Guiding principles in the matter of Order 38 Rule 5, CPC

In the Civil Procedure Code, 1908 supplemental provisions in the aid of justice are provided. Order 38 Rule 5 contains the provision for attachment before judgment and asking the defendant for furnishing security. This is a provision purely discretionary and equitable. Like all equitable remedies, the court must take into consideration the attendant fact situation and form an opinion that the balance of convenience lies in favour of issuing the attachment.

 2. An order of attachment before judgment has the most deleterious effect on the activities of the defendant. In the matter of issuing the attachment order, the court must be very much circumspect and only for asking the order should not be issued.

3. Before going into the interpretation and framing of guiding principles evolved by the Hon’ble Calcutta High Court, it is worthwhile to see the text of the legal provision contained in Order 38, Rules 5 and 6 of the Code of Civil Procedure, 1908. The provisions read as follows:

“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.

(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.

Attachment where cause not shown or security not furnished—

(1) Where the defendant fails to show cause why he should not furnish security, or fails to furnish the security required, within the time fixed by the Court, the Court may order that the property specified, or such portion thereof as appears sufficient to satisfy any decree which may be passed in the suit, be attached.

(2) Where the defendant shows such cause of furnishes the required security, and the property specified or any portion of it has been attached, the Court shall order the attachment to be withdrawn, or make such other order as it thinks fit.”

4. On a plain reading of Rule 5, it is very much clear that in any application under that Rule, the Plaintiff has to show:

a) that he has a prima facie case and he is likely to get a favourable decree against the defendant;

b) the defendant is either disposing of or about to dispose of his entire property or part of the same outside the jurisdiction of the court;

c)that disposal of his properties or removal of properties is done with an intent to defraud the execution of any decree which may be issued against him.

d) the points may be proved either by way of affidavit or by any other means.

5. Hon’ble Calcutta High Court in the epoch making judgment in Premraj Mundra vs Md. Maneck Gazi And Ors AIR 1951 Cal 156 made a thorough review of the matter. A set of guiding principles were evolved by the Hon’ble Court for the guidance of the civil courts. The principles may be shown as follows:

(1) That an order under Order 38, Rules 5 & 6, can only be issued, if circumstances exist as are stated therein. Two aspects in the circumstances has to be satisfied: one the factum of removal of properties from the jurisdiction of the Court and second the mental element i.e with the intention to defraud the plaintiff;

(2) Whether such circumstances exist is a question of fact that must be proved to the satisfaction of the Court. The proof may be made either by way of filing affidavits or by adducing proof in the regular hearing of the suit;

(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 defendant 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 defendant was selling off & his properties is not sufficient. Particulars must be stated;

(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. In order to prove the intention part of the defendant, the normal rule of evidence is applicable;

(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 the plaintiff'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 plaintiff'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 defendant 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 defendant 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 defendant starts disposing of his properties one by one, immediately upon getting a notice of the plaintiff'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 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, & 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 liabilty 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 Order 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 plaintiff's claim. The Court must however be very cautious about the evidence on these points & not rely on vague allegations.

6. These principles have been applied times and again by civil courts in the aid of justice. This guiding principles should be applied by all practitioners before chalking out strategies in any civil suit.