Case Summary — Order 38, Rule 5 (Code of Civil Procedure) / Arbitration Act (1940)

Factual and Procedural Background

The respondent filed an application under Section 8 of the Arbitration Act (Act 1940) seeking reference of the dispute to arbitration. In that application the respondent also presented a petition under Order 38, Rule 5 of the Code of Civil Procedure read with Section 41(b) of the Arbitration Act for attachment before judgment of amounts that the garnishee, N.T.P.C. Talcher, was to pay into the appellants' bank account. An order was passed in favour of the respondent granting relief under Order 38, Rule 5; that order gave rise to the present appeal. The appeal was admitted and, with the parties' consent, heard on merits. The impugned order was passed by the learned III Additional Subordinate Judge, Visakhapatnam.

Legal Issues Presented

Whether the impugned order under Order 38, Rule 5 of the Code of Civil Procedure (attachment before judgment) was validly passed in the circumstances of the case.
Whether the trial Court applied the correct legal tests and reached the requisite "primary satisfaction" that the defendant had engaged in obstructive conduct (attempts at alienation or steps to delay/obstruct judgment) before calling for security or ordering attachment.
Whether the respondent's allegation that the appellants might remove funds from the garnishee and leave the Court's jurisdiction, without further pleading of obstructive intent, suffices to justify an order under Order 38, Rule 5.

Arguments of the Parties

Respondent's Arguments

The respondent sought attachment before judgment of amounts payable by the garnishee to the appellants, relying on Order 38, Rule 5 read with Section 41(b) of the Arbitration Act.
The respondent alleged that a large sum was due to the appellants from the garnishee, that the appellants would not give an undertaking to furnish a bank guarantee, and that the appellants had not placed before the Court the records showing how much work had been done by the respondent.
It was alleged (as reflected in Para 7 of the impugned order) that if the appellants were allowed to take the amounts from the garnishee they would leave the jurisdiction of the Court, making it difficult for the respondent to realise any decree.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Sripathi Panditarajula Venkanna Babu v. Varalakshmi Finance Corporation, Rajahmundry, 1996 (4) ALD 453 (DB)	The steps necessary before passing an order under Order 38, Rule 5: the order is not to be routine; the Court must be satisfied on tangible materials showing attempts at alienation or steps to delay/obstruct judgment; the defendant should be called upon to furnish security or show cause; ultimate attachment only if defendant fails to show cause or furnish security.	The Court applied this precedent to hold that the trial Judge did not follow these requirements. The matter was remanded with directions to decide afresh keeping this authority in view.

Court's Reasoning and Analysis

The Court examined the impugned order in the light of the legal requirements for making an order under Order 38, Rule 5 of the Code of Civil Procedure. It found that the learned trial Judge had not properly considered the statutory and judicially defined ingredients required before an attachment before judgment can be ordered.

The Court reasoned as follows:

Order 38, Rule 5 is not to be made on mere request or merely because the garnishee owes a large sum to the defendant/appellant.
The Court must be satisfied, on tangible materials before it, that there are attempts at alienation or other steps taken which show an intention to delay or obstruct the enforcement of any eventual judgment.
Before ordering attachment, the defendant should be called upon to furnish security (a specified sum or bank guarantee) or be required to show cause why security should not be furnished; the attachment should be made only if the defendant fails to show cause or fails to furnish security.
The impugned order lacked any discussion or finding demonstrating the "primary satisfaction" that the appellants had acted obstructively; the reasons relied upon by the trial Judge (appellants not furnishing an undertaking or not placing records before the Court; the existence of a large amount with the garnishee) were held not germane unless tied to obstructive conduct.
The sole allegation that the appellants might leave the jurisdiction if allowed to withdraw the amounts was held insufficient, in the absence of a pleaded or evidenced intention by the appellants to delay or obstruct realization of a judgment.

On these grounds the Court concluded that the legal test laid down in the cited precedent had not been applied by the trial Judge and that the impugned order therefore could not be sustained.

Holding and Implications

Appeal allowed.

The Court set aside the impugned order and remanded the matter to the learned III Additional Subordinate Judge, Visakhapatnam, with directions to hear the parties afresh and decide the application in accordance with the law as propounded in "Sripathi Panditarajula Venkanna Babu v. Varalakshmi Finance Corporation, Rajahmundry (supra)."

Direct consequences: the attachment-before-judgment order in favour of the respondent was vacated; the trial Court must reassess the claim for attachment only after applying the required legal tests (satisfaction on tangible materials of obstructive conduct, calling upon the defendant to furnish security or show cause, and attachment only upon failure to comply). The opinion does not purport to lay down any new legal principle beyond directing adherence to the established precedent cited.

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Chairman And Managing Director, Rastriya Pariyojna Nirman Nigam Limited, New Delhi And Others v. Rambachane Singh, Visakhapatnam .

Lingaraja Rath, J.:— This case was taken up for admission and as we were about to issue notice for the respondent to appear, Mr. S.V.R Subramanyam submits that he is appearing for the respondent and is ready with the matter. Since this case relates to the validity of an order passed under Order 38, Rule 5 of the Code of Civil Procedure against the appellants, admitting the appeal and keeping it for hearing, we will hold up the suit unnecessarily. We have, with the consent of the parties, heard the matter and we dispose of the appeal by the following order.

2. The respondent has filed an application under Section 8 of the Arbitration Act (Act 1940) for referring the dispute between the parties to arbitration and in that application filed a petition under Order 38, Rule 5 of the Code of Civil Procedure read with Section 41(b) of the Arbitration Act for attachment before judgment of the amounts to be paid into the bank account of the appellants by the garnishee, N.T.P.C Talcher. On an order having been passed to the benefit of the respondent, the appeal has been preferred. The learned III Additional Subordinate Judge, Visakhapatnam, has, in passing the impugned order, considered that admittedly huge amount is due to the appellants from the garnishee but that the appellants are not giving undertaking that they would furnish bank guarantee for the suit amount and that they are not even considering that how the amount was due to the respondent for the work done by him and they are not placing the relevant records before the Court as to how much work has been done by the respondent. On such premise, it was thought that it was a fit case in which an order under Order 38, Rule 5 of the Code of Civil Procedure could be made.

3. We are afraid that in passing the impugned order, the learned Judge has not kept in view the ingredients of Order 38, Rule 5 of the Code of Civil Procedure properly. An order under Order 38, Rule 5 is not to be passed merely for the asking for it and merely because of the fact that the garnishee has huge amount to pay in favour of the appellant. The law in this regard was discussed by this Court in, Sripathi Panditarajula Venkanna Babu v. Varalakshmi Finance Corporation, Rajahmundry, 1996 (4) ALD 453 (DB), wherein the steps necessary to be taken before an order is passed were clearly discussed. Such an order is not to be passed in a routine manner merely for the asking for it but that the Court has to be satisfied on tangible materials placed before it that there are attempts at alinenation and that the steps are taken so as to delay or obstruct the judgment that may be ultimately passed against the defendant. Before passing an order, the defendant is first of all to be called upon to furnish security in the shape of specific sum to produce and place at the disposal of the Court, when required, the property specified by the plaintiff in his petition or such portion of it is as may be sufficient to satisfy the decree or call upon him to show cause as to why he shall not furnish security. But such an order can be passed only after the primary satisfaction of the obstructive conduct of the defendant. The ultimate attachment order can be passed only if the defendant either fails to show cause why the security shall not be furnished or fails to furnish the security as required. From the impugned order in question, we do not find any discussion in that regard. The factors taken in to consideration by the Court, as we have referred above, are not germane to passing an order under Order 38, Rule 5 of the Code of Civil Procedure. There is even no satisfaction, before the bank guarantee was called for, that the requisite primary satisfaction was reached and on what materials. The only allegation made by the respondent, as is reflected in Para 7 of the impugned order, is that if the appellants are allowed to take away the amounts from the garnishee, they would leave the jurisdiction of the Court and in such case, it would be difficult for the respondent to realise the amount. This in itself is not sufficient to pass an order under Order 38, Rule 5 of the Code of Civil Procedure unless it is pleaded that by their impugned conduct, they were intending to delay or obstruct the judgment that may be passed.

4. In the circumstances, the impugned order is not sustainable and is set aside and the matter is remanded to the learned III Additional Subordinate Judge, Visakhapatnam, to hear the parties afresh and decide the matter keeping the law as propounded in Sripathi Panditarajula Venkanna Babu v. Varalakshmi Finance Corporation, Rajahmundry (supra), in view. The appeal is thus allowed.

Appeal allowed.

Chairman And Managin... v. Rambachane Singh, Vi...