Bombay HC Upholds Disputed Partner As Receiver Despite Alleged Undervaluation Of 3 Flats, Citing 16 Society Members And Buyers Awaiting Homes

The appellant and Respondent No. 2 were partners in Respondent No. 1 firm, which was undertaking a housing-society redevelopment project.

After disputes arose, including allegations that Respondent No. 2 had sold three flats below market value and failed to account for the proceeds, the appellant issued a notice of dissolution and sued for dissolution, accounts and injunctive relief

On the parties’ interim applications, the District Judge appointed Respondent No. 2 as Court Receiver to manage and complete the project and deal with unsold units, subject to conditions including a Rs. 2 crore deposit and prior court concurrence for agreements of sale.

The appellant challenged the appointment, principally seeking a third-party receiver.

Under Order XL Rule 1 of the Code of Civil Procedure, 1908, a receiver may be appointed where the court considers it just and convenient to preserve the subject matter and protect the parties’ rights pending adjudication; the appointment is discretionary and depends on the circumstances, including competing claims and the risk of loss or danger.

A litigating party may be appointed receiver in appropriate circumstances, and the court need not appoint a person chosen by a party.

In Prem Prakash Kapoor v. Gobind Ram Kapoor & Ors., 1975 SCC OnLine J&K 17, the court cautioned against placing a stranger in charge of a running business absent compelling circumstances.

Under Section 47 of the Indian Partnership Act, 1932, the firm’s authority continues after dissolution so far as necessary to wind up its affairs and complete transactions begun but unfinished at dissolution.

On an appeal from an interlocutory order granting or refusing interim relief, the appellate court reviews the validity of that order under the principles governing its jurisdiction under Order XLIII CPC; it does not substitute its discretion merely because another view is possible, as recognised in Ramakant Ambalal Choksi v. Harish Ambalal Choksi & Anr., (2024) 1 SCC 351.

The High Court found that the project involved ongoing contractual commitments, unfinished construction, vacated society members living in rented accommodation, and purchasers awaiting possession.

In that context, it accepted the District Judge’s view that appointing a third party unfamiliar with the project could prejudice the parties and affected third parties, and that Respondent No. 2’s existing involvement supported his appointment as receiver.

The court treated the appellant’s allegations concerning the three flat sales and the partnership accounts as matters for trial, not grounds to displace the interim arrangement on appeal.

It also considered the deposit and prior-concurrence requirements adequate safeguards against prejudice while the project proceeded.

Finding no illegality or perversity in the District Judge’s exercise of discretion, it declined appellate interference.

The appeal was dismissed, with costs in the cause; any pending interim applications were also disposed of.