Attachment; Muthoot Leasing and Finance Ltd. Vs. N.P. Asiya [Kerala High Court, 07-02-2011]

Civil P.C. 1908 – O. 21 Rr. 54 & 58 – O. 38 Rr. 9, 10 & 11A – Order of Attachment – Quoting of a wrong provision – Application filed by third party – Vacating Interim Order – Quoting of a wrong provision will not invalidate an order if power is otherwise available.

# 2011 (1) KLT 858 : 2011 (1) KLJ 623 : ILR 2011 (1) Ker. 809 : 2011 (1) KHC 567

IN THE HIGH COURT OF KERALA AT ERNAKULAM

K.M. Joseph and M.C. Hari Rani, JJ.

Arb. A. No. 35 of 2009

Decided On: 07.02.2011

Muthoot Leasing and Finance Ltd. Vs. N.P. Asiya

For Appellant: C.S. Manilal, Adv.; For Respondents: P.K. Ravisankar & K. Pradeep, Adv.

J U D G M E N T

K.M. Joseph, J.

1. On the allegation that Respondents to 4 entered into an hypothecation agreement for purchase of a vehicle, under which the second Respondent is the borrower and Respondents 3 and 4 are the guarantors, and alleging that an amount of Rs. 4,40,921/= is due and further alleging the existence of an arbitration agreement, the Appellant moved the District Court under

# Section 9 of the Arbitration and Conciliation Act, 1996

(hereinafter referred to as the Act), claiming attachment of the properties of the Respondent therein. The Court ordered attachment on 11.11.2008. The attachment was effected, however, only on 29.11.2008. The first Respondent thereupon filed a petition styled under Order 21 Rule 58 of the Code of Civil Procedure and Section 9 of the Act, praying that the attachment was effected only on 29.11.2008 and she had purchased the property on 22.11.2008 by way of registered Sale Deed and she prayed that the attachment may be lifted. The learned District Judge found that before effecting attachment, the property had been sold. The court below relied on the Pass Book and the evidence of PW2, who is the brother of the first Respondent who was examined as PW1 to find that the property was purchased by paying consideration and the court below found that there is nothing to prove that the sale is a fraudulent transfer.

2. Apparently, the Court took note of the contention, as it were, of the Appellant that there is no power to lift the attachment. The court found that the jurisdiction under Section 9 is only to grant an interim measure till the conclusion of the arbitral proceedings, and that all the provisions of the Code of Code of Civil Procedure including Order 21 Rule 58 are not made applicable to arbitral proceedings, particularly to the court dealing with the petition under Section 9 of the Act. It is found that since Order 21 Rule 58 is not specifically made applicable, the Court may have jurisdiction to pass an order which is having the force of a decree. It is further found that in a proceeding under Section 9 of the Act, the Court was competent to pass necessary ancillary orders, and that in the circumstances, the court is competent to lift the attachment as and when it is found that the property was alienated prior to the date of attachment.

3. We heard Shri C. S. Manilal, learned Counsel for the Appellant and Shri P. K. Ravi Sankar, learned Counsel appearing for the first Respondent.

4. Learned Counsel for the Appellant would submit that the court below has erred in granting relief to the first Respondent. He would submit that under Section 9, only a party to the agreement can approach the Court for relief. Sections 7(1) reads as follows:

# 7. Arbitration agreement

(1) In this Part, “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.”

He would further contend that what is contemplated under Section 9 of the Act is only the power of the Court to grant interim relief. Section 9 does not contemplate the entertaining of a third party claim under Order 21 Rule 58 CPC. He would contend that under Order 38 Rule 10 CPC, rights of persons who are having independent right as on the date of the attachment are not affected. Order 38 Rule 10 Code of Code of Civil Procedure reads as follows:

# 10. Attachment before judgment not to affect rights of strangers, nor bar decree-holder from applying for sale

Attachment before judgment shall not affect the rights, existing prior to the attachment, or persons not parties to the suit, not bar any person holding a decree against the Defendant from applying for the sale of the property under the attachment in execution of such decree.”

He would further contend that third parties can work out their remedies before the competent civil court. He would point out that if Order 21 Rule 58 is made applicable, then, the order that would be passed must be treated as a decree and such a contingency is not contemplated in proceedings under Section 9 of the Act. He would distinguish the judgment of this Court in

# Sirajudheen K. Vs. Sreedhar K. Kottaram, 2010 (1) KHC 281

by pointing out that, that was a case where attachment was ordered and under the order of attachment, the Defendant had been called upon to furnish security. It was in such circumstances, this Court took the view that the Court shall lift the attachment, the moment the Defendant furnished sufficient security to the satisfaction of the Court. He would also rely on the judgment of the Apex Court in

# Firm Ashok Traders And Anr. Vs. Gurumukh Das Saluja and Ors., 2004 (3) SCC 155

Therein, the Apex Court, inter alia, held as follows:

“The right conferred by Section 9 is on a party to an arbitration agreement. A person not party to an arbitration agreement cannot enter the court for protection under Section 9. This has relevance only to his locus standi as an applicant. This has nothing to do with the relief which is sought for from the court or the right which is sought to be canvassed in support of the relief.”

5. Learned Counsel for the Appellant would also rely on the decision in

# SREI Infrastructure Finance Ltd. Vs. Bhageeratha Engineering Ltd. and Ors. AIR 2009 Gah 110

where a learned Single Judge took the view that proceedings under Section 9 is maintainable only between the parties to the arbitration agreement. There, the applicant had financed the first Respondent therein for purchase of equipment and the first Respondent had entered into arbitration agreement with the second Respondent. There were disputes between the Respondents. The applicant under Section 9, the financier sought impleadment and protection under Section 9. It was in that context the Court took the view that the application by him was not maintainable. Hemalata Sahu Vs. Sugyani Sahu, AIR 2010 Ori 35 was another decision relied on by the learned Counsel for the Appellant. That was a case where the Court took the view that matters which were finally decided could not be reopened under Order 21 Rule 58 at the instance of third party. In

# Adhunik Steels Ltd. Vs. Orissa Manganese Minerals Pvt. Ltd., AIR 2007 SC 2563

again relied on by the Appellant, the Court took the view that the power under Section 9 is not totally independent of the principles governing the grant of interim injunction, that is to say, the court, while granting injunction under Section 9, cannot eschew the principles evolved under relevant provisions of the Specific Relief Act, and they would constitute the substantive law relating to the grant of injunction.

6. Learned Counsel for the Appellant also relied on the judgment of the Apex Court in

# Prasad Vs. Monnet Finance Ltd. 2010 (4) KLT 66

The Court took the view that there was no arbitration agreement between the parties and the Appellant could not have been impleaded in the arbitration proceedings and the award against the Appellant was interfered with. This was on the basis that the Appellant who was a guarantor for a loan, could not be made a party to the reference to arbitration, as he was not a party to the loan agreement containing the arbitration agreement.

7. Per contra, learned Counsel for the first Respondent would contend relying on the judgment of this Court in

# Sirajudheen K. Vs. Sreedhar K. Kottaram, 2010 (1) KHC 281

though the first Respondent is not a party to the arbitration agreement, she has not sought any of the reliefs under Section 9. In other words, she was constrained to come to the Court only for the reason that an order of attachment was obtained under Section 9 at the instance of the Appellant and he draws a distinction by pointing out that the first Respondent has not claimed any of the reliefs under Section 9. On the other hand, she has approached the Court to persuade the Court to lift the attachment, as before the attachment could be effected, she had purchased the property. He would draw our attention to the words in Section 9 which reads as follows:

# 9. Interim measures etc. by Court

A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with Section 36, apply to a Court:

(i) for the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings; or

(ii) for an interim measure of protection in respect of any of the following matters, namely:

(a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement;

(b) securing the amount in dispute in the arbitration;

(c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;

(d) interim injunction or the appointment of a receiver;

(e) such other interim measure of protection as may appear to the Court to be just and convenient, and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it.

He would also contend that even though Order 21 Rule 58 as such is not applicable and it may also be correct to say that the order lifting the attachment is not a decree, he would contend that the general principles would apply and there is power with the Court to lift the attachment.

8. Section 9 of the Act is a novel provision. The repository of the power under Section 9 is the Principal Civil Court having jurisdiction. Undoubtedly, as held by the Apex Court and as referred to by us, the power to grant relief must be exercised in the context of the well established principles governing the same.

9. Rule 9 of Order 38 Code of Code of Civil Procedure provides for attachment to be withdrawn, upon the Defendant furnishing security together with security for the costs of the attachment or when the Suit is dismissed. Rule 10 of Order 38 declares that the attachment before judgment will not affect the rights existing prior to the attachment of persons not parties to the Suit. As per Order 38 Rule 11A, the provisions of the Code applicable to an attachment made in execution of a decree shall so far as may be, apply to an attachment made before judgment, which continues after judgment by virtue of Rule 11.

10. Under Order 38 Rule 5, it is open to the Court to pass an order of conditional attachment. Under Order 38 Rule 6, if the Defendant fails to show cause why he should not furnish security or fails to furnish security, the court may order attachment. It is open to the Defendant to furnish security or to show cause and in such a case, the court is bound under Order 38 Rule 6(2) to withdraw the attachment already ordered. When an attachment is made, it may also affect third parties. A third party may be a person with whom the Defendant has entered into an agreement concerning property under which the third party has rights. Likewise, a third party may come forward with a case that the property which is attached actually belongs to him, and that the Defendant has no right over the property. A species of such a category would be the case of a person who comes forward pointing out that before the attachment was effected, though the property belonged to the Defendant, the property has been transferred to the third party. We are concerned with in this case with the last category.

11. No argument was addressed before us to unsettle the finding of the court below that there was an assignment of the rights of the Respondents to the application under Section 9 filed by the Appellant prior to the order of attachment being effected. We are also not called upon to pronounce on the correctness of the finding by the court below that the transfer in favour of the first Respondent is not a fraudulent one. Therefore, this is a case whereon facts which are not disputed, by the time the order of attachment was effected, there was a valid assignment in favour of the first Respondent by the Respondents to the application under Section 9 filed by the Appellant. We must notice that the order of attachment in such circumstances would constitute a shadow over the rights of the first Respondent. It is true that the order of attachment does not create any interest over the property and its effect is against Respondents 2 to 4 that they are forbidden from alienating the property. It is also true that prior to such attachment, the assignment in favour of the first Respondent has taken place and it could be argued that under Order 38 Rule 10, the order of attachment will not affect the right of the first Respondent. An order of attachment in respect of immovable property is effected by prohibiting the judgment debtor, Defendant/Respondent from transferring or charging the property in any way and all persons from taking any benefit from such transfer of charge. In the State of Kerala, Sub-rule is inserted in Order 21 Rule 54. It reads as follows:

# 54. Attachment of immovable Property

(3) The attachment shall be deemed to have taken as against transferees without consideration from the judgment-debtor from the date of the order of attachment and as against all other persons from the date on which they respectively had knowledge of the order of attachment or the date on which the order was duly proclaimed under Sub-rule (2) whichever is the earlier.”

12. What has been done by the court in this case is to lift the attachment on finding that the property had already been transferred prior to the date of attachment being effected. The Appellant does not challenge before us the finding of the court below that the assignment in favour of the first Respondent was effected prior to the attachment being effected and that the transaction was not fraudulent. Therefore, actually the Appellant cannot have any grievance against the order of attachment being lifted, as no purpose will be served by the continuance of the attachment.

13. Of course, the first Respondent filed the application under Section 9 read with Order 21 Rule 58. But, the first Respondent has not sought for passing of an order contemplated under Section 9 in her favour. Quoting of a wrong provision will not invalidate an order if power is otherwise available. The Appellant may be correct in contending and the first Respondent also does not join issue with him that Order 21 Rule 58 may not be applicable.

14. It is not as if this is a case where the first Respondent can have a complaint as such against the order passed by the Court. This is for the reason that at the time when the order was passed by the court, there was no assignment in favour of the first Respondent. But, none-the-less, it could be argued that the continuance of the order of attachment would create a shadow over the rights of the first Respondent and would adversely affect her if the court were not apprised of the assignment made prior to the order of attachment being effected and the court persuaded to withdraw the same. We have already noticed that the Appellant cannot be said to be prejudiced on the merits of the matter.

15. In

# Sirajudheen K. Vs. Sreedhar K. Kottaram, 2010 (1) KHC 281

this Court, no doubt, was dealing with a case of the Defendant furnishing security and the court lifting the attachment whereas this is a case where a third party applies to vacate the order. This Court has taken the view in the said decision that the general principles would apply. In fact, it cannot be in the region of any dispute that if the court has passed an order which is obtained by practising fraud, it must possess the power to recall the order. Equally, we would think that under Section 9 of the Act providing for passing of interim orders, the court would have incidental and ancillary power which is inherent in it as a court to vacate the order, if it is convinced that even prior to the order of attachment being effected, there was a valid assignment. We would think that clothing the court with such powers under Section 9 would only tantamount to a recognition of the court’s powers as a court intended to do justice. We would think that the court must possess the inherent power also to vacate the order of attachment when it is demonstrated to it that the order of attachment has, in fact, ceased to be of any effect in view of the assignment being made prior to the attachment being effected. Precisely, it is this which the court below has done. We would also think that there is merit in the contention of the first Respondent that the power under Order 21 Rule 58 must on general principles be made applicable without actually applying the provisions as such. Even without the same, we are of the view that as already held by us, the court must possess inherent powers or ancillary powers to vacate the order of attachment in view of the evidence which was brought before it. The acceptance of the contention of the Appellant would involve driving of the third party to institute a Suit questioning the legality of the order of attachment. In such circumstances, we see no merit in the Appeal and the Appeal is dismissed.

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