Supreme Court Clarifies Rights of Decree Assignees Under Section 146 of CPC: Vaishno Devi Construction vs. Union of India (2021)

Date of the Judgment: October 21, 2021
Citation: (2021) INSC 745
Judges: Sanjay Kishan Kaul, J., B.R. Gavai, J.
Can a person who has been assigned the rights to a decree before it was passed, claim the benefits of that decree? The Supreme Court addressed this issue in a case involving a dispute over payments for construction work. The court clarified that an assignee of a decree, even if the assignment occurred before the decree was officially granted, can seek to enforce the decree. This decision hinged on the interpretation of Section 146 of the Code of Civil Procedure, 1908 (CPC) and an explanation added to Order XXI Rule 16 of the CPC. The judgment was delivered by a two-judge bench comprising Justice Sanjay Kishan Kaul and Justice B.R. Gavai.

Case Background

In 1995, the Union of India awarded a contract to Surendra Nath Kanungo for work at Port Blair Airport. Kanungo assigned the work to Vaishno Devi Constructions (owned by Prabhat Bhushan Kanungo) and BeeDee Builders (owned by Swapna Das). These parties were to be paid for their work and equipment. Disputes arose when some payments were not made. To secure these dues, Kanungo executed an Assignment Deed on October 27, 1999, and gave a cheque of Rs. 1 crore to Prabhat Bhushan Kanungo. Kanungo also had disputes with the Union of India, leading to arbitration awards in his favor in 1999 and 2006. The Union of India challenged the 2006 award, but the High Court of Calcutta upheld it. Kanungo then filed for execution of the decree. During the execution proceedings, Kanungo passed away in 2012 and his legal heirs were substituted in his place. The Union of India’s appeal to the Supreme Court was dismissed in 2016, with a slight modification in the interest rate. At this point, Vaishno Devi Constructions and BeeDee Builders intervened, claiming rights as assignees of the decree based on the 1999 Assignment Deed.

Timeline

Course of Proceedings

The executing court rejected the claims of Vaishno Devi Constructions and BeeDee Builders, stating that the Assignment Deed and cheque had not been proven. The Calcutta High Court upheld this decision. The appellants then appealed to the Supreme Court. The Supreme Court issued a notice and directed that status quo be maintained. The Union of India was allowed to deposit the decretal amount in the executing court.

Legal Framework

The core legal provisions at play in this case are:
✓ Section 47 of the Code of Civil Procedure, 1908 (CPC): This section specifies that all questions arising between the parties to the suit or their representatives, relating to the execution, discharge, or satisfaction of the decree, shall be determined by the executing court.
✓ Section 146 of the CPC: This section states that any proceeding or application that can be made by or against a person can also be made by or against any person claiming under them.
✓ Order XXI Rule 16 of the CPC: This rule deals with the application for execution by a transferee of a decree. It states that where a decree is transferred by assignment in writing or by operation of law, the transferee may apply for execution. The explanation added to this rule in 1976 clarifies that this rule does not affect the provisions of Section 146, and a transferee of rights in the subject matter of the suit may apply for execution of the decree without a separate assignment of the decree.
✓ Section 2(1)(g) of the Arbitration & Conciliation Act, 1996 (A&C Act): This section defines “legal representative” to include a person who represents the estate of a deceased person or intermeddles with the estate of the deceased.

Order XXI, Rule 16 of the CPC states:

“Where a decree or, if a decree has been passed jointly in favour of two or more persons, the interest of any decree-holder in the decree is transferred by assignment in writing or by operation of law, the transferee may apply for execution of the decree to the Court which passed it; and the decree may be executed in the same manner and subject to the same conditions as if the application were made by such decree-holder:
Provided that, where the decree, or such interest as aforesaid, has been transferred by assignment, notice of such application shall be given to the transferor and the judgment-debtor, and the decree shall not be executed until the Court has heard their objections (if any) to its execution:
Provided also that, where a decree for the payment of money against two or more persons has been transferred to one of them, it shall not be executed against the others.
[Explanation. —Nothing in this rule shall affect the provisions of section 146, and a transferee of rights in the property, which is the subject matter of the suit, may apply for execution of the decree without a separate assignment of the decree as required by this rule.]”

Section 47 of the CPC states:

“(1) All questions arising between the parties to the suit in which the decree was passed, or their representatives, and relating to the execution, discharge or satisfaction of the decree, shall be determined by the Court executing the decree and not by a separate suit.
(3) Where a question arises as to whether any person is or is not the representative of a party, such question shall, for the purposes of this section, be determined by the Court.
[Explanation 1.—For the purposes of this section, a plaintiff whose suit has been dismissed and a defendant against whom a suit has been dismissed are parties to the suit.
Explanation II—(a) For the purposes of this section, a purchaser of property at a sale in execution of a decree shall be deemed to be a party to the suit in which the decree is passed; and
(b) all questions relating to the delivery of possession of such property to such purchaser or his representative shall be deemed to be questions relating to the execution, discharge or satisfaction of the decree within the meaning of this section.]”

Section 146 of the CPC states:

“Save as otherwise provided by this Code or by any law for the time being in force, where any proceeding may be taken or application made by or against any person then the proceeding may be taken or the application may be made by or against any person claiming under him.”

Section 2(1)(g) of the A&C Act states:

“In this Part, unless the context otherwise requires,—
…….. …………
(g) “legal representative” means a person who in law represents the estate of a deceased person, and includes any person who intermeddles with the estate of the deceased, and, where a party acts in a representative character, the person on whom the estate devolves on the death of the party so acting;”

Arguments

Appellants’ Arguments:

• The appellants argued that they were authorized assignees of Surendra Nath Kanungo, based on the Assignment Deed of October 27, 1999.
• They claimed that the explanation to Order XXI Rule 16 of the CPC, added in 1976, allows them to seek execution of the decree as assignees, even though the assignment occurred before the decree was passed.
• They contended that their claim should be decided by the executing court under Section 47 of the CPC, as they are representatives of the decree holder under Section 146 of the CPC.
• They argued that the assignment deed is a document in writing that assigns their rights.
• They emphasized that the amendment to Order XXI Rule 16 was meant to address situations like theirs, where an assignment occurred before the decree.

Respondents’ Arguments:

• The respondents argued that the Assignment Deed was a disputed document, not produced for 17 years, and not mentioned in legal notices.
• They contended that the appellants should have acted on the Assignment Deed after the first arbitration award in 1999 or when the money was paid in 2001.
• They stated that the appellants were not legal representatives of Surendra Nath Kanungo but were merely contractors who had been paid their dues.
• They argued that the judgment in Jugalkishore Saraf v. M/s. Raw Cotton Co. Ltd. [AIR 1955 SC 376], which held that an assignment must be after the decree, applies to this case.
• They claimed that the amendments to Order XXI Rule 16 did not change the position of law as laid down in Jugalkishore Saraf.
• They alleged that the Assignment Deed and cheque were fraudulent and misused.

Innovativeness of the argument: The appellants innovatively argued that the 1976 amendment to Order XXI Rule 16 of the CPC, by adding an explanation, was specifically intended to address situations where assignment of rights occurred before the passing of the decree. This was a departure from the strict interpretation of the rule as it stood before the amendment, which required the assignment to be subsequent to the decree.

Issues Framed by the Supreme Court

The Supreme Court considered the following issue:

1. Whether the amendment to Order XXI Rule 16 of the CPC, specifically the addition of the explanation, altered the legal position regarding the rights of assignees who acquired their rights before the passing of a decree.

Treatment of the Issue by the Court

The following table demonstrates how the Court decided the issue:

Authorities

The Supreme Court considered the following authorities:

Judgment

The Supreme Court held that the lower courts’ judgments were incorrect because they did not consider the impact of the 1976 amendment to Order XXI Rule 16 of the CPC. The explanation added to this rule was specifically intended to address situations where an assignment occurred before the decree was passed.

The Court viewed the authorities as follows:

• Jugalkishore Saraf v. M/s. Raw Cotton Co. Ltd. [AIR 1955 SC 376]*: The Court acknowledged that this case held that an assignment must be after the decree. However, it noted that the 1976 amendment to Order XXI Rule 16 was intended to address the issue and thus, the judgment was not applicable to the present case.
• Penniah Pillai v. T. Natarajan Asari [AIR 1968 Mad 190]*: The Court agreed with this case, which held that transferees could avail of Section 146 of the CPC if they did not fall within the provisions of Order XXI Rule 16.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the legislative intent behind the 1976 amendment to Order XXI Rule 16 of the CPC. The Court recognized that the amendment was introduced to address conflicting views among High Courts and to ensure that transferees of rights in the subject matter of a suit could seek execution of a decree without a separate assignment of the decree. The Court also emphasized that the amendment was intended to remove the distinction between assignments made before and after the passing of a decree, thereby aligning the law with equitable principles.

Logical Reasoning:

The Court stated:

“On analysis of the submissions there is little doubt that the impugned judgments would have been completely in accordance with law if the amendments were not made in 1976 and would have been fully covered by the judgment in Jugalkishore Saraf.”

“In the conspectus of the aforesaid we are of the view that the objective of amending Order XXI Rule 16 of the CPC by adding the Explanation was to deal with the scenario as exists in the present case, to avoid separate suit proceedings being filed therefrom and to that extent removing the distinction between an assignment pre the decree and an assignment post the decree.”

“The Explanation clearly stipulates that nothing in Order XXI Rule 16 of the CPC would affect the provisions of Section 146 and the transferee of the right in property which is subject matter of a suit may apply for execution of the decree without separate assignment of the decree as required by law.”

The Court rejected the argument that the judgment in Jugalkishore Saraf applied to the present case because the 1976 amendment to Order XXI Rule 16 of the CPC was intended to address the issue. The Court held that the amendment was meant to remove the distinction between assignments before and after the decree, allowing assignees to seek execution even if the assignment occurred before the decree was passed. The Court also noted that the Law Commission had taken note of the fact that two different interpretations of Jugalkishore Saraf had been adopted and sought to clarify the legal position.

Key Takeaways

• The 1976 amendment to Order XXI Rule 16 of the CPC allows assignees of a decree to seek execution even if the assignment occurred before the decree was passed.
• The amendment was intended to remove the distinction between assignments before and after the decree.
• The executing court must now consider the validity of the Assignment Deed and the claims of the appellants.
• This decision clarifies the rights of assignees and avoids the need for separate suits to determine the issue of assignment.

Directions

The Supreme Court set aside the impugned judgments and remitted the matter back to the executing court for determination in terms of the judgment of the Supreme Court. The executing court was directed to give its consideration as early as possible.

Development of Law

The ratio decidendi of the case is that the 1976 amendment to Order XXI Rule 16 of the CPC, specifically the addition of the explanation, altered the legal position regarding the rights of assignees who acquired their rights before the passing of a decree. This is a change from the previous position of law as laid down in Jugalkishore Saraf v. M/s. Raw Cotton Co. Ltd. [AIR 1955 SC 376], which required the assignment to be after the decree. The amendment allows transferees of rights in the subject matter of a suit to apply for execution of the decree without a separate assignment of the decree.

Conclusion

The Supreme Court’s decision in Vaishno Devi Construction vs. Union of India clarifies that an assignee of a decree can seek execution even if the assignment occurred before the decree was passed. This interpretation is based on the 1976 amendment to Order XXI Rule 16 of the CPC, which was intended to remove the distinction between pre- and post-decree assignments. The case has been sent back to the executing court to determine the validity of the Assignment Deed.