Ramesh Kedarmal Modi vs Ahuja Properties And Developers ...
2021 Latest Caselaw 9944 Bom

                                      29.07.2021 IAL 3721 of 2021 Final.docx
         IN THE HIGH COURT OF JUDICATURE AT BOMBAY
            ORDINARY ORIGINAL CIVIL JURISDICTION

      INTERIM APPLICATION (L) No. 3721 OF 2021
                        IN
    COMMERCIAL SUMMARY SUIT (L) No.3714 OF 2021


Ramesh Kedarmal Modi
Through Power of Attorney Holder
Rohit Ramesh Modi                                      ...Applicant/
                                                       Org. Plaintif
        Vs.

Ahuja Properties and
Developers and Ors.                                    ...Respondents/
                                                        Org.Defendants

                        ********
Mr. Kunal Kumbhat for Applicant/Org. Plaintif

Mr. Mikhail Behl a/w. Ms. Saira Mirzankar a/w. Mr.
Madhukar Mulay for Respondents/Org. Defendants.
                       ********
             CORAM: DAMA SESHADRI NAIDU, J.

(VIDEO CONFERENCING)

DATED : JULY 29, 2021 P.C.

Facts as the Plaintif has Pleaadead:

The plaintiff an individualf is a money lender. Defendant Nos.1 and 2 are the partnership frms. In defendant no.1's frmf defendant nos.3 and 4 are the partners. In defendant No.2's frmf Defendant Nos.3f 4f and 5 are the partners. Among defendants 3 to 5f defendant No.4 is the sonf and defendant no.5 is the wife of Defendant No.3: they are sonf motherf and father.

Lata Panjwanif P.S. 1/19

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2. Let me set out what the plaintif alleges. Introduced by a common friendf the Defendants requested the plaintif for money; it was to fnance their real estate and construction activities carried on by the two frms. On 7th October 2015f the plaintif lent Rs.10f00f000/- to the Defendants and secured a bill of exchange on the same day--executed by Defendant No.1 and accepted by Defendant No.2. Laterf on 19th Octoberf 20116f the plaintif again lent another Rs.10f00f000/- to the Defendants and secured another bill of exchange. The defendants agreed to repay the money and interest calculated @21% p.a.f with quarterly rests.

3. On 9th February 2018f the plaintif lent more money: Rs.42f00f000/-. On 21st February 2018f another Rs.10f00f000/-. On both occasionsf he secured two bills of exchange. On 31st March 2016f the Defendants paid interest on the initial Rs.20f00f000/-. Laterf on 21st August 2016f the Defendants have paid Rs.3f00f000/- towards the partial return of the principal amount.

4. On 1st February 2017f Defendant No.1 issued fve cheques and on 22nd March 2017f another cheque for the amounts the Defendants had borrowed. But those cheques were dishonoured. Laterf on 2nd May 2017 and 1st June 2017f Defendant No.1 gave another set of chequesf besides paying a meagre Rs.20f000/- on 14th July 2017. But even those cheques were dishonoured on 27th July 2017. Sof on 30th September 2017f Defendant No.1 issued another set of fve new cheques. But they too were

Lata Panjwanif P.S. 2/19

29.07.2021 IAL 3721 of 2021 Final.docx dishonoured. Thenf on 31st October 2018f Defendant No.1 gave another batch of fve cheques.

5. At that stagef the Defendants approached the plaintif for more money. Thereforef on 9th February 2018f the plaintif lent Rs.42f00f000/-; on 21st February 2018f ten more lakhs. And for these amountsf toof Defendant No.1 executed the bills of exchangef accepted by Defendant No.2. As all the amounts remained unpaidf again on 31st July 2020f Defendant No.1 issued two cheques covering part of the loan. The Defendants did promise that the balance amount would be paid in cash. As was the case earlierf those two cheques were also dishonoured. Under these circumstancesf the plaintif fled this Summary Suit in the second week of February 2021f seeking recovery of Rs.1f20f08f841/- along with interest.

6. The Defendants entered their appearance. On their entryf the plaintif has taken out this interim application for attachment before judgment. Besides thatf in the suit the plaintif has taken out the summons for Judgment. Of coursef

7. Nowf as the Court has to decide the issue under Rule 5 of Order XXXVIIIf CPCf in Interim Application (L) No. 3721 of 2021f I confne the discussion to whether the applicant deserves an attachment before judgment. Arguments:

Applicant:

8. In the above backgroundf the learned counsel for the Applicant- Plaintif has submitted that the entire

Lata Panjwanif P.S. 3/19

29.07.2021 IAL 3721 of 2021 Final.docx transaction stands admitted. To elaboratef he has submitted that each instance of money lending by the plaintif has been secured by the bills of exchange executed by Defendant No.1 and accepted by Defendant No.2. According to himf Defendant No.1 went on issuing the cheques in batchesf but they were all dishonoured. In this contextf the learned counsel represents that since the entire amount has been lent through bills of exchangef on many an occasionf the frst defendant issued cheques randomly covering the interestf the principalf or both. Sof the cheques may not correspond to the amounts covered by the bills of exchange.

9. Thenf the learned counsel has stressed the plaintiffs apprehension that the Defendants may encumber their assets to frustrate the plaintif's eforts in his suit. He points out that only after the suit transaction did the defendants enter into a joint venture with a foreign company. According to himf for that purpose the defendants incorporated a private limited company and transferred all their assets to that company. He has also submitted that despite the infusion of funds over 2f000 crores from the foreign companyf the defendants have not honoured their promise of repayment.

10. That apartf the plaintiffs counsel submits that Defendant Nos.3 and 4 have created a private trust and transferred all their shares in the company to that trust. Defendant No.3 is a trusteef and Defendant No.4 is both a trustee and benefciaryf too. Though the trust isf prima

Lata Panjwanif P.S. 4/19

29.07.2021 IAL 3721 of 2021 Final.docx facief an independent legal entityf the learned counsel contends that it is only a smokescreen the Defendants have brought about to defeat the plaintif's claim. Accordinglyf the learned counsel has urged this Court to direct the Defendants to ofer security for the suit amount orf in the alternativef to attach their properties as prayed for in the interim application. To support his contentionsf the learned counsel relies on Rajendran & Ors. v. Shankar Sundaram.1 The Responadents:

11. On the other handf the learned counsel for the Defendants has opposed the applicant on two counts: falsity of claim; unavailability of grounds under Rule 5 of Order 38f CPC. According to himf the applicant has established no prima facie case. He points out that the pleadings in the plant and also in the interim application sufer from inherent contradictions. To justify his contentionf the learned counsel submits that the plaintif has tried to make a mountain out of a molehill--that the respondents have dishonoured the cheques on numerous occasions. In this contextf he submits that the cheques were given "only for plaintiffs comfort". In factf "the payments were made separately and the applicantf thusf admits in his pleadings of receiving both interest and the principal in part". Sof the alleged dishonour of cheques does not advance the applicantfs cause.

12. On his second contention--should the respondentsf property be attached?--the learned counsel

AIR 2008 SC 1170 Lata Panjwanif P.S. 5/19

29.07.2021 IAL 3721 of 2021 Final.docx asserts that the applicantfs apprehension is misplaced. The learned counsel points that the applicantfs own pleadings reveal that the defendants have had their sharesf worth croresf intact in the new venture. And that venture has received an infusion of foreign funds over two thousand crores. That infusion does not amount to any alienation.

13. In the alternativef the learned counsel has contended that the Trustf an independent legal entityf is a third party to this suit; it is not before this Court. Sof the property that belongs to the Trust--that isf the defendantsf shares in a company--are not available for the applicant to be attached. According to the learned counself the new company was incorporated in 2019. In the plaint or the interim applicationf the applicant has not set out any details about how and when he came to know about that company. That meansf the Court ought to presume that the applicant has known about the newly incorporated company from its inception.

14. Thusf the company having been established in the pastf the respondentsf shares in that company cannot be attached "now" as the companyfs incorporation and the applicantfs claim for recovery are not contemporaneous. That isf according to the learned counself the respondentsf past action cannot afect their present alleged liability. At any ratef the applicant's current efort to attach the properties is only on an apprehensionf an ill-founded one at that. To support his

Lata Panjwanif P.S. 6/19

29.07.2021 IAL 3721 of 2021 Final.docx contentionsf the learned counsel has relied on Premraj Mundra v. Md. Maneck Gazi2 and Raman Tech. & Process Engg. Co. v. Solanki Traders.3 Discussion:

Statutory Position:

15. Nowf let us examine the statutory and precedential positions. Under Rule 5 of Order 38f CPCf at any stage of a suitf the Court may get satisfedf by the plaintiffs afdavit or otherwisef that the defendant intends to obstruct or delay the execution of any decree that may be passed against him. This obstructing or delaying may take many forms. The defendant is (a) about to dispose of the whole or any part of his propertyf or (b) about to remove the whole or any part of his property from the local limits of the jurisdiction of the Court. Thenf the Court may direct the defendantf within a time to be fxed by itf either to furnish securityf "to produce and place at the disposal of the Courtf when requiredf the said property or the value of the samef or such portion thereof as may be sufcient to satisfy the decree"f or to appear and show cause why he should not furnish security. Unless the Court directs otherwisef the plaintif must specify the property required to be attached and its estimated value. In the orderf the Court may also direct the conditional attachment of the whole or any portion of the property so specifed. Of coursef if the Court passes an order of

AIR 1951 Calcutta 156

(2008) 2 SCC 302 Lata Panjwanif P.S. 7/19

29.07.2021 IAL 3721 of 2021 Final.docx attachment without complying with the above conditionsf that attachment shall be void.

16. As per Rule 6 of Order 38f if the defendant fails to show cause why he should not furnish securityf or fails to furnish the security requiredf within the time fxed by the Courtf the Court may order the attachment of the property specifed or a portion of it sufcient to satisfy any future decree. On the contraryf if the defendant shows a cause or furnishes the required securityf the Court will withdraw the attachment already made or pass such other order as it thinks ft.

Preceadential Position:

17. In Rajendranf the respondent sued a partnership frm and its partners. It was for the recovery of moneyf based on cheques and promissory notes. The trial Court ordered attachment before judgment; the High Court afrmed it. The appellants took the matter to the Supreme Court. In this contextf Rajendran has noted that the respondent sought attachment before judgment to protect his interest if the suit is decreed. "The court exercisesf in such a situationf jurisdiction under Order XXXVIIIf Rule 5 of the Code of Civil Procedure. The Division Bench of the High Court merely directed the appellants herein to furnish security within the time specifed thereunder. It was directed that only on their failure to do sof an order of attachment of the 2nd item on the schedule to the petition shall be issued".

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18. After noting as abovef Rajendran has refused to interfere with the High Courtfs decision. In that processf it has further held:

"Appellantsf in our opinionf are not seriously prejudiced thereby. The courtf while exercising its jurisdiction under Order XXXVIIIf Rule 5 of the Code of Civil Procedure is required to form a prima facie opinion at that stage. It need not go into the correctness or otherwise of all the contentions raised by the parties. A cheque had been issued in the name of the frm. The appellants are partners thereof. A pronote had been executed by a partner of the frm. Thus even under the Partnership Act prima facie the plaintif could enforce his claim not only as against the frm but also as against its partners."

(Italics supplied)

19. In Raman Techf the plaintif applied under Order 38 Rule 5 CPC for a direction to the defendants to furnish security for the suit claim. He also prayed for attachment before judgment if the defendants failed to provide security for the debt. The trial court dismissed that application. On factsf it noted that though the defendants had given two post-dated cheques to the plaintif towards payment of the bill amountsf they were dishonoured. But the plaintif had disclosed neither the particulars of the cheques nor the dates of dishonour. So the trial Court ruled that the plaintiffs bald statement that the amount was due from the defendants could not make out a prima facie case--when the defendants had denied the suit claim.

The High Court reversed the trial Courtfs order. So the defendants went to Supreme Court.

Lata Panjwanif P.S. 9/19

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20. In the above contextf Raman Tech.f has held that the object of supplemental proceedings--such as applications for arrestf attachment before judgmentf grant of temporary injunctionsf the appointment of receivers--is to prevent the ends of justice from being defeated. The object of Order 38 Rule 5 CPCf in particularf is to prevent any defendant from defeating the realisation of the decree that may ultimately be passed in the plaintiffs favour. This defeating may be either by attempting to dispose of or remove from the jurisdiction of the court the defendantfs property. Thenf Raman Tech notices the phraseology of Rule 5. According to itf 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 clarify that before exercising power under the said Rulef the court should be satisfed there is a reasonable chance of a decree being passed in the suit against the defendant. This would mean that the court should be satisfed that the plaintif has a prima facie case. Suppose the averments in the plaint and the documents produced in support of it do not satisfy the court about a prima facie case. In that casef the court will not go to the next stage of examining whether the plaintif's interest should be protected by exercising power under Order 38 Rule 5 CPC.

21. Besidesf merely having a just or valid claim or a prima facie casef according to Raman Techf will not

Lata Panjwanif P.S. 10/19

29.07.2021 IAL 3721 of 2021 Final.docx entitle the plaintif to an order of attachment before judgment. He ought to establish that the defendant is attempting to remove or dispose of his assets to defeat the decree that may be passed. Equally well- settled is the position that even where the defendant is removing or disposing of his assetsf an attachment before judgment will not be issued if the plaintif cannot satisfy that he has a prima facie case.

22. Of coursef Raman Techf thenf reiterates the oft-asserted judicial caution that the power under Order 38 Rule 5 CPC is drastic and extraordinary. Such power should not be exercised mechanically or merely for the asking. It should be used sparingly and strictly under the Rule. The purpose of Order 38 Rule 5 is not to convert unsecured debt into a secured debt. Any attempt by a plaintif to utilise Order 38 Rule 5 as leverage for coercing the defendant to settle the suit claim should be discouraged.

23. Thenf on factsf Raman Tech rules that a defendant is not debarred from dealing with his property merely because a suit is fled or about to be fled against him. Nor can his shifting the business or machinery from one building to another by itself be a ground for granting attachment before judgment. A plaintif should showf prima facief that his claim is bona fde and valid; he should also satisfy the court that the defendant is about to remove or dispose of the whole or part of his propertyf to obstruct or delay

Lata Panjwanif P.S. 11/19

29.07.2021 IAL 3721 of 2021 Final.docx the execution of any decree that may be passed against him. Only does that enable a court to exercise its powers under Order 38 Rule 5 CPC.

24. Finallyf Raman Tech wants the courts to keep in view the principles relating to grant of attachment before judgment summarised in Premraj Mundra v. Md. Maneck Gazif AIR 1951 CAL 156.

25. Let usf nowf examine Premraj Mundra. Theref the plaintif sued for recovery of the price of goods sold and delivered to the defendant. The defendantf a businessman in a small village on the border of India and Pakistanf closed his business in India and started one in Pakistan. He approached a prospective purchaser for the sale of his entire property in India. The plaintiff in that backdropf alleged that the defendant is trying to dispose of his properties to obstruct and delaying the execution of any decree that may be passed against him. So he prayed for attachment before judgment. Indeedf Calcutta High Court did grant the attachment.

26. In granting an attachment before judgmentf Premraj Mundra surveyed the precedential position and summarised the guiding principles for invoking Rules 5 and 6 of Order 38f CPC. Those principles are these (not verbatim):

(a) That an order under O. 38f Rr. 5 and 6f can only be issued if circumstances exist as stated in those Rules.

Lata Panjwanif P.S. 12/19

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(b) Whether such circumstances exist is a question of factf and that must be proved to the Courtfs satisfaction.

(c) The Court would not be justifed in issuing an order for attachment before judgment or for securityf merely because it thinks that no harm would be done thereby or that the defendants would not be prejudiced.

(d) The afdavits supporting the applicantfs contentions must not be vague and must be properly verifed. If it is afrmed true to the knowledge or information or belieff it must be stated as to which portion is true to knowledgef the source of information should be disclosedf and the grounds for belief should be stated.

(e) A mere allegation that the defendant was selling of his properties and whatever remains is insufcient will not sufce. Particulars must be stated.

(f) There is no rule that transactions before suit cannot be consideredf but the object of attachment before a judgment must be to prevent future transfer or alienation.

(g) Where only a small portion of the property belonging to the defendant is being disposed off no inference can be drawn in the absence of other circumstances that the alienation is necessarily to defraud or delay the plaintif's claim.

Lata Panjwanif P.S. 13/19

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(h) The mere fact of transfer is not enough; nobody can be prevented from dealing with his properties simply because a suit has been fled. There must be additional circumstances to show that the transfer delays or defeats the plaintiffs claim. It is open to the Court to look to the conduct of the parties immediately before the suit. The Court may also examine the surrounding circumstances to infer whether the defendant is about to dispose of the property. If sof with what intention. The Court may consider the nature of the claim and the defence put forward.

(i) The fact that the defendant is in insolvent circumstances or acute fnancial embarrassment is a relevant circumstancef but not by itself sufcient.

27. Firstf according to Raman Techf an application for attachment before a judgment must fulfl twin conditions: (a) the plaintif's prima facie case; (b) the defendantfs attempt to remove or dispose of his property to defeat the decree that may be passed. Neither condition on its own does not sufce.

28. Secondf among the Premraj Mundrafs guiding principlesf we may focus on these: The Court has to satisfy itself that the plaintif has successfully demonstrated the circumstances as required under Rules 5 and 6 of Order 38. That saidf it is a question of fact. The court can consider the defendant's past conductf but the object of attachment before a

Lata Panjwanif P.S. 14/19

29.07.2021 IAL 3721 of 2021 Final.docx judgment must be to prevent future transfer or alienation. Truef a mere allegation that the defendant is going to sell of and his properties are insufcient. Thenf that transfer must be to delay or defeat the plaintif's claim. Under those circumstancesf it is open to the Court to look to the partiesf conduct immediately before the suit.

Law appliead to Facts:

29. Heref the borrowing is admitted. And the borrowing is for fnancing the construction projects carried on by the two partnership frmsf respondents1 and 2. The other respondents are the partners of these two frmsf being members of the same family. Thusf the prima facie case stands established. Even otherwisef the borrowing is based on a few negotiable instruments. And they carry statutory presumption under both sections 118 and 138 of The Negotiable Instruments Act. When thisf I may hold that the frst condition for the attachment before judgement gets fulflled. But I must add a note of clarifcation. The Afdavit-in-Reply fled by the third defendant/respondent does deny most plaint averments. Neverthelessf there is no express denial of the respondentsf executing the bills of exchange or the cheques. In factf the respondents have argued that the cheques were given for the applicantfs comfort and that the amounts are being repaid periodically.

30. Indeedf the applicant is that the respondents have been heavily indebted in the market. Thenf about the

Lata Panjwanif P.S. 15/19

29.07.2021 IAL 3721 of 2021 Final.docx respondentsf business activitiesf he pleads that they established a new private limited company: Ahuja Hive. It is the applicantfs case that the 1st respondent frm borrowed the money for its ongoing projects and executed bills of exchange; the 2nd respondent frm accepted those bills of exchange. Nowf in this interim applicationf the applicant asserts that both the partnership frms transferred all their ongoing projects to this newly established company. This avermentf toof stands admitted. The respondentsf only defence is that the new company is an independent entity; it is not a party to the suit. Sof its assets cannot be touched.

31. The borrowings began in 2015; they continued until 2018. Incorporating a new company and transferring assets belonging to the partnership frms happened in 2019. That demonstratesf prima facief the applicant has been prejudiced because the assets which inspired him to lendf though the very lonely is unsecuredf now have been transferred to another entity. The respondentsf action lends credence to the applicantfs apprehension.

32. The respondents admit that they had an infusion of foreign funds of over 2000 crores into their newly incorporated company. But they have repeatedly failed to honour the cheques they gave. That again shows the respondents' mala fde contact--prima facief though.

33. And the appellant has submitted that respondents 3 and 4 have created a private trust and transferred all their shares in the company to that trust.

Lata Panjwanif P.S. 16/19

29.07.2021 IAL 3721 of 2021 Final.docx The third respondent is a trusteef and the fourth respondent is both a trustee and benefciary. In responsef the respondents have contended that the Trustf an independent legal entityf is a third party to this suit; it is not before this Court. That isf the Trust assets are unavailable for the applicant to be attached. That saidf there is no pleading in the interim application about the Trust. When the applicantfs counsel argued on this pointf the respondentsf counsel countered that argument only on the premise that the Trust is an independent legal entity.

34. At any ratef the applicant has pleaded that respondents 3 and 4 have resigned from several companies of Ahuja Group. According to himf "even the arrangement of Defendant Nos. 3 and 4 with their Chinese counterpart is such that the shares allotted to Defendant Nos. 3 and 4 in the company Ahuja Hives Pvt.f Ltd.f are compulsorily convertible shares so that the same cannot be liquidated in favour of any of the plaint of the defendants".

Conclusion:

35. To conclude--I repeatf prima facie--I reckon that the debt is admitted or statutorily presumed to be admitted. The respondentsf actionsf most of which are not deniedf lend credence to the applicantfs apprehension. Ratherf the applicantfs is well-founded rather than a mere apprehension. Given the applicantfs allegationsf most of which are matters of recordf the applicant requires no prop of any third-

Lata Panjwanif P.S. 17/19

29.07.2021 IAL 3721 of 2021 Final.docx party afdavit or testimony about the respondentsf conduct. The pleadings and the documents produced sufce.

Result:

36. After going through the pleadings and after perusing the documents the applicant has fledf the Court is satisfed that the respondents intend to obstruct or delay the execution of any decree that may be passed against them. They havef prima facief transferred and are transferring most of their assets into the fold of other legal entities to make them unavailable for the applicant to realise the debt based on a decree that may be passed in his favour.

Orader:

The Notice of Motion is allowed to the extent mentioned below:

(a) The Respondents shall furnish security to the extent it satisfes the plaintiffs claim of Rs.1f20f08f841/- in 48 hours after the defendants receive this order and notice;

(b) If the Respondents fail to furnish security as ordered abovef the following shall stand or be attached:

(b1) 20f00f000 compulsory convertible preference shares of the 2nd respondent or its partners in Ahuja Hive Pvt.f Ltd.

(b2) Two unsold Type-3 3BHK fats in the Respondentsf project LfAmorf at Relief Roadf

Lata Panjwanif P.S. 18/19

29.07.2021 IAL 3721 of 2021 Final.docx Opp. H. K. Institute of Management Studies and Researchf Oshiwaraf Jogeshwari (West)f Mumbai-400102.

                                            [DAMA SESHADRI NAIDU, J.]




Lata Panjwanif P.S.                                                               19/19