In case of a decree from a Court, the Court may require any person (known as the defendant) to pay any sum to the decree holder (or the plaintiff). In case the defendant fails to do so the Court can, in execution of its decree, attach the movable and immovable properties of the defendant and recover the amount due by disposal of these assets. However, certain assets are not liable to attachment under a Court decree. In last month’s issue relating to Debt Recovery Tribunals, we had seen that the Recovery Officer of the DRT can require any debtor of the defendant to pay any sum directly to him. This excludes any amount exempt from attachment in execution of a Court decree u/s. 60 of the Code of Civil Procedure, 1908. This Article examines some of the provisions relating to Attachment of assets in execution of a Court decree.
II. Execution of a Decree
2.1 The Civil Procedure Code, 1908 (“the Code”) deals with the provisions relating to a court decree and its execution. S.2(2) of the Code defines a decree as the formal adjudication which conclusively determines the rights of the parties with regard to the controversial matters covered by the suit. The decree could be interim or final.
2.2 The judgment debtor is a person against whom a decree has been passed or an order capable of execution has been made.
2.3 The decree holder means a person in whose favour a decree has been passed or an an order capable of execution has been made.
3.1 The property belonging to the judgment debtor, or property over which, or the profits of which, he has a disposing power which he may exercise for his own benefit, is liable to attachment and sale in execution of a decree.
3.2 The property liable to attachment may be lands, houses or other buildings, goods, money, bank notes cheques, bills of exchange, hundis, promissory notes, Government securities, bonds or other securities for money, debts, shares in a corporation and, other than the assets expressly excluded, all other saleable property, movable or immovable. The property may be held in the name of the judgment debtor or by a trustee for his benefit or on his behalf.
3.3 The following property of the judgment debtor shall not be liable to such attachment or sale :
3.3.1 Personal property
(i) clothes, cooking vessels, beds of the judgment debtor, his wife and children, and personal ornaments which as per religious usage, cannot be parted with by any woman
(ii) tools of artisans – court decisions have held that it only includes movable tools and not immovable equipment.
(iii) if the judgment debtor is an agriculturist, his implements of husbandry and such cattle and seed grain as the court deems fit to enable him to earn his livelihood as such, and such portion of agricultural produce or of any class of agricultural produce as may have been declared to be free from liability
(iv) houses and other buildings along with the materials and the land appurtenant thereto which is necessary for their enjoyment, which belongs to an agriculturist or a labourer or any domestic servant and is occupied by him
(v) all moneys payable under a policy of insurance on the life of the judgment debtor – no conditions have been stipulated as to when the money should become payable, i.e., policies which mature after a fixed term or after the death of the assured. In certain circumstances, policies for the benefit of a judgment debtor’s wife and children under the Married Woman’s Property Act, 1874, are free from attachment.
(vi) tenancies in respect of a residential building covered by the provisions of any Rent Control Act
(i) stipends and gratuities allowed to pensioners of the Government or of a local authority or of any other employer, or payable out of any notified service family pension fund and political pension
(ii) the wages of labourers and domestic servants, whether payable in cash or kind
(iii) salary to the extent of the first Rs. 1,000 and 2/3 of the balance in execution of any decree other than a decree for maintenance. If any part of the attachable salary has been under attachment, for 24 months, then such portion shall be exempt from attachment until the expiry of a further period of 12 months. Where the attachment has been made in execution of one decree, it shall, after the attachment has continued for a total period of 24 months, be finally exempt from attachment in execution of that decree
(iv) 1/3 of the salary in execution of any decree for maintenance
(v) salary payable to persons covered by the Air Force Act, 1950, or the Army Act, 1950, or the Navy Act, 1957,
(vi) all compulsory deposits and other sums in or derived from any fund to which the Provident Funds Act, 1925, or Public Provident Fund Act for the time being applies, in so far as they are declared by the Acts to be not liable to attachment
(vii) any allowance forming part of the emoluments of any servant of the Government/ railway / local authority which has been notified to be exempt from attachment, and any subsistence grant or allowance made to any such servant while under suspension
(viii) any allowance declared by any Indian law to be exempt from liability to attachment or sale in execution of a decree
3.3.3 Incorporeal property
(i) a mere right to sue for damages
(ii) any right of personal service
(iii) an expectancy of succession by survivorship or other merely contingent or possible right or interest
(iv) a right to future maintenance
(v) where the Judgment debtor is a person liable for the payment of land revenue, any movable property which, under any law for the time being applicable to him, is exempt from sale for the recovery of an arrears of such revenue
(vi) books of account
Notwithstanding anything contained in any other law, an agreement by which a person agrees to waive the benefit of any exemption under this section shall be void.
IV. Mode of Attachment
4.1 Rules 41 to 57 of Order 21 deal with the manner in which various properties are to be attached. Rules 44 and 45 deal with the attachment of agricultural produce.
4.2 Rule 46 provides that where the movable property is
(i) a debt, the attachment would be by prohibiting the recovery of the debt or the debtor from making payment thereof; or
(ii) a share in a body corporate, the attachment would be by prohibiting the transfer of the shares or from receiving any dividend.
(iii) any other movable property, the attachment would be by prohibiting the person in possession of the property from giving possession to the judgment debtor.
4.3 In case the judgment debtor has a co-share in a movable property, then the attachment will be by a notice prohibiting him from transferring his share/interest or in any manner creating a charge on the share in the property.
4.4 In case the property is a negotiable instrument the attachment shall be made by way of an actual seizure and brought to the court.
4.5 Rules 49 and 50 provide for attachment of property of a partnership firm.
4.6 Under Rule 54, if the property is immovable, then attachment will be made by a order prohibiting any transfer or charge on the property. Any alienation after the attachment will be null and void against all claims enforceable under the attachment.
V. Effect of Attachment
5.1 An attachment does not create any title of the decree-holder to the property nor does it create a lien or charge over the property for the sum due to the decree-holder.
5.2 The judgment debtor continues to enjoy the attached property.
5.3 All that an attachment does is to prevent a private-transfer and that no person can benefit from a subsequent transfer of the attached property. S. 64 of the Code provides for such private alienation. Once a property has been attached, any private alienation of such property by private transfer or delivery and any payment to the judgment debtor of any debt, dividend, etc., contrary to such attachment shall be void as against all claims enforceable under the attachment. S.64 applies whether the property stands in the name of the judgment debtor or any other person who is a name lender, i.e., benami property – Pradyut Shah, AIR 1979 Bom 166. However, if the transfer is by an operation of law or pursuant to a Court order, then s.64 does not apply. It only covers private transfers, such as, voluntary sales, gifts, mortgages. It may be noted that the private transfers are not void ab initio but only void as against all claims enforceable under the attachment. There is a difference of opinion amongst various Courts as to whether or not any private transfer after attachment but in pursuance of a contract of sale executed prior to attachment is covered by s. 64. Various decisions have held that in order that an attachment renders a subsequent alienation as void u/s. 64, the attachment must follow the process laid down under the Code, e.g., Rules 41 to 57 of Order 21.
VI. Auditor’s duty
The Auditor should enquire of the auditee whether any attachment proceedings are pending against it. The Auditor can provide value added services to his clients by enlightening them about which assets are not attachable and what are the rights and obligations in respect of an attached property. It needs to be repeated and noted that the audit is basically under the relevant law applicable to an entity and an auditor is not an expert on all laws relevant to business operations of an entity. All that is required of him is exercise of ‘due care’. The Auditor should also enquire whether the entity has obtained ‘attachment’ in cases filed by it. This will enable the Auditor to assess the provisions for bad and doubtful debts. Though an ‘attachment’ does not create any rights in favour of the entity but the courts normally do not grant attachment unless the plaintiff establishes a prima facie case.