Resources International vs Star PVG Exports and Others

A.H. Joshi, J.—The plaintiff had filed a civil suit for recovery of amount of Rs. 2,76,37,707.90 (Rupees Two Crores Seventy Six Lakhs Thirty Eight Thousand Seven Hundred Seven and Paise Ninety Only) with interest at the rate of 16% per annum.

The claim pertains to payment of money towards iron ore supplied by the plaintiff to the defendants as per the agreement.

In the said suit the plaintiff filed application seeking relief under Rules 5 and 6 of Order 38 CPC. The averments and prayers for security are made in para 10 and prayer (a) of the application. The foundation of the claim for direction to furnish security and for attachment before judgment are seen in the body of the application for attachment before judgment and plaint which can be summarized as follows:

(a) The plaintiff has filed the abovementioned suit for a decree directing the defendants to jointly and severally pay to the plaintiff the suit amount of Rs. 2,76,37,707.90 ( Rupees Two Crores Seventy Six Lakhs Thirty Eight Thousand Seven Hundred Seven and Paise Ninety Only ), with interest @ 16% per annum from the date of filing of the suit till the date of decree, and till the date of realization.

(b) In pursuance to the agreement arrived at between the plaintiff and defendant No. 1, the plaintiff has made four supplies of iron ore from the period January 2007 to March, 2007, to the defendant No. 1, in keeping with the agreement between the plaintiff and the defendant No. 1. The ore was analysed for its Fe and other contents by the Asseyors namely M/s Inspectorate Griffith India Pvt. Ltd., in respect of the iron ore supplied under the First Supply and the Second Supply and M/s Italab (Goa) Pvt. Ltd. in respect of the iron ore supplied under the Third Supply and Fourth Supply.

(c) These Asseyors were nominated by the defendant No. 1 itself. The plaintiff as well as the defendants were monitoring the grade of ore in respect of all the supplies made by the plaintiff on regular basis and delivery of the same was duly accepted by the defendants without protest and appropriated the same.

(d) The iron ore was analyzed and iron ore contents was certified to be in order and confirming with the agreed quality.

(e) The defendants have also accounted for the invoices and Debit Notes submitted by the plaintiffs and have also paid on behalf of the plaintiff for the supply of HSD (Diesel) towards the transportation of the iron ore supplied by the plaintiff.

(f) The defendants have made various assurances to the plaintiff that the payment will be made to the plaintiff and have in fact even, effected part payments, signed statement of accounts, issued T.D.S. Certificates etc.

(g) The defendants in the ledger account statement handed over by the defendant No. 1''s accountant to the plaintiff on 12.6.2008 has clearly admitted that an amount of Rs. 1,99,88,766.90 ( Rupees One Crore Ninety Nine Lakhs Eighty Eight Thousand Seven Hundred Sixty Six and paise Ninety Only ) is shown due and payable to the plaintiff, therefore the defendants have admitted their liability throughout but bills towards supplies are not discharged/paid.

(h) Despite repeated demands from the plaintiff, the defendants have failed and/or neglected to liquidate the said liability to the plaintiff, till date and have purely by way of an afterthought now raised a false dispute with regard to the grade of ore supplied falsely alleging that it did not meet the specifications agreed to be supplied by the plaintiff to the defendant No. 1.

(i) The dispute raised is dishonest and motivated by the desire to unjustly deny their liability to the plaintiff.

(j) The plaintiff has also reliably learnt that the defendant No. 1 and defendant No. 2 have huge liabilities to various parties, including to banks and other financial institutions.

(k) By way of an afterthought the dispute as to quality has been raised.

(l) There is an apprehension that the defendant No. 1 is intending to siphon off the funds and/or divert the same and/or dissipate the iron ore lying in stock with the defendants and dispose of the premises with a view to obstruct/frustrate the execution of the decree which may be passed against them in the suit and any decree which this Hon''ble Court may be pleased to pass in this suit would become infructuous.

(m) The defendants have represented to the plaintiff that they are running in losses.

(n) Unless prevented by an appropriate order from doing do the defendants will sell off the iron ore referred to above thereby making it impossible for the plaintiff to recover its dues making the decree that will eventually be passed in their favour a mere paper decree.

(o) The iron ore and funds will be siphoned, and that in order to obstruct and frustrate the decree that was passed in the suit, though the plaintiff have demonstrated that admittedly to the defendants themselves that they are due and payable. To the knowledge of the plaintiff there are presently no other valuable assets owned by the defendants form which they can meet the huge liability they have towards the plaintiff. Since the iron ore may be dissipated/sold at any moment, the plaintiff requires appropriate orders from this Hon''ble Court for pre-empting the disposal of the said iron ore until the defendants provide security for payment of the dues of the plaintiff.

(p) As no other valuable assets are owned by the defendants, and order of security is necessary.

Plaintiff''s application under Rule 5 of Order 38 of CPC has been opposed by the defendants inter alia by disputing the liability to the tune an amount claimed by the plaintiff and urging that the application does not fit into the grounds as available under Rules 5 and 6 of Order 38 of CPC.

An objection is also raised to the territorial jurisdiction of the Court entertaining the suit on the ground that area of operation of business will decide the jurisdiction.

Learned Trial Court after hearing the parties rejected the application under Rules 5 and 6 of Order 38 CPC.

Finding that no case was made out for seeking direction to furnish security. Learned Trial Court also observed that cause of action appears to have arisen beyond its territorial jurisdiction.

Learned Senior Advocate Mr. Lotlikar has argued at length to demonstrate that:

(a) Plaintiff has prima facie strong case for recovery specified in plaint.

(b) The defendant has admitted delivery of ore.

(c) The defence based on the dispute as to quality raised by the defendant is after thought and exfacie-dishonest, and lacks bonafides.

(d) Defendant''s immovable property is already mortgaged and admittedly ore is being exported/sold, and nothing shall remain with/in the account/hands of defendant to satisfy the decree.

(e) Petitioner''s case squarely falls within the ratio of the leading judgment in case of Premraj Mundra Vs. Md. Maneck Gazi and Others, , which has been followed with approval by various Courts including Hon''ble Apex Court.

Learned Advocate for the petitioner has cited various reported judgments namely:

(1) Premraj Mundra Vs. Md. Maneck Gazi and Others, .

(2) 2008 DGLS (Soft.) 119 in Rajendra and Ors. v. Shankar Sundaram and Ors.

(3) Nagpal Steel Limited and Another Vs. Arjun Dev Verma and Another, .

(4) Sun N Sand Hotel Limited Vs. V.V. Kamat, HUF, .

(5) 2007 DGLS (Soft.) 1196 in Raman Tech & Process Engg. Co. and Anr.

(6) Bharat Forge Ltd. Vs. Onil Gulati, .

(7) 2004(6) Bom. C.R. 67 in Siyaram Silk Mills Ltd. v. Tessival S. P.A.

(8) Jyotsna K. Valia Vs. T.S. Parekh and Co., .

(9) Kollipara Sriramulu Vs. T. Aswathanarayana and Others, by his legal representatives and others.

(10) A.B.C. Laminart Pvt. Ltd. and Another Vs. A.P. Agencies, Salem, .

(11) 1971 All 326 (V. 58 C 76) Manohar Oil Mills and Anr. v. Bhawani Din Bhagwandin and Ors.

(12) L.N. Gupta Vs. Tara Mani, .

(13) 2004(5) Bom. C.R. 96 (Supreme Court) Hanil Era Textiles Ltd. v. Puromatic Filters (P) Ltd.

(14) The Cotton Corporation of India Ltd. Vs. The Alagappa Cotton Mills, .

(15) Maharaji Educational Trust and Another Vs. Punjab and Sind Bank and Another, .

(16) H.P. State Small Industries and Export Corporation Vs. Export Credit and Guarantee Corporation Ltd., .

(17) R. Kumar and Co. Vs. Chemicals Unlimited, .

(18) Sardar Govindrao Mahadik and Another Vs. Devi Sahai and Others, .

(19) Gopaldas Hiralal Marwadi Vs. Mahadu Dagdu Patil, .

Specific reliance was however placed on the precedents at item Nos. 1 to 4 on foregoing para only.

All the judgments relied with emphasis, deal with bonafides of defence.

Learned Senior Advocate Mr. Lotlikar further argued that impugned order prejudices the petitioner seriously, because the learned Civil Judge has also observed that there is no territorial jurisdiction and impression can be gathered from the judgment that the Court has confirmed opinion as to lack of jurisdiction.

For opposing the petition, the learned Senior Advocate Mr. Kakodkar placed reliance on judgment reported in (2003) 6 Supreme Court Cases 675 in Surya Dev Rai v. Ram Chander Rai and Ors. urging that for Writ jurisdiction no interference would be permissible.

In order to test the simple question as to whether the application subject matter confirms to the statutory requirements, this Court has scrutinized the application, which is apparent from the contents of sub para of para No. 3 herein before.

It is necessary to advert to Clause (1) (a) of Rule 5 of Order 38 of CPC. Rule 5 aforesaid is, for ready reference quoted herein below:

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 thereof.

(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.

The provisions for attachment before judgment can be invoked only when a party i.e. the plaintiff makes out a case as referred to therein, namely until the facts fitting into the Clauses (1)(a) and then (1)(b) are demonstrated to be in existence an application under Rule 5 of Order 38 CPC cannot be entertained.

On facts it is seen from the pleadings that the appellant has made averments in the plaint and application about fiscal ability and doubtful liquidity of the defendant. The defendant is a partnership firm and the magnitude of business is not small. Even the partners may be having personal properties. It is not disclosed if the defendants are about to dispose of even their personal properties so as to bring the case within the compass of Clause (a) or (b) of the Sub-rule (1) of Rule 5 of Order 38 of CPC.

Plaintiff''s apprehension that the funds may be siphoned by the defendants, and as regards alleged weak liquidity status of defendants, those averments are made without specific information and without properly disclosing source thereof.

Plaintiff could have explored specific information about these matters by use of mechanism available in CPC by production of documents and by rendering interrogatory. Thereby exact information regarding financial documents of defendants would have come on record.

Had actual facts and factual data been explored as indicated herein before or otherwise, and application may have been founded on facts or facts capable to drive the case to lead to adverse inferences, plaintiff''s case could stand on different footing.

However, in absence of specific averments, supported by affidavit, and prima facie evidence thereof, the application under Order 38 Rule 5, was not well founded and duly supported by facts.

Petitioner has not relied upon any judgment to urge that jurisdictional facts or facts crucial to ordering security should be loosely construed. The conditions emerging from Clause (1) of Rule 5 of Order 38 namely:

(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, cannot be loosely construed so as to bring within the compass of said provision, a case which may be as one at hand where averments are vague and are made speculatively.

Various judgments relied upon by the petitioner do focus on and around the parameters to be applied as regards the manner in which the bonafides of defence of the defendants is to be tested or assessed.

In the vague background of facts, the plaintiff however, is not entitled to the relief of direction to furnish security or attachment before judgment under Rule 5 of Order 38 CPC just for asking.

As observed by this Court, however, by use of modalities available in CPC if plaintiff could explore further and detailed information about facts which would fit plaintiff''s claim for an order under Rule 5 of Order 38 of CPC. Plaintiff would always be free to make a fresh motion therefor.

The observations contained in the impugned judgment as regards the point of territorial jurisdiction are liable to be taken as prima facie, since an issue either regular or on peculiar objection was not raised. It will suffice to observe that the question as regards territorial jurisdiction is still open for decision at the trial being a mixed question of fact and of law.

For the foregoing discussion, it is not necessary to discuss all four precedents relied upon by the petitioner, or sole precedent relied upon by the respondents.

In the premises, Rule is discharged. Parties are directed to bear own costs.