Harris v Patel and Another (Civil Case No. 204 of 1951) [1951] EACA 346 (1 January 1951)

## ORIGINAL CIVIL

### Before BOURKE, J.

## NORMAN HARRIS, Plaintiff

#### v.

# V. D. PATEL and THE EXPRESS PRINTERS LTD., Defendants

# Civil Case No. 204 of 1951

Security—Defendants' intention to obstruct or delay the execution of any decree— Civil Procedure Rules, Order 38, Rule 5.

The plaintiff applied under order 38 rule 5 of the Civil Procedure Rules that the second defendant should be ordered to furnish security in the sum of Sh. 100,000.

An affidavit in support of the application alleged that a director of the defendant company offered to sell the assets of the business and the goodwill for Sh. 200,000 and that the director wished to sell the business and assets as quickly as possible. The defendants' reply was to deny the director's authority to deal with its assets or shares in any manner.

Held (20-4-51).—The Court must be thoroughly satisfied that the defendants had the intention of obstructing or delaying the execution of any decree which might be passed. Mere vague allegations are not enough. Application dismissed with costs.

Cases cited: Sennajt Kapurchand v. Punnaji Devchand, 46 Bombay, 431; Nowroji Pudamji v. The Deccan Bank, Ltd., 45 Bombay, 1256.

Salter for plaintiff.

A. R. Kapila for defendants.

ORDER.—This is an application under order 38 rule 5 that the second defendant, the Express Printers Ltd., should be ordered to furnish security in the sum of Sh. 100,000 or to produce and place at the disposal of the Court a similar or such other sum as the Court may order. The claim, which founded upon an allegation of libel, is for general damages and an injunction. A direction to furnish security under the rule can only issue where the Court is satisfied that the defendant with intent to obstruct or delay the execution of any decree that may be passed against him is about to dispose of the whole or any part of his property: the provisions of paragraph 1 $(b)$ of the rule do not concern us. It is set out in the affidavit of the applicant Norman Harris that he has reason to believe, the defendant is about to dispose of its property with the intent as aforesaid; the grounds for such belief are given in the affidavits of Allah Ditta Qureshi and Eric Reid. The affidavits of Allah Ditta Qureshi discloses that on 5th March, 1951, an advocate Mr. Trivedi, inquired of the deponent whether he would be interested in the purchase of the assets and business of the defendant company and said that, if so, he would arrange for a representative of the company to meet him. In pursuance of the arrangement then arrived at the deponent met a director of the Express Printers, Ltd., named P. J. Shukla, who showed him the balance sheet of the company and offered to sell to him the assets of the business and the goodwill for a sum of Sh. 200,000. Allah Ditta Qureshi replied that he would consider such a purchase if an inventory of the assets was made out. He was informed by Shukla that he (Shukla) wished to sell the business and assets as quickly as possible. Paragraph 3 of the affidavit relates what was subsequently said by the advocate Mr. Trivedi to encourage the deponent to agree to purchase.

The plaint in the action was filed on 22nd February, 1951.

Prabhulal Jadavji Shukla by his affidavit in reply does not deny the interview and offer by him on 6th March but says that he acted on his own initiative and not on the directions of the company; he had never been authorized by the company to deal with its assets, business or shares in any manner. It is further denied that it is the intention of the company to dispose of its property and assets. The evidence of this director is borne out by the contents of the affidavit of G. D. Rawal, the secretary of the board of directors of the company, though it is admitted that negotiations are going on for the sale of some shares in the company to a Mr. A. B. Patel.

I have no reason to think that these two deponents are being untruthful when they say that Shukla was never authorized to negotiate for the sale of the business and assets and that he acted solely on his own initiative. But it is reasonable to suppose that if he had found a willing purchaser in A. D. Oureshi at the figure he suggested, he would have used such powers of persuasion as he may have, having regard to the set-up of the company, to induce the board to authorize the conclusion of an agreement.

It is not in dispute that apart from the assets of the business the company is the owner of land and the statement of the defendants' advocate that it is worth about £10,000 has not been contradicted; it is agreed that the land is encumbered to secure an amount of Sh. 100,000; there is admittedly a further charge in the amount of Sh. 26,000 on machinery being the property of the company, though whether such machinery is that used to carry on the printing business or is used in connexion with the land is not clear.

The question is whether on the facts before it this Court can be satisfied that the company is about to dispose of its property with the specific intent alleged and required by law, it being recognized as I think it must, that circumstances giving rise to mere suspicion are not enough. To my mind the answer does not entail any difficulty, but it may not be out of place to refer to some of the cases of which reports are available.

The rule is plainly taken from its equivalent—order 38 rule 5 of the Indian Code of Civil Procedure. In Durgadas v. Nalinchandra Nandan 51 Cal. (1934) 814, it was held that: "The Court must be thoroughly satisfied that the defendants had the intention of obstructing or delaying the execution of any decree which might be passed against them", or, "with such intent were about to dispose of their property. Mere vague allegations are not enough". In Sennaji Kapurchand v. Pannaji Devichand 46 Bom. (1922) 431, 434, MacLeod, C. J. said this: "But on the merits it is perfectly clear that there were no grounds in this case for making an order under order 38 rule 5. We have often had to point out that under rule 5 the Court must be satisfied that the defendant with intent to obstruct or delay the execution of the decree that may be passed against him has brought himself within the terms of the rule; and it is not sufficient that<br>there are merely vague allegations..." In Nowroji Pudamji v. The Deccan Bank Ltd., 45 Bom. (1921) 1256, the value of the properties which were agreed to be sold after filing of the suit bore a small proportion to the total value of the assets. I quote from the judgment of Macleod, C. J.: "It may be quite possible that the defendant had an intention to defraud the plaintiff. But there is nothing in the mere agreement to sell this portion of the first defendant's property from which it can be presumed that he actually had that intention. A man is not debarred from dealing with his property because a suit has been filed against him. Otherwise in many cases in which a suit is brought against a

man, if during the pendency of the proceedings he sells some of his property, that would be a sufficient ground to satisfy the Court that he is disposing<br>of his property with intent to defraud the plaintiff. Clearly there must be additional circumstances before the Court can be satisfied that such an intention exists." In the instant case the negotiations by the director on his own initiative never got as far as any agreement to sell; and though it is plain that the offer made by Shukla covered a substantial part of the company's property, such offer was not at the time of its making on 6th March authorized by the defendant company.

I am very far from being satisfied that the second defendant is about to dispose of property with the intent to obstruct or delay the execution of any decree that may be passed against him.

The application is dismissed with costs.