Railways' SCR Treasury Account Not Immune To Attachment Without Proof Of Exempt Funds: Telangana High Court

The Telangana High Court has recently held that the Railways' SCR treasury account is not immune from attachment in execution proceedings in their entirety and that only specifically identifiable exempt amounts can be protected.

Clarifying that exemptions under Section 60 of the Civil Procedure Code apply only to identifiable portions of funds and not entire accounts, the Court said,

“It is also pertinent to note that the proviso to section 60(1) of the CPC carve-out exceptions from attachment in respect of 'the following particulars' which indicates that only certain specified amounts are immune from attachment, as opposed to the entire account itself. The appellant, however, seeks to take advantage of the proviso to section 60(1) of the C.P.C. in respect of the entirety of the Treasury Account", the court observed.

A Division Bench comprising Justice Moushumi Bhattacharya and Justice Gadi Praveen Kumar dismissed a Commercial Court Appeal filed by the Union of India (Ministry of Railways) challenging the attachment of its bank account during execution of an arbitral award.

The appeal arose from execution proceedings initiated by Krishnapatnam Railway Company Ltd against the Ministry of Railways pursuant to an arbitral award of over Rs 584 crore with interest. In the course of execution, the Commercial Court directed the State Bank of India, as garnishee, to withhold funds lying in the Railways' SCR treasury account pursuant to an order of attachment.

Challenging this, the Railways filed an application seeking release of the account from attachment, contending that the account contained statutorily exempt funds, including provident fund and insurance-related amounts, and that the mandatory procedure under Order XXI Rules 46 and 46A of the Civil Procedure Code had not been followed.

According to the Railways, a mandatory notice had to be issued to the garnishee before attaching the amount lying in the treasury account under Order XXI Rule 46A, which the Commercial Court failed to comply with.

The Commercial Court rejected the Railways' objections, leading to the appeal before the High Court.

On the objection that the treasury account contained provident fund deposits used for payment of insurance premiums, the Court noted that the Railways claimed exemptions under Section 60 of CPC, relating to compulsory deposits, sums derived from provident funds, life insurance policies and emoluments of government servants.

“The appellant has however failed to provide particulars or cogent evidence regarding the nature of the property or its eligibility for exemptions under the proviso to section 60(1). The burden of proof lies squarely on the party, who seeks to avail the benefit of such exemptions (in this case, the appellant/Judgment Debtor No.1), to establish that the property is not liable for attachment or sale under section 60(1) of the C.P.C; Govindan A Vs. Govindarajan KK1.” it stated.

Regarding the second objection that the Commercial Court failed to issue notice to the garnishee prior to passing the attachment order, the bench observed that the case deals with movable property being money not in the possession of the Railways but in possession of the garnishee.

“As stated above, Order XXI Rule 46A is only for the purpose of giving an opportunity to the Garnishee to show cause or challenge the notice issued by the Court to the Garnishee on an application made by attaching creditor.”

Noting that the bank had filed a memo stating that it had complied with the attachment order, the Court held:

“Therefore, Order XXI Rule 46A ceases to have any application once the Garnishee has reported compliance of order of attachment made under the preceding provision, i.e., Order XXI Rule 46 of the CPC.”

The court further noted that the Railways had not pressed for its application for stay of the award and therefore the award remained enforceable.

“The appellant's objections lack any statutory basis and are clearly intended to delay the execution of the Award, thereby reducing the Award to a mere 'paper decree,'" it stated.

Accordingly, the court dismissed the appeal and upheld the order of the Commercial Court.

For Appellant: Advocates Sanjeev Kumar and P Enosh Nithin Joy

For Respondent: Senior Advocate Avinash Desai and Advocate Kopal Sharraf