IA No. 9782/2020 in CS(COMM) 469/2020
1. Applicant/plaintiff is a firm of professional Chartered Accountants duly registered under the Chartered Accountants Act, 1949, who has filed the present suit against the defendants, defendant No.1- being a private limited company and defendant No.2- Managing Director of defendant No.1, seeking recovery of Rs.2,71,59,605/- for providing financial IA No. 9782/2020 in CS(COMM) 469/2020 Page 2 of 11 assistance such like drafting the MIS system, preparing monthly accounts, handling Income tax matters etc. from September, 2014 to April, 2018.
2. The plaintiff has filed the present application under the provisions of Order XXXVIII Rule 5 r/w Section 151 CPC seeking attachment of property being Plot No. 352, DLF City, Phase-I, Sector 28 Gurgaon, Haryana, which is valued at approximately Rs.300,00,00,000/- for recovery of amount of Rs.2,71,59,605/-, i.e. the principal amount claimed in the present petition.
3. At the hearing, learned senior counsel appearing on behalf of applicant/ plaintiff submitted that the services of the plaintiff- Firm were engaged by defendant No.1- company in September, 2014 and besides furnishing financial assistance such like drafting the MIS system, preparing monthly accounts, handling Income tax matters etc. and representing defendant No.1 before the Income Tax Authorities with regard to income tax scrutiny assessments and other tax related issues. Further, on instructions of defendant No2, plaintiff /firm also participated in the consortium meetings of the bankers for obtaining loan of Rs.160 crores, finalisation of balance sheet of the company, preparation of tax audit information, which were provided to the statutory auditors of the company at the request of the defendants. It was next submitted by learned senior counsel that the plaintiff also attended issues related to the company law matters, bonus issue of shares, meeting the advocates and legal consultants of defendant No.1-company and for all the professional services rendered from September, 2014 till April, 2018, plaintiff is entitled to receive Rs.2,71,59,605/- from defendants.
4. To submit that keeping a prima facie view of the matter, defendant No.1 is liable to furnish a security for the suit amount, reliance was placed upon Hon’ble Supreme Court’s decision in Rahul S. Shah Vs. Jinendra Kumar Gandhi (2021) SCC OnLine 341. To submit that provisions of Order XXXVIII Rule 10 CPC, an attachment before judgment will not in any way affect the rights of the persons in respect of disputed persons, reliance was placed upon a decision of High Court of Gujrat in Syndicate Bank Vs. National Wire Products & Ors. AIR 1994 Guj 2.
5. Lastly, learned senior counsel for plaintiff submitted that defendants have even failed to file reply to the present application and therefore, they have no right to object to this application and to secure the interest of plaintiff, the present application deserves to be allowed.
6. On the contrary, learned counsel appearing on behalf of defendant No.1 drew attention of this Court to judgment dated 24.08.2021 passed by the Division Bench of this Court in FAO (OS) COMM 107/2021, wherein it has been observed that by filing application under Order XXXVIII Rule 5 and Order XXXIX CPC, plaintiff cannot convert its unsecured debt into a secured debt. Learned counsel submitted that plaintiff is not only required to show a prima facie case but is also required to demonstrate that defendant is trying to dispose of the assets with the intention of defeating the decree. In support of this submission, learned counsel placed reliance upon Hon’ble Supreme Court’s decision in Raman Tech. & Process Engg. Co. and Anr. Vs. Solanki Traders (2008) 2 SCC 302.
7. It was submitted that the claims raised by the plaintiff are not based upon any fee schedule / agreement executed between the parties and no cogent reasons have been provided for raising invoices at such a belated stage. It was further submitted on behalf of defendant that plaintiff had infact raised claims of the alleged amount on the basis of a Engagement Letter purportedly executed by defendant No.1 with Empire Services Private Limited, which is not a party to the present suit and the said fact has been concealed from this Court. It was vehemently submitted that in the written statement filed on behalf of defendants, the claims raised by the plaintiff have been disputed and plaintiff is not entitled to recover the alleged dues of Empire Services Private Limited from the defendants.
8. It has also been brought to the notice of this Court by learned counsel for the defendants that the property in question is in possession of M/s Yes Bank by virtue of mortgage deed, who has a registered charge over the said property under Sections 77/78/79 of the Companies Act, 2013 read with Rule 3(1) of the Companies (Registration of Charge) Rules, 2014, which has now further been registered with the Central Registry of The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”). The possession of the said property/assets of defendant No.1 has been taken by M/s Yes Bank on 10.09.2021, which is now pursuing its remedies under the SARFAESI Act and therefore, under Section 34 of the said Act, the present application is not maintainable. In support of abovesaid submission, reliance was placed upon Hon’ble Supreme Court’s decision in Mardia Chemicals Ltd. and Ors. Vs. Union of India & Ors. (2004) 4 SCC 311. Lastly, it was submitted that the present application deserves to be dismissed.
9. At the first and foremost, this Court makes it clear that this Court has not heard arguments in IA No. 9962/2021 despite today matter having been fixed for the same, as learned counsel for plaintiff has insisted upon hearing on the instant application [IA No. 9782/2020] for urgent relief under the provisions of Order XXXVIII Rule 5 r/w Section 151 CPC.
10. Pertinently, in the present application plaintiff has raised an apprehension that defendants have large loan liabilities and they may encumber their existing assets to defeat the claim of plaintiff, which are to the tune of Rs.2,71,69,605/- and therefore, has prayed to attach the property at Plot No.352, DLF City Phase-1, Sector 28, Gurgaon Haryana of the defendant No.1 Company, which is valued at approximately Rs.300,00,00,000/-. However, on what premise the aforesaid apprehension is based, has not been mentioned in the application and, therefore, the submission advanced by both the sides were heard at length and the decisions relied upon by them have also been perused by this Court to satisfy whether the relief claimed is made out or not.
11. Pertinently, the provisions of Order XXXVIII Rule 5 CPC read as follows:-
“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.
1 [(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..]”
12. Testing the applicability of provisions of Order XXXVIII Rule 5 CPC to the case in hand, this Court finds that by seeking attachment of property of defendants, plaintiff is in fact trying to secure the amount over and above the amount of which decree is sought against the defendants in the main suit.
13. To satisfy the conscious of this Court so that by refusing to grant any relief, no prejudice is caused to plaintiff, this Court has gone through the Hon’ble Supreme Court’s decision in Rahul S. Shah (Supra). The submission of plaintiff that defendant No.1 is liable to furnish a security for the suit amount in view of decision in Rahul S. Shah (Supra) is misplaced, as in the said case the Hon’ble Supreme Court had dealt with the appeals arising due to dismissal of writ petitions by the High Court of Karnataka, culminating from execution proceedings of a decree in respect of the property which had two sets of sale deeds and a part thereof was also subject matter of land acquisition proceedings and disbursal of claims etc. However, in the present case the property in question is said to have been mortgaged with M/S Yes Bank, who is pursuing remedies under the SARFAESI Act.
14. Further, the submission of plaintiff’s counsel that decision of Hon’ble Supreme Court in Raman Tech. (Supra) is not applicable to the present case, does not appeal this Court, as in the said case proceedings had been instituted for recovery of money due towards supply of material to the appellant and a direction was sought to furnish security of the suit claim and in case of failure, attachment before judgment was prayed. The Hon’ble Supreme Court had made the observations:-
“5. The power under Order 38 Rule 5 of the Civil Procedure Code 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 debt. Any attempt by a plaintiff to utilise 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.
6. A defendant is not debarred from dealing with his property merely because a suit is filed or about to be filed against him. Shifting of business from one premises to another premises or removal of machinery to another premises by itself is not a ground for granting attachment before judgment. A plaintiff should show, prima facie, that his claim is bona fide and valid and also satisfy the court that the defendant is about to remove or dispose of the whole or part of his property, with the intention of obstructing or delaying the execution of any decree that may be passed against him, before power is exercised under Order 38 Rule 5 CPC. Courts should also keep in view the principles relating to grant of attachment before judgment.”
15. Moreover, the Division Bench of this Court vide its order dated 24.08.2021 has already reiterated the ratio of law laid down by the Hon’ble Supreme Court in Rahul S. Shah (Supra) and Raman Tech. (Supra) while observing as under:-
“10. Further, the Appellant by filing applications under Order XXXVIII Rule 5 and Order XXXIX CPC cannot convert its unsecured debt into a secured debt [See Raman Tech. & Process Engg. Co. & Anr. Vs. Solanki Traders, (2008) 2 SCC 302].
11. Also, the Supreme Court in Rahul S Shah (supra) has nowhere stipulated that it is mandatory for the Courts in each and eve
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ry suit to demand security from the defendant in accordance with the prayer clause. The said judgement vests discretion with the trial court to direct the defendant to disclose its assets and/or furnish security, if the fact so warrant and that too before settlement of issues. 12. The judgment in Rahul S Shah (supra) does not overrule the earlier judgement of the Supreme Court in Raman Tech. & Process Engg. Co. & Anr. (supra).” 16. Besides afore-noted observations, the Division Bench has also observed that appellant therein (plaintiff) is using the present court proceedings to force the respondent to settle its claim on priority basis by repeatedly filing fresh applications and not allowing the court to decide the previous applications filed by it. This Court is also in consensus with the view expressed by the Division Bench. 17. In the considered opinion of this Court, plaintiff has not been able to prima facie persuade this Court that its case stands on such strong footing that it shall have a decree in its favour or that intervention of this Court is required in contravention of ratio of law laid down by the Hon’ble Supreme Court in Mardia Chemicals (Supra). 18. In the light of aforesaid, without commenting on the merits of the case, the present application is dismissed.