Arumugha Thevar vs Palaniammal and Others

It is indeed surprising, on the established facts, that the lower appellate Court upheld the contentions of defendants 1 and 2 and dismissed the

suit. O. S. No. 87 of 1964 of the plaintiff who is the appellant in the second appeal. As the several points are concluded by the findings of the

Court below against defendants 1 and 2, the point which arises for decision in the second appeal is very narrow and it is sufficient to state the facts

which are relevant for the decision of the point arising in the second appeal.

The properties, in respect of which a charge decree is asked for by the plaintiff were sold by one Arumugham (the plaintiff) and his brother to one

Mari on 20-8-1951. On Mari''s death, his wife Kuppakkal and his son Nachimuthu sold the properties purchased by Mari to one Maruda Thevar,

the husband of the first defendant and the father of the second defendant for a sum of Rs. 15,000. As this Mari did not pay the balance of the

purchase price. Arumugha filed the suit O. S. No. 787 of 1956, against Mari''s son Nachimuthu, the third defendant in the suit, and obtained a

decree for Rs. 1,600 odd and costs. In execution of this decree obtained against Nachimuthu, (the third defendant in this action). Arumugha

attached the balance of the purchase price due by defendants 1 and 2 to the third defendant Nachimuthu (Mari''s son). Garnishee proceedings,

under Order XXI, Rule 46, Civil P. C. were taken and as nothing materialized, the plaintiff first obtained an order for attachment in E. P. R. 1233

of 1960 that a sum of Rs. 3,000 in the hands of defendants 1 and 2 out of the sum of Rs. 6,000 alleged to be payable to the third defendant, shall

be attached. Immediately thereafter, the plaintiff got himself appointed as receiver in E. P. No. 982 of 1961 to realize the amount due from

defendants 1 and 2 to the third defendant. The plaintiff instituted the present suit. O. S. No. 87 of 1964, on 2nd March 1964. the suit was resisted

by all the defendants on the ground, inter alia, that the entire amount due by defendants 1 and 2 to the third defendant has been paid and nothing

was due by them to the third defendant. Defendants 1 and 2 filed one written statement and the third defendant filed his own written statement; all

the defendants made common cause and appeared by the same counsel, their main contention being that the debt due by defendants 1 and 2 had

been paid to the third defendant and had been completely discharged. Both the Courts concurrently found that this plea of discharge is false and

dishonest. No argument was advanced before me attacking this finding. The result is that so far as defendants 1 and 2 are concerned, they are

liable to the third defendant. Several objections were raised about the validity of the attachment proceedings, want of notice etc., and all those

objections were rejected by the trial Court which decreed the plaintiff''s suit as prayed for.

On appeal, the lower appellate Court took the view that the present suit by the plaintiff is misconceived, that there was no proper service of notice

of attachment of the debt upon defendants 1 and 2 and that the plaintiff is not entitled to maintain the suit. The lower appellate Court took the view

that unless there was a valid attachment of the debt in question, the plaintiff, though appointed receiver, would not be entitled to institute the suit. As

observed already, the lower appellate Court had no hesitation in accepting the finding of the trial Court that the plea of discharge raised by

defendants 1 and 2 was thoroughly false and dishonest. The result was that the lower appellate Court allowed the appeal and dismissed the

plaintiff''s suit on the ground that the plaintiff had misconceived the remedy and that certain provisions of the CPC had not been complied with.

Hence the present second appeal by the defeated plaintiff.

Even on the statement of facts. I took the view that on the established facts, it was impossible to sustain the reasoning of the lower appellate

Court and called upon the respondents to justify the judgment of the lower appellate Court. Learned counsel for the respondent stressed the only

point (no other point was argued) that when the plaintiff, as the receiver appointed in E. P. 982 of 1961, instituted the suit he should sue to recover

only the amount due to the plaintiff in O. S. No. 787 of 1956 i.e. Rs. 1,600 odd and the suit seeking of recover the entire sum of Rs. 6,000 though

due by defendants 1 and 2 to the third defendant, was misconceived. Learned counsel urged that the effect of the appointment of the plaintiff in E.

P. 982 of 1961 is only to enable the decree-holder in O. S. No. 787 of 1956, to recover just the amount to cover his decree amount and that the

order appointing receiver does not entitle him or empower him to recover anything more than that and that he is not concerned with the exact

amount of liability between defendants 1 and 2 on the one side and the third defendant on the other. Learned counsel for the respondent did not

sustain the reasoning of the lower appellate Court that there was any defect in the attachment proceedings or any other error or procedure which

debarred or disentitled the plaintiff from instituting the suit as the receiver appointed in E. P. 982 of 1961. I see no substance whatever in the

contention raised by the learned counsel for the respondents.

When a receiver is appointed in execution u/s 51 C.P.C. the receiver will be entitled to all the powers under Order XL, Rule 1, C.P.C. and the

administration of the estate by him as receiver will be governed by the provisions of Order XL, and by the principles which apply to a receiver

appointed in ordinary suits and proceedings, other than execution proceeding. So far as the powers and duties of the receiver are concerned, there

is no difference between a receiver appointed in a suit or other proceeding under Order XL and a receiver appointed in execution u/s 51 clause(d).

The receiver is appointed for the purpose of reducing the property to custodia legis for the court to exercise control over the property so

recovered by the receiver so that it can be administered and distributed according to the relative rights of parties over the fund or the estate in

respect of which the receiver is appointed. The receiver is appointed not merely for the benefit of the decree-holder, but is appointed for the

benefit of the judgment-debtor as well. The negative effect of the receiver, so far as the judgment-debtor is concerned (in case the property in

respect of which the receiver is appointed happens to be a debt due by a third party), is that the judgment-debtor is prevented from collecting the

amounts due from the garnishee and any payment made by the debtor (garnishee) to the judgment-debtor would not operate as a discharge and

that debtor would still continue to be liable to pay the amount to the receiver. That is one aspect of the effect of the appointment of receiver, so far

as it curtails the rights and the freedom of the judgment-debtor to deal with the debt in question. The other equally important aspect is that when

the decree-holder-receiver collects the debts due from the third party, he does not collect it as his own money (in the sense that the moment he

collects he can adjust it towards his decree). He cannot appropriate or adjust any portion of the collection towards the amount due from the

judgment-debtor, under the decree passed against the latter. He has either to deposit his collections into Court or duly account for the same to the

Court which appointed him. Nor can the judgment-debtor claim any unqualified right over the fund so collected, on the ground that the receiver

completely represents the judgment-debtor and the collections are for and on behalf of the judgment-debtor. The decree obtained by the receiver

and the realizations made by him are to be by him in custodia legis under the ultimate control of the Court which will have to pass appropriate

orders safeguarding the rights of all the parties in the action in which the receiver is appointed. So far as the receiver is concerned, he has to take

proceedings in the place of the judgment-debtor and the receiver will have to pursue such remedies and institute such actions as the judgment-

debtor would do and would be bound to prosecute or recovery of the debt in question. The receiver will have the same freedom in instituting such

proceedings as he may be advised and would suffer under the same limitations of either the substantive law or the law of procedure when he

instituted proceedings to recover the debt due from the debtor. The receiver cannot take proceedings in such a manner as would in any way impair

or jeopardize the rights of the judgment-debtor. The action which the receiver will have to institute and prosecute cannot be of his own choice and

in his caprice and he cannot take such proceedings just to safeguard his own interests to recover the amount due to him and at the same time,

seriously impair the rights of the judgment-debtor for the balance of the amount that will be due to him. The receiver cannot dissect or divide the

liability and institute a suit only for just the amount due to him because, in respect of the balance, if the judgment-debtor were to institute another

suit for recovery of the balance, he may be faced with the plea of Order II, Rule 2 or Section 11 or such other provisions of the law of procedure

or substantive law. For instance, again, if the judgment-debtor is entitled to a mortgage or charge right over the properties securing the debt due by

the garnishee or debtor it will not be open to the receiver to give up or waive this mortgage security or charge right and institute a money suit to

recover the debt from the debtor. It is unnecessary to multiply illustrations and it is sufficient to mention that merely because the decree-holder has

been appointed receiver he cannot institute proceedings in the way he chooses just to protect his interests and at the same time being indifferent to

the rights of the judgment-debtor vis-a-vis the garnishee. Any other view would result in serious anomalies and gross injustice to the judgment-

debtor so far as the garnishee is concerned. There is absolutely no warrant in the law of procedure or in general principles to countenance the

contention that when a receiver files a suit, he must restrict the scope of the suit as to enable the Court to afford relief only so far as the decree-

holder receiver is concerned and ignore altogether the interests and rights of the judgment-debtor vis-a-vis the garnishee.

It is unnecessary to refer to the decisions which have considered the position of a receiver to recover a debt due by a garnishee, though in some of

the cases it has been stated that the receiver actually steps into the shoes of the judgment-debtor. As I have already observed, the receiver does

not for all purposes step into the shoes of the judgment-debtor or act as a representative of the decree-holder but he acts merely as an officer of

Court and the fruits of the litigation realized by the receiver are subject to the control and supervision by the Court which appointed him as

receiver. It is sufficient to refer to the decision of this Court in Natesa Pillai Vs. Govindasami Pathan and Another, , where this Court had to deal

with a problem arising u/s 73 for ratable distribution when a receiver was appointed in garnishee proceedings. After a survey of the relevant case

law, this Court held that the money realized by the receiver from the garnishee cannot be said to be earmarked for the benefit of the decree-holder

receiver, that the receiver decree-holder cannot claim a prior right or charge over the fund collected and that all other creditors who have applied

in time and satisfied the conditions of Section 73 will be entitled to participate in the amount realized by the decree-holder-receiver in a suit against

the garnishee. It is in this context that this Court has pointed out that the receiver is an officer of the Court and he is not a representative either of

the decree-holder or of the judgment-debtor, with the result that his realizations cannot be said to belong either to the decree-holder or to the

judgment-debtor, but that the realizations are subject to the control of the Court which will have to give appropriate directions. From this decision

it would be seen that the receiver who is appointed acts for the benefit of both the decree-holder and the judgment-debtor and once that is

recognized, it is the duty of the receiver to recover the entire amount due from the garnishee and the judgment-debtor cannot be exposed to any

technical objection on the part of the garnishee that a second suit by the judgment-debtor for the recovery of the balance would be barred by any

provision of either the substantive law or the law of procedure. If the receiver were to institute a suit just to recover the amount due to him, the

receiver will be guilty of misfeasance so far as the judgment-debtor is concerned. Reference may also be made to the recent decision of the

Supreme Court in Kurapati Venkata Mallayya and Another Vs. Thondepu Ramaswami and Co. and Another, in which the question arose whether

a suit filed by the receiver in his own name was liable to be dismissed on the ground that the receiver must have filed it in his representative

character as the receiver. The Calcutta High Court took the view that it will be open to the receiver to institute the suit in his own name and that it is

not necessary for him to file and suit in a representative capacity. Even so, the Calcutta High Court has observed that the receiver acts as an officer

of the Court for the purpose of getting the fruits of the litigation into the custody of the Court, i.e., custodia legis. This view of the Calcutta High

Court was approved by the Supreme Court in the decision of the Supreme Court in the decision of the Supreme Court aforesaid. It is sufficient to

extract the following observations at page 822 to emphasize that the receiver, when once appointed, must take all the necessary steps to safeguard

the interests of the judgment-debtor to file a suit to recover the entire amount due and that too before it gets barred by limitation.

On the whole, we are disposed to take the view that although a receiver is not the assignee or beneficial owner of the property entrusted to his

care it is an incomplete and inaccurate statement of his relations to the property to say that he is merely its custodian. When a Court has taken

property into its own charge and custody for the purpose of administration in accordance with the ultimate right of the parties to the litigation it is in

custodia legis.

The title of the property for the time being and for the purposes of the administration, may in a sense, be said to be in the Court. 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. He is the right arm of the Court in exercising the jurisdiction invoked in such cases for administering the property; the Court can only

administer through a receiver. For this reason, all suits to collect or obtain possession of the property must be prosecuted by the receiver and the

proceeds received and controlled by him alone. If the suit has to be nominally prosecuted in the name of the true owners of the property, it s an

inconvenient as well as useless form-inconvenient because in many cases the title of the owners may be the subject-matter of the litigation in which

the receiver has been appointed-useless, because the true owners have no discretion as to the institution of the suit, no control over its management

and no right to the possession of the proceeds.

Later the learned Judges pointed out that for the time being and for the purpose of administration of the assets the real party interested in the

litigation is the receiver and, therefore, there is no reason why the suit could not be instituted in his own name. The learned Judges then referred to

a number of cases in support of their conclusion. It seems to us that the view of the Calcutta High Court that a receiver who is appointed with full

powers to administer the property which is custodia legis or who is expressly authorized by the Court to institute a suit for collection of the assets is

entitled to institute a suit in his own name provided he does so in his capacity as a receiver (sic). If any property is in custodia legis the contesting

parties cannot deal with it in any manner and therefore, there must be some authority competent to deal with it in the interest of the parties

themselves. A receiver who is placed in charge of the property on behalf of a Court can be the only appropriate person who could do so. His

function cannot be limited merely to the preservation of the property and it is open to a Court if occasion demands, to confer upon him the power

to take such steps including institution of suits in the interests of the parties themselves. Here, apparently the receiver was not a person with full

powers but by its order dated 26-6-1949, the Court authorized him to collect debts, particularly as some debts were liable to get barred by time.

As already observed the appointment of receiver has the negative aspect of preventing the judgment-debtor from realizing the debt due to him and

the garnishee from making any payment to the judgment-debtor. It is because of this negative aspect that it becomes all the more the duty of the

receiver to institute the suit in such form and also ask for such relief''s which would be complete and comprehensive as between the judgment-

debtor on the one side and the garnishee on the other. The position is so obvious that it does not require further elaboration.

The result is the second appeal is allowed and the plaintiff''s suit is decreed as prayed for with costs throughout. No leave.

Appeal allowed.