Appointment of Receivers: Introduction and Legal Provisions

This article titled ‘Appointment of Receivers: Introduction and Legal Provisions.’ is written by Devanjali Banerjee and discusses the concept of appointment of receivers.

I. Introduction

A receiver is defined as “…an impartial person appointed by the Court to collect and receive, pending the proceedings, the rents, issues and profits of land, or personal estate”[1] during a civil suit.

Also known as the “hand of the court”, the receiver is an officer that aids the court in civil proceedings.

The appointment, duties, remuneration and other governing rules of the office of a receiver are provided under Order 40 of the Code of Civil Procedure. The present article, ‘Appointment of Receivers: Order 40’ will discuss the rules under Order 40 with reference to relevant case-law.

The purpose of a receiver is the realization, preservation and protection of the suit property pendente lite.[2] The receiver also facilitates the collection and disposal of rents and profits relating to said properties. For example, a receiver may be appointed to preserve the assets when there is a dispute within a company, pending a final decree on the merits of the dispute.[3]

The court may also appoint a receiver to enforce payment in the favour of a judgment creditor.[4] At the discretion of the court, the receiver may also execute certain documents and be endowed with additional powers to better perform his/her duties. The receiver is not an agent or representative of either party in a suit but performs his duties impartially.[5]

The court’s power to appoint a receiver is provided under Order 40 of the Code of Civil Procedure, 1908 (‘the Code’) read with Section 94(d) of the Code. Section 94 (d) applies in case of supplemental proceedings and states that the court may appoint a receiver of a particular property and enforce performance of his duties by attaching and selling off of his property. As it is an equitable remedy, the appointment of a receiver may also be done by courts in the exercise of its inherent powers under Section 151 of the Code.

II. Categories of Receivers

In general, there are two categories of Receivers that may be appointed by courts- [6]

1. By statute

This includes statutes such as the Transfer of Property Act, 1882; Trustees’ and Mortgagees’ Act, 1886; Provincial Insolvency Act, 1920 etc.

2. Under the procedural law

This includes the Code; Specific Relief Act,1963; and Original Side Rules of the High Courts.

For the purpose of this article, the focus shall be on receivers as provided in Order 40 of the Code.

III. Role of Receiver

According to the Calcutta High 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 a case 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…”[7]

From the above extract, it may be noted that the court appoints a receiver in order to administer the subject matter of the suit through his care.

In Krishnaswamy Chetty v. C. Thangavelu Chetty,[8] the Madras High Court was dealing with an application for appointment of a receiver. The facts of the case were that the plaintiff-applicant had prayed for a declaration that alienations of the suit property in favour of the respondents was not valid, and for possession of said property and claim of mesne profits of the same.

The plaintiff-applicant also filed an interlocutory application for the appointment of a receiver for the suit property pendente lite, because he feared the respondents would not take due care of the properties. However, the Court dismissed the plaint filed by the plaintiff-applicant as not sustainable, as it determined that there was no danger to the property.

The court laid in this case laid down five principles to be followed in the appointment of receivers[9]–

1. The appointment of a receiver pending a suit is a matter resting in the discretion of the court- this discretion is not arbitrary or absolute and is granted taking into account all circumstances of the case and for permitting the ends of justice.
2. The Court should not appoint a receiver except upon proof by the plaintiff that prima facie he has a very excellent chance of succeeding in the suit.[10]
3. An order appointing a receiver will not function to preclude a defendant of a ‘de-facto possession’ of a property. This is because it may cause irreparable harm, and the court would be reluctant to disturb possession by the receiver unless the property is exposed to proven danger and loss by the person in possession.
4. The conduct of the party making an application for an appointment of receivership is to be scrutinised by the granting court, and the application must be refused if the applicant does not come to court with clean hands.

Finally, it is to be noted that the receiver is expected to exercise a standard of care that is as diligent as a prudent man would observe with respect to his own property under similar circumstances. Thus, in keeping down expenses and caring for the estate, the receiver must do so in an impartial and diligent fashion as becoming a true owner and steward.[11]

IV. Discussion on Bare Provisions: Order 40, Rules 1-5

1. Appointment of receivers: Rule 1

This provision provides for the appointment of the receiver. The receiver may be appointed by the court at any stage of the suit, before or after the decree.

Thus, where it appears to a court to be a “just and convenient”[12] situation, and there is a prima facie case in favour of the plaintiff, and urgent measures are required in the case, such as the appointment of a receiver,[13] then the court has the discretion to do the following:

“(a) appoint a receiver of any property, whether before or after, decree;

(b) remove any person from the possession or custody of the property;

(c) commit the same to the possession, custody or management or the receiver; and

(d) confer upon the receiver all such powers, 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.”[14]

The provision also notes that this rule does not authorise the court to remove from the possession or custody of property any person whom either party to the suit does not have the present right to remove from the same.[15] In Anthony C. Leo v. Nandan Bal Krishnan,[16] it was held “Sub-rule (2) clearly indicates that the Court and its officer, the receiver, does not possess any right higher than the right a party to the suit possess.” Further, receivers cannot be appointed without the consent of the parties. In Hindustan Petroleum Corp. Ltd. v. M/s Ram Chandra and Sons,[17] it was held that “receivership cannot be imposed on the parties by the court.”

In Dilip Kumar Sharma v. Civil Judge (Sr. Division) Mathura,[18] it was held that “in the interest of justice and fair play that a serving judicial officer should not be appointed as a receiver by any court of law.” In that case, the petitioners prayed for quashing the original suit filed in the trial court, which included several orders made by the trial court, including the appointment of a receiver.

The dispute related to the share in the management and income of a temple in Mathura. While deciding the case, the court noted that a sitting judicial officer as the receiver is not proper because he is a government servant and under the administrative control of the high court.

Further, if there are any charges of criminal liability made against him then it would be embarrassing for the scrutiny of this conduct by judicial authorities.

2. Remuneration: Rule 2

According to this provision, the remuneration of the receiver is to be fixed by the general or special order of the court.

3. Duties: Rule 3

This provision details the duties and obligations of the receiver. They are as follows:

“(a) furnish such security (if any) as the court thinks fit, duly to account for what he shall receive in respect of the property;

(b) submit his accounts at such periods and in such form as the Court directs;

(c) pay the amount due from him as the Court directs; and

(d) be responsible for any loss occasioned to the property by his wilful default or gross negligence.”[19]

A receiver is appointed as a matter of procedure, rather than as a matter of course.[20]In addition to the duties provided in Order 40 Rule 3, the court may empower the receiver to perform other duties related to the property, as mentioned above, and may include, for example, the power to execute documents in the same manner or position as the owner etc.

As the subject matter in dispute varies, the receiver’s duties will also vary. In a suit for partition of joint family property, the court may appoint a receiver of such property.[21] In a suit for administering the estate of a deceased person, the court could also appoint a receiver.[22]

4. Enforcement of Receiver’s duties: Rule 4

This provision details the situations which warrant the receiver being penalised by the court for non-performance or commission of stated wrongs to the property under his care. Thus, this provision empowers the court to remove, suspend or terminate the receiver in applicable cases.[23] Such instances are as follows:

“(a) fails to submit his accounts at such periods and in such form as the Court directs, or

(b) fails to pay the amount due from him as the Court directs, or

(c) 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.”[24]

In Aboobakar Abdulrehman & Co. v. Shreefi Properties[25] the court appointed a receiver for the mortgaged disputed property. Later, it was found that a new tenancy was created while the receiver was appointed possession of the property. The court held that the receiver who has taken vacant possession of the property cannot induct a tenant in the property without the permission of the court.

5. When Collector may be appointed receiver: Rule 5

This provision states that where the property is land paying revenue to the government or land whose revenue has been assigned or redeemed, and the Court considers that the interest of such property will be promoted by the Collector, the Court may appoint the Collector as the receiver, with his consent.[26]

V. Conclusion

The appointment of a receiver in the context of a civil suit functions as an impartial officer of the court who caretakes the subject matter of a suit, and reports to the court. Being an equitable relief, there are certain considerations the court must make before appointing a receiver.

The above article has discussed all aspects of receivership as stated in the Code, enshrined in Order 40 Rules 1-5 of the Code.

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References

[1] Kerr, on the Law and Practice as to Receivers appointed by the High Courts of Justice or Order of Court, Twelfth Edition, Walton and Sarson, Special Edition for India, N. M. Tripathi & Co. (1932) P. L, as cited in Krishnaswamy Chetty v. C. Thangavelu Chetty AIR 1955 Mad 430.

[2] BS Chauhan, Code of Civil Procedure, Available Here.

[3] R.Varalakshmi, ‘Appointment of Receiver,’ Available Here.

[4] Ibid.

[5] Ibid.

[6] Krishnaswamy Chetty v. C. Thangavelu Chetty AIR 1955 Mad 430.

[7] Jagat Tarini Dasi v. Nabagopal Chaki 34 Cal 305 (Z10).

[8] Supra, at note 7.

[9] Ibid.

[10] Firm of Raghubir Singh’ Jaswant v. Narinjan Singh’, AIR 1923 Lah 48 (217);

[11] D.F. Mulla, The Key to Indian Practice: Summary of the Civil Procedure Code, 11^th ed., 2016.

[12] Order 40 Rule 1(1), Code of Civil Procedure, 1908.

[13] Supra, at note 11.

[14] Supra, at note 12.

[15] Order 40 Rule 1(2), Code of Civil Procedure, 1908.

[16] AIR 1997 SC 173.

[17] AIR 1994 SC 478.

[18] AIR 2004 All 86.

[19] Order 40 Rule 3, Code of Civil Procedure, 1908.

[20] ICICI v. Karnataka Ball Bearing Corp. Ltd. (1999) 4 LRI 829.

[21] Supra, at note 11.

[22] Ibid.

[23] Vide Rayrappan v. Madhavi Amma, AIR 1950 FC 140.

[24] Order 40 Rule 4, Code of Civil Procedure, 1908.

[25] AIR 1993 Bom 265.

[26] Order 40 Rule 5, Code of Civil Procedure, 1908.

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