Garnishee Order cannot be passed without crystalised liability or adjudicated debt during pendency of a suit.

NBCC (Petitioner) awarded a construction contract to Respondent No. 2, who subsequently sub-contracted the work to GNC Infra (Respondent No. 1).

Due to payment disputes, Respondent Nos. 1 and 2 entered into a Settlement Agreement on 20.11.2018 for Rs. 1,00,00,000/-, but the cheques issued by Respondent No. 2 were dishonored.

Respondent No. 1 filed a recovery suit against Respondent No. 2, impleading the Petitioner as a pro-forma party (Defendant No. 2) to restrain them from releasing payments to Respondent No. 2.

On 27.09.2022, the Trial Court modified a previous status quo order and directed the Petitioner to deposit the suit amount (Rs. 1,48,73,337/-) in a Fixed Deposit Receipt (FDR) before the court.

During the pendency of this petition, the Trial Court deleted the Petitioner from the array of parties on 01.08.2024, holding they were neither a necessary nor proper party.

1. Whether, in the absence of a crystallized liability or direct claim against a third party (garnishee), the Trial Court was justified in directing said party to deposit the suit amount before the court.

2. Whether the interim direction to deposit funds survives after the Petitioner has been deleted from the array of parties in the suit.

The court applied the law governing garnishee orders under Order XXI Rules 46 and 46A of the Code of Civil Procedure (CPC), 1908.

It established that a garnishee order is generally a post-decree remedy where the court must first ascertain if a debt is "presently enforceable" and "due and payable" by the garnishee to the judgment-debtor.

The court relied on Value Advisory Services v. ZTE Corporation (2009) and VR Wonder Electricals and Electronics v. C-Quest Capital Green Ventures Pvt. Ltd. (2012) to affirm that while interim directions can affect third parties, they cannot be compelled to deposit disputed amounts in the absence of an admitted or adjudicated debt.

The High Court observed that the Petitioner had no privity of contract with Respondent No. 1 and that the Trial Court failed to record any crystallized liability of the Petitioner towards Respondent No. 2.

The court reasoned that a garnishee is a "debtor of the judgment-debtor," but in this case, the suit was still pending and no decree had been passed against Respondent No. 2.

The Trial Court’s reliance on the Petitioner’s alleged "no objection" was found to be a misconstruction; willingness to preserve an amount pending adjudication is not an admission of liability.

Furthermore, the Petitioner’s deletion from the suit by the Trial Court on 01.08.2024—on the grounds that the Petitioner was not a necessary party—rendered the specific direction to deposit the suit amount legally unsustainable and "moot".

The court set aside the Impugned Order dated 27.09.2022, allowing the petition and discharging the Petitioner from the obligation to deposit the suit amount.