India: Applicability Of Mareva Injunction In India

I. Introduction

Mareva injunction or a freezing injunction finds its basis in the English law, wherein Lord Denning, in the landmark decisions of Nippon Yusen Kaisha v. Karageorgis¹ and Mareva Compania Naviera S.A v. International Bulkcariers S.A² granted this relief for the first time. While doing so, Lord Denning stated that:

Popularly, Mareva injunction is an interlocutory ad-personam injunction which restrains the respondent/judgment debtor or the party against whom it is granted, from disposing off its assets otherwise than in the usual course of business, beyond the jurisdiction of the concerned Court, so as to render evade its resultant liability from the subject-judgment. Mareva injunction is not a matter of right and is not granted as a means of compensation to the plaintiff/judgment creditor.

Usually, resort to Mareva injunction is taken while the court or arbitration proceedings are pending or when the proceedings are concluded and a decision has been rendered but the execution of the decision is not yet undertaken. The primary objective of Mareva injunction is to enable the plaintiff/judgment creditor to enforce the decision against the respondent/judgment debtor, so as to prevent the enforcement of the decision from being frustrated and defeated.

II. Standards applicable for the grant of Mareva injunction

The development of the principles and standards of Mareva injunction is primarily attributable to the judiciary which has laid down various standards that must be satisfied for the grant of Mareva injunction. Therefore, while applying for the Mareva injunction, usually the plaintiff must establish that:

1. There exists a strong prima facie  case against the defendant, and should also provide a full and frank disclosure of all material matters when the injunction is sought without notice to the defendant;
2. It will suffer irreparable harm if the injunction is not issued;
3. The balance of convenience favours the issuing of injunction;
4. The cause of action lies within the jurisdiction of the Court which the Mareva injunction is sought.
5. It has a "good arguable case" on the merits of the cause of action. Considering that most of the Mareva injunctions are granted ex-parte and the likelihood of success cannot be quantified, the common law has not really explained the concept of a "good arguable case" in percentage terms. In essence, a good arguable case means that on the basis of the material before the court, the plaintiff seems to have real prospects of success.⁴ Therefore, it becomes incumbent for the plaintiff to consider whether a "good arguable case" can be established in respect of its claims.
6. The assets of the defendant lie in the jurisdiction where Mareva injunction is sought and that there is a real risk of the defendant removing its assets from the jurisdiction, or otherwise dissipating or disposing off its assets, with an intention to frustrate the execution of a successful judgment. However, a mere suspicion of a likelihood of dissipation is not sufficient and the plaintiff is required to present reliable evidence establishing the risk of dissipation. In one of the cases, dishonesty or adverse credibility findings against the respondent resulted in a strong basis for real risk of dissipation.⁵
7. It is just and convenient to grant relief;
8. A meaningful undertaking as to damages.

III. Nature and Scope of Mareva injunction

The principle of Mareva injunction is not alien to India's legal system and the same is sometimes seen as an attachment before judgment under Order XXXVIII Rule 5 of Code of Civil Procedure, 1908 ("CPC"). The jurisdiction of Indian courts to pass a Mareva injunction was recognised in the case of Mohit Bhargava v. Bharat Bhusan Bhargava⁶, wherein the Apex Court stated that "These two orders are certainly within the jurisdiction of the court which passed the decree since they are only orders of restraint being issued to a person from handing over a property in his possession to the judgment-debtor along with the documents concerned and keeping the documents in safe custody. They are in the nature of a "freezing order" or a "Mareva Injunction" and an order akin to an Anton Piller order, orders that can be issued even if the property or the person concerned is outside the jurisdiction of the court."

Further, the Calcutta High Court in the case of Popular Jute Exchange Limited Versus Murlidhar Ratanlal Exports Ltd. & Anr.⁷ discussed the criteria for the grant of Mareva injunction and held that the concept of grant of Mareva injunction is not different from the power of the High Court to grant interlocutory or final order of an injunction and under its general power of jurisdiction to grant an ex parte injunction.  The English Court has developed a principle that the Court has power to restrain the defendant from removing assets from the jurisdiction pending the trial of action whenever it was just and convenient to do so. This power was originally exercised when the defendant was out of the jurisdiction but has subsequently been extended so as to be available against a defendant even though he is based within the jurisdiction.

It was in that case of Abheya Realtors Pvt. Ltd. v. SSIPL Retail Ltd.⁸ that the court had an occasion to consider the nature and scope of Mareva injunction in detail and the following principles were laid down:

1. The underlying principle in a Mareva injunction is that the claimant must have a good arguable case and must establish that the asset or assets within jurisdiction were unlikely to remain at the time judgment would be delivered and the claimant would have no means to satisfy the decree;
2. The concept of "within jurisdiction" and "outside jurisdiction" in England that is applicable to a Mareva injunction is quite distinct from what is meant by "within jurisdiction" qua a Civil Court in India. The expression "outside jurisdiction" in connection with a Mareva order made in England invariably implies beyond the shores of that country. In India, it is possible for a decree to be transferred or transmitted under the Civil Procedure Code from one Indian Court to another. The Court receiving the decree for execution thereof is expected to be governed by the same law, both in substance and in form, and it would certainly be from the same school of jurisprudence as the Court that received the action and passed judgment thereon.

IV. Mareva injunction and Order XXXVIII of the CPC

Order XXXVIII, Rule 5 of the CPC provides for attachment of property before passing of a judgment.
The court has wide powers under Order XXXVIII, Rule 5 and is empowered to use this power at a time when the Court thinks that the defendant is about to get rid of his assets, with the intention of obstructing or delaying the execution of the decision.

In a broader sense, both Mareva injunction and attachment before judgment appear to be serving the same purpose, i.e., to "enable the Plaintiff to realise the amount of the decree, if one is eventually passed, from the Defendant's property."⁹ However, upon a closer examination, it is noted that both the legal recourses are different, even though they share the same object. One such difference is prima facie evident i.e. one remedy is an injunction and seeks to restrain the party and the other remedy attaches the defendant's property before judgment.

In order to gain a better understanding of the relation between the two, it is essential to pay attention to the relevant judicial interpretation of the same. More particularly, the judgment provided in the case of Uppal Eng. Co. (P) Ltd. vs. Cimmco Birla Ltd.¹⁰ is of importance, wherein the following was observed:

However, the Court noted that the petitioner was not likely to succeed in his claims and the Arbitral Tribunal was yet to adjudicate on those claims, therefore, it was held to be pre-mature for the petitioner to invoke the provisions of Section 9 for relief of far-reaching consequences, when it was difficult to say if the petitioner or the respondent would succeed on their claims or counter claims and if so, to what extent.

Further, the observations in the case of Rite Approach v. Rosoborne Export¹¹ with regard to Mareva injunction and attachment before judgment are worth noting as it was held that pleading for Mareva injunction necessarily requires the party to meet the rigours of Order 38 Rule 5 of the Code. Relevant part of the judgment is as follows:

The interplay between Mareva injunction and attachment before judgment is inevitable in light of their common object and the same is a developing area of law and remains open for judicial interpretation. However, the plaintiff while taking recourse of Mareva injunction before Indian courts must ensure that the requirements w.r.t. the standards applicable are being duly met.

V. Judicial precedents governing the application of Mareva injunction in India

1. In Iridium v. Motorola¹², the plaintiff (Iridium) filed for an order in the nature of Attachment Before Judgment, and the findings of the Bombay High Court are summarised hereinbelow:
   1. Existence of debt/liability: A clear liability or a debt owing to the plaintiff is absolutely necessary before the Court grants a Mareva injunction which really seems to be an order for freezing the assets in exercise of the powers conferred on the Indian courts under Order XXXVIII, Rule 5.
   2. Disclosure of material matters by the Plaintiff: Such an injunction would be attracted where the company is one which is registered in a country where nothing can be found about the membership or its control or its assets and judgment cannot be enforced against it and more over where there is no reciprocal enforcement of a judgment. Even there the fact that the plaintiff must give an undertaking is treated as a matter of course. Applying the aforesaid principle to the present case, the Court held that there was evidence of a lack of a full disclosure of all matters within the plaintiff's knowledge as the plaintiff had failed to make a disclosure of the fact of a winding up petition having been admitted against it.
   3. Risk of dissipation of assets: The Court held that the plaintiff has given no material for inferring that there is a risk of assets being removed in order to defeat the decree that may be passed. On the other hand, it was observed that the defendants' business was growing.
   4. Plaintiff's undertaking in damages: Apart from the fact that it is not necessary to consider the question of attachment before judgment from the point of view of a Mareva injunction, a practice which appears to have been adopted by the English Court initially, it was held that an injunction ought not to be granted in this case even if looked at from the point of view of the law relevant to this injunction as developed by the courts in India, as the plaintiff seeks an order which could stop the defendants from doing business completely in India. However, it was permissible for the Court to grant an injunction despite this consequence but for that to happen, something more than the mere possibility of a decree in the plaintiff's favour was necessary. The Court noted that the plaintiff's undertaking in damages is essential, particularly since they are seeking an order which has the potential of stopping the defendants from doing business. In such a situation, the undertaking in damages should be good. Having regard to the pendency of the winding up proceedings, the Court stated that it was difficult to see that the value of the plaintiff's undertaking in damages, in case their claim turns out to be unjustified."
2. In an application praying for Mareva Injunction, the Court in the case of Dilip Chowdhury v Pratishruti Projects Limited & Ors.¹³ held that application prayed for Mareva injunction even after the Division Bench ordered the securing of money payable by the respondent no. 9 in an award suffered by him to be deposited with the Registrar of this Court. The Court may issue Mareva injunction in order to prevent the assets from being removed from the jurisdiction in an attempt to avoid and frustrate the claim. The Division Bench in clear and unequivocal terms had directed the money receivable from the 9^th respondent to be deposited with the Court within a week therefrom and it was not in dispute that in absence of the failure in getting the award set aside, the monetary claim of the petitioner is sufficiently protected and secured.
3. The Court in the case of Indian Oil Corporation Ltd. vs. Iranian Offshore Engineering and Construction Company¹⁴ held that the Arbitral Tribunal in the case had rightly discharged the respondent from the undertaking and allowed it to sail the vessel out of Indian waters as Tribunal was the best judge to see if there was a prima facie case or not since the Tribunal had all facts and circumstances before it. The Tribunal had also considered the financial soundness of the respondent and the fact that the vessel in question was not the subject matter of the contract at any point of time. The Court further stated that "The order of the nature of detention of the vessel of the respondent would be an order akin to Order 38 Rule 5 CPC. A defendant is not debarred from dealing with his property merely because a suit was filed or about to be filed. The court should be satisfied that there was a reasonable chance of a decree being passed in the suit against the defendant and the Court should be satisfied that plaintiff had a prima facie case and after being satisfied of it, in order to exercise power under Order 38 Rule 5 CPC, a Court should be further satisfied that the defendant was attempting to remove or dispose of his assets with the intention of defeating the decree."
4. In the case of Formosa Plastic Corporation Ltd. vs. Ashok Chauhan and Ors.¹⁵, the court while discussing its inherent power under Section 151 of CPC, held that "there seems to be no legal impediment if in such a case a judgment-debtor is restrained from alienating, disposing of or in any manner encumbering or dissipating his property which may be sold in execution of the decree when the bar against execution of the decree is lifted. Assuming that Order 21, Rules 30, 46 and 54 and Order 39, Rules 1 & 2 and Order 38, Rule 5 are not available in the present case, such an order could be made under the inherent power of the Court u/Sec. 151 of the Code which provides that "Nothing in this Code shall be deemed to limit or otherwise affect the inherent power of the Court to make such orders as may be necessary for the ends of justice or to prevent abuse of the process of the Court."

VI. Conclusion

Mareva injunction has come a long way since its inception in 1975 and has undoubtedly become a powerful tool to ensure that the judgment passed by the court/tribunal is not rendered worthless. Gradually, the Mareva injunction has evolved from being a simpliciter prohibition to a broader relief which has wider scope of application and covers even those assets which are not necessarily a part of the subject-matter in dispute.

In case of Mareva injunction, the court has power to freeze defendant's assets, in case there exists a probability of the assets being dissipated with an intention to make a judgment against him worthless and un-enforceable. In the Indian context, this remedy appears to be similar to the order to "attach property before judgment" under the CPC. A decision to continue or set aside a Mareva injunction requires a particular consideration of whether there was a real risk of dissipation. In this respect, it has been held that the mere identification of a finding of dishonesty is insufficient; there still had to be a consideration of whether the dishonesty justifies an inference that there is a real risk of dissipation.¹⁶

Footnotes

1 [1975] 3 All ER 282; [1975] 1 WLR 1093

2 [1975] 2 Lloyd's Rep. 509.

3 [1975] 3 All ER 282, at 283.

4 Allen v White Eagle Modern Building Solutions Ltd [2015] EWHC 2359 (QB).

5 SPL Private Finance (PF1) IC Ltd v Arch Financial Products LLP [2015] EWHC 1124 (Comm).

6 (2007) 4 SCC 795. 

7 1998 SCC OnLine Cal 15.

8 2010 (2) CHN (Cal) 203.

9 Ganu Singh v. Janji Lal  (1899) ILR 26 Cal 531, 533; Amulya Ratan v. Prosad Chandra  AIR (1936) Cal 143.

10 MANU/DE/0909/2005.

11 Rite Approach Group Ltd. v. Rosoborn export  AIR 2007 Del 145.

12 Iridium India Telecom v. Motorola Inc.  2003 (6) Bom CR 511.

13 2016 SCC OnLine Cal 2564.

14 MANU/DE/2390/2009.

15 MANU/DE/0259/1999.

16 SPL Private Finance (PF1) IC Ltd v Arch Financial Products LLP [2015] EWHC 1124 (Comm).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.