Garnishee Order

A Garnishee order is an order of court to attach money or goods belonging to a judgment debtor in the hands of a third person. 

An order served upon a garnishee requiring him not to payor delivery the money or property of the debtor ( defendant)to him and/or requiring him to appear in Court and answer to the suit of the plaintiff to the extent of his liability to the defendant.

Please Refer to Order 21 Rule 46 , 46 A to 46- I  C P C ,  the sadi Provisions will give clear procedure of the Garnisheee  orders & Proceedings !

Garnishee Proceedings

Garnishment is a judicial proceeding in which a creditor asks the court to order a third party who is indebted to the debtor to turn over to the creditor any of the debtor’s property held by that third party .

The word ‘Garnish’ is derived from an old French word ‘garnir’ which means to warn or to prepare . It is to serve an heir with notice i.e. to warn of certain debts that must be paid before the person is entitled to receive property as an heir.

Garnishee means a judgment-debtor’s debtor . He is a person or institution that is indebted to another whose property has been subject to garnishment. He is a person who is liable to pay a debt to a judgment debtor or to deliver any movable property to him. A third person or party in whose hands money is attached by process of court; so called, because he had garnishment or warning, not to pay the money to the defendant, but to appear and answer to the plaintiff creditor’s suit .

Garnisher is a judgment-creditor (decree-holder) who initiates a garnishment action to reach the debtor’s property that is thought to be held or owed by a third party.

A garnishee order is an order passed by an executing court directing or ordering a garnishee not to pay money to judgment debtor since the latter is indebted to the Garnisher (decree-holder) . It is an order of court to attach money or goods belonging to the judgment debtor in the hands of a third person. It is a remedy available to any judgment creditor; this order may be made by the court to holders of funds (3rd party) that no payments are to make until the court authorizes them. The third party is known as garnishee and the court order is known as garnishee order. The purpose of the order is to protect the interest of the creditors. An order served upon a garnishee requiring him not to pay or deliver the money or property of the debtor (defendant) to him and / or requiring him to appear in the court and answer to the suit of the plaintiff to the extent of the liability to the defendant

Order 21 Rule 46 A to 46 I have been newly inserted in the Code of Civil Procedure by the Amendment Act, 1976. They lay down the procedure in garnishee cases. Prior to amendment, opinion expressed by various Courts was that the Court had no power to compel a garnishee to pay debt in Court and in case a garnishee on appearance denied the debt, it was duty of the Court to enquire that if debt was due and when garnishee was held liable to pay, except on certain contingencies, it was not permissible to call upon him to pay the amount into Court . The object of newly inserted Rule 46A is to render the debt due by the debtor of the judgment debtor available in execution to the decree holder and not to drive him to a suit. The primary object of a garnishee order is to make the debt due by the debtor of the judgment debtor available to the decree holder in execution without driving him to the suit. The court may, in the case of debt (other than a debt secured by a mortgage or charge) which has been attached under Rule 46, upon the application of the attaching creditor, issue a notice to garnishee liable to pay such debt, calling upon him either to pay into court the debt due from him to the judgment debtor or so much thereof as may be sufficient to satisfy the decree and costs of execution, or to appear and show cause why he should not do so.

In Kazim Jawaz Jung v. Mir Mohamad Ali Jaferi and Anr, AIR 1972 AP 70 the Appellant is the debtor of judgment debtor. He was directed to deposit in Court amount payable to judgment debtor as required by decree holder. The appellant disputed his liability with regard to amount due to judgment debtor. He contended that the final decree with regard to liability amount has not been passed yet and therefore the impugned amount becomes payable only when judgment debtor allots land to appellant. Thus, the appellant is not liable to pay any amount before allotment of land by judgment debtor. The Hon’ble Andhra Pradesh High Court held that where the judgment debtor himself is not entitled to recover amount from appellant then decree holder has no right to recover amount from appellant.

In Mackinnon Mackenzie and Company Pvt. Ltd. v. Anil Kumar Sen and Anr, AIR 1975 Cal 150 the question which came up for consideration is that if the garnishee denies that any sum of money is due to the judgment-debtor whether it is open to the court to hold the garnishee liable for the claim made by the judgment-debtor without raising and trying an issue on the question of such liability. The Hon’ble Calcutta High Court held that the Judge has a discretion under the Rule to, make an order summarily or to settle an issue and try the same on evidence. No doubt the order contemplated by the Rule is a discretionary one, but such discretion must be judicially exercised. Where a Judge finds that a claim is bona fide disputed and the dispute is not frivolous, he should not rush to a conclusion on the affidavit evidence having regard to the requirement of the Rule. A garnishee order which enables a judgment-creditor to obtain satisfaction of his claim in a summary proceeding is a matter of procedure, similar in scope as in the case of a judgment on admission under Order 12 Rule 6 of the Civil Procedure Code or the summary procedure in suits to recover debts or liquidated demands as prescribed in Chapter XIII-A of the Original Side Rules. This procedure can be availed of by a decree-holder where either the debt is not disputed or the dispute appears to the Court to be frivolous and without any substance. It is of no avail in a case where there is a substantial bona fide dispute with regard to the debts sought to be attached.

In Executive Engineer, KSE Board v. J H Sharma, AIR 1988 Ker 288 the garnishee appeared in court in response to the letter and filed a counter-affidavit, raising certain objections. It was held that since he had raised his contentions in counter-affidavit, the same could be treated as objections contemplated under O 21 R 46 C even in the absence of formal notice under O 21 R 46 C to order that the disputed question be tried as an issue and to decide the issue. In the impugned orders, the court below did not consider the merits of the dispute raised by the appellant.

In Surinder Nath v Union of India, AIR 1988 SC 1777 The garnishee order was for a fictitious sum of Rs. 8, 56,377.55 which was not mentioned in the show cause notice issued under Section 226(3) of the Income Tax Act, 1961. The Hon’ble Supreme Court held that there can be no doubt that when an order is made for the payment of a fictitious sum without giving any opportunity to a person, against whom the order is made, to show cause against the passing of such an order for the said sum, the order is a nullity. The garnishee order that was passed was a nullity and any sale held pursuant to such an order is also a nullity irrespective of its confirmation. In view of the conduct of the firm and/or its said partner, they should share along with the Revenue a part of the compensation that may be allowed to the auction-purchaser. The Revenue shall see that the said amount is refunded back to the auction-purchaser. Further, the auction-purchaser will be entitled to get interest on the said amount at rate of fifteen per cent for a period of two years and a half, during which the amount remained blocked, by way of compensation.

In Syndicate Bank v. Vijay Kumar, (1992) 2 SCC 330
 while furnishing bank guarantee in favor of high Court customer furnished two fixed deposit receipts duly discharged to the bank and authorized the bank the custody of the receipts and renewals thereof. The Hon’ble Supreme Court held that it becomes a general lien. Bank can set off liability of the party against the receipts. If the fixed deposits are attached to bank garnishee has to go to the court. The balance after adjustments of bank’s claim shall be available to satisfy the decree.

In K Jayaraman & etc. v. TS Ravi & Ors, AIR 2001 Mad 422 garnishee obtained possession from the lessee giving undertaking to pay agreed compensation, in the suit filed by the creditor; direction was given to the garnishee to deposit the amount in the court. In the instant case, TIDCO has acquired the lands belonging to the salt department of government of India and has agreed to pay compensation due to the salt department and its lessees. Transfer of entire land has also been made by the salt department to TIDCO in pursuance of the order dated 6-1-1999 by the government of India. Conditions under which transfer has been affected in favor of TIDCO by the government of India are to the effect that TIDCO shall pay compensation agreed by it to the lessees who have been made to prematurely surrender their leasehold rights. Further it was a condition that the salt commissioner shall not be dragged to any proceedings in court in respect of the amount payable to the lessees and it is responsibility of the TIDCO to meet all Claims.

In Global trust bank Ltd. v. Fargo Frieght ltd. & ors, AIR 2002 Del. 13 the Hon’ble court held that it applies not only to a debt other than a debt secured by a mortgage or a charge, which has been attached under Rule 46 of Order 21 but also to a debt under a negotiable instrument. The foundation of a garnishee proceeding is an attachment under rule 46(1) of Order 21 of the Code. At the most it can be said that orders, which were passed, are akin to attachment proceedings under which by operation of various interim orders the appellant had been directed to keep the letter of credit alive. But the question in this instant case is that whether mere attachment would entitle and enable the Court to otherwise make a direction for the payment of the amount, without adjudicating upon the case set up by appellant that for various reasons it is not liable to pay the amount. It has also been noticed above that the appellant is seriously disputing its liability under the letter of credit to pay. Rule 46B of Order 21 of the Code says that when the garnishee does not forthwith pay into Court the amount due form him and fails to appear and show cause in answer to the notice, the Court may order the garnishee to comply with the terms of such notice. Rule 46C of Order 21 lays down the procedure when the garnishee disputes indebtedness to the judgment debtor or alleges that the debt is not an attachable debt. The Court must order an issue to be raised and tried. Even if there is a reasonable doubt the matter should be tried. The garnishee is required to make out a prima facie case before an issue as to his liability may be ordered to be raised; In other words he would disclose facts from which a reasonable inference may be drawn that there is a valid dispute as to his alleged liability.

In Greater Cochin development Authority, Kadavanthara v, harrisons Malayam Ltd. & Anr , AIR 2002 Ker. 119
 A Notice was issued to call upon the defendant to show cause against the prayer of the plaintiff in his application. However, notice was not issued in form No 5. The Kerala High Court held that since the purpose of form 5 was achieved in substance, the order will not be liable to be set aside on that ground. A comparison of form No 5 was made with the prohibitory order which actually served on the garnishee. It revealed certain differences such as in the prescribed form the direction was “to the above named garnishee and to affix at the court house” the mention of the direction to the defendant to furnish security was not available in the impugned order and direction in the impugned order was to the garnishee prohibiting or restraining him from making the payment of specified debt or any part thereof to any person whomsoever or otherwise than the court and form no 5 envisages direction to the Amin to call upon the defendant to furnish security. However, in the absence of any particular form prescribed by the law, whereby the amin, to whom the warrant in form No 5 is addressed, should call upon the defendant to furnish security, the court resorted to issuance of separate notice calling upon the defendant to show cause against the prayer in the application which mentions of security as well, there was no illegality. By issuance of separate notice the court achieved the purpose of the former portion of the form No 5 in substance.

In Bombay Stock Exchange v. Jaya I. Shah and Anr, AIR 2004 SC 55 the Hon’ble Court held that the assets belonging to the defaulted member cannot be attached in Garnishee proceedings since it is not a debt due by the Exchange to the defaulted member.

In State of Bikaner and Jaipur v. Additional Dist. & Sessions Judge, Jodhpur , AIR 2005 Raj 246 the Hon’ble Court held that it is clear from Sub-rule (1) of Rule 46 of Order 21 itself that an attachment can be issued against the debt, share and other movable property not in the possession of the judgment-debtor. The court may pass appropriate order restraining the person holding the debt or share in the capital of any corporation to not to pay or disburse the amount. The Rule 46B also provides that what type of order can be passed against the garnishee. It only says that the executing court can pass the order against the garnishee to pay into Court, "the amount due from him to the judgment-debtor". The Rule 46D provides the what procedure should be adopted when it is claimed that the debts belongs to some third person, or that any third person had a lien or charge on, or other interest in, such debt, the Court may order such third person to appear and state the nature and particulars of his claim, if any, to such debt and prove the same. All the provisions referred above clearly reveals that the executing court has been given power to recover any of the amounts of the judgment-debtor, which is in the hands of other. The court has no power to issue order or direction to anybody, may it be usual financier of the judgment-debtor, who is not holding any money of the judgment-debtor to pay to satisfy the debt or decretal amount for the judgment-debtor, may it under assumption the garnishee is able and can recover the amount from the judgment-debtor or the judgment-debtor will pay to the garnishee. The court further held that the executing court appears to have not looked into the relevant provision of law to find out for what type of order can be issued against the garnishee. The court held that the order of the executing court violates the Rule 46B of Order 21 CPC, which authorizes the executing court to direct the garnishee to pay the "amount due from him (garnishee) to the judgment-debtor".

In Uttar Gujarat S.R.V. Sangh Ltd. V. Mehsana District Central Co-op. Bank Ltd. and Ors , (2008) 11 SCC 492 Ex-parte garnishee orders were issued against the appellant by the Ahmedabad Board of Nominees. Pursuant to the order of restraint passed by the Board of Nominees, Ahmedabad Division, the present appellant was restrained from giving or making payment to defendant No. 1. Though appellant was a party in the Special Civil Application, the matter was disposed of without hearing the appellant. In the Review Application the learned Single Judge of the High Court proceeded on entirely erroneous premises. The ultimate result is that the appellant, without getting an opportunity of being heard and/or presenting its case has been saddled with the liability. Therefore, the Hon’ble Supreme Court set aside the impugned order and remits the matter to the High Court for fresh disposal in accordance with law.

In Food Corporation of India v. Sukh Deo Prasad , AIR 2009 SC 2330 the Hon’ble Supreme Court held that the Garnishee proceedings are governed by Rules 46 and 46A to 46F of order 21 of the Code. Sub-para (1) of Rule 46 A provides that in the case of a debt (other than a debt secured by a mortgage or a charge) which has been attached under Rule 46, upon the application of the attaching creditor, the court may issue notice to the garnishee liable to pay such debt, calling upon him either to pay into court the debt due from debtor or to appear and show cause why he should not do so. Rule 46B provides that where the garnishee does not forthwith pay into court the amount due from him to the debtor and does not appear and show cause in answer to the notice, the court may order garnishee to comply with the terms of such notice, and on such order, execution may issue as though such order were a decree against him. Rule 46C provides that where the garnishee disputes liability, the court may order that any issue or question necessary for the determination of liability shall be tried as if it were an issue in a suit and upon the determination of such issue shall make such order or orders as it deems fit. It would thus be seen that the amount due by a garnishee, if disputed has to be determined as if it was an issue in the suit and the court can appropriate order determine the extent of liability of the garnishee. In this case, there was no adjudication of the amount payable by FCI. Whatever amount that was due in pursuance of the order dated 27.5.1996 in regard to one go down taken on lease in June 1994, was deposited by FCI and the plaintiff bank at whose instance the order was made has no complaint or grievance.