measure under Section 9;

(b) setting aside or refusing to set aside an

arbitral award under section 34.

(2) An appeal shall also lie to a Court from an order of the arbitral tribunal-

(a) accepting the plea referred to in sub-

section (2) or sub-section (3) of section

16; or

(b) granting or refusing to grant an interim

measure under section 17.

(3) No second appeal shall lie from an order passed

in appeal under this section, but nothing in this section shall affect or take away any right to

appeal to the Supreme Court.

13 It is clear, therefore, from the above position that the

award attains finality subject to above provisions. The

Application to set aside the award, if expired and/or refused,

the award shall be enforceable under the CPC, in the same

manner, as if it were the decree of the Court. It is relevant

to note the provisions of Appeals under Section 37 as available

under the Arbitration Act. In the present case, it is against the

refusal to set aside the Arbitral Award. This section itself

contemplates and provides a statutory Appeal against the orders

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passed under the respective Section. Section 34 is one of it. The

Appeal, therefore, so provided under the Arbitration Act, unless

decided finally, in my view, itself means the award has not attained

finality. Mere rejection of Application to set aside the Arbitral Award

itself cannot be the reason to enforce the award by treating the same

as the final decree or order. The Arbitration Appeal under the

Arbitration Act, definitely falls within the ambit of "provisions of any

law". The pendency of such Appeal, just cannot be overlooked to treat

the modified award as enforceable decree and/or order as contended

by the learned counsel appearing for the Creditors.

14 Section 9 (2) read with Sub-section (5) of the Insolvency Act,

also contemplates a situation, where before issuing such notice, it is

necessary to consider whether the money decree and/or order has

attained finality. In the present case, admittedly, the Appeal against

the order is pending. The effect and the power of the Appellate

Court, under Section 37 is quite settled. The order passed under

Section 34, may be set aside or modified. The modified award in no

way can be stated to be the final decree and/or final order. The

transaction in question is a commercial transaction. The stake, the

parties name and fame cannot be overlooked. Merely because there is

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award passed against one party, that itself is not sufficient to invoke

the provisions of Insolvency Act in such fashion at this stage, basically

when, the award /order has not attained finality.

15 The submission that the Appellate Court rejected the Motion for

stay in 2010, that itself cannot be the reason to accept the case of the

Creditors that the modified award has attained finality. Considering

the scheme and purpose of Arbitration Act, there is no express

provisions for stay of the award and the order passed by the Single

Judge, while confirming the award, therefore, merely because the

Motion was dismissed as recorded above, that situation itself cannot

falls within the ambit of "the execution whereof has not been stayed".

I am of the view that, unless the award become enforceable, a decree

and/or order, there is no question of execution of the same treating it

to be "a decree of the Court" as contemplated under Section 36 of the

Arbitration Act, as it has not attained the finality, as contemplated

under Section 35 of the Arbitration Act. Therefore, the dismissal of the

Motion by the Division Bench, as recorded above, cannot be treated

the modified award as the final and executable decree and/or order.



    16     The   learned   counsel   appearing   for   the   Judgment   Creditors 




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submits that the judgment Paramjeet Singh Patheja (Supra) in fact

supports the submission/case. The situation is different here. We are

concerned the situation where the modified award itself has not

attained finality, and therefore, it is unenforceable under the

Arbitration Act. Therefore, the invocation of the Insolvency Act, in

this background, is also unacceptable. In my view, the Insolvency

Notice so issued, is impermissible and contrary to the law. The

Applicant has made out the case to set aside the Insolvency Notice

dated 29 June 2012.

17 The Court has modified and passed the Award against all the

Directors. The Appeal was preferred by 3 Directors only. The present

motion is taken out only by one Director. At this stage, in view of the