WHAT IS RECEIVER UNDER CPC

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This article is written by Ab Wahid Lone of 10^th Semester of Central University Of Kashmir, an intern under Legal Vidhiya

Abstract

Civil cases related to property and asset division have been a significant part of India’s legal system for centuries. In such cases, parties fight for their rights, money, or fulfilment of contractual obligations. However, these cases can often last a decade or more, leading to a loss of property or enterprise due to inefficient management and weak leadership. To prevent this, the court may appoint a receiver to oversee the enterprise during the case to ensure no losses are incurred. Sometimes, a “court” may appoint a receiver at their own discretion, especially when there is a disagreement between parties. This is done to protect the assets while the issues are being resolved. The receiver is appointed to preserve the value of the assets while still realizing their benefits for all parties involved in the dispute.

However, the appointment of a receiver is one of the harshest mechanisms provided by the Code of Civil Procedure 1908 (CPC) and has several things that could be improved. In some instances, it can ruin personal assets and cause losses due to ill intentions or miscalculated steps. Moreover, there are no established procedures to follow, except for a judicial discourse that tends to slow down the process, leaving the parties with irreparable losses. This paper explores the different aspects of the appointment of a receiver and their role in such cases.

Keywords: Receiver, suit, custodia legis, pendente lite, assets

Introduction

Receiver

The court may issue certain orders before a judgment is pronounced in the case. These orders are known as interim orders. According to the Concise Oxford English Dictionary, the term ‘interim’ means ‘for the time being’, ‘in the meantime’, or ‘provisional’. Therefore, interim orders refer to the orders that are passed by the court while a case or proceeding is still pending. However, it is important to note that such orders do not finally determine the substantive rights and liabilities of the parties in relation to the subject matter of the case or proceeding. These orders may take different forms, such as payment in court, security for costs, commissions, arrest before judgment, attachment before judgment, temporary injunctions, interlocutory orders, and appointment of a receiver.

The term “receiver” is not defined in the Code of Civil Procedure. Simply put, a receiver is someone who receives money from another and provides an accounting of it. Under Order 40 of CPC, the Receiver is an impartial person appointed by the Court to manage and protect a disputed property involved in a suit. In legal proceedings, a receiver is an impartial person designated by the Court to collect and receive rent, profits, or other assets from property or personal estate. This appointment is usually made when neither party is deemed competent to perform this task or if it is not reasonable for either party to do so. For instance, by law, an infant cannot handle such matters. The appointment of a receiver is a remedy that dates back to the early days of the Court of Chancery, and it is still used when the Court of ordinary jurisdiction is inadequate.

In civil litigation, a receiver plays an important role in helping the Court to protect and preserve the subject matter of the case until the Court makes a final decision. The Receiver is considered an officer of the Court appointed to manage the subject matter when the Court deems it in the best interest of both parties. The Receiver holds custody and management of the property but does not own it. He has no power except what the Court has expressly or impliedly conferred upon him. He is not the representative or agent of the parties involved in the litigation.

Under both English and Indian law, a receiver is not considered an agent of any party involved in the suit but rather an officer or representative of the court. The receiver operates under the court’s instructions and is described as “a hand and an arm” of the court, responsible for holding the property in question as custodia legis and preserving and protecting it pendente lite. The receiver acts for the benefit of all parties involved in the legal action.

Objectives

When a party in possession of disputed property causes irreparable damage to it or exhausts it, the purpose of the lawsuit is defeated because the subject matter either ceases to exist or its value is affected. In such cases, the court may appoint a receiver to protect and preserve the property if it is of the opinion that it should not go to either party during the suit. The court provides this form of interim protection to the parties who apply for it until the matter is adjudicated. Basically, the legislature’s intent behind this provision’s introduction is to safeguard, preserve and manage the property during the legal proceedings. A receiver is considered an officer and an extension of the court, acting as a crucial part of the judicial system to protect the rights of all parties involved in the litigation. The receiver’s appointment aims to ensure that the property remains intact and secure, safeguarding the interests of both parties to the dispute^[1].

When will a receiver be appointed?

Indian courts also follow the principles established by the Chancery Courts in England for appointing a receiver. Where it appears to the court to be just and convenient, it may appoint a receiver^[2]. The courts in India have broad powers to appoint and remove receivers at their discretion. However, appointing a receiver is considered one of the most severe remedies for protecting and enforcing the parties’ rights. It should only be used in extreme cases when justice demands it.

The court’s discretion, although is not absolute, arbitrary and unregulated, must be judiciously and cautiously exercised, considering all the circumstances of the case to protect the rights of all parties involved and serve the ends of justice^[3].

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. Usually, the plaintiff is required to file an application for the appointment of a receiver based on the property that is the subject matter of the suit. But the defendant may also apply for the appointment of a receiver if it is just and convenient. It is not mandated by the Code to give notice before the appointment of a receiver by the court. Moreover, in some cases, giving notice to the opposite party may defeat the very purpose of appointing a receiver.^[4] Thus, notice to the opposing party is only sometimes essential. In situations of urgency or emergency, an ex parte order of appointment of a receiver can be made. Nevertheless, the final order can only be passed after hearing both parties. This is also in consonance with the doctrine of audi alteram partem (“hear the other side”).

In addition, a third party interested in the realization, management, protection, preservation, or improvement of property may also apply for the appointment of a receiver. The court will appoint the receiver as it deems fit. The trial court can appoint a receiver if a suit has been filed. However, when an appeal is filed against a trial court’s decree, the appellate court has the power to appoint a receiver. A court, however, cannot appoint a receiver suo motu^[5].

When it comes to appointing a receiver in India, the Madrasa Court, in the case of T. Krishnaswamy Chetty vs C. Thangavelu Chetty And Ors^[6]., has established several well-established principles that must be considered:

Appointing a receiver is a discretionary power of the court.
It is a protective relief. The object is the preservation of property in dispute pending a judicial determination of the rights of the parties to it.
A receiver shouldn’t be appointed unless the plaintiff can demonstrate a strong case against the defendant and is likely to succeed in the suit.
The appointment of a receiver is a harsh remedy that deprives the defendant of their right to possession before the final decree, so the court should only resort to it when there is a strong apprehension that the property is in danger or that the plaintiff will be in a worse situation if the appointment is delayed.
A receiver is appointed only when there is a possibility of wrong, and it is in the common interest of both parties to appoint a receiver to maintain the property.
The court must consider the conduct of the party who makes the application for the appointment of a receiver.

Who may be appointed as a receiver?

The question that arises is – who can be appointed as a receiver? Usually, an independent, impartial, and disinterested person is appointed receiver. Usually, the court does not appoint a party to the suit (plaintiff or defendant) as a receiver. However, this rule is not rigid or inflexible. In exceptional circumstances or for special reasons, a party to the suit or proceeding may also be appointed as a receiver.

Duration

The code does not describe any time limit or duration for receivership. It may, however, be stated that where a receiver is appointed for a limited time, their role will end on the expiration date. On the other hand, if the receiver is appointed until the date of judgment or decree, their role must end accordingly. The court has ample power to continue the receiver even after the final decree if the exigencies of the case so require^[7]. Thus, the assistance of the receiver can be sought even in the execution of the decree.

Remuneration

The receiver is entitled to remuneration fixed by the court for his services. Additionally, the receiver can be reimbursed for any expenses or losses incurred by them while maintaining the property.

Under Order 40 Rule (2), the court may fix the remuneration payable to the receiver for the services rendered by them. The court may pass a general or specific order in this regard.

Powers: Order 40 Rule 1(d)

A receiver is an officer or representative of the court who functions under its directions. The court may confer upon the receiver any of the following powers:

To institute and defend suits.
To realize, manage, protect, preserve and improve the property.
To collect, apply, and dispose of the rents and profits.
To execute documents.
Any other powers as deemed fit by the court^[8].

However, the receiver has no power except those conferred upon him by the appointment order. The court may choose not to confer all of the above powers, and the terms of the appointment would condition them^[9]. Even when full powers are conferred on the receiver, he should take the court’s advice in all important matters to protect himself.

A receiver cannot sue or be sued without the court’s leave. However, granting leave is the rule, and refusal is the exception. But if the suit is filed without such leave, it is liable to be dismissed^[10]. If the decree is passed in such a suit, it can be set aside. No such sanction is necessary to prosecute the receiver for a criminal offence he allegedly committed by abusing his authority as a receiver.

Since he is custodia legis, any obstruction or interference by anyone with his possession without the leave of the court is interference with the court’s proceedings and is liable for contempt of court^[11]. Property in the hands of a receiver cannot be attached without the leave of the court.

The receiver’s status has been appropriately explained in the leading case of Jagat Tarini Dasi v. Naba Gopal Chaki^[12] in the following words: “The receiver is appointed to benefit all concerned. He acts as the representative of the court and all parties involved in the litigation that led to his appointment. He is an essential tool for the court to exercise its jurisdiction in cases where property administration is required. Therefore, any legal action to collect or obtain possession of the property must be pursued by the receiver, and all the proceeds received and controlled by him alone.’’

Duties: Order 40 Rule (3)

Under Order 40, Rule (3), the duties of a receiver are outlined as follows:

1. The receiver must provide security to account for the income he will receive from the property.

2. The receiver must submit accounts every six months, as directed by the court. These accounts should include all income received and expenses incurred to protect and preserve the property.

3. The receiver must pay any amounts due to the court.

4. The receiver must take responsibility for any property value reduction due to his willful negligence.

5. The receiver must personally discharge all duties and responsibilities entrusted to him by the court and cannot delegate or assign any of these rights.

The receiver must fulfil all responsibilities entrusted to him by the court. Failure to do so can result in legal action and personal liability for any loss due to negligence or willful failure to protect and preserve the property.

Liabilities: Order 40 Rule 4

The receiver has to submit accounts, pay the amount due, and take care of the property in his possession. If he fails to do so, he may be held liable for the loss caused by his negligence or wilful default.

As per the law, the court may direct the receiver’s property to be attached and sold to recover the amount due from him^[13]. The receiver is expected to exercise the same level of care and diligence in managing the property as a prudent man would in similar circumstances^[14]. He is responsible for all sums he might have received but for his negligence or default.

If the receiver fails to comply with the court’s orders or abuses his powers, the court has the power to remove him from his position^[15].

Conclusion

Thus, a receiver plays an important role. When a court orders a receiver to take charge of a subject matter during litigation, their duty becomes critical to protect and maintain it until the court makes a ruling on the case. Since the receiver is a court official, everything under their care is legally vested in the court system. If the court determines neither party is suitable to oversee the property until the dispute is resolved, a receiver will be appointed, given they meet the court’s requirements. The receiver will then be vested with certain obligations and powers by the court, which they must use to the best of their ability to manage the property properly. The receiver needs to be careful before making any important decisions related to the subject matter, as they will be personally liable for any damage that may occur. Before making any such choices, the receiver must seek the court’s approval. The receiver, being an officer of the Court, is directly responsible to the Court. He cannot delegate his powers, duties, and functions to anyone else.

References:

C.K. Takwani, Civil Procedure with Limitation Act, 1963, Eastern Book Co., (9th ed ).
An Assignment on The Code of Civil Procedure 1998 – Assignment Point. https://assignmentpoint.com/an-assignment-on-the-code-of-civil-procedure-1998/
RECEIVER Definition & Meaning – Black’s Law Dictionary. https://thelawdictionary.org/receiver/
The Ordeal of a Receiver: The Harshest Remedy. https://www.jsbf-report.com/post/the-ordeal-of-a-receiver-the-harshest-remedy
Receiver under The Code of Civil Procedure (CPC), 1908. https://lawtimesjournal.in/receiver/
PURPOSE ROLE AND APPOINTMENT OF A RECEIVER – Naivedhya Kumar – ijalr. https://ijalr.in/volume-3/issue-2/purpose-role-and-appointment-of-a-receiver-naivedhya-kumar/

^[1] P.Lakshmi Reddy v. L. Lakshmi Reddy, AIR 1957 SC 314

^[2] Or. 40 R. I(I)(a), see also S. 94(d)

^[3] T. Krishnaswamy Chetty v. C. Thangavelu Chetty, AIR 1955 Mad 430 st p. 434

^[4] Asadali Chowdhury v. Mohd. Hossain Chowghury, AIR 1916 Cal 427

^[5] Mahindra H. Patel v. Ram Narayan, (2000) 9 SCC 190

^[6] T. Krishnaswamy Chetty vs C. Thangavelu Chetty And Ors., AIR 1955 Mad 430

^[7] Hiralal Patni v. Loonkaran Sethiya , AIR 1962 SC 21

^[8] R. 1(1)(d)

^[9] S.B Industries v. United Bank of India, AIR 1978 All 179

^[10] Ibid.

^[11] Ibid.

^[12]Jagat Tarini Dasi v. Naba Gopal Chaki ILR (1907) 34 Cal 305