Temporary injunctions, receivers and the prima facie case test

Section 94 of the Code allows the court, where prescribed and to prevent the ends of justice being defeated, to grant a temporary injunction and commit a person who disobeys it to civil prison and attach and sell his property, to direct the defendant to furnish security or order attachment, to appoint a receiver, and to make other interlocutory orders that appear just and convenient. The prescription is in the First Schedule: Order XXXVIII for arrest and attachment before judgment, Order XXXIX for temporary injunctions and interlocutory orders, and Order XL for receivers.

Order XXXIX Rule 1 covers property in dispute that is in danger of being wasted, damaged or alienated, or wrongfully sold in execution; a defendant who threatens to remove or dispose of property with a view to defrauding creditors; and a defendant who threatens to dispossess the plaintiff or otherwise cause injury in relation to the property in dispute. Rule 2 covers a suit to restrain a breach of contract or other injury, and lets the plaintiff apply at any time after the suit is filed, before or after judgment, for an injunction against the breach complained of or a breach of a like kind. Under Rule 2(2) the court may impose terms as to duration, keeping an account and giving security.

The Specific Relief Act sits beside the Code. Section 36 makes preventive relief discretionary, section 37(1) says temporary injunctions are regulated by the Code, and section 37(2) says a perpetual injunction can only be granted by the decree at the hearing on the merits. Keep the two apart in the plaint: the prayer for a perpetual or mandatory injunction is final relief under sections 38 and 39, and the interlocutory application is under Order XXXIX.

The court asks whether there is a strong prima facie case, whether the balance of convenience favours the applicant, and whether the applicant will suffer irreparable injury if relief is refused. The affidavit has to carry the evidence for each. For a prima facie case, the contract, the title documents or the correspondence that shows the right. For balance of convenience, what each side loses if the order is made or refused. For irreparable injury, why money will not put the applicant back where it was.

Section 41 of the Specific Relief Act can end a commercial application before the three-part test is reached. An injunction cannot be granted to prevent the breach of a contract the performance of which would not be specifically enforced (clause (e)), when equally efficacious relief can certainly be obtained by any other usual mode of proceeding (clause (h)), when the plaintiff's conduct disentitles it to the court's assistance (clause (i)), or to restrain proceedings in a court not subordinate to the court asked for the injunction (clause (b)). Section 14 lists the contracts that cannot be specifically enforced, including one involving a continuous duty the court cannot supervise and one that is by its nature determinable. An application to hold the other side to a contract that is by its nature determinable meets both sections, and what is left is a claim for damages.

Clause (ha) of section 41 and section 20A add a bar for infrastructure projects. No injunction is granted in a suit involving a contract relating to an infrastructure project specified in the Schedule where it would cause impediment or delay in the progress or completion of the project. The Schedule was inserted by Act 18 of 2018 with effect from 1 October 2018, and covers categories such as transport, energy, water and sanitation, communication, and social and commercial infrastructure.

Order XXXIX Rule 3 requires the court in all cases to direct notice of the application to the opposite party before granting an injunction, except where the object of granting it would be defeated by the delay. If the court proposes to grant it without notice, the proviso requires it to record its reasons for that opinion. The applicant must then deliver or send by registered post to the other side, immediately after the order, a copy of the application with the supporting affidavit, the plaint and the documents relied on, and file an affidavit of compliance on the day the injunction is granted or the next day.

Rule 3A asks the court to endeavour to dispose of the application finally within thirty days from the date an ex parte injunction is granted, and to record its reasons if it cannot. Shiv Kumar Chadha held that recording reasons under the proviso to Rule 3 is not a formality, and that an ex parte order should be limited in duration and followed by service. Under the first proviso to Rule 4, where the injunction was granted without notice and the applicant knowingly made a false or misleading statement on a material particular, the court shall vacate it unless it records reasons why that is not necessary in the interests of justice.

Section 39 of the Specific Relief Act allows the court, where it is necessary to compel the performance of certain acts to prevent the breach of an obligation, to grant an injunction to prevent the breach and to compel performance of the requisite acts. In Dorab Cawasji Warden v. Coomi Sorab Warden (1990) 2 SCC 117 the Supreme Court restored a trial court's interim mandatory injunction directing a purchaser to vacate a family dwelling house, on findings of a strong case for trial, irreparable injury and the balance of convenience, where the sale and the induction into possession had been clandestine.

In a commercial suit, an application to compel the other side to keep performing a contract it has terminated runs into section 41(e) and section 14. The usual framing is a prohibitory order to preserve the subject matter, such as restraining the defendant from dealing with a third party, as the Supreme Court did under section 9 of the Arbitration Act in Adhunik Steels Ltd. v. Orissa Manganese and Minerals Pvt. Ltd. (2007) 7 SCC 125.

Order XXXVIII Rule 5(1) applies where the court is satisfied, by affidavit or otherwise, that the defendant, with intent to obstruct or delay the execution of any decree, is about to dispose of the whole or part of his property or remove it from the court's local limits. The court may direct the defendant to furnish security to produce the property or its value, or to appear and show cause why he should not. Under Rule 5(2) the plaintiff specifies the property and its estimated value, and Rule 5(4) makes an attachment made without complying with sub-rule (1) void. In Raman Tech. and Process Engineering Co. v. Solanki Traders (2008) 2 SCC 302 the Supreme Court set aside a High Court order directing the defendants to furnish security for the suit amount, where the trial court had rejected the application for attachment before judgment.

Order XL Rule 1 lets the court, where it is just and convenient, appoint a receiver of any property before or after decree, remove a person from possession, and confer on the receiver powers of management, collection of rents and profits and the execution of documents. Rule 1(2) bars removing from possession anyone whom a party to the suit has no present right to remove.

Section 95(1) of the Code applies where an arrest, attachment or temporary injunction under section 94 was applied for on insufficient grounds, or where the suit fails and there were no reasonable or probable grounds for instituting it. The defendant may apply and the court may award reasonable compensation for the expense or injury, including injury to reputation, not exceeding fifty thousand rupees and not beyond its pecuniary jurisdiction. Section 95(2) makes the order a bar to any separate suit for compensation in respect of the same arrest, attachment or injunction.

Because the statutory figure is capped, a defendant facing an injunction that will cost it a contract or a season's trade should ask the court to put the applicant on terms under Order XXXIX Rule 2(2), such as security or an account, at the time the order is made.

Order XXXIX Rule 4 lets any dissatisfied party apply to discharge, vary or set aside an injunction. Under the second proviso, an order made after a party was heard is not to be discharged or varied on that party's application except on a change in circumstances or where the order has caused undue hardship. Order XLIII Rule 1(r) makes an order under Rule 1, Rule 2, Rule 2A, Rule 4 or Rule 10 of Order XXXIX appealable; Order XXXIX itself stops at Rule 5, so the reference to Rule 10 is a leftover cross-reference in the Code and the appealable orders are those under Rules 1, 2, 2A and 4. Rule 1(s) does the same for an order under Rule 1 or Rule 4 of Order XL. In a commercial suit of Specified Value, the appeal goes to the Commercial Appellate Division under section 13(1A) of the Commercial Courts Act, 2015 within sixty days.

Section 9 of the Arbitration and Conciliation Act, 1996 gives the court the power to grant interim measures before or during the arbitration or after the award until enforcement, including an interim injunction or a receiver. Where the court acts before the arbitration begins, the proceedings must commence within ninety days of the order or such further time as the court allows, and once the tribunal is constituted the court will not entertain the application unless the remedy under section 17 may not be efficacious. Adhunik Steels held that section 9 is not wholly independent of the principles in the Specific Relief Act and the Code, so the same three requirements and the section 41 bars are argued.

The tribunal's own orders under section 17 are deemed to be orders of the court and are enforceable under the Code. A court order made before the reference stays in force until the tribunal or the court varies it, so the applicant should ask the tribunal to continue or replace it at the first procedural hearing. The arbitration practice guide in this hub covers the reference itself.