NEW DELHI: An award under the Arbitration Act, 1996 is neither a decree nor order for payment of money; an insolvency notice cannot be issued on such an award, the Supreme Court has held.

An arbitrator is not vested with inherent judicial powers and he derives the power of adjudication from an agreement between the parties. "Courts are institutions invested with the judicial power of the state to finally adjudicate on disputes between litigants and to make formal and binding orders and decrees. Civil courts pass decrees and orders for payment of money and the terms `decree and order' are defined in the Civil Procedure Code.

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," said a Bench consisting of Justices A.R. Lakshmanan and Lokeshwar Singh Panta.

Award

The insolvency notice could not be issued on an arbitration award, which was neither a decree nor order for payment within the meaning of Section 9 (2) of the Presidency Towns Insolvency Act, 1909. Execution proceedings in respect of the award could not be proceeded with.

(Section 9 (2) provides that a debtor commits an act of insolvency if a creditor, who has obtained a `decree or order' for payment, issues a notice in the prescribed form asking him to pay the amount and the debtor fails to do so within the time specified.)

Writing the judgment, Justice Lakshmanan said the requirement of a decree was that adjudication be given in a suit, which must start with a plaint and culminate in a decree; the adjudication must be formal and final, and must begiven by a civil or revenue court.

The judges said: "An award does not satisfy any of the requirements of a decree. It is neither rendered in a suit nor is an arbitral proceeding commenced by the institution of a plaint."

In the instant case, an insolvency notice was served on Paramjeet Singh Patheja contending that the award would not amount to a decree.

The Bombay High Court held that the award was a decree and rejected his plea.

The apex court allowed his appeal and set aside the High Court order.

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