Ponnu Chettiar vs Sambasiva Aiyar and Another

Venkatasubba Rao, J.—This appeal raises a question as regards the effect of the appointment of a receiver in a suit to enforce a simple

mortgage. The appellant obtained a money decree against one Ganapathia Pillai in O.S. No. 78 of 1923 (District Munsif''s Court, Mayavaram)

and in execution, of that decree attached certain properties. To enforce a mortgage executed by the aforesaid Ganapathia Pillai, the respondent

filed O.S. No. 55 of 1924 (Mayavaram Sub-Court) and obtained an appointment of receiver over the mortgaged properties, which included those

already attached. Thereupon, the appellant applied in the mortgage suit for leave to execute his decree against the receiver. Not only was that

request complied with, but leave was also granted to him to implead the receiver as a party to the execution proceedings. Thereafter, in execution

of the money decree, the attached properties were put up for sale and purchased by the decree-holder himself, that is, the appellant. The sale was

in due course confirmed. The appellant attempted to take possession and the respondents then made several applications to the Court, one being

to restrain the appellant from taking possession; the second, to implead him as a party to their mortgage suit and the third, to continue the receiver

as against him, after so making him a party. All the applications were granted. The appellant took the matters to the High Court but without

success. Pausing here for a moment, the effect of the High Court''s order was to negative the appellant''s right to possession. The rest of the story

may be briefly told. The respondents obtained in their suit a mortgage decree, brought the mortgaged properties to sale, and some third party

purchased them. Till the date of this sale, the receiver had realised a certain amount as income from the properties and paid the amount into Court.

As I have said, some ''of these properties the appellant had previously purchased. He applied to the Lower- Court for payment out to him of that

part of the amount paid by the receiver into Court, attributable to the properties purchased by him, on the ground that the ownership of the income

is incidental to the ownership of the property. ''When he made this application, the sale in favour of the third party referred to above had not been

confirmed and the receiver''s appointment was still in force. The Lower Court having rejected his application, he has filed the present appeal.

A preliminary point has been taken that no appeal lies. This objection cannot, in our opinion, prevail. The appellant was, as I shall show,

impleaded as a party to the mortgage suit. The question of substance is, to whom does the fund in Court belong, to the respondents or to the

appellant? If the appellant were a stranger, it would have been open to him to assert his title to the money by a claim proceeding under Order 21,

Rule 58,. but he having been a party, the question would be one u/s 47, CPC and the preliminary objection must on that ground be overruled.

Now coming to the merits, on the facts that I have stated, the point to be decided lies in a very small compass. What was the state of affairs on

the date the appellant purchased the properties? The effect of the order appointing the receiver was to deprive the mortgagor of his right to deal

with the income. It was in order to safeguard the respondent''s position that the receiver was appointed. The mortgagor could not defeat the order

by assigning the profits to a third party-Could he have, for instance, by private transfer, assigned the income to the appellant ? Of course not. What

the appellant purchased was no more than the right, title and interest of the mortgagor. But the latter himself had no right to dispose of the income.

The order operated to take away that right, which, otherwise, he would have possessed.

The order appointing a receiver operates as an injunction to restrain the judgment-debtor from himself receiving the moneys over which the

receiver is appointed.

See In re Marquis of Anglesey (1903) 2 Ch. 727.

It is then obvious that no private transferee from him could have acquired a valid right to the income and it follows that the appellant who was a

purchaser of his right at a Court sale stands in no better position.

Mr. Sesha Aiyangar, for the appellant, contends that as his ""purchase was with the Court''s'' leave, it vested in his client '' a right over the

income. This argument seems to me utterly untenable. It is well established that without an application for such relief, no person can proceed

against a receiver. The appellant therefore chose the only course open to him that of obtaining the previous permission of the Court which made the

appointment. Had he not obtained such permission, he would have been guilty of contempt and I fail to see how the Court''s order, allowing

execution against the receiver, could be said to have invested the appellant with any special rights.

The question was raised in the course of the argument, in what circumstances would a Court in India be justified in granting a receiver in a simple

mortgage suit ? This is not relevant to the point we have to decide and I shall refrain from expressing any opinion upon it; but I may point out, that

the notion is utterly wrong, that in England those mortgagees-only as are entitled to immediate possession obtain an appointment of receiver. This

idea seems to underlie some of the decisions cited before us and with great respect, is the very reverse of the truth. A mortgage in England may be

either legal or equitable, and, before the passing of the Judicature Acts, the general right of a legal mortgagee was to take possession and not to

come for a receiver. When he had the legal right to enter into possession, why should he be granted the equitable relief? The English Courts

therefore held that the appointment of a receiver at the instance of a legal mortgagee was not a matter of course; whereas in the case of an

equitable mortgagee, this right was specially conferred on him, on the ground that he had no means of taking possession. (Kerr on Receivers, 9th

Edition, pages 32 to 35.) This, of course, is not the law to-day. Under the present practice, receivers are as freely appointed at the instance of

legal mortgagees as in cases in which the mortgagees have only an equitable interest. (See Kerr on Receivers, page 37 and Fisher on Mortgages,

7th Edition, page 359.) I am referring to this subject only to correct the misapprehension to which I have adverted. I may also draw attention to

another fact, namely, that the term ""equitable mortgage"" in the English, law is of much wider import than under the Transfer of Property Act. This

fact is sometimes overlooked and confusion has arisen. An equitable mortgage might be of several kinds and one of them was by deposit of title

deeds, (Halsbury''s Laws of England, Vol. XXI, p. 74.) To the last mentioned sub-division alone,. ''the term is by common usage applied in India.

The question often arose in England, in what cases a receiver would be granted at the instance of a subsequent encumbrancer (an equitable

mortgagee in the eye of the law) as against the first encumbrancer (the legal mortgagee). (See Kerr on Receivers, pages 32 to 34.) With that,

question we are not directly concerned, but the law in England seems to be, that the prior encumbrancer is not entitled to rents received by the

receiver previous to his giving notice that he claims them as against the receiver. Ordinarily, an order appointing a receiver preserves the rights of

prior encumbrancers, but if it does not, a first mortgagee is not entitled to rents collected by a receiver previous to the former''s application to take

possession. (See Fisher, p. 374; Kerr, pp. 36 to 38 and 193 and 194.) As I have said, we are not here concerned in what cases a Court in India

will appoint a receiver, but when an appointment is made, the English Courts have held the receiver''s rights to rents already collected prevails even

as against a prior encumbrancer, a person with paramount rights. As authority for this proposition I may further refer to In re Metropolitan

Amalgamated Estates (1912) 2 Ch. 497. The principle of the rule is this: though a mortgagee under his mortgage is entitled to possession, it is of

the nature of the transaction that till he demands possession or enters into receipt of the rents and profits, the mortgagor should remain in

possession and such possession is rightful. (Halsbury''s Laws of England, Vol. XXI, p. 157.)

It has been urged that a Court in India will not appoint a receiver unless the mortgagee makes out that he has eventually a right to a personal

decree against the mortgagor. With this subject, again, we are not here concerned, but it may be pointed out that, in this case, a personal decree

was eventually passed, and that it has not even now been fully satisfied.

Mr. Sesha Aiyangar next relies upon certain cases, such as In re'' Dickinson (1889) 22 Q.B.D. 187, In re Potts (1893) 1 Q.B. 648 and In re

Pearce (1919) 1 K.B. 354 and argues that the fund in question belongs to his client, as the effect of the order appointing the receiver is not to

create a lien in favour of the mortgagees. But what he overlooks is, that these cases deal, with special provisions of the Bankruptcy Act. Under the

Statute, the property of the debtor vests in the receiver and the execution is made in favour of secured creditors. The discussion turned upon, who

were secured creditors. As Lord Esher, M. R., points out in In re Potts (1893) 1 Q.B. 648:

The Bankruptcy Law is not the Common Law of England; it is an enacted law and all the rights under it are determined by statute and by nothing

else.

In view of these cases, it is doubtful whether the decision of Madhavan Nair, J., in Maharajah of Pittapuram v. Gokul-doss Goverdhandoss

ILR (1931) 54 Mad. 565 : 61 M.L.J. 111 is correct or not, for the claimant, whose right was negatived by the learned Judge, was the Official

Assignee; but with that I am not concerned.

In re Marquis of Anglesey (1903) 2 Ch. 727, already cited, '' on which Mr. Bhashyam Aiyangar, for the respondents, relies, is more in point.

It decides that a receivership order obtained by a judgment-creditor over a judgment-debtor''s share of an estate prevents the latter from dealing

with it to the prejudice of the former and it also prevents any subsequent mortgagee or judgment-creditor from gaining priority by means of a stop

order or charging order.

In the result, the appeal is dismissed with costs.

Reilly, J.

I agree. As my learned brother has pointed out, the arguments in this case, which has occupied us a considerable time, have ranged over a

much wider field than was really necessary. It was urged for the plaintiff-mortgagees that by reason of the order appointing a receiver, which they

obtained in the course of their suit on simple mortgages, they got a special right to have their mortgage debts satisfied out of the income of the

mortgaged property, which might be collected by the receiver, and that the receiver must be treated as a receiver appointed for their benefit alone.

That was contended on the strength of various English decisions. Mr. Bhashyam Aiyangar for the plaintiffs '' states that he also relies upon

Rameshwar Singh v. Chuni Lal Shaha ILR (1919) 47 Cal. 418. In that case the learned Judges, dealing with a simple mortgage, certainly went all

the way necessary to support Mr. Bhashyam Aiyangar''s contention. They said: ''

Our attention has been invited to the case of Penny v. Todd (1878) 26 W.R. (Eng.) 502, where it was ruled that the possession of a receiver in a

mortgage suit was prima facie for the benefit of the party who had obtained the appointment. On this principle it has been argued that the receiver

who was (appointed at the instance of the first mortgagee holds the property for his benefit alone and is bound to make over to him the entire

income for the satisfaction of his dues. In our opinion, this contention is clearly well founded.

That statement of opinion was adopted by Madhavan Nair, J., in Maharajah of Pittapuram v. Gokuldoss Goverdhandoss ILR (1931) 54 Mad.

565 : 61 M.L.J. 111 and applied to a mortgage by deposit of title deeds. We are not here concerned with a mortgage by deposit of title deeds or

any of the incidents of such a mortgage. I venture to say with the very greatest respect that in regard to a simple mortgage the statement adopted

by the learned Judges of the Calcutta High Court as the law of this country appears to me to be anything but well founded. Certainly it was not a

safe proposition to base upon a statement in the indirect report of Penny v. Todd (1878) 26 W.R. (Eng.) 502, where Vice-Chancellor Mallins is

represented as having made a remark of a general nature in regard to receivers appointed at the instance of equitable mortgagees in England. The

interest of Penny v. Todd (1878) 26 W.R. (Eng.) 502, really consists, not so much in that general remark of the learned Vice-Chancellor, as in the

qualifications of the general remark of which that case is an instance. But, if I may say so, it appears to me a very dangerous thing to quote English

decisions in mortgage cases in this country without the very greatest care. There are many great differences between the law of mortgages in this

country and the law of mortgages in England, which is a very difficult and complicated subject. If we use English decisions on mortgage questions

without the very greatest care, they are far more likely to befog us than enlighten us. Indeed indiscriminate citing of English decisions in mortgage

cases in the Courts of this country appears to me one of the surest roads to confusion. And to say that it has been decided in a certain case in

England that a mortgagee has a certain right and therefore a simple mortgagee in this country has a similar right is a very obvious instance of non

sequitur. When we are dealing with the results of appointing a receiver in a mortgage suit in this country on a simple mortgage, there are many

distinctions between the law of this country and the law of England which it is profitable to remember. A legal mortgagee in England has always

had the right to get possession on the mortgagor''s default, unless by some special provision that is excepted; a mortgagee by deed in England

before the Law of Property Act of 1925 had a right himself to appoint a receiver, and that right has been re-stated in the Law of Property Act; an

equitable mortgagee in England who applies for the appointment of a receiver, if interest has fallen into arrears, can get an appointment almost of

course, and he can also realise the mortgage-debt due to him in certain circumstances by getting a receiver appointed as an ordinary remedy; a

mortgagee in England can pursue all his remedies at once. None of those statements applies to a simple mortgagee in this country. In this country

there is no doubt that a simple mortgagee, who has brought a suit to enforce his mortgage, can in special circumstances get a receiver appointed,

for instance, if the mortgagor by his act or default is destroying the mortgage security or allowing it to be destroyed. But the appointment of a

receiver has to be justified by special circumstances. It is not one of the ordinary remedies of a simple mortgagee. Mr. Sesha Aiyangar for

defendant 9, the appellant before us, has suggested that in this country on the application of a simple mortgagee a receiver should never be

appointed unless the mortgagee has still a. personal remedy on his debt against his mortgagor. Speaking for myself I think there is a good deal to

be said for that contention, if we include in ""personal remedy"" the remedies provided by Sections 65, 66 and 68 of the Transfer of Property Act.

However, it is unnecessary to express any decided opinion on that question in this case. But I do not think there is any reason to doubt that a

simple mortgagee in this country cannot by getting a receiver appointed in the course of a suit enlarge his security or enlarge his rights to the

prejudice of third parties, who have already'' acquired rights in the equity of redemption. Nor do I see any reason to doubt that a receiver

appointed in such a case in this country is, like a receiver appointed in other cases, appointed for the protection of the property for the benefit of all

the parties to the suit in accordance with their respective rights, as they may eventually be established.

But in this case Mr. Sesha Aiyangar has to go a great deal farther than that before he can succeed. A receiver has been appointed in this suit,

to which Ponnu Chetty, Mr. Sesha Aiyangar''s client, was made a party as defendant 9. The receiver was originally appointed before defendant 9

was brought into the suit; but his appointment was continued after defendant 9 was impleaded, and the appeal against that order has been

dismissed. After the appointment of the receiver I do not think there can be the least doubt that the mortgagor as a person bound by that order had

no right to do anything to destroy the effect of that order. The receiver had the right and the duty to collect the income of the property. The

mortgagor was bound by that order and could not collect or enjoy the income of the property. What was suggested at one stage by Mr. Sesha

Aiyangar was that, although the mortgagor could not collect or enjoy the income of the property himself, he could nullify the order appointing the

receiver by transferring some right in him to some other person. That appears to me to be in itself an extraordinary proposition. No doubt the order

appointing the receiver did not destroy such rights as the mortgagor had in the property. No doubt he could still sell some interest in the equity of

redemption to a third party. But, as he had been prohibited by the appointment of the receiver from enjoying or collecting the income of the

property, how could he transfer any immediate right to enjoy or collect it to a third party? Even apart from the decisions which my learned brother

has quoted, showing that it is well recognised in England that a judgment-debtor cannot deal with property for which a receiver has been appointed

so as to defeat the order appointing the receiver or prejudice a judgment-creditor at whose instance the order has been obtained, on principle how

can the position be otherwise ?

But in the end Mr. Sesha Aiyangar, as I understand him, does not go quite so far as to say that after the appointment of the receiver, the

mortgagor could at once, turn round and defeat that order by himself selling his equity of redemption to a third party. What he contends more

reasonably is that with the consent of the Court that could be done even after the appointment of the receiver. What happened in this case was, not

that the mortgagor directly sold to defendant 9, but that defendant 9, who had a money decree against the mortgagor, bought the equity of

redemption in execution of his decree. The fact that he was a Court-auction-purchaser instead of a private , purchaser does not justify any

contention that the consent of the Court to the transfer of the right to the income may be implied in the Court auction or in any of the proceedings in

connection with it. It happens that in this case the auction in which defendant 9 bought was in the same Court in which'' the mortgagee''s suit was

pending. The same Court appointed the receiver and conducted the Court auction in which defendant 9 bought such interest as he could buy from

the mortgagor. The receiver was quite properly brought on record in the proceedings in execution of defendant 9''s decree. Mr. Sesha Aiyangar

suggests that we must take it that the Subordinate Judge consented to defendant 9 buying in the Court-auction the whole of the equity of

redemption, including the right to possession and the right to collect the income of the property from the date of his purchase. Now why should we

infer anything of the sort? Oddly enough the receiver, who was a vakil of the Subordinate Judge''s Court, raised no objection to the auction sale

and did not assist the Court by putting forward any contention, but merely said, as the record shows, that he left the matter to the Court. I think it

would have been better if he had tried to be of more assistance to the Court. But how can we reasonably suppose that the Subordinate Judge

consented to such a sale as would nullify and defeat the order appointing a receiver, which he had himself made and which was still in force in his

Court? When he decided that defendant 9 was entitled to bring some interest of the mortgagor to sale in execution, that does not imply that he

decided that what could be brought to sale was the equity of redemption including the right to possession and the right to the income. There was

undoubtedly a right in the mortgagor, which could be sold without interfering in any way with the effect of the order appointing the receiver and

which might in certain circumstances, if the mortgage debt had been cleared off, have turned out to be a very valuable right. Subject to the

mortgage and to any decree or order in the suit upon it the equity of redemption was put up for sale. The Subordinate Judge allowed that to be

done; but I see no reason whatever to say that in so doing he gave any implicit permission to sell anything more than what the mortgagor but for

defendant 9''s attachment in execution could have transferred at that time. Without the consent of the Court after the appointment of the receiver

the mortgagor obviously could not have collected the income of the property; he could not have transferred the right to collect the income of the

property; and defendant 9 could not have bought anything which the mortgagor could not have sold. Accepting for the purpose of this case Mr.

Sesha Aiyangar''s suggestion that the fund collected by the receiver from the mortgaged property is not in any way charged or earmarked for the

benefit of the mortgagee in the first instance, we have to remember that these proceedings arise out of the application of defendant 9 to withdraw

part of that fund on the ground that it represents the income from the date of his purchase. It is not necessary to decide in this case whether the

plaintiffs would eventually have a right to draw that money. But it is clear, I think, that defendant 9 had no basis for his claim upon the fund at the

time he made it, i.e., while the receiver''s appointment was still in force. Mr. Sesha Aiyangar contends that u/s 8 of the Transfer of Property Act the

income belongs to defendant 9 from the date of his purchase. So it would, if his vendor had a right to transfer it to him. But in the circumstances it

is impossible, as my learned brother has pointed out, to say that he had that right while he was under the prohibition of the order appointing the

receiver. The decision of the learned Subordinate Judge was therefore correct, and this appeal should be dismissed with costs.