The Delhi High Court has held that a garnishee order cannot be issued against a third party unless the Court is satisfied that there exists a crystallised and enforceable liability owed by the garnishee to the judgment-debtor.

The Court observed that a garnishee order is a mechanism available to a decree-holder for satisfaction of a decree and cannot ordinarily be invoked where the debt itself remains disputed and unadjudicated.

The Court was hearing a petition challenging an order of a Commercial Court, which directed a project owner to deposit an amount equivalent to the suit claim in the form of a Fixed Deposit Receipt during the pendency of a recovery suit between a contractor and its subcontractor. The petitioner contended that it had no contractual relationship with the plaintiff and that no adjudication had determined any amount payable by it to the contractor.

A Bench of Justice Tejas Karia observed: “A garnishee is, in law, a debtor of the judgment-debtor. A decree-holder may proceed against a garnishee only where the judgment-debtor has a presently enforceable right to recover the debt from such garnishee. It is well settled that, while considering an order against a garnishee, the Court must first ascertain whether the debt is in fact due and payable by the garnishee to the judgment-debtor. Where the garnishee has not admitted the debt, the Court cannot compel the garnishee to deposit any amount on account of the judgment-debtor.”

Advocate Mohit Arora appeared on behalf of the petitioner. Advocate Alok Bhachawat appeared on behalf of the respondents.

Background

The dispute arose out of a construction project awarded by the petitioner to Respondent No. 2. The project was subsequently subcontracted to Respondent No. 1. Following disputes relating to payments, the subcontract arrangement came to an end, and the parties entered into a settlement agreement under which Respondent No. 2 allegedly agreed to pay a specified amount to Respondent No. 1 in full and final settlement of its claims.

According to Respondent No. 1, the settlement amount remained unpaid despite the issuance of cheques and subsequent demands. A commercial suit was therefore instituted seeking recovery from Respondent No. 2. The petitioner was also impleaded, and reliefs were sought restraining the release of amounts allegedly payable by the petitioner to Respondent No. 2 and directing the deposit of such amounts before the Court.

During the pendency of the suit, the Trial Court modified an earlier status quo order and directed the petitioner to deposit an amount equivalent to the suit claim in the form of an FDR before the Court. Aggrieved thereby, the petitioner approached the High Court.

Court's Observations

The Court identified the principal issue as whether, in the absence of any adjudicated liability and in the absence of a direct claim against the petitioner, the Trial Court was justified in directing the deposit of the suit amount.

Examining the nature of garnishee proceedings, the Court held that such proceedings are founded upon the existence of a debt presently due and recoverable by the judgment-debtor from the garnishee.

The Bench observed: “Thus, a garnishee order, which enables a judgment-creditor to obtain satisfaction of its claim, may be invoked by a decree-holder only where the debt is either undisputed or where the dispute appears to the Court to be frivolous and devoid of substance. Such a remedy is unavailable where there exists a substantial and bona fide dispute in respect of the debt sought to be attached.”

The Court further emphasised that garnishee jurisdiction arises only after satisfaction of certain foundational requirements.

Explaining the legal position, the Bench observed: “Therefore, a garnishee order can be passed only once the Suit is decreed and once the Court is satisfied that a garnishee has a crystallised liability towards the judgment-debtor.”

Applying these principles to the facts of the case, the Court found that neither of the essential conditions had been satisfied. The suit was still pending adjudication, and no determination had yet been made regarding the liability of Respondent No. 2 towards Respondent No. 1. At the same time, there was no finding that the petitioner owed any crystallised amount to Respondent No. 2.

The Court observed: “In the present case, the Suit is yet to be adjudicated and there is no adjudication or determination of liability by Respondent No. 2. Further, the Impugned Order does not record the crystalized liability of the Petitioner to make payment of the Suit Amount to Respondent No. 2. In absence of both the conditions having been satisfied, the Impugned Order directing the Petitioner to deposit the Suit Amount with the learned Trial Court could not have been passed.”

The Court also rejected the contention that statements made before the Trial Court regarding withholding of funds amounted to an admission of liability.

The Bench observed: “The statement made by the Petitioner before the learned Trial Court as recorded in order dated 26.09.2022 regarding withholding of the Suit Amount cannot be construed as an admission of liability by the Petitioner. A willingness to preserve an amount pending adjudication cannot be equated with an acknowledgement that the amount is due and payable.”

Referring to the nature of the suit itself, the Court noted that the proceedings had not been instituted as a garnishee action and that no enforceable right had been established against the petitioner.

The Bench observed: “Consequently, the liability, if any, of the Petitioner towards Respondent No. 2 is not admitted or crystallised. The present Suit has also not been framed as a garnishee action. Therefore, there is no legal basis for asserting any enforceable right against the Petitioner.”

The Court further noted that during the pendency of proceedings, the Trial Court had deleted the petitioner from the array of parties after holding that there was no privity of contract between the plaintiff and the petitioner and that the petitioner was neither a necessary nor a proper party to the suit. The order deleting the petitioner had attained finality.

Addressing the authorities cited by the plaintiff, the Court held that those decisions did not support the issuance of a garnishee order in the absence of an admitted or crystallised liability. The Bench noted that the precedents themselves recognised that garnishee proceedings cannot be used to compel the deposit of disputed amounts.

The Court ultimately concluded: “In the absence of any finding that the Suit Amount is due and payable by the Petitioner to Respondent No. 2, the Impugned Order directing the Petitioner to deposit the Suit Amount in the form of an FDR before the learned Trial Court cannot be sustained as there is no crystallised liability based on which such direction could have been passed.”

Conclusion

The Delhi High Court held that the Trial Court could not have directed the petitioner to deposit the suit amount in the absence of any adjudicated liability or crystallised debt owed to the judgment-debtor.

Holding that the essential requirements for issuance of a garnishee order were absent, the Court allowed the petition and set aside the impugned order.

Cause Title: NBCC India Limited v. GNC Infra LLP & Anr. (Neutral Citation: 2026:DHC:4875)

Appearances

Petitioner: Advocate Mohit Arora

Respondents: Advocate Alok Bhachawat, Ishan Jain and Vishnu Dhangal

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