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Judgment
Patanjali Sastri, J.—The only question for determination in this appeal is whether the appellant is entitled to a decree against the estate of
Urkad to which the 3rd respondent has been held entitled to succeed.
The appellant advanced a loan of Rs. 5,000 to the first respondent who executed a promissory note (Ex. A) for the amount. The sum was
borrowed for the purpose of paying the peishkush which fell due in respect of the Zamindari when it was under the management of the first
respondent as receiver appointed by the Court during the pendency of a succession suit relating to the Zamindari. That suit (O.S. No. 93 of 1929
in the lower court) was instituted by the 3rd respondent as the widow of the late Zamindar for recovery of the estate from the first respondent who
had taken possession thereof asserting title thereto as the step-brother of the deceased. The suit ended in a decree in favour of the third respondent
and the first respondent preferred an appeal to this Court. During the pendency of the appeal the second respondent was appointed as receiver to
manage the estate and he continued in such management until the third respondent having finally succeeded in the litigation took possession of the
Zamindari. The appellant brought the suit out of which this appeal arises for recovery of the amount of principal and interest due under the
promissory note from the first respondent personally and from the assets of the estate in the hands of the 2nd respondent who was the receiver at
the time. The latter having since been discharged from the receivership and the widow having taken possession of the Zamindari as the successful
claimant as aforesaid she was brought on record as the 3rd respondent in this appeal and a, decree is now sought against the estate in her hands.
The Court below passed a decree against the first respondent personally and against the assets of the estate to the extent to which he (the first
respondent) has a right of indemnity as receiver against that estate. Not satisfied with a decree in this form, the appellant has brought this appeal
claiming payment out of the estate irrespective of the first respondent''s indemnity and the question is whether the claim is sustainable.
The promissory note which has been marked as Ex. A is in the following terms:
Promissory note executed on the 3rd June, 1930, corresponding to the 21st Vaikasi of 1105 Andu in favour of R.M.K. Subramaniya Aiyar
Avergal, son of R. M. Ganapathi Aiyar Avergal, who is keeping hundiyal shop at Tinnevelly Bridge Railway Station, Tinnevelly Taluk, by the son
of Zamindar Avergal, Kotilinga Sethu Rayar, and the Zamindar of Oorkadu and the present receiver of the said Zamin. vie., U. K. Ulagalum
Perumal Sethu Rayar Avergal, Kshatrapathi Avergal, residing in Oorkadu Cusba, Oorkadu Zamin, Ambasamudram Taluk, is as follows:
For payment of Zamin peishkush urgently due to the Government, the sum borrowed on this date in cash from you, is Rs. 5,000, I shall on demand
pay you or order in cash the same together with interest thereon at 1 per cent. per mensem, and get back this note.
U.K.C Sethu Rayar,
Kshatrapathy,
3-6-1930.
Now, the 1st respondent has preferred no appeal challenging the personal decree passed against him by the Court below and the question
whether the terms of the instrument are such as to exclude his personal liability does not arise and was not argued before us. Mr. T. M.
Krishnaswami Aiyar''s contention on behalf of the appellant was that in addition to the personal liability of the 1st respondent, the assets of the
estate of which he was the receiver at the time of the borrowing, into whosoever hands they might have passed on the termination of the litigation,
were liable for the amount due on the note as the debt was one properly incurred by the receiver in the course of his management, for a necessary
purpose, namely, the payment of the peishkush due to the Government on the Zamindari. Mr. Krishnaswami Aiyar based the appellant''s right to
such relief on three grounds. First, he argued that the principle of the Full Bench decision in Ramajogayya v. Jagannadham (1918) 36 M.L.J. 29 :
ILR 42 Mad. 185 which has been followed in later decisions such as Annamalai v. Muthuswamy (1939) 1 M.L.J. 992 : ILR 1939 Mad. 891,
should be applied to the facts of the present? case. That was a case where a guardian of a Hindu minor entered into a contract for a necessary
purpose such as, under the Hindu Law would support an alienation of the minor''s estate, and a Full Bench of this Court while recognizing that a
guardian cannot bind his ward by a personal covenant to pay held that under the personal law applicable to the minor, namely, the Hindu Law, a
decree could be passed against the minor''s estate in the hands of the guardian. It is difficult to see how this principle can be invoked in the case of
a debt incurred by a receiver appointed by a Court although such debt was incurred for the benefit of the estate in his management and such estate
belongs to a Hindu. It was suggested that the principle of Hanumanpersad''s case (1856) 6 M.I.A. 393, on which the Full Bench decision was
based having been applied to cases of debts incurred by widows, managers of temple, Matathipathies and such other limited proprietors, might
appropriately be extended to a case like the present of a debt incurred by a Court receiver in management. We are unable to appreciate this
argument. What was held in Hanumanpersad''s case (1856) 6 M.I.A. 393, was that a guardian of a Hindu minor has the power to raise money by
mortgaging or selling the estate of the minor for purposes which the Hindu Law recognises as necessary or beneficial for the minor, and the same
test has been applied in judging the binding character of alienations effected by limited owners like a Hindu widow, Matathipathies etc. It is difficult
to see how these decisions lend any support to the argument that a creditor who lends moneys to a Court receiver without a charge on the estate in
his hands is entitled, nevertheless, to a decree against such estate to whomsoever it may ultimately be adjudged to belong. Even in the case before
the Full Bench, we may observe that considerable difficulty was felt in discovering the true legal basis on which a decree against a minor''s estate
could be passed on his guardian''s covenant to pay. Wallis, C.J., inclined to the view that no basis for such a decree existed apart from the
guardian''s right of indemnity against the estate which could in an appropriate case be made available to a creditor. The majority (Ayling and
Seshagiri Aiyar, JJ.), however, were of opinion that such a basis could be found in the Hindu Law which was the personal law applicable to the
minor in that case. The case bears no analogy to the present and we are wholly unable to appreciate the argument that the principle is applicable to
a loan contracted by a receiver merely because the estate for the benefit of which it was borrowed belongs to a Hindu.
Mr. Krishnaswami Aiyar then broadly contended that a loan contracted by a receiver for purposes sanctioned by the Court whether before or
after the borrowing is binding on the estate which has been benefited by it, and on the principles of justice, equity and good conscience, the
creditor should be given a decree against the estate into whosoever hands it may ultimately have passed. Reliance was placed upon the decision of
Sale, J., in Mohari Bibi v. Shyama Bibi I.L.R.(1903)Cal. 937 which no doubt supports the contention. The learned Judge observed:
I do not think that it is necessary to resort to the doctrine of the creditor''s right to the benefit of the Receiver''s indemnity as a foundation for the
right to sue the estate for a debt incurred by the receiver.
A right to maintain such a suit is, in my opinion, founded on the just and equitable principle that as the acts of a receiver so long as they fall within
his authority are the acts of the Court, the estate cannot be permitted to enjoy the benefit of those acts without being held responsible for the
obligations arising out of them.
No authority is quoted in support of this broad proposition but the learned Judge refers to an observation of Rigby, L.J., in Burt, Boulton and
Hayward v. Bull (1895) 1 Q.B. 276:
The Court could never have intended by its action to bring about such a state of things as that a business might be carried on perhaps for years and
then, owing to failure of the assets, all the creditors should go without payment.
With all respect, we are unable to see how this observation supports in any way the proposition enunciated by the learned Judge. The
observation was intended, as a reference to the context clearly shows, to support the inference that in such circumstances the receiver intended to
pledge and the creditors to trust the receiver''s personal credit. For, the learned Judge (Rigby L.J.,) said:
...the intention is that the receiver and manager so appointed should appear to the world as the person carrying on the business in the usual way,
making himself personally liable on all contracts, except in cases where there might be a special stipulation to the contrary, and looking for
indemnity to the assets or the persons for whose benefit ultimately the business was carried on. It would be impossible for a tradesman in the
ordinary course of business to ascertain for whose benefit the business was carried on, or what funds might be available and I do not think that the
Court can be supposed to have intended by their action to place people in such a predicament.
In the same case, Lord Esher, M.R., explained the position of a receiver thus:
The incidents of his relation to the Court are such as would, if they existed as between him and an ordinary person, constitute him an agent for such
person; but it is of course impossible to suppose that the relation of agent and principal exists between him and the Court. What is the inference
that necessarily arises? It must be that the intention is that he shall act in pursuance of his appointment on his own responsibility and not as an agent,
because otherwise nobody will be responsible for his acts. The company cannot be liable, for he is not their agent and the Court clearly cannot be
liable. Therefore any orders which he may give under such circumstances as manager must prima facie be taken to be orders given on his own
responsibility and credit.
Sale, J., draws a distinction between a creditor''s dealing with executors and trustees carrying on business for the benefit of the estate in their
hands and his dealings with a receiver acting under orders of the Court but no such distinction was recognised by Rigby, L.J., who observed:
I think that the notion upon which the Court has always proceeded, in exercising its jurisdiction to appoint a manager of a business, is, not that he is
to be in the position of an agent, although there is no principal, but that he is to be in a position similar to that of persons who in a fiduciary capacity
carry on a business, in the course of which contracts have to be entered into e.g. executors or trustees, who, by the terms of the instrument
appointing them are directed to carry on a business for the benefit of others. The rule has always been that such persons are prima facie themselves
personally liable, and they cannot get rid of liability on the contracts made by them merely by describing themselves in the contract as executors, or
trustees.
The doctrine that a creditor has only a right of indirect recourse to the estate through the right of indemnity of the person who contracted the
liability for the purposes of such estate in the course of its management which, Mr. Krishna-swami Aiyar concedes is well-established in the case of
trustees and executors, has been applied in England also to loans borrowed by receivers. In In re British Power Traction and Lighting Co. Limited
(1910) 2 Ch. 470, Swinfen Eady, J., after quoting from the judgment of Jessel, M.R., in In re Johnson (1880) 15 Ch. D. 548 the passage:
If the right of the creditors is, as is stated by Lord Justice Turner, the right to put themselves, so to speak, in the place of a trustee, who is entitled
to an indemnity, of course, if the trustee is not entitled, except on terms to make good a loss to the trust estate, the creditors cannot have a better
right,
went on to say
Reading ""receiver and manager"" in lieu of ""trustee"" the passage is exactly in point,
and held that a creditor of a receiver who was in default could not claim against the assets of the estate anything beyond the extent of the receiver''s
net indemnity.
Another case brought to our notice by Mr. Krishnaswami Aiyar is the one reported in Debi Prashad Dhandhania v. Mahesh Lal (1925) 89
I.C. 32 decided by the Patna High Court. In a suit for specific performance of an agreement to assign a mortgage right, the defendant was
appointed receiver to sue on the mortgage as it was about to become time-barred, and he borrowed moneys for the purpose of prosecuting the
mortgage suit charging the mortgage interest, the subject-matter of the suit, under express orders of the Court. The latter suit was however,
eventually allowed to be dismissed, specific performance having been decreed and the assignee himself having in the meanwhile purchased the
equity of redemption in the mortgaged properties and the assignor drew the money deposited in Court by the assignee as a condition of his
obtaining specific performance. Thereupon the lender sued the assignee and the legal representatives of the assignor for recovery of the amount
lent. It was found that the receiver could not be made personally liable and that a decree on his bond hypothecating the mortgage interest would be
barren as no suit could then be brought to enforce the mortgage. In these circumstances, the Court referred to Mohan Bibi v. Shyama Bibi I.L.R.
(1903)Cal. 937, and held that the assets of the assignor in the hands of his representatives were liable. The ground of decision, as we read the
judgment, appears to have been this: The money deposited in Court by the assignee for obtaining specific performance although it was not
specifically charged with the amount borrowed by the assignor as receiver, represented the assignor''s interest in the mortgage bond which was the
interest charged and so, on the principle relating to substitution of securities became charged with the repayment of the loan; and such money
having been drawn by the assignor his representatives were bound to repay the loan out of it. This decision can have no application to a case like
the present where the receiver borrowed the money without creating any charge on the estate in his management.
Mr. Krishnaswami Aiyar also placed reliance upon the observations of Neville, J., in In re London United Breweries Ltd. Smith v. London
United Breweries Limited L.R.(1907) 2 Ch.511. That was a case where a receiver appointed by the Court in a debenture-holder''s action having
become bankrupt, the question arose whether the assets of the company realised by the receiver should go to the debenture-holders or to the
trustee in bankruptcy for distribution among the creditors to whom the receiver incurred liability in the course of his management. The sureties of
the receiver had made good his default and the estate therefore had not suffered any loss on that account. In those circumstances Neville, J., held
that the creditors'' liability should first be discharged out of the assets, observing-,
In my opinion, where the Court has appointed a receiver who has incurred liabilities in the proper management of the estate which was given to him
to manage, the Court will see that those creditors are satisfied, either by the receiver, or, in case the receiver should become bankrupt or there
should be any other reason making it advisable, by payment direct to the creditors out of the funds in Court.... The Court will see that those who
properly gave credit to the receiver, who was managing under the authority of the Court, have their debts discharged so far as the Court has funds
in its hands.
As could be seen from the arguments of counsel for the trustee in bankruptcy, the claim for payment out of the assets of the estate for
discharging the liabilities incurred by the receiver in the course of his management was based upon the receiver''s right to indemnity against the
estate, and the sureties, as already observed, having paid into Court the amount due by him to the estate, he was treated as not in default and the
creditors were given the benefit of his full right of indemnity against the estate. The decision is, therefore, no authority for the proposition that the
creditors who advance loans to a receiver are entitled to be paid out of the assets of the estate irrespective of the receiver''s right of indemnity and
we consider that the observations of the learned Judge must be understood in the light of the facts of that case--See also Kerr on Receiver, 10th
Edition page 302, where it is pointed out that this decision is not in conflict with the principle enunciated in In re British Power Traction and
Lighting Company Limited (1910) 2 Ch.470.
Lastly, Mr. Krishnaswami Aiyar argued that the money advanced for the appellant having been admittedly utilised for payment of the
peiskkush due to the Government on the estate, the appellant is entitled to be subrogated to the statutory first charge which the Government held
on the estate in respect of the peishkush due. He cited Chengalvaroya Reddi v. Udai Kavour AIR (1936) Mad. 752, in support of this contention.
That was a case where a purchaser of one of the villages in a Zamindari paid the peishkush due to the Government on the Zamindari to set aside a
revenue sale of all the villages and claimed the amount from the Zamindar and others interested in the rest of the villages with a charge on such
villages for the amount claimed. The case has no application to the facts here as the appellant advanced the loan on the personal credit of the
receiver and even assuming that the statutory charge for revenue payable to Government could enure for the benefit of a person who pays the
revenue the appellant cannot claim the benefit of it because he did not make the payment to the Government.
For the reasons indicated, we are of opinion that the decree of the Court below has awarded to the appellant all the relief to which he is
entitled under the law and this appeal should be dismissed with costs of the contesting respondents 2 and 3. One set.