Receiver under CPC-1908

In civil litigation, a receiver plays an important role in assisting the court. The Receiver is considered to be an officer of the court who helps the court to protect and preserve the subject matter of suit till the time the court decides the matter. Sometimes, the court thinks, it is in the best interest of both the parties to appoint a receiver who will be responsible for the management of the subject matter. The subject matter is generally a movable or immovable property.

The Receiver is liable to take care of the property just as a prudent man will take care of his own personal property. He should follow the directions of the court or else his property can be attached by the court to recover the amount which is due to him.

Who is a receiver under the civil procedure code?

Under order 40 of CPC, The Receiver is an independent and impartial person who is appointed by the court to administer/manage, that is, to protect and preserve a disputed property involved in a suit.

For example, in a dispute between A and B for an immovable property, if the court thinks that it is in the best interest of both the parties that possession should be taken from B and given to an independent person, the court may appoint a receiver who can manage the property till the time the suit is being decided. Such a receiver appointed by the court would be responsible for the maintenance of the property. He can collect the income accruing like rent or any other profits and utilize it to maintain the property. After deducting the expenses incurred in maintenance from the income received from the property, the receiver will have to submit the remaining income, if any, in the court.

He is not representative of either of the parties in the action, is uniformly regarded as an officer of the court working in the interest of neither plaintiff nor defendant but for the common benefit of all the parties

What is the purpose of the appointment of a receiver?

When a party in possession of the disputed property exhausts the property or causes irreparable damages to it, the whole object of the suit gets defeated because the subject matter ceases to exist or its value gets affected. Therefore, when the court is of the opinion that the property in dispute must not go to either of the parties, pendente lite, the court appoints a receiver who is entrusted with the protection and preservation of such property. It is a form of interim protection which the court provides to the parties who makes the application till the time the court adjudicates the matter.

What is the role of a receiver?

The Receiver is regarded as an officer of the court and is the extended arm and hand of the court. He is entrusted with the responsibility to receive disputed property or money given by the court and manage such property or money till the time a decree is passed or the parties have compromised or any other period as the court deems fit. The property or fund entrusted to the receiver is considered to be custodia legis i.e. in the custody of the law. The Receiver has no power other than those entrusted to him by the court while appointing him.

Who can appoint a receiver?

According to the civil procedure code, the court before which the proceedings are pending can appoint a receiver if it appears just and convenient to the court to appoint such receiver [section 51(d)]. It is within the discretionary power of the court to appoint the receiver. For example, in a suit, the trial court can appoint a receiver. Whereas, in appeal, the appellate court can appoint a receiver.

However, the discretion is not absolute, arbitrary or unregulated. The expression “just and convenient” does not mean the appointment is based on the whims and wishes of the judge on any grounds which stand against equity.

How does the court decide whether to appoint a receiver or not?

Court has to keep the following principles in mind before appointing a receiver:

1 Appointment of a receiver is a discretionary power.

2 It is a protective relief to the plaintiff. The object is to protect and preserve the disputed property till the time the suit is pending in the court.

3 A receiver should not be appointed unless the plaintiff shows prima facie that he has a strong case against the defendant and it is more than likely that he will succeed in the suit.

4 Appointment of a receiver is one of the hardest remedies as it deprives the defendant of his right to possession before the final decree.

5 Therefore, the court should not resort to it merely on the ground that it will do no harm. There should be strong apprehension that there is a danger to the property or the plaintiff will be in worse of a situation if the appointment of a receiver is delayed.

6 The court should appoint a receiver only when there is a possibility of wrong or injury. Also, if it is shown that the subject matter is not in the possession of any of the parties and it is in the common interest of both the parties to appoint a receiver for the protection and preservation of the property.

7 The court should look at the conduct of the party who makes the application for appointment of a receiver. The party should come to the court with clean hands and their conduct should be such that they are not disentitled to this equitable relief.

The above principles were introduced by the Madras Court in the case of T. Krishnaswamy Chetty vs C. Thangavelu Chetty And Ors., AIR 1955 Mad 430. These principles are now well established in the Indian jurisprudence.

Who can apply for the appointment of the receiver?

Generally, a plaintiff files the application for appointment of a receiver but defendants can also file such application. A third party is not allowed to file the application but if he is interested in the protection and preservation of the property, he can also make an application after taking permission from the court.

Who can be appointed as a receiver?

A person who is independent, impartial and totally disinterested should be appointed as a receiver. Such a person should not have any stake in the disputed property. Generally, parties to the suit are not appointed as receiver by the court. But in extraordinary circumstances, a party to suit can be appointed as receiver.

When can a receiver be appointed?

The court can appoint receiver whenever the court is of the opinion that either party should not hold the property in dispute. The court can appoint a receiver before or after a decree and can remove any person from the possession or custody of the property and commit the same property in the custody or management of the receiver.

Under the code itself, the receiver can be appointed to prevent the ends of justice being defeated. [section 94(d)]. Similarly, for the execution of a decree, the court has the power to appoint a receiver. [section 51(d)].

There are provisions in special acts which provides for the appointment of a receiver by the court. For example, section 84 of the Companies Act, 2013 provides for the appointment of a receiver. Similarly, section 69A of the Transfer of Property Act, 1882 also provides for the appointment.

What is the process of appointment of a receiver?

The process of appointment of a receiver is provided by the courts in their respective court rules. The high court has the power to make rules for the superintendence and control of the subordinate courts.

For instance,

In chapter XIX of the Delhi High Court (Original Side) rules, 1967, the following process is provided:

1 Application for appointment shall be made in writing and shall be supported by affidavit.

2 Receiver other than the official receiver has to give security.

3 The security is to be given to the satisfaction of the registrar.

4 He has to provide personal bonds with the number of surety required by the registrar. The personal bond will be double the amount of annual rental value of the property or the total value of the property which the receiver is going to administer.

5 Within a week of appointment, the receiver will have to submit a report providing the details regarding the property such as inventory of property or books of account etc.

6 The registrar will give directions on where to invest the money received by the receiver from the property. Generally, such money is submitted in scheduled banks or government bonds.

What are the powers of the receiver?

Under order 40 rule 1(d) powers of the receiver are provided as following:

*Collection of rents and profits arising out of the property.

*Application and disposal of such rents and profits.

*Execution of documents as the owner himself.

*To institute and defend the suit.

*Such powers as the court may deem fit.

Also, there are indirect powers which a receiver enjoys being the hand of the court. For example, If a person obstructs or interferes with the receiver’s right to possession, it will amount to obstruction in a court proceeding and such a person can be made liable for contempt of court. Similarly, property in the hands of the receiver cannot be attached without the leave of the court.

The court has the discretionary power to not confer all the rights on the receiver. Even if the court has given all the powers to him, he should take the advice of the court in all important decisions related to the property to protect himself.

Without the permission of the court, the receiver cannot:

1. Grant lease on the property.

2. Bring suits except for suit for rent. A suit will be dismissed if not permitted by the court.

What are the duties of the receiver?

Under order 40 rule (3), duties of a receiver are provided as follows:

* Furnish security to account for what he will receive from the property as income.

* Submit accounts (half yearly) for such period or form as directed by the court. The account basically includes the income received and expenses incurred for the protection and preservation of the property.

* Pay the amount due to the court.

* Take responsibility for any reduction in the value of the property because of the receiver’s willful negligence.

* Discharge the duties personally and should not delegate or assign any of the rights entrusted to him by the court.

The receiver has to fulfil all the duties and responsibilities entrusted to him by the court. Otherwise, the court can take action against him and make him personally liable for any loss which might occur due to his negligence or wilful failure to protect and preserve the property.

What are the liabilities of a receiver?

According to Order 40 rule (4), When a receiver fails:

1. To submit the reports as specified by the court or,

2. To pay the amount due from him as directed by the court or,

3. Causes loss to the property due to gross negligence.

4. Any other duty which court directed him to do,

The court may order the attachment of property of the receiver to recover the loss caused due to his willful default or negligence.

The court, after recovering all the losses from the proceeds received after selling receiver’s property, will pay the balance (if any) to the receiver.

The receiver is bound in keeping down the expenses and taking care of the property in his possession as a prudent man would observe in connection with his own property under similar circumstances.

Will a receiver be entitled to remuneration?

Receivers are entitled to remuneration as fixed by the court for the services rendered by them. Also, a receiver has to be provided for the loss or expenses incurred by him for maintaining the property.

Under order 40 rule (2), the court can fix the remuneration to be paid to the receiver for the services provided by him. The court can pass a general or specific order regarding the same.

For example, The Delhi high court has provided in Delhi High Court (original side) rules,1967, the for remuneration of the receiver as follows:

Rents recovered, outstanding recovered, the value realised on the sale of movable and immovable properties calculated on anyone estate:

(i) On First Rs. 10,000 : 5 %

(ii) Above Rs. 10,000 up to Rs. 20,000 : 3 %

(iii) Above Rs. 20,000 up to Rs. 50,000 : 2 %

(iv) Above Rs. 50,000 up to Rs. 1,00,000 : 1 %

(v) Above Rs. 1,00,000 : ½ %

Similarly, for taking custody of money, 1 %, for taking custody of Government securities of stocks, shares, 1 % of the estimated value.

If no remuneration is specified for any work, such remuneration can be granted, as the court may think reasonable, on the application of the receiver.

Can a collector be appointed as a receiver?

Yes, according to (Order 40 rule 5), a collector can be appointed as a receiver if the revenue generated from the property is received by the government, the court can appoint a collector as a receiver with his consent if the court thinks that management of such property by collector will promote the interests of those who are concerned.

Conclusion

Clearly, the receiver plays an important role whenever the court requires the receiver to manage the subject matter in a suit to protect and preserve it till the time, the court decrees the suit.

The receiver is an officer of the courts and the subject matter managed by him is considered to be in custody of the law. The court appoints a receiver when the court is of the opinion that neither of the party should manage the property till the time the matter is decided. Any person can become a receiver provided they fulfil the requirements set by the court.

A receiver should be of impartial, independent and indifferent character who has no stake in the subject matter and can manage the property just as a prudent man will do with his own property. Court have vested certain powers and responsibilities on the receiver which he should use to manage the property in the best way possible.

The receiver should be careful while making an important decision related to the subject matter as he is personally liable for any damage to it. He can seek the permission of the court before making such decisions to be safe.

Appointment of Receiver under Order 40 of Code of Civil Procedure, 1908

Appointment of Receiver under Order 40 of Code of Civil Procedure, 1908

In Court proceedings, when the subject matter of dispute includes property of such nature, that its possession cannot be with any of the parties, or a property that has been submitted to the Court, the Court under section 151 read with Order 40 can appoint a receiver for the same[1]. Black’s law dictionary defines a “receiver” as “A disinterested person appointed by a court, or by a corporation or other person, for the protection or collection of property that is the subject of diverse claims”[2]. The appointment of the receiver by the Court is governed by Court under section 151 read with Order 40 Rule 1 which states that:

“1. Appointment of receivers

Where it appears to the Court to be just and convenient, the Court may by order—

1. appoint a receiver of any property, whether before or after decree;

2. remove any person from the possession or custody of the property;

3. commit the same to the possession, custody or management of the receiver, and

4. 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.

Nothing in this rule shall authorize the Court to remove from the possession or custody of property any person whom any party to the suit has not a present right so to remove[3].”

Hence, this rule also implies that a receiver has to be appointed for the property which is under dispute on the grounds that it’s value may be under damage by the current possessor of the property against whom the parties under dispute have a right to remove. On the contrary, the Court under the purview of this rule cannot remove the person under whose possession or custody the property is at present and appoint a receiver in place of that person. The honourable Supreme Court in the seminal case of Maharwal Khewaji Trust (Regd.) Faridkot v. Baldev Dass (2004) was of the opinion that, “unless and until a case of irreparable loss or damage is made out by a party to the suit, the court should not permit the nature of the property to be changed, which may include alienation or transfer thereof leading to loss or damage been cause to the party who may ultimately succeed and which would as well lead to multiplicity of proceedings. Judicial discretion has to be disciplined by jurisprudential ethics and can by no means conduct itself as an unruly horse[4].”

Further, the courts are of the opinion that the receiver so appointed is for the benefit of all the concerned parties since he stands as a representative of the court and of all parties interested in the litigation where is he is appointed[5]. The Courts further defines the attributes, rights and liabilities of the receiver in the seminal case of Ma Hninyeik v. KARK Chettyar (1939), where the courts held that the receiver is supposed to be an impartial person appointed by the court to manage the property is suit during the pendency of the suit when the court is satisfied that more of the parties to the suit should be allowed to manage it. This further implies that the object and purpose of appointment of a receiver may generally be stated to be the preservation of the subject matter of the litigation pending judicial determination of the right of the parties[6]. It is the duty of the Court to proceed with caution in order to ensure that the ends of justice are not getting defected at any stage of the suit. Intaking any action under this rule, the Courts are also duty bound to see that the rights of the parties are not jeopardized and the ends of justice are not defeated. The rule empowers the court to appoint a receiver for the proper and efficient management of any property or asset which forms the subject matter of the suit.

It is also important to note that such receiver appointed by the Court derives all its powers from the Court itself regarding protection, preservation, improvement, management and disposition of the property under dispute. Even the remuneration for the receiver for such delivery of services is decided by the Court by means of passing a general or a special order under Order 40 Rule 2 of Code of Civil Procedure, 1908[7].

After the Court appoints a receiver, the receiver is expected to perform a certain set of duties. These duties were broadly enlisted in Order 40 Rule 3. Every receiver who shall be appointed by the Court has to submit to Court some amount of security, against which the receiver has to be appointed. This is done as a risk management measure and a means to discipline the receiver so appointed. Also, during his tenure as a receiver, all the relevant accounts and costs have to be submitted to the Court for that period.

Further, the receiver has to undertake complete responsibility for any damage or loss occurred to the property under dispute, either by wilful default or gross negligence. The property of the receiver submitted to the Court under Rule 3 Order 40, can be attached and sold by the Court under Order 40 Rule 4[8] in order to recover any amount that has been due on the part of the receiver or any damage sustained by the property that can be attributed to the receiver.

It is important to note that in certain cases, particularly where the property under dispute is a piece of land over which a revenue is paid to the Government and the Court considers that the interests of the related parties will be best looked after by the Collector, the Court may, under Order 40 Rule 5[9] of the Code with the consent of the Collector, appoint him as the receiver of such property.

The system of appointing receiver maintains a neutral stand between concerned parties where the property is the subject matter of dispute. The receiver undertakes a lot of risk by furnishing security to the Court beforehand as well as provides services for protection, preservation, improvement, management and disposition of the property and hence is bound to be duly remunerated.

SECURITY FOR COSTS

ORDER XXV SECURITY FOR COSTS - RULE 1, 2 OF CODE OF CIVIL PROCEDURE 1908

When security for costs may be required front plaintiff? What is the Effect of failure to furnish security? Rule 1 and 2 of Order XXV of Code of Civil Procedure 1908

When security for costs may be required front plaintiff and Effect of failure to furnish security are defined under Rule 1 and 2 of Order XXV of Code of Civil Procedure 1908. Provisions under these Rules are:

Rule 1 Order XXV of Code of Civil Procedure 1908 "When security for costs may be required front plaintiff"

(1) At any stage of a suit,. the Court may, either of its own motion or on the application of any defendant, order the plaintiff, for reasons to be recorded, to give within the time fixed by it security for the payment of all costs incurred and likely to be incurred by any defendant.

Provided that such an order shall be made in all cases in which it appears to the Court that a sole plaintiff is, or (when there are more plaintiffs than one) that all the plaintiffs are, residing out of India and that such plaintiff does not posses or that no one of such plaintiffs possesses any sufficient immovable property within India other than the property in suit.

(2) Whoever leaves India under such circumstances as to afford reasonable probability that he will not be forthcoming whenever he may be called upon to pay costs shall be deemed to be residing out of India within the meaning of the proviso to sub-rule (1)

Rule 2 Order XXV of Code of Civil Procedure 1908 "Effect of failure to furnish security"

1) In the event of such security not being furnished within the time fixed, the Court shall make an order dismissing the suit unless the plaintiff or plaintiffs are permitted to withdraw therefrom.

(2) Where a suit is dismissed under this rule, the plaintiff may apply for an order to set the dismissal aside and, if it is proved to the satisfaction of the Court that he was prevented by any sufficient cause from furnishing the security within the. time allowed, the Court shall set aside the dismissal upon such terms as to security, costs or otherwise as it thinks fit, and shall appoint a day for proceeding with the suit.

(3) The dismissal shall not be set aside unless notice of such application has been served on the defendant.