Punjab-Haryana High Court
Onkar Mal Mittal And Another vs State Bank Of Patiala And Others on 8 June, 1991
Equivalent citations: AIR1992P&H104, [1994]79COMPCAS489(P&H), AIR 1992 PUNJAB AND HARYANA 104, (1991) 2 LANDLR 413, (1991) 2 PUN LR 338, (1992) 1 RRR 45, (1991) 2 LJR 405, (1994) 3 BANKLJ 280, (1992) 1 BANKCAS 269, (1994) 79 COMCAS 489, (1992) 1 BANKCLR 643
JUDGMENT
1. This order of mine shall dispose of F.A.O. Nos. 700 of 1989 and 701 of 1989 and Civil Misc. Nos. 3581-CII of 1991 and 3024-CII of 1991.
2. State Bank of Patiala (hereinafter called The bank'), filed two suits against the Punjab Spinning and Weaving Mills Limited and others, for the recovery of Rs. 93,37,876-12P and Rs. 84,03,020/40P. The appellants were impleaded as defendants in those suits as it was alleged that they stood as guarantors for the repayment of the loan given to the company. The appellants in their written statement have denied that they gave guarantee in their individual capacity. Their case is that they signed the documents in the capacity as Directors of the company. The Punjab State Industrial Development Corporation (hereinafter called the 'PSIDC' is the promoter of the company, holding majority shares of it.
3. During the pendency of the suit, the bank filed an application dated 7th of February, 1987, under Order 38, Rules 5 and 6 read with Order 39, Rules 1 and 2 of the Code of Civil Procedure (hereinafter called 'the Code') vide which the property of the company as well as of the Directors was sought to be attached. Along with the application, it also filed Annexures 'A' and 'B' giving the details of property belonging to the company and the Directors. This application is pending consideration with the trial Court. PSIDC entered into an agreement dated 25th of September, 1986 with the appellants and under the said agreement, PSIDC agreed to purchase shares of the company held by the appellants or their nominees for a total consideration of Rs. 91,00,000/- (Rs. Ninety one lakh only). Under the said agreement, it was also agreed that a sum of Rs. 48,00,000/-(Rs. Forty eight lakh) will be paid by February, 1987 in monthly instalments of Rs. 7.90 lakhs and the balance of Rs. 43 lacs was to be paid to the petitioners in suitable instalments of Rs. 7.90 lacs each month and the total payment was to be made by August, 1987. It was also agreed vide the said agreement that in case of any delay in the payment of instalments, the same shall be payable with interest @ 18% p. a. on the defaulted payment for the defaulted period. It is not in dispute as per the conditions of the agreement that a sum of Rs. 24 lacs has already been paid to the appellants. Before the remaining amount could be paid by the PSIDC to the appellants, the bank filed another application dated 28-4-1987 under Order 38, Rule 5, read with Order 39, Rules 1 and 2, Code of Civil Procedure, seeking attachment before judgment regarding remaining amount which was to be paid by PSIDC to the appellants in pursuance of the agreement dated 25-9-1986.
4. The trial Court passed an ex parte order dated 30th of April, 1987, attaching a sum of Rs. 32 lacs which had become due and payable to the appellants and the remaining amount of Rs. 35 lacs was also attached by an ex parte order dated 23rd of May, 1987. The appellants in response to the notice of the said application, filed reply and contested the ex parte order of attachment passed attaching the amount which was payable to them under the agreement. The appellants also filed an application that PSIDC be ordered to deposit the amount payable to them under the agreement, in the bank so that they may not lose interest in the said amount. The trial Court vide order dated 10th of November, 1988, directed the PSIDC to deposit the amount. PSIDC challenged the said order in Civil Revision No. 3168 of 1988 in this Court and the same was decided on 14-3-1989 by J. V. Gupta, J. (as then he was). J. V. Gupta, J. was of the view that unless the application under Order 38, Rule 5, of the said Code, filed by the bank is finally disposed of, the trial Court should have not directed PSIDC to deposit the amount in the bank as directed by the trial Court vide order dated 12th of November, 1988. In the concluding paragraph of the judgment in C.R. No. 3168 of 1988, J. V. Gupta, J. also held that in case the amount lying with PSIDC is attached under Order 38, Rule 5 of the Code, PSIDC will be liable to pay interest thereon as per the agreement or at the bank rate then prevalent, from the date when it became payable to the appellants, till actual payment. The trial Court was also directed to keep in mind the fact that the property of the company already stood mortgaged with the Bank while passing the final orders under Order 38, Rule 5, of the Code.
5. In pursuance of the order of this Court in C.R. No. 3168 of 1988, the learned District Judge, Bhatinda, before whom the suit is pending for decision, disposed of the application under Order 38, Rule 5, read with Order 39, Rules 1 and 2, of the Code, vide the impugned order dated 29-4-1989, attaching the amount payable by PSIDC to the appellants and also restrained the appellants to receive the said amount. The appellants have challenged the impugned order passed by the learned District Judge, Bhantinda, by way of present appeal.
6. It is now well settled that the order of attachment before judgment cannot be made on the mere asking of the plaintiff. Before making the order, the Court must be satisfied not only that the defendant is really about to dispose of his property or about to remove it from its jurisdiction, but also that the disposal or removal is with intent to obstruct or delay the execution of any decree that may be passed. The satisfaction must be of the Court as regards these matters and it must be based on some material derived either from the affidavit of the party applying under Order 38, Rule 5 or there must be some material on record to indicate that the satisfaction was not illusory. The necessity for orders under Order 38, Rule 5, of the Code, arises almost daily among the litigants. This Court as well as the other Courts have interpreted the provisions of Order 38, Rules 5 and 6, of the Code, in series of judgments. From a perusal of all the authorities the following guiding principles can be deduced;
(1) That an Order under O.38, Rr. 5 and 6 can only be issued, if circumstances exist to the satisfaction of the Court.
(2) Whether such circumstances exist is a question of fact that must be proved to the satisfaction of the Court.
(3) That 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 defendants would not be prejudiced.
(4) That the affidavits in support of the contentions of the applicant, must not be vague and must be properly verified. Where it is affirmed true to knowledge or information or belief, it must be stated as to which portion is true to knowledge, the source of information should be disclosed and the ground for belief should be stated.
(5) That a mere allegation that the defendant, was selling off and his properties is not sufficient particulars must be stated (sic).
(6) There is no rule that transactions before suit cannot be taken into consideration, but the object of attachment before judgment must be to prevent future transfer or alienation.
(7) Where only a small portion of the property belonging to the defendant is being disposed of, no inference can be drawn in the absence of other circumstances that the alienation is necessarily to defraud or delay that plaintiffs claim.
(8) That the mere fact of transfer is not enough, since nobody can be prevented from dealing with his properties simply because a suit has been filed. There must be additional circumstances to show that the transfer is with an intention to delay or defeat the plaintiffs claim. It is open to the Court to look to the conduct of the parties immediately before suit, and to examine the surrounding circumstances, and to draw an inference as to whether the defendant is about to dispose of the Property and if so, with what intention. The Court is entitled to consider the nature of the claim and the defence put forward.
(9) The fact that the defendant is in insolvent circumstances or in acute financial embarrassment, is a relevant circumstance, but not by it self-sufficient.
(10) That in the case of running businesses the strictest caution is necessary and the mere fact that a business has been closed, or that its turnover has diminished, is not enough.
(11) Where however the defendant disposing of his properties one by one, immediately upon getting a notice of the plaintiffs claim, and/or where he had transferred the major portion of his properties shortly prior to the institution of the suit and was in an embarrassed financial condition, these were grounds from which an inference could be legitimately drawn that the object of the defendant was to delay and defeat the plaintiffs claim.
(12) Mere removal of properties outside jurisdiction is not enough, but where the defendant. With notice of the plaintiffs claim, suddenly begins removal of his properties outside the jurisdiction of the appropriate Court, and without any other satisfactory reason, an adverse inference may be drawn against the defendant. Where the removal is to a foreign country, the inference is greatly strengthened .
(13) The defendant in a suit is under no liability to take any special care in administering his affairs, simply because there is a claim pending against him. Mere neglect, or suffering execution by other creditors, is not a sufficient reason for an order under O.38 of the Code.
(14) The sale of properties at a gross undervalue, or benami transfers, are always good indications or an intention to defeat the plaintiffs claim. The Court must however be very cautious about the evidence on these points and not rely on vague allegations.
Now, under sub-rule (4) inserted by Section 85(1), of 1976 Amendment Act, if the order of attachment is made without complying with the provisions of sub-rule (1) of Rule 5 of Order 38, of the Code, such an attachment shall be void.
7. By applying these principles to the fads of the present case, I find that the order of the trial Court cannot be sustained in law. As a matter of fact, the order is void as the same has been passed by the trial Court without complying with the provisions of sub-rule (1) of Rule 5 of Order 38, of the Code, In the application dated 28-4-1987, the Bank has nowhere alleged that the appellants are about to dispose of the property or remove the same from the jurisdiction of the Court. The learned District Judge, Bhatinda, has passed the order of attachment and restrained the appellants only on one consideration that in case the suits of the bank are decreed, the company and the appellants would be jointly and severally liable to make payment. This Court in Civil Revision No. 3168 of 1988 had directed the trial Court to keep in mind while deciding the application under Order 38, Rule 5, of the Code, that the property of the company already stood mortgaged with the Bank. This direction was given keeping in view that the entire property of the company, i.e. land, building and raw material already stand mortgaged with the Bank and also whether property mortgaged with the Bank would be sufficient or not to discharge the liability of the company in the event of the suits of the Bank being decreed.
8. The learned trial Court while passing the impugned order has not taken into consideration the directions of this Court. Earlier to the aforesaid application, the Bank had filed an application dated 7-2-1987 for attachment of the property belonging to the Company and the Directors. In Annexures 'A' and 'B' attached to the said application, not only the details of the land, building and machinery of the Company sought to be attached, is given but also the property owned by the Directors is mentioned.
9. The case of the appellants is that the assets of the Company are not less than Rs. 15 crores. The appellants had also made an offer in this Court they are willing to take over the company on payment of Rs. 15 crores. However, this offer was not acceptable or found favour with the plaintiff-bank. The applicants have brought on record vide CM. No. 3581-CII of 1991, the Minutes of Consortium held on 30th May, 1989 at New Delhi, which was attended by the representatives of PSIDC, Punjab Spinning and Weaving Mills Ltd., Indian Overseas Bank and State Bank of Patiala. Perusal of the Minutes shows that the representatives of these Institutions, agreed to absolve the appellants from liability and for taking other assets and liability of the company by the PSIDC. It is also not disputed that the PSIDC has taken over the affairs of the company and the appellants are no more involved in the working of the company. The entire shareholding of the company held by the appellants, was taken over by PSIDC vide the agreement dated 25th of September, 1986 for a total consideration of Rs. 91 lacs. The amount now sought to be attached by the Bank, is part of the said amount which is payable to the appellants by the PSIDC in pursuance of the agreement. Nothing has been brought on record to show that the assets of the company are not sufficient to meet the amount sought to be recovered by the Bank covered under the two suits against the Company and others.
10. Ex parte orders of attachment dated 30-4-1987 and 23-5-1987 clearly show that while passing ex parte orders of attachment, the appellants were not called upon to furnish security first. Under Order 38, Rule 5, of the Code, the Court has first to ask the appellants to furnish security and only after they fail to furnish security, conditional order of attachment can be made. As I have already indicated above that there is nothing to show that the appellants were called upon to furnish security and they refused to furnish the same. Even the impugned order does not show that the appellants were called upon to furnish security and they refused to furnish the same. Order 38, Rule 5, of the Code, is a mandatory provision, and the Court has to satisfy itself first that the defendant is intending to obstruct or delay the execution of the decree that may be passed against him. If the order passed by the Court does not speak or show that the Court has applied its mind to the requirements of Order 38, Rule 5, or if the order passed by the Court below does not clearly show that it has considered the material on record, or if the order does not show that the Court is satisfied that the defendant with intent to obstruct or delay the execution of the decree that may be passed against him, is about to dispose of the whole or any part of the property, the order would be in violation of Order 38, Rule 5. Order 38, Rule 5 as it stood before the amendment in 1976, would have at the most rendered such order irregular. But, now sub-rule (4) inserted by Act of 1976 reads that if an order of attachment is made without complying with the provisions of sub-rule (1) of Rule 5 of Order 38, such attachment shall be void. Sub-rule (4) has been inserted with a view to see that the Courts do not pass such an extraordinary order in a cavalier manner and without satisfying themselves about the requirements of Order 38, Rule 5. The simple reproduction of the language used in Order 38, Rule 5 will not meet the requirements of Order 38, Rule 5, of the Code. Unless the Court is satisfied with the material on record with the requirements of Order 38, Rule 5, of the Code, the Court shall not hasten to pass an order for attachment. Thus, in my view, the order of attachment passed by the learned trial Court is clearly void as it has been made without complying with the provisions of sub-rule (1) of Rule 5 of Order 38, of the Code.
11. The argument of the learned counsel for the respondent-bank that the impugned order is only an interim order, is also without any merit. The trial Court vide the impugned order has finally disposed of the application dated 28-4-1987 under Order 38, Rule 5 read with Order 39, Rules 1 and 2, of the Code. The other argument of the learned counsel for the respondent-Bank, that this Court shall not interfere in exercise of the powers under Section 115, of the Code, is also devoid of any merit. This Court cannot shut its eyes against the inherent, illegal and void order. It is the bounden duty of the Court to exercise its jurisdiction and interfere when such void orders are passed. It however, shall not bar the trial Court to decide the application dated 7-2-1987 under Order 38, Rule 5, of the Code, which was filed by the plaintiff-Bank seeking attachment before judgment, of the properties belonging to the Company and Directors, the details of which have been given in Annexures 'A' and 'B', attached with the said application. Thus, in my opinion, the order of the learned trial Court cannot be sustained in law. Since the order is being set aside, it shall be open to the PSIDC to meet its commitment under the agreement dated 25th of September, 1986.
12. As a result thereof, the appeal is allowed and the order of the learned trial Court stands set aside. However, the parties are left to bear their own costs.
13. Appeal allowed.