w w w . L a w y e r S e r v i c e s . i n



Ashish Krishnaswamy v/s Money Focus Infrastructure Products Private Limited, Bangalore & Others


Company & Directors' Information:- P P PRODUCTS PVT LTD [Active] CIN = U32305WB1991PTC051091

Company & Directors' Information:- K K PRODUCTS LIMITED [Active] CIN = U31300DL1991PLC045521

Company & Directors' Information:- K B PRODUCTS PRIVATE LIMITED [Active] CIN = U51909MH2007PTC169627

Company & Directors' Information:- K G PRODUCTS PRIVATE LIMITED [Active] CIN = U51909PB2007PTC031201

Company & Directors' Information:- S S P PRODUCTS PRIVATE LIMITED [Active] CIN = U22110WB1974PTC210201

Company & Directors' Information:- M L B PRODUCTS PRIVATE LIMITED [Active] CIN = U74899DL1990PTC040990

Company & Directors' Information:- M M PRODUCTS LIMITED [Strike Off] CIN = U28994DL1992PLC050955

Company & Directors' Information:- M P K PRODUCTS PVT LTD [Active] CIN = U26919AS1994PTC004183

Company & Directors' Information:- G K PRODUCTS PRIVATE LIMITED [Active] CIN = U74899DL1991PTC043260

Company & Directors' Information:- N R PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U51109AS1998PTC005561

Company & Directors' Information:- C L PRODUCTS INDIA LIMITED [Active] CIN = U51909DL2002PLC116975

Company & Directors' Information:- K. S. A. PRODUCTS PRIVATE LIMITED [Active] CIN = U51220PB2014PTC039023

Company & Directors' Information:- ASHISH PRODUCTS PVT LTD [Active] CIN = U65910GJ1961PTC001086

Company & Directors' Information:- MONEY FOCUS INFRASTRUCTURE PRODUCTS PRIVATE LIMITED [Active] CIN = U51900KA2008PTC046327

Company & Directors' Information:- D. R. PRODUCTS PRIVATE LIMITED [Active] CIN = U52320DL2011PTC213508

Company & Directors' Information:- R S PRODUCTS PRIVATE LIMITED [Active] CIN = U74899DL1989PTC036603

Company & Directors' Information:- R R PRODUCTS PRIVATE LIMITED [Active] CIN = U24249HR1999PTC034291

Company & Directors' Information:- I G PRODUCTS PRIVATE LIMITED [Active] CIN = U74999WB2012PTC183503

Company & Directors' Information:- J S R PRODUCTS PRIVATE LIMITED [Active] CIN = U31908DL2007PTC170841

Company & Directors' Information:- C F C PRODUCTS PRIVATE LIMITED [Active] CIN = U28129DL1998PTC095531

Company & Directors' Information:- M S PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U74899DL1993PTC055125

Company & Directors' Information:- B R PRODUCTS PRIVATE LIMITED [Active] CIN = U31909DL1999PTC100727

Company & Directors' Information:- S P B PRODUCTS LIMITED [Active] CIN = U51909DL1996PLC082631

Company & Directors' Information:- G K D PRODUCTS PRIVATE LIMITED [Active] CIN = U15431WB1998PTC086840

Company & Directors' Information:- M B R PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U17111WB1993PTC060806

Company & Directors' Information:- P D PRODUCTS PRIVATE LIMITED [Active] CIN = U23201DL2000PTC108462

Company & Directors' Information:- S K M PRODUCTS PRIVATE LIMITED [Active] CIN = U18101DL1998PTC093415

Company & Directors' Information:- H R PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U74899DL1978PTC009183

Company & Directors' Information:- V S PRODUCTS PRIVATE LIMITED [Active] CIN = U36900DL2008PTC185445

Company & Directors' Information:- H K PRODUCTS LIMITED [Active] CIN = U51900GJ2015PLC085457

Company & Directors' Information:- S R K PRODUCTS PRIVATE LIMITED [Active] CIN = U51221KA1989PTC010032

Company & Directors' Information:- G M PRODUCTS PRIVATE LIMITED [Active] CIN = U74899DL1991PTC044687

Company & Directors' Information:- V T N PRODUCTS PVT LTD [Active] CIN = U51109WB1996PTC080094

Company & Directors' Information:- W S T Q PRODUCTS PRIVATE LIMITED [Active] CIN = U31300DL1999PTC102655

Company & Directors' Information:- J M K PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U24246OR2005PTC008446

Company & Directors' Information:- G S T PRODUCTS (INDIA) PRIVATE LIMITED [Strike Off] CIN = U31909TN2006PTC059575

Company & Directors' Information:- S M P PRODUCTS PRIVATE LIMITED [Active] CIN = U25200DL2009PTC190965

Company & Directors' Information:- S N S PRODUCTS PRIVATE LIMITED [Active] CIN = U15490DL2005PTC142749

Company & Directors' Information:- U B PRODUCTS PRIVATE LIMITED [Active] CIN = U51224DL2002PTC116457

Company & Directors' Information:- A AND A PRODUCTS PRIVATE LIMITED [Active] CIN = U21098MP2004PTC017128

Company & Directors' Information:- V J PRODUCTS PRIVATE LIMITED [Active] CIN = U36900GJ2011PTC065252

Company & Directors' Information:- S AND A PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U51311DL1991PTC042938

Company & Directors' Information:- S AND G PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U51909DL1982PTC014843

Company & Directors' Information:- B P PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U24241WB1999PTC089499

Company & Directors' Information:- D AND P PRODUCTS LIMITED [Amalgamated] CIN = U99999MH1951PTC008422

Company & Directors' Information:- S D H PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U55204KA2006PTC040734

Company & Directors' Information:- V M PRODUCTS PRIVATE LIMITED [Active] CIN = U24100DL2014PTC266679

Company & Directors' Information:- E C A PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U27209TN1987PTC014022

Company & Directors' Information:- A V FOCUS PRIVATE LIMITED [Active] CIN = U71230DL2001PTC110212

Company & Directors' Information:- P V MONEY INDIA PRIVATE LIMITED [Strike Off] CIN = U67190KA2006PTC041022

Company & Directors' Information:- G S PRODUCTS LIMITED [Strike Off] CIN = U25191UP1989PLC010483

Company & Directors' Information:- A R K PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U24231UP1978PTC004606

Company & Directors' Information:- S. M. PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U17299DL1966PTC004634

Company & Directors' Information:- R. M. R. PRODUCTS PRIVATE LIMITED [Active] CIN = U74999MH2017PTC298120

Company & Directors' Information:- P & Q PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U51909DL2014PTC269162

Company & Directors' Information:- FOCUS INFRASTRUCTURE PRIVATE LIMITED [Strike Off] CIN = U45201DL2005PTC137960

Company & Directors' Information:- H T PRODUCTS PVT LTD [Strike Off] CIN = U29266WB1981PTC033424

Company & Directors' Information:- G S MONEY PRIVATE LIMITED [Strike Off] CIN = U74999PB2007PTC031372

Company & Directors' Information:- PRODUCTS (INDIA) LTD [Strike Off] CIN = U31901WB1961PLC024991

Company & Directors' Information:- M PRODUCTS & CO PVT LTD [Strike Off] CIN = U51909WB1956PTC023215

Company & Directors' Information:- ASHISH (INDIA) PVT LTD [Strike Off] CIN = U99999DL1977PTC008760

    Company Appeal No. 33 of 2020

    Decided On, 11 February 2021

    At, High Court of Karnataka

    By, THE HONOURABLE CHIEF JUSTICE MR. ABHAY S. OKA & THE HONOURABLE MR. JUSTICE SACHIN SHANKAR MAGADUM

    For the Petitioner: Srinivas Raghavan, Senior Advocate, Rithika Ravikumar, Advocate. For the Respondents: S.N. Sameer, Pavan R. Javali, Advocates.



Judgment Text

Abhay S. Oka, CJ.

1. The submissions were concluded yesterday. Today, the appeal is listed for dictating the judgment.

2. This is an appeal under sub-section (1) of Section 13 of the Commercial Courts Act, 2015 read with clause (q) of Rule 1 of Order XLIII of the Code of Civil Procedure, 1908 (for short, "CPC").

3. With a view to appreciate the controversy, a brief reference to the facts of the case will be necessary. The appellant is the second defendant. The first respondent is the original plaintiff. The second respondent is the first defendant and the third respondent is the third defendant. For the sake of convenience, we are referring to the parties in the appeal with reference to their status before the Trial Court.

4. The suit is filed for recovery of a sum of Rs.69,37,968/- with interest at the rate of 24% per annum from the date of filing of the suit till realization. The case made out in the plaint is that the first defendant is a builder and developer and the second defendant is claiming to the Managing Director of the first defendant. The allegation is that the first defendant used to purchase building materials from the plaintiff on credit basis. Reliance is placed on the invoices and delivery challans, the details of which have been set out in paragraph 6 of the plaint. The allegation is that the total amount payable by the first defendant under the invoices was Rs.1,31,51,247/-, out of which a sum of Rs.62,20,279/- has been paid. The suit is filed for the recovery of the balance amount.

5. In paragraph 8 of the plaint, there is a specific allegation that the first defendant is the owner of the residential flat/ apartment described therein. It is alleged that the first defendant is also the owner of two commercial buildings described in the plaint.

6. An application for attachment before judgment was filed by the plaintiff, being I.A No.1. The application was allowed by the order dated 23rd October 2019. The said order which grants attachment before judgment notes that the defendants are placed ex parte. An application was made by the second defendant (appellant) invoking sub-rule (4) of Rule 5 of Order XXXVIII of CPC, being I.A No.6. The prayer in the said application was for setting aside the said order of attachment dated 23rd October 2019. The said I.A was opposed by the plaintiff by filing a statement of objections. By the impugned order, the learned Trial Judge has dismissed the said I.A No.6 filed by the second defendant.

7. The learned Senior Counsel appearing for the appellant has taken us through the relevant portion of the pleadings and the impugned order. We must note here that the challenge in this appeal is to both the orders dated 23rd October 2019 and 30th June 2020. The learned Senior Counsel appearing for the appellant firstly submitted that though compliance with sub-rule (1) of Rule 5 of Order XXXVIII of CPC was a condition precedent for passing an order of attachment before judgment, the same is not made. Therefore, by virtue of sub-rule (4) of Rule 5 of Order XXXVIII of CPC the attachment is void. He also pointed out that no satisfaction is recorded by the learned Trial Judge before passing the order of attachment as required by sub-rule (1) of Rule 5 of Order XXXVIII of CPC. He submitted that the Trial Court did not consider the fact that the property subject matter of Schedules - B to G was owned by the second defendant and there was no pleadings in the plaint as to how the second defendant was liable to pay any amount to the plaintiff. He pointed out that it is pleaded in the written statement filed by the second defendant that Schedule - B property has been sold by a sale deed and in respect of the properties at Schedules C to G , mortgage has been created by the second defendant.

8. Inviting our attention to paragraphs 13 and 14 of the impugned order dated 30th June 2020, the learned Senior Counsel appearing for the appellant submitted that the learned Trial Judge has completely misread the decision which is referred in paragraph 13. He pointed out that the learned Trial Judge ignored the fact that the order of moratorium was against the first defendant which is a corporate debtor. He submitted that the order of moratorium will not apply to the assets of the second and third defendants. He pointed out that the decision of the High Court of Calcutta, Commercial Division, Original Side in G.A No.942 of 2018 and C.S No.73 of 2018 dated 30th January 2019 in the case of UNILEVER INDUSTRIES PRIVATE LIMITED vs. KWALITY LIMITED relied upon by the learned Trial Judge in paragraph 13 arose out of a trademark dispute. He submitted that the order of attachment before judgment was void and therefore, the subsequent I.A filed by the appellant ought to have been allowed.

9. The learned counsel appearing for the plaintiff on a query made by the Court stated that though the attached properties may be not standing in the name of the first defendant, the second and third defendants may dispose of the property. Moreover, he submitted that the plaintiff has already applied for amendment of the plaint and the application is pending before the Trial Court. He submitted that if the order of attachment before judgment is vacated, there will not be any security for the claim made by the plaintiff in the suit as the valuable properties will be immediately disposed of.

10. We have given careful consideration to the submissions. For the sake of convenience, we are reproducing Rule 5 of Order XXXVIII of CPC which reads thus:

"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 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."

(underline supplied)

11. Sub-Rule (1) of Rule 5 of Order XXXVIII of CPC lays down the procedure for attachment of property. By virtue of Act No.104 of 1976, sub-rule (4) of Rule 5 of CPC was substituted and now the substituted rule lays down that if an order of attachment is made without complying with the provisions of sub-rule (1), such attachment shall be void. Sub-rule (1) of Rule 5 of Order XXXVIII of CPC lays down that if the Court is satisfied that the defendant with the intent to obstruct or delay the execution of any decree that may be passed against him is about to dispose of the whole or any part of his property or is about the remove the whole or any part of his property from the local limits of the jurisdiction of the Court, it may direct the defendant, within the 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. Sub-rule (2) of Rule 5 requires the plaintiff to specify the property required to be attached and the estimated value thereof. In this case, admittedly, an order in accordance with sub-rule (1) of Rule 5 of Order XXXVIII of CPC was not passed by the Trial Court.

12. As far as the remedy of attachment before judgment under Rule 5 of Order XXXVIII of CPC is concerned, the law is fairly well settled. We are referring only to one decision of the Apex Court which reiterates the said law. The said decision is in the case RAMAN TECH. & PROCESS ENGG. CO. AND ANOTHER vs. SOLANKI TRADERS, (2008) 2 SCC 302. Paragraphs 4 and 5 of the said decision are relevant which read thus:

"4. The object of supplemental proceedings (applications for arrest or attachment before judgment, grant of temporary injunctions and appointment of receivers) is to prevent the ends of justice being defeated. The object of Order 38 Rule 5 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. The scheme of Order 38 and the use of the words to obstruct or delay the execution of any decree that may be passed against him in Rule 5 make it clear that 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. This would mean that the court should be satisfied the plaintiff has a prima facie case. If the averments in the plaint and the documents produced in support of it, do not satisfy the court about the existence of a prima facie case, the court will not go to the next stage of examining whether the interest of the plaintiff should be protected by exercising power under Order 38 Rule 5 CPC. It is well-settled that merely having a just or valid claim or a prima facie case, will not entitle the plaintiff to an order of attachment before judgment, unless he also establishes that the defendant is attempting to remove or dispose of his assets with the intention of defeating the decree that may be passed. Equally well settled is the position that even where the defendant is removing or disposing his assets, an attachment before judgment will not be issued, if the plaintiff is not able to satisfy that he has a prima facie case.

5. The power under Order 38 Rule 5 CPC is 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 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. "

(underline supplied)

13. As noted earlier, the satisfaction required to be recorded as per sub-rule (1) of Rule 5 of Order XXXVIII of CPC is that the defendant with an intent to obstruct or delay the execution of any decree that may be passed against him is about to dispose of the whole or any part of his property. Thus, the Court must be satisfied that there is a reasonable chance of a decree being passed in the suit and that is how there is a legal requirement of the Court being satisfied about the existence of a prima facie case.

14. In paragraph 5 of the aforesaid decision, the Apex Court has reiterated that the power under Rule 5 of Order XXXVIII of CPC is a drastic and extraordinary power which should not be exercised mechanically and merely for the asking. It should be used sparingly and strictly in accordance with Rule and the purpose of Rule 5 of Order XXXVIII of CPC is not to convert an unsecured debt into a secured debt. Further, it is held that it is well settled that merely having a just or valid claim or a prima facie case will not entitle the plaintiff to an order of attachment before judgment, unless the ingredients of sub-rule (1) of Rule 5 are established.

15. Coming back to the facts of the case, the order of attachment dated 23rd October 2019 was not preceded by any order passed in accordance with sub-rule (1) of Rule 5 of Order XXXVIII of CPC. The order merely refers to an affidavit of the plaintiff stating that the defendants are trying to sell the schedule properties. There is no finding recorded about the existence of a prima facie case or a reasonable possibility of a decree being passed in favour of the plaintiff against the second defendant and for that matter even against the first defendant. There is no satisfaction recorded that the second defendant with an intent to obstruct or delay the execution of the decree which may be passed against him is about to dispose of the whole or part of his property. Thus, the said order of attachment which has been made without complying with the provisions of sub-rule (1) of Rule 5 of the Order XXXVIII will be rendered void.

16. We have carefully perused the plaint. Paragraph 8 of the plaint proceeds on the footing that the first defendant is the owner of the schedule properties. Going by the averments in the plaint, the transaction of the sale of building material was between the plaintiff and the first defendant which is a private limited company. There is not even an averment in the plaint that the second and third defendants are jointly and severally liable along with the first defendant to pay the amount claimed in the suit. In fact, taking the averments made in the plaint as correct, it is impossible to record even a prima facie finding that there is a possibility of a decree being passed against the second defendant.

17. In paragraph 14 of the second impugned order dated 30th June 2020, it is observed that even if the properties subject matter of attachment are not related to the first defendant and the same are the properties of the second and third defendants, the order of attachment cannot be vacated during the pendency of the proceedings before the National Company Law Tribunal especially when the order of moratorium is still in force. However, he has ignored that the order of moratorium is in respect of the first defendant company. The learned Trial Judge has ignored that the second defendant had invoked sub-rule (4) of Rule 5 of Order XXXVIII of CPC by contending that the attachment was void. In fact, in paragraph 16 of the order, it is observed that the second defendant has not furnished any surety, though he was never called upon to do so.

18. From the impugned order dated 30th June 2020, it appears that the Court has not considered the

Please Login To View The Full Judgment!

legal effect of the property subject matter of the suit not standing in the name of the first defendant, as the entire claim in the suit was against the first defendant. 19. For the foregoing reasons, there is no prima facie case. Going by the averments made in the plaint, it is impossible to come to a conclusion that there is a reasonable possibility of a money decree being passed against the second defendant. Therefore, the second impugned order dated 30th June 2020 cannot be sustained and the application, being I.A No.6 will have to be allowed by holding that the attachment is void apart from the fact that even otherwise, it is illegal. 20. The learned counsel appearing for the plaintiff submitted that an application for amendment of the plaint has been filed by the appellant. If the application is allowed, this judgment will not prevent the appellant from making a fresh application for grant of appropriate interim relief in accordance with law. 21. Accordingly, we pass the following order: (i) The impugned order dated 30th June 2020 is hereby quashed and set aside. I.A No.6 in Commercial O.S No.225 of 2019 is hereby allowed and the order of attachment before judgment dated 23rd October 2019 is hereby set aside; (ii) We make it clear that the observations and findings recorded in the judgment are only for the limited purpose of considering the controversy regarding validity of the order of attachment before judgment; (iii) The appeal is allowed on the above terms; (iv) The pending interlocutory application does not survive for consideration and stands disposed of.
O R