Bkp Enterprise & Anr vs Spicejet Limited
2017 Latest Caselaw 2154 Del

*     IN THE HIGH COURT OF DELHI AT NEW DELHI

%                                          Date of decision:- 2nd May, 2017

+                          CS(COMM) No.1118/2016
    BKP ENTERPRISE & ANR                          ..... Plaintiffs
                  Through: Mr. Dayan Krishnan, Sr. Adv. with
                             Mr. Bhuvan Mishra, Ms. Aakashi
                             Lodha, Mr. Divyanshu Srivastava and
                             Ms. Sanjeevni, Advs.
                          versus
    SPICEJET LIMITED                              ..... Defendant
                  Through: Mr. Rajiv Nayar, Sr. Adv. with Mr.
                             Abhishek Sharma and Ms. Naina
                             Dubey, Advs.
CORAM:
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
IA No.720/2017 (of plaintiffs u/O XXXVIII R-5 CPC)
1.    The senior counsels for the parties have been heard
2.    The senior counsel for the plaintiffs has drawn attention to the notes
appended to the balance sheet of the defendant for the quarter ending 31 st
December, 2016 and particularly to note 7 where it has been stated that the
factors mentioned therein resulted in a material uncertainty that may cause
significant doubt about the Company‟s ability to continue as a going concern
and to note 3 about the advances received by the defendant from others. The
senior counsel for the plaintiffs has next contended that even as per the
accounts now filed by the defendant itself and as per the Agreement pleaded
by the plaintiffs, the plaintiffs are entitled to recover a sum of Rs.7.13 crores
from the defendant and in view of the precarious financial position of the
defendant as evident from the balance sheet of the defendant, the defendant




CS(COMM) No.1118/2016                                                   Page 1 of 7
 ought to be directed to furnish security and/or the interim order earlier made
needs to be continued, else the plaintiffs, even if succeed in getting a decree,
would have only a paper decree and unable to recover anything thereunder.
Reliance is placed on para 7 of Himachal Futuristic Communication Vs.
Union of India 2010 (2) RAJ 541 Delhi.
3.    I have enquired from the senior counsel for the plaintiffs, whether not
the claim of the plaintiffs in the suit is for damages for breach of contract
and if that be so, how can an order under Order XXXVIII Rule 5 of the CPC
be made unless the entitlement of the plaintiffs to damages is determined
and which determination in turn is dependent upon the issue already framed,
of the existence of the contract, being decided in favour of the plaintiffs.
4.     It has further been enquired, whether not the necessary ingredients of
Order XXXVIII Rule 5 of the CPC are the intent of the defendant to dispose
of the whole or any part of his property or to remove the whole or any part
of his property from the local limits of the jurisdiction of the Court and as to
how the same are satisfied.
5.    It has yet further been put to the senior counsel for the plaintiffs,
whether not the financial status of the defendant was the same at the time
when the plaintiffs claim to have entered into a contract with the defendant
and if that be the situation, whether it is possible for the plaintiffs to contend
that the decree should not be allowed to be rendered into a mere paper
decree.
6.    The senior counsel for the plaintiffs has fairly stated that the position
of the defendant may not have been any better at the time when according to
the plaintiffs the contract, for breach whereof damages are claimed, was
entered into. It is also not disputed that the claim in the suit is for recovery



CS(COMM) No.1118/2016                                                    Page 2 of 7
 of damages for breach of contract and the issue no.(i) framed on 18th
October, 2016 is, whether any binding enforceable contract came into
existence between the parties. The senior counsel however emphasises that
the decree should not be reduced to a paper decree.
7.    As far as reliance by the senior counsel for the plaintiffs on Himachal
Futuristic Communication supra is concerned, in that case the petition
under Section 9 of the Arbitration & Conciliation Act, 1996 for a direction
to the respondent therein to deposit the awarded amount, application under

Section 34 of the said Act whereagainst was pending in the Court, was dismissed. All that para 7 of the judgment observes is that vis-a-vis Union of India it cannot be suggested that unless the order of deposit was made, the petitioner therein would suffer a fait accompli or would not be in a position to execute the award in the event of dismissal of the petition under Section 34 of the Arbitration Act. The said judgment cannot be read as laying down a proposition of law that notwithstanding the express language of Rule 5 of Order XXXVIII prescribing the conditions on satisfying which only the order thereunder can be made, the order can also be made when otherwise the position of the defendant is shown to be precarious financially. This is more so in a case where there is no change in the financial health of the defendant from the time the plaintiffs chose to enter into the contract with the defendant.

8. The senior counsel for the defendant has drawn attention to the order dated 16th December, 2016 dismissing the earlier application filed by the plaintiff inter alia seeking the same relief as claimed in IA No.720/2017 and has contended that there is no change.

9. The senior counsel for the plaintiffs in rejoinder draws attention to the

liberty granted in the order dated 16th December, 2016 to the plaintiffs to apply under Order XXXVIII Rule 5 of the CPC.

10. Though there is some controversy, whether the order dated 16th December, 2016 is continuing till now or not, but in my view the same is immaterial now when this application is being considered and adjudicated upon.

11. I am of the view that if it were to be accepted that in every claim of recovery of money or damages for breach of contract, the defendant, notwithstanding the conditions under Rule 5 of Order XXXVIII being not even pleaded, can be directed to furnish security, then the same would be contrary to the sanction of the Legislature. Ordinarily, till a money decree is passed, the plaintiff would not be entitled to seek such order. The Legislature has made provision therefor only for situations where the defendant, to deprive the benefit to the plaintiff of the decree likely to be passed, is found to be indulging in acts detrimental to the interest of the plaintiff. That is not so here. Rather it is the contention of the senior counsel for the defendant that the financial health of the defendant has been improving over a period of time and from the debts, earlier of Rs.2200/- crores, stand reduced to Rs.622 crores.

12. Supreme Court in Raman Tech. and Process Engg. Co. Vs. Solanki Traders (2008) 2 SCC 302 has held that 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. It was further held that the scheme of Order XXXVIII 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 Rule, the court should be satisfied that there is a reasonable chance of a decree being passed in the suit against the defendant. It was yet further held that "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". The power under Order XXXVIII Rule 5 CPC was held to be a drastic and extraordinary power, not be exercised mechanically or merely for the asking; it should be used sparingly and strictly in accordance with the Rule. The Supreme Court cautioned that the purpose of Order XXXVIII Rule 5 is not to convert an unsecured debt into a secured debt and any attempt by a plaintiff to utilize the provisions of Order XXXVIII Rule 5 as a leverage for coercing the defendant to settle the suit claim should be discouraged. The Supreme Court reminded that a defendant is not debarred from dealing with his properties merely because a suit is filed and only if the plaintiff prima facie shows 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 is the power under Order XXXVIII Rule 5 of the CPC to be exercised.

13. The judgment of the High Court of Calcutta in Premraj Mundra Vs. Md. Maneck Gazi AIR 1951 Cal 156 laying down the guiding principles in this regard was relied upon by the Supreme Court. The Calcutta High Court in the said judgment inter alia held (i) that whether the circumstances as stated in the Order XXXVIII Rules 5 & 6 exist or not is a question of fact that must be proved to the satisfaction of the Court; (ii) 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; (iii) that a mere allegation that the defendant was selling off his properties is not sufficient; (iv) the fact that the defendant is in insolvent circumstances or in acute financial embarrassment, is a relevant circumstance, but not by itself sufficient; (v) 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;

(vi) and, that 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.

14. Mention may also be made of the dicta of the Division Bench of this court in KCV Airway Ltd. Vs. Wg. Cdr. R.K. Blaggana 1997 (42) DRJ 81 where in the absence of any pleading that the defendant with the intent to obstruct or delay the execution of the decree that may be passed against him was about to dispose of the whole or any part of his property or about to remove the whole or any part of his property from the local limits of the jurisdiction of the Court, the application under Order XXXVIII Rule 5 was dismissed.

15. I am further of the view that granting any order as sought by the plaintiffs against the defendant may materially affect the steps being undertaken by the defendant to come out of the red and may also affect the rights of other creditors of the defendant who are not before this Court. For this reason also, it would not be in overall interest to grant any such order.

16. No case for granting relief under Order XXXVIII Rule 5 of the CPC is made out.

17. IA No.720/2017 is dismissed.

CS(COMM) No.1118/2016.

18. The senior counsels for the parties state that the defendant, in terms of the order dated 20th March, 2017 has filed further documents and the plaintiffs will be filing the affidavit by way of examination-in-chief as scheduled before the Court Commissioner appointed for recording evidence.

19. List the suit after the recording of evidence is complete.

RAJIV SAHAI ENDLAW, J.

MAY 02, 2017 „pp‟..