New Delhi: The Supreme Court has held that a registered sale deed executed prior to the filing of a suit constitutes a valid transfer that cannot be subjected to attachment before judgment under Order XXXVIII Rule 5 of the Code of Civil Procedure (CPC). Such attachment, the Court held, can apply only to property belonging to the defendant on the date of institution of the suit, and allegations of fraud must be pursued through independent proceedings under Section 53 of the Transfer of Property Act (TP Act).
A bench comprising Justice B.V. Nagarathna and Justice R. Mahadevan examined whether attachment before judgment can extend to property already alienated through a registered sale deed executed before the suit was filed, and whether courts can adjudicate fraudulent transfer claims within attachment proceedings without following the requirements of Section 53 of the TP Act.
The Court heard a Civil Appeal arising from SLP(C) No. 15592/2023 challenging the Kerala High Court’s judgment dated 13.02.2023, which had disallowed the purchaser’s title claim and remanded the matter to determine any recovery entitlement from the debtor.
L.K. Prabhu (original applicant) entered into a sale agreement on 10.05.2002 with V. Ramananda Prabhu (Defendant No. 3), wherein the defendant acknowledged liability of ₹17.25 lakhs and undertook to discharge it within three years, failing which he would convey 5.100 cents of property at Ernakulam for a consideration of ₹35 lakhs.
Endorsements on the agreement showed receipt of ₹3 lakhs in cash and ₹2.5 lakhs by cheque on 25.06.2004. A registered sale deed was then executed on 28.06.2004 in favour of the original applicant for the property, which had been used as nine guest houses recognised by the Tourism Department, with all assessments standing in his name.
Subsequently, on 18.12.2004, K.T. Mathew (plaintiff/Respondent No. 1) filed O.S. No. 684/2004 before the Sub Court, Ernakulam seeking recovery of ₹43,82,767 from Defendant Nos. 2 to 4. Along with the suit, he filed an application under Order XXXVIII Rule 5 CPC seeking attachment before judgment, asserting that the property belonged to Defendant No. 3 by virtue of Partition Deed No. 2725/1982.
The property was attached on 13.02.2005. The original applicant, who came to know of this only in 2007, filed an application under Order XXXVIII Rule 8 CPC seeking release of the property. The plaintiff resisted the claim, alleging that the transfer was fraudulent, intended to defeat creditors, and unsupported by genuine consideration.
The trial court dismissed the claim petition on 24.02.2009, holding that the transfer was fraudulent and hit by Section 53 of the TP Act. The High Court upheld this finding while partly allowing the appeal, directing the trial court to determine any amount payable to the purchaser from the debtor.
The appellant’s senior counsel argued that attachment before judgment cannot be ordered against property already transferred prior to suit institution. Relying on Hamda Ammal v. Avadiappa Pathar, counsel submitted that where a sale deed is complete on the date of suit filing, Order XXXVIII Rule 5 is not maintainable. The court has no jurisdiction to declare a sale deed collusive under Section 53 TP Act in attachment proceedings; the remedy lies in an independent suit.
Since the sale deed was executed on 28.06.2004 and the suit was filed only on 18.12.2004, with attachment ordered on 13.02.2005, the transfer was complete nearly six months before suit institution, rendering the attachment application legally misconceived.
It was further contended that no evidence established the sale deed as fraudulent. Under Section 53 TP Act, the burden of proving fraud lies upon the person alleging it, and mere suspicion is insufficient. The courts below, it was argued, proceeded on conjecture rather than legal proof.
Additionally, Order XXXVIII Rule 10 CPC provides that attachment before judgment shall not affect pre-existing rights of non-parties. The original applicant, a bona fide purchaser for valuable consideration, could not be prejudiced even if the transferor had a fraudulent intention.
The respondent’s senior counsel countered that Order XXXVIII Rule 8 read with Order XXI Rule 58 CPC enables adjudication of all questions relating to right, title, and interest in attached property. Relying on Abdul Shukoor Saheb v. Arji Papa Rao, counsel argued that even before the 1976 Amendment, issues under Section 53 TP Act could be adjudicated in execution proceedings.
After the 1976 Amendment (Act 104 of 1976) substituting Order XXI Rule 58, the scope was broadened, mandating a comprehensive determination of questions relating to attached property in execution itself, eliminating the need for a separate Section 53 TP Act suit.
It was further submitted that Hamda Ammal carved out an exception for cases involving Section 53 TP Act, recognizing that fraudulent transfers stand on a different footing and must be examinable within attachment proceedings to ensure creditors are not left remediless.
Justice R. Mahadevan, writing for the bench, analysed the statutory framework. The Court clarified:
- Order XXXVIII Rules 5–10 CPC form a complete scheme governing attachment before judgment.
- Rule 5 requires that the property must belong to the defendant on the date of institution of the suit.
- Property already transferred prior to the suit is outside the scope of attachment under this provision.
- Allegations of fraudulent transfer must be adjudicated under Section 53 TP Act, not in attachment proceedings.
Regarding the 1976 Amendment, the Court observed that althoughOrder XXI Rule 58 broadens the scope of inquiry, adjudication still requires proper pleadings and evidence, and attachment before judgment remains merely a protective mechanism that cannot affect pre-existing rights.
Applying the principles, the Court held that the sale deed dated 28.06.2004 was executed several months before the suit was instituted on 18.12.2004. Therefore, the property no longer belonged to Defendant No. 3 on the date of filing, and the essential condition for invoking Order XXXVIII Rule 5 was absent.
On fraud allegations, the bench noted that the burden lay on the creditor, and mere suspicion or inadequacy of consideration could not constitute proof. The creditor had failed to produce cogent evidence establishing fraudulent intent.
The Court also noted that past liability constitutes valid consideration under Section 25 of the Contract Act, and the antecedent agreement dated 10.05.2002 supported the genuineness of the transaction.
The bench reaffirmed the principle from Vannarakkal Kallalathil Sreedharan v. Chandramaath Balakrishnan that an agreement for sale creates an obligation attached to the ownership of the property, and an attaching creditor can attach only the right, title, and interest of the judgment debtor. Such attachment cannot override contractual obligations arising from prior agreements.
The Court set aside the impugned judgments, holding that the registered sale deed dated 28.06.2004 is valid and the attachment order dated 13.02.2005 could not legally extend to the said property.
The appeal was allowed with no order as to costs.
Case Title: L.K. Prabhu @ L. Krishna Prabhu (Died) through LRs v. K.T. Mathew @ Thampan Thomas & Ors.
