A Mareva Injunction is an interlocutory order by a court of competent jurisdiction demanding the freezing of assets or properties of the defendant, to prevent him from disposing of, alienating or dissipating his assets, until the suit ends or a judgment has been passed, to ensure smooth execution.[1] In simple terms, it restrains a defendant from removing or dispersing his assets within the jurisdiction of the court, where there is a reasonable risk that he may attempt to dispose of them to delay execution of the final verdict.[2]
Referred to by many commentators as a judgment-creditor’s “legal nuclear weapon”[3], the subject of such an injunction is any asset in legal or beneficial ownership of the defendant which may be available to an anticipated judgment award.[4] It operates as a remedy in personam and its jurisdiction extends to commercial transactions, debts, damages for civil or contractual lawsuits.
Origin
During the early 20th century, the English judiciary did not recognize injunctions against an alleged debtor to prevent him from dealing with his assets, before or during trial on the mere apprehension that he may attempt to defeat the law by removing them. As a result, the plaintiffs were left with nothing more than an ‘empty judgment’, which could not be successfully executed. This led to defendants, particularly foreign companies, flouting judgments by removing assets from the Court’s jurisdiction before trial.
Eventually, the English courts found it to be in the interest of justice to issue preservatory orders to prevent foreign defendants from removing their assets outside the jurisdiction of English courts.[5] Nippon Yusen Kaisha v. Karageorgis[6] was the first case wherein the English Court of Appeal granted an interlocutory injunction under the Supreme Court of Judicature (Consolidation) Act, 1925, restraining ‘access to and disposal of’ the defendant’s assets located within the English jurisdiction.
Subsequently in Mareva Compania Naviera SA v International Bulkcarriers SA The Mareva[7], the case after which the injunction was named,the Court of Appeal passed a ‘freezing order’ against the assets of the defendant after being reasonably satisfied that there was an apprehensible danger that the debtor may dispose of his assets to defeat the judgment.[8]
Elements of a Mareva Injunction
Popularly known as a ‘freezing injunction’, a Mareva injunction may be granted where the court is reasonably satisfied that a “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”[9].Therefore, we observe that the primary elements of a Mareva injunction can be enlisted as follows:
- The existence of an amount to be paid to the judgment-creditor by the judgment-debtor i.e., existence of a right to be paid
- The availability of assets belonging to the judgment-debtor within the jurisdiction of the court in question to pay the amount due to the judgment-debtor;
- A reasonable apprehension that the judgment-debtor is likely to remove or dispose of his assets from the jurisdiction of the court, in order to defeat the judgment.
While commenting upon the existence of a ‘right to be paid’, the Court of Appeal in the Mareva case, in reference to Halsbury’s Laws of England, concluded that the injunction can be granted in the favour of a creditor who has “a right to be paid, the debt owning to him, even before he has established his right by getting judgment for it”.[10] Thus, a freezing order may be passed against the defendant at any stage of the suit, where the court is satisfied that the interests of the judgment-creditor need to be protected.
With subsequent evolution in jurisprudence, newer elements were developed to meet the ends of justice. In the case of Dynasty Rangers v. SBSK Plantations[11], the Court further found that (i) a cause of action must exist at the time the order is to be granted, and the plaintiff must demonstrate a good arguable case; (ii) the defendant must have assets within the jurisdiction of the court; (iii) the balance of convenience must be in favour of the plaintiff being granted the injunction; (iv) the plaintiff must establish that the defendant lacks probity and that there is a real risk of dissipation of assets; and (v) there has been no delay in applying for the injunction.
In determining the quantum of evidence required to establish the danger of dissipation pf assets, the Courts have found that prior misconduct, dishonest behaviour and unreliability is adequate to prove an apprehension of risk. This view was upheld in the case of Ninemia Maritime Corp v. Trave Schiffahrtsgesellschaft m.b.H. und Co, where Lord Justice Kerr stated that for a freezing order to be passed, there must be some direct evidence that the defendant has acted in an unreliable fashion previously and therefore, cannot be trusted.[12]
Although primarily construed to be a right in personam i.e., a right specific to one particular person, a Mareva injunction is also considered to be an ad personam relief[13], because it may bind a defendant who is not present within the jurisdiction as well. Thus, we observe that the scope of a Mareva Injunction is comparatively more substantial than an ordinary injunction, provided that it is sufficiently established that the defendant owns assets in the given jurisdiction and there is a reasonable risk of their dissipation.
Indian Jurisprudence on the Mareva Injunction
In India, the Code of Civil Procedure (“CPC”) governs the due process of civil law and ensures that the rights of the plaintiff (and defendant) are protected. While the CPC does not expressly provide for a Mareva injunction or a ‘freezing order’ per se, Order XXXVIII Rule 5 provides for ‘attachment before judgment’.
Order XXXVIII, Rule 5
According to Rule 5, where the court is satisfied that the defendant, with the intention to obstruct the judgment, might attempt to dispose of his assets from the jurisdiction, an order for attachment of his properties, as would be sufficient to satisfy the decree, may be passed against him to enable the plaintiff to realise the amount of the decree.[14]
Considering the severity of an order for attachment of property, a plea for ‘attachment before judgment’ carries a high threshold for proof. It requires the plaintiff to establish the existence of a prime facie case before the court. Further, the plaintiff needs to satisfy the courts that the defendant intends to defeat the decree by dispersing his assets from the jurisdiction of the court.
Therefore, the plaintiff needs to prove that even if the court decides in his favour, the decree would be futile as he would not receive adequate compensation for his losses.[15]
Courts in India have recognized a Mareva Injunction and an order from ‘attachment before judgment’ to carry out a similar function,[16] except that fundamentally an injunction is different from an order of attachment. While an attachment creates a charge on the defendant’s assets, an injunction merely restrains the defendant from dealing his properties.[17] Yet, Courts have upheld that the both reliefs require a reasonable amount of evidence to be granted. As seen in the aforementioned case of Rites Approach Group Ltd v. Rosoboronexport, where the Court found that a Mareva injunction could not be granted as the plaintiff failed to establish any fraudulent intention on behalf of the defendant.[18]
Inherent Powers of the Court
Section 151 of the Code of Civil Procedure provides for the inherent powers of the court to pass such orders as it deems fit to meets “the ends of justice”. It is a residuary provision, which may be resorted to by the courts only when the CPC otherwise does not provide for a solution to a given issue of law or fact.[19] Further, the Mareva injunction is deemed to arise from the inherent powers of the court under Section 151, particularly because the CPC does not expressly provide for such a relief. Thus, to understand the invocation of Section 151 of the CPC to pass a Mareva injunction; it is important to consider the approaches adopted by the Bombay High Court and Delhi High Court in two landmark cases.
In the case of Iridium India Telecomm v. Motorola Inc.[20], the Bombay High Court found that a Mareva injunction may only be granted in a situation where ‘attachment before judgment’ as a relief cannot be invoked. Moreover, the plaintiff has to establish the existence of a debt due to him as well as the danger that the defendant may attempt to remove his assets to flout the judgement of the court. Merely contending that the debtor is incapable of paying the amount due or that he resides abroad is not sufficient for the court to grant a freezing order against the defendant.[21]
Meanwhile, in the case of Rites Approach Group Ltd v. Rosoboronexport[22], the Delhi High Court opined that although a Mareva injunction is distinct from an order for ‘attachment before judgment’, the former must fulfil the requirements prescribed under Order XXXVIII Rule 5 of the CPC; therefore, departing from the view taken in the Iridium case and overlooking the distinction between an order for attachment and an injunction, which undeniably lead to different results.
From the above-mentioned judgments, we observe that in most cases where there exists a reasonable danger of the defendant disposing of his property to defeat the judgement, the CPC provides for the remedy of ‘attachment before judgment’ under Order XXXVIII Rule 5, to protect the interests of the plaintiff. Therefore, it is observed that the courts cannot exercise inherent powers under Section 151 of the CPC to pass a Mareva injunction where the relief of ‘attachment before judgment’ already exists. The issue that remains is that different situations warrant different remedies; and it cannot be concluded that the remedy prescribed under Order XXXVIII Rule 5 shall apply to all circumstances alike, thereby hindering courts from passing a ‘freezing order’ where necessary.
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[1] David L. Zicherman, The Use of Pre-Judgment Attachments and Temporary Injunctions in International Commercial Arbitration Proceedings: A Comparison Analysis of the British and American Approaches, 50 U. PITT. L. REV. 667, 668-669 (1989).
[2] Fabano Carlos, Maximizing Plaintiff Protection in the World of Asset Freezing and Bypassing the Due Process
Requirement: The Mareva Injunction (2002) 9 ILSA J. Int’l & Comp. L. 131 at p.
[3] Mary A. Nation, Granting a Preliminary Injunction Freezing Assets Not Part of the Pending Litigation: Abuse of Discretion or an Important Advance in Creditors’ Rights? 7 TUL. J. INT’L. COMP. L 367,369 (1999)
[4] Scope of Mareva Injunction, MAR. NEWSL. (Guardian Law Reports.), Jan. 2000, at 1.
[5] I. S. Goldrein and K. H. P. Wilkinson, Commercial Litigation: Pre-Emptive Remedies (2nd ed., 1991), p. 129; S. W. Hoyle; The Mareva Injunction and Related Orders (2nd ed., 1989); D. M. McAllister, Mareva Injunctions (2nd ed., 1987)
[6] [1975] 1 WLR 1093
[7] [1980] 1 All ER 213
[8] Mareva Compania Naviera SA v International Bulkcarriers SA The Mareva; http://www.uniset.ca/other/cs4/19801AER213.html
[9] Ibid
[10]Supra note 8
[11] [(2001) 7 CLJ 168]
[12] [1983] 2 Lloyd’s Rep. 600
[13] Gemot Biehler, Procedures in International Law (Springer Publishers 2008) p.98.
[14] Ganu Singh v. Janji Lal (1899) ILR 26 Cal 531, 533
[15] Boeing Company v. R.M. Investment and Trading Co., (1994) 2 CALLT 300 HC
[16] Rites Approach Group Ltd v. Rosoboronexport, 2007 (2) Arb LR 443 (Del).
[17] Supra note 15
[18] 2007 (2) Arb LR 443 (Del).
[19] Commur v. Ratna Verma (1969) 2 Mys LI 23
[20] 2003 (6) BomCR 511
[21] Raman Tech & Process Engg Co. v. Solanki Traders (2008) 2 SCC 302
[22] Supra Note 16
Article by Mr. Sumer Karekar in March, 2021 while interning at the Chambers of Advocate Shankarlal Raheja.
Disclaimer: The views herein are personal and while careful attention has been given to ensure that the information is accurate the author assumes no liability or responsibility for any reliance thereon. This article is merely an information-sharing activity and is not a substitute to legal advice. It must be noted that we shall not be liable for any loss or damage caused due to any reliance thereof.