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Order XXXVIII Rule 5 of the CPC cannot be used to convert an unsecured debt into a secured debt: High Court of Delhi

Order XXXVIII Rule 5 of the CPC have to be used sparingly and strictly in accordance with the said Rule and it cannot be used to convert an unsecured debt into a secured debt. The plaintiff has to satisfy that the defendant is seeking to remove or dispose of whole or part of his property with the intention of obstructing or delaying the execution of the decree that may be passed against him and the same was upheld by High Court of Delhi through the learned bench led by JUSTICE AMIT BANSAL in the case of BELA GOYAL PROPRIETOR OF ISPAT SANGRAH (INDIA) vs. VIIPL – MIPL JV (JAIPUR) & ORS [CS(COMM) 1217/2018] on 03.03.2022.

The facts of the case are that a purchase order was issued by the defendant pursuant to which the goods were supplied by the plaintiff and invoices were raised in respect thereof. It is contended on behalf of the plaintiff that the defendants gave three undated cheques totaling ₹75,00,000, which were dishonoured. Consequently, the plaintiff has filed the present suit for recovery, claiming ₹2,70,82,437 against the defendants. The aforesaid suit was accompanied by an application under Order XXXVIII Rule 5 read with Order XXXIX Rules 1 and 2 of the Code of Civil Procedure, 1908.

The plaintiff’s counsel submitted that the plaintiff was a bonafide supplier to the defendant for various goods required for the Construction Project and therefore, the amounts claimed under the suit are payable to the plaintiff. It was further submitted that there has been no assignment of the arbitration award by the defendant in favour of IDBI Bank and therefore, IDBI Bank cannot claim any amounts in respect of the award.

The defendant’s counsel submitted that the defendant would be releasing the payment in terms of the arbitration award in favour of the defendant no.1. Accordingly, in the application filed under Order XXXVIII Rules 1 and 5 of the CPC, the defendant no. 4 shall deposit a sum of ₹2,70,00,000 before the Registrar General of this Court and the aforesaid amount was directed to be put in a fixed deposit.

In the view of facts and circumstances, the application of the plaintiff under Order XXXVIII Rule 5 of the CPC was dismissed as the same was found to be devoid of any merits. The Court observed that, “Order XXXVIII Rule 5 of the CPC have to be used sparingly and strictly in accordance with the said Rule and it cannot be used to convert an unsecured debt into a secured debt. The plaintiff has to satisfy that the defendant is seeking to remove or dispose of whole or part of his property with the intention of obstructing or delaying the execution of the decree that may be passed against him.”

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Judgment reviewed by – Shristi Suman

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