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Synopsis

The Supreme Court has clarified that appointing a court receiver is an exceptional measure, to be undertaken only under compelling circumstances. Merely citing a ‘prima facie case’ or referring to the ‘conduct’ of the parties is insufficient; the court's order must clearly demonstrate how the property in question would deteriorate without such intervention, it said.

A bench comprising Justices P.S. Narasimha and Manoj Misra observed so while allowing an appeal by one Hitesh Bhuralal Jain. The appeal challenged a High Court order that had appointed a court receiver in a commercial dispute.

In this case, the court pointed out that the respondent had failed to highlight any special circumstances in the notice of motion that could necessitate appointing a receiver. It further noted that the City Civil Court had already rejected the plea for a receiver, reasoning that an injunction order was adequate to safeguard the respondent's interests.

"The High Court has not given any reason for extending the relief of appointment of a court receiver, which was specifically rejected by the City Civil Court. The High Court merely states that 'a strong prima facie case has indeed been made out by the Appellant for appointment of Court Receiver. We find that the respondent(s) conduct in dealing with the property in the manner which has been done would certainly prejudice the rights of the appellant'," the bench pointed out.

The bench observed that apart from the use of phrases like prima facie case and conduct, the High Court’s order lacked any explanation of how the property would suffer deterioration without the appointment of a court receiver.

"Needless to say, that mere recording of the expressions ‘prima facia case’ and ‘conduct’ by themselves are not sufficient. Further, the prima facie case as indicated by the City Civil Court related only to the grant of injunction and not about the appointment of a receiver," the bench said.

According to the case details, the appellant’s father had established a Hindu Undivided Family (HUF) that included the suit schedule property. Acting as the karta of the HUF, he entered into a development agreement with M/s Karmvir Intelligent Housing Pvt. Ltd. for the redevelopment and reconstruction of the said property.

The appellant contended that he filed a suit for declaration that he was entitled to 1/4th share in the suit schedule property. This suit was numbered and is currently pending adjudication, he told.

Additionally, the appellant alleged that his brother entered into an agreement with respondent no. 1 for permanent alternative accommodation concerning Shop No. 8 in the property. He contended that this respondent was not listed among the declared tenants as per the original development agreement dated October 18, 2017.

Respondent no. 1 filed a commercial suit seeking a declaration for permanent alternative accommodation in accordance with the 2017 agreement. While the suit was still pending, the respondent filed a notice of motion, seeking, among other things, an injunction to prevent the alienation, transfer, or encumbrance of the property, along with a request for the appointment of a court receiver.

On March 16, 2022, the City Civil Court, Borivali, partially allowed the notice of motion. The court issued an order restraining the defendants from creating any third-party interest in the property by selling or transferring Shop No. 8 until the suit was disposed of. However, the City Civil Court specifically rejected all other reliefs sought by the respondent.

The respondent no 1 preferred a Commercial Appeal to the High Court, resulting into appointment of court receiver.

The appellant's counsel submitted that there was no justification whatsoever for appointment of a court receiver. He also relied on the order of status quo to contend that the order of the receiver was uncalled for. He also contended that the respondent no 1 was not the original tenant and that he had no assigned rights under the original development agreement.

The respondent, on the contrary, supported the order passed by the division bench of the High Court and submitted that it protected and balanced the interests of both the parties pending disposal of the suit.

"Having considered the matter, we are of the opinion that there are interim orders in the suit filed by the appellant as well as orders of injunction passed by the City Civil Court on 16.03.2022 in the present suit filed by respondent no 1. The order of injunction sufficiently protects the respondent no 1," the bench said.

The apex court held that the order passed by the High Court appointing a Court receiver was not justified in the facts and circumstances of the case.

Court, therefore, allowed the appeal and set aside the order passed by the High Court in Commercial Appeal and restored the order passed by the City Civil Court.

It also directed that the Commercial Suit should be taken up and disposed of as expeditiously as possible.

Case Title: Hitesh Bhuralal Jain Vs Rajpal Amarnath Yadav & Ors