Introduction

The court may appoint a receiver in a variety of circumstances. An appointment may be made to, for example, preserve assets where there is a dispute within a partnership or a company pending a decision on the matters of dispute. This appointment is intended to maintain the value of the assets so that they may be realised for the benefits of all parties to the dispute.
The court may appoint a receiver where assets subject to a charge have been transferred without the consent of the charge-holder or to in regard to a proceeds of crime order. The court may appoint a receiver on behalf of a debenture holder or judgment creditor to enforce payment.

Object

The object behind appointment of a receiver is to protect, preserve, and manage the property during the pendency of the litigation. It is a part of the Court machinery that seeks to safeguard interests of both the parties to the suit

The court’s power to appoint a receiver

It is provided under Order XL in Code of Civil Procedure, 1908. contains 5 rules, and also provided in section 94 supplemental proceedings – in order to prevent the ends of justice from being defeated the court may, if it is so prescribed – (d) appoint a receiver of any property and enforce the performance of his duties by attaching and selling his property. “A receiver”, in the language of High, “is an indifferent (American expression for impartial) person between the parties to a cause, appointed by the Court to receive and preserve the property or fund in litigation “pendente lite’, when it does not seem reasonable to the Court that either party should hold it. He is not the agent or representative of either party to the action, but is uniformly regarded as an officer of the Court, exercising his functions in the interest of neither plaintiff nor defendant, but for the common benefit of all parties in interest. Being an officer of the Court, the fund or property entrusted to his care is regarded as being in ‘custodia legis’, for the benefit of who-ever may finally establish title thereto, the Court itself having the care of the property by its receiver, who is merely its creature or officer, having no powers other than these conferred upon him by the order of his appointment, or such as are derived from the established practice of Courts of equity.

“A receiver” is frequently spoken of as the “hand of the Court”, and the expression very aptly designates his functions, as well as the relation which he sustains to the Court.” (J. L. High. A Treatise on the Law of Receivers, Third Edition (1894), Callaghan & Co., Chicago page 2). A Receiver has been defined by Kerr as follows : “A receiver in an action is an impartial person appointed by the Court to collect and receive, pending the proceedings, the rents, issues and profits of land, or personal
estate.
Two classes of receivers can be appointed by Courts, viz.,

(a) under the statutes and (b) under the Civil Procedure Code, the Specific Relief Act and
the Original Side Rules of the High Court.

(a) Several statutes in India like the Provincial Insolvency Act (5 of 1920) (Sections 20, 57, 59 and 68), the Presidency Towns Insolvency Act (3 of 1909) (Section 16) the Transfer of Property Act (4 of 1882) (Section 69-A), the Trustees’ and Mortgagees’
Powers Act (28 of 1866) (Sections 12 to 19) and the Indian Companies Act (7 of 1913) (Sections 118, 119, 129 and 277E) authorise Courts for appointing receivers under the particular circumstances set out therein.
(B)The second class of Receivers arc included in these in which appointment is made to preserve the property pending litigation to decide the rights of parties. The powers to appoint a Receiver in such cases are comprised in the Civil Procedure Code of 1908 (Sections 51, 94 and Order 40), the Specific Relief Act of 1877 (Section 44), and the Original Side Rules
of High Courts relating to Receivers.
“the appointment is made to preserve property pending litigation to decide the rights of the parties, or to prevent a scramble among these entitled, as where a receiver is appointed pending a grant of probate or administration, or to preserve property of persons under disability, or where there is danger of the property being damaged or dissipated by these with the legal title, such as executors or trustees, or tenants for life, or by persons with a partial interest, such as partners, or by the persons in control, as where directors of a company with equal powers are at variance.” In all these cases, it is necessary to allege and prove some peril to the property; the appointment then rests on the sound discretion of the Court.

Application for the appointment of a receiver

An application for the appointment of a receiver may be made without notice and must be supported by written evidence. The written evidence, according to the Civil Procedure Rules Practice Direction 69 must include:
 the reasons why the appointment is required;
 the value of the property and the income, if any, it is likely to produce;
 whether the receiver will act without giving security; and
 details of the person to be appointed receiver, if any.
Where the application is disputed the court will make a decision based on the “balance of convenience” test. This involves assessing the damage to each of the interested parties if a receiver was appointed. In practice the court will examine the strength of the applicant’s case and appoint a receiver where the property is thought to be in jeopardy. The appointment should preserve the assets pending a decision by the court on the matters under dispute, the validity of the asset transfer or the repayment of the judgment debt.
The court decides who will be appointed receiver after taking into account the views of all interested parties. The receiver is usually independent of the interested parties although it is possible to appoint a person with an interest in the subject matter of the claim . Where an interested party is appointed receiver he/she usually agrees to act without salary.
Appointment of a receiver where the company is in compulsory liquidation The court may appoint the official receiver to be receiver on behalf of a debenture holder or other creditor where the company is already in compulsory liquidation.
Personal liability of the receiver and adequate security A court appointed receiver is personally liable for his/her acts and omissions and, as a result, may be required by the court to provide adequate security. Where the receiver is an insolvency practitioner security may be provided by way of his/her bond. In all other cases it should be provided by way of a guarantee. The order appointing the receiver will usually include the date by which the receiver must give security or satisfy the court that security is already in force. An insolvency practitioner receiver should file written evidence of the bond and the adequacy of its cover in court. Security in the form of a guarantee should be prepared in a form, and entered into with a clearing bank or insurance company, approved by the court.
Failure to provide adequate security
Where the receiver fails to provide security or to satisfy the court as to the security he/she has in force by within the time allowed the court may end the receivership.
The receiver is an officer of the court
The receiver is an officer of the court in all cases. The receiver must act fairly and impartially. The appointment of a receiver operates as an injunction. Any interference with the receiver’s duties amounts to a contempt of court.
The duties and powers of the receiver
The duty of a receiver appointed by the court is limited to collecting the property of which he/she is appointed receiver and paying all money received into court, or as the court may direct. The order appointing the receiver will detail his/her powers. Where the receiver is to continue trading he/she will be appointed receiver and manager. Where the receiver believes the powers are insufficient he/she will be expected to apply to court for an extension of his/her powers. The court may give additional directions to the receiver at any time after his/her appointment..

Duties and Liabilities of a Receiver

Under Rule 3, the duties of the Receiver have been mentioned as follows:

• furnishing security accounting for the income that he will receive from the property;
• submission of accounts as directed by the Court;
• payment of amount due;
• responsibility for any loss to the property that lapped due to his wilful default or gross negligence.

It must be borne in mind that the, the receiver, being a representative of the Court must discharge all his rights and duties personally, and cannot delegate or assign such rights or duties entrusted to him by the Court. Balaji v. Ramchandra, ILR (1895) Bom 660.

According to Rule 4, where a receiver fails to submit his accounts or pay such amount in the time and manner as prescribed by the court, or, where, by his wilful default or gross negligence, there has been a loss to the property, the Court may have the receivers own property attached and sold to recover the loss caused by him. The balance (if any) shall be paid to the receiver.

The receiver must act diligently, as a reasonably prudent man in the maintenance of the estate entrusted to him, as if it were his own property. Thus, he must endeavour to keep down expenses .Mohini v. Sarkar, AIR 1941 Cal 144. 

Further, in K.T. Thomas v. Indian Bank 1984 Supp SCC 703., the receiver is responsible not only for sums actually received but also for all sums he might have received but for his own default or negligence.

Miscellaneous

Where revenue from a land accrues to the Government, the Court may, if it is in the interest of the parties concerned, and with the consent of Collector, appoint him as the receiver.

The Code does not mandate the issue of notice before appointment of receiver by the Court, as it may, in some circumstances, defeat the very purpose of the appointment, considering the fact that the receiver is appointed in exigencies.

The order appointing or refusing to appoint a receiver is appealable, and, where no appeal lies, a revision is competent and maintainable

Discharge of the receiver

A court appointed receiver can only be discharged by order of the court upon the application of the receiver or any other party. This rule has been held to be permissive and a court may discharge the receiver before the completion of his/her duties for example where the appointment has become unnecessary. Where the receiver has completed his/her duties the receiver,
or any other party, must apply for an order discharging the receiver and cancelling the security.

Conclusion:

The receiver can not be appointed as a geeneral rule, utmost care to be taken while appointing receiver. A receiver, therefore, is an important part of the Court machinery that functions to safeguard the interests of the parties to the suit, by managing a property pendente lite. He is supposed to be impartial, neutral, and must act as a reasonably prudent man would with respect to his own property. The receiver should be careful while making an important decision related to the subject matter as he is personally liable for any damage to it. He can seek the permission of the court before making such decisions to be safe.