TerraLex Cross-Border Guide to Guide to Tracing Assets Around the World

Asset tracing is a process of identifying the assets of an individual or a company, which may be available for the satisfaction of a debt or attachment. Through asset tracking, a claimant can obtain the following valuable information about the assets of a borrower or fraudster,

• What assets a borrower has;

• The value of assets;

• Ownership structure;

• Jurisdiction in which assets are located;

• Liquidity of available assets;

• Chances of recovery of debt.

Since the scope of asset tracing is wide, the administrative and legal recourse is available to the claimants in India. Like most other common law jurisdictions, property registries and annual financial statements (in the case of corporates) are the first steps toward identifying assets of a defaulter. It is important for the claimant to have enough information to locate and identify the assets.

Indian courts also provide for freezing injunctions (Mareva Injunction) to safeguard the interest of the plaintiff. A freezing injunction is passed where there is sufficient evidence or material to support the fact that the debtor is likely to act in a manner to obstruct or delay the execution of any decree that may be passed against him. Therefore, the assets of the debtor are frozen before arriving at the final judgment, to prevent him from disposing of the whole or any part of the property or removing the assets from the jurisdiction of the court.

There is no information publicly available about the assets of individuals. However, the following sources of information about a company’s asset are available for a fee -

• Ministry of Corporate Affairs (MCA) - all companies (domestic/ foreign) are required to furnish annual financial statements on the site of MCA, which may include details of the entity’s assets.

• Land Title Searches- With digitized land records, one can access the details of a property owned by a company. This is also possible in case the owner is an individual.

Following options are available for obtaining information to identify the assets or the asset holders- - Against third party-

A plaintiff can make an application for discovery of documents or information under the Code of Civil Procedure (CPC) from a third party that may be in a position to assist the court. If the court is satisfied that the information or documents sought are necessary, it can order such a third party to disclose documents or information in his possession.

• Against wrongdoer-

For the execution of a money decree, the decree-holder is required to disclose the particulars of a property which he seeks to attach for recovery of the money. A preliminary step for effective execution of the decree of payment of money would be to obtain information regarding the assets of the judgment debtor available to satisfy the debt. An application can be made in the relevant court for an order to examine what debts are owing to the judgment debtor and what property or means are available with the judgment debtor to satisfy the said money decree.

A court can also make an order, either on its own or on an application of an interested party under Section 30 of CPC for the production, admission or inspection of material objects, documents, and facts.

A temporary injunction or an order for attachment before final judgment can be obtained to protect assets under dispute on an interim basis. - A temporary injunction under Order XXXIX of CPC can be obtained against the property in dispute to restrain the judgment debtor from any act which may result in the sale, removal, or disposition of the property. Such a temporary injunction would continue to exist until the disposal of the suit or until further orders of the court. For obtaining such an order the plaintiff must satisfy the court about the existence of a prima facie case of irreparable loss and injury to the plaintiff in case the injunction is not granted.

• If the court is satisfied that the defendant is about to dispose of the whole or part of the property with the intent to obstruct or delay the execution of any decree, the court may order for attachment of property of the judgment debtor under Order XXXVIII Rule 5 of CPC, to protect the interest of the plaintiff. The court may direct the defendant to either furnish security or to produce said property sufficient to satisfy the decree.

A freezing injunction can be issued at any stage of a suit if the Court is satisfied, by an affidavit or otherwise, that the defendant is about to dispose of the whole or any part of the property, with intent to obstruct or delay the execution of any decree that may be passed against him.

Various judicial precedents have established the following grounds for obtaining a freezing injunction-

• A clear existence of a liability or a debt owing to the plaintiff.

• A plaintiff should make full disclosure of damages in case the judgment debtor is unable to satisfy the claims.

• Material evidence inferring risk of dissipation of assets.

Section 60 of CPC declares properties that are liable to be attached and sold in execution of the decree and which are exempt therefrom. All saleable properties belonging to the judgment debtor over which he has the right to disposal may be attached in execution of a decree. (Ramesh Himmatwal V. Harsukh Jadhavjo AIR 1975 SC 1470).

A court can order attachment with respect to an asset over which the defendant has joint ownership with a third party. Such attachment will depend upon the extent of the share of the defendant in the property in question and upon the discretion of the court.

A freezing injunction order cannot be issued for an asset over which the defendant has a beneficial title such as where he holds or appear to hold the asset on trust as a nominee for a third party.

Certain assets such as personal clothing, cooking vessels, tools of an artisan, homes of agriculturists, wages, salaries, right to future maintenance, books of accounts, rights of survivorship and agricultural land are exempt from the order of the attachment.

The property must be within the jurisdiction of the court concerned. However, if it is a case of attachment before judgment, all the properties or the sole property need not situate within the jurisdiction of the court as attachment is simply to secure the interest of the Plaintiff who should get the fruit of the decree, if and when, passed in his favour.

In India, a search order is executed by appointing a commission to make a local investigation under Order XXVI Rule 9 of CPC. Where the court deems a local investigation is required for the purpose of clarity in any matter in the dispute, or for ascertaining the market value of any property, or damages, the court may assign a person it deems fit to conduct an investigation and to report thereon to the court.

The purpose of such an order is not to collect evidence but to preserve the infringing evidence. For securing such an order, there must exist clear evidence that the defendant, against whom a case is pending, is in possession of some important documents which are useful for arriving at a just order and there are high chances of tempering such pieces of evidence.

Indian law provides for the execution of a money decree passed by the courts in the reciprocal territory (a country or territory outside India, notified as a reciprocal territory in the official gazette by the Central Government) under section 44A of CPC.

A freezing injunction is not a decree or final judgment in itself. A freezing injunction or search order cannot be obtained in support of proceedings outside India. In case any foreign court has passed any freezing injunction against any asset in India, the remedy for the decree-holder would be to file fresh proceedings in India based on the foreign judgment and in those proceedings take steps for an ex-parte interim injunction till the main proceedings are decided.

In India, enforcement of decree or final judgement from foreign court is allowed. As discussed in point eight, a freezing injunction obtained from a foreign court cannot be enforced against assets in India.