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PETITIONER: THE INDUSTRIAL CREDIT & INVESTMENT CORPORATION OF INDIA LTD

       Vs.

RESPONDENT: KARNATAKA BALL BEARINGS CORPN.LTD. & ORS.

DATE OF JUDGMENT:       31/08/1999

BENCH: Umesh C. Banerjee, G.B.Pattanaik

JUDGMENT:

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

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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

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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

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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

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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

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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.