State Bank of India & Ors v Mallya & Ors

An interim third-party debt order is a routine enforcement procedure, not exceptional relief. An applicant must provide accurate evidence and make disclosure on a without-notice application. The scope of disclosure depends on the circumstances, and increases where the grounds for the order are debatable or its consequences may be severe.

On further consideration, the court has a broad discretion. It must consider all relevant circumstances, including developments after the interim order, and act equitably between the judgment creditor, judgment debtor and other unsecured creditors. Pending bankruptcy proceedings are relevant but do not automatically prevent the order from being continued or made final.

The claimants sought a final third-party debt order after an interim order had attached £258,559.79 in Dr Mallya’s bank account. The underlying judgment debt exceeded £1.142 billion and had been registered in England. Bankruptcy proceedings had subsequently been presented, but the bankruptcy petition had not yet been heard.

The first defendant opposed the order on grounds including non-disclosure, inconsistency with the bankruptcy regime, oppression, interference with permitted living and legal expenses, and the existence of security. The court considered whether the interim order should be set aside and, if not, whether it should be made final.

1. Interim order continued; final determination adjourned. The court held that the interim third-party debt order should remain in force, but adjourned the application for a final order until after the hearing of the bankruptcy petition.
2. The applicant for an interim third-party debt order must provide accurate evidence and comply with a duty of disclosure. The extent of that duty depends on the circumstances. Greater disclosure is required where the grounds for the order are debatable or the consequences may be severe. The more demanding disclosure principles applicable to freezing orders should not be imported wholesale into this established paper procedure.
3. The existence of bankruptcy proceedings was not fatal to the application. Their proper significance arose on further consideration under CPR 72.8. Personal bankruptcy commences on the making of the bankruptcy order, and section 346(1) of the Insolvency Act 1986 was relevant to whether enforcement completed before that commencement could be retained.
4. In exercising the discretion under CPR 72.8, the court had to consider all relevant circumstances, whether arising before or after the interim order, and do equity between the judgment creditor, judgment debtor and other unsecured creditors. The pending petition, the uncertain merits of the opposition, the interests of other creditors and the timing of the petition hearing all weighed against making the order final immediately.
5. The allegations that the order was a deliberate attempt to defeat permitted living and legal expenses, and that non-disclosure of the worldwide freezing order or settlement offer was material, were rejected. No hardship application had been made, and the non-disclosure was not material to the paper decision.