Parties To Lis Should Not Be Appointed As Receiver Without Consent Of Other Parties: Telangana High Court

Brief Facts

This appeal under Section 37(1)(b) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the 1996 Act') has been filed against the order dated 14.03.2024 passed in C.O.P.No.82 of 2023 by the District Judge, for Trial and Disposal of Commercial Disputes, at Hyderabad, by which respondent No.1, namely Managing Partner of M/s.Cafe Bahar Restaurant has been appointed as Receiver.

The parents of the appellant and the respondent Nos.1 to 3 and deceased respondent No.4 constituted a partnership firm, namely M/s.Cafe Bahar and Restaurant (hereinafter referred to as 'the Firm'), which is engaged in the business of running an Irani restaurant and bakery since 1999. After the death of the parents of the appellant, and the respondent Nos.1 to 3 and deceased respondent No.4, the Firm was re-constituted and a Deed of Reconstitution dated 01.10.2020 was executed. The appellant has 14% share in the Firm.

After execution of the Deed of Reconstitution, disputes arose between the appellant and the respondents. According to the appellant, the respondents did not pay her the rightful share in the profits of the Firm since January, 2021 i.e., for 3 years and 9 months and was paid only a sum of Rs.1,00,000/- per month.

The respondent Nos.1 to 3, thereupon, initiated arbitration proceedings seeking dissolution of the Firm. The arbitrator by an Award dated 22.09.2023 permitted the withdrawal of the claims while preserving the rights and contentions of the appellant.

The appellant filed an application under Section 9 of the 1996 Act seeking appointment of a Receiver to take over the business of the Firm. The Commercial Court, by an order dated 13.02.2024 passed in C.O.P.No.82 of 2023 allowed the aforesaid application filed by the appellant.

The Commercial Court, therefore, appointed respondent No.1, namely the Managing Partner of the Firm as Receiver to manage the day to day affairs of the business, subject to the terms and conditions enumerated therein. Being aggrieved, the appellant has filed this appeal.

Contentions

The appellant submitted that it was wholly inappropriate to appoint the respondent No.1 as the Receiver and to permit him 6 to run the business in the same manner as he was doing prior to dissolution of the Firm.

• That the conduct of the respondent No.1 disentitles him to be appointed as the Receiver and his appointment is prejudicial to the interest of the appellant as the same would facilitate misappropriation of funds and assets of the Firm.
• That the Commercial Court erred in relying on the decision of the Supreme Court in Firm Ashok Traders vs. Gurumukh Das 7 Saluja1 and Motilal vs. Badri Nath2 for the proposition that the nature of business warrants appointment of partner as Receiver. It was contended that the aforesaid decisions do not apply to facts of the present case as in the aforesaid decision, the issue with regard to the running partnership firms/joint family business was involved.
• That in the facts and circumstances of the case, the Commercial Court ought to have appointed a third party as a Receiver and the appellant has no objection to the same.

Per Contra, the respondent submitted the Order passed by the Commercial Court is just and proper and while directing the appointment of respondent No.1 as the Receiver, the Commercial Court has placed reliance on the decision of the Supreme Court in Firm Ashok Traders (supra), which squarely applies to the facts of the case.

• That the amounts which were withdrawn by the respondent Nos.1 and 3 were on account of salary of the employees of the Firm and due to interference of the appellant with the running of the Café, the Receiver was unable to run the restaurant and the same has been closed with effect from 10.10.2023. It was further submitted that the third party does not have any experience of running the family concern and therefore, he cannot be appointed as a Receiver and he cannot run the Café effectively.

Court's Analysis

The court at the outset discussed the qualities of a receiver and observed that impartiality is an essential attribute of a Receiver. Therefore, normally one of the parties to a lis should not be appointed as Receiver without consent of the other parties unless a very special case is made out.

The court further observed that therefore, normally when the relationship between the parties are strained and there is deficit of trust and allegations and counter-allegations are made against each other, in such circumstances a party to the lis should not be appointed as Receiver.

Based on the above, the court noted that in the present case, the relationship between the parties is strained as the appellant has accused the respondent of misappropriating the funds of the frim whereas the respondent has denied the allegations and contended that the funds were withdrawn to pay the salaries of the employees. The court further observed that the aforesaid facts clearly show that the relationship between the parties is strained and there is a lack of trust in each other.

The court further disagreed with the reliance placed by the respondent on the supreme court judgment in Firm Ashok Traders (supra), and observed that the Supreme Court did not deal with a partnership, whose duration of business was at will.

The court further noted that in the aforesaid decision, in the facts and circumstances of the case, it was held that the business of the Firm should be allowed to continue at the hands of the persons who were running it so far. The aforesaid decision is not an authority for the proposition that a party can be appointed as Receiver in case where the relationships are severely strained and there is a lack of trust between them. The aforesaid decision is of no assistance to the respondents.

The court concluded that for the aforesaid reasons, the order dated 14.03.2024 passed in C.O.P.No.82 of 2023 by the Commercial Court insofar as it directs appointment of Managing Partner of the Firm as a Receiver cannot be sustained. It is accordingly set aside.

Accordingly, the present appeal was allowed.

Case Title: Mrs. Bibi Hajjar Dashti vs Mr. Syed Ali Asghar Bolooki

Citation : COMMERCIAL COURT APPEAL No.14 OF 2024

Judgment Date: 28/10/2024

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