CPC. Attachment before judgment is a drastic power which should NOT be exercised mechanically to convert unsecured debt into a secured debt. Prima facie case and the chance of suit being decreed are relevant. Karnataka High Court. 11 Feb 2021
Ashish Krishnaswamy vs Money Focus Infrastructure Products Private Limited and others.
ComAp 33 of 2020 decided on 11 February 2021.
Chief Justice Abhay S. Oka and Justice Sachin Shankar Magadum.
Judgment Link: http://judgmenthck.kar.nic.in/judgmentsdsp/bitstream/123456789/370748/1/COMAP33-20-11-02-2021.pdf
Relevant paragraphs: 2. This is an appeal under sub-section (1) of Section 13 of the Commercial Courts Act, 2015 read with clause (q) of Rule 1 of Order XLIII of the Code of Civil Procedure, 1908.
4. The suit is filed for recovery of a sum of Rs.69,37,968/- with interest at the rate of 24% per annum from the date of filing of the suit till realization.
6. An application for attachment before judgment was filed by the plaintiff, being I.A No.1. The application was allowed by the order dated 23rd October 2019. The said order which grants attachment before judgment notes that the defendants are placed ex parte. An application was made by the second defendant (appellant) invoking sub-rule (4) of Rule 5 of Order XXXVIII of CPC, being I.A No.6. The prayer in the said application was for setting aside the said order of attachment dated 23rd October 2019. The said I.A was opposed by the plaintiff by filing a statement of objections. By the impugned order, the learned Trial Judge has dismissed the said I.A No.6 filed by the second defendant.
10. We have given careful consideration to the submissions.
11. Sub-rule (1) of Rule 5 of Order XXXVIII of CPC lays down the procedure for attachment of property. By virtue of Act No.104 of 1976, sub-rule (4) of Rule 5 of CPC was substituted and now the substituted rule lays down that if an order of attachment is made without complying with the provisions of sub-rule (1), such attachment shall be void. Sub-rule (1) of Rule 5 of Order XXXVIII of CPC lays down that if the Court is satisfied that the defendant with the intent to obstruct or delay the execution of any decree that may be passed against him is about to dispose of the whole or any part of his property or is about the remove the whole or any part of his property from the local limits of the jurisdiction of the Court, it may direct the defendant, within the time to be fixed by it, either to furnish security, in such sum as may be specified in the order to produce and place at the disposal of the Court, when required, the said property or the value of the same. Sub-rule (2) of Rule 5 requires the plaintiff to specify the property required to be attached and the estimated value thereof. In this case, admittedly, an order in accordance with sub-rule (1) of Rule 5 of Order XXXVIII of CPC was not passed by the Trial Court.
12. As far as the remedy of attachment before judgment under Rule 5 of Order XXXVIII of CPC is concerned, the law is fairly well settled. We are referring only to one decision of the Apex Court which reiterates the said law. The said decision is in the case Raman Tech & Process Engg Co and another vs Solanki Traders (2008) 2 SCC 302 Paragraphs 4 and 5 of the said decision are relevant which read thus:
“4. The object of supplemental proceedings (applications for arrest or attachment before judgment, grant of temporary injunctions and appointment of receivers) is to prevent the ends of justice being defeated. The object of Order 38 Rule 5 CPC in particular, is to prevent any defendant from defeating the realisation of the decree that may ultimately be passed in favour of the plaintiff, either by attempting to dispose of, or remove from the jurisdiction of the court, his movables. The scheme of Order 38 and the use of the words “to obstruct or delay the execution of any decree that may be passed against him” in Rule 5 make it clear that before exercising the power under the said Rule, the court should be satisfied that there is a reasonable chance of a decree being passed in the suit against the defendant. This would mean that the court should be satisfied the plaintiff has a prima facie case. If the averments in the plaint and the documents produced in support of it, do not satisfy the court about the existence of a prima facie case, the court will not go to the next stage of examining whether the interest of the plaintiff should be protected by exercising power under Order 38 Rule 5 CPC. It is well-settled that merely having a just or valid claim or a prima facie case, will not entitle the plaintiff to an order of attachment before judgment, unless he also establishes that the defendant is attempting to remove or dispose of his assets with the intention of defeating the decree that may be passed. Equally well settled is the position that even where the defendant is removing or disposing his assets, an attachment before judgment will not be issued, if the plaintiff is not able to satisfy that he has a prima facie case.
5. The power under Order 38 Rule 5 CPC is drastic and extraordinary power. Such power should not be exercised mechanically or merely for the asking. It Should be used sparingly and strictly in accordance with the Rule. The purpose of Order 38 Rule 5 is not to convert an unsecured debt into a secured debt. Any attempt by a plaintiff to utilize the provisions of Order 38 Rule 5 as a leverage for coercing the defendant to settle the suit claim should be discouraged. Instances are not wanting where bloated and doubtful claims are realised by unscrupulous plaintiffs by obtaining orders of attachment before judgment and forcing the defendants for out-of-court settlements under threat of attachment.”
13.As noted earlier, the satisfaction required to be recorded as per sub-rule (1) of Rule 5 of Order XXXVIII of CPC is that the defendant with an intent to obstruct or delay the execution of any decree that may be passed against him is about to dispose of the whole or any part of his property. Thus, the Court must be satisfied that there is a reasonable chance of a decree being passed in the suit and that is how there is a legal requirement of the Court being satisfied about the existence of a prima facie case.
14. In paragraph 5 of the aforesaid decision, the Apex Court has reiterated that the power under Rule 5 of Order XXXVIII of CPC is a drastic and extraordinary power which should not be exercised mechanically and merely for the asking. It should be used sparingly and strictly in accordance with Rule and the purpose of Rule 5 of Order XXXVIII of CPC is not to convert an unsecured debt into a secured debt. Further, it is held that it is well settled that merely having a just or valid claim or a prima facie case will not entitle the plaintiff to an order of attachment before judgment, unless the ingredients of sub-rule (1) of Rule 5 are established.
15. Coming back to the facts of the case, the order of attachment dated 23rd October 2019 was not preceded by any order passed in accordance with sub-rule (1) of Rule 5 of Order XXXVIII of CPC. The order merely refers to an affidavit of the plaintiff stating that the defendants are trying to sell the schedule properties. There is no finding recorded about the existence of a prima facie case or a reasonable possibility of a decree being passed in favour of the plaintiff against the second defendant and for that matter even against the first defendant. There is no satisfaction recorded that the second defendant with an intent to obstruct or delay the execution of the decree which may be passed against him is about to dispose of the whole or part of his property. Thus, the said order of attachment which has been made without complying with the provisions of sub-rule (1) of Rule 5 of the Order XXXVIII will be rendered void.
19. For the foregoing reasons, there is no prima facie case. Going by the averments made in the plaint, it is impossible to come to a conclusion that there is a reasonable possibility of a money decree being passed against the second defendant. Therefore, the second impugned order dated 30th June 2020 cannot be sustained and the application, being I.A No.6 will have to be allowed by holding that the attachment is void apart from the fact that even otherwise, it is illegal.
21. Accordingly, we pass the following order:
(i) The impugned order dated 30th June 2020 is hereby quashed and set aside. I.A No.6 in Commercial O.S No.225 of 2019 is hereby allowed and the order of attachment before judgment dated 23rd October 2019 is hereby set aside;
(ii) We make it clear that the observations and findings recorded in the judgment are only for the limited purpose of considering the controversy regarding validity of the order of attachment before judgment;
(iii) The appeal is allowed on the above terms;
(iv) The pending interlocutory application does not survive for consideration and stands disposed of.
