Appointment and Powers of Receiver

Power to appoint Receiver (Order XL)

A Receiver is an impartial person appointed by the Court to take possession and control of property which is the subject matter of a suit. The appointment is typically made to preserve the property, manage it, or dispose of it under the directions of the Court for the benefit of the parties to the suit who are found to be entitled to it. The object is to prevent the property from being wasted, damaged, or alienated during the pendency of litigation, especially when the rights of the parties are uncertain or in dispute.

The power to appoint a Receiver is conferred by Order XL, Rule 1 of the Code of Civil Procedure, 1908 (CPC).

When court considers it necessary or expedient

Order XL, Rule 1(1) states that the Court may appoint a Receiver:

"Where it appears to the Court to be just and convenient to appoint a receiver of any property, whether before or after decree."

This is the primary condition for the appointment of a Receiver. The Court has a wide discretionary power to appoint a Receiver when it considers it 'just and convenient' to do so. This discretion must be exercised judiciously and not arbitrarily. The Court weighs the facts and circumstances of each case to determine if the appointment is necessary to protect the interests of the parties and the property itself.

Principles Guiding the 'Just and Convenient' Test:

Courts have evolved certain principles, sometimes referred to as the 'five golden rules' or similar guidelines, to determine if it is just and convenient to appoint a Receiver:

Prima Facie Case: The applicant seeking the appointment of a Receiver must show a strong *prima facie* case and a strong possibility that they will succeed in the suit. The Court needs to be reasonably satisfied that the applicant has a valid claim to the property.
Preservation of Property: The primary purpose of a Receiver is the preservation of the property. The Court may appoint a Receiver if there is a risk of the property being wasted, damaged, dissipated, or alienated by the party in possession, or if the property is likely to be lost or removed.
Preventing Injury: The Court may appoint a Receiver to prevent irremediable injury or loss to the applicant during the pendency of the suit.
No Dispossession of Party in Possession (Generally): A Receiver should not ordinarily be appointed with the effect of dispossessing a defendant who is in *actual possession* of the property and claims title to it, unless there is clear evidence of waste, mismanagement, or fraud. Appointment of a Receiver should not be used as a means to displace a party from lawful possession before their rights are adjudicated.
Least Injurious Remedy: Appointment of a Receiver is a harsh remedy as it takes property out of someone's hands. The Court should consider if there are other less drastic remedies available to protect the property.
Case-Specific: The 'just and convenient' test depends on the specific facts and circumstances of each case. Examples include disputes in partnership dissolution, partition suits, mortgage suits (where the security is in danger), suits between vendor and purchaser, or administration suits.

The power to appoint a Receiver may be exercised before or after the passing of the decree. For instance, a Receiver might be appointed before judgment to protect property during litigation, or after judgment to assist in the execution of the decree (e.g., collecting rents from a property ordered to be sold).

Who cannot be appointed as Receiver (Order XL, Rule 2)

Generally, any person whom the Court considers fit may be appointed as a Receiver. However, Order XL, Rule 2(1) prohibits the appointment of any Judge of the Court as a Receiver unless there are special reasons. Rule 2(2) states that nothing in Rule 2 applies to a Receiver who is appointed merely to execute a decree.

Example 1. In a suit for partition of a large commercial property jointly owned by two brothers, Mr. Sameer and Mr. Tarun, Mr. Sameer alleges that Mr. Tarun, who is managing the property, is collecting rents but not maintaining the property, is misappropriating the funds, and is allowing the property to fall into disrepair, potentially reducing its value significantly before the partition can be finalised. Mr. Sameer seeks the appointment of a Receiver.

Answer:

In this scenario, the Court is likely to consider the appointment of a Receiver as just and convenient. Mr. Sameer has shown a *prima facie* interest in the property (as a co-owner in a partition suit) and has alleged mismanagement, misappropriation of income, and potential damage to the property by the party in possession (Mr. Tarun). This suggests a risk of the property being wasted or its value diminished during the pendency of the suit. To preserve the property and ensure proper collection and accounting of income until the partition is decided, the Court may exercise its discretion under Order XL, Rule 1 and appoint an independent Receiver to manage the property, collect rents, and maintain accounts under the Court's supervision.

Example 2. Ms. Pooja files a suit for recovery of a loan amount from Mr. Raj. She is worried that Mr. Raj might sell his only flat to avoid paying if she wins the case. She applies for the appointment of a Receiver for Mr. Raj's flat during the pendency of the money recovery suit, even though Mr. Raj is living in the flat and is not currently causing any damage to it.

Answer:

The Court is unlikely to appoint a Receiver in this situation. While Ms. Pooja might have a *prima facie* case for money recovery, the appointment of a Receiver for Mr. Raj's residential flat, which he is occupying, would amount to dispossessing him from his property before any decree has been passed and without strong evidence of waste or mismanagement. The mere apprehension that Mr. Raj *might* sell the property to avoid a potential future decree is generally not sufficient ground for the drastic step of appointing a Receiver to take possession of a property being lawfully occupied by the defendant. Other remedies like Attachment Before Judgment (Order XXXVIII) are more appropriate in such cases to prevent alienation without dispossessing the owner. Appointing a Receiver for a residential property in possession of the owner in a simple money recovery suit is generally not considered 'just and convenient' according to the principles guiding the Court's discretion.

Functions of a Receiver

The functions of a Receiver are determined by the Court's order appointing them. The Receiver acts under the control and direction of the Court. Order XL, Rule 1(1)(d) broadly mentions some potential functions, stating that the Court may "grant to the receiver such powers, as to bringing and defending suits and for the realisation, 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 Court thinks fit."

Based on this, the general functions of a Receiver can be categorized as follows:

To preserve the property

This is a fundamental function. The Receiver is responsible for taking charge of the property and ensuring that it is maintained in its current condition and value, preventing any deterioration, damage, or destruction. This may involve carrying out necessary repairs, securing the premises, or taking steps to protect it from encroachment or adverse possession.

To manage the property

The Receiver steps into the shoes of the owner for the purpose of managing the property under the Court's supervision. This includes:

Collecting rents and profits from the property.
Paying necessary taxes and outgoings related to the property.
Managing tenants, including granting leases (with Court permission).
Maintaining accounts of all income and expenditure related to the property.

The Receiver acts as a fiduciary and must manage the property prudently and in the best interest of the potential beneficiaries (the parties to the suit).

To sell the property

While preservation and management are common functions, a Receiver may also be appointed with the power to sell the property. This power is typically granted when the suit's objective requires the sale of the property (e.g., in mortgage suits where the security is to be realized, or sometimes in partition suits where the property is not divisible). When given the power to sell, the Receiver conducts the sale under the directions and supervision of the Court, often by auction, and the proceeds are then dealt with according to the Court's orders.

Other Functions as per Court Directions:

The Court's order appointing the Receiver is crucial as it defines the specific powers and functions granted. These can include:

Bringing or defending suits related to the property.
Executing documents related to the property (e.g., lease deeds, sale deeds after Court approval).
Carrying out improvements to the property (with Court sanction).
Making payments from the income of the property as directed by the Court.

A Receiver cannot perform any act or function beyond those authorized by the Court. Any act outside the scope of the appointment order requires specific permission from the Court.

Example 3. In a suit concerning a disputed agricultural land, the Court appoints a Receiver. The Court's order directs the Receiver "to take possession of the land and prevent any unauthorized entry." Does this order authorize the Receiver to cultivate the land and sell the crops?

Answer:

No, the Court's order as described does not authorize the Receiver to cultivate the land and sell the crops. The order specifically directs the Receiver "to take possession and prevent any unauthorized entry," which falls under the function of *preserving* and *protecting* the property. The power to cultivate the land, manage agricultural operations, and sell the produce falls under the function of *managing* the property and generating income. Unless the Court's order explicitly grants the Receiver the power of management, including cultivation and sale of produce, the Receiver cannot undertake these activities without seeking and obtaining specific permission from the Court. The Receiver's powers are limited to those granted by the appointing order.

Powers and Duties of a Receiver

A Receiver, being an officer of the Court, exercises powers and performs duties as laid down in the Code and the specific order of appointment. Order XL, Rule 1 outlines the general powers the Court may grant, and Order XL, Rule 3 specifies the duties of a Receiver.

Powers of a Receiver (Order XL, Rule 1(1)(d))

As mentioned earlier, the Court may grant to the Receiver such powers as it thinks fit, which may include powers as to:

Bringing and defending suits related to the property.
Realisation (collection) of income (rents, profits, etc.) from the property.
Management of the property.
Protection and preservation of the property.
Improvement of the property (usually requires specific sanction).
Collection of rents and profits.
Application and disposal of collected rents and profits (as directed by the Court).
Execution of documents related to the property (with Court approval).

All these powers are exercised by the Receiver subject to the control of the Court. This means the Receiver is always accountable to the Court and should seek its directions when necessary, especially for significant decisions or expenses.

Duties of a Receiver (Order XL, Rule 3)

Order XL, Rule 3 lays down the mandatory duties of a Receiver, unless the Court otherwise directs:

**(a) To Furnish Security:** Every Receiver shall furnish such security (if any) as the Court thinks fit, to account for what he shall receive in respect of the property, and to make good any default in respect of the property. The security is usually in the form of a bond with or without sureties.
**(b) To Account:** Every Receiver shall submit his accounts at such periods and in such form as the Court appoints. This involves maintaining proper books of account and submitting them to the Court for scrutiny and approval.
**(c) To Pay Balances:** Every Receiver shall pay the amount due from him as directed by the Court. This usually means depositing the collected income into Court or disbursing it as per the Court's orders.
**(d) To Manage as a Prudent Owner:** Every Receiver shall manage the property and perform the duties diligently as a prudent owner would. This implies acting with care, skill, and honesty in dealing with the property.

Rule 4 of Order XL provides for consequences of a Receiver's default in performing these duties, such as attachment of the Receiver's property, sale thereof, and payment of the amounts due from the proceeds, or even removal of the Receiver.

Example 1. A Receiver is appointed by the Court to manage a building and collect rents. The building requires urgent major repairs estimated to cost Rs. 5,00,000/-. The Receiver has collected Rs. 7,00,000/- in rents. Can the Receiver proceed with the repairs using the collected rent money without informing the Court?

Answer:

No, the Receiver cannot proceed with major repairs costing Rs. 5,00,000/- without informing and obtaining permission from the Court. While the Receiver has a duty to manage and preserve the property diligently (Order XL, Rule 3(d)), major expenses like significant repairs generally require the sanction of the Court, especially if they involve utilizing a substantial portion of the collected funds. The Receiver acts under the control of the Court (Order XL, Rule 1) and must manage funds and undertake significant actions as per the Court's directions. The Receiver should submit a proposal for the repairs to the Court, explain the necessity and estimated cost, and seek permission before incurring such a large expense. Minor routine maintenance might be permissible without prior sanction depending on the specific order, but substantial repairs like this would require Court approval.