This article is written by Kartik Bohra, from Symbiosis Law School, Hyderabad. In this article, the important aspects of garnishee order under the Code of Civil Procedure, 1908 have been discussed.
Table of Contents
Introduction
The word “Garnish” has been derived from an old French word “Garnir” which generally aims to warn or to prepare. The word “Garnishee” means a person who is debtor to the judgment debtor or against whom a decree has been passed. He is a person on record in the court of law who is responsible or liable to pay the debts to the judgment debtor and liable to deliver the possession of any movable property. He is generally required to pay the debt and whose property has been subjected to garnishment.
This garnishee order by the competent court of law is passed at the time of execution of a decree. In this order, the court of competent jurisdiction makes the third party liable to pay the amount, who possesses money in hands or any movable property which is attached by the court. It involves the provision in which the court warns or garnishment the third party, not to pay the debt amount directly to the judgment debtor or whom against decree has been passed but to pay the money and appear before the plaintiff creditor’s suit in the court.
Garnisher is a decree-holder or creditor who initiates and introduces the garnishment action for his own benefit to reach out the judgment debtor’s property which is in possession or held by the third party or garnishee. Here, the court in the case of debt which is attached under Civil Procedure Code, 1908 Rule 46 of Order 21, other than the debt secured by charge or mortgage, upon the application issued by the decree-holder, compels the garnishee to pay the debt either to the court directly or satisfy the debt amount and cost of the execution of the decree and if he is unable to do so, then he needs to show cause in the court of law that why he should not do so. Suppose, A owes B Rs. 2000/’-, A refuses to repay the amount to B and B sues A. He obtains a decree in his favour. Here, B is a Judgment Creditor and A is Judgment Debtor. B comes to know that A has some money in a bank account and would like to have his decree satisfied by attaching it in the hands of A’s bank. For this purpose, he approaches a court and obtains a garnishee order attaching the fund at the bank standing to the credit of A.
Meaning of garnishee order
A garnishee order is issued by the court of law to the third party in a suit, compelling him to pay a certain amount directly to the creditor instead of paying it to the debtor. A garnishee order is always beneficial to the creditor as it protects him from the loss due to unavailability of funds with the judgment debtor. It acts as an alternative mechanism of receiving the unpaid amount from the debtor if he fails to provide the same within the stipulated time as mentioned in the contract between the parties. A garnishee order can be made by the court to the financial institutions or banks to pay the debt amount directly to the creditor instead of paying it to the principal debtor.
Historical background
The concept associated with the ‘garnishee order’ was incorporated under the Code by the amendment of 1976 and it was a historic and remarkable amendment in the legislation. A garnishee order is passed by the competent court ordering a garnishee not to pay a certain amount directly to the judgment debtor since he is the person who is indebted to the decree-holder. The purpose of this order is to protect the interest of the decree-holder and prompt payment of certain debts to him.
This power of the court is enshrined under Order 21 Rule 46 A of the Code and is discretionary to the court whether to pass such order or not, depending upon the circumstances and sometimes it leads to prejudice to the garnishee. However, the discretion of the court is not absolute and must be adopted judicially. Prior to the amendment of 1976, there was no provision of garnishee order in the Code. But after the amendment in the Code, the new provision was inserted to protect the interest of persons in whose favour the decree has been passed. After the new amendment, a direct provision was added to the code which grants power to the court to pass such order effectively to protect the interest of decree-holder. Though it is not a mandatory provision to grant the order and it is on the discretion of the court to pass such order effectively according to the prevailing conditions.
Mode of execution of the decree
A garnishee order is also considered as one of the most important modes of execution of the decree by the court of law. There are various types of mode available for the execution of the decree and the court has certain powers to grant decree according to the facts and circumstances of the case prevailing at that time. In various decrees, specific relief is provided by the court in the interest of the parties.
The executing court plays a very important role in the execution of the decree. The executing court has the power to give an order of arrest and imprisonment of a party whom against an order or decree has been passed. A provision of an order which includes the garnishee also plays a vital role in the execution of the decree by the executing court. The garnishee is a third party who has certain debts of the judgment debtor or he is under the liability to pay the immovable property in the favour of the judgment debtor.
In the case of Krishna Singh v. Mathura Ahir (1980), the Supreme Court held that there are certain conditions needed to fulfil for the execution of a decree and the court can grant decree in the favour or against the party according to the situation of the case. Thus, a garnishee order is an important and significant role in the execution of a decree.
Reasons and objectives
The primary reason and objective behind garnishee orders are to protect the interest of the judgment creditor or decree-holder. Its objective is to make debt due to the judgment debtor directly available to the judgment creditor or decree-holder in the execution of the suit through the court of law without driving him to the suit. Order 21 rule 46 A of the code provides that if a debt is due to principal debtor or a party whom against decree has been passed then it must be directly paid to the decree-holder by the order of the executing court to avoid the multiplicity of the suit in the Indian judiciary.
The reason for such order by the court is clear that to protect the interest of both the parties. But this order can only be passed if the amount of the decree satisfies and cost of execution. The main purpose behind this order is to pay the amount to the decree-holder instead of the judgment debtor and discharge the liability of the garnishee. Thus, this rule inserted by amendment of 1976 plays a very vital role in the execution of the decree and considered as one of the most important factors in discharging the debt of the garnishee.
Therefore, the order passed by the court of law is beneficial for the purpose of execution of a decree and discharges the liability of the third party as well. The due amount is directly paid to the decree-holder by the court to avoid the delay in the execution process and led to an effective and efficient judicial system in the country.
Powers of the court and scope of order 46 A
The competent court of law has been granted immense power which is discretionary in nature to pass Garnishee order so that it can benefit the decree-holder and act as a settlement of debt between the parties. It is generally passed by the court to protect the interest of the decree-holder and settle the debt between the principal debtor and garnishee.
It is an order and power of the executing court to attach the property and money of the party whom against decree has been passed by the court in the hands of the third person. It is an immense opportunity available to the judgment creditor and court authorizes the third party for the payment of amounts. An order is being served by the court of competent jurisdiction to prohibit the garnishee to transfer the amount and property to the judgment debtor and asked him to appear before the court of law.
Order 21 Rule 46 A has been inserted in the Code of Civil Procedure, 1908 by the amendment of 1976 and gives discretionary powers to the court to pass an order compelling garnishee not to pay a certain amount directly to the judgment debtor to protect the interest of the judgment creditor. Prior to the amendment, the court had no power to grant an order to the garnishee to pay the debt in the court of law. It was not allowed to call upon the third party to pay a certain debt in the court of law and give it to the judgment creditor.
The order contained under Rule 46 A that is garnishee order is discretionary in nature and the court has the power to refuse such order if it is not equitable and justifiable in the court of law. But this power of the court must be justifiable equally and judicially. If the debt to the judgment debtor is based on certain contingencies then this order cannot be passed by the court unless these contingencies have taken place.
This Code provides a provision under Order 46 A that a notice must be served upon the garnishee before passing a garnishee order against him. If the garnishee has not been given reasonable time and opportunity to hear before passing an order against him then the order shall be considered to be null and void in the eyes of the law. According to the provisions of the code, such an order does not possess any evident value and would be considered to be void and is against the principle of natural justice. Further, it is observed that a garnishee order can only be passed against the garnishee if the judgment debtor has the right to recover the debt against him.
In the case of Kazim Jawaz Jung v. Mir Mohammad Ali Jafari and Anr. (1972), the court held that where a judgment debtor has no right to claim the debt amount from the garnishee then decree-holder has no right to recover the amount from him. it was held that money in the hands of a garnishee which is payable to the judgment-debtor only in certain contingencies cannot be recovered by the decree-holder.
In the case of Syndicate Bank v. Vijay Kumar (1992), the court held that the bank can set off the liability of the party and if the fixed property is attached to the bank garnishee has to go to the court. The balance amount shall be claiming to satisfy the decree. However, the bank has the right to raise an objection before the court of law that no amount is due to the judgment debtor and the bank is not liable to pay the due amount to the creditor.
Statutory provisions and procedure
The court can exercise a power under Rule 46 A of the code, to attach the property or debt under Rule 46 other than the mortgaged property and issue a notice to the third party i.e., garnishee liable to pay such debt to the judgment creditor. But there must be certain conditions which need to be fulfilled for passing an order that the debt due to the judgment debtor must satisfy the decree and cost of its execution.
Rule 46 B of Order 21 provides that in case of garnishee not appearing before the court of law and showing cause against the notice then the court may pass an execution decree. Such a decree is considered to be in favour of the judgment debtor and against the garnishee. Such decree by the court is based on the discretion of the court after analyzing all the circumstances of the case.
Garnishee orders cannot be passed against the property or the court has no power to attach the property which cannot be attached according to the provisions of the Code. According to the Rule 46 C of the Code, where the third party disputes his liability then it is the duty of the court to make an issue and settle the liability of garnishee or third party and determine the debt amount.
In the case of Mackinnun Mackenzie & Co v. Anil Kumar (1975), the court held that where the garnishee disputes his liability, the court must raise an issue and determine the liability of the garnishee. Where a court finds that the dispute between the parties is bona fide and not false then the action cannot be taken under this rule of Order 21 of the Code.
In the case of Executive Engineer v. J.H Sharma (1988), the court held that where garnishee day in the court that no amount is due to the judgment debtor then it is the duty of the court to consider the matter and not pass any order under this rule.
In the case of Surinder Nath Kapoor v. Union of India (1987), it was held by the Supreme Court that Garnishee order is an immense power of the court and it is based on the principle of fairness and used judicially according to the prevailing conditions.
Certain properties under this order are exempt from garnishment. These exemptions are created by the statutes to prevent the judgment debtor from any loss. In the case of Sniadatch v. Family Finance Corp. of Bay View (1969), the U.S Supreme Court held and refused to grant garnishee order in case of wages and proposed that garnishment without prior notice is not valid in the eyes of the law. The payment or due amount paid by the garnishee in the court of law shall be treated as the valid discharge of his liability against the judgment debtor. The court has immense power to direct garnishee to pay the amount directly to the judgment creditor to settle the dispute and costs of execution.
According to Rule 46 D, if the court satisfies that the amount of debt and cost of execution is settled then the debt of the garnishee can be discharged by the order of the court which protects the interest of the garnishee. The Rule 46 F of the Code provides that payments made by the garnishee are considered to be a valid discharge of debt against him. In the case of Food Corporation of India v. Sukh Deo Prasad (2009), the court observed that a garnishee can set off his claim for the amount due to him by the judgment debtor. The court further held that the garnishee proceedings are governed by Rules 46 and 46 A to 46 F of order 21 of the Code and the court may issue a notice to the garnishee liable to pay such debt, calling upon him either to pay into court the debt due from the debtor or to appear and show cause why should not do so.
Preventing a garnishee order
A person or the principal debtor can prevent the passing of a garnishee order by the court of law. He can file an application before the court of law regarding the same. However, the court has the power to reject the application depending upon several factors and circumstances. There are some major steps which can be taken by the principal debtor to prevent the court from passing a garnishee order against him.
Pay the full debt
The principal debtor can prevent the court from passing a garnishee order if he pays the full debt of the creditor on the time given by the court of law. The court can extend the time to pay the debt to the creditor instead of passing garnishee order. However, if the payment is not given by the principal debtor on the stipulated time, the court has an absolute power to pass a garnishee order against him.
Alternative repayment
The principal debtor can make certain arrangements with the creditor to pay back the amount in an alternative way which is suitable to both the parties. Here, the creditor can reduce the principal amount and extends the time of payment of the debt. The arrangement between the principal debtor and the creditor regarding the due debt is considered as the best way to avoid or prevent from a garnishee order. However, it is not compulsory for the creditor to accept the offer made by the debtor. It is upon the discretion of the creditor to accept or reject the offer of arrangement or settlement made by the debtor. The solution must be beneficial for the creditor and should not give any personal benefit to the principal debtor.
Pay by instalments
The principal debtor has the power to approach before the court of law assuring to pay the debt amount by instalments through the court. The principal debtor can submit his financial report to the court as a mechanism to pay the due amount in the instalments. If the court accepts the application, the garnishee order will be terminated and the due shall be paid by the debtor through the instalments. However, the court has the power to reject the application on two grounds. Firstly, if it will take too long to pay the debt amount to the creditor and secondly if the court deems fit that the debtor is not able to pay the amount based on analysing his financial position.
Insolvency and Bankruptcy Code, 2016
If the principal debtor took the defence under the provisions of the Insolvency and Bankruptcy Code, 2016 then the garnishee order passed against him will be terminated. It is opined that the court has no power to compel a person to pay the due amount if he is declared insolvent under the provisions of the act. It is believed that the debtor is absolutely free from all debts once he is declared insolvent and bankrupt by the court of law. Thus, any garnishee order passed against him will be void and stopped.
Judicial aspect
The judicial system of our country is well structured. Courts always recommend certain changes in the statutes to protect the interest of the parties. Therefore, in the garnishee order, to protect the interest of both the parties, the court gave various landmark judgments to enhance the faith of people in the judicial system of the country.
In the case of K Jayaraman & etc v. TS Ravi & Ors. (2001), the court held that the garnishee must agree to the debt of the judgment debtor. If the garnishee refuses to accept the debt of the garnishee then it is the duty of the court not to pass any such order against the garnishee compelling him to pay a certain amount to the decree-holder.
In the case of Global trust bank Ltd. V. Fargo Freight ltd. & Ors. (2001), the court held that order 21 rule 46 A not only applies to the debt of the party other than mortgage debt but the negotiable instrument can also be attached by the court. Further, it was observed that it is the prima facie duty of the garnishee to reveal the liability dispute before the court of law.
In the case of Greater Cochin Development Authority v. Harrisons Malayalam Ltd. & Anr. (2001), it was held by the court that in case of notice by the court was not issued in form no.5 then it cannot be ground for the setting aside of an order of the court. The court has the discretion to pass a garnishee order even if the application submitted by the creditor is not appropriate within the provisions of the Code.
In the case of Bombay Stock Exchange v. Jaya I. Shah and Anr. (2003), it was held by the supreme court that a garnishee order cannot be passed against the party if the assets have defaulted in nature. A debt cannot be due to the defaulted member. Therefore, various courts in different judgments dealt with the issue of garnishee order and provided the different aspects to be followed to pass an effective order of garnishment against the party.
Recommendations and suggestions
The author in this study deals with the various aspects of the garnishee order and provides various statutory provisions in the Code which specifically deals with the issue of a garnishee order. This is one of the important provisions enshrined under the Code and plays a very vital role in the execution of the decree in the court. There are various rules and procedures while passing a garnishee order which should be kept in mind by the court. This is a good piece of legislation by our parliamentarians.
But there is something that should be changed in the provision is that there is wide discretion given to the courts while passing an order. The courts have wide discretionary power to decide to pass garnishee orders or not. This discretionary power of the code should be minimized and it must be used reasonably and judicially. The court must not abuse such powers and put the best interest of the parties in the case. This will make the provisions regarding the garnishee order more effective and efficient and abide by all the principles of natural justice and fairness.
Conclusion
The Code of Civil Procedure provides for the provision of a garnishee order. Prior to the amendment of 1976, there was no provision regarding the debit transfer. This order empowers the court to pass an order against the third party to pay the due debt directly to the judgment creditor instead of paying it to the judgment debtor. However, the power exercised by the court of law is discretionary and it is upon the court to pass such order or not. It is not a mandatory provision for the court while passing an execution decree. However, this power must be used judicially by the competent court after looking at the prevailing condition and circumstances of the case. The word ‘may’ is used in the statutory provision.
The garnishee or third party is responsible and liable to reveal about the liability dispute between the parties. It is the duty of the garnishee to refuse to accept the debt before the court of law. Afterwards, it is the duty of the court not to pass any such order against the party and make the issue to determine the liability of the party in the case. If it is found that garnishee is indebtedness to the judgment debtor then the court can pass such order against the party. The court has no power to grant or issue any direction to other parties to pay the debt amount of the judgment debtor if he is the usual financier of the judgment debtor. Court has no authority to compel any party who is not holding any money to pay the amount to the decree-holder. The court has an immense duty to pass an effective order and avoid misuse of this discretionary power.
Thus, it is concluded by the author that garnishee order is one of the important aspects in the Code to pass an order of execution of a decree. The author in this study talks about various aspects, rules, procedure and statutory provisions regarding the garnishee order. There are various minute aspects which are to be taken into consideration by the court while passing a garnishee order. It is the duty of the court to pass effective order which should be beneficial for the judgment creditor.
References
- https://www.canstar.com.au/credit-score/what-is-a-garnishee-order/
- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1539347
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