IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 09.09.2008 CORAM THE HONOURABLE MR.JUSTICE M.CHOCKALINGAM AND THE HONOURABLE MR.JUSTICE M.VENUGOPAL O.S.A.NOS.202 AND 203 OF 2006 S.Sivagamiammal .. Appellant in both the appeals Vs. M/s.Sagar Constructions, rep. by its Proprietor K.M.Vidyasagar Nos.91 & 92, Jawaharlal Nehru Salai, Ashok Nagar, Chennai-83 .. Respondent in O.S.A.No.202 of 2006 M.K.Mathivathanan .. Respondent in O.S.A.No.203 of 2006 These original side appeals have been preferred under Order XXXVI Rule 1 of O.S. Rules read with Clause 15 of Letters Patent against the common order and decretal order passed by the learned Single Judge made in Application Nos.234 and 235 of 2005, setting aside the insolvency notices in I.N.Nos.187 and 184 of 2004, dated 29.06.2005. For Appellant : Mr.N.R.Chandran, SC for Mr.P.Hari Babu For Respondents: Mr.R.Krishnaswami, SC for Mr.Srinath Sridevan COMMON JUDGMENT (The judgment of the Court was made by M.CHOCKALINGAM, J.) These two appeals have arisen from a common order of the learned Single Judge of this court made in Application Nos.234 and 235 of 2005 in Insolvency notices in I.N.Nos.187 and 184 of 2004. https://hcservices.ecourts.gov.in/hcservices/ 2.The circumstances under which these appeals have arisen could be stated thus: A suit in C.S.No.895 of 2000 was filed by M/s.Sagar Constructions and Mr.M.K.Mathivathanan, who were applicants, against the respondents Sivagamiammal and another for a declaration that the deed, dated 10.7.2000 executed by the respondent in the applications, namely the first defendant in the suit, was void and inoperative and also for consequential permanent injunction to restrain the defendants from taking any action on the strength of the said document. The parties to the suit entered into a memorandum of compromise, pursuant to which a decree came to be passed. The said Sivagamiammal, calling herself as decree holder and terming the said M/s.Sagar Constructions and Mathivathanan as judgment debtors, filed insolvency notice petitions, stating that it was a money decree; that they have not paid the decree debt and hence they were liable to answer the insolvency notices. Notices were ordered in those petitions by the Master of this court on 23.12.2004. On service of notice, the said Mathivathanan and M/s.Sagar Constructions made application Nos.234 and 235 of 2005, seeking to set aside the said insolvency notices. Both the applications were taken up for enquiry by the learned Single Judge, who on consideration of the submissions made and looking into the materials available, ordered that the insolvency notices were unsustainable and accordingly, set aside the same. Hence these two appeals have arisen at the instance of the said Sivagamiammal, who took insolvency notices. 3.The only question that would arise for consideration in these appeals is that whether the applicants, who are respondents in these appeals, are liable to honour insolvency notices in question? 4.Advancing arguments on behalf of the appellant, the learned Senior Counsel would submit that the point for consideration framed by the learned Single Judge was totally irrelevant insofar as the applicability of provisions of the Insolvency Act was concerned; that the Court has misdirected itself in having attached undue significance to the extrinsic nature of the decree under which the claim is stated to have arose for invoking the provisions of the Insolvency Act; that irrespective of the exfacie nature of the decree, if the terms thereof give rise to a claim for money whether in the nature of or on account of mesne profits, damages for use and occupation, maintenance, annuity, etc., the claim would nevertheless constitute a debt enabling a creditor to invoke the insolvency jurisdiction; that when the respondents have failed to satisfy any of the grounds enumerated in Section 9(5) of the Act, the applications filed by them should have been dismissed; that the appellant had sought execution of the compromise decree in E.P.Nos.133 to 135 of 2003 only after the failure on the part of the respondents to perform their decretal obligations and after the expiry of the time stipulated for that purpose; that on the date when the insolvency proceedings were initiated, the decree ripened into an executable decree, giving rise to a money claim, which could be worked out in terms thereof. https://hcservices.ecourts.gov.in/hcservices/ 5.The learned Senior Counsel would further submit that the learned Single Judge was not correct in holding that the decree under which debt arose is a composite decree and not a decree for payment of money; that the phraseology "decree or order for the payment of money" contained in Section 9(2) of the Insolvency Act (Act 3 of 1909) would also take within its ambit any kind of money claim whether in the nomenclature of mesne profits, damages for use and occupation, other kind of compensation etc.; that as could be seen from the terms of the compromise decree, it would be quite clear that the decree was as much as executable as a decree for payment of money; that since applications are filed under Section 9(5) of the Act to set aside the insolvency notices, the court should consider only the merits of the application only on the grounds provided thereunder; that the terms Creditor under the Insolvency Act means and includes a Decree holder, debt would include judgment debt and Debtor would include judgment debtor and under these circumstances, the notices should not have been set aside and that the setting aside of the notices was not in conformity with the tenor and spirit of the provisions of the Insolvency law; that the observation made by the learned Single Judge that the claim under Clause 6 of the decree was subject to clauses 1 to 5, was factually erroneous and equally, the findings in relation to clauses 14 and 19 of the decree; that since the respondents have failed to perform their obligations, the decree became executable and under these circumstances and taking into consideration the said vital aspects, the learned Single Judge should have dismissed the applications, but has not considered the same in the proper legal perspective and hence the order of the learned Single Judge has got to be set aside and both the appeals have got to be ordered. 6.The learned Senior Counsel for the respondents, in answer to the above contentions, reiterated the contentions put forth before the learned Single Judge in his sincere attempt of sustaining the order of the learned Single Judge. 7.The Court has paid its anxious consideration on the submissions made and looked into the materials available, in particular the compromise decree entered into between the parties. 8.As could be seen above, C.S.No.895 of 2000 was filed by the applicants, seeking declaration that the deed entered into between the parties on 10.7.2000 was void and inoperative and for consequential permanent injunction. It was not a suit for recovery of money. Pursuant to the memorandum of compromise filed by both the parties, a compromise decree came to be passed. The important clauses under the said compromise decree, namely clauses 1 to 6, 14 and 19 read as follows: "1.That as agreed by both parties hereto the Defendants herein shall give the name 'BALU ENCLAVE' to the Complex Constructed under the project and that the 1st Plaintiff herein shall carry out engraving of the building of the above name on the front portion of the said building and during the course of work done sign-boards at https://hcservices.ecourts.gov.in/hcservices/ two places to that effect shall be displayed at the appropriate road junction. 2.That the 1st Plaintiff herein on failing to make such display as mentioned in clause (i) Supra, the 1st Defendant herein shall carry out the said work mentioned in clause (i) supra instead of the 1st Plaintiff herein and shall claim reimbursement to an extent of Rs.7500/- from the 1st Plaintiff herein. 3.That the 1st Plaintiff herein shall employ the name of the complex in all the instruments, documents and deeds done or executed by him. 4.That the 1st Plaintiff herein shall construct and complete a total number of 46 flats and out of the same shall deliver 17 (seventeen) flats to the 1st Defendant herein as per the schedule specified in Annexure hereto as full and final settlement of all her claims. 5.That the 1st Plaintiff herein shall confirm the specifications given in the Annexure 2 hereto in respect of the constitution of the flats as mentioned in clause (4) supra. 6.That in respect of any delay caused in effecting the delivery of the flats as per Annexure 1 hereto the 1st Plaintiff herein shall pay at the rate of Rs.3/- per sq.ft monthly to the 1st Defendant herein. ..... 14.That in default of giving effect to regularise the defective and unfructified conveyances as stated in clause (10) supra shall pay the value at the rate of Rs.250/- (Rupees two hundred and fifty only) per sq.ft in respect of such undivided interest not regularised at the time of completion of the project. ...... 19.That in the event of any restriction imposed by statutory bodies or on account of any reason the 1st Plaintiff herein could not give effect to the delivery of flats in Second Floor as per clause (4), the 1st Plaintiff herein shall make good the shortfall to the extent of 3356 sq.ft in ground and first floor from his other projects duly approved by Corporation, MMDA in Valasaravakkam and Ramavaram to the satisfaction and options of the 1st Defendant on or before 30th July 2002 and that if the 1st Plaintiff herein is unable to procure alternative building from his other projects mentioned above, he shall pay to the extent of shortfall at the rate of Rs.850/- per sq.ft unconditionally on 1st August 2002." A very reading of the entire compromise decree would reveal that it was not a decree for payment of money or any ascertained sum. On the contrary, it can be termed as composite decree. A reading of the https://hcservices.ecourts.gov.in/hcservices/ aforementioned clauses would clearly indicate that the non performance of certain conditions imposed thereon would give rise to a situation when liability for payment of money would arise. In order to sustain the notices invoking under Section 9(2) of the Insolvency Act, there must be a decree or an order for payment of money. A reading of all the terms in the compromise decree as a whole would make it evident that it was neither a decree nor an order for payment of money, but it would confer a right on the parties to make a claim for money against the other for non fulfilment of the obligations imposed upon them under the terms of the compromise. Under these circumstances, the contention put forth by the learned counsel for the appellant that the decree gives rise to a money claim against the respondents for non fulfilment of the obligations and hence the decree was executable as one for decree for payment of money, though attractive, cannot be countenanced in law. 9.Much reliance was placed by the appellant on clause 6 of the compromise decree, referred to above and according to the learned counsel, as per the calculations made, E.P. has also been filed before the Master. The Court is afraid whether clause 6 could be construed as a decree or an order for payment of money, since it would be quite evident from clause 6 that if any delay was caused in effecting the delivery of the flats in terms of clause 4, the first plaintiff should pay at the rate of Rs.3/- per sq.ft. monthly to the first defendant. This clause 6 cannot be taken separately and could be acted upon terming it as a decree for payment of money. It should not be forgotten that clauses 1 to 5 imposed various conditions for fulfilment on both the parties. 10.At this juncture, the contention put forth by the learned counsel for the respondents is that the appellant, who has failed to perform her terms under the compromise decree, should not be allowed to complain that the respondents have not performed their obligations under the compromise decree. As could be seen in clause 10, the plaintiffs 1 and 2 should regularise the defective conveyances at their costs. This is not a clause for payment of money, but it was only meant for regularisation of the defective conveyance. Equally, clause 14 speaks of payment of stipulated sum per square feet, if not regularised at the time of completion of the project. These clauses cannot be termed as a decree or an order for payment of money. 11.From the submissions made, it would be quite clear that one is complaining of the delay caused by the other. In short, the entire reading of the terms under the compromise decree cannot be construed that there was any decree or order for payment of money. True it is, the term Creditor under the Insolvency Act means and includes decree holder, debt would include judgment debt and the debtor would include judgment debtor. The Apex Court had an occasion to consider the question as to whether the insolvency notice under Section 9(2) of the Presidency Towns Insolvency Act, 1909 can be sustained on the basis of the arbitral award made under the Arbitration and Conciliation Act, 1996 and held in negative. It would be more apt and appropriate to reproduce the relevant paragraphs in the judgment of the Supreme Court reported in (2006) 13 SCC 322 (PARAMJEET SINGH https://hcservices.ecourts.gov.in/hcservices/ PATHEJA VS. ICDS LTD.), which read as follows: "41.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 the 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 available under CPC for realising monies. 42.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. 43.For the foregoing discussions we hold: (i)That no insolvency notice can be issued under Section 9(2) of the Presidency Towns Insolvency Act, 1909 on the basis of an arbitration award. (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. (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 CPC and hold that there are essential conditions for a "decree": (a)that the adjudication must be given in a suit, (b)that the suit must start with a plaint and culminate in a decree, and (c)that the adjudication must be formal and final and must be given by a civil or Revenue Court. An award 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. (v)A legal fiction ought not to be extended beyond its legitimate field. As such, an award rendered under the provisions of the Arbitration and Conciliation Act, 1996 cannot be construed to be a "decree" for the purpose of Section 9(2) of the Insolvency Act. (vi)An insolvency notice should be in strict https://hcservices.ecourts.gov.in/hcservices/ 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 object of Section 22, in protecting guarantors from legal 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 imperative that the expression "suit" in Section 22 be given its plain meaning, namely, any proceedings adopted for realisation 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 cannot form the basis of an insolvency notice." From the above, it would be quite clear that to cause issuance of notice under Section 9(2) of the Act, there must be a decree or an order for payment of money. In the instant case, the court is unable to notice any decree or order for payment of money. Under these circumstances, the order made by the learned Single Judge does not require any interference. 12.In the result, both these original side appeals are dismissed, leaving the parties to bear their costs. sd/- Asst.Registrar /true copy/ Sub Asst.Registrar vvk To The Sub Assistant Registrar (OS) High court, Madras. +1 cc To Mr.Srinath Sridevan, Advocate, SR.51421 +2 ccs To Mr.P.Hari Babu, Advocate, SR.51523,51524 O.S.A.NOS.202 AND 203 OF 2006 ssv [co] gkg/30.9 https://hcservices.ecourts.gov.in/hcservices/