1991 Supreme(P&H) 565

PUNJAB & HARYANA HIGH COURT
V.K.Jhanji, J.
Onkar Mal Mittal
Versus
State Bank Of Patiala
First Appeal from the Order No. 700 of 1989,
Decided On : JUNE 8, 1991

An order of attachment before judgment cannot be made on the mere asking of the plaintiff. The Court must be satisfied not only that the defendant is really about to dispose of his property or about to remove it from its jurisdiction, but also that the disposal or removal is with intent to obstruct or delay the execution of any decree that may be passed.

Headnote:

ATTACHMENT BEFORE JUDGMENT - ORDER 38 RULE 5 CPC - VOID ORDER - ATTACHMENT OF PROPERTY - SATISFACTION OF COURT - INTENTION TO OBSTRUCT OR DELAY EXECUTION OF DECREE - PRINCIPLES FOR ATTACHMENT BEFORE JUDGMENT - ATTACHMENT OF AMOUNT PAYABLE TO APPELLANTS BY PSIDC - VOID ORDER - APPEAL ALLOWED.

Fact of the Case:

State Bank of Patiala filed two suits against Punjab Spinning and Weaving Mills Limited and others for recovery of loans. Appellants were impleaded as defendants as guarantors for the loan. Bank filed an application under Order 38, Rules 5 and 6 read with Order 39, Rules 1 and 2 of the Code of Civil Procedure (CPC) seeking attachment of the property of the company and the Directors. PSIDC entered into an agreement with the appellants to purchase shares of the company for a total consideration of Rs. 91,00,000.00. Bank filed another application under Order 38, Rule 5, read with Order 39, Rules 1 and 2, CPC, seeking attachment before judgment regarding the remaining amount to be paid by PSIDC to the appellants. Trial Court passed an ex parte order attaching the amount payable to the appellants. Appellants challenged the ex parte order and filed an application that PSIDC be ordered to deposit the amount payable to them under the agreement in the bank. Trial Court directed PSIDC to deposit the amount. PSIDC challenged the order in Civil Revision. High Court held that unless the application under Order 38, Rule 5, of the CPC, filed by the bank is finally disposed of, the trial Court should not have directed PSIDC to deposit the amount in the bank. Trial Court disposed of the application under Order 38, Rule 5, read with Order 39, Rules 1 and 2, of the CPC, attaching the amount payable by PSIDC to the appellants and also restrained the appellants to receive the said amount. Appellants challenged the impugned order passed by the trial Court.

Finding of the Court:

The order of the trial Court cannot be sustained in law. The order is void as it has been passed by the trial Court without complying with the provisions of sub-rule (1) of Rule 5 of Order 38, of the CPC. The Bank has nowhere alleged that the appellants are about to dispose of the property or remove the same from the jurisdiction of the Court. The trial Court passed the order of attachment and restrained the appellants only on one consideration that in case the suits of the bank are decreed, the company and the appellants would be jointly and severally liable to make payment. The trial Court did not take into consideration the directions of the High Court in Civil Revision No. 3168 of 1988. The assets of the company are not less than Rs. 15 crores. The appellants had also made an offer in the High Court that they are willing to take over the company on payment of Rs. 15 crores. The PSIDC has taken over the affairs of the company and the appellants are no more involved in the working of the company. The entire shareholding of the company held by the appellants was taken over by PSIDC vide the agreement dated 25th of September, 1986 for a total consideration of Rs. 91 lacs. The amount now sought to be attached by the Bank is part of the said amount which is payable to the appellants by the PSIDC in pursuance of the agreement. Nothing has been brought on record to show that the assets of the company are not sufficient to meet the amount sought to be recovered by the Bank covered under the two suits against the Company and others. The ex parte orders of attachment clearly show that while passing ex parte orders of attachment, the appellants were not called upon to furnish security first. The order of attachment passed by the trial Court is clearly void as it has been made without complying with the provisions of sub-rule (1) of Rule 5 of Order 38, of the CPC.

Issues: Whether the order of the trial Court attaching the amount payable by PSIDC to the appellants is valid?

Ratio Decidendi: An order under Order 38, Rules 5 and 6, of the CPC, can only be issued, if circumstances exist to the satisfaction of the Court. Whether such circumstances exist is a question of fact that must be proved to the satisfaction of the Court. 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. The affidavits in support of the contentions of the applicant, must not be vague and must be properly verified. A mere allegation that the defendant, was selling off and his properties is not sufficient particulars must be stated. 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. 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 that plaintiffs claim. 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 plaintiffs claim. It is open to the Court to look to the conduct of the parties immediately before suit, and to examine the surrounding circumstances, and to draw an inference as to whether the defendant is about to dispose of the Property and if so, with what intention. The Court is entitled to consider the nature of the claim and the defence put forward. The fact that the defendant is in insolvent circumstances or in acute financial embarrassment, is a relevant circumstance, but not by it self-sufficient. In the case of running businesses the strictest caution is necessary and the mere fact that a business has been closed, or that its turnover has diminished, is not enough. Where however the defendant disposing of his properties one by one, immediately upon getting a notice of the plaintiffs claim, and/or where he had transferred the major portion of his properties shortly prior to the institution of the suit and 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. 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, and 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. 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 CPC. The sale of properties at a gross undervalue, or benami transfers, are always good indications or an intention to defeat the plaintiffs claim. The Court must however be very cautious about the evidence on these points and not rely on vague allegations. If the order of attachment is made without complying with the provisions of sub-rule (1) of Rule 5 of Order 38, of the CPC, such an attachment shall be void.

Final Decision: Appeal allowed. Order of the trial Court set aside. Parties to bear their own costs.