Meaning of Poundage
Poundage is nothing but a type of fee payable to the Sheriff of Mumbai. It is payable when a person is arrested or property is attached in a civil action, by the Sheriff of Mumbai. Poundage is payable both in cases of arrest/attachment before judgment, i.e. attachment pendente lite and in execution of decrees. In the High Court of Bombay the rate of poundage is 1% of the debt levied by execution including an attachment before judgment or in the event of the claim being satisfied, compromised or settled, upon the amount of such satisfaction, compromise or settlement. The obligation of paying poundage is on the plaintiff who has filed the suit, or the plaintiff’s advocate-on-record.
Role of Sheriff of Mumbai
The Sheriff of Mumbai is an apolitical titular authority. S/he is an officer of the High Court and carries out duties relating to execution of decrees such as executing warrants of attachment or arrests and conducting auction of the same. In the case of matters under admiralty jurisdiction the Sheriff also executes arrests of vessels pendente lite.
Rules of the Bombay High Court relating to Poundage
The relevant Rules in this behalf are the following and which are as under:
“474.(1) In cases where a person is arrested or property is attached, the party or the Advocate on record for the party at whose instance the arrest was made or the attachment levied shall be liable to the Sheriff for his fees or poundage, as the case may be.
(2) Any amount received by the judgment-creditor from the judgment-debtor in full or part satisfaction of a decree or order in respect of which a warrant of arrest or a warrant of attachment has been executed shall be presumed to have been realised under the warrant, if the Warrant is merely suspended and not dead.
(3) Where the execution-creditor or his Advocate on record receives direct any instalment or any other sum ordered to be paid by the judgment-debtor in full or part satisfaction of the decree or Order, he shall file a precipe in the Sheriff’s office informing him of the payment made.
(4) The Advocate on record shall be responsible for filing this precipe, if the payment has been made through his office or he has been informed of it by the execution-creditor.”
“475. When an order is passed releasing a judgment-debtor or raising an attachment, the Advocate on record for the party at whose instance the order is made shall file a certified copy thereof in the Sheriffs Office and shall inform the Sheriff whether there has been any satisfaction, compromise or settlement and, if so, for what amount and also whether poundage has been paid in respect thereof.”
“476. Where warrants in execution have been lodged with the Sheriff, no satisfaction in full or in part of any decree or order in any suit or matter shall be entered thereon without the production of a certificate of the Sheriff that no poundage is due to him.”
The Table of Fees which provides for payment to the Sheriff and which relates to poundage is as follows:
“5. Poundage on every debt levied by execution including an attachment before judgment or in the event of the claim being satisfied, compromised or settled upon the amount of such satisfaction, compromise or settlement. …. 1 per cent.”
Bombay High Court on Poundage
Before discussing the law on poundage in relation to arrest of vessel pendente lite, it will be prudent to analyse the law on poundage in relation to attachment of property in execution of a decree. In Malpani Brothers v. Ramjidas Shyamlal Saboo & Anr. [1987 MhLJ 223] the Plaintiff had obtained a money decree and pursuant thereto obtained a warrant of attachment which was lodged with the office of the Sheriff. When the warrant was sought to be levied the judgment debtor offered to settle the claim. Hence, the warrant was not levied and after one year was returned unexecuted to the Court with the remark ‘time expired, the warrant is returned unexecuted upon the defendants’. The Sheriff claimed poundage on the ground that despite the attachment not being levied the bailiff had gone to the judgment debtor for the purpose of levying it. The Hon’ble Court observed as follows:
“At the outset, my reaction was that the notion “poundage” itself was anachronistic and I wish the Rule had been totally deleted. It is rather surprising that after a heavy Court fee is paid and a decree is obtained, the Plaintiff should still pay a further poundage, which is nothing but a commission for the purpose of executing a decree through the office of the Sheriff. This is one of the Anglo-Saxon legacies which has continued without any justification whatsoever. In the past, it is possible that the Sheriffs Office was not paid any salary as such and perhaps it was not a part of the Department of the Government, and in the absence of any other machinery for the purpose of executing a money decree, since the parties had to necessarily go through the Office of the Sheriff, the Sheriff was justified in demanding some commission by way of his fees. Today it is totally different. The Deputy Sheriff is an officer of the Government and all the staff and the bailiffs are paid their salaries. Whatever fees they are entitled to for the purpose of executing a decree, they can certainly take, it, but there can be no justification whatsoever for the purpose of demanding a commission over and above the fees and costs which the Sheriffs Office collects. However, I am not in a position to strike off that part of the Rule which relates to poundage. I hope that our Rules Committee will seriously reconsider this part of the Rules, and delete the same.”
On a reading of Rules 474 and 475 of the Hon’ble Bombay High Court Rules read with entry 5 of the Table of Fees, the Hon’ble Court held that it is clear that poundage is only payable when there is an actual seizure effected or attachment levied.
In Seabird Marine Ltd. v. mv Kota Berani & Ors. [Admiralty Suit No. 20 of 1992 unreported oral order dated 8th October 1992] the plaintiff obtained a Judge’s Order for arrest of the Defendant No. 1 Vessel. Pursuant thereto the Vessel was arrested by the office of the Sheriff. Subsequently, the Vessel was released pursuant to a compromise between the parties that the claim of each party against each other shall be determined exclusively by the Courts of England. Thus, no money was received by the plaintiff pursuant to the compromise. The issue that arose before the Hon’ble Court was whether the Sheriff was entitled to any poundage. After perusing the Rules and the judgment of Malpani Bros (supra), the Hon’ble Court held that for the Sheriff to be able to claim poundage there must be some money realized from the seizure or attachment by the Sheriff.
Another non-admiralty judgment which is important for the purpose of understanding the concept of poundage is Ramchandra Ganpat Nimbalkar v. Haukani Sanatkumar Dixit & Ors. [2009 SCC OnLine Bom 187]. In that case the decree-holder filed execution applications for attachment of immoveable as well as moveables of the judgment debtor. Due to certain issues only the moveable properties were attached and the immoveable property could not be attached by the Sheriff of Mumbai. The judgement creditor settled with the decree-holder for Rs. 1.8 Crores. The value of the moveable property actually attached was substantially lower. It was the case of the Sheriff’s office that 1% of the entire 1.8 Crores was payable as poundage. The decree holder objected on the ground that the attachment of immoveable property was never done and the value of the moveables attached was not close to the settlement amount. The Hon’ble Court rightly held that the Sheriff is not entitled to his poundage upon the extent of the properties that are seized or attached but rather on the extent of the amount realized by the judgment creditor. Thus, the Sheriff of Mumbai was entitled to poundage of 1% on the settlement sum of Rupees 1.8 Crores.
In the facts of Ecohidrotechnika LLC v. Black Sea and Azov Sea Production & Operating Administration of Shipping [2010 SCC OnLine Bom 277] no property / ship was “attached” or “arrested” under an order of a Court. A petition was filed under section 9 of the Arbitration & Conciliation Act, 1996 for enforcement of foreign award and the Court granted “injunction” restraining some of the respondents from sailing and/or removing the vessel “Kamal XXXV”. Based on such order, at the instance of the petitioner, the Sheriff of Mumbai had written letters/took steps and based upon the said communications, the ship was retained/detained. On the date of passing of the order of injunction the foreign award had not attained finality and no execution application based on the foreign award had been filed. The parties subsequently filed consent terms in the matter, and the Sheriff claimed poundage on the settlement amount. The Hon’ble Court rightly observed that an order of arrest, seizure or attachment before judgment is on properties and not against a person, unlike an order of injunction. However, in that case, since the Sheriff also communicated the order of injunction to the port authorities and held that the injunction was akin to an action of arrest or attachment before judgement. The order was also likened to a Mareva injunction. The relevant paragraph of the order is reproduced below:
“A full Bench of this Court in 2007 (2) Mh.L.J. 410 : 2007 (2) Arb.LR 104 (Bombay) (FB) – J.C. Ocean Liner LLC, Bur Dubai (U.A.E.) v. M.V. Golden Progress, has already held that the order of arrest is impermissible through Section 9 of the Arbitration Act pending the Arbitration. Here, admittedly the foreign award was already passed. Therefore, indirectly by the order of injunction, the Petitioner was able to detain the ship as the order was against the owner of the ship. However, the effect of this injunction order and/or such order in my view, is specially in view of the provision of Section 9 of the Act and as the Petitioners have already invoked that provisions to secure the amount of the foreign award, pending the proceeding of enforcement of the same, is nothing less than any order of attachment before Judgment of the Vessel which resulted into detention of the ship in India. There may not be an order of “arrest” as contemplated, but still such type of order of injunction freezes the vessel/the properties movements, as the owner of the vessel was restrained to deal with and/or transfer or create third party or interest in the same. Factually because of this order the vessel/properties remained within the admiralty jurisdiction of this Court also because of further communication of the Sheriff. Even otherwise, in admiralty matters, the ship can also be treated as a person but for the purpose of this proceedings the injunction order so sought was only against Respondent Nos. 1 and 2-the owners, that resulted into freezing of the movement of the ship/property in question. In my view, such type of injunction order of freezing the movement of the property/Vessel and basically in admiralty matters which definitely was with intention to secure the Arbitration claims, is quite akin to the action of arrest or attachment before Judgment and therefore, the Sheriff whose services were utilized is entitled to claim the poundage of 1% as claimed in the present case. A freezing of assets, known as “Mareva Injunction” is well-known concept in English Law, Mareva Co. Naviera SA v. International Bulk Carries SA (1980) 1 All ER 213, as well as, recognized in India. Venture Global Engineering v. Satyam Computer Services Ltd. and Anr. (2008) 4 S.C.C. 190. The order of injunction in the present facts and circumstances, in my view, is nothing less than that. The submission, therefore, that there was no order of arrest and/or seizer of Vessel and/or specific order of attachment before judgment and therefore, though the parties have settled the matter by consent terms the sheriff is not entitled for 1% bondage is unacceptable.”
In Great Pacific Navigation (Holdings) Corporation Ltd. v. m.v. Tongli Yantai [2014 (5) MhLJ 359] the GPN had taken the Vessel mv Nasco Diamond on sub-charter basis from one Da Sin Shipping Pte. Ltd. GPN as despondent owners further sub-chartered the vessel to Tongli Shipping Co. Ltd. for one-time charter trp. During the voyage the vessel sank. Twenty-two of the crew members were missing or presumed dead. China Shipping Mutual Assurance Association (CPI) being the P&I of the head owners were notified the loss. GPN was exposed to possible claim from Da Sin and/or the head owners. GPN filed an indemnity action against Tongli in which they arresting the Defendant Vessel. Arrest was effected by office of the Sheriff of Mumbai. The arrest was later vacated in view of a Global Settlement Agreement entered into between the head owners, Da Sin, GPN and Tongli. Under the GSA, effectively, 13 million USD was paid to CPI, of which 2.675 million was contributed by GPN, Da Sin contributed another 2.675 million and the balance 7.650 million was contributed by Tongli. The moneys paid by GPN and Da Sin were routed through Tongli’s Advocates. GPN paid to the Sheriff 1% of the rupee equivalent of USD 7.650 million, however, the Sheriff raised the grievance that the 1% ought to be paid on the entire USD 13 million being the entire amount under the GSA. The Hon’ble Court held that on a holistic reading of the GSA, what GPN effectively recovered was only USD 7.65 million and not USD 13 million.
In Quesham Bonyad Ship Management Co. Ltd. v. m.v. Ocean Frontier ex Parsian [Order dated 10th February 2009 passed in Notice of Motion No. 2565 of 2008] the Hon’ble Court adjudicated an application for refund of poundage already paid to the Sheriff. The plaintiff in that case had obtained a Judge’s order for arrest of defendant no. 1 vessel. The vessel was arrested by the Sheriff. Then later the plaintiff withdrew the suit stating that the dispute was referred to mediation in Iran and the plaintiff had received security for their claim in Iran. The Vessel was accordingly released. The plaintiff paid poundage equivalent to 1% of the claim amount. Pertinently, there was nothing to record that the payment was made under protest or without prejudice to the plaintiff’s rights and contentions.. Since no money was realized by the plaintiff, the Single Judge of the Hon’ble Court was pleased to allow the application for refund. However, in appeal, the said order was set aside [State of Maharashtra v. Quesham Bonyad Ship Management Co. Ltd., Order dated 16th and 19th December 2016 in Appeal No. 397 of 2009 ]. In the order passed in the appeal, the Hon’ble Court also held the following:
- Liability to pay poundage arises the moment the ship is arrested.
- Once a vessel is arrested and subsequently the suit is settled, there is no scope to say that poundage is not payable or that poundage which paid should be refunded.
- The Hon’ble Court also noted that several steps have to be taken by the Sheriff at the time of arrest. Therefore, it appears as if the Hon’ble Court took the view that the Sheriff ought to be compensated for it’s efforts, in the form of poundage (although not said in so many words).
In Sinica Graeca Shipping Ltd. v. MT Chemroad Mega [2018 SCC OnLine Bom 485] the Hon’ble Court finally resolved two important issues relating to poundage, namely:
- In a case where, before the Sheriff of Mumbai executes the warrant of arrest issued by the Admiralty Registrar or before he serves the order of arrest passed by this Court in cases where warrant of arrest has been dispensed with, the parties settle the matter, whether the Sheriff will be entitled to any poundage?
- In a case where, order of arrest has been served or warrant of arrest has been executed/levied against the vessel, parties have entered into an Agreement to refer the disputes either to arbitration or submit to the jurisdiction of a Court other than this Court, may be in a different country and have exchanged letters of undertaking to pay such amount as awarded by the Arbitrator or the Court, whether any poundage is payable?
The questions arose from two suits.
Suit-1 related to transaction for sale and purchase of defendant vessel. The plaintiff obtained an order of arrest. However, by the time the authenticated copy of the order of arrest was made available to plaintiff’s advocates, plaintiff’s advocates received instructions stating that the disputes have been settled between plaintiff and the owner of the subject vessel, and therefore, there was no need to arrest defendant no.1 vessel and if the order of arrest has already been passed, then not to execute the order. Consequently, plaintiff did not serve the order of arrest upon any of the authorities, viz., Port or Customs and did not even request the Sheriff of Mumbai to execute it. The order of arrest, therefore, never came to be served upon either the vessel or any of the authorities and Sheriff did not do anything. Therefore, no arrest or seizure or detention or attachment of first defendant vessel was executed/levied.
Suit-2 was in relation to collision damage. After the arrest the parties entered into two Agreements, both dated 14h November 2017, one was a “Collision Jurisdiction Agreement” under which parties agreed to refer their respective claims for determination under English Law and jurisdiction. The second agreement was a “Side Agreement” under which the Letters of Undertaking issued by both the parties to secure each others claims would be replaced by the mutual promises and obligations reflected in the Side Agreement. Under this Side Agreement, the original LOU’s issued by m.v. Sinica Graeca interests to be returned and to be replaced with security in an identical sum, responsive to a judgment of the English High Court, and subject to English Law and English High Court jurisdiction. Upon the provision of security by m.t. Chemroad Mega interests in the total sum of USD 15,000,000 inclusive of interest and cost, m.t. Chemroad Mega was to be released from arrest and this suit was to be discontinued. Under the Agreement, m.t. Chemroad Mega interests also agreed to pay a sum of GBP 150,000 in respect of legal costs incurred by plaintiff because post collision plaintiff had made suggestion and offered m.t. Chemroad Mega interests that all issues relating to the collision could be referred to English Court jurisdiction but defendant declined to accept that suggestion resulting in plaintiff having to go looking for m.t. Chemroad Mega to Malaysia, India and to other jurisdiction.
Interestingly, the Hon’ble Court distinguished Suit-2 from the case of State of Maharashtra (supra) in which the parties were referring their disputes to mediation and not to arbitration or another Court, where the Claim had to be adjudicated.
Since in Suit- 2 the amount realized was zero, the poundage would be zero. The question that arose was whether Sheriff having expended efforts and having executed the warrant of arrest, in such a situation, should he be left without any compensation? The Hon’ble Court considered Rule 474 (1) where it says “In cases where a person is arrested or property is attached, the party or the Advocate on record for the party at whose instance the arrest was made or the attachment levied shall be liable to the Sheriff for his fees or poundage, as the case may be”. The Hon’ble Court interpreted the phrase “as the case may be”, as “based on the facts and circumstances of each case the Sheriff will be entitled to either fees or poundage”. Thus it was held that the Sheriff would be entitled to his fees and expenses provided under the table of fees, but not to any poundage. Since the table of fees does not specifically prescribe the fees payable for executing the warrant of arrest on a vessel but where poundage is not payable the Hon’ble Court applied the catch-all or sweeping provision (every process not otherwise provided for) under the table of fees :
“3. For serving every injunction, order or Rule and ) Rs.30 every process not otherwise provided for. ) The Sheriff, therefore, will be entitled to a fee and expense of Rs.30/-.”
Thus, both issues framed in Sinica Graeca (supra) were thus answered in the negative.
It is pertinent to note here that in Quesham Bonyad (supra) and State of Maharashtra (supra) a mention is also made to a judgment Peerless General Finance and Investment Co. Ltd. vs. Swan Mills Ltd. and Ors. and Sheriff of Mumbai [Chamber Summons No. 399 of 2000 in Suit No. 787 of 1997]. During the arguments in Sinica Graeca (supra) it was noted that both parties were unable to obtain a copy of this judgment. Despite diligent search the author was also unable to find the judgement. The earliest reference to the case of Peerless (supra) in relation to poundage can be found in the case of Ramchandra (supra), however, the citation of the judgment appears to be incorrect since it mentions the date of the judgment as 19th April 2000 being passed in a chamber summons but provides the citation of another judgment of the same name dated 30th June 1999 passed in an execution application arising from the same Suit. The judgment dated 30th June 1999 [2000 (1) Bom CR 48] does not speak about poundage. In Ramchandra (supra) the facts and findings of Peerless General (supra) are mentioned as follows:
“In Chamber Summons No.399 of 2000 IN Suit No.787 of 1997 (The Peerless General Finance & Investment Co. Ltd. vs. Swan Mills Ltd. & ors. AND Sheriff of Mumbai) under order dated 19th April 2000, Justice Gokhale (as he then was) came to consider the requirement of Sheriff’ s poundage in the case where the property of the judgment debtor was attached. After considering the aforesaid judgments as well as Rule 474 of the High Court (O.S.) Rules, it was held that when the property is attached the poundage is payable. The contention of the Counsel on behalf of the judgment debtor that the word “executed” would mean sale of the property and not simply levying attachment by affixing the papers on the property was repelled. It was observed that Sheriff was required to take step and the step in the nature of effecting the warrant of attachment on the property was in furtherance of the cause of the judgment creditor. That having been done, the Sheriff could not be denied his poundage. That is the true reasoning behind the requirement for payment of poundage. It is because the judgment creditor takes out the Execution Application and gets a warrant of attachment of movable and immovable properties issued, served and executed by seizure and attachment of the movable and immovable properties respectively that the Sheriff is required to be entitled his fee for such work done. That work may result in actual sale of the properties attached or it may result in the compromise of the dispute between the parties and the judgment creditor’ s claim therein. Whatever be the result, the Sheriff is not entitled to his poundage upon the extent of the properties seized and attached. His poundage is payable upon the extent of the realization of the judgment creditor. That realization may be under a compromise or may be upon sale.”
Interestingly in Sinica Graeca (supra) the Hon’ble Court reads the words satisfaction, compromise or settlement to mean an amount ‘received by the plaintiff’ pursuant to a satisfaction , compromise or settlement. This is of particular significance when we consider the judgment in K.P. Marine Services Engineers & Consultants v. Tug Varahi & Anr. [Order dated 8th November 2019 in Comm Admiraty Suit (L) No. 55 of 2019]. In that case the Hon’ble Court was dealing with an admiralty suit relating to sale transaction of a tug. The plaintiff had made part-payment towards the Vessel, however the owner refused delivery. The plaintiff filed the suit inter alia for recovery of the amount advanced. The tug was arrested and warrant of arrest was duly executed by the office of the Sheriff of Mumbai. The suit came to be settled by consent terms under which the plaintiff was to pay consideration of Rs. 1.75 Crores to the defendant. The Sheriff of Mumbai claimed poundage of 1% on the entire amount of 1.75 Crores. The Hon’ble Court rightfully observed that the sum of 1.75 Crores was not being received by the plaintiff, but on the contrary was being paid by the plaintiff to the defendant. Since under the earlier MoU the sale consideration was Rs. 1.85 Crores and now the sale consideration was Rs. 1.75 Crores, the Honble Court held that the benefit to the plaintiff on account of the arrest was only Rs. 10 lakhs and the Sheriff of Mumbai was enitltled to poundage of 1% on the sum of Rs. 10 Lakhs only, i.e. Rs. 10,000/-
Foreign Authorities on Poundage
In support of the ratio in Malpani Bros. (supra), the Hon’ble Court in that case also cited the following portion of the English Judgment in the case of Thomas v. Sheriff of Middlesex, [1899 (1) Queen’s Bench Division 460]:
“Poundage is a fee which is given by the statute of Elizabeth. Now, the language of the statute left it an open question whether the Sheriff was entitled to poundage, because the word was simply “levy”. It was decided — I forgot the name of the case — even earlier than Miles v. Harris, that the word “levy” in the statute meant “turning, the goods into money”; and Erie C.J, in giving judgment, said: “The question is, whether a seizure of goods under the fi. fa. is a levy within that statute. I am of the opinion that the Sheriff has not levied so as to be entitled to poundage under that statute, until the goods seized have been turned into money.”
In Malpani Bros. (supra) the Hon’ble Court also Halsbury’s Laws of England in Volume 17 (4th Edition) at para 446 which reads as follows:
“446. Sheriffs remuneration. The sheriff is entitled to (1) poundage, and (2) certain fees and expenses allowed him by stature or order of court under statutory authority, but no other remuneration or charge. In execution for money, the sheriff, in order to become entitled to his poundage, must levy (namely seize) and get the money. If he does not seize, he is not entitled to poundage, even though the money is paid or tendered to him after the writ has been delivered to him for execution.”
Principles of Poundage
Thus, in view of the aforementioned judgments the following broad principles relating to poundage in case of arrest of vessel pendente lite in admiralty suits can be drawn:-
- If the warrant of arrest is not levied, no poundage is payable. However, in some cases an injunction order freezing the movement of a vessel/property may also be in the nature of an attachment / arrest, in which case poundage would be payable.
- Even if the warrant of attachment / arrest is levied, the Sheriff is not entitled to poundage unless the same results in realization of money. However, this principle is not unqualified. The exception to this rule can be found in State of Maharashtra (supra). With due respect to the Hon’ble Court, in the author’s opinion the conclusion reached in State of Maharashtra (supra) is contrary to the principles in Malpani Brothers (supra), Seabird (supra) and other previous decisions of the Hon’ble Bombay High Court as well as to the Original Side Rules. The Hon’ble Court in Sinica Graeca (supra) even attempted to distinguish the facts of that case from State of Maharashtra (supra), but no well-defined distinction has been drawn, and there is still some ambiguity on this principle.
- When an amount is realized, poundage is payable on the realized amount although the same may be substantially higher than the value of the properties actually attached.
- It is irrelevant whether a vessel has been arrested or property has been attached already in another matter. In case an order of arrest or attachment is executed by the Sheriff in multiple suits, poundage of 1% will be payable on the amount realized in each suit.
- The Sheriff is only entitled to poundage on the actual benefit accrued to the Plaintiff. The settlement may provide for other payments between the parties to the suit or outside the suit, but the same have no bearing when computing poundage which can be recovered by the Sheriff.
It should be added here that the author agrees that the concept of poundage is ‘anachronistic’. The office of the Sheriff and the bailiffs receive a fixed salary from the Government, and poundage is no longer a valid incentive to execute the orders of the Court. The account to which the poundage amount is deposited is also a government account and the Sheriff of Mumbai does not have a right to withdraw or utilize the funds therein the way s/he pleases. When the plaintiff has already paid court fees to the government, there is no reason why s/he should be made to shell out poundage on the amounts he realizes pursuant to execution of the orders of the Hon’ble Court, in addition to making reimbursement of the out of pocket expenses of the bailiff. Pertinently, in Mumbai (Bombay) the court fees is caped at Rupees Three Lakhs, however, there is no cap on the amount of poundage. It is high time that the provisions mandating payment of poundage be deleted.
The above article is written by our Partner Mr. Vikrant Shetty.
Tags: Ship Arrest India, Admiralty Law, Maritime Lawyers, Shipping Law Firm,
In its literal sense ‘lis pendens’ means – ‘a pending legal action’. The principle of lis pendens in relation to immoveable property is embodied under Section 52 of the Transfer of Property Act, 1882 (“TOPA”). The object of the provision is to ensure that the rights of a party claiming any right, title or interest in an immoveable property is not affected during the pendency of any proceedings filed by such party in relation to such property. Section 52 has been amended in Maharashtra to add a further condition that the protection under the provision shall only be applicable in case a notice of such lis pendens is registered under s. 18 of the Indian Registration Act,1908.
The intent behind section 52 is to protect the interest of the plaintiff/petitioner claiming right, title or interest in immoveable property, however, the said provision is a double edged sword. Even a party who has filed an absolutely false and frivolous case in a Court of law can register a notice under lis pendens, in order to harass the defendant/respondent and adverselyimpact on her/his title over the subject property. Therefore, the operation of the embargo on transfer or otherwise of property under s. 52 is subject to discretion of court and the Court is empowered to exempt the suit property from the operation of s. 52 subject to such conditions as it may impose. The issue that arises, is what are the factors that the Court must take into account, before granting such discretionary exemption?
The relevant portion of Section 52 of the TOPA as amended in relation to the State of Maharashtra by Act VI of 1939 reads as under:-
“During the pendency in any Court having authority within the limits of India excluding the State of Jammu and Kashmir oJr established beyond such limits by the Central Government of any suit or proceeding which is not collusive and in which any right to immovable property is directly and specifically in question, if a notice of the pendency of such a suit or proceeding is registered under Section 18 of the Indian Registration Act, 1908, the property after the notice is so registered cannot be transferred or otherwise dealt with by any party to the suit or proceeding so as to affect the right of any other party thereof under the decree or order which may be made therein; except under the authority of the Court and on such terms as it may impose.”
Originally the notice of pending litigation with respect to the property did not necessitate mandatory registration under Section 18 of Indian Registration Act, 1908 for claiming benefit under Section 52 of the TOPA, the result was that bona fide purchasers for valuable consideration may suffer loss for want of notice, that the properties purchased by them had been included in a pending action. The amendment of Section 52 applicable to state of Maharashtra was intended to supplement the provisions and to make registration of the lis pendens a condition precedent, to the operation of the provisions.
The Hon’ble Bombay High Court vide its oral judgment dated 19th June 2019, passed in Notice of Motion No.1397 of 2018 (“Notice of Motion”) in Suit No. 1648 of 2012 (“Suit”), in matter of Ambaji Developers, a Partnership Firm and others Vs Mukundrai Dipchand Sanghavi and others, dealt with inter alia on issue of whether Defendant No.1 therein should be allowed to deal with the suit propertyas it may deem fit without the same being subjected to the operation of lis pendens under Section 52 of the TOPA.
Facts of the Case
The relief sought in the said Suit was for specific performance of the Agreement/Minutes of the Meeting dated 8th February 2011 between the Plaintiff and the Defendant No. 1 for assignment or transfer of the plot of a land (“Suit Property”) and pursuant to the aforesaid Minutes of the Meeting dated 8th February 2011 a formality of incorporating all the vital terms and conditions into a contract to be agreed upon was pending. On the basis of such Minutes, Plaintiff contended that there was an oral agreement for development of the Suit Property between Plaintiff and Defendant No. 1, and accordingly a lis pendens with reference to Suit Property was registered on 17th August 2012. It was case of the Defendant No. 1 under the aforesaid the Suit that the said Suit filed by Plaintiff was not bona fide and it was instituted only to restrain the Defendant No. 1 from re-developing the Suit Property and hence the Defendant No. 1 filed the said Notice of Motion praying that they be allowed to deal with the Suit Property without the same being subjected to operation of lis pendens under Section 52 of Transfer of Property Act, 1882. The Plaintiff contended that on the basis of agreement, Plaintiff had made payment of Rs. 40,00,000/- to the Defendant No. 1 as well as an amount of Rs. 11,36,000/- to the Defendant No. 2 who was the Architect appointed for development of the Said Property and if relief was granted to Defendant No. 1 as prayed under the Notice of Motion then the said Suit would become infructuous and hence the Notice of Motion be dismissed with costs.
Findings of the Court
The Hon’ble Court presided by Hon’ble Mr. Justice B. P. Colabawalla categorically held that the Court has a discretion as per Section 52 of TOPA, which like all other discretion in law, has to be exercised on judicious considerations. Whether a party should be relieved from the operation of lis pendens is a matter of discretion. If the Court choses to exercise that discretion, it is also vested with the power to prescribe the terms and conditions which would sub-serve the interests of justice. Whether to exercise the discretion or otherwise, the Court must necessarily have regard to all the facts and circumstances of the case, including the merits, though the view of the Court may be only prima facie.
In facts and circumstances of the case, the Hon’ble Justice B. P. Colabawalla held that prima facie there was no concluded contract between the Plaintiff and Defendant No.1 and accordingly since chances of Plaintiff succeeding in the said Suit were low, it would be highly inequitable to continue the cloud on the title of the Suit Property, which was owned by Defendant No.1. The Hon’ble High Court of Bombay held that Defendant No.1 shall be entitled to deal with the Suit Property as he may deem fit, without the same being subjected to the operation of lis pendens under Section 52 of the Transfer of Property Act, 1882.
The principles applicable to granting of relief from lis pendens are not available in any reported case nor are they set out inthe aforesaid provisions of TOPA. In view of the elaborative decision of the Bombay High Court, the following non-exhaustive criteria/ broad parameters can be constructive in determining, whether any party can transfer the property which is the subject matter of a pending suit or property:
- The Doctrine of lis pendens as contained in Section 52 of T.P. Act applies irrespective of the weakness or strength of the plaintiff’s case, the only caveat being that the proceedings filed by the plaintiff must be bona fide;
- The provision of lis pendens is a rule and relief is an exception and strong grounds must be made out to deprive the plaintiff of the fruits of litigation;
- The court must look into all the relevant circumstances which inter alia, can be, the nature of the plaintiff’s case and the defence, the nature of property market and the circumstances of the defendants;
- If the Court is convinced on the affidavits and the pleadings that even if all the evidence was led by the parties there is a very strong probability that the plaintiff will lose the matter, it will be a very important factor, possibly conclusive for granting relief;
- The inconvenience and injustice that is likely to be caused to the defendants if the relief is not granted and balance it with the inconvenience and injustice that is likely to be caused to the plaintiff if the relief from lis pendens is granted; [B.J. Patel v. Vadilal Dolatram and Sons (AIR 1982 Bom 66)]
- Whether on the facts as pleaded will the plaintiff prima facie, be entitled to the relief of specific performance of the contract;
- If the Court comes to the conclusion that specific relief cannot be granted, then whether considering the alternative relief of damages which the plaintiff in the suit for specific performance is entitled to, whether the plaintiff should be secured;
- If to be secured should it only be the market value of the property on the date of the suit at time when the suit is filed be considered; [Shantilal Jethabai Khona v. Anandrai Shivlal Dave (2002 3 BomCR 346)]
- While exercising its discretion under Section 52, the Courts must consider the facts and circumstances of the case and undoubtedly the same shall include prima facie the merits.
- Since the statute allows the Court under its authority and on such terms and conditions as it may impose to relieve a party of the embargo which is imposed by the provision, the court should not read restrictions which would substantially dilute the efficacy of the provision. [Bombay High Court decision dated 9th October 2013 in Appeal (L) No. 397 of 2013]
- The law confers such a discretion in recognition of the facts, the courts should meticulously scrutinize the facts of the given case in order to carefully exercise their powers to prevent the doctrine from resulting serious inequity.
The above article is written by our Partner Mr. Vikrant Shetty.