K. Raghavan vs K. Venktarama Iyer and Others

(1) This civil revision petition raised important question of law as to whether a receiver can claim from the estate amounts advanced and paid by

him during the course of his administration, and claim contemporaneously a lien over the liquid assets of the estate, so as to take preference over

the mortgage decree-holder at whose instance the estate was being administered by him, and whether by necessity the receiver should file a suit to

realise such amounts advanced by him, even though the advancement of such moneys is not in question, and incidentally whether the claim would

be barred by limitation.

(2) The petitioner who is the receiver appointed in the lower court, was so appointed at the instance of the plaintiff in the suit who had a mortgage

security over a press known as the Rajah Power Press, Royapettah. The receiver was allowed certain remuneration for his management and

running of the press. He was in actual management of the same between 15-4-1961 till 31-12-1963, and the final accounts relating to the same

were passed on 1-2-1965. During such running of the press by him, he is said to have advanced moneys from and out of his own pocket for

necessities of the business such as paying weekly wages of workmen, payment of rent to the owners, recasting of the types, recasting of the rollers,

repairing the machines, payment into court to avert attachment of the press, payment of gratuity to workmen while retrenching them, purchase of

papers and printing ink etc. The contention of the Receiver is that all these amounts were evidenced by receipt books and vouchers and are

reflected in the Day books and ledgers maintained by him in the usual course. After the passing of the final accounts, the press was directed to be

sold as it was running at a loss. The receiver has come forward with this application for payment to him, as a preferential creditor to the estate, a

sum of Rs. 7204-15 from and out of the sale proceeds of the press which is admittedly in court deposit.

(3) The plaintiff at whose instance the receiver was appointed, objects to such a payment on a Memo filed by the Receiver on the ground that the

receiver did not obtain directions or sanction of court for the incurring of such expenditure. He also says that he has been objecting to such moneys

being lent by the receiver without authority of court. He pleads that he is not aware of the passing of the receiver''s accounts from time to time and

even of the passing of the final account on 1-2-1965. In any event, he says he can rank himself only as a simple money creditor. The defendants

who have apparently no interest in the claim of the receiver have also raised objections that the receiver ought to have obtained sanction of court

and particularly when the press was working at a loss for five years, and that in any event the press having been sold free from encumbrances, it

should be deemed to be free of the charges incurred by the receiver as well.

(4) The receiver, in reply, contends contra and says that moneys were advanced by him for necessity and that as he was entitled generally under

orders of court to be a receiver to administer and run the press, he bona fide incurred such necessitous expenditure and he also claims a lien over

the sale proceeds now in court.

(5) It is not in dispute that the Receiver discharged his obligations as an officer of court by filing from time to time accounts relating to his

administration. Such accounts filed by him were passed by court after notice to the plaintiff and the defendants. The lower court categorically finds

that the receiver has advanced the sum of Rupees 7204-15 as loan and that it could not accept the contention of the learned counsel for the

plaintiff that no notice was given to the plaintiff at the time when the accounts were passed including the final account on 1-2-1965. At the time of

passing of such receiver''s accounts there is an obligation on court to see and check the accounts with reference to the vouchers produced by the

receiver, issue notices to all the parties interested in the litigation and finally pass the accounts. After such passing of the accounts, it would not lie in

the mouth of the parties at any time thereafter to contend that any one or more of the entries in such accounts cannot be relied upon or acted upon.

In matters dealing and concerning receivers, courts have a special duty to perform as its honour is involved. The receiver being an officer of court

and being the person in custodia legis of the estate which he is asked to administer, the court takes it for granted that its officer is managing such

estate properly and in the interest of the parties concerned, bearing always in mind that such administration of the estate involves the prestige and

honour of the court which has appointed him. The machinery of court is set at work in the checking and passing of the accounts filed by receivers.

In my opinion, whilst the court passes such accounts, it applies its mind to not only the sheets of accounts filed by receiver, but also to the various

vouchers and receipts evidencing the debits and credits in such accounts. As a result of such an application of its mind, it is fairly clear that the

court by necessary implication, if not expressly accepts such debits and credits appearing in the accounts. If, therefore, such accounts do contain

amounts as if lost as hand loans or advanced at such by the receiver and if the accounts containing such advances or hand loans, are passed by the

Court then it tantamounts to an authority, permission or sanction given by the court for the incurring of such expenditure. A fortiori it would be so

when this has been done at the time when the accounts are passed after notice to parties. It is apposite to quote the observations of Warrington J.

in Boehm v. Goodall, 1911 1 Ch. 155:

I think it is of the utmost importance that receivers and managers in this position should know that they must look for their indemnity to the assets

which are under the control of the court. The court itself cannot indemnify receivers but it can and will do so out of the assets so far as they extend

for expenses properly incurred.

Such being the law, I am of the opinion that when a court passes a receiver''s accounts, which contain the items of expenditure incurred by him,

either by way of loans advanced by him or incurred by him under any other name, it should be taken that the court has sanctioned such

expenditure, and an independent sanction by court for the incurring of such expenditure is not required. In this case, the lower court rightly finds

that the contention of the learned advocate for the plaintiff that neither he nor the plaintiff was given due notice of the passing of the accounts cannot

be accepted. The net result is that there is least difficulty in this case in accepting the findiang of the lower Court that the receiver did advance the

sum of Rs. 7204-15 as loss during the course of his management and running of the press in question.

(6) The lower Court having found that such expenses or advances were made by the receiver during the course of his management, erroneously

entered into a fuller discussion whether independent orders of court were necessary enabling the receiver to incurr such expenditure or advance

such moneys. As already observed by me, the court functions through a receiver, and the receiver sets the machinery of court into motion when he

files his regular accounts as prescribed. When such accounts are scrutinised by the parties to the suit, and ultimately by the court itself then it readily

provides a positive indicia that the court has sanctioned such expenditure incurred by the receiver. In fact, Kerr on Receivers, 13th Edn. at page

239 observes as follows-

Borrowing by manager :--If a receiver and manager requires money to enable him to carry on the business entrusted to him, the court will give him

liberty to borrow upon the security of the property in his control and as a first charge upon the whole undertaking in priority even to debentures,

were the money is required for preservation of the assets and the goodwill"".

This quotation supports the proposition that expenses incurred by a receiver without an express sanction by court can be ratified by court provided

there are circumstances attendant upon them which would necessitate such a ratification. In this case it is too much to imagine or surmise that in the

course of four years of management when the Receiver was advancing moneys for the purposes enumerated by me already which expenditure is

supported by proper vouchers and receipts and the accounts relating there to were passed by the Court from time to time, can ever be assumed or

presumed to be moneys spent by the receiver unnecessarily and without authority of court. The lower court therefore, need not have entered into a

discussion about the necessity of the receiver to incur such expenditure. The observations of the lower Court that it is the duty of the receiver to

have brought it to the notice of the court that without such borrowings the press could not be run is, according to me, not well founded. At one

breath the lower Court would say that it has no hesitation that the receiver has advanced the moneys as loans and the accounts correctly reflected

such loans, and in another breath it would maintain that the receiver ought to have brought it to the notice of the court and obtained its ratification

by express orders of court. This would not be necessary, as by the passing of the accounts, the court should be deemed to have sanctioned such

expenditure. As observed by Venkatasubba Rao J. in P.P.P. Chidambara Nadar Vs. K.P.C. Mahalinga Nadar and Others, , the proper occasion

for making allegation against the receiver is when his accounts are passed and

If the receiver shows the expenses, incurred upon his own responsibility, to have been necessary and such as would have been authorised by the

court had application been previously made, he will be reimbursed for such outlay as if previous authority had been given.

(7) Learned counsel for the respondents referred to the decision reported in Subramanian v. Lutchman, (1923) 44 MLJ 602: AIR 1923 PC 50

where their Lordships of the Privy Counsel were considering the case of the receivers who renewed a mortgage without authority. That is a case

which is clearly distinguishable from the facts of this case. A receiver was appointed to wind up the business of a dissolved firm. He was not asked

to administer or run the business. In such circumstances, their Lordships rightly pointed out that the receiver not expressly empowered by the order

appointing him as such to renew a mortgage created by the erstwhile partners of the dissolved partnership firm had no power to mortgage. This has

no application to the facts of this case.

(8) Thus far, having held that the receiver did expend the moneys, and that too for the benefit of the estate and for its running, has he any lean over

the sale proceeds of the press which are admittedly in custodia legis today? It cannot be expected that a receiver spends moneys ultimately to find

that he is at the mercy of the parties to the litigation and is practically helpless in the realisation of the amounts advanced by him for necessity. The

lower Court thinks that this is a complicated question of law which cannot be gone into on a memo filed by the receiver for the payment of the

moneys from and out of the assets in court. I do not think so. I have already referred to the observations of the learned author Kerr Mukherji J. in

Ali Ismail Doodha and Others Vs. Momin Bibi and Others, observed as follows-

To allow an expenditure in one breath and thereafter to say that such expenditure cannot be recovered is to indulge I the barest sophistry and

should not be allowed to defeat court''s process and court''s officers"".

It cannot lie in the mouth of the plaintiff and the defendants to the action to come forward after the accounts were duly passed from time to time

and contend that the receiver is not entitled to reimbursement in the first instance from the assets of the estate. The question directly arose in this

court in K. Rajagopalachari Vs. M. Jamal Ayisha Bi Bi and Others, . Spencer O. C. J. made the following observations:

If in pursuance of the order of the Court appointing him, a receiver mortgages the property for raising a fund to defray the cost of his management,

that mortgage would take precedence over an earlier mortgage"".

Learned counsel for the respondents however states that in that suit the mortgage was effected by the receiver in respect of moneys already

sanctioned by court. But it would appear from the facts of the case-that the receiver created the mortgage not only for the amount so sanctioned

by court, but also for other necessary expenses incurred by him. The ratio in K. Rajagopalachari Vs. M. Jamal Ayisha Bi Bi and Others, therefore

is authority for the proposition that even though there is a prior mortgage over the estate for which a receiver is appointed, the receiver would be

entitled to a first charge for all the expenses incurred by him, and necessarily therefore, he is to have a lien over the sale proceeds of such estate if

once the estate itself is sold under orders of court. It is apposite also to refer to the decision in Secy. of State for India in Council v. Janardhan

Rao, (1917) 30 MLJ 456 : AIR 1917 Mad 746 which is to the effect that where general powers of management are conferred though subject to

the control of the court, the receiver is as the person ""in lawful management otherwise than as an agent, servant, mortgagee or lessee"" the

''proprietor''. It can therefore be safely concluded that a receiver who has admittedly incurred expenditure for the benefit of the business in his

management and who has disclosed such expenditure in his accounts filed from time to time and which accounts have been passed without any

demur by the parties to the suit, is entitled to as of right to be reimbursed even at the sufferance of a prior encumbrancer. The learned City Civil

Judge having posed the question whether the receiver would be entitled to a first charge on the sale proceeds of the press refused to answer this

question on the only ground that it involves a complicated question of law I am however not impressed with the observation of the lower court

(which is apparently inconsistent with his view earlier expressed) that the truth of the advances itself is questioned by the parties. In para 11, the

lower court says that it is satisfied that the receiver had advanced moneys as loans. but in para 13 of its judgment, it would say that the truth of the

advances is questioned by the parties which it accepts. This is no doubt, an irreconcilable finding and the latter observations in para 13 cannot, in

my opinion, prevail in view of the categorical observation by the lower court that it is satisfied that advances were made by the receiver. In fact, the

latter observation of the lower Court in para 13 is one of the grounds which prompted the learned Judge to drive the receiver to a regular suit.

(9) The next question is whether on the memo filed by the receiver, he can have any relief. I do not think that in the circumstances of this case, the

receiver who acted bona fide throughout, the parties having stood by and allowed him to advance moneys, should be compelled to file a suit for

the recovery of the lawful dues. The receiver is only a human agency through which the court functions. It should be alert in safeguarding and

protecting the interests of such an officer of court appointed by it and the receiver therefore should not be driven from pillar to post to recover

moneys advanced by him and disclosed by him as such in the accounts filed by him and passed by court on notice to the parties. The claim of the

receiver arises by reason of a credit arising in his favour and it was openly disclosed by him in his accounts kept in the usual course of business. As

observed by Mukherji J. in Ali Ismail Doodha and Others Vs. Momin Bibi and Others, :

In such a pro-interesse suo application where no difficult question of fact or title arises court makes an order without a suit."" The sale proceeds of

the press are still in court. The receiver is now seeking reimbursement from such moneys in court and he is asking apparently for a payment out of

the money due to him from the funds available in court. In law, I am of the view that the receiver who in his memo filed for such reimbursement,

asks for it is entitled to the relief asked for by him and he need not be referred to a separate suit. Each case, however, has to be decide don its

merits. In this particular case, there is no doubt that the receiver has expended such moneys. I have already observed that no express sanction of

court is required for the incurring of such expenses since it should be deemed that such a sanction was given when the court scrutinised the

accounts of the receiver and passed the same. I do not agree that the parties are entitled to challenge the correctness of the accounts at this late

stage when the receiver is asking for restoration of funds lawfully expended by him. The ultimate analysis of the picture might not be financially

satisfactory in the sense that the press was running at a loss. That circumstance by itself cannot weigh in the minds of courts to outweigh the legal

advantage and right which the receiver secures by the operation of law, namely, to claim in an application of his, reimbursement of all the moneys

spent by him during the course of his running of the press. While respectfully agreeing with the dicta laid down by Mukherji J. in Ali Ismail Doodha

and Others Vs. Momin Bibi and Others, , I hold that the matter under enquiry can be decided on a memo filed by the receiver and the receiver

need not be directed to a regular suit.

(10) In so far as the question of limitation is concerned, it has not been argued before me, and in fact, the lower court observed that the parties to

the suit do not object to the receiver claiming the amounts. It is therefore unnecessary to consider this question.

(11) I therefore direct that the receiver be paid the sum of Rs. 7204-15 from and out of the funds in court as prayed for by him in his Memo dated

24-2-1965. This civil revision petition is therefore allowed, but in the circumstances there will be no order as to costs.

KSB

(12) Revision allowed.