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Nihalchand L. Jai Narain And Others v. Ram Niwas Munna Lal And Others
Factual and Procedural Background
The plaintiff instituted a suit claiming multiple reliefs against the defendants, including specific performance of an agreement compelling the defendants to execute and register a deed of partnership, dissolution of partnership, and alternatively a monetary decree for Rs. 1,20,000. The plaintiff alleged that he had advanced Rs. 85,000 up to 8 August 1966 to defendants 1 and 3, and two agreements dated 8 August 1966 acknowledged receipt of Rs. 85,000 and recorded that the plaintiff had entered into partnership with Nihal Chand and Parma Nand for running a cinema business (Prabhat Talkies). The plaintiff claimed a partner's share of 0.30p in a rupee and alleged a further investment of Rs. 12,000. Because the defendants would not execute the deed of partnership or recognise him as a partner, the plaintiff sued for declaration of partnership and injunctive relief; that suit remains pending.
On 24 August 1967 the present suit was instituted and an application for appointment of an ad interim receiver was made the same day. The defendants denied the partnership, contending that the plaintiff had only made a loan (they said Rs. 37,325 was deposited and Rs. 39,500 was then owed) and that the agreements of 8 August 1966 had been cancelled and the plaintiff had relinquished his rights.
The trial Court had earlier appointed an ad interim receiver (Shri Udhmi Ram, Advocate, Narnaul) as to the partnership property and assets of Prabhat Talkies, fixing a fee of Rs. 60 per mensem to be initially paid by the plaintiff. The trial Court confirmed that appointment after hearing the parties. The defendants appealed; the appointment order was contested in first appeal before the present Court.
Legal Issues Presented
- Whether appointment of a receiver pending trial was just and convenient in view of the parties' competing claims to partnership status and the alleged investments by the plaintiff.
- Whether the trial Court's discretionary decision to appoint a receiver should be interfered with on appeal (i.e., whether the discretion was improperly exercised or contrary to law).
- Whether, on the prima facie facts, preservation of the partnership property and daily receipts from the running cinema required appointment (or modification) of the receiver's functions.
Arguments of the Parties
Plaintiff's Arguments
- The plaintiff relied on two agreements dated 8 August 1966 which acknowledged receipt of Rs. 85,000 and admitted that the plaintiff entered into partnership for the cinema business with a partner's share fixed at 0.30p in a rupee.
- The plaintiff asserted additional investment of Rs. 12,000, claimed a right to have the partnership deed executed, and sought declaration of partnership and perpetual injunction restraining the defendants from running or alienating partnership property without his consent.
- The plaintiff applied for appointment of an interim receiver to preserve partnership property and income pending adjudication.
Defendants' (Appellants') Arguments
- The defendants denied the existence of any partnership and contended that the plaintiff was merely a money-lender who had advanced money as a loan (they stated sums deposited and owed).
- They asserted that the agreements of 8 August 1966 were later cancelled and that the plaintiff had relinquished his rights.
- The appellants argued that no case for appointment of a receiver was made out because the plaintiff was not a partner and relied principally on authorities including Bhagawan Ram Kairi v. Radhika Ranjan Das (Assam) and T. Krishnaswamy Chetty v. C. Thangavelu Chetty (Madras) to support the contention that status quo should not be interfered with in such circumstances.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Bhagawan Ram Kairi v. Radhika Ranjan Das, AIR 1953 Assam 25 | In dissolution proceedings/status quo: status quo ought not to be interfered with merely because partners differ; trial Court had found it was neither just nor convenient to appoint a receiver. Also admission that a well-grounded fear of loss may justify appointment. | The Court treated this authority as distinguishable on the facts: unlike that case, in the instant matter the trial Court found prima facie admission of partnership and investment, so the Assam decision did not govern the present case. |
| T. Krishnaswamy Chetty v. C. Thangavelu Chetty, AIR 1955 Mad 430 | The Madras Single Judge formulated five guiding principles ("Panch Sadachar") governing appointment of receivers in equity jurisdiction (discretionary nature, prima facie chance of success, need for urgency/danger, avoid depriving defendant of de facto possession, applicant's conduct). | The Court accepted these principles as unexceptionable and applied them. It held that, on the facts, none of these principles (including the fourth when properly scrutinised) prevented appointment of a receiver in the instant case. |
| Firm Panlad Dass Bhagwan Dass v. Shanti Sagar, AIR 1940 Lah 325; Amarnath v. Mt. Tehal Kaur, AIR 1922 Lah 444 | Authorities for the proposition that appellate courts should not disturb a trial Court's exercise of discretion in appointing a receiver unless it was improperly exercised or contrary to law. | The Court cited these decisions to underline that the trial Court's discretionary appointment of a receiver should not be interfered with on appeal absent shown impropriety; applied this deference to uphold the trial Court's order. |
| G. Ramchandrayya v. Nethi Iswarayya, AIR 1952 Hyd 139 | Where partnership is made out prima facie and the plaintiff alleges exclusion from management, appointment of a receiver is justifiable. | The Court invoked this authority to support the proposition that prima facie partnership combined with exclusion from management justifies appointing a receiver; it applied this reasoning to the present facts. |
| Peacock v. Peacock (1808) 16 Ves Jun 49; Blakeney v. Dufaur (1851) 15 Beav 40; Wilson v. Greenwood (1818) 1 Sw. 471 | English authorities holding that where a partner excludes another from management, appointment of a receiver may be appropriate even if the defendant contends the plaintiff is not a partner. | The Court relied on these authorities to support the general doctrine that exclusion from management can justify appointing a receiver; the authorities were cited to reinforce the legal basis for the trial Court's appointment in spite of the defendants' denial of partnership. |
| Lindley on Partnership (12th ed.) and Kerr on Receivers (13th ed.) | Textual authorities referenced for principles concerning partnership and appointment of receivers (general doctrinal support). | These texts were cited as supportive material; the Court referenced them for established principles on partnership and receivership when analysing the appropriateness of appointing a receiver. |
Court's Reasoning and Analysis
The Court reviewed the trial Court's factual findings and discretionary exercise in appointing a receiver. The main analytical steps in the opinion are the following:
- Assessment of the trial Court's factual basis: The trial Court found that the two agreements of 8 August 1966 were tacitly admitted by the defendants and that the plaintiff was prima facie admitted into partnership having invested substantial sums (Rs. 85,000 and later Rs.12,000). The appellate Court records these factual findings as the basis for the lower Court's decision.
- Application of guiding principles: The Court set out and accepted the five principles from the Madras decision (discretionary nature, prima facie chance of success, necessity/urgency, respect for de facto possession, and clean conduct of applicant). It held that, except for a possible qualification to the fourth principle, these principles did not impede the plaintiff's claim for a receiver and that the fourth principle depended on facts and was not inflexible.
- Deference to trial Court discretion: The Court emphasised that the trial Court's discretion in appointing a receiver should not be disturbed on appeal unless it was shown to be improperly exercised or contrary to law, citing authoritative Lahore decisions to support this standard of review.
- Precedential support for appointment where exclusion from management is alleged: The Court cited authorities (including English cases and local decisions) establishing that appointment of a receiver is appropriate where one partner excludes another from management—even where the defendant disputes the plaintiff's status as a partner.
- Evaluation of risk to property and income: The Court noted that by the time of the appellate hearing the cinema had been running (from December 1967) and that defendants were exclusively realising proceeds from the booking office while denying any entitlement of the plaintiff. This created a reasonable apprehension of misapplication or dissipation of daily income and other liquid assets, alongside risk to other partnership property (building, machinery, etc.). Preservation of these assets to secure effective final relief justified receivership.
- Modification for practical administration: While upholding the trial Court's conclusion that a receiver should be appointed, the Court recognised a changed or increased managerial burden because the cinema had begun functioning and ticket receipts needed active supervision. Consequently, the Court directed a modification: the trial Court should appoint a competent receiver able to devote definite time to the running of the cinema business, after notice to the parties.
- Other procedural directions: The Court allowed the defendants-appellants to withdraw an amount deposited in compliance with an earlier Motion Bench order, directed that costs shall abide the event, ordered the parties to appear in the trial Court on 15 May 1968, and directed immediate return of the trial Court record.
Holding and Implications
Holding: The appeal is APPEAL DISMISSED. The trial Court's order appointing a receiver was upheld as being just and convenient on the prima facie facts, subject to modification to ensure a competent receiver is appointed who can devote time to the running cinema business.
Implications:
- Direct effect on the parties: The receiver appointment stands (with the directed modification). The trial Court is instructed to appoint, after notice, a competent receiver who can actively supervise the cinema's operations and receipts. The amount deposited by the defendants in compliance with a prior order is permitted to be withdrawn. Costs are to await final determination ("abide the event"). Parties must appear in the trial Court on the directed date and the record is to be returned immediately.
- Preservation of assets and income: The decision ensures preservation of the cinema's property, machinery and daily receipts pending final adjudication, to prevent misuse or dissipation and to protect the eventual efficacy of final relief.
- No new rigid rule established: The Court reiterated that the principles governing appointment of receivers are discretionary and fact-specific; it expressly stated that no unvarying, inflexible rules can be laid down and that the discretionary power should be exercised sparingly and only in clear cases of necessity. Thus, the decision applies established principles to the facts without declaring a new doctrine.
Note: This summary is strictly confined to the matters and statements contained in the provided opinion. No facts or legal conclusions beyond the text have been added or inferred.
1. This is defendants' in from the order of the trial Court passed under O. 40 R. 1 of the CPC directing the appointment of a receiver pending trial. The facts giving rise to this litigation are that the plaintiff had instituted a suit claiming several reliefs against the defendants including specific performance of an agreement compelling the defendants to execute a deed of partnership, dissolution of partnership and alternatively for a decree for a sum of Rs. 1,20,000. The plaintiff's case is that he had advanced up to 8th of August, 1966, a sum of Rs. 85,000 to defendants 1 and 3. On 8th of August, 1966, two agreements were entered into between the plaintiff on the one side and Nihal Chand on behalf of himself and as mukhtiar-i-am of Parma Nand, his brother-in-law, ad ??? the plaintiff into partnership and acknowledging receipt of Rs. 85,000. The partnership was for running cinema business on land said to be owned by the defendants and funds to be supplied by the plaintiff. It was stated in the agreement of 8-8-1966 that the plaintiff had entered into partnership with Nihal Chand and Parma Nand for the cinema business and had been advancing from time to time a sum amounting to Rs. 85,000 for construction of the cinema building and for machinery etc. The share of the plaintiff is 0.30p in a rupee and the amount was advanced towards his contribution as partner. If within a month of the date of the agreement, a deed of partnership was not got executed and registered, then the plaintiff would have the right to recover the sum of Rs. 85,000 with interest at 12 per cent besides costs and damages. He also would have the right of getting the agreement specifically enforced. It was alleged by the plaintiff that he later on invested a further sum of Rs. 12,000 As the defendants would not recognise him as a partner and would not execute deed of partnership, he sued for a declaration that he was partner in the firm to the extent of 0.30 P. in a rupee as his share and also sought perpetual injunction restraining defendants from running the concern and alienating the partnership property without his consent. This suit is still pending.
2. On 24th of August, 1967, the present suit was instituted. On the same date, an application was also made for the appointment of ad interim receiver. In their written statement, the defendants denied partnership and stated that the plaintiff had deposited a sum of Rs. 37,325 only by way of a loan on 8th of September, 1966, the plaintiff was owed a sum of Rupees 39,500 only. The defendants maintained that the agreements of 8th of August, 1966, were later on cancelled and the plaintiff had relinquished all his rights.
3. The trial Court after hearing the parties confirmed its earlier ad interim order appointing Shri Udhmi Ram. Advocate. Narnaul as receiver as to the partnership property of Prabhat Talkies in dispute and its assets till further orders as at the time of the passing of the order Prabhat Talkies had not started running, he fixed Rs. 60 per mensem as the fee of the receiver to be paid initially by the plaintiff and later to he adjusted as directed by the Court. This order has now been questioned in first appeal before me.
4. In allowing the application and passing the order appointing receiver, the trial Court was influenced by the fact that the two agreements of 8th of August, 1966, set up by the plaintiff, stood tacitly admitted by the defendants and it was admitted in them that the plaintiff Ram Niwas was a partner in the concern having already invested Rs. 85,000 in it. Applying the test of appointment of a receiver in the case being just and convenient, the trial Court was influenced by the fact that the defendants did not deny the agreements of 8th of August, 1966, in which almost the entire case of the plaintiff was admitted and he was further influenced by the defendants' denial of the plaintiff's status as owner as a circumstance in appointing receiver. The trial Court considered the fact that the plaintiff's title to being a partner was denied by the defendants and this was an attempt made by them to exclude the plaintiff from the management of the concern. Prima facie the lower Court found that the plaintiff was admitted into partnership and had invested large amounts in the business. This conduct of the defendants, in the view of the trial Court, was a good ground for appointment of a receiver for preservation of the entire property and assets of the concern until the parties' rights are finally adjudicated upon.
5. I have heard lengthy arguments from the parties' learned counsel. The contention of the defendants-appellants is that the plaintiff is to be deemed as a partner who had advanced money to the defendants. He was just a money lender and not a partner. No case was, therefore, made out for assuming the existence of partnership and, therefore, for the appointment of a receiver Learned counsel for the appellants in the main rested his case on the observations made in Bhagawan Ram Kairi v. Radhika Ranjan Das, AIR 1953 Assam 25 and T. Krishnaswamy Chetty v. C. Thangavelu Chetty, AIR 1955 Mad 430. The Bench in the Assam case observed that in a case for dissolution of partnership where the question was whether dissolution could be ordered or not the status quo ought not to be interfered with merely because there were differences between the partners and one of the partners had prayed for dissolution of the partnership. On the facts of that case, the trial Court had found that it was neither just nor convenient to appoint a receiver and same High Court had affirmed that decision. It was conceded that a well grounded fear that the property in dispute would he ??? or damaged or that irreparable harm might be done to it unless the Court extended to it its protection, might afford necesary justification for the appointment of a receiver. The trial Court before which this decision was also cited was of the view that it was distinguishable as in that case the title of the plaintiff as a partner was not denied whereas in the instant case, the defendants' contention was that the plaintiff was not a partner. Prima facie, the trial Court felt satisfied that the plaintiff had been admitted to the partnership and had further invested large amounts in the business. This circumstance was considered a justification for the appointment of receiver. I agree that the decision of the High Court of Assam is distinguishable and does not govern the facts and circumstances of the instant case.
6. In Madras case, a learned Single Judge of that Court had enunciated five principles which could be described as the “Panch Sadachar” of our Courts exercising equity jurisdiction in appointing receivers. These were:
(1) The appointment of a receiver pending a suit is a matter resting in the sound and judicial discretion of the Court taking into account all the circumstances of the case and for the ends of justice and for protecting the rights of the parties interested and in the absence of there being no other adequate remedy.
(2) The Court should not appoint a receiver except on proof by the plaintiff that prima facie he has excellent chance of succeeding in the suit.
(3) The plaintiff must show some emergency or danger or loss calling for an immediate action. A Court will not appoint a receiver merely on the ground that it will do no harm.
(4) An order appointing a receiver will not be made where it has the effect of depriving a defendant of a de facto possession since that might cause irreparable wrong.
(5) The Court looks to the conduct of the party who makes the application and would usually refuse to interfere unless his conduct had been free from blame.
7. The above principles are unexceptionable and need being borne in mind. Barring possible exception of the fourth principle, the remaining four do not stand in the way of the plaintiff being granted his prayer for appointment of receiver. Even the fourth principle when properly scrutinised will not stand in the way of the plaintiff getting his relief. The position of a partner is to be deemed the position of all the partners. It cannot, therefore, be said that the appointment of the receiver will be detrimental to the interest of the defendants. Moreover, this principle is not inflexible and depends upon the facts and circumstances of the particular case. I do not find anything stated in the decision of Madras High Court referred to above which is compulsive for denying the plaintiff's application for relief granted to him by the trial Court and for reversing the order under appeal.
8. There is one important consideration which I have to bear in mind and that is that a discretion exercised by the trial Court in the matter of appointment of a receiver after considering the facts of the case ought not to be interfered with in appeal unless it is shown that it was improperly exercised or that the determination was contrary to law. Reference may be made to a Division Bench decision of Tek Chand and Bhide JJ. in Firm Panlad Dass Bhagwan Dass v. Shanti Sagar, AIR 1940 Lah 325 affirming an earlier decision of a Division Bench of that Court in Amarnath v. Mt. Tehal Kaur, AIR 1922 Lah 444.
9. In a case where partnership is made out prima facie and where the grievance of the plaintiff is that he had been excluded from the participation in the management, the appointment of a receiver would be justifiable, vide G. Ramchandrayya v. Nethi Iswarayya, AIR 1952 Hyd 139.
10. Where a partner excludes another from the management of the partnership affairs, there a case is made out for appointment of a receiver and this doctrine has been directed on even where the defendant contends that the plaintiff is not a partner or that he has no interest in the partnership assets, vide Peacock v. Peacock, (1808) 16 Ves Jun 49, Blakeney v. Dufaur, (1851) 15 Beav 40 and Wilson v. Greenwood, (1818) 1 Sw. 471 Reference may also be made to Lindley on Partnership, Twelfth Edition pages 562-503 and Kerr on Receivers. Thirteenth Edition, page 70.
11. In the instant case, it is true that the defendants had denied there being a partnership but their own documents showed prima fade that there was in fact a partnership.
12. The considerations which determine the grant or refusal rest on well-known principles but no Court has been able to lay down unvarying and inflexible rules applying to all circumstances and eventualities. The facts of the actual case are of primary consideration which determine the exercise of the discretionary power. It is true that the power is exercised sparingly and with caution and circumspection where circumstances require a summary relief. A receiver is to be appointed only in a clear case and where there is necessity or occasion for the appointment Appointment of a receiver must not be a mere weapon of coercion and the Courts do not exercise this discretionary power in the absence of a strong case. The discretion of the trial Court ought not to be disturbed where it is rested on a consideration of the facts and circumstances, bearing in mind the principles applicable.
13. A receiver may be appointed where there is a reasonable apprehension to the property, assets or income and are in danger of being injured, misused or dissipated. The property should be preserved from loss or wastage so that the final relief may be effective. The appointment of a receiver in such circumstance does not result in harassment to a party but protects the rights of the injured party by keeping the property intact. The counsel for the parties agree that the cinema has been running and screening pictures from December, 1967. The proceeds of the booking office are being realised exclusively by the defendants who deny that the plaintiff is entitled to any share of the income. In these circumstances, the funds in the form of the daily income of the cinema and other liquid assets need being preserved from misuse or malversation. The other property of the partnership has also to be safeguarded from injury or destruction and also from being alienated. Applying the well established principles governing appointment of receiver to the facts and circumstances of this case, I am of the view that the trial Court had arrived at a decision which is both just and convenient. I may, however, say that at the time of giving decision, the cinema had not started functioning and all that was required at the time was to appoint the receiver to take possession of the property which included building machinery and other assets. The duty of the receiver has now become more onerous and he has to see to the actual receipt of cash in the form of sale of tickets at every show. In view of this contingency, the order of the trial Court in respect of the appointment of receiver needs being modified.
14. I will, therefore, direct the trial Court to appoint a competent receiver who may be able to devote definite time so that running of the cinema business may not suffer. This may be done after notice to the parties. The amount deposited by the defendants-appellants in compliance with the order of the Motion Bench dated 5th December, 1967, is allowed to be withdrawn. The costs shall abide the event. Parties are directed to appear in the trial Court on the 15th May, 1968. The records of the trial Court may be returned forthwith.
DVT/D.V.C
15. Appeal dismissed.
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