The person who holds possession under agreement in expected to act pending suit as Receiver on behalf of the court and his possession cannot be disturbed and no application of other party for appointment of Receiver can be entertained.
Bokaro v. State of Bihar:
In the matter of appointment of receiver of the property in dispute before it, the court has wide discretion. But it will not appoint a receiver unless from the materials brought to its notice it is satisfied that it is just and convenient to do so.
Different considerations will arise in different cases; but in a case of disputed title where’ the plaintiff seeks recovery of possession, the court will appoint a receiver if it is satisfied on two matters: (1) that the title which the plaintiff has set up is prima facie good; and (2) that the property is in danger of being so dealt with as to get irretrievably out of the reach of the plaintiff who is prima facie entitled to its possession.
A receiver should be appointed not only where it is necessary for the realization, preservation or better custody or management of any property, movable or immovable, the subject of a suit or attachment, but also where it appears to the court to be just and convenient.
But the bona fide possessor of the property should not be disturbed by the appointment of a receiver unless some substantial ground for such interference has been made out and there is a well-founded fear that the property will be dissipated unless the court gives its protection.
A receiver should not be appointed merely because no harm would be done by such appointment. Nor should he be appointed because the relationship between the parties is strained. He should also not be appointed where no risk of loss is made out.
Satisfaction of court for appointment of receiver is only necessary:
The words of Order XL, Rule 1, make it abundantly clear that the court would be justified in appointing a receiver where it is satisfied that it would be just and convenient. It cannot, therefore, be said that it is only in the case where there is an application by the plaintiff for the relief that a receiver could be appointed.
The words ‘appoint a receiver of any property’ are also significant. The fact that in a partition action, the defendant asking for appointment of a receiver only claims the properties, to be his own separate property and resists the suit of the plaintiff for partition and does not claim any relief, would not matter so long as the court is convinced that it would be just and convenient to appoint a receiver for the protection of the interests of the parties. The rule is intended to safeguard the interest of the parties pending final disposal of the suit.
The suits instituted by Bank and financial institutions for realisation of loans advanced to borrowers form a class by itself. The amounts advanced by the Nationalist Bank or the financial institutions are out of the funds deposited by common citizens and the loans are advanced with a view to generate more employment and creation of additional wealth.
To hold that the Receiver should not be appointed unless it appears that sale proceeds of the properties secured or other securities are insufficient to satisfy the claim or Receiver should be appointed only in extreme cases and where the interest of the creditor is exposed to manifest peril would lead to serious prejudice.
The experience indicates that huge amounts are secured from Banks and financial institutions and repayment is refused for no valid reason. The institution of the suit and the pendency of the suit enables the defendants to create more encumbrances on the properties and some of the encumbrances are like failure to pay income-tax, property taxes, provident fund dues of the employees, etc.
All these liabilities though subsequent to the date of the institution of the suit have a preferential claim of recovery and that leaves the Bank without any real relief after obtaining the judgment.
It is the duty and function of the court entertaining the suits instituted by Banks and financial institutions to ensure that efforts are made to dispose of the suits as early as possible and even during the pendency of the suits ensure that not only the properties are protected but the defendant is made to repay the amount, if desirous of enjoying the benefits secured by obtaining the loan.
The powers of the Court under Order XL, Rule 1, C.P.C. are to be exercised to advance cause of justice and what is ‘just and convenient’ depends upon the nature of the claim and the surrounding circumstances. The Court should not close eyes to the realities and blindly follow the principles laid down 50 years before when the suits by Banks and financial institutions were a novelty.
Limitation of the court’s power:
The court’s power to appoint a receiver is limited to the case where the proceedings are still pending before it. It has no power to direct the appointment or the continuance of a receiver to hold charge of property after the litigation has been determined, and the property has ceased to be the subject-matter of litigation.
Selection of Receiver:
A party to litigation should not, in the absence of exceptional circumstances, be appointed a receiver. He should be an impartial person wholly disinterested in the subject-matter of the suit.
Powers of Receiver:
Being a servant of the court, a receiver has only such power and authority as is conferred on him by the court. His powers are entirely conditioned by the term of his appointment, which may be varied by the court subsequently.
The court may confer upon him all such powers, mentioned in Order XL, Rule 1 (1) (d), viz. as to bringing and defending suits and for the realization, management, protection, preservation and improvement of the property, the collection of the rents and profits thereof, the application and disposal of such rents and profits, and the execution of documents as the owner himself has, or such of those powers as the court thinks fit.
Under Order XL, Rule 1, a receiver is an officer or representative of the court and he functions under its directions. The court may for the purpose of enabling the receiver to take possession and administer the property by order remove any person from the possession or custody of the property. Further, when a person is a party to the suit, the court can direct the receiver to remove him from the possession of the property even if the plaintiff has not a present right to remove him.
Thus where the appellant was a party to the suit and the court, through the receiver, took possession of certain mills and thereafter the receiver, during the course of the administration of the property under compromise arrangement for running the mills, leased out one of the mills to the appellant with an express condition that the appellant should re-deliver the property to the receiver on the expiry of the lease and the term of the lease had expired, it was held that the court was legally competent to confer a power on the receiver under Order XL, Rule 1 (1) (d) to recover the property from the appellant.
It was further held that this was a simple case of a court in the course of its administration of the estate through the agency of a receiver making a suitable provision for the running of the mills. As the agreed term had expired, the court could certainly direct the appellant to put the mill in the possession of the receiver and no question of deciding the conflicting claims of a lessee and a third party arose in the case.
On appointment of receiver the property is not vested in receiver or in court free from incumbrances even pendente lite. The court becomes custodia legis of the suit properties and de jure possession of court is exercised through the receiver. Rights and obligations of third parties in respect of properties remain unaffected. Court or receiver cannot interfere with the rights of third parties. Court and its officer, the receiver, has no higher right than the right a party to the suit has.
Where receiver is appointed to property in which tenants are protected by Rent Act, the complaints of receiver against tenants cannot be decided in summary which might expose tenant to eviction. Court cannot pass orders affecting the rights of such tenants, but illegal and unauthorised activity of tenant not consistent with rights of tenancy can be prevented by the court.
When a receiver is appointed under Order XL, Rule 1 the property is in custodia legis. The receiver is an officer or representative of the Court. His possession is possession of the Court through receiver and when he is appointed to receive rent and profits of immovable property, the tenant becomes virtually the tenant of the court and the Court becomes his landlord. Therefore, the receiver is competent to bring a suit for ejectment against the tenant on the authority of the Court’s permission.
In order to justify the appointment of a receiver, the plaintiff must establish a reasonable possibility that he will ultimately succeed in obtaining that relief claimed in the suit. The requirement thus is that he must establish a good prima facie case. It may further be remembered that the appointment of a receiver is, as a general rule, discretionary, and not a matter of right.
A court will make an appointment of a receiver with great caution and circumspection. In a case where the remedy of the appointment of a receiver seems necessary to prevent fraud, to protect and preserve the property against an imminent danger of loss or diminution in value, destruction, squandering, wastage or removal from jurisdiction, court may appoint a receiver.
A court in exercise of its discretion to appoint or refuse to appoint a receiver must take into account all the circumstances and facts of the case, the presence of conditions and grounds justifying the relief, ends of justice, the rights of all the parties interested in the subject-matter and the adequacy of other remedies.
It may be said in general way that a receiver has no powers except such as are conferred upon him by the order by which he is appointed. Under Order XL, Rule 1 the court may grant to the receiver such powers as to bringing and defending suits and for the realization, management, protection, preservation and improvement of the property, the collection of rents and profits thereof, the application and disposal of such rents, and the execution of instruments in writing, etc. as the owner himself has or such of those powers as the court thinks fit.
It is open to a court not to confer all these powers stated in Order XL, Rule 1. It may confer upon him only such powers as may be necessary to preserve the property pending litigation so that it may not be damaged or dissipated.
There is no such law that the issue of a temporary injunction affects the rights of the plaintiff to get the receiver appointed. A receiver can be appointed even after the issue of injunction if exigencies of the situation require it and the court feels that it would be just and convenient to make an order in that respect.
The duties of a receiver are enumerated in Rule 3 of Order XL. That rule provides—
Every receiver so appointed shall—
(i) Furnish such security (if any) as the court thinks fit, duly to account for what he shall receive in respect of the property;
(ii) Submit his accounts at such periods and in such form as the court directs;
(iii) Pay the amount due from him as the court directs; and
(iv) Be responsible for any loss occasioned to the property by his wilful default or gross negligence.
He is expected to keep his accounts and vouchers ready for examination at any time.
It is not always necessary that a receiver should take immediate possession of the estate but his general duty is not discharged by not taking possession of the subject-matter of the dispute for a long time after his appointment and by not doing all acts of ownership, despite the court’s directions.
The mere fact that an application for setting aside the appointment of the receiver is made by a party to the dispute is no ground for his not taking steps for recovery of the properties. Even when a party is asserting his title and exclusive interest without bringing an action in law and without having obtained the leave of the court, he will be enjoined to make over possession of the movables regardless however clear his right may be.
It is not open to any party to question by disobedience the orders of the court or the appointment of the receiver. While the orders exist, they must be obeyed and it ought, on all occasions, to be inflexibly maintained. If a party is prejudiced by the appointment, he can only apply to the court for setting it aside.
As such the receiver cannot say for his failure to take possession, that the parties are claiming exclusive interest in some of the properties. The fact of party’s possession does not give him the privilege to interfere with the receiver.
The first duty of the receiver is to collect the assets. If a party in possession refuses to deliver it, the receiver may proceed against him or can act according to the direction of the court.
The purpose of receivership is to preserve the fund of the estate but not to retain it for his personal use. Even if such fund is in his hand for a short period, its proper investment is essential. The receiver will, therefore, be personally liable for every loss resulting from his acting without or beyond his appointment.
The receiver cannot be allowed to make profits out of the property he handles. The fund is always regarded as fund in custody of the Court and as such it is always his duty to let the Court know its actual condition.
Though the receiver has discretion, it is not the limit of the expenditure and he is amenable to the Court’s judgment as to the necessity of such expenditure. The correctness of expenditure must appear from something more than the statement made by him in his report.
The receiver’s duty is not finished and is not limited only to collection of amounts actually made. He is responsible both for sums actually received and for those which might have been received by him but for his wilful neglect and default. For this, he will be surcharged on his accounts.
When it is found that the receiver has made a loss to the estate by breach of his duty, he has to make good such loss. But such loss must be traced to his neglect. It cannot also be said that it is not his duty to find out the liabilities of the estate and this should be avoided unless the law compels that conclusion.
It is essential that he is absolutely free from any influence of the parties and nothing should be done which might lend a colour or to any suggestion that he is concerned with the interest of any particular party or with any matter other than the preservation and protection of the property as a whole. He should maintain the rule that the guidance is to be sought only from the Court and not from any party.
The receiver does not enjoy a wider measure of protection than is given to other accounting persons in a fiduciary position.
Liability of Receiver:
A receiver is personally liable for breach of contracts for which sanction of the court has not been obtained.
Application for summoning before court receiver for serious allegations against him cannot be dismissed without examining the merits of allegations against him.
Enforcement of Receiver’s Duties:
When a receiver fails to submit his accounts at such periods and in such form as the court directs, or fails to pay the amount due from him, as the court directs, or occasions loss to the property by his wilful default or gross negligence, the court may direct his property to be attached and may sell such property, and may apply the proceeds to make good any amount found to be due from him or any loss occasioned by him, and shall pay the balance (if any) to the receiver. (Order XL, Rule 4).
Position of Receiver:
A receiver is a servant of the court and not the legal representative or assignee of the parties to the suit. He is a public officer appointed for the benefit of all concerned. He is the representative and also an officer of the court subject to its orders. His possession is the possession of the court by its receiver.
He does not represent the estate, but is merely an officer of the court and, as such, cannot sue and be sued for acts done in his official capacity by a third party except with the leave of the court appointing him. A receiver appointed by the court cannot be sued without notice under S. 80 of the Civil Procedure Code. Property in the hands of a receiver cannot be attached without the leave of the Court first obtained.
When a receiver is appointed in execution under S. 51, he has all the powers under Order XL, Rule 1, that is, power of a receiver appointed in ordinary suits and proceedings other than execution proceedings.
The negative effect of the receiver appointed in execution proceedings is that the judgment-debtor is prevented from collecting amounts due from the garnishee. Any payment made by the garnishee to the judgment-debtor would not operate as a discharge but the garnishee would still continue to be liable to pay to the receiver.
Where a decree-holder is appointed as a receiver he collects the debts not as his own money. He cannot appropriate or adjust it towards the amounts due from the judgment-debtor. He does not either step into the shoes of the judgment-debtor or act as a representative of the decree-holder. He acts merely as the officer of the court. The fruits of the litigation realised by the receiver are therefore subject to the control and supervision by the Court.
The receiver acts as an officer of the court for the purpose of getting the fruits of the litigation into the custody of the Court, i.e., custodia legis.
It is sufficient to extract the following observations from Venkata Mallayya v. T. Ramaswami and Co., to emphasise that the receiver, when once appointed, must take all the necessary steps to safeguard the interest of the judgment-debtor to file a suit to recover the entire amount due and that too before it gets barred by limitation.
“On the whole, we are disposed to take the view that, although a receiver is not the assignee or beneficial owner of the property entrusted to his care, it is an incomplete and inaccurate statement of his relation to the property to say that he is merely its custodian. When a Court has taken property into its own charge and custody for the purpose of administration in accordance with the ultimate right of the parties to the litigation it is in custodia legis.
“The title of the property for the time being, and for the purpose of the administration, may, in a sense, be said to be in the Court. The receiver is appointed for the benefit of all concerned; he is the representative of the Court, and of all parties interested in the litigation, wherein he is appointed. He is the right arm of the Court in exercising the jurisdiction invoked in such cases for administering the property; the Court can only administer through a receiver. For this reason, all suits to collect or obtain possession of the property must be prosecuted by the receiver, and the proceeds received and controlled by him alone. If the suit has to be nominally prosecuted in the name of true owners of the property, it is an inconvenient as well as useless form of inconvenience, because in many cases the title of owners may be the subject-matter of the litigation in which the receiver has been appointed, unless because the true owners have no discretion as to the institution of the suit, no control over its management, and no right to the possession of the proceeds.”
The receiver is an officer of the Court. He is not the owner of the property which he takes into his possession. When the dividend or the money has been realised by the receiver in execution of a decree on shares owned by the judgment-debtor, the receiver is holding the same for payment of his judgment-debts in the suit in which he was appointed; but till payment out of it has been made by him, the dividend realised by him does not cease to be the property of the judgment-debtor. The money is held by the receiver for payment of the judgment-debts of the judgment-debtors, so the money is held for his benefit.
Proceedings instituted against a receiver without the permission of the court constitute contempt of the court.
A receiver is not an agent of the party for and on whose behalf he is appointed by the court. He is an officer of the court.
A receiver’s remuneration is determined by the court. (Order XL, Rule 2). It represents the price of the work done by him, and must bear some relation to the labour involved and time spent in the execution of the work entrusted to him. Any agreement between the receiver and a party regarding his remuneration is gross contempt of court and void.
Duration of appointment and discharge of a receiver:
In Halsbury’s Laws of England, 3rd Edn., Volume 32 (Lord Simonds) at p. 386 under the heading “Duration of appointment by court”, the following statement occurs:
“When a receiver is appointed for a limited time as in the case of interim orders, his office determines on the expiration of that time without any further order of the court, and if the appointment is ‘until judgment or further order’ it is brought to an end by the judgment in the action.
The judgment may provide for the continuance of the receiver, but this is regarded as a new appointment. If a further order of the court, though silent as to the receivership, is inconsistent with a continuance of the receiver, it may operate as a discharge.
“When a receiver has been appointed on an interlocutory application without any limit of time, it is necessary to provide for the continuance of his appointment in the final judgment. The silence of the judgment does not operate as discharge of the receiver or determination of his powers. So also the appointment of a receiver generally by the judgment in an administration action need not be continued by the order on further consideration.”
In Kerr on Receivers, 12th Edn. In Chapter XII under the heading “Discharge of a Receiver”, the legal position is explained thus:
“The appointment of a receiver made previously to the judgment in an action will not be superseded by it unless the receiver is appointed only until judgment or further order.”
Neither S. 51 (d) nor Order XL of the Code of Civil Procedure prescribes for the termination of the office of receivership. Their lordships of the Supreme Court in Hiralal Patni v. Loonkaran Sethiya, stated the law thus:
“(1) If a receiver is appointed in a suit until judgment, the appointment is brought to an end by the judgment in the action. (2) If a receiver is appointed in a suit, without his tenure being expressly defined, he will continue to be receiver till he is discharged. (3) But after the final disposal of the suit as between the parties to the litigation, the receiver’s functions are terminated; he would still be answerable to court as its officer till he is finally discharged. (4) The court has ample power to continue the receiver even after the final decree if exigencies of the case so require.”
Removal of receiver:
The court that appoints a receiver has also power to remove him. The burden of proving circumstances to justify his dismissal rests upon the party applying for such removal or dismissal. An application to withdraw the prayer for the appointment of a receiver should not be granted as a matter of course and the court should consider it on merits.