IMPORTANT POINT
Action by attachment under Order 38 Rule 5 of CPC is preventive and not punitive.

R. Narayana Pisharadi, J.—Attachment before judgment is a drastic action in law. Time and again this Court has reminded the lower courts that the power under Order 38 Rule 5 of the Code of Civil Procedure shall be exercised only with circumspection. But, this is a case in which the court below has exercised such power mechanically.

2. The appellant is the first defendant in the suit filed by the first respondent firm and its partners in the Sub Court, Ernakulam. The appellant is a company and it challenges the order passed against it by that court for attachment before judgment of the property held by it as a lessee.

3. The suit is filed by the first respondent firm and its partners as indigent persons for recovery of an amount of Rs.4,11,18,656/- from the appellant company and its directors. The first respondent firm has also claimed an amount of Rs.13,79,60,977/- as damages from the appellant company. The sum and substance of the case set out in the suit by the first respondent firm is that it was a dealer of Skoda cars manufactured by the appellant company and that it incurred huge loss on account of various acts done by the appellant company in violation of the dealership agreement.

4. The first respondent filed an application as I.A.No.6112 of 2016 under Order 38 Rule 5 of the Code of Civil Procedure, 1908 (hereinafter referred to as “the Code”) for attachment of the property shown in the schedule of that application. In the affidavit filed by the managing partner of the first respondent firm along with that application, it is stated that enquiries made by him reveal that the only asset of the appellant company is the property shown in the schedule of the application and that the appellant company and its directors are taking hasty steps to encumber the property with a view to cause obstruction and delay in the execution of the decree that may be passed in the suit. Therefore, the first respondent firm prayed for an order for attachment before judgment of the petition schedule property.

5. The lower court, in the first instance, passed an order for conditional attachment of the petition schedule property. Thereupon, the appellant company filed a counter affidavit before the court below denying the allegation that it was taking hasty steps to encumber the property. The appellant company contended that the property sought to be attached does not belong to it and that it is owned by the Government of Maharashtra and that the company is only a lessee of that property and therefore, no question of alienation of the property by the company arises. The appellant company contended that the aforesaid property has been taken on lease by it from the Maharashtra Industrial Development Corporation and that the application filed under Order 38 Rule 5 of the Code is not maintainable.

6. After hearing the parties, the lower court passed an order directing the appellant company and its directors to furnish sufficient security for an amount of Rs.17,90,79,700/- or to show cause for not furnishing such security. The lower court also ordered that the petition schedule property shall be placed under attachment till then. This order is challenged in the appeal.

7. We have heard the learned counsel appearing for the appellant company and also the first respondent firm.

8. Learned counsel for the appellant company contended that the company is only a lessee of the petition schedule property and that the property is owned by the Maharashtra Industrial Development Corporation. Learned counsel further contended that the affidavit filed by the managing partner of the first respondent firm does not contain necessary averments for passing an order for attachment before judgment and the application is not maintainable and the impugned order passed by the lower court is liable to be set aside.

9. Per contra, the learned counsel for the first respondent firm would contend that the appellant company was taking hasty steps to encumber the property