This article is written by Aakash M. Nair and further updated by Monesh Mehndiratta. It explains the concept of the receiver under the Civil Procedure Code, 1908, in detail. It explains the meaning, role, and objective behind the appointment of the receiver along with its powers, duties, and liabilities.
Table of Contents
Introduction
Who do you think is a “receiver”? Is he somebody who receives something?
Well, this is partially correct. However, in the eyes of the law, a receiver is a person who is appointed to look after a property for which he has been appointed. He is entrusted with certain duties and powers with respect to the property for which he is appointed.
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 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. The present article explains the concept of the receiver in detail. It provides the meaning of the receiver, the objective behind his appointment, his duties and powers, the circumstances under which he is appointed, and relevant judgments in this regard.
Meaning of receiver
The Code of Civil Procedure, 1908, does not provide the definition of the term ‘receiver’. However, according to the Oxford Learners Dictionary, “receiver is a person who is appointed by the court to be incharge of a company that is bankrupt to handle the company’s affairs”. The definition given by Kerr in his book “The Law and Practice: As to Receivers Appointed by High Courts of Justice or Out of Court” defined the term as an impartial person who has been appointed by the court to collect and receive the rent, issues, and profits of land or personal estate while the proceedings are pending. This is because the court finds it reasonable not to allow either party in dispute to collect or receive the same in order to distribute it among the persons entitled to collect.
To put it simply, it can be stated that a receiver is a third person who is appointed by the court to take care of the property in dispute till the case is disposed of, as it is unreasonable for either party to do so. Such a person must be independent and impartial. He is expected to manage the property or subject matter of the dispute and would also be responsible for maintaining such property.
It can be said that the receiver is an officer of the court who acts for the benefit of the property and not on behalf of either party, i.e., plaintiff and defendant. In the case of Anthony C. Leo vs. Nandlal Balakrishnan (AIR 1996 SC 1323), the Supreme Court gave the characteristics of the receiver as:
- An impartial or a neutral person.
- Agent of the court
- If a property is in the custody of the receiver, it implies that it is in the custody of law or court.
- Receiver has the same powers as that of the real owner of the property.
- Receiver acts under the supervision of the court and hence is also called the officer of the court.
For example, in a dispute between A and B for immovable property, if the court thinks that it is in the best interest of both 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 utilise 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 court.
Objective behind appointing a receiver
The objective of appointing a receiver is two-fold:
- To protect, preserve, and manage the property while the case is pending in the court.
- To safeguard the interests of both the parties to a suit.
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.
Appointment of a receiver under CPC
Order XL of the Code provides for the appointment of receivers. Rule 1 of Order XL provides that the court can order the following if it appears just and convenient to the court:
- Appointment of receiver either before or after the decree has been passed.
- Removal of any person from the possession or custody of the property.
- Property to be given in possession, custody, or management of the receiver.
- Confer certain powers to the receiver with respect to the property for which he has been appointed.
In the case of T. Krishnaswamy Chetty vs. C. Thangavelu Chetty (1930), the Madras High Court provided five principles to be borne in mind before appointing a receiver:
- The power to appoint a receiver is a discretionary power that is neither arbitrary nor absolute. This power must be exercised keeping in mind all the circumstances of the case in order to protect the rights of parties in a dispute.
- It is described as one of the harshest remedies given under the law because it deprives the party of enjoying the possession of the property much before the final judgement has been passed. Thus, it must not be exercised if there are other remedies available in a dispute.
- A person will be appointed as receiver in a suit only when the plaintiff proves that he stands a chance to succeed in a case.
- The plaintiff must prove some damage, loss, or emergency in order to get a person appointed as a receiver. The court must not appoint a receiver merely on the grounds that it will cause no harm.
- A receiver will not be appointed if it deprives the defendant of de facto possession of the property, ultimately causing irreparable loss.
- The party who makes an application for the appointment of the receiver must not be at fault or cause any delays, laches, etc.
Persons eligible to become 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 receivers by the court. But in extraordinary circumstances, a party to suit can be appointed as receiver.
Who can appoint a receiver
According to Section 51(d) of 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 a receiver. 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. Meanwhile, in an 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.
Circumstances under which receiver can be appointed
The court can appoint a receiver whenever the court is of the opinion that either party should not hold the property in dispute. The court under Section 94(d) 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.
There are provisions in special Acts that provide 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.
Process for appointment of 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:
- Application for appointment shall be made in writing and shall be supported by affidavit.
- Receivers other than the official receiver have to give security.
- The security is to be given to the satisfaction of the registrar.
- He has to provide personal bonds with the number of sureties required by the registrar. The personal bond will be double the amount of the annual rental value of the property or the total value of the property that the receiver is going to administer.
- Within a week of the 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.
- The registrar will give directions on where to invest the money received by the receiver from the property. Generally, such money is submitted to scheduled banks or government bonds.
Powers and duties of receiver
Powers of receiver
The following powers can be conferred upon the receiver by the court according to Rule 1(d) of Order XL of the Code:
- To bring and defend suits related to such property for whom the receiver has been appointed.
- To realise and manage such property.
- To protect, preserve, and improve such property.
- To collect rents and profits arising from such a property.
- To present application and disposal of such rents and profits.
- To apply for the execution of documents with respect to such a property as the owner himself.
However, it is important to note that a receiver is appointed by the court and is an officer of the court. Thus, he is under obligation to perform duties and exercise only those powers as imposed by the court. The Court can also limit his powers when it is reasonable to do so. In the case of Krishna Kumar Khemka vs. Grindlays Bank P.L.C. and Ors (1991), the court held that a receiver can neither sue nor be sued without permission of the court, and if any such suit is filed against the receiver without permission of the court, it would be dismissed. The court in the case of Prabodh Nath Shah vs. SBI (1999) held that the powers of the receiver given under Order XL are not exhaustive and more powers can be conferred upon the receiver. Further, in the case of The Industrial Credit & Investment… vs. Karnataka Ball Bearing Corporation Ltd. (1999), the court held that the receiver can be given the power to sell the property for which he has been appointed, in extreme cases as a residuary power.
Duties of receiver
According to Rule 3 of Order XL of the Code, the duties of a receiver are:
- Furnish security in order to account for what he will receive from the property for which he has been appointed as a receiver.
- Submit proper accounts at periods prescribed by the court.
- Payment of the amount due to him as directed by the court.
- To be responsible for any loss caused to the property due to his negligence or wilful default.
Liabilities of a receiver
According to Order 40 rule (4), when a receiver fails:
- To submit the reports as specified by the court,
- To pay the amount due from him as directed by the court,
- Causes loss to the property due to gross negligence.
- Any other duty that 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 the receiver’s property, will pay the balance (if any) to the receiver.
The receiver is bound to keep down the expenses and take care of the property in his possession as a prudent man would observe in connection with his own property under similar circumstances.
Appointment of receiver in execution proceedings
The term ‘execution’ has been derived from the Latin word “ex sequi” which means to perform or follow. Thus, the term signifies the last performance of an act. The term has not been defined under the Civil Procedure Code, 1907. However, it implies the implementation or enforcement of an order or judgement of the court. In simple words, it means the process which helps in enforcing or giving effect to the decree or judgement of the court by asking the judgement debtor to fulfil the mandate provided in the decree or order and enabling the decree-holder to recover what has been granted to him.
When a decree is passed, execution of the decree becomes the next stage, wherein the judgement debtor against whom the decree is passed is expected to enforce the decree in order to enable the decree-holder to enjoy the benefits of the decree which has been passed in his favour. Execution can be termed as the last stage of litigation. Execution is said to be complete when the decree is executed or enforced. However, instances may arise where the judgement debtor refuses to execute the decree or delay the execution. In such cases, different modes of execution as prescribed in the Code are used to execute or implement the decree. Section 51 of the CPC gives different modes of execution of a decree. The appointment of the receiver is one of the modes used to execute a decree given under Section 51(1)(d). Other modes of execution of a decree are:
- Delivery of property.
- Attachment and sale of property.
- Arrest and detention
Execution of a decree by appointing a receiver is also known as equitable execution and depends entirely on the discretion of the Court. It must be noted that the appointment of a receiver in order to execute a decree cannot be claimed as a right. It is considered as an exceptional remedy, and a strong case or reason must be provided in order to use this remedy. It must be proved that no effective remedy is available with the decree-holder to obtain relief from the judgement debtor and that the other modes of execution cannot be used.
Relevant case laws
Krishna Kumar Khemka vs. Grindlays Bank (1991)
Facts of the case
In this case, a suit was filed for declaration that the multiple properties in question belonged to the joint family. While the suit was pending, an application was filed for the appointment of a receiver with respect to the said properties. The receiver was appointed; however, his actions were questioned, and an application was filed in the High Court contending that the receiver had no authority to create a tenancy.
Issues involved in the case
- Whether the receiver appointed in the present case exceeds his powers?
Judgement of the court
While deciding the validity of the receiver’s act to let out the property to one of the respondents in the present case, the Supreme Court reiterated the principles to be kept in mind while appointing a receiver:
- Appointment of the receiver is at the discretion of the court.
- The objective of such an appointment of receivers is to preserve the property in dispute.
- No appointment of a receiver can be made unless the plaintiff, prima facie, proves that he stands a chance of succeeding in the suit.
- This remedy should only be granted for the presentation of manifest injury or wrong.
The court held that letting out a property to others by a receiver is a new tenancy and comes within the ambit of ‘transfer’ and was thus against the order of injunction passed by the court in the present case.
Industrial Credit and Investment Corporation of India Ltd. vs. Karnataka Ball Bearings Corporation Ltd. & Ors. (1999)
Facts of the case
In this case, a suit had been filed for recovery of Rs. 76,72,00,000 in favour of the appellant. An application was filed for the appointment of a receiver along with a prayer for the sale of immovable properties before the single judge of Bombay High Court. However, the court dismissed the application against which the present appeal had been filed before the Hon’ble Supreme Court.
Issues involved in the case
- Whether receivers have the authority to give effect to the sale of immovable property before a decree has been passed in this regard?
Judgement of the court
The honourable Supreme Court of India held that Order 40 of CPC clearly provides for the appointment of receivers with respect to a property either before or after a decree has been passed by the Court. The receiver so appointed has the power to manage, protect, preserve, and improve the property for which he has been appointed.
Order 40 must be interpreted in a way that gives effect to the legislative intent with respect to the conferment of powers by the court to preserve and maintain the property by appointing a receiver in this regard. Through the catena of cases, the court has been given discretionary power to appoint a receiver and this power has to be exercised with due care and caution in order to serve ends of justice.
There can be no restriction on the power of a court to direct a receiver to give effect to a sale of immovable property before a decree has been passed in case the court feels it is just and convenient to do so. Thus, it was held that the question of embargo does not arise in the matter of the sale of immovable property by the receiver before a decree has been passed.
Parmanand Patel vs. Sudha A. Chowgule (2009)
Facts of the case
In this case, a will had been executed by a wealthy man in favour of his wife and two daughters. The appellant filed a suit to declare that the document purporting to be the will as null and void and that it has no effect in the eyes of law. The court passed an interim order and appointed a receiver.
Issues involved in the case
- Whether the appointment of a receiver is just and proper?
Judgement of the court
The court in this case observed that a receiver is appointed in accordance with Order 40 Rule 1 of the CPC only when it is just and convenient to do so. It was further observed that the appointment of a receiver in a pending suit comes within the discretionary jurisdiction of the court. In ordinary cases, no receiver would be appointed unless prima facie it is proved that the plaintiff has an excellent chance of succeeding in the suit. The plaintiff must show that there is an element of danger or emergency with respect to the property in question that demands immediate action.
The court held that the present case is a fit case where a receiver should be appointed.
Conclusion
It is clear that a 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 decides the suit. 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. Courts 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. However, the courts must adopt this remedy only when no other option is available as this is one of the harshest remedies.
Frequently Asked Questions (FAQs)
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 in this regard.
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 the collector will promote the interests of those who are concerned.
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 an 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.
References
- https://www.manupatra.com/roundup/374/Articles/Receiver.pdf
- https://www.livelaw.in/high-court/telangana-high-court/telangana-high-court-ruling-appointment-of-receiver-order-40-rule-1-cpc-257257
- https://www.scribd.com/document/241591068/Appointment-of-Receiver
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