Disputed Partner Can Be Appointed Court Receiver Under Order 40 Rule 1 CPC In Real Estate Projects To Protect Third-Party Flat Buyers & Society Members: Bombay High Court

"It is difficult to conceive that a third party, having no knowledge of the intricacies of the business in question, could be roped in and appointed as Receiver. Appointing a third party as Receiver in these circumstances would, in fact, be detrimental to the interests of the parties." Emphasizing the primacy of third-party rights and commercial viability in ongoing real estate redevelopment schemes, the Bombay High Court held that a litigating partner can be validly appointed as a Court Receiver under Order 40 Rule 1 of the Code of Civil Procedure, 1908 (CPC) to oversee and complete pending construction work.

A Division Bench comprising Justice G. S. Kulkarni and Dr. Justice Neela Gokhale affirmed an order appointing a majority partner as Court Receiver to manage the redevelopment of a housing society, ruling that introducing a stranger or third party to run an ongoing technical business during an inter se partnership dispute would prejudice society members and home purchasers.

The dispute arose between two partners of M/s Kiyaara Buildcon, a partnership firm engaged in the redevelopment project of Radha Anand Co-operative Housing Society in Erandwane, Pune. Following allegations of undervaluation of three flats and diversion of funds, the appellant partner, holding a 33% share, issued a dissolution notice and instituted a commercial suit seeking declaration of dissolution, rendition of accounts, and injunctions. The trial court, under Section 13(1A) of the Commercial Courts Act, 2015 read with Order 43 Rule 1(s) and Order 40 Rule 1 CPC, appointed the 67% majority partner as Court Receiver with permission to complete construction and sell unsold inventory, subject to depositing Rs. 2 crores in court.

Whether the trial court erred in appointing a contesting partner accused of fiduciary breaches as Court Receiver under Order 40 Rule 1 CPC to complete redevelopment work and sell flats, rather than appointing an independent third party?

Whether the rights and commercial interests of third-party flat purchasers and displaced society members override inter se partnership squabbles in deciding the appointment of a Court Receiver?

Court's broad discretion under Order 40 Rule 1 CPC extends to appointing litigating parties in special circumstances.

The High Court observed that the appointment of a Receiver under Order 40 Rule 1 CPC is governed by the principles of justice and convenience to preserve the subject matter pendente lite as custodia legis. Rejecting the appellant's contention that a partner accused of misconduct cannot be appointed, the Bench clarified that the court is not confined to selecting independent third parties.

Roping in strangers to operate running businesses with specialized commercial obligations causes severe commercial injury.

The Bench relied on the precedent in Prem Prakash Kapoor v. Gobind Ram Kapoor, affirming that courts should refrain from inducting strangers into running businesses unless compelling circumstances dictate. A third party lacking familiarity with municipal permissions, vendor management, and architectural details would jeopardize ongoing construction.

Disputes inter se partners cannot hold hostage the equitable rights of displaced society members and flat purchasers.

The court noted that the partnership firm had pending contractual and statutory obligations, including under Section 47 of the Indian Partnership Act, 1932, to wind up unfinished transactions. Sixteen society members had vacated their premises and resided in rented accommodations funded by the respondent partner, while flat buyers awaited completion.

Appellant's minimal capital contribution and lack of active participation disentitled him from stalling the project.

The Bench observed that the appellant held an active banking job, infused only Rs. 19.17 lakhs, drew a Rs. 95 lakh loan, and contributed negligible day-to-day effort, whereas the respondent partner had infused over Rs. 1.82 crores personally and carried out substantial on-ground execution.

Trial court incorporated robust safeguards including a mandatory cash deposit and court supervision over flat sales.

The High Court noted that the trial court shielded the appellant against prejudice by directing the respondent partner to deposit Rs. 2 crores as a condition precedent and mandating court approval prior to confirming any agreement of sale for unsold units.

Upholding the trial court's order, the High Court held that the discretionary power under Order 40 Rule 1 CPC was exercised judiciously and without perversity. The Commercial Appeal from Order was accordingly dismissed, leaving the inter se partnership issues and rendition of accounts to be adjudicated during trial.

Date of Decision: October 27, 2026