Agent Of Court Receiver Who Breaches Undertaking On Nature Of Business Not Entitled To Occupy Premises Without Paying Royalty: Bombay High Court

Bombay High Court, in a significant ruling, held that an agent of the Court Receiver who violates the terms of a court-accepted undertaking regarding the nature of the business and personal occupation loses the "indulgence" of occupying the premises without payment.

A single-judge bench of Justice Farhan P. Dubash observed that while long-term possession is a relevant factor in determining relief, it cannot excuse a proven breach of a solemn undertaking given to the Court.

The Court was dealing with an appeal filed by M/s. Rajendra Trading Company challenging a Trial Court order that refused to remove a Court Receiver's agent (Respondent No. 2) despite allegations that she had handed over a suit shop in Heera Panna Shopping Centre to her son and changed the business from a "department store" to a watch shop.

The litigation dates back to 1980, involving a dispute over Shop No. 15A/16 at Heera Panna Shopping Centre, Mumbai. In 1986, Respondent No. 2 was permitted to continue in possession of the shop as an "Agent of the Court Receiver" without paying any compensation or security, based on a specific undertaking. Decades later, the Appellant alleged that Respondent No. 2 had breached this undertaking by allowing her son to run an independent watch business named "M/s. Fifth Season" from the premises instead of personally running a department store.

The primary question before the Court was whether Respondent No. 2 had violated the terms of the 1986 undertaking and the 27th March 1986 court order. The Court was also called upon to determine whether such a breach necessitated the immediate removal of the agent and delivery of possession to the Appellant, or if a lesser penalty was appropriate given the long duration of possession.

Court Interprets Cumulative Conditions Of Undertaking

The Court analyzed the 1986 undertaking and noted that it imposed two distinct, cumulative conditions. Respondent No. 2 had solemnly affirmed that she would use the premises only for "her business" and that such business would be a "department store." The Bench noted that the current business, "M/s. Fifth Season," which deals in watches and gift articles, satisfied neither of these requirements.

The Bench found that the Respondent had failed to show that the watch business was merely an extension of her own department store business. It observed that the undertaking did not authorize an independent business to be carried on by another person, even if that person was the agent's son.

"The undertaking makes it abundantly clear that Respondent No. 2 was permitted to remain in possession of the suit shop only for the purpose of carrying on her business of a department store."

Application Of Section 119 Bharatiya Sakshya Adhiniyam

In a notable application of the new criminal laws, the Court invoked Section 119 of the Bharatiya Sakshya Adhiniyam, 2023 (BSA). The Court noted that neither Respondent No. 2 nor her son produced any documentary material or financial records to establish that the business of "M/s. Fifth Season" was being carried on for and on behalf of Respondent No. 2.

The Court held that the failure to produce relevant financial and business records warrants an adverse inference against the party withholding such evidence. It observed that under Section 119 BSA, the Court may presume that evidence which could be produced but is withheld would be unfavourable to the person withholding it.

Court Rejects Trial Court's Reasoning On Son's Occupation

The High Court held that the Trial Court erred in holding that no breach had occurred merely because the person in occupation was the son of Respondent No. 2. The Bench emphasized that as an Agent of the Court Receiver, Respondent No. 2 was under a "continuing obligation" to keep the Receiver informed of all material developments, including changes in the nature of the business or the role of third parties.

The Court found that the cumulative effect of the circumstances—the change in business type and the lack of disclosure regarding the son's independent role—left little room for doubt that the agent had acted in breach of the 1986 order and undertaking.

"While such long possession cannot excuse the breach established on record, it is nevertheless a relevant circumstance while determining the nature of the relief to be granted."

Balancing Equities After Forty Years Of Possession

Despite finding a clear breach, the Court declined to order the immediate dispossession of Respondent No. 2. It noted that she had remained in possession for nearly four decades and that the underlying suit for specific performance and title remained pending. The Bench held that the "ends of justice" would be met by withdrawing the free occupation previously granted.

The Court directed that Respondent No. 2 shall be permitted to continue only upon the payment of monthly royalty and the furnishing of security, as determined by the Court Receiver. This payment was ordered to commence from August 1, 2026.

Final Directions And Default Consequences

The Court set aside the Trial Court's finding that there was no breach of undertaking. It ordered Respondent No. 2 to execute a fresh Agency Agreement with the Court Receiver by July 31, 2026, incorporating the new terms for compensation and security.

The Bench made it clear that if Respondent No. 2 fails to comply with these directions, she shall forthwith cease to be the Agent. In such a default, the Court Receiver is directed to take physical possession of the shop and invite public offers for a new agent, in which the Appellant would also be entitled to participate.

The High Court partly allowed the appeal, declaring that Respondent No. 2 had indeed breached her undertaking. By substituting the "free" agency with a requirement for royalty and security, the Court balanced the legal consequence of the breach with the equity of long-term possession, while ensuring the Court Receiver's control over the property is maintained.

Date of Decision: 10 June 2026