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  • Mookerjee
  • Beachcroft, JJ.
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Smart Summary

Judgment Summary — Application under Section 145, CPC (Surety for Receiver)

Factual and Procedural Background

On 14 August 1909 Baroda Kant Sarkar was appointed receiver to the estate of Mahendra Narayan Patra in an administration suit pending before the Court of the third Subordinate Judge of the 24 Pargannas. The appointment was made on condition that the receiver furnish personal security of Rs. 5,000. The receiver took possession of the estate and received rents and profits but did not furnish the ordered security.

Proceedings were instituted in the Subordinate Judge's Court to take the receiver's accounts. The Subordinate Judge directed that the estate be released if the plaintiffs brought into Court, for payment to the receiver, a specified sum so that the receiver could discharge liabilities he alleged he had incurred for the plaintiffs' benefit; that deposit was made under protest. The plaintiffs applied to the High Court for direction as to taking the receiver's accounts, and an interim order was made that the sum deposited be retained in Court until the accounts had been investigated (see Mohini Mohan Patra v. Baroda Kant Sarkar [1911] 12 I.C. 780).

The account proceedings were transferred to the High Court. During examination of a commissioner's report and objections, it was discovered the receiver had not furnished security. On 8 April 1913 the Court ordered him to furnish security; the next day a surety bond was executed by the receiver and one Shama Kant Chatterjee, binding them jointly and severally for Rs. 5,000. The bond's condition required the receiver to duly account for sums received and pay any balance certified due by the Court.

After accounts were taken, the Court found the receiver was not entitled to receive money from the plaintiffs and that the receiver was liable to pay Rs. 6,708 to the plaintiffs as determined by the Court's order dated 23 July 1913 (Baroda Kanta Sarkar v. Bashmani Dasi, A.I.R. 1915 Cal. 146). The plaintiffs applied under Section 145 CPC for an order on the surety to pay Rs. 5,000 or such lesser sum as remained unpaid by the receiver.

The surety objected to three items included in the receiver's liability: (1) costs of the account proceedings; (2) interest on sums for which the receiver had not duly accounted; and (3) interest on the sum the plaintiffs were compelled to deposit in Court at the receiver's instance.

Legal Issues Presented

  1. Whether the surety executing the receiver's recognizance is liable to pay costs incurred in proceedings to take the receiver's accounts.
  2. Whether the surety is liable for interest on sums for which the receiver has not duly accounted.
  3. Whether the surety is liable for interest on a sum which the plaintiffs were compelled to deposit in Court at the receiver's instance (i.e., interest on the deposit ordered because of the receiver's account).
  4. Procedural: what order should be made to enforce the surety's liability under Section 145 CPC given the ascertained balances?

Arguments of the Parties

Surety's Arguments

  • The surety conceded he was responsible for the principal money for which the receiver had not duly accounted, but he contended he was not liable for: (a) the costs of the proceedings to take accounts; (b) interest on the sums for which the receiver had not duly accounted; and (c) interest on the sum deposited by the plaintiffs in Court at the receiver's instance.
  • Specifically as to the deposit interest, the surety argued that he was not liable for interest arising from the plaintiffs having been compelled to deposit money in Court at the receiver's insistence.

Plaintiffs' Position

  • The plaintiffs applied under Section 145 CPC for an order on the surety for payment of Rs. 5,000 or such smaller sum as remained unpaid by the receiver under the Court's orders. Implicit in their application was the contention that the surety should be held liable for the principal, costs and interest found due against the receiver.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Mohini Mohan Patra v. Baroda Kant Sarkar [1911] 12 I.C. 780 Prior interlocutory decision in the same matter concerning directions for taking the receiver's accounts and interim retention of deposited sums. Used as part of the procedural history to explain how the account proceedings came to be before the Court and why the deposit was retained.
Baroda Kanta Sarkar v. Bashmani Dasi, (order dated 23 July 1913) A.I.R. 1915 Cal. 146 Court's order determining that the receiver was liable to pay Rs. 6,708 to the plaintiffs after accounts were taken. Recorded as the substantive accounting result establishing the receiver's liability and triggering the plaintiffs' application against the surety.
Maunsell v. Egan [1846] 9 Ir. Eg. Rap. 283; [1845] 8 Ir. Eq. Rep. 372 Leading authority that a recognizance for a receiver becomes absolute where the receiver fails to account; surety liable for sums including costs and interest occasioned by the receiver's default. Principal authority relied upon to hold that costs of account proceedings and interest on sums improperly retained are within the recognizance and thus chargeable against the surety.
Smart v. Flood [1883] 49 L.T. 467 Illustration of the established exposition that a surety is responsible for interest and costs occasioned by the receiver's default. Cited as one of the authorities following the Maunsell exposition; supported the general rule applied by the Court.
Walters v. Walters [1877] 11 Ir. Eq. Rep. 335 Another authority following the principle that sureties for receivers are liable for costs and interest stemming from the receiver's failure to account. Cited to show the consistent line of authority endorsing liability of surety for costs and interest.
In re Nugent's Estate Cited as part of the line of authorities repeatedly following the exposition that sureties are liable for costs and interest of account proceedings. Included among decisions said to have repeatedly followed the Maunsell exposition; the Court relied on this consistent practice.
In re Graham; Graham v. Noahes [1895] 1 Ch. 66 Statement of law (per Chitty, J.) that a surety is answerable to the extent of the recognizance for whatever sum—principal, interest or costs—the receiver is liable to pay, including costs of removal and appointment of a new receiver. Cited to reinforce the principle that liabilities of a receiver (including costs and interest) fall on the recognizance and hence on the surety.
Dawson v. Baynes [1826] 2 Russell 466 Earlier authority referred to in In re Graham for the proposition concerning the surety's liability for costs and related sums. Referenced via In re Graham to support the proposition that the surety's responsibility includes costs and interest incidental to receivership default.
In re Walker Cited in the context of limiting the surety's liability to acts within the scope of the receiver's appointment (i.e., liability incurred in the receiver's capacity). Referenced to articulate the limiting principle: surety is liable only for liabilities incurred by the receiver in his capacity as receiver.
Board of Trade v. Employers Liability Assurance Corporation [1910] 2 K.B. 649 Authority cited in connection with the scope-limiting principle that surety liability is confined to liabilities incurred in the receiver's official capacity. Used to support the test applied by the Court for determining whether a liability falls within the receiver's capacity and thus on the surety.
Glossop v. Harrison [1814] Cooper 61 Principle that a person who satisfies a claim as surety is entitled to stand in the place of the original debtor (subrogation) and seek reimbursement. Applied by the Court to explain that if the surety pays the plaintiffs, he will be entitled to stand in the receiver's place and seek recovery from parties liable to the receiver.
In re British Power Traction Co.; Halifax Bank v. British Power Traction Co. [1910] 2 Ch. 470 Authority cited concerning rights of subrogation and related remedial rights following payment by a surety. Relied on to confirm the surety's right of reimbursement and subrogation after satisfying the plaintiffs' claim.
Henderson v. Skerrett [1842] 5 Ir. Eq. Rep. 404 Authority confirming the surety's right to sue the original debtor (here, the receiver) after payment. Cited to note the surety's continued right to sue the receiver despite subrogation and payment.

Court's Reasoning and Analysis

The Court proceeded by applying established authorities and a scope-based test to determine the surety's liability under the recognizance.

  1. On costs and interest for sums not duly accounted: The Court held that it is well settled that a surety for a receiver is liable for interest on balances improperly retained and for costs of proceedings necessarily or properly incurred because of the receiver's default (for example, costs of proceedings to take accounts, attachment for failure to account, application for discharge and appointment of a new receiver, and proceedings to enforce the recognizance). The Court relied principally on Maunsell v. Egan and subsequent authorities that repeated the same exposition. Because the recognizance's condition required the receiver to duly account and pay balances certified due, the costs were necessarily consequent upon the receiver's neglect and the recognizance had become absolute; therefore the surety was responsible to the extent of the recognizance. The Court thus overruled the surety's objections as to costs and interest on sums not duly accounted.
  2. On interest for the sum deposited by the plaintiffs at the receiver's instance: The Court acknowledged the apparent force in the surety's contention but found it untenable on analysis. The deposit was intimately connected with the receiver's duties and his liability to render accounts. The Subordinate Judge had accepted the receiver's accounts without proper scrutiny, and the plaintiffs had protested and been compelled by that decision to bring the sum into Court at the receiver's instance. When the High Court later examined the accounts, it was found the receiver's claim was wholly unfounded and the receiver was held liable for interest on the deposit.
  3. Scope test and application: The Court articulated and applied a limiting principle: the liability of a surety upon a receiver's bond is limited to liabilities incurred by the receiver within the scope of his appointment (i.e., in his capacity as receiver). The operational test is whether the receiver could have been made accountable for the liability in the account proceedings; if so, the surety is liable. In the present case the Court had specifically overruled the receiver's contention that the plaintiffs must sue separately for interest on the deposit and held instead that liability arose out of acts done in the discharge of the receiver's duties. Consequently, the interest on the deposit fell within the scope of liabilities for which the surety was bound.
  4. Relief ordered: On this basis the Court directed that an account be prepared of the sum still due to the plaintiffs from the receiver after deduction of sums already paid. The surety was ordered to deposit the ascertained balance in Court within one month of service of notice of the amount. The Court also specified the surety's rights after payment (subrogation to the receiver's position vis-à-vis recovery from the defendant Ram Narain Patra and the right to sue the receiver), and declined to make any order as to the costs of the present proceedings.

Holding and Implications

Core Ruling: The Court directed that an account be prepared to ascertain the balance due to the plaintiffs and ordered that the surety be called upon to deposit the ascertained balance in Court within one month of service of notice of that amount. The surety was held liable under his bond for the principal sum for which the receiver had not duly accounted, for interest on sums improperly retained, for the costs of account proceedings, and for interest on the sum the plaintiffs were compelled to deposit at the receiver's instance.

Immediate consequences for the parties:

  • The surety must deposit the ascertained balance within one month of notice and thereby satisfy the plaintiffs' claim to the extent of that payment.
  • Upon satisfying the claim, the surety is entitled to stand in the place of the receiver (subrogation) to the extent of the payment and may seek reimbursement from sums ordered to be paid by the defendant Ram Narain Patra to the receiver, and retains the separate right to sue the receiver.
  • The Court made no order as to the costs of the proceedings initiating enforcement against the surety.

Broader doctrinal impact: The opinion applies and reaffirms established authorities on a surety's liability for receivers rather than announcing a new principle. The Court applied the settled rule that surety liability is confined to liabilities incurred within the receiver's official capacity and used the account-proceedings test to determine whether a particular liability fell within that scope.

V.B/R.K

Order: As above — account to be prepared; notice to surety; deposit within one month; no order as to costs.

Show full summary ...

    Rashmani Dasi And Another v. Baroda Kant Sarkar And Another Opposite Parties.

    1. This is an application, under Section 145 of the CPC, 1908, to enforce the liability of a surety. The circumstances under which the surety bond was' executed may be shortly stated. On 14th August 1909 one Baroda Kant Sarkar was appointed receiver to the estate of Mahendra Narayan Patra, at that time the subject matter of an administration suit in the Court of the third Subordinate Judge of the 24 Pargannas. The receiver was appointed on condition of his furnishing personal security for Rs. 5,000. The receiver took possession of the estate and received the rents and profits, but never furnished the security. Proceedings were subsequently instituted in the Court of the Subordinate Judge to take the accounts of the receiver. The Subordinate Judge directed that the estate be released, if the plaintiffs brought into Court, for payment to the receiver, a specified sum of money to enable the latter to discharge the liabilities which, he alleged, he had incurred for the benefit of the plaintiffs in the course of the management of the estate. The deposit was made under protest. The plaintiffs next applied to this Court for proper directions as to the mode in which the accounts of the Receiver were to be taken and obtained an ad interim order that the sum deposited might be retained in Court till the accounts had been fully investigated. The decision of this Court, upon the questions raised at that stage, will be found in our judgment, dated 29th May 1911, Mohini Mohan Patra v. Baroda Kant Sarkar . [1911] 12 I.C 780.. The proceedings to take the accounts of the receiver were subsequently transferred to this Court and while a report on his accounts by a commissioner and the objections thereto were under examination here, it was discovered that he had not furnished security as directed by the Court which had appointed him receiver. This Court, thereupon, on 8th April 1913, directed him forthwith to furnish the security.

    2. This order was carried out on the next day, and one Shama Kant Chatterjee executed a surety bond along with the receiver. By this bond, the executant jointly and severally bound themselves to pay to the Registrar of this Court a sum of Rs. 5,000. The material portion of the bond is in these terms: “The condition of this obligation is such that if the above bounden Baroda Kanta Sar car shall duly account for all and every the sum and sums of money which he has already received on account of the rents and profits of the immovable property of the said estate and shall duly pay the balance which shall be certified to be due from him as this Court shall direct, then this obligation shall be void, otherwise it shall remain in full force.” The accounts have now been taken and it has transpired that not only is the receiver not entitled to receive any money from the plaintiffs, but he is liable to pay Rs. 6,708 to the plaintiffs as determined by our order, dated 23rd July 1913: Baroda Kanta Sarkar v. Bashmani Dasi . A.I.R 1915 Cal. 146. The plaintiffs have now applied to this Court for an order upon the surety under S. 145 of the Code for the payment to them of Rs. 5,000 or of such smaller sum as remains unpaid by the receiver to them under the orders of this Court. On behalf of the surety, objection has been taken to three of the items for which the receiver has been made liable to the plaintiffs, namely first, costs of the proceedings to take accounts, secondly, interest on the sums for which the receiver has not duly accounted;and thirdly, interest on the sum deposited by the plaintiffs in Court at the instance of the receiver for the release of the estate.

    3. It has been argued that though the receiver may have been made justly liable to the plaintiffs for all these sums, the surety is under no obligation to pay them, though, he concedes, he is responsible for the principal money for which the receiver; has not duly accounted. We are of opinion that the objections taken by the surety are not well founded.

    4. It is well settled that the surety for a receiver is liable to the payment of interest on balances improperly retained by him as also for the costs of proceedings in Court necessarily or properly incurred in consequence of the receiver's default, such as the costs of a proceeding to take accounts, of an attachment for failure to account, of an application for his discharge and for the appointment of another person in his place and of any proceedings taken to enforce the recognizance. The leading decision on the point is that of Sugdin, L.C, in Maunsell v. Egan . [1846] 9 Ir. Eg. Rap. 283 where he affirmed the decision of Blackburn, M.R, in Maunsell v. Egan . [1845] 8 Ir. Eq. Rep. 372.. As the Lord Chancellor pointed out, the condition was that the recognizance shall be void if the receiver shall duly account for sums received and shall duly pay the balance found due; the costs of the proceeding to take the accounts have been incurred as the necessary consequence of the neglect of the receiver duly to render an account, and the liability for interest is also attributable to the same cause. The recognizance has therefore become absolute, and to the extent of the sum for which it was acknowledged, the surety must be responsible for the loss occasioned by the default which rendered the recognizance absolute. This exposition has been repeatedly followed: Mac-Donaghs, In re5, Smart v. Flood . [1883] 49 L.T 467., Walters v. Walters . [1877] 11 Ir. Eq. Rep. 335., In re Nugent's Estate8. In the case of In re Graham; Graham v. Noahes . [1895] 1 Ch. 66, Chitty, J., referred to the judgment of Eldon, L.C, in Dawson v. Baynes . [1826] 2 Russell 466, and stated the law in these terms: “The surety is answer-able to the extent of the amount of the recognizance for whatever sum of money, whether principal, interest or costs, the Receiver has been liable, including the costs, for his removal and of the appointment of a new receiver in his place.”

    5. We may take it, then, as the general rule that the surety of a receiver is answerable to the amount secured by his recognizance, for such interest as well as for such principal as the receiver is liable to pay, and also for such costs as may be thrown on the receiver. The objection of the surety as regards the costs of the account proceedings and the interest allowed on sums for which the receiver did not duly account, must consequently be overruled.

    6. As regards the interest allowed to the plaintiffs against the receiver on the sum which they were compelled to bring into Court at the instance of the latter, the surety has argued that he is not liable. There is apparent force in this contention, but upon closer examination, the objection turns out to be groundless. The deposit was intimately associated with the discharge of the duties of the receiver and of his liability to render an account of the rents and profits received by him. The receiver was called upon to account. He submitted a statement of accounts, which was accepted by the Subordinate Judge without due scrutiny and which showed that he as receiver was entitled to obtain a large sum from the plaintiffs. The plaintiffs protested that the accounts were unreliable, that nothing was due from them, and that if the accounts were properly taken, they would be found entitled to receive a large sum from the receiver. The Court, at the instance of the receiver, summarily overruled this objection, and compelled the plaintiffs to bring into Court the sum claimed by the receiver as due to him on his accounts, so as to enable him to apply the money to discharge the liabilities which he alleged he had incurred for the benefit of the plaintiffs. The plaintiffs were compelled, in these circumstances, to bring the money into Court. The accounts were then examined in detail by order of this Court, and it transpired ultimately that the claim of the receiver against the plaintiffs was wholly unfounded. The Court accordingly held the receiver liable for interest on the sum which the plaintiffs had been oblged to deposit at his instance.

    7. We are of opinion that for this sum also the surety is liable on his bond, as it is not fairly distinguishable from the interest the receiver was held liable to pay on sums for which he had not duly accounted. The principle is that the liability of a surety upon the bond of a receiver conditioned for the due discharge of his duties is limited to cases of a violation of those duties which may properly be said to be within the scope of his appointment as receiver; in other words the surety is responsible only in respect of liability incurred by the receiver his capacity as receive?. In re, Walker11, Board of Trade v. Employers Liability Assurance Corporation . [1910] 2 K.B 649. To determine whether a particular liability has been incurred by the receiver in his capacity as receiver, the test to be applied is, could the receiver be made accountable in that respect in the account proceedings; if he could not, the surety is not liable; if he could be held liable in that proceeding as receiver the surety is liable. Here, the receiver contended, in the proceedings to take his accounts, that the plaintiffs were bound to proceed against him by way of a separate suit to recover the interest on the deposit. This was overruled, on the ground that the liability he had incurred arose out of an act done by him in the discharge of his duties as receiver, and not in relation to a matter beyond the scope of his appointment. This shows conclusively that the objection in the present case is not sustainable.

    8. We direct accordingly that an account be prepared of the sum still due to the plaintiffs from the receiver under the order of this Court after deduction of the various sums which have been paid from time to time and that the surety be called upon to deposit the balance in this Court within one month of the date on which notice of the ascertained amount is served on him. We may add that when the surety thus satisfies the claim of the plaintiffs, he will be entitled to stand in the place of the receiver to the extent of this payment made by him, and to reimburse himself from the sums ordered to be paid by the defendant, Ram Narain Patra, to the receiver: Glossop v. Harrison . [1814] Cooper 61, In re, British Power Traction Co., Halifax Bank v. British Power Traction Co. . [1910] 2 Ch. 470, without derogation of his right to sue the receiver: Henderson v. Skerrett . [1842] 5 Ir. Eq. Rep. 404.. There will be no order as to the costs of these proceedings.

    V.B/R.K

    9. Order accordingly.

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    Comments

    Rashmani Dasi And Another v. Baroda Kant Sarkar And Another Opposite Parties.
    (Jun 5, 1914)