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Order 38 Rule 5 of CPC should not be used to convert an unsecured debt into a secured debt: High Court of Delhi

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 and the same was upheld by High Court of Delhi through the learned bench led by JUSTICE SURESH KUMAR KAIT in the case of KULMOHAN SINGH & ANR. vs. SATINDER SINGH BHASIN & ANR. [CS(OS) 301/2020] on 23.03.2022.

The facts of the case are that an Agreement to Sale was entered into between the plaintiff as buyer and defendants as seller in respect of property in Rajouri Garden, New Delhi in terms whereof, plaintiffs paid and amount of Rs. 3.85 Crores on 07.01.2019 and Rs. 2.00 Crores to the defendants as earnest money. Since, the Agreement to Sell in question could not be executed the plaintiff has filed the present suit for recovery praying for recovery of Rs.5,85,00,000.

The plaintiffs are therefore, seeking attachment of the property or direct the defendants to provide security to the extent of liability and to restrain them to not create any third party interest against the suit property. Vide ex parte interim order the Court has restrained the defendants from creating third party rights in the suit property.

The counsel for plaintiffs submitted that it came to the knowledge of plaintiffs that defendant had duped various buyers who wanted to buy property in “Project Grande Venice” at Noida. However, in June, 2019 plaintiffs informed the defendants that they were willing and ready to pay the balance purchase money if defendants are ready to transfer the property to the plaintiffs, however, defendants were not able to obtain NOC from the bank where the subject property was mortgaged. It was further submitted that the defendants have enjoyed the benefit of amount given by the plaintiffs and so, plaintiff are entitled to refund of the amount with interest @15% p.a.

The counsel for defendant submitted that subsequently the defendants approached the plaintiffs several times to pay the balance consideration and take possession of the suit property but plaintiffs avoided to make payment on one or other pretext. Therefore, defendants vide Termination Notice terminated the Agreement to Sell in question.

In view of the above, testing the applicability of provisions of Order XXXVIII Rule 5 of the Civil Procedure Code to the case in hand, the Court found that by seeking attachment of the suit property, plaintiffs are in fact trying to secure the amount over and above the amount of which decree is sought against the defendants in the main suit, whereas only an amount of Rs.40,00,000 was paid through bank transaction. The court observed that, “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.”

Click here to read the Judgment

Judgment reviewed by – Shristi Suman

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