Somasundaram vs Kannammai

Mockett, J.—It is unnecessary to set out the history of the suits in which the appellant was appointed as a receiver. It is enough to say that

he was appointed receiver in two suits, O.S. No. 217 of 1934 of the Subordinate Judge''s Court of Devakottai and O.S. No. 172 of 1936, later

O.S. No. 13 of 1939 of the Subordinate Judge''s Court of Sivaganga. In O.S. No. 13 of 1939 certain charges were made against the receiver

(appellant) which were withdrawn and he obtained his discharge. He has not obtained his discharge in O.S. No. 217 of 1934. The present I.. A.

No. 641 of 1942 was an application by the respondents under Order 40, Rules 3 and 4 and Section 151, Civil P. C. Order 40, Rule 3 is as

follows : ""Every receiver so appointed shall . . . . (b) submit his accounts at such periods and in such form as the Court directs; . . . (d) be

responsible for any loss occasioned to the property by his wilful default or gross negligence."" We are more concerned with Rule 4, which says: ""(1)

If a receiver fails to submit his accounts at such periods and in such form as the Court directs, the Court may order his property to be attached until

he duly submits his accounts in the form ordered. (2) The Court may, at the instance of any party to any suit or proceeding in which a receiver has

been appointed or of its own motion, at any time make an inquiry as to what amount, if any, is due from the receiver as shown by his accounts or

otherwise, or whether any loss to the property has been occasioned by his wilful default or gross negligence and may order the amount- found duo

or the amount of the loss so occasioned to be paid by the receiver into Court or otherwise within a period to be fixed by the Court. Ail parties to

the suit or proceeding and the receiver shall be made parties to any such inquiry . . . ."" Then follows a proviso which says : ""Provided that the

Court may, where the account is disputed by the parties and is of a complicated nature or where it is alleged that loss has been occasioned to the

property by the wilful default or gross negligence of the receiver, refer the parties to a suit. In all such cases the Court shall state in writing its

reasons for the reference."" An examination of the application filed by the present respondents shows that in fact what is alleged against the receiver

is fraudulent conversion. There are, it is true, numerous allegations as well involving pure questions of accounts. But the basis of the application is

that the receiver has been guilty of deliberate fraud and misappropriation. It is alleged that he has acted mala fide, dishonestly and fraudulently. In

Charge No. 2 there is a serious allegation that he was taking advantage of the fact that certain co-widows who were not acquainted with business

transactions were concerned and deliberately manipulated the accounts taking advantage of that fact. Throughout there are allegations of fraud and

in one case of "" double fraud."" There can be no doubt, as I have already stated, that the main allegation was that the receiver had been guilty of

fraudulent conduct and misappropriation. The learned Judge does not seem to have applied his mind to this part of the case at all. He, it is true,

considered whether there were allegations of wilful default or gross negligence; but the question whether either of these two elements was seriously

concerned does not seem to have been in his mind. He thought it was, to the advantage of the parties not to have this matter referred to a suit, but

he does not consider whether the accounts were of a complicated nature or whether they were disputed. He seems to think that the objection by

the receiver to having this matter dealt with in a summary manner was most unreasonable. Finally he made the following order : ""That the inquiry

into the charges levelled by the petitioners against respondent 1 receiver be made by a Commissioner to be appointed."" Whether the learned Judge

should have made the inquiry himself is a matter which we will consider; but this order referring so serious a matter to a Commissioner is wrong

beyond dispute. A Bench of this High Court in Manicka v. Andalammal A.I.R 1940 Mad. 573 has condemned such a course.

The only question which remains is whether the inquiry should have been made by the learned Judge himself. Order 40 in my view contemplates

an inquiry in cases of ordinary questions of accounts and also cases of wilful default or gross negligence; but it is not, in my opinion, designed to

cover what in substance is a case of conversion. Where that is the case however, can it be doubted that, when petitions in such matters come

before the Court and reveal such allegations as are set out in this petition, the inevitable course would be that reference should be made to a suit?

The decisions to which we have been referred of the Calcutta High Court, Subal Chandra Kar and Another Vs. Jatindra Mohan Ghose and

Another, , Satya Sankar v. Golapmoni Debi (1901) 5 C. W. N. 223 and Sureshchandra v. Enamel (1936) 40 C.W.N. 479, deal with what is the

practice of the Calcutta High Court in cases where there are allegations of wilful default. Wilful default is far removed from deliberate fraud. I think,

therefore, that the learned Judge has never applied his mind to the principles which should have guided him in using his discretion in this case. In my

view the case as presented by the respondents was suitable for a suit and for no other procedure and wholly unsuitable for the form of enquiry

which would be made by the procedure which the Court has adopted. I need hardly repeat that enquiry and report by a Commissioner in charges

of fraud against an officer of the Court is wholly illegal. In the result, I think, that the judgment of this Court should be substituted for the judgment

of the lower Court, and the order, in my opinion, should be that the respondents with regard to their charges against the appellants and an

investigation of their mutual relations should be referred to a suit. Therefore, I would allow the appeal with costs here and below. In assessing the

costs the taxing authority will take into account the costs of private printing.

Bell, J.

I agree and would only add that in my opinion, what the Court has to consider, in an application made under Order 40, Rule 4 (2), is, (a)

whether it is alleged that money is due as shown by the receiver''s accounts and/or (b) whether there is an allegation of loss occasioned by the

receiver''s wilful default or gross negligence. If either of these two conditions are present, then the Court may consider what powers it has. So far

as the accounts are concerned, it may send them to be scrutinised and reported on by a Commissioner in order to save the time of the Court. With

regard to wilful default, considering the definition, the Court may hold an enquiry the materials for which may be scrutinised in the first instance by

some outside person. The Court has the further power that where the accounts are disputed and are of a complicated nature or where loss has

been occasioned by wilful default or gross negligence the parties may be referred to a suit. ""Wilful default"" is defined by Romer J., as he then was,

in In re City Equitable fire Insurance Co. (1925) 1 Ch. 407, thus : ""An act or an omission to do an act, is wilful where the person of whom we are

speaking knows what he is doing and intends to do what he is doing. But if that act or omission amounts to a breach of his duty, and therefore, to

negligence, is the person guilty of wilful negligence? In my opinion, that question mast be answered in the negative unless he knows that he is

committing and intends to commit, a breach of his duty, or is recklessly careless in the sense of not caring whether his act or omission is or is not a

breach of duty."" So far then, the Judge may do these things. But, where there is any charge of fraud involved, then he must deal with that himself

whether by an enquiry or by directing the parties to a suit. Otherwise, the Commissioner or any person to whom he delegated any power in the

matter, would be exercising a function belonging only to the Judge and the greatest harm might ensue to the reputation and honour of a man

innocent of any moral offence, though perhaps an inefficient and unbusinesslike receiver. Here in the order appealed against the Judge speaks over

and over again of the necessity of a full enquiry. He speaks of the ""findings"" of the Commissioner on charges made against the receiver. This can

only mean that the Commissioner is to enquire into and come to some conclusion upon the substance or otherwise of these charges. That is not

what the law provides for. The charges are serious and numerous. The schedule of the application runs to 10 1/2 full printed pages and the charges

themselves fall under no less than 20 headings. I agree entirely that it is a case where the parties should be referred to a suit in order that these

charges can be investigated and dealt with properly by the Court. I agree, therefore, with the order suggested by my learned brother.