Sankara Pursa vs Govinda Bhatta and Others

Viswanatha Sastri, J.—This second appeal is preferred against an order of the District judge of South Kanara setting aside an execution sale

u/s 47, Civil: Procedure Code, on the application of the judgment-debtors.

The facts necessary to be stated for the purpose of the appeal are these. On with May, 1931, the property forming the subject-matter of this

appeal was mortgaged by its owners to one Suppi Hengsu who died leaving 9 children governed by the Aliyasanthana law. Under a family karar

(Ex. D-1), dated 23rd September, 1931, the mortgage debt along with some other property was kept apart for the seven sons of Suppi Hengsu

and two of them namely, Aitha Purusha and Sankara Purusha were appointed adaltedars (managers) on behalf of all the seven sons with power to

realise the mortgage debt. These two individuals filed a suit on the mortgage, O.S. No. 84 of 1934, on the file of the Court of the Subordinate

Judge of South Kanara and obtained a final decree for sale on 7th September, 1935. On the application of the two decree-holders, one of them,

Aitha Purusha, was appointed a receiver of the mortgaged properties., and he took possession of the same on 12th February, 1936. The receiver

has remained in possession ever since. E.P. No. 269 of 1940 was filed by the two decree-holders for sale of the hypotheca in execution of the

mortgage decree. Notice of the sale proclamation went to the judgment--debtors and, apparently on their objection, the decree-holders were

directed by an order made on 35th November, 1941, to deduct a sum of Rs. 359-7-3 from the amount claimed by them, the said sum

representing the rents and profits of the mortgaged properties received by one of the two decree-holders who was in possession as receiver.

Leave to bid at the Court sale and set-off the decree amount towards the price, was granted to the decree-holders under Order 21, Rule 72, Civil

Procedure Code, after notice to the judgment-debtors. The mortgaged property was purchased by the decree-holders on 25th November, 1941,

for a sum of Rs. 2,020 and this sum was set-off against the amount of the decree. The judgment-debtors filed an application u/s 47 and Order 21,

Rule 90, Civil Procedure Code, impugning the Court sale on various grounds, of which the only one now material, is that, the purchase by the two

decree-holders one of whom was a receiver, without obtaining the express leave of the Court in that behalf, was liable to be set aside on that very

ground. The Courts below set aside the sale relying on the authority of a decision of this Court in Gurjala Subramanyam (died) Gurjala

Srinivasaiah, represented by guardian Gurjala Venkataramanayya and Others Vs. Damavarapu Reddi and Others, .

This civil miscellaneous second appeal is preferred by the decree-holder (purchaser) other than the receiver and Mr. T. Krishna Rao appearing

on his behalf-states that his client was not the receiver and is therefore unaffected by the rule laid down in Gurjala Subramanyam (died) Gurjala

Srinivasaiah, represented by guardian Gurjala Venkataramanayya and Others Vs. Damavarapu Reddi and Others, He further contends that the

Court was fully aware at the time it granted leave to bid to the two decree-holders, that one of them was a receiver of the property and that the

judgment-debtors were also aware of the application for and the grant of leave to bid and purchase the property. He contends that the purchase

was openly made and for a proper price. Finally he states that the purchase at the Court sale which was really for the benefit of the family

represented by the two decree-holders was not vitiated by the disability of one of the decree-holders to purchase the property at the Court sale.

It may be stated at the outset that though the mortgage debt was a family asset, the two decree-holders alone were authorised by the karar to

which reference has already been made, to realise the debt. On the joint application of both the decree-holders, one of them, the elder of the two

brothers, was appointed receiver. The receiver was no doubt appointed in the interests of the mortgagees and it is a significant circumstance that he

never paid into Court anything out of the collections but retained them in his hands presumably in reduction of the mortgage debt. It was for this

reason that the Court directed the two decree-holders to deduct a sum of Rs. 359-7-3 from the amount shown as due to them in the sale

proclamation. It is therefore clear that both the decree-holders were jointly interested in the realisation of the mortgage debt and they appropriated

to themselves the realisations from the property though the person who realised the moneys was the receiver. It is true that the receiver was the

only person to whom the Court looked for the proper management of the property as its own officer, but this does not make any difference in the

application of the rule disabling receivers from purchasing the property of which they are in charge without the express leave of the Court, to the

present case.

The most authoritative exposition of the law on this subject is to be found in the decision of the Court of Appeal in Nugent v. Nugent (1908) 1

Ch. 546 (C.A.). It was there held that a receiver appointed by the Court cannot purchase the property of which he is receiver without the leave of

the Court even where the sale is made, not in the action in which he was appointed, but at the instance of a stranger mortgagee with a power of

sale. In the present case, the receiver, though not a trustee for the mortgagors, occupied a fiduciary position with reference to them and was under

an obligation to see that the property was realised to the best advantage. As a person holding a fiduciary position, the receiver was disabled under

the ordinary rule of equity, from becoming a purchaser directly or indirectly of any part of the mortgaged property for his own benefit or for the

joint benefit of himself and others except on the condition of making a full disclosure of all the material facts about his position as a receiver, and the

present and potential value of the property and obtaining the express permission of the Court for purchasing the property which is in his

possession. If the receiver purchases without such leave of the Court expressly asked. for and granted, he cannot retain the benefit of his purchase

as against the persons interested, even though the sale fetched a fair price and was unattended by any circumstances of fraudulent concealment.

The policy of the law is that nobody should allow himself to get into a position in which his interest and his duty may conflict and as in most cases, it

is impossible to ascertain whether the receiver has or has not taken undue advantage of his position, the law strikes at all such purchases by the

receiver and does not pause to examine each particular case and weigh the details of the conflict between interest and duty present therein.

Consequently, a purchase by a receiver without leave of the Court is liable to be set aside on that ground or for that reason alone, without any

enquiry as to whether any person interested in the property has been in fact prejudiced. This principle has been applied by this and the Calcutta

High Court, Gurjala Subramanyam (died) Gurjala Srinivasaiah, represented by guardian Gurjala Venkataramanayya and Others Vs. Damavarapu

Reddi and Others, Kandaswami Goundan and Others Vs. Subbarama Ayyar and Others, and Jiteswari Dasi v. Sudhakrishna Mukerji ILR (1931)

Cal. 956.

The contention of Mr. Krishna Rao that leave of the Court must be deemed to have been granted in the circumstances of this case is, in my

opinion, untenable It is no doubt true that the Court granted leave to the decree-holder to purchase the property under Order 21, Rule 72, CPC

and also directed the decree-holders to deduct the realisations made by the decree-holder-receiyer and not accounted for. A grant of permission

to bid at a Court auction and to set-off the decree amount under Order 21, Rule 72, Civil Procedure Code, is not equivalent to the grant of

permission to the receiver to bid at the Court sale and buy the property in his possession. The two things are quite distinct and must be separately

applied for and sanctioned by the Court--see Jiteswari Dasi v. Sudhakrishna Mukerji ILR (1931) Cal. 956 Having regard to the fact that the

receiver is in possession of the property and has opportunities of knowing all the details about the income and value of the property--information

which is not ordinarily available to the outside public--Courts will not authorise a receiver to bid at a sale in the absence of special circumstances.

In this case, having regard to the past conduct of the receiver in not paying into Court or even giving credit to the receipts from the mortgaged

property, the Court would not have granted leave to buy if it had known that it was a receiver''s application that it was asked to consider and not a

mere decree-holder''s application under Order 21, Rule 72, Civil Procedure Code.

The mere fact that the appellant decree-holder was not, and his brother and co-decree-holder alone was, the receiver would not protect the

purchase by both of them at the Court sale. The responsibility which attaches to a trustee may extend in equity to a person who is not a trustee but

who knowingly assists or participates in a breach of trust to the injury of the cestui que trust. See Barnes v. Addy (1874) 9 Ch. App. 244 and

Soar v. Ashwell (1893) 2 Q.B. 390 (C.A.) I hold that the receiver decree-holder and his brother, the other decree-holder, always acted in

concert and that the purchase by them without the leave of the Court being applied for or granted to the receiver was bad and was rightly set aside

at the instance of the judgment-debtors u/s 47, Civil Procedure Code.

The civil miscellaneous second appeal is, therefore, dismissed with costs.

The memorandum of cross-objections relates to the costs which were disallowed to the judgment-debtors on the ground that they failed to take

objection to the application for leave to bid made by the decree-holders. The matter was one within the discretion of the Court below and it could

not be said that the discretion has been perversely exercised. In these circumstances, I do not consider that any interference is called for.

The memorandum of cross-objections is dismissed but without costs. Leave refused.