HE HON’BLE SRI JUSTIE B.PRAKASH RAO AND THE HON’BLE SRI JUSTICE R.KANTHA RAO C.M.A.NOS.138 & 139 OF 2010 PER THE HON’BLE SRI JUSTICE R.KANTHA RAO DT.04.06.2010 Between: (Parties in both the appeals are same) M/S.Siddhardha Constructions Private Limited Represented by its Managing Director N.Surendra Babu ………..Appellant Vs. M/s.C.M.R.Transport Contractors Company Private Limited, represented by its Managing Director Ch.Mallikarjuna Rao, Vijayawada and two others. ……………..Respondents. COMMON JUDGMENT: C.M.A.No.138 of 2010 arises out of the order passed in I.A.No.2639 of 2009 in O.S.No.139 of 2009 and C.M.A.No.139 of 2010 arises out of the order passed in I.A.No. 2637 of 2009 in O.S.No.138 of 2009, dated 23.12.2009 on the file of II Additional District Judge, Vijayawada. Since both the appeals relate to the same subject matter of the dispute between the same parties and the questions of fact and law which arise for consideration being the same, they are being disposed of by the following common judgment: The first respondent herein M/s. C.M.R.Transport Contractors Company Private Limited, Vijayawada, instituted O.S.No.139 of 2009 for recovery of an amount of Rs.1,47,22,452/- due from the defendant, which is a private limited company, for transporting goods. Similarly, O.S.No.138 of 2009 was instituted for recovery of an amount of Rs.33,38,496/- from the defendant. The above mentioned interlocutory applications were filed in both the suits under Order 38 Rule 5, Section 94 and 151 red with Order 21 Rule 46 of C.P.C., seeking attachment before judgment for the amount due from the garnishee, who is respondent No.3 in the appeals on the ground that the appellant company which has no other assets and incurred huge loss is trying to dispose of the suit assets with a view to deprive the respondent company from realising the amounts under the decrees, which are to be passed in the above two suits. Initially, the learned trial court directed the appellant company to furnish security for the suit amount within 48 hours and simultaneously ordered attachment before judgment on failure to furnish security. However, notices were returned with an endorsement that ‘there is no such person in the given address’. Subsequently, the appellant company appeared before the trial court through its counsel, who filed counters in the petitions filed by the respondents. It has been specifically contended by the first respondent company that the share capital of the first respondent company on 28.11.1996 is at about 6,000,000/- as per the memorandum of association and it has been successfully carrying on business during the past ‘27’ years. The income tax paid by it for the assessment year 2008-2009 amounts to Rs.2,22,43,943 and for the assessment year 2009-2010 it is Rs.2,45,19,531/-, the annual turn over of the respondent/defendant company during the last financial year is above 100 crores of rupees. Further, the turnover of the respondent company during the two financial years preceding the last year is also above hundred crores of rupees per year. The main contention of the appellant company is that there is absolutely no truth in the allegations made by the respondent company that the appellant company had incurred losses and is going to dispose of its assets with a view to evade the debt due under the suit transaction to defeat the execution of the decree that is going to be passed in the above two suits and that absolutely no material was placed before the court below indicating that either the appellant ran into losses or it is going to sell away its assets. The learned trial court adverting to the contentions of both parties, passed the impugned orders expressing its opinion that it is desirable to furnish some security to the suit amount and that is the reason why it passed the conditional order of attachment before judgment prohibiting respondent Nos.2 and 3 from paying the amount to the first respondent therein to the extent of the suit claim. The said orders are impugned in the instant appeals. Heard Sri V.Venkata Ramana learned counsel appearing for the appellant and Sri P.R.Prasad, learned counsel appearing for the first respondent. The crucial question to be answered in these appeals is about the basic requirement for passing an order of attachment before judgment under Order 38 Rule 5 of C.P.C. In the instant case, the learned counsel appearing for the appellant would submit that absolutely no material is placed before the trial court in support of the allegations levelled in the affidavit filed by the respondent company and no reasons are assigned by the learned trial court in passing the said order. On the other hand, the learned counsel appearing for the respondent company contended that since there is a prima facie case of success by the respondent in the suit, the trial court exercised its discretion to direct attachment before judgment and therefore, it may not be interfered with, in these appeals. The learned counsel for the respondent company relied upon RAJENDRAN AND OTHERS VS. SHANKAR SUNDARAM AND OTHERS[1] wherein it was held as follows: “The application for attachment before judgment was filed by the plaintiff so as to protect his interest in the event the suit is decreed. The court exercises, in such a situation, jurisdiction under Order 38 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 specified thereunder. It was directed that only on their failure to do so, an order of attachment of the second item on the schedule to the petition shall be issued. The appellants, in our opinion, are not seriously prejudiced thereby. The court while exercising its jurisdiction under Order 38 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 firm. The appellants are partners thereof. A pronote had been executed by a partner of the firm. Thus, even under the Partnership Act prima facie the plaintiff could enforce his claim not only as against the firm but also as against its partners”. The learned counsel thus contends that the learned trial court did not commit any mistake in directing the respondent Nos.2 and 3 not to pay the amounts to the appellant. On the other hand, the learned counsel appearing for the appellant placed reliance on RAMAN TECH. & PROCESS ENGG. CO. AND ANOTHER[2] wherein it was held as follows: “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 utilise 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 realised by unscrupulous plaintiffs by obtaining orders of attachment before judgment and forcing the defendants for out-of-court settlements under threat of attachment”. The learned counsel argued that absolutely there was no material placed before the learned trial court satisfying the requirements under Order 38 Rule 5 and the learned trial court obviously failed to assign any reasons in support of its orders and the orders are liable to be set aside. Adverting to the contentions of both the learned counsel, we are of the view that despite the fact that the appellant specified in its counter about the profits earned by them in the business and that it has been earning them continuously since several years, the first respondent did not file any material before the trial court prima-facie indicating that the said statement made by the appellant in fact suffered huge loss. It only stated that the appellant is making attempts to receive the amounts from respondent Nos.2 and 3 with an intention to defeat their rights. The third parties who gave affidavits supporting the version of the first respondent, did not state any instances showing that the appellant is trying to dispose of its assets with a view to defeat the rights of respondent No.1 They only stated in the third party affidavits that the appellant is trying to receive the bill amount from respondent Nos.2 and 3 with a mala fide intention to evade the debt due to the first respondent under the suit transaction and to defeat execution of the decree that is going to be passed in due course in the suits. We are of the considered view that the above mentioned facts which are disclosed either in the affidavit filed by the first respondent in support of the petition or the third party affidavits do not make out any case for passing an order under Order 38 Rule 5 C.P.C. The very allegation that if the appellant receives the amounts, it will be difficult for the first respondent to recover the said amount is not a ground to grant attachment before judgment, including security for the suit amount. It is true that the trial court directed the appellant to furnish security for the suit amounts within 48 hours and mere failure of the appellant to furnish security does not automatically entitle the first respondent herein to secure the order to attachment before judgment or prohibiting respondents 2 and 3 from paying amounts due under the bills. For the foregoing reasons, we are of the considered view that no case was made out by the first respondent herein in support of its allegation that the appellant is going to dispose of the assets with a view to defeat the decree that is going to be passed against it. The learned trial court also did not record any reasons as to its satisfaction, for passing the impugned order of attachment before judgment. Under Order 38 Rule 5 C.P.C., the court below ought not have passed orders on its mere satisfaction that it will be difficult for the first respondent company to recover the amount and it is desirable to obtain some security from the appellant for the suit amount. Accordingly, we set aside the orders dated 23.12.2009 passed in I.A.Nos.2639 of 2009 in O.S.No.139 of 2009 and I.A.No.2637 of 2009 in O.S.No.138 of 2009 on the file of II Additional District Judge, Vijayawada, and consequently we allow both the appeals. No costs. ___________________ B.PRAKASH RAO J., _________________ R.KANTHA RAO J., Dt.04.06.2010 C.C.in ten days. B/o tjs [1] ) 2008 (2) SCC 724 [2] ) 2008 (2) SCC 302