The Supreme Court has held that an order of attachment before judgment under Order XXXVIII Rule 5 of the Civil Procedure Code, 1908 (CPC) cannot be extended to property that has already been transferred to a bona fide third party prior to the institution of the suit.
A Bench comprising Justice B.V. Nagarathna and Justice R. Mahadevan allowed the civil appeal filed by the legal heirs of the original purchaser, setting aside the judgment of the Kerala High Court which had disallowed the claim of title raised by the purchaser. The Court clarified that the remedy to challenge a transfer as fraudulent lies exclusively under Section 53 of the Transfer of Property Act, 1882 (T.P. Act), and the summary procedure of a claim petition cannot substitute substantive proceedings required to prove fraud.
Background of the Case
The case arose from a property dispute where the predecessor-in-interest of the appellants, L.K. Prabhu, entered into an agreement for sale on May 10, 2002, with Defendant No. 3, V. Ramananda Prabhu. Following the payment of consideration, a registered sale deed was executed in favour of L.K. Prabhu on June 28, 2004.
Subsequently, on December 18, 2004, the first respondent, K.T. Mathew, instituted a suit (O.S. No. 684 of 2004) for recovery of money against the defendants and sought attachment of the property before judgment. The Trial Court ordered the attachment on February 13, 2005.
L.K. Prabhu filed a claim petition under Order XXXVIII Rule 8 of the CPC seeking the release of the property. However, the Trial Court dismissed the petition on February 24, 2009, holding the transfer to be fraudulent and hit by Section 53 of the T.P. Act. The Kerala High Court, in its judgment dated February 13, 2023, upheld the rejection of the claim petition but remanded the matter to determine the extent of the purchaser’s entitlement towards recovery from the debtor.
Arguments Before the Court
The appellants argued that the attachment before judgment was not maintainable as the sale deed was executed nearly six months prior to the institution of the suit. Relying on the Supreme Court’s decision in Hamda Ammal v. Avadiappa Pathar (1991), the counsel contended that the Court has no jurisdiction under Order XXXVIII Rule 5 to attach property not belonging to the defendant at the time of the suit. It was further argued that declaring a registered sale deed as collusive required a substantive suit under Section 53 of the T.P. Act, and could not be decided summarily in attachment proceedings.
The respondents contended that under Order XXXVIII Rule 8 read with Order XXI Rule 58 of the CPC (as amended in 1976), all questions relating to right, title, and interest must be adjudicated in the execution proceedings itself, avoiding a separate suit. They argued that the transfer was fraudulent, intended to defeat creditors, and thus voidable under Section 53 of the T.P. Act.
Court’s Analysis and Observations
The Supreme Court examined the scheme of Order XXXVIII Rules 5 to 10 of the CPC and Section 53 of the T.P. Act.
On the Scope of Attachment Before Judgment
The Court observed that the power to attach before judgment is confined to securing the plaintiff’s prospective decree against the defendant’s property.
“The essential condition, however, is that the property sought to be attached must belong to the defendant on the date of institution of the suit; property already transferred prior to the suit cannot be attached under this provision,” the Bench observed.
On Fraudulent Transfers and Procedure
The Court distinguished between the summary nature of claim petitions and the substantive requirements of proving a fraudulent transfer.
“The mechanism under Rule 8, being a protective procedure designed for third-party claimants asserting independent rights in the property attached before judgment, cannot be expanded to transform the attachment procedure into a substantive enquiry under Section 53 of the T.P. Act.”
The Bench noted that the onus to prove fraud lies on the party alleging it. The Court found that the respondents failed to produce cogent evidence that the transfer was made with the intent to defeat or delay creditors.
“The circumstances relied upon, such as community ties, financial difficulties of Defendant No. 2, and partial cash consideration, may give rise to suspicion, but suspicion cannot substitute legal proof.”
On Prior Contractual Obligations
Referencing the precedent in Vannarakkal Kallalathil Sreedharan v. Chandramaath Balakrishnan (1990), the Court reiterated that an agreement for sale creates an obligation attached to the ownership of the property.
“The rights of the attaching creditor shall not be allowed to override the contractual obligation arising from an antecedent agreement for sale of the attached property.”
The Court also relied on Hamda Ammal v. Avadiappa Pathar, stating:
“Order XXXVIII Rule 5 CPC… would not apply where the sale deed has already been executed by the defendant in favour of a third person.”
Decision The Supreme
Court held that since the sale deed was executed on June 28, 2004, and the suit was filed later on December 18, 2004, the property did not belong to the defendant at the time of the suit’s institution.
“Consequently, the attachment before judgment ordered on 13.02.2005 could not legally extend to the said property.”
The Court set aside the judgments of the Trial Court and the High Court, declaring the sale deed valid and the claim petition sustainable. The Civil Appeal was allowed with no order as to costs.
Case Details:
- Case Title: L.K. Prabhu @ L. Krishna Prabhu (Died) Through LRs v. K.T. Mathew @ Thampan Thomas & Ors.
- Citation: 2025 INSC 1364
- Coram: Justice B.V. Nagarathna and Justice R. Mahadevan
