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2004 DIGILAW 246 (BOM)

Everest Media Pvt. Ltd. v. Numech Emballage Ltd

2004-02-26

D.G.KARNIK

body2004
JUDGMENT - KARNIK D.G., J.:—Called for hearing of ad interim relief. Heard learned Counsel for the parties. 2. This motion is taken out by the plaintiff for appointment of a Receiver of the mortgage immovable property described in Exhibit (A) to the plaint and hypothecated movable property described in Exhibit B, C, D and E in the plaint and order of injunction restraining the defendant from alienating or encumbering or otherwise disposing off the properties mentioned in Exhibit A to E in the plaint. 3. The defendant had borrowed money from Andhra Bank which had filed before the Debt Recovery Tribunal the Application No. 3117 of 2000 for recovery of a sum of Rs. 2,68,29,000/-. It appears that one Mr. Nikhil Merchant, who was the director of the defendant, had guaranteed the said loan and was therefore joined as defendant No. 2 in the application before Debt Recovery Tribunal. The defendant had created the first charge by way of equitable mortgage on the immovable property described in Exhibit (A) in the plaint and had also hypothecated the movable properties mentioned in Exhibit B to E in the plaint in favour of the Andhra Bank. Compromise was arrived at between the Andhra Bank, the defendant herein and Mr. Nikhil Merchant under which Mr. Merchant paid to the Andhra Bank a sum of Rs. 1,45,43,513/- in full and final settlement of its claim. Consent terms were accordingly filed before the Debt Recovery Tribunal on 12th October, 2000. 4. According to the plaintiff, the sum of Rs. 1,45,43,513/- paid by Mr. Nikhil Merchant to Andhra Bank was made available to him by the plaintiff. Therefore, by a deed of assignment dated 12th October, 2000 Mr. Nikhil Merchant assigned to the plaintiff all the rights, benefits, which had accrued to him by reason of payment of the entire debt payable by the defendant herein to the Andhra Bank. According to the plaintiff, by reason of section 140 of the Contract Act, Mr. Merchant had acquired all rights in the securities which were held by the Andhra Bank because Mr. Nikhil Merchant being the surety had made the payment. Mr. Nikhil Merchant stood in the shoes of the Andhra Bank and was entitled to all the benefits including the benefits of the mortgage and hypothecation of the properties created by the defendant. Merchant had acquired all rights in the securities which were held by the Andhra Bank because Mr. Nikhil Merchant being the surety had made the payment. Mr. Nikhil Merchant stood in the shoes of the Andhra Bank and was entitled to all the benefits including the benefits of the mortgage and hypothecation of the properties created by the defendant. Those rights have been assigned to the plaintiff under the deed of assignment dated 12th October, 2000 and the plaintiff is entitled to recover the sum of Rs. 1.40 crores paid by Mr. Nikhil Merchant to the Andhra Bank. The plaintiff also claims that it is also entitled to receive interest on the said sum. It is clear that by virtue of the provisions of section 140 of the Contract Act and by virtue of the deed of assignment dated 12th October, 2000 the plaintiff steps in the shoes of the Andhra Bank and is therefore entitled to the benefits of the mortgage and hypothecation executed by the defendant in favour of the Andhra Bank. In the present suit, the plaintiff inter alia seeks enforcement of the rights under the mortgage and the preliminary decree under Order 34 of the Civil Procedure Code. 5. Learned Counsel for the defendant submits that it is not just and convenient to appoint the Court Receiver and challenges the power of the Court to appoint a Receiver of the mortgaged property at an interlocutory stage. Learned Counsel for the defendant relies upon the judgment of the Full Bench of the Allahabad High Court in (Anandi Lal and others v. Ram Sarup and others)1, reported in A.I.R. 1936 Allahabad 495. In that case, the following question was referred to the Full Bench: "Under the provisions of the Civil Procedure Code, is it competent to appoint a Receiver of the property mortgaged pending the decision of an appeal against a mortgage decree?" 6. Though the issue referred was in respect of appointment of a Receiver during the pendency of an appeal arising out of a suit on mortgage, the same principle can be applied regarding the appointment of a Receiver during the pendency of the suit itself. Though the issue referred was in respect of appointment of a Receiver during the pendency of an appeal arising out of a suit on mortgage, the same principle can be applied regarding the appointment of a Receiver during the pendency of the suit itself. Sulaiman, C.J., held that the general powers under sub-rule (1) of Rule 1 of Order 40 are to be exercised subject to the provisions of sub-rule (2) of Rule 1 of Order 40 and both sub rules must be read together as forming a part and parcel of one rule. Under sub-rule (2) of Rule 1 of Order 40, the Court cannot authorise to remove from the possession or custody of a person any property unless any party to the suit has a present right to so remove. In a suit based on simple mortgage, where a mortgagee has no present right to remove the mortgagor from the possession of property until the property sold in execution of a mortgage decree, the Court should not appoint the Receiver. The learned Chief Justice answered the question referred to the Full Bench by holding that though there can be no objection to the appointment of a Receiver of any property, the Court cannot remove the property from the possession or custody of a person to whom any party to the suit has no present right to remove. The other two learned Justices agreed with the learned Chief Justice. Rachhpal Singh, J., in his concurring judgment observed: "For the reasons given above, I am of opinion that where a party to a suit, who is sought to be dispossessed, is a simple mortgagor in possession, then the Court has no power to appoint a Receiver and to order his dispossession under the provisions of Order 40, Rule 1, Civil P.C. A simple mortgagor has a right to remain in possession and to appropriate the profits of the mortgaged property till the sale has actually taken place and that right cannot be defeated by the appointment of a Receiver." 7. Relying on these observations, it was contended that in a suit on mortgage, the Court may not appoint a Receiver, and in any event, the Receiver cannot dispossess the simple mortgagor in possession of the property pending decision of the suit because in case of a simple mortgage the mortgagor has a right to continue in possession until the property is sold in execution of a decree and the mortgagee has no present right to dispossess the plaintiff. 8. Mr. Tuljapurkar, learned Counsel for the plaintiff however, submitted that the Allahabad High Court is the solitary High Court which has taken such a view. He invited my attention to several cases, some of which are noted below. In (Rameshwar Singh v. Chuni Lal Shah)2, reported in I.L.R. 1919(47) Cal. 418, the Division Bench of the Calcutta High Court has held that "in a mortgage suit whether a mortgagee is or is not entitled to possession, he may invite the Court to appoint a Receiver, if the demands of justice require that the mortgagor should be deprived of possession." In (A.V.R.M.S.P.S. Ramaswami Chettiar v. M. Paramasivan Pillai)3, reported in A.I.R. 1933 Madras 447, the Single Judge of the Madras High Court held where the mortgagor is personally bound to pay the debt in a simple mortgage and either he has defaulted to pay the interest while enjoying the property or the property has diminished in value so as not to be sufficient to satisfy the whole debt, the mortgagee may in a suit on the mortgage obtain a Receiver for taking the rents and profits of the mortgaged property and paying them into Court for the benefit of the mortgagee and to deprive the mortgagor of possession even before the sale. 9. So far this Court is concerned in (Damodar v. Radhabi)4, A.I.R. 1939 Bom. 54 it was held that "the fact of interest being in arrears, with something more, would be sufficient for the Court to exercise his discretion and appoint a Receiver on the footing that it was just and convenient to do so. That decision was followed in (Bai Fatubai Fidaali Lala v. Yusufally Esmailjee Nagree)5, reported in A.I.R. 1977 Bom. 170. In an unreported decision rendered in (M/s. Gupta Engineering Co. That decision was followed in (Bai Fatubai Fidaali Lala v. Yusufally Esmailjee Nagree)5, reported in A.I.R. 1977 Bom. 170. In an unreported decision rendered in (M/s. Gupta Engineering Co. (India) v. State Bank of India)6, decided on 6th January, 1987 Coram : Desai Parekh, JJ.), a Division Bench of this Court went to the extent of holding that in a mortgage suit, appointment of a Receiver was almost a matter of course. The Division Bench observed: "Subject to these directions, we find no substance in the appeal as appointment of the Court Receiver is the usual order in a mortgage suit and the fact that the loans have been given by a bank or a nationalised bank to seek undertaking or one which is required to be nursed does not change the legal position." 10. In (State Bank of India v. Trade Aid Paper and Allied Products (India) Pvt. Ltd. others)7, reported in 1995(4) Bom.C.R. 278 , Full Bench of this Court held that in a mortgage suit Receiver can be appointed and in the suits filed by the banks and financial institutions for recovery of the loans, the Receiver would generally be appointed. In paragraph 13 of the judgment, the Full Bench observed: "The Receiver is appointed at the instance of an equitable encumbrancer if the principal has become payable or if there is reason to apprehend that the property is in peril or insufficient to pay the charges on it. In respect of legal mortgages, the appointment of Receiver is not as a matter of course and the Court has a discretion in the matter, but where an action for foreclosure is pending, the Court should usually appoint a Receiver at the instance of legal mortgage and should do so on interlocutory motion where the mortgagor in possession. The possession is usually directed to be given to the Receiver but the mortgagor is allowed to continue as agent of the Receiver. The principles set out in Kerr on the law and practice as to Receivers and Administrators are correct and should be followed in the actions instituted by the banks and financial institutions." 11. Apart from preponderance view that Receiver can be appointed in a mortgage suit, the view of this Court has always been that such Receiver can be appointed. The principles set out in Kerr on the law and practice as to Receivers and Administrators are correct and should be followed in the actions instituted by the banks and financial institutions." 11. Apart from preponderance view that Receiver can be appointed in a mortgage suit, the view of this Court has always been that such Receiver can be appointed. The caveat which was inserted by the Full Bench in the case of State Bank of India (supra) that even if the Receiver is appointed, in no case immovable property should be sold by the Receiver before passing of a decree in favour of a bank or financial institutions, was not accepted by the Supreme Court in the case of (Industrial Credit and Investment Corporation of India Ltd. others v. Karnataka Ball Bearings)8, reported in 1999(Supp.) Bom.C.R. (S.C.)770. In paragraph No. 7 of the judgment of the Supreme Court held that the pronouncement made by the Full Bench regarding the prohibition of sale pending decision was too wide and it was open to the Court to consider whether special interference with the possession of the defendant was required or not and in the event the Court came to a conclusion that there was a likelihood of the immovable property in question being dissipated, the Court could direct the sale of the immovable property. 12. There are no fetters on the powers of the Court for appointment of the Court Receiver of the mortgage property in a mortgage suit. In a appropriate case even before the suit is decreed the Court can direct the Receiver to sell the mortgaged property. The contention of the learned Counsel for the defendant that this being a mortgaged suit the Court cannot appoint a Receiver and cannot order defendant to be dispossessed has to be rejected. It would have to be decided in the facts and circumstances of each case whether it is just and convenient to appoint a Court Receiver, pending decision of the mortgage suit. In paragraph No. 25 of the plaint, the plaintiff has given the reasons as to why it is just and convenient in the present case to appoint a Receiver. It would have to be decided in the facts and circumstances of each case whether it is just and convenient to appoint a Court Receiver, pending decision of the mortgage suit. In paragraph No. 25 of the plaint, the plaintiff has given the reasons as to why it is just and convenient in the present case to appoint a Receiver. Initially, the Andhra Bank had filed a suit bearing Suit No. 3543 of 1992 on 9th November 1992 on the Original Side of this Court in which, by an order dated 3rd December 2002, this Court was pleased to appoint the Court Receiver, High Court, Mumbai as the Receiver of immovable and movable properties of the defendant. The Court Receiver appointed the defendant as its agent subject to payment of the royalty of Rs. 97,500/- per month payable by the defendant. By an order dated 11th June, 1996, the ad interim order dated 3rd December 1992 was confirmed save and except that the defendant was directed to pay the royalty directly to the Andhra Bank instead of depositing it with the Court Receiver. The appointment of the Court Receiver was continued after the transfer of the matter to the Debt Recovery Tribunal. Thus, this Court had found the appointment of the Court Receiver was just and convenient and necessary in the suit filed by the bank. There has been no change of circumstances since then. The defendant who was paying the sum of Rs. 97,500/- to the Andhra Bank is not even paying that sum to the plaintiff. The principle sum as well as the interest are in arrears and a large sum of more than Rs. 2.4 crores inclusive of interest is now due. As held by the Division Bench of this Court in M/s. Gupta Engineering Co. (India) v. State Bank of India, appointment of a Receiver in a mortgage suit is an usual order. I am of the opinion that the facts and the circumstances of the case warrant the appointment of a Receiver through the defendant may be allowed to continue to remain in possession of the mortgaged property as the agent of the Receiver subject to the directions given herein below. 13. I am of the opinion that the facts and the circumstances of the case warrant the appointment of a Receiver through the defendant may be allowed to continue to remain in possession of the mortgaged property as the agent of the Receiver subject to the directions given herein below. 13. Hence, I pass the following order: (i) The Court Receiver attached to the office of the High Court Bombay is appointed as the Receiver in respect of immovable property described in schedule A to the plaint. The Court Receiver however, shall not dispossess the defendant forthwith but call upon the defendant to execute an agency agreement and allow the defendant to remain in possession of the property as an agent of the Receiver on usual terms including payment of royalty as may be fixed by the Receiver. Until such royalty is fixed by the Receiver, the defendant shall pay by way of an ad interim royalty, the sum of Rs. 97,500/- p.m. as the royalty (which was fixed in the previous proceedings). In the event of the defendant being unwilling to remain in possession of the property as an agent of the Court Receiver or failing to execute the agency agreement when called upon by the Receiver for failing to the royalty for a cumulative period of three months the Receiver shall be entitled to take possession of the property described in schedule A. The amount paid by the defendant as the royalty after deducting the expenses be invested from any State Bank of India/Nationalised Bank, initially for a period of 13 months, until further orders. (ii) In respect of movable properties described in Schedule B to E, the defendant is restrained from selling, transferring or disposing them in any manner save and except the consumption of raw materials and disposal of the finished products in the usual course of business. Motion made returnable after 8 weeks. Order accordingly. -----