Gurjala Subramanyam (died) Gurjala Srinivasaiah, represented by guardian Gurjala Venkataramanayya and Others vs Damavarapu Reddi and Others

Curgenven, J.—This appeal is against an order dismissing a petition to set aside a sale in execution preferred by some of the judgment-

debtors against whom the respondents obtained a mortgage decree. Various grounds were adduced before the lower Court in support of the

application but only one of them has been pressed before us vis., that the purchaser of certain items had been appointed a receiver in respect of

them and had not obtained permission to bid at the auction in that capacity. The mortgagee decree-holders were respondents 1 to 8 and it appears

that on the 16th January, 1928 the 8th respondent, who was the 7th plaintiff in the suit, was appointed a receiver of the property under Order 40,

Rule 1, Civil Procedure Code. Prior to this in August, 1927 he had obtained leave to bid as one of the decree-holders, but he had obtained no

such leave as receiver and we do notthink that leave given to a decree-holder as such can be taken to give him leave to bid when he is

subsequently appointed receiver, because the two capacities are entirely distinct. The learned District Judge has dealt with the objection raised on

this score in paragraph 30 of his order, and has stated that there was no Indian case on the point. Since that observation was made a case has

been decided in Jiteswari Dasi v. Sudhakrishna Mukherji I.L.R(1931) 59 Cal. 956 which we are unable to distinguish in principle from the case

now before-us. The learned Judges have followed an English case, Nugent v. Nugent (1908) 1 Ch. 546 where the same question arose whether a

receiver appointed by the Court can purchase property of which he is receiver without the leave of the Court. The circumstances there were

slightly different, as the sale was under a mortgage and outside the Court, while the receiver was appointed by the Court in a partition action but

we do not think that any difference in principle is involved. The gist of the decision is that a receiver is in a fiduciary position and has special

opportunities of knowledge and that if he is allowed to figure as a purchaser at an auction, he placed himself in a position in which his interests as

buyer conflict with his duties as receiver. It is essential therefore to enforce the principle that a receiver ought not to be allowed to purchase, and it

should be enforced not with reference to the merits of individual cases but by imposing an absolute prohibition.

Cozens-Hardy, M.R. observes:

The Court in dealing with this class of cases, does not proceed upon the footing that there has been fraud or improper concealment, or any special

advantage taken by the receiver; but it proceeds upon the general rule that in cases of this kind the purchase ought not to be allowed at all, because

it is a dangerous thing to allow, as in most cases it is almost impossible to ascertain whether the receiver has or has not taken undue advantage of

his position.

Similar observations were made by Fletcher Moulton, L.J. There can be no doubt that this case states the law as it stand in England and now

that we also have an Indian decision in the same terms we think that we should have strong grounds for differing from these authorities. Mr.

Somayya has endeavoured to argue that a receiver in a mortgage action occupies a special position inasmuch as he is appointed in the interests

solely of the mortgagee decree-holder and not at all in those of the judgment-debtor. We do not think in the first place that that is any clear reason

why the rule should not be enforced, and in the second place we think it very difficult to say that the proposition is universally true, though it may be

true in the special circumstances in particular cases. It is undoubtedly the duty of a receiver in a mortgage action not only to ensure that the income

is conserved but also that the property is kept at its maximum value. In other words, his duty as a receiver or at least the effect of discharging that

duty, is to maintain the property in the most favourable condition for an eventual auction, whereas as a bidder his private interest must necessarily

be to secure the same property at a minimum price. It seems clear that in general a judgment-debtor is interested in the amount of the sale price

because on it depends the extent to which the decree against him is satisfied or, if it is wholly satisfied, the extent of the surplus which will.be paid

into his hands. We cannot accordingly agree that a receivership of this character should afford an exception to the general rule laid down in Nugent

v. Nugent (1908) 1 Ch. 546 and we think that the considerations in favour of enforcing a general prohibition against allowing receivers in general to

bid at Court sales are so strong that we have little hesitation in approving and following Jiteszvari Dasi v. Sudhakrishna Mukherji I.L.R.(1931) 59

Cal. 956 supported as it '' is by the English law upon the subject. That being the only; point which is raised in the appeal we allow the appeal with

reference to the items which were purchased by the receiver and set aside the sale. In regard to the item not so purchased the appeal is not

pressed and is dismissed. Respondents 1 to 8 will pay the petitioners'' costs here and below.