When Courts Appoint a Receiver: The Five Golden Rules Under Order 40 of CPC

 Appointment of a receiver is one of the most serious interim measures available to a civil court because it places disputed property in the hands of a neutral officer of the court. Under Order 40 Rule 1 of the Code of Civil Procedure, the court may appoint a receiver only where it appears “just and convenient,” and this power must be exercised judicially, not casually or mechanically.

A receiver is not appointed merely because a property dispute exists. The object of the remedy is preservation of the subject matter of the litigation pending adjudication, so that the final decree does not become meaningless due to waste, damage, mismanagement, or threatened loss.

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Bombay HC: Basic principles for appointment of Court Receiver

Order 40, Rule 1 of Code of Civil Procedure provides for appointment of Receiver, where it appears to the Court to be just and convenient. The power can be exercised both before and after decree. The power conferred upon the Receiver enables the Receiver to manage, protect and preserve the property and to collect the rents and profits thereof and for realisation of profits. The principles to be borne in mind while exercising powers under Order 40, Rule 1 of the Code of Civil Procedure are well-settled by catena of decisions and as observed by Privy Council in AIR 1928 PC49, Benoy Krishna Mukerjee v. Satish Chandra Giri, the Court has to consider whether special interference with the possession of the defendant was required, there being a well-founded fear that the property in question will be dissipated or that other irreparable mischief may be done unless the Court gives its protection. A single Judge of the Madras High Court in a decision T. Krishnaswamy Chetty v. C. Thangavelu Chetty, set out five factors which the Court must consider before concluding that it is just and convenient to appoint Receiver. The five factors are :

(i) The appointment of the Court Receiver was a matter resting in the discretion of the Court,

(ii) The appointment should not be made unless plaintiff had prima facie excellent chance of succeeding in the suit,

(iii) The plaintiff establishes some emergency or danger or loss demanding immediate action,

(iv) The order would not be made if it had the effect of depriving the defendants of a 'de facto' possession, and

(v) The Court will look to the conduct of the party who made the application and would refuse to interfere if the conduct is not free from blame.1

Bombay High Court

State Bank Of India vs Trade Aid Paper And Allied ... on 25 April, 1995

Equivalent citations: AIR 1995 Bom 268, 1995 (4) BomCR 278, (1995) 97 BOMLR 577

Bench: M Pendse, A Savant, S Kapadia

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