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Skoda Auto India Pvt. Ltd. Shendra, Aurangabad, Represented by its Company Secretary & Head of GRC v/s M/s. St. Antony's Trading Company, A Partnership Firm Represented By Its Managing Partner Mehar Reynolds & Others

    FAO. No. 211 of 2017

    Decided On, 19 January 2018

    At, High Court of Kerala

    By, THE HONOURABLE MR. JUSTICE P.N. RAVINDRAN & THE HONOURABLE MR. JUSTICE R. NARAYANA PISHARADI

    For the Appellant: M.R. Hariraj, G. Bindu, M.K. Leela, K. Rajagopal, Advocates. For the Respondents: R7 & R8, M.V. Balagopal, R1 -R4, Leo George, Advocates, A.V. Thomas, Senior Advocate.



Judgment Text

R. Narayana Pisharadi, J.

1. 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 with a view to cause delay and obstruction in the execution of the decree that may be passed in the suit and therefore, the lower court was perfectly right in passing the impugned order.

10. Order 38 Rule 5(1) of the Code provides that 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.

11. Order 38 Rule 5 of the Code intends to protect the interests of a plaintiff in a suit, where it is apprehended that the defendant with intent to obstruct or delay the execution of any future decree, seeks to shield his property from court process. The object of Order 38 Rule 5 of the Code is to prevent any attempt on the part of the defendant to defeat the fruits of the decree that may be passed against him. Attachment before judgment is levied where the court on an application of the plaintiff is satisfied that the defendant with intent to obstruct or delay the execution of a decree that may be passed against him (a) is about to dispose of the whole or part of his property, or (b) is about to remove the whole or part of the property from the local limits of the jurisdiction of the court. The sole object behind the order levying attachment before judgment is to give an assurance to the plaintiff that the decree, if passed, would be satisfied. It is a sort of guarantee against the decree becoming infructuous for want of property. Action by attachment under Order 38 Rule 5 of the Code is preventive and not punitive (See Woodys Hotel Pvt Ltd v. Prasant Kumar Panigrahy : 1998 KHC 29 : 1998 (1) KLT 149).

12. The pre-requisites for passing an order for attachment before judgment have been laid down in a catena of decisions of this Court. It has been held that the affidavit in support of the contentions of the applicant must not be vague. Vague and general allegations that the defendant is about to dispose of the property or remove it beyond the jurisdiction of the court, unsupported by particulars, would not be sufficient compliance with the rule. Mere vague or evasive allegations in the affidavit do not serve the purpose. The plaintiff should precisely state in the affidavit the grounds on which he entertains the belief or apprehension that the defendant is about to dispose of his property or to remove the property so as to obstruct or delay the execution of the decree. Mere verbatim reproduction of the grievances in the affidavit would not be sufficient. It is incumbent upon the plaintiff to state the grounds on which he entertains the belief or apprehension that the defendant would dispose of or remove the property. The source of information of the plaintiff should be disclosed. Source of information should be clearly and fairly indicated in the affidavit. The plaintiff shall state in the affidavit what type of enquiry he has made and what are the materials on which he entertains the belief that the defendant is attempting to dispose of his property. Attachment before judgment is an extra ordinary power and the court may grant the same with care and caution. Attachment before judgment is not to be granted on a mere assertion by the plaintiff that the defendant is attempting to dispose of the whole or part of his property or to remove whole or any part of his property from the jurisdiction of the court. The court has to satisfy itself on the basis of materials and its satisfaction shall be reflected in the order (See Rai Premchand v. Ahamed: 1982 KHC 73: 1982 KLT 294, Retnamma v. Govinda Pillai : 1995 KHC 70 : 1995 (1) KLT 405 and Woodys Hotel Pvt Ltd v. Prasant Kumar Panigrahy : 1998 KHC 29 : 1998 (1) KLT 149).

13. Similar is the view taken by various other High Courts. It has been held that the court has to act with utmost circumspection and with maximum care and caution in order to avoid the remedy of attachment before judgment being a weapon of oppression. It is incumbent upon the plaintiff to state the material particulars and sources of information, belief and so on (UCO Bank v. Sukra Shoe Fabric : AIR 1992 Madras 293). Before exercising jurisdiction, the court should satisfy itself of the practical certainty of the success of the plaintiff and judicial discretion should not be exercised until a clear case has been made out (M/s Cosmopolitan Trading Corportion v. M/s Engineering Sales Corporation : AIR 2001 Raj 331). The court would not be justified in issuing an order for attachment before judgment, or for security, merely because it thinks that no harm would be done thereby or that the defendant would not be prejudiced. The affidavit in support of the contentions of the applicant must not be vague. Mere allegation that the defendant was selling off his properties is not sufficient. Particulars must be stated. In the case of running business, the strictest caution is necessary and the mere fact that a business has been closed, or that its turnover has diminished, is not enough (Premraj Mundra v. Md. Maneck Gazi : AIR 1951 Cal 156). The court must keep in mind that attachment on flimsy grounds has potential to expose the defendant to immense hardships and even to ruin his reputation, business, credibility and standing in the society (Gurpreet Singh v. Abdul Gani Dar : AIR 2011 JK 23).

14. In the instant case, the averment in the affidavit filed by the managing partner of the first respondent firm is that enquiries made by him reveal that the only asset of the appellant company is the petition schedule property and that the company is taking hasty steps to encumber the said property with a view to obstruct and delay the execution of the decree that may be passed in the suit. This averment does not satisfy the requirement under Order 38 Rule 5(1) of the Code. There is no averment in the affidavit filed by the first respondent firm that the appellant company has been taking steps for disposing the whole or any part of its property or to remove the whole or any part of its property from the local limits of the jurisdiction of the court.

15. In this context, it is advantageous to refer to the observations made by this Court in Joseph Kunji v. N.D. Joy : 1996 KHC 564: ILR 1996 (2) Kerala 313, which read as follows:

'It is not averred in the petition filed by the respondent under O.38 R.5 of the C. P. C. that the defendant petitioner has any intention to dispose of the whole or any part of his property or to remove the whole or any part of his property from the local limits of the jurisdiction of the court. The learned Sub Judge has clearly indicated in his order that there is absolutely no element of bad faith like intention to obstruct, delay or defeat the legal proceedings and the defendant has no intention to obstruct or delay or defeat the execution of any decree that may be passed against him. Yet he directed the defendant petitioner to furnish security or to show cause why he should not furnish security. Since no case has been made out that the defendant petitioner is about to dispose of the whole or any part of his property, or is about to remove the whole or any part of his property from the local limits of the jurisdiction of the Sub Judge, the direction contained in the impugned order is clearly one without jurisdiction.'

16. It is stated in the affidavit filed by the managing partner of the first respondent firm that enquiries made by him revealed that the only asset of the appellant company is the petition schedule property and that the company is taking hasty steps to encumber the said property. The affidavit does not disclose the nature of the enquiry made by him or the source of his information. The affidavit also does not disclose in what manner the appellant company intended to encumber the property or the nature of the steps taken by the company in that regard. In the absence of precise averments in the affidavit filed by the managing partner of the first respondent firm that the appellant company was about to dispose of the whole or any part of its property or to remove the whole or any part of its property from the local limits of the jurisdiction of the court and in the absence of requisite averments in the affidavit, the lower court should not have passed an order for attachment before judgment.

17. It is also significant that the petition schedule property does not belong to the appellant company and therefore, the company is not in a position to dispose of that property. Along with the application I.A.No.33 of 2018 filed before this court, the appellant company produced the registration copy of the lease deed executed by it with the Maharashtra Industrial Development Corporation. A perusal of this lease deed would show that the petition schedule property is owned by the Maharashtra Industrial Development Corporation and that the appellant company is only a lessee of that property.

18. The reasons shown by the lower court for keeping the petition schedule property under attachment read as follows:

'8. Then it is contended that R1 is not the owner, but the State of Maharashtra is the owner and R1 is only a lessee who has no right of alienation over the property. What can be attached is the right of the respondents. Restriction by way of attachment is only with respect to the transfer of the existing right. If R1 is not the owner, it need not worry about the actual owner. Order of attachment, if any, will affect only the existing right of R1 and there is no reason to dismiss the present petition for the mere reason that R1 has a contention to the effect that he is only a lessee.'

It appears that the lower court was under an impression that if the appellant company is not really the owner of the petition schedule property, then there is no need for the company to worry about the real owner or the attachment made. This line of reasoning cannot be approved. It is to be noted that the appellant company is the manufacturer of Skoda Cars. It has got a reputation in the commercial and business circle. An attachment of the property in which it conducts business is likely to affect the reputation of the company. Moreover, it may also cause problems for the company in its dealings with the Maharashtra Industrial Development Corporation, which is the lessor and the owner of the property. As stated by this Court in Rai Premchand v. Ahamed: 1982 KHC 73: 1982 KLT 294, quite often such drastic action may irretrievably spoil the reputation of a trader and it would be little consolation that after a protracted litigation, the defendant would be able to vindicate his position. The victory for all practical purposes may prove to be a barren one. The court would not be justified in issuing an order for attachment before judgment, or for furnishing security, merely because it thinks that no harm would be done thereby.

19. The appellant company has produced before this Court a copy of the order sanctioning lease of property in its favour by the Maharashtra Industrial Development Corporation. It is specifically stated in this order that the company shall not directly or indirectly transfer or assign the benefits of or interest in the agreement to lease or part with the possession of land or any part thereof without the previous consent of the Corporation. Therefore, it is highly unlikely that the appellant would be able to assign or transfer even its leasehold right in the petition schedule property.

20. The order passed by the lower court is erroneous for another reason also. The operative portion of the impugned order reads as follows:

'In the result, respondents are directed to furnish sufficient security for Rs.17,90,79,700/- or to show sufficient cause for not furnishing such security and till then the petition schedule property is placed under attachment.'

It is to be noted that the aforesaid order is not an order of conditional attachment passed under Order 38 Rule 5(3) of the Code. It is the final order passed under Order 38 Rule 6 of the Code. Order 38 Rule 6 (1) of the Code provides that where the defendant fails to show cause why he should not furnish security, or fails to furnish the security required, within the time fixed by the Court, the Court may order that the property specified, or such portion thereof as appears sufficient to satisfy any decree which may be passed in the suit, be attached. Order 38 Rule 6 (2) of the Code states that where the defendant shows such cause or furnishes the required security, and the property specified or any portion of it has been attached, the Court shall order the attachment to be withdrawn, or make such other order as it thinks fit. It is a case in which in the first instance conditional attachment of property was ordered. Thereupon, the appellant company appeared before the court below and filed counter affidavit showing cause against furnishing security and against attachment of property. The lower court again directed the appellant company to furnish security or to show cause for not furnishing security. Such an order is not contemplated under Order 38 Rule 6 of the Code. If the lower court was satisfied that the cause shown by the appellant company was sufficient, it should have ordered the attachment to be withdrawn. On the other hand, if the lower court was of the opinion that the appellant company failed to show sufficient cause, then it should have made the attachment absolute. The Court has to consider the cause shown by the defendant and pass final orders. If the decision is in favour of the defendant, an order as contemplated in Order 38 Rule 6 (2) of the Code has to be passed. If the conclusion is against the defendant, an order of the nature contemplated in Order 38 Rule 6 (1) of the Code should follow (See Shalimar Rope Works Ltd. v. N. C. John & Sons. Ltd : 1986 KHC 365 : 1986 KLT 1366). At any rate, there is no legal basis for the order passed by the lower court directing the appellant company again to furnish sufficient security for the plaint claim or to show sufficient cause for not furnishing such security.

21. The impugned order is erroneous for another reason. The lower court has stated that the contention raised by the appellant company regarding absence of cause of action for the suit need not be considered. But, the lower court should have considered whether the plaintiffs have got a prima facie case. In Raman Tech and Process Engg. Co. v. Solanki Traders: (2008) 2 SCC 302, the Apex Court has held as follows:

'The scheme of O.38 and the use of the words 'to obstruct or delay the execution of any decree that maybe passed against him' in R.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

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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 O.38 R.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'. The Hon'ble Supreme Court has proceeded further and held as follows: 'The power under O.38 R.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 O.38 R.5 is not to convert an unsecured debt into a secured debt. Any attempt by a plaintiff to utilize the provisions of O.38 R.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 settlement, under threat of attachment.' 22. In the aforesaid circumstances, we have no hesitation to hold that the impugned order passed by the court below is illegal and improper and that it is liable to be set aside. In the result, the appeal is allowed. The impugned order is set aside and the application I.A.No.6112 of 2016 in the court below is dismissed. It is submitted at the Bar that the enquiry in the application filed by the plaintiffs to sue as indigent persons is at the final stage. The lower court shall expeditiously complete the enquiry in that application and pass orders therein in accordance with law. The parties shall suffer their respective costs in the appeal.
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