JHUNKU LAL Vs. PIARU LAL

JUDGEMENT

(1.) This appeal arises under the following circumstances. The defendant third party mortgaged a cotton ginning factory to the plaintiff on the 14th of May, 1908. The plaintiff obtained the usual mortgage decree on the 10th of November, 1910. The property was about to be sold when an application was made by the judgement-debtor pointing out that if the factory was sold he would be ruined and asking that instead of selling the factory, the court would be pleased to appoint either the plaintiff himself or some other person to be receiver over the factory. The decree-holder, apparently with some reluctance, agreed to a receiver being appointed, and the court appointed Babu Ishwar Das, a pleader, to be the receiver. Under the order the receiver s duty was to enter into possession of the factory, work the same and hold the profits for one year for the benefit of the decree-holder. It obviously was the intention of the Judge that if this plan proved a success, the appointment of the receiver would be extended over the crops for future years until the decree was discharged. The receiver duly entered into possession and worked the factory for two years or more, but no further order was obtained from the court. It may have been unfortunate for the decree-holder; nevertheless, in our opinion, the order only operated to entitle the receiver to possession for one year, and it would have required some further order to entitle him to remain in possession after the expiration of that period. The judgement- debtors were adjudged insolvent on the 11th of March, 1914. The factory was sold in execution of the plaintiff s decree on the 10th of April, 1914, and was purchased by the decree-holder, he being allowed to set off his decree pro tanto against the purchase-money. It appears that there is an association in Hathras called the West Patent Press Company, Hathras Combine. The object of this association of cotton ginning factory owners is, apparently, to prevent cutting of rates and to regulate the charges of the several owners so as to keep them at a common level. The practice is to send the whole, or a portion, of the earnings of each factory to the agency, who at stated periods adjust the accounts and distribute the profits amongst the various factories. In this way, after the appointment of the receiver, a considerable sum of money was with the agency to the credit of this particular factory. Had no receiver been appointed, the judgement-debtors would undoubtedly have been entitled to receive the profits standing to their credit with the agency. Just in the same way after the receiver was appointed, he was undoubtedly entitled to receive the money standing to his credit with, the agency had there been no other creditors. It appears, however, that after the appointment of the receiver and his taking possession of the factory, certain other creditors (simple money decree-holders) attached the money which was with the agency and standing to the credit of this factory. This money was rateably distributed between the simple money judgement-creditors of the insolvent, and the present suit has been instituted by the plaintiff claiming that he is entitled to the money which was earned by the factory after the appointment of the receiver. He is opposed by those judgement-debtors who have obtained the money and also by the receiver in the insolvency matter. The court below was of opinion that the plaintiff was entitled to the profits for one season, but, inasmuch as he had not given evidence which would enable the court to say what those profits were, the court dismissed the suit altogether.

(2.) The plaintiff comes here in appeal and contends that he was entitled to all the money earned while the receiver was in possession. He contends that, notwithstanding that the receiver was only appointed for one crop, he nevertheless remained in possession without objection by the judgement-debtors. Lastly, he contends that, even if he is not entitled to all the money, he is at least entitled to the profits of one crop and that the court ought not to have dismissed his suit altogether. The creditors on the other hand, contend that the plaintiff is not entitled to any profits at all, that the effect of the order appointing a receiver was not to create any charge or lien on the profits in favour of the plaintiff, and that they having attached the profits in the hands of the agency were entitled to receive them in discharge of their simple money decrees. The receiver in the bankruptcy matter is also represented and the case on his behalf has been very ably argued by Mr. Piari Lal Banerji. He supports the contention of the simple money decree-holders, and contends that in respect of the money earned while the receiver was in possession it belonged to the insolvent and that the balance, not paid over to the simple money decree-holders, vested in the receiver on the adjudication of insolvency because the plaintiff in the present suit was not a "secured" creditor. In support of this contention the cases of In re Patts (1898) 1 Q.B. 648 and Crowshaw v. Lyndhurst Ship Company (1897) 2 Ch. 154 are cited. The receiver in the insolvency further contends that the suit was not sustainable against him having regard to the provisions of Section 16, Clause (2), Sub-clause (b), of the Provincial Insolvency Act of 1907, and further that the remedy of the plaintiff, if any, as against him is limited to an application made in the insolvency matter to the court having seisin of that matter. Lastly, he contends that the appointment of the receiver by the court executing the plaintiffs decree was null and void having been made without jurisdiction. We will deal with the last point first. If we were concerned to inquire whether the court ought to have appointed a receiver instead of allowing the property to be sold we would have had great difficulty in confirming the order, But we are not concerned with this question because the receiver was appointed with the consent of the decree-holder and the judgement-debtor, that is, with the consent of the only parties who had at the time any interest in the property. Under the circumstances, in our opinion, it cannot be said that the order was made without jurisdiction. The plaintiff at the time the order was made had a mortgage decree on the factory for Rs. 70,000, which, as it turns out, was far more than the value of the factory. The strict legal right of the plaintiff decree-holder was no doubt to have the factory sold. The court, however, at the instance of the judgement-debtor and in his relief appointed the receiver instead of ordering the property to be sold. It seems to us that, as between the decree-holder and his judgement-debtor, from the moment that the receiver entered into possession and began to work the factory he was doing so for the benefit of the holder of the mortgage decree, and the profits, for one crop at least, ought to have been applied in discharge of the decree. In the case of In re Patta (1893) 1 Q.B., 648 the judgement-creditors obtained an order appointing a receiver by way of equitable execution over a legacy payable to the debtor under his mother s will, and the question arose whether the order operated to make the creditors "secured" creditors as against the trustee in bankruptcy, It was held that it did not, and that the creditors had acquired no charge or lien on the legacy. The executors were not made parties to the order, a matter to which the Court attached much importance. Croshaw v. Lyndhurst Ship Company (1897) 2 Ch. 154 is to the same effect. The court held in both cases that the order fell short) of creating a charge or lien. We think that the present case is clearly distinguishable and that the principle does not apply. In the present the plaintiff had a mortgage on the factory and had obtained a decree entitling him to have the property sold. Had he been allowed to sell the property the receiver in the insolvency would have got nothing nor would the other creditors. The money was earned after the factory had been taken possession of by the receiver. In the cases cited the creditor had no interest in the property over which the receiver was appointed save the interest acquired by the appointment of the receiver. When carefully considered the appointment of the receiver in the present case has very little analogy to cases in which a receiver is appointed by way of "equitable execution." It was in fact a partial and somewhat irregular "execution" of the mortgage decree on consent of parties. It is pretty clear from a perusal of the judgement of Lindley, L. J., in In re Patta that the decision in that case would have been different if the order appointing the receiver had been obtained against the executors as well as against the debtor. In the case before us not only had the plaintiff a mortgage decree but in pursuance of the order the judgement-debtor was pub out of possession and the receiver put into possession to work the factory. Apart from the express provisions of the Insolvency Act, the receiver in the insolvency matter can be in no better position than the insolvent, and if the effect of the court s order was to entitle the creditor to the season s crop, then the money representing that crop cannot be claimed by the insolvency receiver. For the same reason we think that the holders of simple money decrees have no cause to complain against the order and that they have no claim to the money representing one season s crop. We think also that the fact that the money or part of it may have been in the hands of the agency does not affect the law or merits of the case, because the money was earned after the receiver had taken possession. With regard to the point that the suit was brought against the receiver in insolvency without the consent of the court this objection is based on Section 16 of the Provincial Insolvency Act, which provides, amongst other things, that after an adjudication of insolvency no creditor to whom the insolvent is indebted in respect of any debt provable under the Act shall during the pendency of the proceedings have any remedy against the property or person of the insolvent in respect of the debt, or commence any suit or legal proceeding except with the leave of the court on such terms as the court may impose. It must be remembered that the plaintiff in the present suit is not seeking any remedy against either the property or person of the insolvent. His contention is that money which the receiver has obtained is his property and never was the property of the judgement-debtor. It is not contended that the money about which the present suit is brought is a "debt" provable under the insolvency Act. On the contrary, the contention of the plaintiff is that he is entitled in justice and equity to the money and that he is not driven to claim it as a creditor secured or unsecured. The contention in reality is that the receiver in the insolvency matter acted wrongfully in taking possession of this money or any part of it. Under these circumstances we do not think that the provisions of Section 16 apply.

(3.) Some reliance was placed on Section 22, which is as follows: "If the insolvent or any of the creditors or any other person is aggrieved by any act or decision of the receiver, he may apply to the Court, and the Court may confirm, reverse or modify the act or decision complained of and make such other order as it thinks fit." In our opinion this section clearly is restricted to matters which the receiver has done in the course of the insolvency matter. It would seem almost absurd to argue that if a receiver committed a wholly illegal act, ho would not be liable to suit by the person aggrieved, simply because he happened to be a receiver in insolvency. If the plaintiff s contention be correct (and, we think it is) this particular money, which is the subject-matter of the present suit, never formed any portion of the insolvent s estate. We think that the court below ought to have allowed the plaintiff to give evidence which would show what was the amount of profits for the one season. Before finally deciding the appeal we think it desirable to refer issues to the court below. We accordingly refer the following issues: (1) What was the amount of profits in respect of the shares of the defendants mortgagors (Salig Earn, Sagar Mal and Jai Kiahore) for the cotton season 1912-13 in the hands of the West Patent Press Company and of the receiver Babu Ishwar Das respectively? (2) How much out of the said profits hag been realized by each of the attaching creditors and how much, if any, has been received by the receiver Pandit Kanhiya Lal, and how much, if any, still remains with the West Patent Press Company and the receiver Babu Ishwar Das? The parties will be at liberty to adduce further evidence relevant to these issues. On receipt of the findings ten days will be allowed for filing objections.