w w w . L a w y e r S e r v i c e s . i n

Horace William Davis v/s International Investments & Finance Corpn

    R. F. A. 273 of 1980

    Decided On, 31 March 1986

    At, High Court of Karnataka


    For the Appearing Parties: L. Govind Raj, Advocates.

Judgment Text

Venkatachaliah, J.

(1) THIS appeal, by the unsuccessful plaintiffs, is directed against the judgment and decree dated 29-8-1980 passed in O. S No. 261 /77 on the file of the VII additional Civil Judge, Bangalore, dismissing their suit, for recovery of money, as not maintainable. Defendants-1 to 4 in the suit are respondents-1 to 4, respectively, in this appeal. The parties are hereinafter referred to with reference to their array in the trial-court.

(2) HORACE William Davis, the first plaintiff, is a retired Colonel in the Indian army. The second-plaintiff is his wife. "international Investments and Finance corporation", the first-defendant, is a registered Firm of Partners and defendants-2 to 4 are the Partners. In response to a publication inviting deposits 'from the public issued by the said Firm, the plaintiffs, on 27-12-1972, made a joint deposit with the first- defendant, of Rs. 15,000/ -. The deposit, evidenced by the Fixed Deposit Receipt ex. P 2, was for 36 months and carried interest at 15% per annum. The interest was paid only upto 26-1-1975. The deposit matured for repayment on 27-12-1975. The first defendant Firm not having repaid the deposit, on maturity, plaintiffs, on 18-4-1977, instituted the present suit for the recovery of the said sum of Rs. 15,000/- and Rs. 5,062-50 representing interest at 15% per annum from 27-1-1975 till suit; in all rs. 20,062-50.

(3) THE second-defendant contested the suit and filed a written statement. The defences urged were, first, that in o. S No. 58/75 on the file of the same court which was a proceeding instituted for the dissolution of the first-defendant firm, the Official-Receiver of Bangalore district had been appointed as receiver in respect of the assets and effects of the firm and that, therefore, no proceedings could be taken against partners individually in view of that suit for dissolution of the Firm ; and, secondly, that defendants-2 and 3 had retired from the Firm on 7-5-1974 and that as the retirement was anterior to the date of maturity of the deposit, they were not liable. Defendants-3 and 4, apparently, did not file any written statement of their own.

(4) ON these pleadings, the court-below settled the following issues:" (1) Whether the plaintiffs prove that they have kept Rs. 15,000/- in fixed Deposit for 36 months interest at the rate of 15% p. a. by agreement on 27-12-1972 as alleged? (2) Whether the plaintiffs prove that defendant No. 1 firm, had neither, repaid the principal amount after maturity nor the agreed interest from 27-12-1975 (26-1-1975) as alleged? (3) Whether defendant No. 2 proves that he retired as a partner on 7-5-1974 and is absolved of all the liabilities of the first defendant firm as alleged? (4) Whether defendant No. 2 proves that O. S. 58/75 is pending for the dissolution of the defendant No. 1 firm and that the management is with the Official Receiver and therefore, the suit against partners individually not maintainable as alleged? (5) What is due to the plaintiffs if any and from whom ? (6) What decree or order ?"on the side of the plaintiffs, the first-plaintiff tendered evidence as PW- 1. On the side of the defendants, none was examined. On an appreciation of the evidence on record, the court-below held and answered the first and the second issues in favour of the plaintiffs. On issue No. 3, the court-below held that though it was shown that on 7-5-1974 defen- dants-2 and 3 had retired from the Firm, that circumstance did not affect or absolve their liability to the plaintiffs as the liability under fixed-deposit arose on 27-12-1972 at a time when they were, admittedly, partners of the Firm. On issue No. 5, the court-below held. that the amount as claimed in the suit was true and correct. However, on issue No. 4 which reflected the effect of the pendency of O. S. No. 58/75 for dissolution of the partnership and the appointment of a receiver on the present suit, the court-below was persuaded to the view that the present suit was not maintainable for want of consent of the court which had appointed the receiver. Accordingly, the court below held that the suit was not maintainable and dismissed it. Aggrieved by this decree of dismissal, the plaintiffs have come up in appeal.

(5) WE have heard Sri L. Govindaraj, learned Counsel-for appellant-plaintiffs. We have been taken through the judgment of the court-below and the evidence on record. The first-respondent firm which was represented by the official Receiver has remained unrepresented in this appeal. Respondents-2 to 4 were originally represented by counsel. Their learned Counsel, however, sought-and was granted-leave to retire on 19-2-1986 The said defendants were unrepresented at the hearing. As this is plaintiffs' appeal and is directed against the adverse finding recorded against them on issue No. 4, the findings recorded in their favour on issues 1, 2, 3, and 5 do not foll for consideration. The findings of the trial court on those issues have assumed finality.

(6) ON the contentions urged at the hearing, the points that fall for determination in this appeal are : (A) Whether the view of the court- below that the suit was not maintainable for want or leave of the court which had appointed a Receiver for the partnership is incorrect and calls for interference ? (b) Whether, at all events, the suit as against defendants 2 to 4, whose liability is several, is maintainable and is not affected by the want of consent of the court appointing the Receiver? (c) To what relief, if any. are the plaintiffs entitled ?

(7) RE: Point- (a) Sri Govindaraj contended that the rule that no legal-proceeding could be instituted against a receiver appointed by the court except with the leave of that court, has its limitations, the rule being attracted only to cases where some relief is sought against the receiver personally in respect of acts or omissions done by him as Receiver. The court-below, says learned counsel, in applying this rule in the more expansive form, has misunderstood the scope of the rule and has misdirected itself in its application. The substance of Sri Govindaraj's submissions is that it is only where some" relief is sought personally against the Receiver, in his capacity as such, that the rule is attracted and not where the suit pertains to the property in the hands of the Receiver.

(8) TO understand the reason of this rule the position of the Receiver requires to be properly apprehended. A Receiver is an Officer of the Court and not an agent of any party to the proceedings, notwithstanding the circumstance that in law receiver's possession, ultimately, might ensure to the benefit of the party in whose favour the proceedings ultimately terminate. The receiver being the officer of the court, his possession is exclusively the possession of the court, the property in his hands being regarded as in the custody of the Court. KERR on Receivers Kerr on Receivers, 15th Edition, by R. Walton, adverting to the nature of Receiver's possession says :"the appointment of a receiver does not in any way affect the right to the property over which he is appointed. The court takes possession by its receiver, and his possession is that of all parties to the action according to their titles. . . . . . . . ""receiver as an officer of the Court : since the receiver is an officer of the Court, any property of which he is in possession is strictly in the possession of the court. . . . . . . . ""receiver as agent of party entitled : in some cases after the right has been determined a receiver will be considered as receiver for the person entitled, for instance, in a suit for specific performance where the purchaser was compelled to accept the title, and conversely, where the appointment was due to the inability of the vendor to make out his title. "Woodroffe, in his Tagore Law Lectures Law Relating to Receivers (Tagore law Lectures, 1897) refers to the position of the receiver thus :". . . . THE appointment is the act of the Court and once made he is an officer of the court and subject to its orders. 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. The assets and property in his hands are as much in the custody of the law as if levied upon under an execution or attachment, it being held that the appointment of a receiver is in effect an equitable execution by means of which the court makes a general appropriation thereof leaving the question of who may finally be entitled to be determined thereafter. . . . "receiver is figuratively called the "hand of the Court". From this concept that the possession of the receiver is Custodia-legis, stems certain limitations on the rights of others who institute proceedings concerning such property, except by the leave of the court.

(9) THE reason of the Rule that the property in the hands of the receiver cannot be proceeded against without the leave of the court appointing him, is stated by woodroffe Law Relating to receivers (Tegore Law Lectures, 1897) thus:"it would be inconsistent with the main purpose of a receivership to preserve property in controversy pendent lite-which devolves upon the court the duty of protecting its possession, as well as incompatible with the dignity and authority of the Court, to allow its officer to be summoned before any tribunal in respect to the property in his hands, at the will of any and every person who has, or imagines he has a just cause of action, or who, for sinister purposes, might institute a fictitious suit against him. On the other hand, to deny to those having just causes of action or claims which call for the adjudication of courts of law or equity, all opportunity for investigation and all right to a proper remedy, simply because the property to which they must look for reparation, has been seized by the court and is in its keeping, would violate the fundamental principles of personal rights. The difficulty thus presented has been overcome by requiring all those who desire to bring suit against a receiver first to obtain leave to do so from the Court which appointed him. Leave of the Court is necessary in order that by impleading the Receiver the estate may be bound. . . . "as to who is entitled to be heard before such leave is granted, learned author says :". . . . AS the granting of leave to sue a receiver is practically only the permission of the Court that claims against him may be investigated and determined by legal methods in a competent tribunal, and as such permission does not affect the right of the claimant in proper cases, to join as defendants, the owner of the property in his keeping or other parties, it follows that notice of the application for leave to sue a receiver need not necessarily be given to the parties in the original suit but that notice to the receiver is sufficient to enable the court to make a valid order. . . . "in Everest Coal Company Pvt. Ltd. v state of Bihar and others A.. R. 1977 s. C. 2304 Supreme Court stated the law on the matter thus :"when a court puts a Receiver in possession of property, the property comes under court custody, the Receiver being merely an officer or agent of the court. Any obstruction or interference with the Court's possession sounds in contempt of that court. Any legal action in respect of that property is in a sense such an interference and invites the contempt penalty of likely invalidation of the suit or other proceedings. But, if either before starting the action or during its continuance, the party takes the leave of the court, the sin is absolved and the proceeding may continue to a conclusion on the merits. In the ordinary course no court is so prestige conscious that it will stand in the way of a legitimate legal proceeding for redressal or relief against its receiver unless the action is totally meritless, frivolous or vexatious or otherwise vitiated by any sinister factor. Grant of leave is the rule, refusal the exception. After all, the court is not, in the usual run of cases, affected by a litigation which settles the rights of parties and the Receiver represents neither party, being an officer of the court. For this reason, ordinarily the court accords permission to sue, or to continue. The jurisdiction to g ant leave is undoubted and inherent, but not based on black-letter law in the sense of enacted law. Any litigative disturbance of the court's possession with out its permission amounts to contempt of its authority; and the wages of contempt of court in this jurisdiction may well be voidability of the whole proceeding. Equally clearly, prior permission of the court appointing the Receiver is not a condition precedent to the enforcement of the cause of action. Nor is it so grave a vice that later leave sought and got before the decree has been passed will not purge it. If, before the suit terminates, the relevant court is moved, and permission to sue or to prosecute further is granted, the requirement of law is fulfilled. Of course, failure to secure such leave till the end of the lis may prove fatal. It is the court appointing the receiver that can grant leave. If a suit prosecuted without such leave culminates in a decree it is liable to be set aside. "by this pronouncement the Supreme court also concluded the earlier controversy as to whether leave was a condition-precedent to a valid institution of the suit and that leave subsequently granted would not validate the proceedings, over which there was a divergence of opinion. Supreme Court approved the view that leave obtained even subsequently would be sufficient. What emerges from the authorities is that the leave of the court appointing the receiver envisaged by the rule is not merely a protection to the receiver, but is essentially a concomitant of the authority and the dignity of the court itself which appointed the Receiver. To proceed against the Receiver who is an officer of the Court or the property in his hands which is really in the hands of the court, without the leave of the court, would be an affiant to the authority and dignity of the court. If the true reason of the rule is apprehended, the limitation of Sri Govindaraj's contention becomes obvious. His contention, that leave is not necessary when the suit or legal proceeding pertains to the property in the hands of the Receiver but is necessary only when any relief is sought against the Receiver personally, is not consistent with the true-principle underlying the Rule.

(10) IT is not disputed that in 0. S. 58011975, a proceeding pertaining to the dissolution of the first-defendant firm, a receiver had been appointed. That is implicit in the plaintiff having impleaded the receiver himself as representing the first-defendant firm. It was open to the plaintiffs to have sought and obtained the leave of the court. Indeed, it is stated, the very court before which the present suit was pending, was the one which had appointed the receiver. It is however, to be pointed out that the defence in this behalf raised by the second-defendant, and issue No. 4 framed by the trial-court thereon, were both imprecise and did not really reflect the point on which the said issue was ultimately answered. The defence and the issue relate to the question whether in view of the proceedings for dissolution of the firm taken in O. S. 58 of 1975 suits against the partners personally was not maintainable. The finding of the court-below on this issue proceeds from an altogether different angle ; viz, whether the leave of the court was necessary for maintainability of the suit against the Receiver. Whatever that be, the point (a), as formulated in this appeal, requires to be and is accordingly held and answered against the appellants.

(11) RE : Point- (b) : the next contention urged by Sri govindaraj is that, even if the requirement of the Rule as to the leave of the court is attracted so far as the claim against the firm itself is concerned whose assets are in the hands of the receiver, the suit as against defendants 2 to 4, arising out of their personal liability as partners, cannot be said to suffer from this infirmity. He says that partners, both under the statutory crystallisation of the liability o1 partners under Section 25 of the PARTNERSHIP ACT, 1932, and as incident of the general law of joint- liability, are liable for the acts of the firm, and are also liable personally. Sri Govindaraj submitted that under the Indian law all cases of joint liability are cases of joint and several liabilities and that the partners' liability for the acts of the firm are instance of such joint and several liability. So far as the claim against the partners personally is concerned, counsel says, the rule of prior leave of the court is not attracted as the receiver was appointed in relation to the assets and effects of the firm and not in respect of the estate of the partners individually. . The dismissal of the suit as against the partners, says learned counsel, proceeds on a misconception of the scope of the rule as to the requirement of leave of the court.-

(12) ON a consideration of the matter we are of the opinion that this submission of Sri Govlndaraj is substantial and requires to be accepted. Having regard to the provisions of Section 25 of the PARTNERSHIP ACT, 1932, every partner is jointly and severally liable for the debts of the firm. A partner is a joint promissor within the meaning of Section 43 of the Indian CONTRACT ACT, 1872 which provides that when two or more persons make a joint promise, the promisee to may compel any one or more of such joint promissors to perform the whole of the promise. In He Vallibhai Adamji A.. R. 1937 Bombay 407 Wadiya. J observed :"there is a difference between a joint liability and a joint and several liability. In the case of a joint promise the obligation is single and entire and is extinguished by a judgment and decree in a suit against any one of the joint promisors. In the case of a joint and several promise the position is different. The creditor in that case has as many joint causes of action as there are co-promisors, and can bring as many actions as there are co-promisors. It is clear however'that in no case can a creditor recover more than ' what is due to him. It has been held in the case of Lukmidas Khimji v. Purshotam Haridas (1882)6 Bom. 700. which was followed by the appeal court in Motilal Bechardass v. Ghellabhai Hariram (1983) 17 Bom. 6 that s. 43, CONTRACT ACT, 1872, applies as much to partners as to other co-contractors. In a latter judgment in Lukshmishankar v. Vishnuram (1899) 24 Bom. 77". Candy,. , observed at p. 84 that joint liability was the ordinary incident of a partnership and that no one partner could change it into joint and several liability without the consent of the other partners. This decision has no reference to S. 43, and the learned judge had evidently the English Common law rule in his mind when he spoke of the liability of partners as joint. The section does apply also in the case of partners", and, as Farran, j, pointed out (p. 11) in Motilal v. Ghellabhai (1893) 17 Bom. 6 the legislature would have said so in express words, if it had intended to except partners from the provisions of this section. If this is the true principle, as we hold it is, then the suit as against the defendants 2, 3 and 4 whose liability was several also could not be dismissed for want of leave.

(13) INDEED, want of leave does not affect the jurisdiction of the court. A creditor, suing for his claim in any other manner not in any way interfering with the Receiver's functions or with the possession of property in his hands, cannot be said to interfere with the proceedings in which the Receiver is appointed. The true limitations of the rule in this regard where the authority of the court which appointed the receiver is not affected, is stated thus by woodroffe:". . . . THE appointment of a receiver does not of itself debar a creditor of the person over whose estate the receiver has been appointed from suing for his claim provided that such suit does not in any way interfere with the possession or jurisdiction of the Court appointing the receiver. But where the property in the hand of the receiver is intended to be affected by the result of the litigation the receiver is a p

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roper and necessary party to such suit by way of addition to and not in substitution for the parties primarily responsible. . . . "what emerges, therefore, is that by proceeding against the partners personally in relation to their distinct individual liability which is distinct from, though coextensive with, that of the firm, the plaintiffs cannot be said to enforce any right against the firm or the receiver. The assets of the firm are in the hands of the receiver. Such a claim against the partners individually does not affect the authority of the court which appointed the receiver in respect of the property custodia-legis. We, accordingly, hold and answer point- (b) in favour of the appellants. (14) RE: Point (c): while the dismissal of the suit as not maintainable against the first-defen-1 ant firm is to be left undisturbed, however, there ought to be a decree as prayed for against defendants 2, 3 and the estate of defendant No. 4. The suit-claim and its correctness was not disputed. At all events, findings recorded by the trial court in favour of the appellant" plaintiffs on this issue have assumed finality. Plaintiffs shall be entitled to pendente-lite or current interest from the date of the suit till the date of decree on the principal sum of Rs. 15. 000/- at the contract-rate of 15% p. a. As the transaction is a commercial-transaction, plaintiffs shall also be entitled to 'further' interest. e. from the date of the decree till the date of realisation, also at the contract rate of 15% p. a. Plaintiff shall be entitled to the costs both here and in the court-below. Point- (C) is held and answered accordingly. (15) IN the result, the appeal is allowed in part and while the dismissal of the suit as against first-defendant is left undisturbed, however, in reversal of the judgment and decree of the trial court as against defendants 2, 3 and 4, there will now be decree as prayed for as against defendants 2, 3 and the estate of defendant 4. Plaintiffs shall be entitled to interest on the principal sum of rs. 15,000/- at the rate of 15% per annum from date of suit till date of realisation. Plaintiffs shall be entitled to their costs both here and in the trial court. Judgment and decree under appeal modified accordingly.