1. These two appeals are in two suits, Nos. 222 of 1935 and 1 of 1937 of the Court of the subordinate Judge of Burdwan. The appeals were heard together by consent of the parties. The first suit was filed by Jiban Mull and Dhanraj against ten defendants. In the suit they claimed to recover Rs. 57,748-4-0 by the enforcement of a mortgage executed in their favour on 13th February 1929 by defendants 1 to 6 and by defendant 8 on behalf of her ward defendant 7. Defendant 9, Mr. Nilmoni Kumar Chatterjee is a receiver appointed by the Court in a suit (No. 142 of 1923 of the said Court) for partition between defendants 1 to 7, the sons of Rajendra Nath Dutt, and their co-sharers. Defendant 10 is Bhadrabati Devi, wife of Dinabandhu Tewari. The plaintiffs have impleaded her on the allegation that she was at best a puisne mortgagee in respect of some of the properties mortgaged to them. Defendants 1 to 7 of this suit will hereafter be designated as the heirs of Rajendra Nath Dutt. The second suit was filed by Girindra Nath Mitter and others, the legal representatives of Mr. Debendra Nath Mitter, to recover Rs. 39,999-15-1 by the enforcement of a mortgage executed by Anadi Nath Dutt on 17th January 1928 in favour of Debendra Nath Mitter. The defendants to the suit are (1) Anadi Nath Dutt, (2) Nilmony Kumar Chatterjee, the receiver appointed in the said suit for partition (No. 142 of 1923). Defendant 3 is Bhadrabati Debi. She was impleaded by the plaintiffs on the same footing as in the other suit. In both the suits Bhadrabati Debi claims priority over the mortgages of the plaintiffs, though her mortgages are later in point of time. Her claim has been negatived by the same learned subordinate Judge by his judgments dated 28th September 1936 and 3rd August 1937. She has accordingly preferred these two appeals. The point is the same in both the appeals, namely whether she is entitled to priority in respect of her mortgages. It arises on the same set of facts, which we now proceed to recite.
2. In 1923, Suit No. 142 of the Court of the subordinate Judge at Burdwan was instituted for partition of the joint properties of the parties to that suit, who were Anadi Nath Dutt, the heirs of Rajendra Nath Dutt and Bibhuti Bhusan Dutt and others. In that suit Mr. Nilmony Kumar Chatterjee, a pleader, was appointed receiver on 17th June 1926. The two mortgages sought to be enforced in the two suits were executed after the appointment of the receiver. It appears from the record that the said receiver was directed by the learned subordinate Judge, who appointed him, to realise the arrears of rent of the properties committed to his charge that fell due before his appointment (that is before 1333 B.S.) but to keep those collections separate from the collection of arrears of rent which fell due after his appointment. This direction was given with a view to payment to the parties according to their shares of such moneys as would be collected by the receiver on account of arrears of rent for years prior to his appointment. The receiver, however, disregarded the directions of the Court. He mixed the two funds in a general account and spent the whole of it, it is said, for the benefit of the estate. On 21st November 1929 the parties moved the Court for a direction on the receiver to pay them according to their shares what had been collected from the tenants on account of those arrears. The receiver represented to Court that he had no funds from which he could satisfy the demand. The parties present thereupon asked the Court to authorise the receiver to raise a loan by mortgaging some joint property and to pay them from out of the money so raised. We will indicate hereafter in what way the receiver had a personal interest in that proposal. On the said application the Court recorded order No. 596 on the same date. The order is not happily worded, but the meaning of the said order is apparent. The Court suggested one of two alternatives: (1) either the raising of a loan at 12 per cent. on mortgage of some joint property or (2)raising the required sum by letting out in darpatni some of the khas lands. The Court, however, expressly directed the receiver to let it know beforehand what property he proposed to mortgage. One would expect from the spirit of the order that the receiver was first to try the second alternative, and if that alternative failed then to raise a loan on mortgage but after informing the Court.
3. It does not appear from the record that the receiver ever made any serious attempt to raise money by letting out in darpatni some of the khas lands. The evidence rather points out that he rushed to raise the loan without making any attempt to raise money by subletting khas lands. In this order (order No. 596) there was no indication that if the loan had to be raised the loan was to be a first charge on the property to be given as security. What the receiver did appears from what has been brought out in his cross-examination by the plaintiffs in suit No. 222 of 1935. He at once borrowed Rs. 11,060 from Bhadrabati Debi on two promissory notes. This was in November or December 1929. He took the loan without further reference to Court. He justifies his action on the ground that he took the said loan on basis of order No. 596, dated 21st November 1929. We have already pointed out that the order did not justify such action on his part, for the Court made it clear that he was to inform it as to what property he proposed to mortgage before concluding the negotiations for loan. The reason for the great haste on his part to raise the loan appears from his cross-examination. His mother Sreemutty Krishna Kumari Debi had money lending business and she had lent money to the parties. He raised the money from Bhadrabati and paid out of the money so raised the money due to his mother from the parties. He is the only son of his mother and we cannot countenance his attempt to take shelter behind the thin screen of loss of memory.
4. He says in his deposition given in suit No. 1 of 1937 that he assured Dinabandhu Tewary, the husband of Bhadrabati, that for the loan his wife would have priority and that if priority was not given to it by the Court the money advanced on the promissory notes would be refunded and it was on this assurance that Bhadrabati advanced the money. Even if he had misunderstood order No. 596, and took it to mean that he was authorized straightway to raise a loan on mortgage without being required first to make an attempt to raise money by letting out khas lands in darpatni there was no justification on his part to give that assurance. The unauthorised assurance was, in our judgment, given for the purpose of securing the money with the least delay so that his own mother may get satisfaction of her dues from the parties quickly. The aforesaid answer given by the receiver indicates that he had at least suspicion that there were prior charges created by the parties on their properties, for, otherwise the question of priority of charge would not have entered his mind. He must have also disclosed at or before the time of the advance to Dinabandhu Tewary who was his friend and client the fact of the possibility of there being prior charges.
5. The matter of raising loan again came for consideration of the Court on 11th January 1930. On that date, Anadi Nath Dutt and the heirs of Rajendra Nath Dutt suppressed from Court the fact that they had already mortgaged their shares of the joint properties including the patni taluk in Chichuria touzi No. 12 of the Burdwan Collectorate. Some of the parties did not agree to the receiver raising money by mortgaging their shares but Anadi Nath Dutt and the heirs of Rajendra Nath Dutt consented to have their shares mortgaged. The Court by its order No. 603 passed on that date directed the receiver to mortgage separately the shares of Anadi Nath Dutt (1/l2) and of the heirs of Rajendra Nath Dutt (l/3) and directed the receiver to pay Rs. 1600 to the former. This obviously meant that a loan of Rs. 1600 only was to be raised by mortgaging Anadi's 1/12 share in some property. The Court also directed the receiver to raise the moneys by mortgaging the shares of joint properties other than patni taluk Chichuria if that was possible. The parties, that is Anadi Nath Dutt and the heirs of Rajendra Nath Dutt, proposed that the mortgages by the receiver were to have precedence over other prior mortgages and on the basis of the said proposal the order was made to the effect that the receiver's mortgages were to have precedence over other mortgages. The order was made in the absence of the plaintiffs and in ignorance of the fact that heavy amounts had been borrowed from them by Anadi Nath Dutt and the heirs of Rajendra Nath Dutt on mortgages. There cannot be any doubt on these facts that the Court was deliberately misled. But, as no case of fraud was pleaded by the plaintiffs and there was no issue of fraud we leave the matter there. If such a ease of fraud had been made, possibly, Bhadrabati could have answered it by showing that she or her husband was unaware of the device by which the Court was induced to make the order in that form. In pursuance of this order, the receiver executed two mortgages in favour of Bhadrabati, one on 3lst January 1930 by which he mortgaged one-third share belonging to the heirs of Rajendra Nath Dutt in patni taluk Lot Chichuria, and in 4 12 bighas of land held in mokarari mourasi right at a rental of Rs. 11-8-1 in Khas Bagan in the town of Burdwan (items 1 and 14 of the schedule to the plaint of Suit No. 222 of 1935), and the other on 6th May 1930 by which he mortgaged the 1/12th share of Anadi Nath Dutt in patni taluk Chichuria, the same share in some Chaukidari Chakran lands in that taluk and in mehal Bhutagore (items 14, 27 and 31 of the schedule attached to the plaint of suit No. 1 of 1937). The last mentioned mortgage was for Rupees 5530 although the Court's order apparently was for raising a loan of Rs. 1600 only. The mortgages in favour of the plaintiffs included those properties as also other properties. Both the mortgages executed in favour of Bhadrabati recited the Court's orders Nos. 596 and 603 and stated that the said mortgages were to have precedence over other mortgages.
6. It is conceded by the parties that the mortgages in favour of the plaintiffs are valid notwithstanding the fact that the parties to the partition suit executed them after the appointment of the receiver without any reference to the Court. The title to properties did not vest in the receiver, he being a receiver appointed under O.40, Civil P. C., for the management and preservation of the properties in suit. The parties therefore had the power to deal with their shares without reference to Court provided that their acts did not interfere with possession of the receiver. The receiver could exercise the powers of the owners in the matter of execution of documents and if the Court sanctioned a loan on mortgage he could validly execute the mortgage instrument so as to bind the shares of the parties. These propositions have not and cannot be disputed, but the question is under what circumstances the Court appointing a receiver can direct a mortgage to be executed by him which is to have precedence over earlier mortgages executed by the parties. In considering this question, we have to take into consideration the fact that sanctions for loans by receivers are generally given in the absence of such prior incumbrancers and without notice to them. In most cases they have no knowledge of applications for loan, and in many cases the Court acts, as was in the case before us, without being apprised of such prior incumbrances. In these circumstances we think that a principle must be laid down which would not unduly infringe upon the rights of such third parties who had no notice of the application of the receiver to raise loan on first charge and who had no opportunity to present their case before the Court. We must also on the other hand take into consideration the position of the mortgagee who advances money to the receiver on the basis of the Court's order. Such a mortgagee is under a duty to see and usually sees the Court's order sanctioning the loan before he advances money. He is not bound to look beyond the order.
7. In those cases where the order of the Court simply sanctions a loan by the receiver on a first charge of the properties, but does not indicate the purpose for which the loan is sanctioned, the creditor who advances the money is entitled to assume that everything was in order and so he ought to get what the Court had promised to give him, namely precedence over earlier encumbrances created by the parties. In such cases the Court cannot break faith with him. In cases how-over where the order itself recites the purpose of the loan, different considerations should, in our judgment, apply, and the observations which we make hereafter must be taken to apply to such cases only and not to those cases where the order is silent as to the purpose of the loan and is simply one sanctioning a loan on first charge. If the purpose of the loan as set out in the order is for preservation or protection of the property committed to the care of the receiver, or is an order in an administration suit or one in a partition suit made for working out the rights, liabilities and obligations of the co-sharers of the joint properties in the course of partition, the mortgagee from the receiver would have first charge in accordance with the order. In the case where the purpose is the last mentioned one the principle has been formulated in Herumboo Nath v. Satish Chandra ('06) 33 Cal 1175 at p. 1176. Where the purpose of the loan is for the protection or preservation of the properties committed to the care of the receiver the principle seems to us to be this. By the appointment of the receiver the Court takes upon itself the duty of protecting and preserving the subject-matter of the suit, which it discharges through its own officer, namely the receiver. It must therefore have all powers which are incidental and necessary for the discharge of that duty. It will have therefore the power to sanction loan to be raised by the receiver, and if necessary, to direct the mortgage to be executed by him for securing it to have precedence over earlier mortgages executed by the parties. It may be unaware of such prior mortgages or even if aware may not give notice to those mortgagees.
8. This in our judgment is the principle underlying the practice in such cases. In Greenwood v. Algeciras (Gibraltar) Ry. Co (1894) 2 Ch 205 no reason was given but the judgment proceeded on established practice. All the cases cited at the Bar to illustrate the established practice were cases where the loan sanctioned on a first charge was for protection or preservation. This power of the Court being thus incidental to and necessary for the performance of its duty to protect and preserve the subject-matter of the suit, which it has taken upon itself by appointing a receiver, must be measured and limited by its duty, where its exercise comes into conflict with the rights of third parties which are not before it and to whom no notice had been given, or who had not consented. In such a case the principle of breach of faith cannot, in our judgment, be the decisive factor. It is a question of power or jurisdiction of the Court. If the Court arrogates to itself a power which it does not possess-and such usurpation appears on the face of the order-and does an act affecting persons not parties to the suit, its acts cannot prejudice the rights of such persons. In such a case the mortgagee from the receiver cannot protect himself on the presumption that the Court had acted within its powers, for the order on the basis of which he acted ex facie would indicate want of power in the Court. The case in Giridhari Lal v. Dhirendra Krista ('07) 34 Cal 427 was a case where the purpose of the loan sanctioned was for the protection and preservation of the properties. The decision of the third Judge, Harrington J., was based on two grounds namely, (1) that the loan was taken by the receiver for the preservation of the property, (2) that the order made therein was not a nullity and had not been set aside.
9. In our judgment, the first ground was the governing one and the second ground followed from it. Harrington J., however, made an observation agreeing with Woodroffe J., that there would be breach of faith on the part of the Court if the mortgagee from the receiver be not given precedence but that observation must be read in our judgment with the facts of that case. In the case before us the order on the face of it indicated the purpose of the loan, which was not for the preservation or protection of the properties in suit. The proposed loan by the receiver was also not for the purpose of settling the rights, liabilities and obligations of the cosharers of the joint properties in the course of partition. We have also indicated, though the point is not material in the view we have taken that Bhadrabati Debi did not advance the money on the faith of the order of the Court giving the receiver's mortgages precedence over prior mortgages, for, she made the advance before order No. 603 was passed. We accordingly hold that the plaintiffs in both the suits have priority over the mortgages of Bhadrabati Debi. We are informed that all the properties included in the mortgages of the plaintiffs and of Bhadrabati Debi have been sold, so no question of marshalling arises now. The appeals are dismissed, but in the circumstances without costs.