1.This is Civil Miscellaneous Appeal against the Order dated, September 20, 1980 of the learned Additional District Judge No. 5, Jaipur City allowing the application of plaintiff-respondents Nos. 1 and 2 under Order 40, Rule 1, C. P. C.
2. The facts relating to this miscellaneous appeal are these. Hotel 'Kanti Chandra Palace' is a registered partnership concern. A partnership deed was executed on September 15, 1976. The parties are all partners of the said firm. Appellant No. 1, Abani Kumar Mukherjee, is the owner of land and building. He agreed to lease out land and building measuring 25'00 sq. yards situated at Hathi Babu-ka-bagh, Station Road. Jaipur including 3000 sq. ft. underground for the business of the Firm and he was to receive a sum of Rs. 2000/- p .m. as the lease money and was also to be a partner to share the profits and losses. Respondents Nos. 1 and 2 were required to invest a sum of about Rs. 2 lacs in the additions alterations and furnishing of the hotel 'Kanti Chandra Palace'. It is said that a sum of Rs. 2,23,102.81 was invested by respondents Nos. 1 and 2 towards the partnership business and the Hotel was inaugurated by one Girdhari Lal Bhargava on June 7, 1977 and started functioning thereafter. All the partners were to manage the affairs of the partnership business, but the appellants started placing obstructions in the functioning of respondents Nos. 1 and 2 in the management of the Partnership Concern and excluded them from managing the affairs of the business. The appellants, it is said, were not maintaining proper accounts and were squandering the funds of the partnership concern. Not only this, in part of the leased out premises they also started another Hotel 'Ishan Chandra Palace'. The staff appointed earlier by respondents was removed and new persons were appointed to manage the business. The respondents, therefore, filed a suit for injunction and for appointment of a receiver against the appellants.
3. On the first date of hearing an application under Section 34 of the Indian Arbitration Act. 1940 (hereinafter referred to as 'the Act'), was filed on behalf of the appellants for staying of the suit on the ground that as per the partnership deed dated September 15, 1976, there was an arbitration clause 15, under which all the disputes and differences in connection with the partnership business were to be referred to the arbitrator to be appointed by the parties thereto and the decision of the arbitrator so appointed was final and binding on all the parties. The learned trial Court stayed the suit as well as miscellaneous application under Order 39, Rule 1 C. P. C. read with Order 40, Rule 1 C. P. C.
The respondents filed appeal against that order in this Court that was treated as revision and this Court by its Order dated February 27, 1980 allowed the revision petition and held that notwithstanding that the original suit has been stayed under Section 34 of the Act, the Court has jurisdiction to deal with supplemental proceedings to issue injunction and/or to appoint receiver. Thereafter the learned Additional District Judge in whose Court the case had been transferred by the learned District Judge allowed the application of respondents Nos. 1 and 2 under the impugned order and appointed Ambikesh Sharma Advocate as a receiver for the proper management of the Hotel 'Kanti Chandra Palace'. The Court also issued a temporary injunction restraining the appellants from running any other business in the leased out premises. It is that Order of the trial Court which has been challenged in this appeal.
4. The question is as to whether as held by the trial Court it is just and convenient to appoint a receiver of a running partnership business M/s. 'Kanti Chandra Palace' Hotel? Generally a receiver is appointed by the Court to receive and preserve the property or fund in litigation pendente lite when it does not seem reasonable to the Court that either party should hold it. The only object and effect of appointment of a receiver is to maintain things in their present condition during the pendency of the suit. The suit was not filed for dissolution of the partnership firm but it was simply filed for injunction and appointment of a receiver. The matter of appointment of a receiver is always in the discretion of the Court, but discretion must be exercised judicially and according to sound legal principles. The effect of appointing a receiver of a running partnership business is that it operates as an injunction against the other partners. Therefore, unless some special grounds for doing so can be shown, the Court generally will not appoint a receiver against a partner. As a general rule the Court will not appoint a receiver unless the dissolution of a partnership firm is sought. The Court does not, in general, interfere with the management of a partnership except as incidental to the object of the action to wind up the concern and divide the assets.
While, therefore, the Court will not sanction the permanent or continued management of a partnership business in the hands of the receiver, he may, in a proper case, be allowed to continue the management of the business pending legal proceedings for a dissolution in order that the goodwill may be preserved to the ultimate purchaser and its full value be realised by the partners at a final sale and to prevent great loss to the parties. Therefore, the law can be said to be settled that in case of a running partnership business unless some special ground for appointment of a receiver can be shown, the Court will not appoint a receiver. The special ground can be the misconduct of a partner. If a partner so misconducts himself as to show that he is no longer to be trusted as for example of one partner is carrying on a separate trade on his own account with the partnership property or if there has been some mismanagement as to endanger the whole concern, or if one of the partners has acted in a manner inconsistent with the duties and obligations which are implied in every partnership contract, a case for appointment of receiver will be made out.
In Nihalchand L. Jai Narain v. Ram Niwas Munna Lal, AIR 1968 Punj 523 it has been held that where a partner excludes another from the management of the partnership affairs, a case is made out for appointment of a receiver and this doctrine is acted on even where the defendant contends that the plaintiff is not a partner or that he has no interest in the partnership assets. It was a case of cinema business being run in partnership. The trial Court had appointed a receiver holding that it was just and proper to appoint a receiver. In G. Ramchandrayya v, Halhi Iswarayya. AIR 1952 Hyd 139 which was relied on in Dileep Singh's case (supra)(?) it has been held that the appointment of a receiver would be jutifiable when the circumstances show that the plaintiff has been excluded for years from the fruits of the alleged partnership funds. It was further held that in suits relating to partnership concerns, even though no circumstances existing to jeopardise the partnership assets tie shown, the Court would be justified in appoint ing a receiver if the defendant seeks to exclude a co-partner from the management.
In Prem Prakash Kapoor v. Govind Ram Kapoor, AIR 1976 J&K; 37 (39), it was not a suit for declaration of injunction and condition of accounts, placing reliance on Ram Chandra's case (supra) it was held that even in such a suit receiver can be appointed if the Court is satisfied that it is just and convenient to appoint a receiver. It was held that if assets of the firm both capital and liquid were exposed to manifest peril and the court thinks that they must be preserved, a case for appointment of a receiver is made out. It was further held that in the matter of appointment of a receiver the form of suit does not matter. What really matters is that the relief by way of appointment of a receiver must be auxiliary to the relief claimed in the suit,
'Kerr on Receivers' fifteenth Edition at page 66 has said: 'In certain cases a receiver will be appointed even where a dissolution is not expressly or impliedly claimed, as, for instance, to receive money, where there is reason to fear that, if received by the parties it might be misapplied, and thus justice could not be done at the trial; thus a receiver has been appointed over the takings of a theatre to secure their application in accordance with an agreement between the parties and a receiver has been appointed to secure property until a dispute between the partners has been determined, though dissolution was not claimed. In such oases the duties of a receiver are purely administrative.' While dealing with 'Partner excluded from management', the same author says: 'There is a case for a receiver, even though there be no misconduct endangering the partnership assets, if one partner excludes another partner from the management of the partnership affairs. This doctrine is acted on where the defendant contends that the plaintiff is not a partner, or that he has no interest in the partnership assets, or where the partnership is disputed by the defendant on the ground of illegality as, for instance, where its object is contrary to public policy'. But tfte Author says that the court in such case can appoint a receiver if some special ground for doing so shall be shown.
5. Therefore, it can be said that it is not necessary that only in a case of dissolution, of partnership a receiver can be appointed. Even in case of running partnership business a receiver can be appointed, but there must be special ground to do so such as the exclusion of one of the partners from partnership in a business. Mere quarrels and disagreements between partners arising from infirmities of tempers are not a sufficient ground for the interference of the Court. Similarly non-cooperation of one partner in the management is not sufficient. Only if the quarrels between the partners are such as to occasion a complete dead-lock in carrying on the business a receiver will be appointed.
6. Let us now examine the facts of this case to see as to whether special grounds exist for appointing a receiver of a running business concern, 'Hotel Kanti Chandra Palace'.
7. It cannot be disputed that there exists a partnership firm though the appellants have disputed in their reply to the application under Order 39, Rr. 1 and 2 C. P. C. the legality of a registration of the partnership firm. According to them because by the time it was registered Alok Kumar Mukherjee, appellant No. 3, had attained majority and he did not sign it and, therefore, the registration is not legal. It means that the appellants even challenge the legality of the registration of the partnership A look at the partnership deed, dated September 15, 1976 will show that Clause 11 deals with management. It is to the following effect:
'That the business of the partnership shall be carried on under the general supervision of all the partners diligently and they shall manage the affairs of the firm in greatest advantageous manner as a prudent man can do so. The party of the first part will specially apply herself to the supervision of the business and the party of the sixth part would also do the same on the attainment of majority on 10-2-1977'.
It is contended by the learned Advocate for the appellants that it was the party of the first part who was under this clause to apply himself specifically to the supervision of the business and respondents Nos. 1 and 2 had only a right of general supervision. Therefore, if the appellant No. 1 is managing the ffairs of the partnership business, he is doing so under clause 11 and it cannot be said that respondents Nos. 1 and 2 have been excluded from taking part in the management of the partnership business. The relevant allegations about the exclusion of respondents Nos. 1 and 2 from the management of the business are contained more specifically in para No. 23 of the application under Order 39, Rules 1 & 2 C. P. C. It is said that the income of the hotel is not being deposited in Bank. The accounts are not being properly maintained and respondents Nos. 1 and 2 have been excluded from the partnership business. It is also mentioned in Para 25 that the employees appointed earlier by the parties were also turned out and others were employed by the appellants. The other allegation is that in part of the leased out premises Hotel 'Ishan Chandra Palace' has been opened. Even the appellants do not dispute that in a part of the building Hotel 'Ishan Chandra Palace' is being run by D. K. Mukherjee who is the real brother of appellant No. 1. It is also not disputed that appellant No. 1 is the owner of that property also.
According to respondents Nos. 1 and 2 at the time when the partnership agreement was entered into about 2500 sq. yards of land and building were leased out, part of the leased premises were on rent with Khadi Gramodyog Commission. They were to be handed over to the partnership business on vacation by the lessees. After they were vacated, the office of 'Kanti Chandra Palace Hotel' functioned in them as it appears from the report of the Commissioner appointed by the Court. Even the appellants admit that this portion in which Hotel Ishan Chandra Palace is being run was given on rent by appellant No. 1 to his own brother D. K. Mukherjee. But they say that it was not part of the leased premises and whatever was leased out to the partnership was given possession of to the partnership concern. The matter cannot be decided here as to whether the premises in which Hotel 'Ishan Chandra Palace' is being run is part of the leased out premises of the partnership or not? It is a matter which can only be decided before a proper forum after proper evidence. But this much can be said that one brother of appellant No. 1 himself is running a Hotel in the name and style of Hotel 'Ishan Chandra Palace' in a part of the building in which the partnership business is being run. It may or may not be part of the leased out premises and as already observed above it will be decided later on.
The respondents as per their saying have invested a sum of more than Rs. 2 lacs and though this investment is disputed on behalf of the appellants, it can be said that huge amount has been invested by respondents Nos. 1 and 2 in partnership business. It appears that the business is being managed exclusively by the appellants and so far as respondents Nos. 1 and 2 are concerned it appears that they are not allowed to take part in the management of the partnership business though it is said on behalf of the appellants that they can come, inspect the accounts and watch the management. In case of partnership business if some of the partners are excluded from management it is not possible to say as to what income accrues from the business and whether the same is being misused being exclusively in the hands of some of the partners who are managing the affairs of the partnership business.
According to the appellants since they have taken over management, the income has increased manyfold as will appear from the accounts furnished by them. But to my mind if the accounts are scrutinised it will be clear that in case Rs. 2000/- p. m. as lease money payable to appellant No. 1 and about Rs. 2000/-p. m. payable as interest to respondents Nos. 1 and 2 on their investments are taken into consideration, the partnership concern cannot be said to be running in profit. Though, merely because a partnership business is running in loss, it is not sufficient to appoint a receiver of the same, but if there are allegations that the accounts are not being properly maintained, day-to-day income is not being deposited in Bank and other partners are excluded from the management to which they are entitled under the law as well as under Clause 11 of the partnership deed, it can hardly be said that the exercise of discretion by the trial Court in appointing a receiver, calls for interference in this appeal.
8. It may be stated here that a discretion exercised by the trial Court in the matter of appointment of a receiver after considering the facts of the case, should not be interfered with in an appeal unless it is shown that it was improperly exercised or that the determination was contrary to law. The Madras High Court in T. Krishnaswamy Chetty v. C. Thangavelu Chetty, AIR 1955 Mad 430 have laid down five principles which it has described as 'Panch Sadachar' for the courts exercising equitable jurisdiction in appointing receivers. They are these:
1. The appointment of a receiver pending a suit is a matter resting in the discretion of the court.
2. The Court should not appoint a receiver except upon proof by the plaintiff that prima facie he has a very excellent chance of succeeding in the suit.
3. Not only must the plaintiff show a case of adverse and conflicting claims to property but, he must show some emergency or danger or loss demanding immediate action and of his own right he must be reasonably clear and free from doubt. The element of danger is an important consideration.
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. It would be different where the property is shown to be 'in medio', that is to say, in the enjoyment of no one. and
5. The Court, on the application made for the appointment of a receiver, looks to the conduct of the party who makes the application and will usually refuse to interfere unless his conduct has been free from blame. I have already stated above that even the legality of the registration of the partnership firm is challenged. Respondents Nos. 1 and 2 have been excluded completely from taking part in the management of the partnership business. to which they have a right under Clause 11 of the partnership-deed as well as under the law. The day-to-day income of the Hotel is not being deposited in the Bank and it is not possible to say as to whether the income is being squandered away or is being properly accounted for. The funds in the form of daily income of the Hotel and other liquid assets need being preserved from misuse or malversation. Even assuming though not accepting that other premises in which Hotel 'Ishan Chandra Palace' is being run by none else but a brother of appellant No. 1 may not be part of leased premises, it can be said for the present that a Hotel business is being run in part of the same building and none else but appellant No. 1 a partner, has leased those premises to his own brother, Therefore, in the peculiar facts and circumstances of this case when a case of exclusion by one partner by others from taking part in the business is made out, a case for appointment of a receiver in made out, and, therefore, the learned trial Court in exercise of its discretion and in holding that it is just and convenient to appoint a receiver, did not commit any illegality. The discretion of the court in appointing the receiver, therefore, does not call for interference.
9. The question is as to whether Ambikesh Sharma an Advocate is a proper person to be appointed as receiver? Normally in a running partnership business, more so when expertise is required any one of the partners should be considered for appointment as a receiver. In the instant case the suit has not been filed for dissolution of the partnership concern and, therefore, 1 he partnership business is likely to run and continue. The business is being run for the present by appellants Nos. 1 and 3.
As already observed above the business has come up as has been mentioned in para 16 of the application under Order 39. Rr. 1 and 2 and Order 40, Rule 1. 0. P. C. moved by respondents Nos. 1 and 2. There appear to be no compelling circumstances in the facts and circumstances of this ease to let a stranger take over the business of the partnership concern. The rights of the other partners can be safeguarded by ap-proriate order for appointment of a receiver. But the appointment of a receiver cannot be a permanent measure. It can only be as an interim measure till the parties get their dispute decided in a proper form. The suit has been stayed under Section 34 of the Arbitration Act and is not likely to proceed. The disputes in the suit, because of the stay of suit can be said to be referable to arbitration. Therefore, I will limit the appointment of receiver in this case to a period of 9 months or till an order is passed in arbitration proceedings, whichever is earlier.
10. Therefore, I am of opinion that it will be proper and in the interest of justice to appoint Abani Kumar Mukherjee, one of the partners, as receiver of the partnership business to manage it.
11. The appeal is only partly allowed while maintaining the order of appointment of a receiver instead of Ambikesh Sharma, Advocate Mr. Abani Kumar Mukherjee one of the partners is appointed as a receiver to manage the partner-ship business for a period of nine months or till an order is obtained by any of the parties in arbitration proceedings from a competent counsel whichever is earlier.
12. The receiver will be required to maintain proper accounts of the assets of the partnership business both capital and liquid including the income in some current account in a scheduled Bank and all payments exceeding Rs. 100/- shall only be made through cheques. Respondents Nos. 1 and 2 shall appoint one accountant on their behalf and the accounts shall be jointly maintained by the accountant appointed by the reeeeiver and the accountant to be nominated by respondents Nos. 1 and 2. The receiver shall submit monthly statement of income and expenditure in the trial Court. Respondents Nos. 1 and 2 shall intimate the name of their accountant to the receiver within a period of 10 days and the receiver shall afford all opportunities to such accountant to maintain accounts in association with his own account. The expenses of the accountant to be nominated by respondents Nos. 1 and 2 shall be borne out of the income of the partnership business. The costs of this appeal are made easy.