Sumana Chamarty, Advocate, Daksha Legal, Bengaluru
While a creditor is looking for judgment in one jurisdiction he may want to safeguard the debtor’s assets located in a different jurisdiction so that at the end of the process he is able to enforce his judgment. To this end, he may want to obtain a Mareva injunction, also known as a freezing order, from the court of the jurisdiction where the assets are held. (Philip Jeyaretnam and Lau Wen Jin, (2016) 28 SAcLJ 503).
Background: The name “Mareva Injunction” owes its origin to a freezing order by the English court in Mareva Compania Naviera SA v International Bulkcarriers SA [1980] 1 All ER 213]. An order of injunction is issued in favour of a creditor who has a right to be paid the debt owing to him, even before he has established his right by getting judgment for it. The test is; the debt is due and owing, and there is a danger that the debtor may dispose of his assets so as to defeat it before judgment. The court has jurisdiction in a proper case to grant an interlocutory judgment so as to prevent him disposing of those assets.
It is important to note that in the case of a Mareva, the court does not alter the substantive rights of the parties, but preserves the status quo until it has determined the action. Similar principle is reiterated by the Supreme Court in respect of temporary injunctions in Dalpat Kumar v. Prahlad Singh, (1992) 1 SCC 719 . The court held that the order of temporary injunction is in the nature of preventive relief to a litigant to prevent future possible injury. In other words, the court, on exercise of the power of granting ad interim injunction, is to preserve the subject matter of the suit in the status quo for the time being.
The objective of Mareva order is that a natural person should not step down from his living standards by reducing his assets just before the judgment or to avoid the payment. Polly Peck International Plc v Nadir AILII Citation Number: [1992] EWCA Civ 3
Grounds for Mareva Injunction: (1) There should be an evidence of the real risk of dissipating the assets. (2) Any alleged dishonesty must have a “real and material” relation to the risk of dissipation such that the necessary inference of fact may be drawn. (Yves Charles Edgar v. Accent Delight International Ltd., [2015] 5 SLR 558)
Nature of the order. Once granted, a Mareva injunction has immediate effect on every asset of the defendant covered by the injunction. It is a method of attachment, which operates in rem in the same manner as the arrest of a ship and because any authority which third parties may have to deal with the asset in accordance with the instructions of the defendant is revoked once such third parties have notice of the injunction. – Z Ltd vs A 1982 1 All ER 556 – referred to in Vidya Charan Shukla v. Tamil Nadu Olympic Association, 1991 SCC OnLine Mad 3.
In India: Civil Procedure Code – Section 38 says that a decree may be executed either by the Court which passed it, or by the Court to which it is sent for execution. Section 39 deals with transfer of decree. However, grant of Mareva injunction which is interlocutory in nature can be traceable to inherent powers of the court under Section 151.
Mareva injunction and Attachment before judgment.
Order 38 Rule 5 CPC empowers the courts to attach property of the defendant pending adjudication of the suit. Attachment before judgment and Mareva injunction are similar to each other. They are granted under similar circumstances on similar grounds. However, the fundamental difference is while Mareva injunction simply restrains the defendant by injunction, attachment before judgment is a lien on the property. It is an attachment of the property by the court.
The Calcutta High Court in Popular Jute Exchange Limited vs Murlidhar Ratanlal Exports Ltd. 1998 2006 (4) CHN 381 has exhaustively explained the meaning. Mareva Injunction, the court says, is an established feature of English Law and the English Court has been categorical enough to record that there should not be any hesitation in the matter of such a grant where it appears likely that the plaintiff would recover judgment against the defendant for a certain or approximate sum and there is reason to believe that the defendant has the assets within the jurisdiction to meet the judgment but may deal with the same, so that they would not be available or traceable when the judgment is given against him.
The concept of grant of Mareva Injunction is not different from the power of the Court to grant interlocutory or final order of an injunction and under this 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. Popular Jute Exchange Limited vs Murlidhar Ratanlal Exports Ltd. 1998 2006 (4) CHN 381
In Mohit Bhargava v. Bharat Bhushan Bhargava, (2007) 4 SCC 795 the Supreme Court dealt with an order passed by the executing court that the documents produced by the third party be kept in safe custody of the court. The Supreme Court termed the order as 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. The court also termed the order as a “freezing order” or a “Mareva injunction and an order akin to an Anton Piller order, that can be issued even if the property or the person concerned is outside the jurisdiction of the court.
Note: An Anton Piller Order is a form of civil search warrant that displaces the normal rules on discovery of records. It enables the Applicant to attend at the premises of the Defendant, without notice, and take possession of the records of the Defendant Anton Piller v Manufacturing Processes Ltd: CA 8 Dec 1975.
A Mareva injunction freezes a party’s assets to prevent it from dissipating the assets before the arbitral proceedings have concluded, and frustrating satisfaction of the eventual award if this goes against the dissipating party. A Mareva injunction also takes effect against third parties such as banks, to prevent them from assisting in the dissipation of the assets. Anton Piller orders allow a party to secure and preserve property by entering and searching the opposing party’s premises. Such property could include documentary evidence, or items implicated in the dispute, such as counterfeit goods. Mareva injunctions and Anton Piller orders are usually sought under very urgent circumstances. For maximum efficacy, they are also typically sought ex parte without notice to the opposing party, to preclude the opposing party from pre-empting the orders by disposing of the assets or goods before the orders are granted. When such relief is sought therefore, the parties would have to approach national courts for assistance. Benoit Le Bars and Tejas Shiroor ‘Provisional Measures in Investment Arbitration: Wading through the murky waters of enforcement’ 6IJAL(2017)24
In conclusion, the power to grant Mareva injunction, though traceable to inherent powers of the Court, such power is guided by the sound judicial principles evolved in respect of similar orders i.e. attachment before judgment and temporary injunction. The purpose of the order, as explained by the Supreme Court is to preserve the subject matter of the suit in the status quo for the time being.
Sumana Chamarthy, Advocate, Bengaluru.
Daksha Legal 