Jibon Krishna Mukherjee and Another vs New Bheerbhum Coal Co. Ltd. and Another

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 342 of 1959

Decision Date: 10 November 1959

Coram: P.B. Gajendragadkar, J.C. Shah

In this matter, the petitioners Jibon Krishna Mukherjee and another contested a decree against the respondents New Bheerbhum Coal Co. Ltd. and another. The decree directed the judgment debtor to pay a specified sum in instalments, but the debtor defaulted on those payments. Consequently, the trial court appointed a receiver under section 51 of the Code of Civil Procedure, 1908, and authorized the receiver to sell the debtor’s property either by private agreement or by public auction. The receiver entered into an agreement with the second respondent, a third party, to sell the property for an amount greater than the decretal sum on the condition that the sale would be confirmed by the High Court.

The High Court permitted the decree holder to seek confirmation of the receiver’s sale but simultaneously granted the judgment debtor an additional period within which to pay the balance of the decretal amount; the court stipulated that if the debtor succeeded in paying the full amount, the sale would not be confirmed. The debtor made some partial payments but failed to remit the entire balance within the prescribed timeframe despite several opportunities afforded by the court. Following this failure, the debtor applied to the court to cancel the sale agreement executed by the receiver and requested permission to deposit the whole outstanding decretal sum. A single judge of the High Court dismissed this application, and the dismissal was upheld by a division bench on appeal. The principal question that arose, and which was taken up by the Supreme Court on special leave, was whether the provisions of section 21, rule 89 of the Code of Civil Procedure applied to a sale conducted by a court-appointed receiver. The High Court had answered this question negatively, holding that the provisions did not apply.

The Supreme Court agreed with the High Court’s view and held that a sale effected by a receiver does not require the issuance of a proclamation of sale as mandated by section 21, rule 66 of the Code of Civil Procedure; therefore, the conditions prescribed in section 21, rule 89, which make a proclamation an essential element of a sale, are inapplicable to a receiver’s sale. The Court also affirmed that the High Court was correct in refusing to entertain the appellant’s application under section 21, rule 89. Moreover, the Court concluded that the jurisdiction of the court could not be invoked in favour of the appellant under section 151 of the Code of Civil Procedure because the appellant repeatedly defaulted despite the multiple opportunities provided by the court to pay the decretal balance. The Supreme Court declined to interfere with the discretion exercised by the High Court in these circumstances. The order of the High Court confirming the receiver’s sale was not conditional; it merely allowed the judgment debtor a chance to satisfy the decretal amount in the manner prescribed, and failing that, the sale stood confirmed. Consequently, there was no scope to invoke the principle of inherent power of the court to alter that order.

In reaching its decision, the Court considered the earlier authorities Jogemaya Dasee v. Akhoy Coomar Das (1912) I.L.R. 40 Cal. 140, Basir Ali v. Hafiz Nazir Ali (1916) I.L.R. 43 Cal. 124 and Rani Bala Bose and Others v. Hirendra Chandra Ghose and Others (1948) 52 C.W.N. 739. The Court held that the High Court was correct in refusing to invoke the jurisdiction of the Court under section 151 of the Code of Civil Procedure on behalf of the appellant. The Court observed that the appellant had repeatedly defaulted despite numerous opportunities afforded by the Court to settle the outstanding balance of the decretal amount, and therefore the present Court would not disturb the discretion exercised by the High Court in those circumstances. The Court further noted that the order of the High Court confirming the sale by the receiver was not conditional. The order simply allowed the judgment debtor an opportunity to pay the decretal amount in the manner prescribed; if the debtor failed to do so, the sale would stand confirmed. Consequently, there was no scope to apply the principle that the Court possesses an inherent power to set aside an ex-parte order on a proper case, as articulated in S. M. Sudevi Devi v. Sovaram Agarwallah (1906) 10 C.W.N. 306. The judgment was delivered in a civil appellate jurisdiction concerning Civil Appeal No. 342 of 1959, which came by special leave from the judgment and decree dated 29 April 1959 of the Calcutta High Court, arising out of Original Order No. 188 of 1958. Counsel for the appellants included the Additional Solicitor-General of India and three other representatives, while counsel for respondent No 1 and respondent No 2 were also listed. The judgment, dated 10 November 1959, was authored by Gajendragadkar J. The principal issue that this appeal by special leave raised for determination was whether the provisions of section 21, rule 89 of the Code of Civil Procedure apply to a sale conducted by a court-appointed receiver empowered to sell the subject property. The learned Single Judge on the original side of the Calcutta High Court and the Division Bench of that High Court had answered this issue in the negative. The appellants contended that the High Court’s view was erroneous. The factual backdrop arose from Suit No. 1024 of 1953 before the Calcutta High Court, wherein a decree by consent was passed on 5 December 1955 ordering the payment of Rs 18,497-15-0 in favour of New Bheerbhum Coal Co. Ltd. (respondent 1) against Benares Ice Factory Ltd. (appellant 2). The decree required the decretal amount to be paid in six equal instalments and stipulated that a default on any instalment would render the entire balance immediately payable.

In this matter the decree created a charge on the plant and machinery belonging to the second appellant in order to secure payment of the amount adjudged by the decree. After the appellants defaulted in their instalment payments, the first respondent filed an application for execution of the decree on 10 April 1956. The court issued an interim order on 17 May 1956 that appointed Mr A K Sen as receiver of the charged property. The application was finally disposed of by an order dated 30 May 1956, which confirmed the appointment of the receiver and authorised him to sell the property either by private treaty or by public auction. It was uncontested that the receiver entered into possession of the property in December 1956. Subsequently, on 10 March 1958 the receiver executed a sale agreement with Sukhlal Amarchand Vadnagra, identified as the second respondent, for a purchase price of Rs 30,000. The agreement stipulated, among other conditions, that within one month of receiving notice from the receiver that the sale had been confirmed by the High Court, the purchaser must deposit the full purchase price of Rs 30,000 with the receiver. On 31 March 1958 the first respondent applied to the court for confirmation of this agreement, and on 9 May 1958 Justice G K Mitter allowed the application. The judge ordered that the appellants deposit Rs 3,000 with the attorneys of the decree-holder towards their claim under the decree and further directed that, if this amount was paid within the stipulated period and the balance of the decretal sum was paid within ten weeks thereafter, the sale agreement would not be confirmed. The order also provided that, should the appellants fail to make the required payments by the respective deadlines, the sale of the charged property to the second respondent as contemplated in the agreement would be confirmed. In compliance with the order the appellants deposited Rs 3,000 with the decree-holder’s attorneys on 30 May 1958 and had previously paid Rs 3,500 to the receiver in August 1957 towards the decretal dues. When the appellants later found themselves unable to pay the remaining balance as directed, the second appellant applied to the court seeking cancellation of the sale agreement and an extension of the time allowed for payment of the balance of the decretal amount, together with several ancillary directions. Justice G K Mitter dismissed this application on 29 July 1958 and affirmed the sale agreement. Thereafter, on 20 August 1958 the second appellant filed a notice of motion in which he prayed for leave to deposit the entire outstanding decretal balance and for an order restraining the receiver from accepting any further money from the prospective purchaser under the terms of the sale agreement.

It was observed that the receiver could not accept any money from the prospective purchaser under the terms of the agreement of sale. On 22 August 1958, respondent 2 presented a cheque for Rs 30,000 to the receiver as payment for the purchase price stipulated in the agreement of sale. Shortly thereafter respondent 2 withdrew the cheque and instead paid the same amount of Rs 30,000 in cash on 1 September 1958. The application filed by appellant 2 seeking permission to pay the remaining balance of the decretal amount was rejected by Justice G K Mitter on 4 September 1958. However, the learned judge ordered that the delivery of possession of the property to respondent 2 be postponed for one week from the date of that order. The appellants subsequently appealed the learned judge’s order before a Division Bench of the High Court and obtained a stay of delivery pending determination of the appeal. On 29 April 1959, the Division Bench dismissed the appeal and declined to grant a certificate that would have allowed the appellants to take their appeal to this Court. The appellants then applied for and were granted special leave to appeal this Court on 20 May 1959. Consequently, the present appeal came before this Court. The primary issue raised on behalf of the appellants, by counsel, was that the lower courts were erroneous in refusing relief under Order 21, Rule 89 on the ground that the rule did not apply to the sale conducted by the receiver.

The Court noted that it was undisputed that the receiver had been appointed with the authority “to get in and collect the outstanding debts and claims due in respect of the charged property” and with all powers provided in Order 40, Rule 1, clause (d) of the Code of Civil Procedure. The order appointing the receiver expressly provided that the receiver was at liberty to sell the charged property in favour of respondent 1 either by private treaty or by private auction to the best purchaser or purchasers obtainable, but that no sale could be held before 13 August 1956. In other words, the receiver had been appointed in execution proceedings under Section 51 and was invested with all the powers contemplated in Order 40, Rule 1(d) of the Code. By virtue of those powers, the receiver entered into the agreement of sale with respondent 2, transferred the property to him and gave him possession. Section 51, which deals with the court’s powers to enforce execution, provides for execution of a decree by five alternative modes listed in clauses (a) to (e). One of those modes is the appointment of a receiver, which means that a decree for payment of money may be executed by appointing a receiver. The receiver may either collect the income of the judgment-debtor’s property and thereby satisfy the decree, or, if authorised, may sell the property of the judgment-debtor to achieve satisfaction of the decree.

The receiver, exercising the authority granted under Section 51 of the Code, was empowered to sell the judgment-debtor’s property in order to satisfy the decree. Consequently, when the Court examined whether a sale conducted by the receiver could be treated as a sale ordered directly by the Court and therefore fall within the scope of Order 21, Rule 89, it first emphasized that the very appointment of a receiver constitutes a mode of execution of the decree. The receiver, having been vested with all the powers prescribed in Order 40, Rule 1(d), is required to rely on those specific powers when he disposes of the judgment-debtor’s immovable assets in execution of the decree. Because the receiver’s sale is undertaken under the authority of Order 40, it is unquestionably governed by the provisions of that Order, and the Court retains the power to supervise the transaction or to issue directions relating to it under the same Order.

On a plain-face reading, a sale carried out by a receiver who has been appointed in execution proceedings and who is acting pursuant to the powers conferred by Order 40, Rule 1(d), must be governed by those powers, by the terms and conditions that accompany the grant of those powers, and by any other relevant provisions contained in Order 40. The Court observed that such a sale does not appear to attract the provisions of Order 21. While courts have previously addressed the question of whether various provisions of Order 21 apply to sales made by receivers, there has been a divergence of opinion, particularly in decisions of the Calcutta High Court, as the Court later noted.

In the present appeal, the Court clarified that it would not decide the broader issue concerning the nature of a receiver’s sale, nor would it attempt to determine universally which provisions of Order 21 are applicable to such sales. The matter before the Court was limited to the narrow question of whether Order 21, Rule 89 specifically applies to a sale effected by a receiver. The Court therefore confined its analysis to that precise point. Order 21, Rule 89 allows the persons named in sub-rule (1) to seek setting aside of a sale made in execution proceedings, but only on two conditions: first, the applicant must deposit an amount equal to five percent of the purchase price for the benefit of the purchaser; second, the applicant must pay to the decree-holder the amount specified in the proclamation of sale, reduced by any sums that have been received by the decree-holder since the proclamation.

The second condition gave rise to the question of whether a receiver, when selling immovable property in execution, is required to issue a proclamation as mandated by Order 21, Rule 66 of the Code. The Court expressed the view that there is no doubt that the provisions of that rule do not apply to sales conducted by receivers. The Court further noted that it had not been furnished with any decision that expressed an opposite view, and therefore concluded that the rule in question is inapplicable to the receiver’s sale.

The Court explained that the provisions of Order 21, Rule 82 applied only where a court ordered the sale of immovable property by public auction, and that such an order had to be made by a court other than the Court of Small Causes. When a court appointed a receiver and authorised him to sell the property, the receiver possessed a choice either to sell the property and realise money for the decree or, without selling, to satisfy the decree by collecting rents or by any other method permitted by law. Consequently, it was difficult to construe the mere appointment of a receiver, even with the power to sell if necessary, as an order of sale within the meaning of Order 21, Rule 82. Because Rule 66 of Order 21 did not apply to sales conducted by receivers, the second condition prescribed by Rule 89(1)(b)—the requirement to pay to the decree-holder the amount specified in the proclamation of sale less any amounts already received—was likewise inapplicable. The Court noted that this condition was one of the two essential requirements for a successful application under the rule, and its inapplicability underscored that the entire rule could not govern sales carried out by receivers. Accordingly, the Court was satisfied that the High Court had correctly refused to entertain the appellants’ application under Order 21, Rule 89. The appellants had argued that the High Court should have entertained their prayer under Section 151 of the Code. The Court observed that the case was indeed difficult, since the appellants were at risk of losing their property despite having been able, at the time of their earlier application, to produce the balance of the decretal amount for payment to the decree-holder. The Division Bench had noted a feeling of sympathy for the appellants, yet it was also clear from the record that the appellants had been given ample opportunity to settle the decretal amount. The decree had been passed by consent and contained a default clause; the appellants had defaulted and thereby incurred liability for the entire amount. When the receiver’s agreement of sale was presented before the court, the appellants received another chance to pay under the stipulated conditions, but they again defaulted. Only later, when it was too late, did they approach the court seeking permission to pay the amount themselves and save their property. In those circumstances, the learned judge who heard the application and the appellate court concluded that the court’s jurisdiction under Section 151 could not be invoked.

In considering the appeal, the Court observed that there was no basis for overturning the decision taken by the appellants. Although section 151 was not expressly cited in the judgments of either lower court, the omission was explained by the fact that no specific pleadings under that provision were made. Nevertheless, the Division Bench had already indicated that it could not set aside the order of the learned judge when, in his discretion, he declined to grant the relief sought by the appellants. That discretion necessarily relates to the power conferred by section 151, because if Order 0.21, Rule 89 had been applicable and the appellants had satisfied the conditions prescribed therein, the court would have been obligated to grant the application and there would have been no discretionary authority left to refuse it. Consequently, the appellants would have been entitled to demand that the sale be set aside. On this footing, the Court was unable to accept the argument advanced by counsel under section 151 of the Code.

The second issue raised by counsel concerned the contention that the sale had not been properly confirmed at the time the application for leave to pay the decretal amount was filed, and that the lower courts erred in rejecting that application. That argument relied upon the Calcutta High Court decision in S.M. Sudevi Devi v. Sovaram Agarwallah, reported in (1906) 10 C.W.N. 306. In that case, Justice Woodroffe dealt with a conditional decree that permitted the decree-holder, upon the defendant’s default, to apply to the originating court for an order of ejectment. When disputes arose between the decree-holder and the judgment-debtor regarding performance of the decree’s conditions, the decree-holder obtained an ex parte ejectment order without notifying the debtor, who then sought to set aside, modify, or review the order. Justice Woodroffe held that the court possessed inherent power to entertain an application to set aside an ex parte order where a proper case was shown. Counsel argued that, because the present sale was conditional upon court confirmation, the court could refuse to confirm it when the appellants applied for leave to pay the balance of the decretal amount. That line of reasoning assumed that the order dated 9 May 1958, issued by Justice Mitter, was a conditional order. The Court found that assumption unsupported. While the order indeed allowed the appellants an opportunity to pay the decretal amount in the manner prescribed, it expressly stipulated that should the appellants fail to comply within the stipulated deadlines, the sale of the property by the receiver to the second respondent would be confirmed and the receiver would be directed to deliver possession of the property to the purchaser. Thus, the order was not a conditional order but a composite one that combined a chance to pay with a definitive provision that the sale would stand and possession would be transferred upon default.

In examining the order issued by Mitter, J. on 9 May 1958, the Court observed that the order did not operate as a conditional order that required a later confirmation by the Court before the sale could become effective. Instead, the order was described as a composite order because it contained two separate operative clauses. The first clause mandated that the appellants pay the decretal amount within the time-frame prescribed by the order, thereby granting them a genuine opportunity to prevent the sale of their property by fulfilling their monetary liability. The second clause stipulated that if the appellants failed to make the required payment by the stipulated dates, the sale previously arranged by the receiver would automatically be confirmed, and the receiver would be directed to hand over possession of the property to the purchaser. By simultaneously providing a chance to avoid the sale and imposing an automatic confirmation on default, the order functioned as a composite instrument rather than a merely conditional one. Consequently, the Court concluded that the principle articulated by Woodroffe, J., in the case of S. M. Sudevi Devi (1906) 10 C.W.N. 306 could not be invoked in the present circumstances.

The Court then turned to the divergent authorities expressed by the Calcutta High Court on the question of how sales by receivers appointed under court direction should be characterised. In Minatoonnessa Bibee & Ors. v. Khatoonnessa Bibee & Ors., Justice Sale held that a purchaser at a receiver’s sale was entitled to obtain the assistance of the Court in obtaining possession under the provisions of the Code of Civil Procedure that govern sales in suits. Justice Sale reached this conclusion by referring to an earlier Calcutta High Court precedent and by issuing an order for possession of the property in favour of the receiver. He highlighted that, in that particular case, the sale had already been treated as a sale by the Court because the registrar had been directed, pursuant to the Code, to execute the conveyance on behalf of some parties, rendering the issue essentially res judicata. Nonetheless, Justice Sale observed that, in general, sales by receivers are in all essential particulars similar to sales by the registrar, and that where such a sale is deemed a sale by a civil court in a suit, the procedural rules prescribed by the Code for sales in suits should apply. The present Court, however, declined to read Justice Sale’s observations as establishing a universal rule that every sale by a receiver must fall within all the provisions applicable to court-ordered sales. In particular, the Court noted that the proposition would be incorrect with respect to Order 21, Rule 89. Supporting the contrary view, the Court cited Gulam Hossein Cassim Ariff v. Fatima Begum, where Justice Fletcher held that a sale by a receiver made under the direction of the Court is not a sale by the Court, and consequently the Court neither issues a sale certificate nor confirms the sale.

The Court noted that when a sale is conducted by a receiver under the direction of the court, the court does not grant a sale certificate nor does it confirm the sale. The learned judge referred to the earlier decision of Sale, J., and expressly dissented from his view, observing that it was unnecessary to examine the correctness of that decision. Fletcher, J., adhered to the same principle in Jogemaya Dasee v. Akhoy Coomar Das (1), a case in which the judge dealt with the sale of properties by the Commissioner of Partition and held that such a sale was not a sale by the court but a sale made by the Commissioner of Partition under the authority of the court. Chaudhuri, J., considered the same question in Basir Ali v. Hafiz Nazir Ali (2) and held that in every sale, whether by the court, under the court, or by direction of the court, the purchaser must satisfy himself as to the value, quality and title of the thing sold, just as he would if he were buying under a private contract. According to that decision, the sale certificate did not itself transfer title; it was merely evidence of the transfer, and consequently the judge directed the receiver to execute a conveyance in favour of the purchaser. That judgment was not entirely consistent with the view expressed by Fletcher, J. In Rani Bala Bose v. Hirendra Chandra Ghose Chakravarti, J., then, incidentally referred to this conflict of judicial opinion in the Calcutta High Court, indicated a preference for the view of Sale, J., but carefully added that he was not deciding the point and that the case before him was not covered by the actual decision of Fletcher, J. These authorities demonstrate a divergence of opinion as to the character of a sale held by a receiver, whether it is a sale by the court, a sale under the court, or a sale under the directions of the court. Because the Court’s attention had been drawn to these decisions, it considered it necessary to clarify that its present decision was limited to the narrow question of whether a sale held by a receiver attracts the provisions of O. 21, r. 89. The Court held that rule 89 of O. 21 does not apply to such a sale and that the High Court was correct in rejecting the appellants’ claim on the basis of that rule. Accordingly, the appeal failed and was dismissed with costs, and the Court ordered the appeal dismissed.