Lingam and Co. vs Sankari Engineering

T. Mathivanan, J.—This Civil Miscellaneous Appeal is directed against the order, dated 09.11.2009 and made in I.A.No.99 of 2009 in

O.S.No.103 of 2009, on the file of the learned Additional District Judge (Fast Track Court No.II) Tirunelveli.

The facts which are necessary for the disposal of this appeal may be summarized as hereunder:

The Respondent is a dealer in generating-set and he has been entrusting with the work of manufacturing of generating-sets. In the usual course of

business, the Respondent used to send work order to the Appellant and after completion of the work and delivering the generating sets etc. to the

parties concerned as advised by the Respondent, the Appellant/Petitioner used to send invoice for the amount to be received by the

Appellant/Petitioner. The Respondent had been paying the amount due to the Appellant/Petitioner, from time to time either through cash or through

cheque. The account is a running account. In the usual course of his business and as per the accounts maintained by the Petitioner, the Respondent

has to pay a sum of Rs. 30,82,281/- for the work done from 15.09.2006 to 3.07.2009. Even in-spite of several demands were made, the

Respondent had not chosen to repay the amount. Hence, the Petitioner has filed a suit in O.S. No. 103 of 2009. In the meantime, the Petitioner

was put to understand that the Respondent is trying to encumber or alienate his immovable properties, in order to defraud the amount, which is due

to the Petitioner. Hence, the Petitioner has come forward with the petition to direct the Respondent to furnish security for the suit claim of Rs.

35,00,000/- , failing which to pass an order of attachment in respect of the properties which are more-fully described in the schedule prior to the

passing of judgment in the suit.

The Respondent had contested the petition. While denying the allegations, the Respondent had given an undertaking before the trial Court saying

that he would not alienate the schedule mentioned property at any time before the disposal of the suit.

After hearing both sides, the trial Court had proceeded to pass an order on 09.11.2009 directing attachment of the properties. Challenging the

order and decreetal order, dated 09.11.2009, the Respondent therein has approached this Court by way of this appeal.

Heard both sides.

Before we go into the merits of the case, it may be relevant to extract the proviso to Order 38 Rule 5 of CPC Code:

ORDER 38 RULE 5:

Where Defendant may be called upon to furnish security for production of property,-

(1) Where, at any stage of a suit, the Court is satisfied, by affidavit or otherwise that the Defendant, with intent to obstruct or delay the execution of

any decree that may be passed against him,-

(a) is about to dispose of the whole or any part of his property, or

(b) is about to remove the whole or any part of his property from the local limits of the jurisdiction of the Court, the Court may direct the

defendant, within a 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, or such portion thereof as may be sufficient to satisfy the decree,

or to appear and show cause why he should not furnish security.

(2) The Plaintiff shall, unless the Court otherwise directs, specify the property required to be attached and the estimated value there of,

(3) The Court may also in the order direct the conditional attachment of the whole or any portion of the property so specified,

(4) If an order of attachment is made without complying with the provisions of Sub-rule (1) of this rule, such attachment shall be void]

On perusal of the proviso to Order 38 Rule 5 of CPC, it is made clear that prior to passing of the order of attachment, the Court, which

happens to pass an order must satisfy, by affidavit or otherwise that the Defendant, with intent to obstruct or delay the execution of any decree that

may be passed against him, is making arrangements or trying to dispose of the whole or any part of his property. The Court must also satisfy that

the Defendant is trying to remove the whole or part of his moveable property from the local limits of the jurisdiction of the Court with intent to

defeat the decree, which may be passed against him, in the suit filed against him.

On coming to the impugned order, it appears that the Court below has simply passed a non-speaking order, which runs as follows:

Security not furnished but undertaking filed.Petitioner in his affidavit submitted that the Respondent is trying to sell the petition schedule property. In

view of the judgment, represented as 2008(2) L.W.721, prima facie case is made out, the property has to be attached. Though, the undertaking

filed, some liability has been admitted. Hence, the schedule properties are ordered to be attached. Attach by 09.12.2009. Batta after 15 days.

With reference to the impugned order, the learned Counsel for the Appellant/Respondent has submitted that the order of the trial Court was fully

perversed and without giving any reason as to how it came to be satisfied, the court proceeded to pass an order of attachment against the

Appellant, which has to be set aside.

In support of his argument, he has placed reliance upon the decision reported in Raman Tech. and Process Engg. Co. and Another Vs. Solanki

Traders, . In this case, a Division Bench of the apex Court with reference to the Order 38 Rule 5 Code of CPC has held that:

The object of supplemental proceedings is to prevent the ends of justice being defeated. The object of Order 38 Rule 5 Code of 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. However, 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. Further, he needs to

establish that the Defendant is attempting to remove or dispose of his assets with the intention of defeating the decree that may be passed.

It is also observed that:

The power under Order 38 Rule 5 Code of 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 debut. 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.

He would submit that no notice was issued to the Appellant/Respondent prior to the filing of the suit and that while filing the petition for

attachment before judgment, the Petitioner had not filed any affidavit from 3rd parties nor even chosen to produce any document to support the

allegations that the Appellant/Respondent was going to encumber or alienate the property with intent to defraud the Appellant/Respondent.

He has also added that the trial Court while passing the order of attachment before judgment had omitted to follow the strict provision of sub

Rule (1) of Rule 5 to Order 38, and therefore the impugned order shall be come void as envisaged under sub Rule 4 of Rule 5 to Order 38.

On the other hand, the learned Counsel for the Respondent would submit that the Court below had passed the order of attachment in

accordance with the provision of Order 38 Rule 5 of Code of CPC and that it does not require any interference.

Further, he would submit that the Petitioner is liable to pay a sum of Rs. 30,83,281/- and even after several demands were made, he has not

come forward to pay the said amount. He has also added that the Appellant himself has been facing a lot of suits filed by several private individuals

and Banking Institutions and that in order to secure the debt, which is due from the Appellant, the Respondent had to file a petition in I.A. No. 99

of 2009 for attachment before judgment.

He has also added that the Appellant had mortgaged the Item No. 1 of the attached property on 27.10.2009 i.e. after passing of order of

attachment dated 09.11.2009 and therefore, the act of the Petitioner would itself prove that he is trying to defraud the Respondent''s debt.

In order to substantiate his argument, he has also drawn this Court''s attention to page No. 2 of the typed set, which contains the endorsement

said to have been made by the Petitioner herein. As revealed from page No. 2 of the typed set, the Petitioner himself had acknowledged that he

had received a copy of the warrant of attachment and that he was not able to pay the amount specified therein.

The learned Counsel for the Respondent has also drawn this Court''s attention to page Nos. 5,6,8 and 9, which contains the xerox copies of

the encumbrance certificate with regard to Item No. 1 of the schedule mentioned property herein and in this connection, he would submit that the

Respondent had satisfied the Court below, prior to the passing of the order of attachment and hence, the impugned order was rightly passed in

consonance with the proviso to Order 38 Rule 5 Code of CPC and that the appeal may be dismissed.

In order to substantiate his argument, he has also placed reliance upon the decision in Rajendran and Ors. v. Shankar Sundaram and Ors.

reported in 2008-2 L.W.721 . In this case, a Division Bench of apex Court headed by His Lordship Hon''ble Justice Mr. S.B. Sinha has held that:

The application for attachment before judgment was filed by the Plaintiff so as to protect his interest in the event the suit is decreed. The Court

exercises, in such a situation, jurisdiction under Order 38 Rule 5 of the Code of Civil Procedure. The Division Bench of the High Court merely

directed the Appellants herein to furnish security within the time specified there under. It was directed that only on their failure to do so, an order of

attachment of the 2nd item on the schedule to the petition shall be issued.

His Lordship has also observed that:

Appellants, in our opinion, are not seriously prejudiced thereby. The Court while exercising its jurisdiction under Order 38 Rule 5 of the Code

of CPC is required to form a prima facie opinion at that stage. It need not go into the correctness or otherwise of all the contentions raised by the

parties. A cheque had been issued in the name of the firm. The Appellants are partners thereof. A promote had been executed by a partner of the

firm. Thus even under the Partnership Act prima facie the Plaintiff could enforce his claim not only as against the firm but also as against its

partners.

With reference to the above said decision, the learned Counsel for the Respondent has submitted that prior to the passing of the order of

attachment, the Court below had rightly formed a prima facie opinion that the Appellant was trying to encumber or alienate his properties in order

to defraud the debt of the Respondent.

This Court has anxiously considered the submissions made on behalf of both sides.

It is obvious that the suit in O.S. No. 103 of 2009 has been filed by the Respondent against the Appellant herein for recovery of money of Rs.

30,83,281/- , which according to the learned Counsel for the Respondent is somewhat huge amount, which the Appellant had failed to pay to the

Respondent. On the face of the encumbrance certificate, which were referred to by the learned Counsel for the Respondent, as evident from page

Nos. 5,6,8 and 9 of the typed set, it is apparent that in respect of Item No. 1 of the schedule mentioned property, certain encumbrance seems to

have been made.

Of course, the object of Order 38 Rule 5 Code of CPC in particular, is to prevent any Defendant from defeating the realization 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.

As rightly observed in the foregoing paragraphs, the Court before exercising the power under the above said rule should be satisfied that there

is a reasonable chance of a decree being passed in the suit against the Defendant.

On perusal of the impugned order, dated 9.11.2009, it appears that on 2.11.2009, the Appellant was directed to furnish security and

subsequently, the petition was adjourned to 9.11.2009. On 9.11.2009, security was not furnished, but undertaking alone was given. Under these

circumstances, on perusal of the affidavit filed by the Respondent in support of his petition, the Court below was satisfied that the Appellant was

making arrangements to alienate his property. Under this background, the Court below has placed reliance upon the decision in Rajendran and

Ors. v. Shankar Sundaram and Ors., reported in 2008-2 L.W.721 and passed the order of attachment.

In so far as the present case is concerned, the suit in O.S. No. 103 of 2009 has been filed for recovery of Rs. 35,00,000/- . As already

discussed, it appears that the Appellant had already encumbered the first item of the property specified in the suit schedule. He has also stated that

the other two properties are not belonging to him, however, he has not produced any satisfactory documentary proof. Hence this Court at this

stage required to form a prima facie opinion.

As rightly submitted by the learned Counsel appearing for the Appellant, the Petitioner had admitted his liability to the Respondent, but the

liability is not that much of the suit claim. However, since the suit claim is for a huge amount, this Court is of the view that the Petitioner is entitled to

secure interest. It is also argued that the Appellant is a business man and he is also a man means. Hence, the Appellant may not be prejudiced if he

is directed to furnish security.

In the result, the appeal is allowed. The order of attachment before judgment, dated 09.11.2009 and made in I.A. No. 99 of 2009 in O.S.

No. 103 of 2009 is set aside. The Appellant/Respondent is directed to furnish security for the suit claim, within a period of eight weeks from the

date of receipt of a copy of this order, failing which, it is open to the Court below to pass an order of attachment in respect of schedule mentioned

properties. Consequently, connected Miscellaneous Petition is closed. No costs.