Calcutta High Court
Rakesh Maruti Ltd vs Kabra Commercial Ltd. & Anr on 29 April, 2010
Author: Pinaki Chandra Ghose
Bench: Pinaki Chandra Ghose, Harish Tandon
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ORDER SHEET
IN THE HIGH COURT AT CALCUTTA
ORIGINAL SIDE
APOT NO. 144 OF 2010
GA NO. 756 OF 2010
with
C.S. 19 OF 2010
RAKESH MARUTI LTD.
VERSUS
KABRA COMMERCIAL LTD. & ANR.
BEFORE
THE HON'BLE JUSTICE PINAKI CHANDRA GHOSE
&
THE HON'BLE JUSTICE HARISH TANDON
Date : 29.04.2010
Dictated Order
The Court :
This is an appeal against the judgment and order dated 1st March 2010 passed by
the first court on an application taken out by the defendant/appellant for variation and
modification of the principal order dated February 9, 2010 which was subsequently
modified by an another order dated February 16, 2010.
Admittedly the suit in question is a suit simplicitor for claim of money. The case
made out by the plaintiff/respondent is that the defendant/appellant through its
authorised person approached the respondents for entering into financial agreement to provide finance either by direct investment or by financial sale agreements. By an agreement between the appellant and the respondent the respondents have financed the appellant's business either by direct investment or by entering into a high seas sales 2 contract for supply of hard coking coal in bulk. It is further sated that by such arrangement it was agreed that the respondents shall be allotted 35% of the equity shares of the appellant company and the representative of the respondent no. 1 herein shall be one of the directors of the Board of Director of the appellant company. Pursuant to such arrangement the respondent no. 1 entered with the appellant six High Seas Sales Contract and raised six invoices for the price of hard coking coal. In addition thereto the respondent no. 1 also raised three debit notes for the bank charges incurred for opening of foreign Letter of Credit in relation to two invoices. The aforesaid investment was further agreed to fetch an interest @ 18% per annum which was subsequently modified orally to 17.5 % per annum. The respondent no. 1, by way of such arrangement, advanced various sums on different accounts and the appellant also made payment from time to time leaving a balance of the principal sum of Rs. 1,38,80,683.04p.
Similarly the respondent no. 2 also entered two High Seas Sales Contract with the appellant and also raised one debit note for differential amount of foreign exchange fluctuation and other cost and have also received payment from the appellant from time to time and as on January 31, 2010 a sum of Rs. 2,42,56,056.63p. was due and payable. The claim has been duly crystallized in paragraph 22 and 23 of an application being GA no. 359 of 2010.
The said application was moved without serving notice upon the appellant and ex parte ad interim order was passed on 9th February 2010 in terms of prayer (a) of the Notice of Motion which reads thus : "an order of injunction restraining the respondent and its servants and agents from alienating, encumbering, selling and/or dealing with in any 3 manner the factory and works, particulars whereof have been given in Annexure "v" herein". In addition to the same a Receiver was also appointed for the purpose of making inventory of the assets mentioning on Annexure 'V' to the petition.
However the said order was modified subsequently on 16th February 2010 to the extent that the order dated 9th February 2010 will not prevent the appellant from dealing with the asset except in the usual course of business.
The appellant thereafter took out an application for vacating the said order and also discharge of the Receiver. It is averred in the said application that the appellant contacted one Rejesh Kabra for supply of coal imported from Austrailia and during such discussion it was represented that said Mr. Kabra has an expertise in procuring the imported raw materials and would be able to supply the imported coal from Austrailia and China to the appellant and for such purposes the respondent would be entitled to obtain the necessary fund in the form of a Letter of Credit from the banks against the margin money of 35% and the respondent would also invest such money for which the appellant company would pay interest thereupon. Although the office of the appellant company situate in Kolkata but none of its Directors or member lives or resides in Kolkata.
On and from April 16, 2007 the said Rajesh Kabra was appointed the director of the appellant company and operated the bank account and managed and run the appellant company. Some sorts of defalcation was noticed in the account which constrained the appellant to cause the letter requesting him to furnish the explanation thereof.
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Another defence taken in the said application for vacating the interim order is that the agreement contains an arbitration clause and in view of section 8 of the Arbitration and Conciliation Act 1996 the dispute raised in the said suit is required to be referred to arbitration. The said application was moved on March 1, 2010 before the Hon'ble first court who was pleased to extend the interim order granted earlier till 12 weeks from date on the premise that the dispute raised in the suit does not restrict to High Seas Sale Contract only.
Assailing the said order Mr. Pratap Chatterjee, ld. Senior Advocate appearing for the appellant contended that the learned Judge have extended the interim order without considering as to whether any case is made out as envisaged under Order 38 Rule 5 of the Code of Civil Procedure. It is further submitted that mere declination in the profit does not warrant the interference of the court under the said provision. Mr. Catterjee further submitted that from the Director's report under the heading "Financial Results"
as on 31st March 2008 the operating profit shown as Rs. 161.55 lakhs and as on 31st March 2009 it is shown as Rs 277.77 lakhs. The profit after tax as on 31st March 2008 was shown as Rs. 110.26 lakhs whereas as on 31st March 2009 it was shown as Rs. 12.42 lakhs for a simple reason that a sum of Rs. 263.35 lakhs has been kept on the provision for current tax/deferred tax/fringe benefit tax. It is further submitted that reversal of an entry in the account does not amount to an intention to defeat the decree and/or disposal or removal of the property. To substantiate his contention. Mr. Pratap Chatterjee, ld. Senior Advocate cited a judgment of Raman Tech. & Process Engg. Co. & Anr. Vs. Solanki Traders reported in (2008) 2 SCC 302 and contended that the Hon'ble Apex court have laid down that the power under Order 38 Rule 5 of the Code of 5 Civil Procedure is drastic and extraordinary power and should not be exercised mechanically or merely for asking and should be used sparingly and strictly in accordance with the provisions contained in Order 38 Rule 5 of the Code of Civil Procedure.
Per contra, Mr. S.N. Mukherjee, ld. Senior Advocate submitted that he appellant company has categorically admitted the dues and outstanding of the plaintiffs/respondents and an attempt to reverse such entries raises a logical conclusion that there is an intention to defeat the decree and to remove or dispose of the property by the appellant.
Mr. Mukherjee further submitted that the Directors' report of the appellant company depicts a drastic declination in the profit which manifests an intention to defeat the claim if decreed in favour of the plaintiff/respondent. He further submitted that the appellant's company has subsequently reversed the entries by such outstanding which also, on the face of it, suggests an intention to defeat the claim of the plaintiff/respondent. Mr. Mukherjee cited a judgment Premraj Vs. Md. Maneck Gazi reported in AIR 1951 Cal 156 to the effect that principles have been laid down by this Hon'ble Court as to the scope and ambit of the provisions contained under Order 38 Rule 5 of Code of Civil Procedure.
Before we proceed to deal with the submissions of the Counsels appearing for the respective parties, it would be profitable to mention the provision contained under Order 38 Rule 5 of the Code of Civil Procedure which reads thus :
"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 6 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."
Having heard the respective counsels we find that this is a suit simplicitor for recovery of money. In the said suit the plaintiff has taken out an application under Order 38 Rule 5 of the Code of Civil Procedure. An ex parte ad-interim order was passed on the said application which was sought to be varied by the appellant by filing an application for vacating the said order. On bare perusal of the said application we fail to find that any case has been made out whereby it can be inferred that the defendant/appellant, in order to obstruct and/or defeat the execution of the decree that may be passed, intended to dispose of or remove the property. Mere quoting of the 7 provision as contemplated under Order 38 Rule 5 without having any substantiation in the materials does not entitle the plaintiff/respondent to obtain the order under Order 38 Rule 5 of the Code of Civil Procedure. It has been rightly pointed out by Mr. Chatterjee, ld. Senior Advocate that in a Director's report the operating profit has increased between the period from 31st March 2008 to 31st March 2009. It is only a profit after tax which is shown less as a sum of Rs. 265.35 lakhs is kept under the provision for current tax/deferred tax/fringe benefit tax. We find that the Hon'ble first court did not correctly appreciate the same as it cannot be said that there has been a drastic declination in the profit.
The entry made in the said Director's report showing a sum due and outstanding to the plaintiff/respondent does not have any impact upon considering an application under Order 38 Rule 5 of the Code of Civil Procedure. The reversal of an entries cannot be said to be an intention on the part of the appellant to defeat the decree or disposal and/or removal of the property which is sine quo non to an invocation of provisions contained under Order 38 Rule 5 of the Code of Civil Procedure. Mere existence of a prima facie case does not entail allowing an application under Order 38 Rule 5 of the Code of Civil Procedure unless it is also established that the appellant is attempting to alienate or dispose of its assets with the intention of defeating the execution of decree that may be passed. The powers conferred under Order 38 Rule 5 of the Code of Civil Procedure is an extraordinary power and should be used sparingly and a strict compliance thereof should be adhered to. In this aspect The Apex Court in a judgment of Raman Tech. & Process Engg. Co. & Anr. Vs. Solanki Traders reported in (2008) 2 SCC 302 was pleased to hold as follows :
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"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 that 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 Code of Civil Procedure. 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 Code of Civil Procedure 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 9 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."
It would be trite to mention in this regard that the judgment cited by Mr. Mukherjee (AIR 1951 Cal 156) was considered by the Apex Court in the said judgment (supra) and approved the principles laid down therein. The judgment of the first court cannot be sustained and as such is hereby set aside. The time to file affidavit-in- opposition is extended by two weeks and reply, if any, be filed one week thereafter.
We further made it clear that His Lordship shall hear out the matter without being influenced by our opinion.
For the reasons stated hereinabove, the appeal is allowed. However, there will be no order as to costs.
(Pinaki Chandra Ghose, J) (Harish Tandon, J) LATER 10 After the delivery of the judgment the learned Advocate appearing for the respondent prays for stay of the operation of this order. We find no reason to pass an order of stay as prayed for and the same is rejected.
(Pinaki Chandra Ghose, J) (Harish Tandon, J)