The
Industrial Credit & Investment Corporation of India Ltd Vs. Karnataka Ball
Bearings Corpn. Ltd. & Ors [1999] INSC 309 (31 August 1999)
Umesh
C. Banerjee, G.B.Pattanaik BANERJEE, J.
Leave
granted.
Authority
of Receivers to effect sale of immovable properties prior to the passing of the
decree is the focal point for consideration in this appeal, by the grant of
special leave being directed against the Bench decision of the Bombay High
Court. The Bench in deciding the issue however did rely upon the decision of an
earlier Full Bench judgment in the case of State Bank of India v. Trade Aid Paper and Allied
Products (India) Ltd. & Ors. (1995 (2) Mh. L.J.
81). Mr. R.F. Nariman, Senior Advocate, appearing in support of the appeal very
strongly contended that the Full Bench decision in State Bank of India's case (supra) cannot be said to
have laid down the law in a correct perspective and as such it would be
convenient at this juncture to note the observations of the Full Bench
pertaining thereto. The Full Bench observed:
"10.
As mentioned hereinabove, the decisions referred to in the judgment as regards
the ambit of power of the court to appoint Receiver under Order 40 Rule 1 of
the Code of Civil Procedure were recorded in suit filed by the individuals to
recover the loans or to enforce the mortgages. The economic policy of the
Government and the Nationalised Banks has opened new vistas and required the
Banks and the financial institutions to advance loans in many areas which were
earlier unknown. The benefit available to the citizens of securing loans from
Banks and financial institutions cannot be misused by refusal to pay the amount
and then indulge in time consuming litigation.
Indeed,
it is the duty and function of the Court entertaining the suits institutions to
ensure that efforts are made to dispose of the suits as early as possible and
even during the pendency of the suits, ensure that not only the properties are
protected but the defendant is made to repay the amount, if desirous of
enjoying the benefits secured by obtaining the loan. The powers of the Court
under Order 40 Rule 1 of the Code of Civil Procedure are to be exercised to
advance cause of justice and what is `just and convenient' depends upon the
nature of the claim and the surrounding circumstances. The court should not
close eyes of the realities and blindly follow the principles laid down 50
years before when the suits by Banks and financial institutions were a novelty.
The economic liberalisation and the policy of the Government to grant loans for
various activities have increased the number of suits by Banks and financial
institutions and in this Court every year more than 2,000 suits are instituted.
It would not be difficult to imagine how much public money is involved in these
suits and how long the Nationalised Banks and Financial Institutions are
deprived of their dues. The Court should be conscious of these facts and should
be more pragmatic in exe rcising powers under Order 40 Rule 1 of the Code of
Procedure. Civil 11.The Parliament is also conscious of the importance of the
claims of the Banks and financial institutions and section 29 of the State
financial Corporation Act, 1951 entitles the Financial Corporation to take up
possession of the concern when a default is committed and without resort to the
suit. The Parliament had realised that taking advantage of the liberal economic
policies and healthy approach of the Banks and the financial institutions to
advance loan, there is a growing tendency to misuse the facility by taking
advantage of delay in disposal of the cases in Court. The delay in disposal of
the cases in the court is not due to the fault of the litigant and the Banks
and financial institutions should not be hampered from recovering the amounts
by denial of just relief admissible under Order 40 Rule 1 of the Code of Civil
Procedure.
12.
The Courts while appointing Receiver under Order 40 Rule 1 of the Code of Civil
Procedure may not deprive the defendant of possession, in case of immovable
properties provided that the defendant is ready and willing to continue in
possession as agent of the Receiver on the terms and conditions to be settled.
In case, the defendant is ready and willing to accept the agency, then the
defendant will continue to hold `de facto' possession. In case the defendant is
not ready and willing to accept the agency or commits default in compliance
with the terms of the agency, then it is open for the Court to invite bids from
outsiders for use and enjoyment of immovable property. While inviting bids, the
Court should ensure that reserve price is fixed after ascertaining the
valuation from valuation expert. In no case, immovable property should be sold
by the Receiver before passing of the decree in favour of Bank or the financial
institution." (Emphasis added).
Without
going into the factual backdrop but briefly adverting thereto as is
indispensable in the matter for proper and effective disposal of the Appeal
presented before us, it appears that the matter pertains to institution of a
suit for recovery of Rs.76,72,00,000/- as on the date of suit (in 1996) and
approximately a sum of Rs. 14 crores per year is accruing by way of interest in
favour of the appellant-petitioner. It is on this factual backdrop that an
application was filed for appointment of Receiver with a prayer inter alia, for
sale of immovable properties, before a learned Single Judge of the Bombay High
Court and the learned Single Judge, however, relying upon the decision of the
Full Bench as noticed above expressed his inability to pass any order in regard
thereto and the appeal taken therefrom also did not yield any better result and
was dismissed by reason of the specific finding and observations of the Full
Bench as above. Incidentally, the Full Bench, as a matter of fact has dealt
with the matter in great detail and having due regard to the present economic
policy of the government. The Full Bench, however, went on to record, its
observation pertaining to the appointment of Receiver under Order 40 Rule 1 of
the Code for `just and convenient' reasons. The Bench has duly taken note of
the present market tendencies and the grant of loan by the banks and other
institutions for the purposes of industrial growth and development in the
country. It is significant to note that though the Full Bench at the end of
paragraph 10 of its judgment, has recorded that the Court should be conscious
of these facts and should be more pragmatic in exercising powers under Order 40
Rule 1 of the Code of Civil Procedure:
but in
fact this pragmatism has been given a very restrictive meaning; otherwise the
Full Bench could not have debarred the sale of immovable property prior to the
decree in favour of the bank or financial institution more so by reason of
incorporation of Section 29 in the Statute Books of various State Financial
Corporation Acts. Order 40 Rule 1 of the Code of Civil Procedure expressly
provides for the appointment of a Receiver over a property whether before or
after the decree and the Court may by an order confer on to the Receiver all
powers of realisation, management, protection, preservation and improvement of
the property.
Order
40 Sub-rule (1)(d) specifically provides for realisation and the words `or such
of those powers as the Court thinks fit' appearing in Order 40 Rule 1 (d) ought
to be interpreted in a manner so as to give full effect to the legislative
intent in the matter of conferment of powers by the Court to preserve and
maintain the property through the appointment of a Receiver.
Needless
to record here that there is existing a power which is totally unfettered in
terms of the provisions of the Statute. Law courts, however, in the matter of
appointment of a Receiver through a long catena of cases, imposed a self
imposed restriction to the use of discretion in a manner which is in consonance
with the concept of justice and to meet the need of the situation -
`unfettered' does not and cannot mean unbriddeled or unrestrictive powers and
though exercise of discretion is of widest possible amplitude, but the same has
to be exercised in a manner with care, caution and restraint so as to subserve
the ends of justice. The law courts are entrusted with this power under Order
40 Rule 1 so as to bring about a feeling of securedness and to do complete
justice between the parties.
The
language of Order 40 thus being of widest possible import, any restriction as
regards the power of the Court to direct a Receiver to effect a sale of
immovable property prior to the decree does not and cannot arise. Order 40 Rule
1 and various sub-rules thereunder unmistakably depict that the Court has
unfettered powers in the event the Court feels, that the sale of property would
be just and convenient having due regard to the situation of the matter.
The
pronouncement of the Full Bench as regards creation of an embargo in regard
thereto seems to be rather too wide.
The
Court must consider whether special interference with the possession of the
defendant is required or not and in the event the Court comes to such a
conclusion that there is likelihood of the immovable property, in question be,
dissipated or some such occurances as is detailed more fully hereinafter or
party initiating the action suffering irreparable loss, unless the Court gives
appropriate protection, there should not be any hesitation in directing the
sale of immovable property. The Privy Council in Maharadhiraj Sir Rameshwar
Singh Bahadur v. Hitendra Singh & Ors. ( 1924 PC 202) at page 204
observed:- "In particular, under the terms "realisation, management,
protection," etc. of the properties a power of sale is not taken away from
but is still vested in the Receiver. And if, for instance, such a power of sale
had been exercised in good faith and in the interests of the estate with the
sanction of the Court, such a transaction could not have been challenged as ultra
vires." This Court also in Tarinikamal Pandit & Ors. v. Prafulla Kumar
Chatterjee (d) by LRs. (AIR 1979 SC 1165) recognised the power of sale of
immovable property by a Receiver prior to the decree. In this context reference
be made to paragraph 16 of the judgment and the same reads as below:- "16.
The second question the learned counsel raised was that the suit is barred
under Section 66 of the Civil Procedure Code. The trial court overruled the
plea on the ground that although the sale in question is a court sale it is not
according to the rules prescribed by the Civil Procedure Code but only
according to the Rules of the Calcutta High Court on the Original Side. The
learned counsel submitted that the purpose of Section 66, Civil Procedure Code,
applies equally to court sales conducted under Rules of Civil Procedure Code as
well as those conducted under the High Court Rules. Reliance was placed on a
decision of the Privy Council in Bishun Dayal v. Kesho Prasad AIR 1940 PC 202,
where the only case pleaded by the plaintiff was that the person through whom
he claimed derived his right to half of the village from the auction purchase
having been made in part on his behalf by the auction purchase, it was held
that the claim was barred by Section 66, Civil Procedure Code, inasmuch as no
case independent of auction purchase and basing title upon subsequent
possession was put forward in the plaint.
Section
66 of the Civil Procedure Code runs as follows:- "66 (1) No suit shall be
maintained against any person claiming title under a purchase certified by the
Court in such manner as may be prescribed on the ground that the purchase was
made on behalf of the plaintiff or on behalf of someone through whom the
plaintiff claims.
(2).********************
Section 66 prohibits any person claiming that a purchase certified by the court
in such manner as may be prescribed in favour of a person was made on behalf of
the plaintiff. In order to invoke the prohibition it is necessary to establish
that the person against whom the suit cannot be maintained is a person claiming
title under a purchase certified by the court in such manner as may be
prescribed. A certificate by the court in such manner as may be prescribed. A
certificate by the court for the purchase in the manner prescribed is
therefore, essential.
The
word "prescribed" is defined under Section 2(16) of the Civil
Procedure Code as meaning prescribed by Rules. The provisions as to grant of a
certificate by a court under a purchase is prescribed in Order 21. Order 21 Rules
64 to 73 prescribe the procedure relating to sale generally while Rules 82 to
103 prescribe the procedure relating to sale of immovable property. When the
court makes an order confirming the sale under Order 21 Rule 92, the sale
becomes absolute. After the sale becomes absolute under Rule 94 the court shall
grant a certificate specifying the properties sold and the name of the person
who at the time of the sale is declared to be the purchaser. Such certificate
is required to bear the day and the date on which the sale became absolute. The
certificate by the court referred to in Section 66 is a certificate under Order
21, Rule 94. The procedure envisaged for sale generally and sale of immovable
property under Order 21 is sale by a public auction. Sale by a court through the Receiver appointed by court
is not contemplated under these provisions. In a sale by a Receiver a
certificate to the purchaser under Order 21 Rule 94, is not given by the court.
Therefore, the prohibition under Section 66 cannot be invoked in the case of a
sale by the Receiver. A Receiver is appointed under Order 40 Rule 1 and a
property can be sold by the Receiver on the directions of the Court even by
private negotiations. The requirement of Section 66 of the CPC is a certificate
by the court as prescribed. In this case the conveyance Ex.5 was in accordance
with the Original Side Rules of the High Court.
In the
view we have taken that Section 66 is not applicable to sales by Receiver it is
not necessary to go into the question whether a sale by the Receiver under the
Rules of the Calcutta High Court would come within the purview of Section 66.
Section 66 refers to execution sales only and has no applicable to a sale held
by a Receiver. In this view the objection raised by the learned counsel for the
defendant has to be rejected." ` Further in the case of Sadhuram Bansal v.
Pulin Behari Sarkar & Ors. (1984 (3) SCC 410), this Court also considered
the question of sale by a Receiver as a custodia legis with court's permission.
While it is true the issue was not being directly considered by this Court as
in the present case but the factum of the sale by the Receiver prior to the
decree was not disputed neither any contra-opinion expressed in regard thereto.
At this juncture reference may be made to a passage from Kerr on Receivers and
Administrators' (7th Edn.) as below:- "A receiver acquires no power of
sale by virtue of his appointment, but in most cases the court has power to
direct a sale of the property over which the receivership extends;
for
instance, where the appointment is made in an action for foreclosure,
redemption or sale, including, of course, debenture holders' actions, or in the
administration of the estate of a deceased person. The court has power, under
RSC, Ord. 29, r.4, on the application of any party, to make an order for the
sale by any persons and in any manner, of any goods, wares or merchandise which
may be of a perishable nature or likely to injure from keeping, or which for
any other just and sufficient reason it may be desirable to have sold at once.
A sale may be ordered to enforce a charge over land under the Charging Orders
Act 1979, even if a receiver has been appointed thereunder." In that view
of the matter, question of having restriction imposed on the court's power to
direct sale of immovable property prior to the passing of a decree does not and
cannot arise. The words `Just and convenient' have to be attributed a proper
meaning and the intent of the legislature as regards the extent of the
empowerment by the Code, is rather categorical in nature. The discretion
empowered cannot thus be said to be non-existing, having due regard to the
language of Order 40 Rule 1 though, however, the courts shall have to be rather
cautious in its approach and use proper circumspection as stated herein before
and it is only in the case, where the court feels it expedient that in the
event property is not sold, the initiator of the action would be subject to
perpetration of a great fraud:
the
diminution in value of the assets, wastage and wrongful entrants or
trespassers' attempt to make an in- road for their permanent settlement, (the factum
of which is not very uncommon in the country presently) - are some such
instances which may be taken into consideration. We, however, hasten to add
that the instances noted above are only illustrative in nature and no hard and
fast rule can be laid down in regard to the exercise of Court's powers under
Order 40 Rule 1, the same being dependent on the facts and circumstances of
each case as is available before the Court. A court may appoint a receiver not
as a matter of course but as a matter of prudence having regard to the justice
of the situation.
Mr.
V.R. Reddy, learned Senior Counsel being appointed as an amicus curiae by this
Court did render valuable assistance to this Court and we record our
appreciation therefor. In the premises, we do hereby record and observe that
the question of there being any embargo in the matter of sale of immovable
property by the Receiver before passing of decree does not and cannot arise and
we do feel it expedient to record that the observations of the Full Bench is
too wide a preposition and as a matter of fact runs counter to the true intent
of the legislature as appears from Order 40 Rule 1 of the Code of Civil
Procedure. The observations of the Full Bench pertaining to the above is to be
treated as merely stated for the purposes of the facts of the particular case
of the State Bank (supra) and cannot be treated as a precedent. The instant
matter is thus remitted back to the High Court for being dealt with in
accordance with the merits. It is made clear that no part of the observations
of this court would be treated as an expression of opinion in any particular
matter, but the observations as above pertains to the general principles of law
without any specific reference to any matter. We reiterate however that the
High Court would be at liberty to deal with the issue in accordance with the
factual details as is available in the matter under consideration. The order
under appeal thus stands set aside. The appeal is allowed. The matter is
remitted back to the High court for being dealt with as above. No order as to
costs.
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