Calcutta High Court
Kohinoor Steel Private Limited vs Pravesh Chandra Kapoor on 14 July, 2010
Equivalent citations: AIR 2011 CALCUTTA 29, (2010) 3 CAL HN 448, (2010) 3 CALLT 268, (2011) 1 BANKCAS 582, (2010) 94 ALLINDCAS 556 (CAL)
Author: Bhaskar Bhattacharya
Bench: Chief Justice, Bhaskar Bhattacharya
1
IN THE HIGH COURT AT CALCUTTA
Civil Appellate Constitutional Jurisdiction
(Original Side)
Present:
The Hon'ble Chief Justice
And
The Hon'ble Mr. Justice Bhaskar Bhattacharya
A.P.O. No. 190 of 2010
G.A. No. 1668 of 2010
C.S. No. 34 of 2010
Kohinoor Steel Private Limited
Versus
Pravesh Chandra Kapoor
And
A.P.O. No. 214 of 2010
G.A. No. 1709 of 2010
C.S. No. 34 of 2010
Pravesh Chandra Kapoor
Versus
Kohinoor Steel Private Limited
For the Appellant in APO 190/2010 &
Respondent in APO 214/2010: Mr. Pratap Chatterjee,
Ms. Manju Agarwal.
For the Respondent in APO 190/2010 &
Appellant in APO 214/2010: Mr. S.N. Mitra,
Mr. Suman Dutt,
Mr. S. Banerjee.
Heard on: 07.07.2010 & 08.07.2010.
Judgment on: 14th July, 2010.
Bhaskar Bhattacharya, J.:
These two appeals were heard together as those were preferred against two parts of the selfsame order passed by the learned Single Judge thereby modifying the ex parte interim order of injunction granted earlier. 2
A.P.O. No.190 of 2010 is at the instance of a defendant in a suit for recovery of money and is directed against order dated 29th March, 2010 passed by a learned Single Judge by which the said learned Judge modified the earlier order dated 5th March, 2010 to this extent that the defendant was restrained from drawing any amount from its bank account without leaving apart a sum of Rs.74,40,962/- with further stipulation that in the event the amount available in the accounts is insufficient, the original order of injunction passed in terms of prayer (b) of the application should continue till six weeks. It may not be out of place to mention here that by the initial order dated 5th March, 2010 the learned Single Judge passed an ad interim order restraining the defendant from creating any third party's interest over and in respect of the plant and machineries supplied by the plaintiff in terms of contract dated 10th November, 2006 and 21st November, 2006 and also restraining the defendant from withdrawing any money from the bank account mentioned in paragraph 42 of the application without leaving a balance of Rs.1.5 Crore.
On the other hand, the plaintiff has come up with the other appeal being APO 309 of 2010 against the selfsame order dated March 29, 2010 by which the learned Single Judge varied the interim order dated 5th March, 2010 in favour of the defendant. In other words, the grievance of the plaintiff in his appeal is that the learned Trial Judge should have refused to vary the interim order dated March 5, 2010 on the prayer of the defendant.
The facts giving rise to filing of these two appeals may be summed up thus:
3
The plaintiff filed a suit being CS No.34 of 2010 in the Original Side of this Court thereby claiming a sum of Rs.1,68,43,662/- with interim interest and also interest on judgment @18% per annum. The case made out by the plaintiff was that according to the agreement between the parties, the plaintiff supplied huge numbers of equipment, plant and machinery to the defendant to enable the defendant to set up a re-Rolling Mill and it was agreed that the price of such machines would be Rs.8,89,92,549/- including the applicable tax and duties. The defendant had made part payment of Rs.8,15,51,587/- being 90% of the said total value of the equipments but had failed and neglected to pay the balance sum of Rs.74,40,962/- being the 10% of the contract-price. The further case of the plaintiff was that the defendant wrongfully appropriated a bank-guarantee of Rs.75,00,000/- dated 12th January, 2009 although the conditions for invoking the bank-guarantee did not arise. The plaintiff also claimed interest and the total amount claimed in the suit was Rs.1,68,43,662/-.
On the basis of selfsame allegations made in the plaint, the plaintiff came up with an application thereby claiming the following relief;
"a) A fit and proper person be appointed as Receiver to take possession of the machines mentioned in Annexure "N" lying at the factory of the respondent situate at Vill-Kuchiddih, Kandrachowka Road, P.S. -
Chandil, District- Saraikela, Kharsawan, Jharkand-832404 and to remain in possession of the said machines till disposal of the suit; 4
b) An order of injunction be passed restraining the respondent from creating any third party interest over and in respect of the said plant and machineries supplied by your petitioner in terms of the contract dated 10th November, 2006 and 21st November, 2006, particulars whereof are mentioned in Annexure "N" herein above;
c) An order of injunction be passed restraining the respondent from withdrawing any money from the said bank accounts mentioned in paragraph 42 without leaving the balance of Rs. 1,68,43,662.00 in such accounts;
d) Ad-interim order in terms of prayers above;
e) Such further an/or other orders as in the circumstances may deem fit and proper."
It appears from the said application that after narrating the case made out in the plaint, the only allegations made against the defendant in support of the claim of attachment before judgment were pleaded in paragraphs 35 to 43 of the application which are quoted below:
"35. The respondent is using and utilizing the said machines thereby causing depreciation of the value of the same without paying the price of such machines to your petitioner. The respondent has no right to use and utilize the said machines without paying for the same to your petitioner.
36. By using the said machines the respondent the value of the said machines are depreciated owing to wear and tear. The respondent 5 taking advantage of the fact that your petitioner has effected delivery of the said machines is using the said machines at its optimum level resulting in general order and terms and depreciation in value of the said machines. In the circumstances, it is necessary that appropriate production is given to the petitioner in so far as the said machines are concerned and to ensure that the respondent does not use the said machines at all, until the petitioner is paid for the same. It is just and convenient that a fit and proper person be appointed as Receiver over the said machines, particulars whereof are set out in Annexure "N"
herein. The Receiver to be so appointed be directed to take possession of the said machine and keep the same in its custody till disposal of the suit.
37. Your petitioner has further come to learn that the respondent in order to have the rolling mill operational is in need of funds and has approached various financial institutions for obtaining loan against hypothecation. Your petitioner has reasons to apprehend that the respondent would hypothecate the machines belonging to your petitioner and create encumbrances on the same.
38. Your petitioner is the owner of the said machines and the respondent has no right to create any encumbrance or charge or any third party interest over the said machines.
39. From the fraudulent conducts of the respondent there are sufficient grounds for your petitioner to apprehend that the respondent by way of misrepresentation will claim a right of ownership over the said machines and hypothecate the same to the financial institutions. In the event, any third party interest creating over the said machines, the same would cause serious prejudice to your petitioner as your petitioner being an unpaid seller has a primary right of lien over the same.
40. In the circumstances, it is necessary that an order of injunction be passed restraining the respondent, its men, agent, servants and/or 6 assigns from creating any third party interest over and in respect of the said machines, particulars whereof are mentioned in annexure "N" herein above.
41. The respondent is in involved circumstances and is unable to pay its debts. The respondent has several creditors in the market from whom the respondent has obtained loan for the purpose of setting up its factory. So far as your petitioner has been able to ascertain that the respondent maintains the following bank accounts.
a) Oriental Bank of "Overseas Branch"7/1, Lord Current Account Commerce Sinha Road, Kolkata-700071 No.054440110000164
b) Oriental Bank of Adityapur Branchk, "Ashiana Current Account Commerce Trade Centre" Jamshed Pur, No.06701010000990 Jharkhand-831001
c) State Bank of "Commercial Branch" 24, Park Current Account India Street, Kolkata-700016 No.10945135178
42. In view of the fact that the respondent is in involved circumstances and is unable to pay its creditors, it is just and proper that an order of injunction be passed restraining the respondent from withdrawing any money from the said bank accounts either jointly or individually.
43. Such order of injunction is necessary for the purpose of protecting the interest of the suit and to prevent your petitioner's instant suit being rendered infructuous."
As indicated earlier, the learned Trial Judge by order dated 5th March, 2010 passed an ad interim order of injunction restraining the defendant from creating any third party's interest over and in respect of the plant and machinery supplied by the plaintiff and also an injunction restraining the defendant from 7 withdrawing any money from bank account mentioned in paragraph 42 without leaving balance of Rs.1.5 Crore from such accounts.
The defendant entered appearance and filed an application for vacating the interim order of injunction thereby denying the allegations made in the application for injunction and contending that no case was made out for injunction in the nature of attachment before judgment.
As mentioned earlier, the learned Single Judge, by the order impugned in these appeals, modified the initial interim order by limiting the interim order of injunction restraining the defendant from withdrawing the amount from its bank accounts on condition that a minimum of Rs.74,40,962/- should be maintained in the accounts with further condition that in the event such amount was not available in the bank accounts of the defendant, there should be order of injunction in terms of prayer (b) till six weeks from the date of the order with a direction upon the defendant to file affidavit.
Being dissatisfied, both the plaintiff and the defendant have come up with these two appeals.
Mr. Chatterjee, the learned Senior Advocate appearing on behalf of the defendant/appellant strenuously contended before us that the learned Single Judge erred in law in granting the order impugned which is in the nature of attachment before judgment notwithstanding the fact that the ingredients of Order 38 Rule 5 of the Code of Civil Procedure are absent. According to Mr. 8 Chatterjee, in a simple suit for recovery of money, there is no scope of granting an order of interim or temporary injunction restraining the defendant from freely dealing with his property as owner thereof unless the requisite conditions of obtaining an order of attachment before judgment are found to be present. Mr. Chatterjee, thus, prays for dismissal of the application for injunction filed by the plaintiff before the learned Single Judge.
Mr. Mitra, the learned Senior Advocate appearing on behalf of the plaintiff/Respondent, has, on the other hand, opposed the aforesaid contentions of Mr. Chatterjee and has contended that his client having proved a prima facie case, the learned Single Judge had every right to protect the interest of the plaintiff on the basis of an application of injunction. Mr. Mitra, however, contends that in this case, the initial order of temporary injunction passed by the learned Single Judge was correct and the learned Single Judge should not have modified the initial order of injunction on the basis of the application of the defendant before disposal of the application for injunction on contested hearing. Mr. Mitra contends that even in a money suit, the Court, in an appropriate case, can pass necessary order of injunction restraining the defendant from disposing of his property for doing complete justice between the parties. Mr. Mitra, in this connection, relies upon a decision of a learned Single Judge of this Court in the case of Albert Judah Judah vs. Rampada Gupta and another reported in AIR 1959 Cal 715. Mr. Mitra, thus, prays for setting aside the order impugned and for reinforcing the original order of injunction passed by the learned Single Judge by 9 allowing the appeal preferred by his client and dismissing the appeal preferred by the defendant.
Therefore, two questions arise for determination in these two appeals. First, whether in a simple money suit, merely because the plaintiff has a strong prima facie case on merit, a Court can restrain the defendant from transferring or alienating his movable or immovable property during the pendency of the suit.
Secondly, whether in the absence of averments made in terms of Order 38 Rule 5 of the Code, a Court can in a money suit grant an order in the form of attachment before judgment or direct the defendant to furnish security.
In order to appreciate the first question mentioned above, it will be profitable to refer to the provision contained in Order 39 Rule 1 of the Code, which is quoted below:
"1. Cases in which temporary injunction may be granted.--Where in any suit it is proved by affidavit or otherwise--
(a) that any property in dispute in a suit in danger of being wasted, damaged or alienated by any party to the suit, or wrongfully sold in execution of a decree, or
(b) that the defendant threatens, or intends, to remove or dispose of his property with a view to defrauding his creditors,
(c) that the defendant threatens to dispossess the plaintiff or otherwise cause injury to the plaintiff in relation to any property in dispute in the suit, 10 the Court may by order grant a temporary injunction to restrain such act, or make such other order for the purpose of staying and preventing the wasting, damaging, alienation, sale, removal or disposition of the property or dispossession of the plaintiff, or otherwise causing injury to the plaintiff in relation to any property in dispute in the suit as the Court thinks fit, until the disposal of the suit or until further orders."
After hearing the learned counsel for the parties and after going through the materials on record, we find that the suit out of which these two appeals arise is one for recovery of specified amount of money. Thus, the various plants or machineries belonging to the defendant cannot form subject matter of the suit simply because the money is allegedly due and payable for non-payment of part of the price of those machineries admittedly sold by the plaintiff to the defendant. Those plant and machineries are therefore not the "property in dispute in suit"
within the meaning of Order 39 Rule 1 of the Code, as subject matter of the suit is really the recovery of Rs.1 Crore and odd claimed in the plaint.
Once we hold that in a simple money suit, the plant and machineries cannot be the "property in dispute in the suit", clauses (a) and (c) of Order 39 Rule 1 cannot have any application and clause (b) may be applicable provided the condition mentioned therein is present. In this case, there is no averment in the plaint or the application for injunction that the defendant intended or threatened to remove or dispose of his property with a view to defrauding his creditors. A vague allegation that the defendant is unable to pay its debts to the creditors is not sufficient so long the intention to remove or dispose of property with a view to 11 defrauding the creditors is alleged. In this case, even no name of any creditor has been given. Therefore, Order 39 Rule 1 has no application to the facts of the present case.
Order 39 Rule 2 refers to a "suit for restraining the defendant from committing a breach contract or other injury of any kind" and thus, a simple suit for recovery of an ascertained amount of money for non-payment of the part of price for supply of plant and machineries does not come within the purview of such provision.
In a suit for recovery of specific amount of money, the plaintiff is not remediless and the legislature has enacted the provisions of Order 38 of the Code and Rule 5 thereof, prescribes the circumstances when the Court can order attachment before judgement by way of interim measure. Such provision is quoted below:
"5. 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.12
(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."
In the case of Raman Tech & Process Eng. Co. vs. Solanki Traders reported in (2008) 2 SCC 302, the Supreme Court had occasion to consider the scope of Order 38 Rule 5 of the Code and in such circumstances, made the following observations about its scope:
"5. The power under Order 38 Rule 5 CPC 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 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 13 Order 38 Rule 5 CPC. Courts should also keep in view the principles relating to grant of attachment before judgment. (See Premraj Mundra v. Md. Manech Gazi1 for a clear summary of the principles.)"
(Emphasis given by us) In the case of Premraj Mundra vs. Md. Manech Gazi reported in AIR 1951 Cal. 156, approved by the Apex Court in the aforesaid decision, Sinha, J. (as His Lordship then was) laid down the following principles which are required to be followed by a Court before invoking the jurisdiction under Order 38 Rule 5 of the Code:
"[10.] From a perusal of all the authorities, I think that the following guiding principles can be deduced:
(1) That an order under O. 38, Rr. 5 & 6, can only be issued, if circumstances exist as are stated therein.
(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 defts. would not be prejudiced. (4) That the affidavits in support of the contentions of the applicant, must not be vague, & 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, & the grounds for belief should be stated.
(5) That a mere allegation that the deft. was selling off & his properties is not sufficient. Particulars must be stated.14
(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 deft. is being disposed of, no inference can be drawn in the absence of other circumstances that the alienation is necessarily to defraud or delay the pltf's 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 pltf.'s claim. It is open to the Court to look to the conduct of the parties immediately before suit, & to examine the surrounding circumstances, & to draw an inference as to whether the deft. is about to dispose of the property, & if so, with what intention. The Court is entitled to consider the nature of the claim & the defence put forward. (9) The fact that the deft. is in insolvent circumstances or in acute financial embarrassment, is a relevant circumstance, but not by itself sufficient. (10) That in the case of running businesses, the strictest caution is necessary & the mere fact that a business has been closed, or that its turnover has diminished, is not enough.
(11) Where however the deft. starts disposing of his properties one by one, immediately upon getting a notice of the pltf.'s claim, &/or where he had transferred the major portion of his properties shortly prior to the institution of the suit, & was in an embarrassed financial condition, these were grounds from which an inference could be legitimately drawn that the object of the deft. was to delay and defeat the pltfs'. claim. (12) Mere removal of properties outside jurisdiction, is not enough, but where the deft. with notice of the pltfs'. claim, suddenly begins removal of his properties outside the jurisdiction of the appropriate Court, & without any other satisfactory reason, an adverse inference may be drawn against the 15 deft. where the removal is to a foreign country, the inference is greatly strengthened.
(13) The deft. 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 of an intention to defeat the pltf's. claim. The Court must however be very cautions about the evidence on these points & not rely on vague allegations."
Applying the aforesaid principles to the facts of the present case, we find that the sum and substance of the allegation that has been made in the application for temporary injunction was that the defendant is in a penurious condition, that it is unable to pay back its debts to the creditors and that if the decree was passed in the suit, the plaintiff would not be in a position to execute the decree if the defendant was able to transfer or alienate the property mentioned in the application. On the basis of such vague allegation, in our view, no order or direction to give security or injunction in the form of attachment can be passed as held above. The names of the alleged creditors whose debts the defendant is unable to pay have not been disclosed. Simply because in the overdraft account of the banks, there is no credit balance, such fact does not necessarily imply that the defendant is unable to pay its debts when it is the finding of the learned Trial Judge that the profit of the defendant in current financial year is about Rs. 81.89 lakh. There is even no allegation that the defendant is trying to remove or dispose of its properties in order to obstruct or 16 delay the execution of the decree that may be passed against it. The goods having been sold and delivered on acceptance of 90% of the price and the dispute having been raised over the balance 10% and the bank-guarantee to the extent of that 10% having been enforced by the defendant, at this stage the plaintiff can in no case claim ownership over the goods in question. Whether the balance amount is at all payable according to the conditions of the contract in the facts of the present case and whether the defendant was justified in invoking the bank- guarantee, are the facts to be adjudicated in the suit. The learned Single Judge after recording in the order impugned that the profits of the defendant for the year 2008-09 before payment of tax is Rs.81.89 lakh treated such fact as a discredit to the defendant because according to the learned Single Judge, the said amount was less than the profits of the defendant for the previous year and as the claim of the plaintiff on account of 10% balance price is Rs.75 lakh, the learned Trial Judge was of the opinion that it was a fit case for passing the order of injunction.
In our opinion, it is not the law of the land that a defendant in a money suit must show that his earning is sufficient to pay off the decretal amount if the suit is ultimately decreed, otherwise, he should suffer an order of injunction in the form of attachment before judgment or should give security during the pendency of the suit.
17
The next question is whether by invoking Section 151 of the Code, the Court should pass an order of injunction or attachment even though the ingredients of order 38 Rule 5 are absent.
The aforesaid question has recently been answered by a Division Bench of this Court in the case of Sunil Kakrania vs. Saltee Infrastructure Ltd. reported in 2009(3) CHN 417= 2009(3) CLT 671= 2010(1) ICC 204 in negative by giving detailed reasons and we find no reason to take a different view from the one taken therein.
In the case of Albert Judah Judah (supra), relied upon by Mr. Mitra, a learned Single Judge of this Court in paragraph 16 of the Judgment held that in a money suit, the Court in exercise of power conferred under Order 39 Rule 1(b) of the Code can restrain a defendant from disposing of his property which is not the subject-matter of the suit if it appears that the defendant intended or threatened to dispose of his property with a view of defraud his creditors. We do not for a moment dispute the said provision and we have already indicated that in this case, there is no averment in the application for injunction in terms of Order 39 Rule 1(b) of the Code that the defendant threatened or intended to dispose of his property with a view to defraud his creditors. Thus, the said decision does not help the plaintiff in anyway.
On consideration of the entire materials on record we find that the plaintiff having failed to make out any case of attachment before judgment as 18 provided in Order 38 of the Code, the learned Single Judge should have dismissed the application itself instead of calling upon the defendant to show cause and granting ad interim order of injunction in the nature of attachment before judgment.
We, therefore, allow the appeal preferred by the defendant, dismiss the appeal preferred by the plaintiff, and dismiss the application for injunction filed by the plaintiff on the ground that no case of injunction as prayed for has been made out.
There will be, however, no order as to costs.
(Bhaskar Bhattacharya, J.) I agree.
(J.N. Patel, CJ.)