Herald Engineers vs Wonderpack Industries Pvt Ltd And Anr

Herald Engineers ..Appellant Vs. Wonderpack Industries Pvt Ltd and Anr ..Respondents

ig WITH CIVIL APPLICATION NO.497 OF 2013

Wonderpack Industries Pvt Ltd and Anr ..Appellants

Vs. Herald Engineers ..Respondent

Mr. S.S. Patwardhan, for the Appellant.

Mr. Gaurav Joshi a/w Ms. Nupur Desai i/b Markand Gandhi and Co,for

the Applicants in CA.497/13 and Respondent No.1 in AO 926/12. Mr. G. A. Hegde a/w C. M. Lokesh i/b A. R. Bhole and Co,for the Respondent No.2.

CORAM :- B. R. GAVAI, J.

DATE :- APRIL 17, 2013. P. C.:

1 By consent, the Appeal is taken up for hearing.

2 The Appeal challenges the order dated 23 rd July, 2012 vide which

the application filed by the present Appellant under Order 38 Rule 5 of

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the Code of Civil Procedure, 1908 (CPC) was partly allowed and the Defendant No.1 i.e. the Respondent No.1 was directed to furnish security

for an amount of Rs.24,398/- within two weeks from the date of the

said order.

3 The Appellant/Plaintiff has filed the suit against the Respondents

for a claim of about Rs. 40,36,567/-

4 It is the claim of the Appellant/Plaintiff that the Respondent No.1-

Defendant No.1 had placed an order with the Plaintiff for supply of

certain machinery and spare parts. According to the Plaintiff, the costs of the said machinery and spare parts was Rs.35,28,507/- It is the case

of the Plaintiff that though the Plaintiff was ready and willing to deliver the said goods to the Respondent No.1, the Respondent No.1 had refused to accept the same without assigning any reason. In addition to that,

according to the Plaintiff, an amount of Rs.5,08,060/-was already due

and payable by the Respondent No.1 to it. Therefore, claiming the aforesaid amount, Regular Civil Suit No.513 of 2011 was filed. Along with the said Suit, two applications; one below Exhibit-5 for grant of

temporary injunction restraining the Defendant No.1 from crating third party interest or alienating the suit property No. 3A and the application below Exhibit-41 for attachment before judgment came to be filed.

Insofar as the application for grant of temporary injunction below Exhibit-5 is concerned, the same came to rejected by judgment and order dated 19th July, 2012. Insofar as the other application below Exhibit-41 is concerned, the same was rejected on 23 rd July, 2012. Being aggrieved by an order passed below Exhibit-41, the present Appeal has been filed.

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5 Shri Patwardhan, the learned counsel appearing for the Appellant

submits that the learned Trial Judge having come to a specific finding

that the Plaintiff has proved that the Defendant No.1 has transferred the said properties i.e. A2 and A3 with an intention to delay and defeat the Plaintiffs' claim and further with an intention to transfer the suit

property 1A to delay or defeat his claim, ought to have passed an order of attachment as provided under Order 38 Rule 5 of the CPC. The learned Counsel submits that the learned Trial Judge had grossly erred

in only directing the security to be furnished for an amount of Rs.24,398/-

6 Shri Joshi, the learned counsel appearing for the Respondent No.1, on the contrary, submits that the learned Trial Judge has rightly considered the law laid down on the provisions of Order 38 Rule 5 of the

CPC. The learned counsel submits that the learned Trial Judge has

rightly considered that after an amount which was adjusted by the Plaintiff received from one Raju Engineers Pvt Ltd, the Plaintiff was prima facie entitled only for an amount of Rs.24,398/-. It is further

submitted that the learned Trial Judge has correctly considered that there was no material placed on record to show that the Plaintiff has in fact manufactured the goods as asserted by him. The learned counsel,

therefore, submits that applying the principles as laid down by the Apex Court, the learned Judge had rightly refused to attach the entire plot i.e. the suit property 1A. The learned counsel submits that for an amount of Rs. 24,398/- the entire property worth Rs.40,00,000/- cannot be attached.

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7 Shri Joshi, the learned counsel further submits that the present

Appeal is liable to be dismissed on the ground of suppression of material

facts. The learned counsel submits that though by an elaborate order, the learned Trial Judge has rejected the application filed by the present Plaintiff under Order 39 Rule (1) (2) which order is earlier in point of

time, the same is not placed on record before this Court. The learned counsel relies on the judgment of the Apex Court in the case of Raman Tech. And Process Engg. Co and Anr v/s Solanki Traders reported in

(2008) 2 SCC.302 and judgment of the Calcutta High Court in the case

of Premraj Mundra vs. Md. Maneck Gazi and Ors decided on 29 th January, 1951.

8 The Calcutta High Court in the case of Premraj Mundra(supra)-- has laid down certain guiding principles for invoking the powers under

Order 38 Rule 5 of the CPC . Paragraph no.10 of the said judgment

reads thus:-

(1) That an order under Order 38, Rules 5 and 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 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

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information or belief, it must be stated as to which portion is true to knowledge, the source of information

should be disclosed, and the grounds 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.

(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

interference can be drawn in the absence of other circumstances that the alienation is necessarily to

defraud or delay the 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 plaintiff's 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 a cute financial embarrassment, is a relevant circumstance, but not by itself 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 starts disposing of his properties one by one, immediately upon getting a notice of the plaintiff's 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

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from which an inference could be legitimately drawn that the object of the defendant was to delay and

defeat the plaintiff's claim (12) Mere removal of properties outside jurisdiction, is not enough, but where the defendant with notice of the

plaintiff's 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 interference 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 negect 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 and not rely on vague allegations.

9 The Apex Court in the case of Raman Tech and Process Engg Co.

(supra) has observed thus:

"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 realization 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

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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 CPC. 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 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 utilize the provisions of Order

38 Rule 5 as a leverage for coercing the defendant to settle the suit claim should be discouraged. Instances are not wanting where bloated and doubtful claims are realized 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

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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 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 Gazi for a clear summary of the principles)"

(emphasis supplied)

10

The Apex Court in the case of Raman Tech and Process Engg Co. (supra) has in unequivocal terms held that 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 has been further held that it should be used sparingly and strictly in accordance with the Rule.

It has been further held that the instances are not wanting where bloated

and doubtful claims are realized by unscrupulous plaintiffs by obtaining orders of attachment before judgment and forcing the defendants for out-of-court settlements under threat of attachment. It has been further

held that a defendant is not debarred from dealing with his property merely because a suit is filed or about to be filed against him. It has been held that 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.

11 In the present case, the learned Trial Court has rightly considered that insofar as the claim of the Plaintiff towards damages are concerned,

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there was no material to substantiate the said claim. Prima facie, it appears that the claim of the Plaintiff is highly inflated. Apart from that,

insofar as the contention of the Plaintiff regarding disposal of the

property by the Defendants is concerned, it is the specific case of the Defendants that the Defendants have sold the property since he is changing his business.

12 Applying these principles, let us examine the facts in the present case.

13 Though the Plaintiff has made a claim of Rs.40,00,000/- and odd, the same is divided into two parts. First part is with regard to an

amount of Rs.5,08,060/- being outstanding against the Defendant No.1. The other claim is of Rs.35,28,507/- towards damages on account of the machinery manufactured by the Plaintiff not being accepted by the

Defendant No.1 and the interest thereon etc.

14 The learned Trial Judge, after considering the material placed on record had found that the Plaintiff has already received an amount of

Rs.4,84,544/- from M/s. Raju Engineers Pvt Ltd, to whom the business of the Defendant No.1 has been transferred. The learned Trial Judge has found that after adjusting the aforesaid amount, the only amount

outstanding towards the Plaintiff was Rs.24,398/-. Insofar as the claim of Rs. 35,000,00/- and odd is concerned, the learned Trial Judge has found that the said issue was seriously disputed. The learned Trial Judge has further found that the Plaintiff had failed to produce any material so as to arrive at prima facie satisfaction that the claim made by

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the Plaintiff is just and proper. In this premise, the learned Trial Judge has found that the interest of justice would be served by directing the

Defendant No.1 by furnishing security for an amount of Rs.24,000/- and

odd.

15 Insofar as the contention of Shri Patwardhan, the learned counsel

for the Appellant that the learned Trial Judge having come to the conclusion that the Plaintiff has satisfied that there exists ingredient and the case would fall under Order 38 Rule 5 of the CPC, and even after

coming to such a conclusion not granting an order of attachment are

concerned, it is to be noted that a stray observation in an order cannot be read in isolation. For considering the finding of the learned Trial

Judge, the entire judgment will have to be taken into consideration. The learned Trial Judge after considering the entire material on record has come to a finding that the amount due to the Plaintiff would prima facie

be about Rs.24,000/-and odd and as such the learned Trial Judge had

directed the Defendant No.1 to furnish security of Rs.24,000/-.

16 It is not in dispute that the business of the Defendant No.1 has

been transferred to Raju Engineers. It is the case of the Defendant No.1 that though the said Raju Engineers was willing to take over the delivery and had also placed purchase order, it is the Plaintiff who had not

supplied the said goods. As such the counter claim has also been filed by the Defendant No.1.

17 No doubt, that the Plaintiff has claimed an amount of Rs.35,00,000/- and odd towards damages. However, merely because the

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Plaintiff has claimed such a huge amount, the said figure cannot be accepted as a ipse dixit, unless there is material to substantiate the said

claim. A party may make any fanciful or moonshine claim, but that

cannot be the ground to pass an order of attachment. The learned Trial Judge upon the material placed before it has come to the conclusion that there was at least prima facie nothing to substantiate the claim made

by the Plaintiff towards the damages.

18 Apart from that, by an elaborate order, the learned Trial Judge had

refused the application made by the Plaintiff/Appellant for an injunction

under Order 39 Rule (1) (2) of the CPC after coming to the conclusion that the Plaintiff has failed to prove facts of prima facie case, balance of

convenience and irreparable injury. Applying the same principle, the learned Trial Judge in the present case also found that the Plaintiff has failed to make out a prima facie case, balance of convenience and

irreparable injury, except for an amount of Rs. 24,000/-

19 In that view of the matter, it cannot be said that the jurisdiction exercised by the learned Trial Judge has been exercised either in a

perverse or illegal manner to warrant interference. On the contrary, the learned Trial Judge has correctly applied the law as laid down by the Apex Court in the case of Raman Tech. & Process Engg. Co(supra) and

by the Calcutta High Court in the case of Premraj Mundra(supra).

20 In that view of the matter, no case is made out for interference. Appeal is rejected.

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21 At this stage, Shri Patwardhan, the learned counsel for the Appellant prays for extension of the interim protection granted by this

Court on 15th February, 2013.

22 In the light of the view taken by this Court, I am not inclined to grant the same. The prayer is rejected.

23 In view of dismissal of the appeal, nothing survives in the above Civil Applications, and the same are disposed of accordingly.

ig ( B. R. GAVAI, J.)

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