Supreme Court settles the protection of retiral benefits from attachment in execution of decree: Radhey Shyam Gupta vs. Punjab National Bank (2008)

Date of the Judgment: 4th November, 2008
Judges: Altamas Kabir, J., Markandey Katju, J.
The Supreme Court addressed the question of whether retiral benefits, specifically pension and gratuity, can be attached for the satisfaction of a court decree, even after these benefits have been converted into fixed deposits. This appeal arose from a case where Punjab National Bank sought to recover dues from a guarantor by attaching his fixed deposit receipts, which were funded by his retirement benefits. The central issue before the court was whether such retiral benefits retained their protected character under Section 60(1)(g) of the Code of Civil Procedure, even after being deposited in a bank.

Case Background

On May 28, 1986, Punjab National Bank (Respondent No. 1) sanctioned a loan of Rs. 83,000 to Shri Durga Prasad (Respondent No. 2). The appellant, Radhey Shyam Gupta, stood as guarantor for the repayment of this loan.

As the loan was not repaid by the principal debtor, Durga Prasad, the Bank filed Suit No. 66 of 1992 in 1992 for recovery of its dues against Durga Prasad as the loanee and against Radhey Shyam Gupta as guarantor.

On December 19, 1994, the suit was decreed by the Additional District and Sessions Judge, Bayana, District-Bharatpur, in favor of the Bank for a sum of Rs. 1,10,360/-, together with interest at the rate of 12.5% per annum from the date of institution of the suit till realization.

The trial Court directed:

“The plaintiff shall be entitled to recover this amount by auction sale of the hypothecated Matador Mahindra FC RRD/1851. The plaintiff shall also be entitled for cost of litigation. If any amount remains to be paid even after auction sale of the Matador, then the same shall be recovered from other properties of the defendants. The suit of the plaintiff is hereby decreed against the defendants in the aforesaid terms.”

Timeline

Course of Proceedings

To execute the decree, the Bank initiated execution proceedings. Although warrants for the attachment of the Matador were issued, the Bank did not execute them, stating that the vehicle was not traceable. Instead, the Bank sought attachment of the appellant’s Fixed Deposits (FDRs) with the said Bank, which were made with amounts received by him as pension and gratuity.

The Executing Court allowed the Bank’s application and ordered attachment of the appellant’s FDRs. The appellant moved the High Court against the order of attachment, and the High Court directed the trial Court to pass appropriate orders in light of the specific directions given in the judgment and decree dated December 19, 1994, for recovery of the decretal amount.

By its order dated November 1, 2002, the Executing Court directed the release of the appellant’s F.D.Rs and the pension amount, with a further direction that the hypothecated Matador was to be auctioned first in terms of the directions contained in paragraph 11 of the Judgment dated December 19, 1994. The Executing Court also held that amounts paid towards gratuity and pension could not be attached in view of the provisions of proviso (g) of Section 60(1) of the Code of Civil Procedure.

The Bank filed a Revision Petition against the said order of the Executing Court dated November 1, 2002, and also applied for interim orders therein. On October 15, 2003, the High Court directed the appellant to deposit Rs. 50,000 with the Bank and furnish details of the movable and immovable properties of the principal debtor. The appellant indicated that two Fixed Deposit Receipts belonging to him of over a total value of Rs. 50,000 were lying with the Bank and instead of cash deposit of Rs. 50,000 the said two Fixed Deposit Receipts could be adjusted against the said sum to be deposited and the balance, if any, could be returned to the appellant herein.

While disposing of the Revision Petition of the Bank, the High Court noted that the appellant had undertaken that he would furnish the Matador in question to the Bank for the purpose of auction within a period of one week and the Bank would be free to auction the same in accordance with the terms of the decree. It was also noted that the appellant was prepared to submit a solvent security for realization of the balance decretal amount, which may still remain due after the adjustment of 50,000/- and the sale price that would be fetched from the sale of the matador.

In light of the above, the order of the Executing Court was set aside, and in terms of the decree as also the order passed by the High Court on October 15, 2003, the amount of Rs. 50,000/- out of the appellant’s Fixed Deposit Receipts was directed to be adjusted in the first instance. It was also directed that on the Matador being furnished along with solvent security before the learned Executing Court by the appellant herein, the remaining amount under the Fixed Deposit Receipt would be released to him. It was further directed that on the Matador being produced, the decree holder Bank would be entitled to realize the decretal amount by sale of the Matador and while realizing the balance of the decretal amount, if any, through the solvent security to be furnished by the appellant herein, the Fixed Deposit Receipts, which were accepted to be the appellant’s retirement benefits, were to be returned to him.

On April 5, 2005, the appellant filed a Review Petition before the High Court in respect of the order dated February 28, 2005, on the ground that the Revisional Court had wrongly proceeded on the basis that the appellant had given an undertaking to furnish the Matador to the Bank and that he would also submit a solvent security for realization of the decretal amount, if any amount remained to be recovered by the Bank after sale of the Matador. The Review Petition filed by the appellant was dismissed in limine by the High Court on August 24, 2005, holding that no case had been made out in the Review Petition for review of the order dated February 28, 2005.

The Special Leave Petition is directed against the said orders of the High Court dated February 28, 2005 and August 24, 2005.

Legal Framework

The legal framework primarily revolves around Section 60(1)(g) of the Code of Civil Procedure (CPC), which provides an exemption from attachment for certain types of funds. Specifically, it states that:

“60. Property liable to attachment and sale in execution of decree.—(1) The following property is liable to attachment and sale in execution of a decree, namely, lands, houses or other buildings, goods, money, bank-notes, cheques, bills of exchange, hundis, promissory notes, Government securities, bonds or other securities for money, debts, shares in a corporation and, save as hereinafter mentioned, all other saleable property, movable or immovable, belonging to the judgment-debtor, or over which or the profits of which he has a disposing power which he may exercise for his own benefit, whether the same be held in the name of the judgment-debtor or by another person in trust for him or on his behalf:
Provided that the following particulars shall not be liable to such attachment or sale, namely:—
(a) * * *
(g) stipends and gratuities allowed to pensioners of the Government or of a local authority or of any other employer, or payable out of any service family pension fund notified in the Official Gazette by the Central Government or the State Government in this behalf, and political pensions;”

This section protects stipends and gratuities allowed to pensioners of the Government or of a local authority or of any other employer from being attached or sold in execution of a decree. The central question is whether this protection extends to such funds even after they have been received by the pensioner and converted into fixed deposits.

Arguments

Arguments on behalf of the Appellant (Radhey Shyam Gupta):

• Clarity of Trial Court’s Decree:
  ✓ The direction of the trial Court in its decree was clear, entitling the Bank to recover the decretal amount and cost of litigation by auctioning the hypothecated vehicle. If any amount remained unpaid after the auction, it could then be recovered from the other properties of the defendants.
• Order of Recovery:
  ✓ The sale of the Matador should occur first, and only after adjusting the sale price against the decree amount should the Bank proceed against other properties of the defendants.
• Protection of Fixed Deposit Receipts:
  ✓ The appellant’s Fixed Deposit Receipts (FDRs) could not be attached because they represented his retiral benefits, protected under proviso (g) to Sub-Section (1) of Section 60 of the Code of Civil Procedure.
• Nature of Retiral Benefits:
  ✓ Even after the retiral benefits were converted into Fixed Deposits, they did not lose their essential character and remained protected from attachment.
• Executing Court Cannot Alter Decree:
  ✓ The Executing Court cannot go behind the decree or alter its provisions, as affirmed in Rajasthan Financial Corporation v. Man Industrial Corporation Limited [(2003) 7 SCC 522] and State Bank of India v. M/s. Indexport Registered and others [(1992) 3 SCC 159].
• Maintainability of Revision Petition:
  ✓ The revision petition filed by the Bank before the High Court was not maintainable under Section 115 of the Code, as amended, because the order being challenged was an interlocutory order that did not finally dispose of the execution proceedings, citing Shiv Shakti Coop. Housing Society, Nagpur v. Swaraj Developers and others [(2003) 6 SCC 659] and Surya Dev Rai v. Ram Chander Rai and others [(2003) 6 SCC 675].

Arguments on behalf of the Respondent (Punjab National Bank):

• Untraceable Matador:
  ✓ Despite several attempts, the Matador could not be traced, leaving the Bank with no alternative but to proceed against the appellant as the guarantor for recovery of its dues.
• Application of Section 60(1)(g):
  ✓ Proviso (g) to Section 60(1) of the Code applies only to the source of the amounts received as retiral benefits (pension and gratuity) but not to payments made in respect thereof. Once such payments are made, their character is altered, and they become mixed with the other assets of the employee.
• Construction of Trial Court’s Directions:
  ✓ The decree should be interpreted pragmatically. If the vehicle cannot be apprehended, it could not have been the trial Court’s intention that the Bank’s decree would remain unsatisfied. An attempt should first be made to realize the decretal dues by selling the Matador, and thereafter, to realize the balance dues, if any, from the solvent security to be produced by the appellant.
• High Court’s Intervention:
  ✓ The order passed by the Executing Court on November 1, 2002, was final in nature and did not attract the bar under the proviso to Section 115(1) of the Code.

Submissions Table

Issues Framed by the Supreme Court

1. Whether the High Court erred in directing that a portion of the decretal amount be satisfied from the fixed deposit receipts of the appellant held by the Bank, having regard to proviso (g) to Section 60(1) of the Code of Civil Procedure?
2. Whether the High Court erred in placing the onus on the appellant to produce the Matador in question for being auctioned for recovery of the decretal dues?

Treatment of the Issue by the Court: “The following table demonstrates as to how the Court decided the issues”

Authorities

The Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Industrial Credit and Development Syndicate vs. Smithaben H. Patel and Ors., [1999 (3) SCC 80]: The Court relied on this case to emphasize the order of appropriation of payments towards a decretal amount.
• Rajasthan Financial Corporation v. Man Industrial Corporation Limited [(2003) 7 SCC 522]: The Court cited this case to support the principle that an Executing Court cannot go beyond the decree.
• State Bank of India v M/s. Indexport Registered and others [(1992) 3 SCC 159]: The Court referred to this case to reinforce the principle that the Executing Court cannot go beyond the decree.
• Calcutta Dock Labour Board and another v Smt. Sandhya Mitra and Others [(1985) 2 SCC 1]: The Court reaffirmed the principle that gratuity is not liable to attachment.
• Union of India v Wing Commander R. R. Hingorani [(1987) 1 SCC 551]: The Court reiterated the principle that gratuity is not liable to attachment.
• Gorakhpur University and others v Dr. Shitla Prasad Nagendera and others [(2001) 6 SCC 591]: The Court cited this case to support the principle that gratuity is not liable to attachment.
• Union of India vs. Jyoti Chit Fund and Finance and Others [(1976) 3 SCC 607]: The Court acknowledged this case but noted that its view had been considerably watered down by later decisions.
• Shiv Shakti Coop. Housing Society, Nagpur v Swaraj Developers and others [(2003) 6 SCC 659]: The Court referred to this case to support the argument that a revision petition is not maintainable against an interlocutory order.
• Surya Dev Rai v Ram Chander Rai and others [(2003) 6 SCC 675]: The Court cited this case to support the argument that a revision petition is not maintainable against an interlocutory order.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to protect the retiral benefits of pensioners from attachment for the satisfaction of court decrees. Several factors weighed heavily in the Court’s reasoning:

• Protection of Retiral Benefits: The Court emphasized that retiral benefits such as pension and gratuity are intended to provide sustenance to employees after retirement. Attaching these benefits would defeat this purpose and leave pensioners without a means of support.
• Interpretation of Section 60(1)(g) of CPC: The Court interpreted Section 60(1)(g) of the Code of Civil Procedure to mean that the protection afforded to retiral benefits extends even after they have been received by the employee and converted into fixed deposits. The Court reasoned that merely because the benefits have been received in cash, they do not lose their character as retiral benefits.
• Earlier Conflicting Decisions: The Court acknowledged its earlier decision in Union of India vs. Jyoti Chit Fund and Finance and Others [(1976) 3 SCC 607], which had taken a contrary view. However, the Court noted that this decision had been considerably watered down by later decisions, which supported the contention that retiral benefits remain protected even after being received in cash.
• Executing Court Cannot Alter Decree: The Court reiterated the principle that an executing court cannot go behind the decree or alter its provisions. The High Court’s alteration of the trial court’s decree was therefore erroneous.

Sentiment Analysis of Reasons Given by the Supreme Court

Ratio Table (Fact:Law)

Logical Reasoning

The Court’s logical reasoning can be summarized as follows:

Key Takeaways

• Protection of Retiral Benefits: Retiral benefits such as pension and gratuity are protected from attachment even after they have been received by the employee and converted into fixed deposits.
• Executing Court Cannot Alter Decree: An executing court cannot go behind the decree or alter its provisions.
• Importance of Section 60(1)(g) of CPC: This section plays a crucial role in safeguarding the financial security of pensioners.

Development of Law

The ratio decidendi of the case is that retiral benefits, such as pension and gratuity, retain their character as such and are protected from attachment under Section 60(1)(g) of the Code of Civil Procedure, even after they have been received by the employee and converted into fixed deposits. This decision reinforces the protection afforded to pensioners and ensures their financial security after retirement.

Conclusion

The Supreme Court’s judgment in Radhey Shyam Gupta vs. Punjab National Bank reaffirms the importance of protecting retiral benefits from attachment for the satisfaction of court decrees. The Court held that retiral benefits, such as pension and gratuity, retain their character as such and are protected under Section 60(1)(g) of the Code of Civil Procedure, even after they have been received by the employee and converted into fixed deposits. This decision ensures the financial security of pensioners and prevents them from being deprived of their means of sustenance after retirement.