Appointment of Receiver: Powers and Duties
Appointment of Receiver: Civil Procedure Code (Order XL)
Overview:
Appointing a receiver is a legal process where a court appoints an impartial third party to manage and protect property that is the subject matter of a legal dispute. This is often done when there is a risk of the property being damaged, wasted, or mismanaged.
A receiver is an individual appointed by a court to manage and preserve a debtor's property. This appointment typically occurs when there is a risk that the property might be lost, wasted, or damaged if left in the debtor's control. The receiver's primary function is to protect the property's value and ensure that it is available to satisfy the claims of creditors in accordance with court orders
In other words, A receiver is an impartial third-party individual appointed by a court to manage and protect property that is the subject matter of a legal dispute. This appointment is typically made when there's a risk of the property being damaged, wasted, or mismanaged.
Revlevant Provisions:
Order XL (40) and Section 94 (d) of CPC
- (i) Where it appears to the court to be just and convenient the court may by order.
- (a) Appoint a receiver of any property, whether before or after decree,
- (b) Remove any person from the possession or custody of the property,
- (c) Commit the same to the possession, custody, or management of the receiver, and
- (d) Confer upon the receiver all such powers, as to bringing and defending suits and for the realization on, 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.
- (ii) 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.
Cross Reference: Section 145 of Cr.P.C, 1898
Definition of Receiver:
According to the Oxford Dictionary of Law: A person appointed by the court under civil procedure rule who preserves and protects property during the course of litigation.
A receiver is an officer appointed by the Court to preserve the subject matter of litigation pending the judicial determination of the rights of the parties thereto. The receiver is appointed for the benefit of all concerned, he is the representative of the Court and of all parties interested in the litigation wherein he is appointed.
Case Law: 2007 MLD 1121
The remedy provided in terms of O.XL, R.1, C.P.C. by its very nature is the harshest provided under the Civil Procedure Code, 1908. Powers under O.XL, R.1, C.P.C. are to be exercised sparingly and with utmost caution.
Object/Purpose Behind Appointment of Receiver:
The object behind the appointment of a receiver is to preserve the status quo during the pendency of litigation and in terms of section 94 CPC to prevent the ends of justice from being defeated.
(i) Where the Property is not in the possession:
Where the property is not in the possession of anyone, the Court should appoint a receiver to prevent a scramble for the possession of such property. Where there is a bonafide dispute regarding the right to possession of any party, the Court will appoint a receiver only after carefully considering the matter as any decision is most likely to prejudge the issues involved in the suit.
(ii) Property is in Possession:
Where the defendant is in possession of the property, the Court will appoint a receiver in accordance with the judicial principles governing such matters or where equity is in favor of the applicant.
Case Law: 2020 CLC 768 Lahore High Court
On Appointment of receiver by court, property comes into custody of court and passes into legal custody (Custodia legis). Main object behind Appointment of receiver is to preserve suit property and safeguard interest of true owner. No doubt receiver is appointed to receive and preserve property or fund in litigation (pendente lite) when it does not seem reasonable to court that either party should hold it or where party is incompetent to do so. Appointment of receiver is not to be made to prejudice case of either party in anyway. Discretion is rested with court to make such Appointment or not; it has to be exercised judiciously by following norms of justice, so as to protect rights of parties.
Scope of Appointment of Receiver:
Case Law: 2021 CLC 592
Court had jurisdiction to appoint receiver of the suit property in order to protect and preserve the same. Such discretion should be exercised judiciously by following the norms of law to protect the right of the citizens. Party seeking relief of Appointment of receiver should make out a prima facie case and establish his title to the suit property. Such party should also show that suit property would be wasted and misappropriated if receiver was not appointed. Mere Apprehension of mismanagement or misappropriation alone was not sufficient for Appointment of receiver.
Conditions for Appointment of Receiver:
The following are the conditions for the appointment of the receiver:
- (i) The Court is not to appoint a receiver except upon "proof" by the plaintiff that he has a prima facie chance of success in suit;
- (ii) Plaintiff himself has to show a case of adverse and conflicting claims to the property;
- (iii) Plaintiff himself has to show some emergency or danger or loss demanding immediate action;
- (iv) Receiver shall not be appointed where it has the effect of depriving a defendant of a de facto possession as it will definitely cause irreparable loss; and
- (v) The conduct of the applicant is very much relevant. It has to be free from blame.
An applicant under Order 40 rule 1 of C P C must make out a prima facie title to the property in order to obtain the appointment of a receiver, for the purposes of an injunction it is sufficient if the applicant shows that he has a fair question to raise regarding the existence of such a right.
Effect of Appointment of a Receiver:
The appointment of a receiver effectively dispossesses the previous possessor of the property and places it under the court's direct supervision. This shift in control aims to preserve the property's value and ensure its availability to satisfy creditor claims. By appointing a neutral third party (the receiver), the court safeguards the property from potential damage, loss, or deterioration while the legal proceedings unfold. This oversight allows the court to ensure that the property is managed and preserved in the best interests of all parties involved in the litigation.
The receiver is to be appointed by the Court trying the suit Upon the appointment of a receiver the property comes into custodia legis, for the benefit of those ultimately found to be true owners of the property. He is to take possession of all the property. where a receiver takes possession of the property, which is claimed by persons not parties to the suit as their own, the Court is to determine the issue. The possession of the receiver is deemed to be the possession of the Court, but the title in the Property remains unaffected by the receiver's appointment who only takes possession thereof. The receiver being an officer of the Court holds the property on behalf of the Court and preserves it Pendete lite for the benefit of the owners, or persons entitled to the benefits thereof.
Case Law: 2010 CLC 551
Receiver was an officer or representative of Court and he had to function under the direction of Court. Receiver had no independent title to the property when he was appointed receiver to hold the property for ultimate rightful owner. It was the obligation of every Court to ensure that rightful owner was given his legitimate due and officer of the Court should not enter into any unnecessary litigation, taking advantage of its dominant power.
Property Situate Outside the Jurisdiction Limit:
A court can even appoint a receiver of property that is situated outside the limits of its territorial jurisdiction. Where a receiver has already been appointed by one Court another receiver for the same property cannot be appointed by a different Court.
Procedure as To Appointment of a Receiver:
A court may appoint a receiver,
- (i) either suo motu,
- (ii) or on the application of a party to the suit.
- (iii) A receiver may even be appointed by the Court on the application of a third party having an interest in the preservation of the Property.
Judicial Principles Regarding Appointment of a Receiver:
Whilst considering the question of appointing a receiver, the Court is guided by the following
(i) Prima Facile Title:
That there exists in the applicant a prima facie title to the property. The applicant must make a strong prima facie case.
(ii) Property is In Danger:
That the property is in danger of being wasted if a receiver is not appointed. A mere apprehension of mismanagement or misappropriation is not sufficient.
(iii) Just and Convenient:
That it is just and convenient to appoint a receiver. A Court will not appoint a receiver merely because it is convenient to do so. It should be both just and convenient.
Appointment of receiver was the harshest remedy provided under Civil Procedure Code, 1908. Power under O.XL, R.1 of C.P.C. should only be exercised when Court had come to the conclusion that it was just and convenient to appoint receiver to preserve and protect the property during the pendency of litigation. Words "Just and Convenient" used in O.XL, R.1 of C.P.C. was to be interpreted depending upon the facts of each case. Said words denote the convenience of the party and not that of the Court.
(iv) Prevent the ends of Justice:
In order to prevent the ends of justice from being defeated the Court may, if it is so prescribed appoint a receiver of any property and enforce the performance of his duties by attaching and selling his property.
Power of Appointment of Receiver is Discretionary:
The appointment of a receiver is at the discretion of the Court. These words, however, do not. mean that the court is to appoint a receiver whenever it thinks it convenient, the discretion conferred by this rule must be exercised in accordance with the principles according to which judicial discretion is usually exercised. The Court should not appoint a receiver of property in the possession of the defendant, unless the plaintiff can show prima facie, that he has a strong case and a good title to the property. The Court must consider whether special interference with the possession of a defendant is required, there being a well-founded fear that the property in question will be dissipated or that other irreparable mischief may be done unless the Court gives its protection.
Powers, Duties, Limitations, Liabilities, and Remuneration of a Receiver
Powers of A Receiver:
The receiver does not possess any inherent powers by virtue of his appointment, but powers have to be conferred upon him by the Court, expressly or impliedly. The power must be conferred upon him by the order of the Court. Where the Court merely invests the receiver with all the powers, the receiver will be deemed to have power,
- (i)To sell
- (ii) To sue for possession
- (iii) To acknowledge debts
- (iv) To execute documents, but not to mortgage
- (v) A receiver can file a suit in his own name.
- (vi) Such of those powers as the Court thinks fit.
A receiver, upon appointment, does not automatically possess any inherent powers. Instead, these powers must be granted to them by the court, either explicitly or implicitly. This grant of power is typically outlined in a court order.
When a court invests a receiver with "all powers," it generally confers the following authorities:
Power to Sell:
The receiver can sell assets belonging to the property or estate under their control.
Power to Sue for Possession:
The receiver can initiate legal proceedings to regain possession of the property.
Power to Acknowledge Debts:
The receiver can acknowledge debts owed by the property or estate.
Power to Execute Documents:
The receiver can sign documents on behalf of the property or estate, but typically not mortgage property.
Power to File Suits:
The receiver can file lawsuits in their own name.
Other Powers as Directed by the Court:
The court may grant additional powers as it deems necessary, depending on the specific circumstances of the case. The scope of a receiver's powers is ultimately determined by the court order. Any actions taken by a receiver must be within the confines of these granted powers.
Limitations on a Receiver's Powers
A receiver's powers, though significant, are subject to certain limitations:
Derived Powers:
A receiver's powers are derivative, meaning they are derived from the rights of the parties to the suit. The receiver cannot exercise rights that the parties themselves do not possess.
Court Supervision:
The court that appoints the receiver retains control over the receiver's actions. It can issue directions, modify orders, or even remove the receiver if necessary.
Non-Delegation:
A receiver cannot delegate their duties and responsibilities to another person. They must personally carry out the tasks assigned to them by the court.
Lien on the Estate:
A receiver has a lien on the estate for their reasonable fees, expenses, and remuneration. This means they have a legal claim on the assets of the estate to secure payment for their services.
Continuing Court Jurisdiction:
Even after the underlying suit is concluded, the court retains jurisdiction over the receiver. This ensures that the receiver's actions remain subject to judicial oversight and that any outstanding matters can be resolved.
Duties of a Receiver
Order 40 Rule 3 of the Code of Civil Procedure outlines the primary duties of a receiver:
1. Furnishing Security:
A receiver is typically required to provide security to the court to ensure that the receiver will account for all funds received and disbursed.
In exceptional circumstances, the court may waive the security requirement, particularly if the receiver is a court officer or has already provided adequate security.
2. Submitting Accounts:
A receiver must submit periodic accounts to the court in the prescribed format. This includes accounting for all income received, expenses incurred, and any assets acquired or disposed of.
The court may order a receiver to submit accounts even after the conclusion of the main suit.
A receiver is responsible for prudent expenditure and must seek court approval for significant or unusual expenses.
3. Paying Amounts Due:
A receiver must pay out funds as directed by the court, whether to creditors, beneficiaries, or other parties entitled to receive payment.
4. Liability for Loss:
A receiver is personally liable for any loss to the property resulting from their willful default or gross negligence. This includes losses caused by breach of duty or unauthorized actions.
5. Additional Duties of a Receiver:
Beyond the specific duties outlined in Order 40 Rule 3, receivers may be tasked with the following:
- Taking Over Management: Assuming control of the property or business in dispute.
- Protecting the Property: Safeguarding the property from damage, deterioration, or loss.
- Maintaining Accounts: Keeping accurate records of all financial transactions.
- Preserving the Status Quo: Maintaining the current state of affairs regarding the property or business.
- Evicting Occupants: Removing unauthorized persons from the property.
- Transferring Possession: Handing over possession of the property to a designated party.
- Exercising Powers: Taking necessary actions to realize, protect, preserve, or improve the property, such as collecting rents, executing documents, or making repairs.
Breifly every receiver so appointed shall.
- (a) Furnish such security (if any) as the court thinks fit, duly to account for what he shall receive in respect of the property;
- (b) Submit his account at such periods and in such form as ‘the court directs;
- (c) Pay the amount due from him as the court directs; and
- (d) Be responsible for any loss occasioned to the property by his willful default or gross negligence.
Case Law:1986 MLD 1998
A receiver appointed by the Court, held, would be duty-bound to submit a statement of account as directed by the Court and also in the discharge of his functions as a receiver.
The receiver's primary goal is to protect the interests of all parties involved and to ensure the efficient administration of the property or business.
Enforcement of receiver's duties:
Where a receiver:
- (a) Fails to submit his accounts at such periods and in such form as the court directs, or
- (b) Fails to pay the amount due from him as the court directs, or
- (c) Occasions of loss to the property by his wilful default or gross negligence,
The court may direct his property to be attached and may sell such property, and may apply the proceeds to make good any amount found to be due from him or any loss occasioned by him, and shall pay the balance (if any) to the receiver.
Liabilities of a Receiver
Personal Liability for Debts and Contracts:
A receiver is personally liable for debts incurred and contracts entered into in their official capacity. However, they are entitled to seek indemnity from the estate for such liabilities. To mitigate personal liability, the receiver can stipulate in contracts that the estate will be solely responsible for any claims arising from such contracts.
Accountability for Funds and Income:
A receiver must account for all money received and income generated from the property under their control. This accountability extends beyond the conclusion of the suit and continues until the receiver is formally discharged by the court.
Liability for Default and Negligence:
A receiver is responsible for any loss or damage to the property resulting from their negligence or breach of duty.
Remuneration of a Receiver:
Order of appointment of Receiver and Temporary injunction Distinction:
Appointment of receiver is an act of court and made in the interest of justice. Words "just and convenient" do not mean that court is to appoint receiver simply because court thinks it convenient. Such order is discretionary and discretion must be exercised in accordance with principles on which judicial discretion is exercised. Term "just and convenient" used in O. XL, R. 1, C.P.C. does not mean arbitrary whim or pleasure of the court. Appointment of receiver deprives a person from enjoyment of property and, therefore, it has been regarded as harsh remedy.
Distinction between a case in which temporary injunction may be granted and a case in which receiver may be appointed is that while in either case it must be shown that property should be preserved from waste and alienation. In the former case it is sufficient that if it be shown that plaintiff in the suit has a fair question to raise as to existence of right alleged while in the latter case a good prima facie title to property over which receiver is sought to be appointed has to be made out.
Court may appoint receiver not as a matter of course but as a matter of procedure having regard to justice of situation. Receiver cannot be appointed unless there is some substantial background for such interference that property in suit dissipated or other irreparable mischief may be done, unless court appoints a receiver. Main purpose for appointment of receiver over disputed property is to protect and preserve the same pending judicial determination.
When the Collector May be Appointed as a Receiver:
Where the property is land Paying revenue to the Government, or land of which the revenue has been assigned or redeemed, and the court considers that the interest of those concerned will be promoted by the management of the Collector, the court may, with the consent of the Collector, appoint him to be receiver Of such property.
Appointment of Receiver in Different Suits:
Partition Suit:
in parturition suits, a receiver may be appointed if specific acts of misappropriation or mismanagement are proved and not merely on the ground that there is some dispute regarding shares of the owners in the property, or because of the strained relations between the co-owners.
Partnership Suit:
in a partnership suit, a receiver may be appointed where the relations between the partners are bad and dissolution of the firm is inevitable. A receiver must be appointed on dissolute of a partnership at will:
Mortgage Suit:
It is open to a Court to appoint a receiver in a mortgage and even in cases of simple mortgage or equitable mortgage, where the interest is in arrears or where the sale proceeds of the property will be insufficient to pay off the debt, or where the mortgagee is entitled to enter into possession in default of payment.
Conclusion
The appointment of a receiver, as outlined in Order XL of the Civil Procedure Code, 1908 (CPC), serves as a crucial mechanism for the court to safeguard and manage property involved in legal disputes. This legal instrument aims to prevent potential losses, ensure equitable treatment of all parties, and facilitate the just and expeditious resolution of cases.
Important Questions:
Q: What are the powers of the court to appoint receivers. What are the receiver's duties? Under what circumstances, a Collector may be appointed as a receiver?