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.