Supreme Court Guidelines for Attachment of property under CPC

A suit can be categorised into three parts. First the commencement of the suit followed by giving the decree and at last the implementation of the given decree. The last step is also called execution as at this stage the decree is executed or put in action. As the title suggests, the present article is regarding the attachment of the property.

Attachment is functional at the final stage of the suit. It is the process which benefits the creditor as a property which is owned by the debtor is sold/transferred to the creditor. It is said that the property is liable for attachment. Any property like house, land building, goods, cheque, bill of exchange, hundi and promissory notes, government securities bonds, bank notes etc., can be attached and subjected to sale.

These are provided under order XXI, section 60-64 of the Civil Procedure Code, 1908 and Order XXXVIII rules 5-13 is concerned with attachment before the judgement.

The apex court and various high courts on numerous junctures have laid down principles and guidelines with regards to attachment of property. The present article mainly deals with the ratio decidendi or the “reason/ rationale for the decision” of the cases.

COURT’S VIEW ON ATTACHMENT

In the case of Sardar Govindrao Mahadik and Anr. v. Devi Sahai and Ors AIR 1982 SC 989; the Supreme Court held that the very purpose behind granting a decree of attachment before judgement is to impart confidence and an assurance to the plaintiff that in case his decree is made it will be satisfied.

Such passing of decree of attachment before judgement gives a guarantee to the plaintiff from decree becoming pointless. A property under Order XXXVIII rule 5 of the civil procedure is not open to sale because such property has already been set aside for the receiver of the property. This provides a safeguard to the plaintiff so that he/she can benefit from decree that may be passed in his/her favour.

Providing assurance to the plaintiff is the sole purpose behind such order.

EFFECT OF ATTACHMENT

The apex court in the same case (as above) under p. 268 para 58 went ahead and explained the effect of attachment before judgement. In simple words the court explained that Attachment before judgement will be granted where the court (on an application by plaintiff) is satisfied that the defendant has an intention to delay the execution of the decree which has been passed against him or that he is about to alter or destroy or dispose the whole or a part of property.

Granting such order gives an assurance to the plaintiff that if a decree is passed in his favour it will be satisfied. This also makes void (against all claims) any transfer or delivery of property or any interest which is contrary to the attachment. However, it was also laid that this remedy should be used with utmost caution so that it saved from becoming an instrument of oppression.

The same was reiterated in the case of Raman Tech. & Process Engg. Co. & vs Solanki Traders (2008) 2 SCC 30; where the court said that Order XXXVIII Rule 5 CPC holds a drastic and extraordinary power which should not be exercised for reason which might reflect the conversion of insecure debt to secure debt.

The court made a comparison and explained that arrest or attachment before judgment, grant of temporary injunctions and appointment of receivers are all similar in purpose which is to secure the ends of justice. The words of the provision are clear in bestowing the meaning to the purpose of the said provision. Whereby it is meant that the plaintiff must have a prima facie case and it should be reflected in the plain documents duly submitted.

The court also further explained that, merely showing that there is a claim or a prima facie case is not sufficient. It should be clearly established that there were attempts made by the defendant to to remove or dispose the assets with a mala fide intention of obstructing the decree’s execution.

Likewise, in the case of Hari Shankar v Bhoori Devi, 11 (1975) DLT 159; Hon’ble Justice Yogeshwar Dayal pointed out two basic conditions which should be satisfied before granting attachment before judgement.

1. An attempt should be made by the defendant to alter or dispose the a part or the whole of property.
2. The intention behind such disposal should be to delay or obstruct the decree’s execution.

In a landmark case the Apex court approved the case of Premraj Mundra v. Md. Maneck Gazi & Ors. , reported in AIR 1951 Cal. 156; which laid down 14 guidelines/principles after referring to number of authorities, for the exercise of jurisdiction under Order XXXVIII Rule 5 of the Code of Civil Procedure.

1. For obtaining an order under Order 38 rule 5 and 6, the facts and circumstances of the case must in reality exist as is stated.
2. The court must be satisfied and no room for doubt is left in answering the question of facts. In other words the facts should be undisputed with regards to circumstances under such order.
3. The courts should not grant an order under the said provision merely to secure the plaintiff or so that the debts are secured.
4. The applicant’s affidavits which depict his contention must be distinct, certain and must be properly verified. In the affidavit where the applicant claims that certain contentions are ‘true to knowledge or information or belief’, the same must be evidently stated as to which portion he claims to be true to his knowledge and additionally, the source of such information must also be disclosed. There should be proper reasons and grounds for such belief which should be duly stated.
5. Mere allegation of selling of properties will not be enough to give an order; all the particulars must be stated.
6. Transaction before suit can be taken into consideration but the object of the order of attachment before judgement should be to prevent a future harm or transfer of the property.
7. Disposal of a very small portion of the deft cannot be sole ground for granting of the order. There should be other reasons and circumstances surrounding the plaintiff’s claim that the execution is being delayed.
8. Since everyone has a right to deal with their properties the mere fact that a suit has been filed is no reason to stop them from obstructing them from exercising that right. What is important is to showcase the intention attached with such transfer which should be to delay or defeat the plaintiff’s claim. The court in this matter has wide discretion to even look into the conduct of the parties immediately preceding the suit and also the surrounding circumstances with the objective of drawing an inference. The nature of such claim and the defence put forth must be scrutinised.
9. Insolvency of the defendant or grave financial hardship can be a ground for consideration but it cannot be adequate in itself.
10. Strict caution must be exercised in case of business and the basic fact that the revenue has been diminished is not enough reason.
11. If in any circumstance it is found that the defendant is seen to dispose his property one by one immediately on the reception of the notice of plaintiff’s suit or prior to the suit because of any financial embarrassment then such circumstances could be a reason to legitimately draw inference that such disposal was with the objective to delay or defeat the plaintiff’s claim.
12. If there is a removal of property outside the jurisdiction, such reason alone could not be enough to hold the defendant liable but where it is seen that such disposal or removal was made upon the notice of plaintiff’s claim and without any satisfactory reason a strong inference could be drawn against the defendant. Also if it is seen that the removal of property was to a foreign country the inference is strengthened.
13. The defendant is under no an obligation to take any special care while dispensing his affairs merely because of the fact that there is a claim against him. The fact that the creditors are under suffering is not the sole reason for granting of order 38.
14. Intention to defeat the plaintiff’s claim can be observed by the fact that property has been sold at a value much lesser than its market price or Benami transfers. The court should be cautious to differentiate the allegations from solid evidence of such allegations.

CONCLUSION

The civil procedure code, 1908 contains the provisions for attachment of property. It is important to look into the situations where attachment of property is granted before judgement. Such provision is provided under Order XXXVIII of the code which must be exercised with utmost caution.

The powers of the court under Order XXXVIII is drastic and must be allowed after viewing all rounded circumstances and intention attached with the act. The apex court has given a fourteen point guidelines in the case of Premraj Mundra v. Md. Maneck Gazi & Ors. which should be considered before granting a decree under Order XXXVIII.