Attachment before Decree: Order 38 Rule 5 of CPC
The civil case after conclusion of trial culminates into passing judgment
and decree. If a plaintiff succeeds in a suit filed by him and even after the
judgment and decree, the decree remains unsatisfied, the plaintiff or successful
parties are required to seek enforcement of decree or award by way of an execution
petition. The order 21 Rule 10 of Code of Civil Procedure contains the
procedure for execution. Though, there are various situations relating to
enforcement of decree including requirement of punitive measures and Order 21
Rules 1 to 106 of Code of Civil Procedure relates to execution proceedings and
cater to any probable situation, including, but not limiting to attachment of
immoveable properties and sale by auction etc. These are norms. A limited
exception or departure, however, is carved out in this regard and in
exceptional circumstances, the order of attachment of the properties could be
passed even during the pendency of a suit. The principles to that effect are
contained in Order XXXVII and Rule 5 of Code of Civil Procedure. By way of this
article, the aforesaid provisions of Order XXXVIII Rule 5 shall be analysed.
It may be worthwhile in the context to reproduce the provision of Order
XXXVIII & Rule 5 of Code of Civil Procedure.
5. Where defendant may be called upon to furnish security for
production of property.
(1) Where, at any stage of a suit, other than a
suit of the nature referred to in section 16, clause (a) to (d) the Court is satisfied, by affidavit or
otherwise,
(a) that the defendant, with intent to delay the
plaintiff, or to avoid any process of the Court or to obstruct or delay the
execution of any decree that may be passed against him,-
(i) has absconded or left the
local limits of the jurisdiction of the Court, or
(ii) is about to abscond or leave the local limits
of the jurisdiction of the Court , or
(iii) has disposed of or removed
from the local limits of the jurisdiction of the Court, his property or
any part thereof , or
(b) That the defendant is about
to leave [India] under circumstances affording reasonable probability that the
plaintiff will or may thereby be obstructed or delayed in the execution of any
decree that may be passed against the defendant in the suit.
The Court may issue a warrant to
arrest the defendant and bring him before the Court to show cause, why he
should not furnish security, for his appearance
Provided that the defendant shall
not be arrested if he pays to the officer entrusted with the execution of the
warrant any sum specified in the warrant as specified as sufficient to satisfy
the plaintiff’s claim and such sum shall be held in deposit by the Court until
the suit is disposed of or until the further order of the Court.
As narrated above, the measures
as contained in Order XXXVIII Rule 5 are extra-ordinary in nature and it is a departure
from the conventional procedure, therefore, the provisions and its legal
implication may need a close look. It is not without reason that guidelines are
stipulated through judicial dicta in this regard.
Guidelines
before invoking Order XXXVIII Rule 5 of Code of Civil Procedure
The Calcutta High
Court in a celebrated judgment reported as Premraj
Mundra vs Md. Maneck Gazi And Ors AIR 1951 Cal 156 have laid down guiding principles. The principles may
be shown as follows:
(1) That an order under Order 38,
Rules 5 & 6, can only be issued, if circumstances exist as are stated
therein. Two aspects in the circumstances has to be satisfied: one the factum
of removal of properties from the jurisdiction of the Court and second the
mental element i.e with the intention to defraud the plaintiff;
(2) Whether such circumstances
exist is a question of fact that must be proved to the satisfaction of the
Court. The proof may be made either by way of filing affidavits or by adducing
proof in the regular hearing of the suit;
(3) That the Court would not be
justified in issuing an order for attachment before judgment, or for security,
merely because it thinks that no harm would be done thereby or that the
defendant would not be prejudiced;
(4) That the affidavits in support of
the contentions of the applicant, must not be vague, & must be properly
verified. Where it is affirmed true to knowledge or information or belief,
it must be stated as to which portion is true to knowledge, the source of
information should be disclosed, & the grounds for belief should be stated;
(5) That a mere allegation that the
defendant was selling off & his properties is not
sufficient. Particulars must be stated;
(6) There is no rule that transactions
before suit cannot be taken into consideration, but the object of attachment
before judgment must be to prevent future transfer or alienation. In order to
prove the intention part of the defendant, the normal rule of evidence is
applicable;
(7) Where only a small portion of the
property belonging to the defendant is being disposed of, no inference can be
drawn in the absence of other circumstances that the alienation is necessarily
to defraud or delay the plaintiff's claim;
(8) That the mere fact of transfer is
not enough, since nobody can be prevented from dealing with his properties
simply because a suit has been filed: There must be additional circumstances to
show that the transfer is with an intention to delay or defeat the plaintiff's
claim. It is open to the Court to look to the conduct of the parties
immediately before suit, & to examine the surrounding circumstances, &
to draw an inference as to whether the defendant is about to dispose of the
property, & if so, with what intention. The Court is entitled to consider
the nature of the claim & the defence put forward;
(9) The fact that the defendant is in
insolvent circumstances or in acute financial embarrassment, is a relevant
circumstance, but not by itself sufficient;
(10) That in the case of running
businesses, the strictest caution is necessary & the mere fact that a
business has been closed, or that its turnover has diminished, is not enough;
(11) Where however the defendant
starts disposing of his properties one by one, immediately upon getting a
notice of the plaintiff's claim, &/or where he had transferred the major
portion of his properties shortly prior to the institution of the suit &
was in an embarrassed financial condition, these were grounds from which an
inference could be legitimately drawn that the object of the defendant was to
delay and defeat the plaintiffs' claim;
(12) Mere removal of properties
outside jurisdiction, is not enough, but where the defendant with notice
of the plaintiffs' claim, suddenly begins removal of his properties outside the
jurisdiction of the appropriate Court, & without any other satisfactory
reason, an adverse inference may be drawn against the defendant. Where the
removal is to a foreign country, the inference is greatly strengthened;
(13) The defendant in a suit is under
no liability to take any special care in administering his affairs, simply
because there is a claim pending against him. Mere neglect, or suffering
execution by other creditors, is not a sufficient reason for an order under
Order 38 of the Code;
(14) The sale of properties at a
gross undervalue, or benami transfers, are always good indications of an
intention to defeat the plaintiff's claim. The Court must however be very
cautious about the evidence on these points & not rely on vague
allegations.
These principles
have oftenly been applied by civil courts in the aid of justice.
The Madras High Court in a matter
reported as Renox Commercials Ltd Vs
Inventa Technologies Pvt Ltd A.I.R, 2000 Mad. 213, has laid down seven
guiding principles. Those guiding principles are mentioned in para 26 and said
para 26 is as under :
(1)
That an order under Order 38, Rule
5 can be issued only if circumstances exist as are stated therein to the
satisfaction of the Court.
(2)
That the Court would not be
justified in issuing an order for attachment before judgment, or for security merely
because it thinks that no harm would be done thereby or that the defendants
would not be prejudiced.
(3)
That the affidavit in support of
the contentions of the applicant should not be vague and it must be properly
verified. Where it is affirmed true to knowledge or information, it must be
stated as to which portion is true to knowledge and the source of information
should be disclosed and the grounds for belief should be stated.
(4)
That a mere allegation that the
defendant is selling off his properties is not sufficient. Particulars must be
stated.
(5)
An order of attachment before
judgment is a drastic remedy and the power has to be exercised with utmost care
and caution, as it may be likely to ruin the reputation of the party against
whom the power is exercised. As the Court must act with the utmost
circumspection before issuing an order of attachment, the affidavit filed by
the applicant should clearly establish that the defendant, with intent to
obstruct or delay the execution of the decree that may be passed against him is
about to dispose of the whole or any part of his property,
(6)
A mere mechanical repetition of the
provisions in the Code or the language therein without any basic strata of
truth underlying the allegation or vague and general allegations that the
defendant is about to dispose of the property or to remove it beyond the
jurisdiction of the Court, totally unsupported by particulars, would not be
sufficient compliance with Order 38, Rule 5 of C.P.C.
(7)
An attachment before judgment is
not a process to be adopted as a matter of course. The suit is yet to be tried
and the defence of the defendant is yet to be tested. At the nebulous juncture,
the relief which is extraordinary could be granted only if the conditions for
its grant, as per the provisions of the Code, stand satisfied. This process is
never meant as a lever for the plaintiff to coerce the defendant to come to
terms. Hence utmost caution and circumspection should guide the Court."
What are borne out
from the guidelines and approach of the courts in this regard is the fact that Order
38 Rule 5 is a provision purely discretionary and equitable. The court must
take into consideration the attendant fact/ situation and form an opinion that
the balance of convenience lies in favour of issuing the attachment. An order of attachment before judgment has
the most deleterious effect on the activities of the defendant. In the matter
of issuing the attachment order, the court must be very much circumspect and
only for asking the order should not be issued.
On a plain reading of
Rule 5, it is very much clear that in any application under that Rule, the
Plaintiff has to show:
a)
that he has a prima facie case and he is likely to get a favourable decree
against the defendant;
b)
the defendant is either disposing of or about to dispose of his entire property
or part of the same outside the jurisdiction of the court;
c)that
disposal of his properties or removal of properties is done with an intent to
defraud the execution of any decree which may be issued against him.
d)
the points may be proved either by way of affidavit or by any other means.
LAW:
(i)
In the case of Muruzakham Vs Ballarpur Industries Ltd reported at 2002(4) 2002(3) Mh.L.J. 399, as
the application filed by the plaintiff under Order 38, Rule 5 did not mention
anything which would have shown that the defendant was about to dispose of the
property owned by him nor shown that the defendant was about to remove the property
from local limits of jurisdiction of Court, hence, the application was
dismissed.
(ii)
The Supreme Court judgment in Raman Tech. & Process Engg. Co. &
Anr. Vs. Solanki Traders, (2008) 2 SCC 302, as below:-
“5. The power
under Order 38 Rule 5 CPC is a 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 utilise 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.
6. A defendant
is not debarred from dealing with his property merely because a suit is filed
or about to be filed against him. Shifting of business from one premises to
another premises or removal of machinery to another premises by itself is not a
ground for granting attachment before judgment. A plaintiff should show, prima
facie, that his claim is bona fide and valid and also satisfy the court that
the defendant is about to remove or dispose of the whole or part of his
property, with the intention of obstructing or delaying the execution of any
decree that may be passed against him, before power is exercised under Order 38
Rule 5 CPC. Courts should also keep in view the principles relating to grant of
attachment before judgment.
What is also significant that judicial
dicta veers round to the view that the allegation of fraud is a subject matter
of trial and no case under Order XXXVIII Rule 5 of Code of Civil Procedure was
made out.
(iii)
In M/s. K. C. V. Airways Ltd. & Anr. Vs. Wg. Cor. R. K. Blaggana,
AIR 1998 Delhi 70, a Division Bench of Delhi High Court has held that the power
of the Court under Order XXXVIII Rule 5 of the CPC is an extraordinary remedy.
Reference in this regard may be made to paragraph 8 of the judgment:
“8. Needless
to say, that R. 5 of O. XXXVIII, CPC is an extra ordinary remedy and if the
ingredients for invoking it are lacking in the application and the affidavit
filed in support thereto attachment before judgment order cannot be ordered
claim for attachment before judgment on the averments has been mainly set out
in paras 7 and 8 reproduced above of the application in question and a bare
reading thereof reveals, that it was not pleaded therein that the appellants
with intent to obstruct or delay the execution of the decree that may be passed
against them (a) are about to dispose of the whole or any part of the property,
or (b) are about to remove the whole or any part of the property from the local
limits of the jurisdiction of this Court. Affidavit filed along with the
application contains no statement except an assertion that the respondent has
gone through the application and the facts stated therein are correct to the
best of his knowledge and information received. That be so, on the basis of the
averments as they stand made in the application and the affidavit in question
the appellant could not have been legally asked to furnish security.
CONCLUSION
The Order XXXVIII Rule 5 of Code
of Civil procedure is a clear departure from conventional procedure as included
in Civil Procedure Code and only when extra-ordinary and overwhelming circumstances
existed and only if cogent and established reasons established that pursuant to
the notice of the suit, the defendants are trying to remove the suit property from
the jurisdiction of the court and the decree in such a circumstances, even if
eventually passed may remain as a paper decree that the court may indulge in
the process and even before the final judgment and during pendency of suit itself,
necessary order of attachment of suit property could be passed. There are
guidelines stipulated so that the provisions could be invoked in very apt case,
but only in rare and exceptional circumstances. The Supreme Court has consistently
observed that the provisions of Order XXXVIII Rule 5 of the CPC have to be used
sparingly and that the plaintiff has to satisfy the Court that the defendant is
seeking to remove or dispose of whole or part of his property with the
intention of obstructing or delaying the execution of the decree that may be
passed against him. Thus, what comes out is that in apt case or cases courts
are not powerless in securing the interest of justice by order of attachment even
before passing of judgment and decree, though, the adequate safeguards are
prescribed by way of judicial pronouncements.
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Anil K Khaware
Founder & Senior
Associate
Societylawandjustice.com
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