Andhra HC (Pre-Telangana)
Vastava Chit Funds (Private) Ltd. vs Madala Benarjee And Ors. on 2 March, 2005
Equivalent citations: 2005(3)ALD881, 2005(3)ALT405, III(2005)BC546, AIR 2005 (NOC) 476 (AP), 2005 A I H C 3303, (2005) 3 BANKCAS 546, (2005) 3 ANDHLD 881, (2005) 3 ANDH LT 405
Author: Elipe Dharma Rao
Bench: Elipe Dharma Rao
ORDER Elipe Dharma Rao, J.
1. Aggrieved of the docket order dated 8-12-1999 passed by the learned Junior Civil Judge, Vijayawada, returning the plaint to the petitioner, herein, as time barred, and to enable him to confine the suit claim in respect of the instalments due from 33rd to 30th (sic. 40th) instalments.
2. Few facts that are necessary for the disposal of this revision petition are that the petitioner-plaintiff is a Company Registered under the Companies Act, 1956 and has been doing chit fund business; with its Registered Office at Sainagar, Vijayawada. The first defendant joined as member of the plaintiff company agreeing to abide by the Rules and Regulations of the Company and he was allotted Ticket No.20 in LT2BR Series, for a total chit value of Rs. 2.00 lakhs at the rate of Rs. 5,000/- per month for 40 months and signed an agreement on 12-5-1995. Under the terms and conditions, the subscribers get dividends so long as they pay the instalments regularly; and the prized subscribers will lose the dividends from the time of default, besides the fact that on such default, he is liable to pay the entire balance of future instalments in lumpsum together with interest at 12% p.a. While so, on 28-5-1995, the first respondent herein was declared as the successful bidder, having agreed to forego Rs. 78,530/- and it was confirmed by the plaintiff company. The first respondent herein paid Rs. 80,000/- by way of 16 instalments, leaving future liability to the tune of Rs. 1,20,000/-. The first respondent herein furnished the respondents 2 to 4 as the guarantors and also executed agreement of guarantee jointly on 23-6-1995 in favour of the petitioner company. All the respondents herein have jointly executed promissory note on 23-6-1995. Therefore, on the guarantee of the defendants and in view of the documents executed by the defendants, the petitioner company disbursed the prized amount. Subsequently, the first respondent paid a sum of Rs. 1,40,000/- in all upto 28th instalment and committed defaults from 29th instalment i.e. from 15-6-1996 and in spite of the demands, including legal notice dated 5-7-1999, made by the company, the first respondent did not pay the amount. Therefore, the company filed suit for recovery of Rs. 83,700/-.
3. On presentation of the plaint before the court below and on scrutiny, it returned the plaint as time barred, by the impugned order, which reads as under:
"....In view of the decisions of our Hon'ble High Court reported in 1982 (2) ALT 48 (NRC) and (D.B.), the decision reported in AIR 1999 Madras 186, does not come to the rescue of the plaintiff to file the suit. As the suit filed by the plaintiff is beyond 3 years from the due dates of 29 to 32 instalments suit claim in respect of those instalments is rejected as barred by limitation. Plaint is hence returned enabling the plaintiff to confine the suit claim in respect of the instalments due from 33rd to 30th (sic. 40th) instalments...."
4. Assailing the correctness of this order, the present Revision is filed inter alia contending that the limitation starts from the date of termination i.e. from 31-5-1997 but not from the default and therefore, the suit filed on 8-10-1999 is well within the period of limitation of three years from 31-5-1997 and, therefore, the decisions reported in 1982 (2) ALT 48 (NRC) and (D.B.) are not applicable and the relevant ratio is laid down in AIR 1999 Madras 186 and, therefore, prayed to allow the revision.
5. Having regard to the facts and circumstances of the case, I shall now advert to the decision relied on by the learned counsel for the petitioner in Tuticorin Trading and Credit Corporation Pvt. Limited v. J.S. Sundararaj, AIR 1999 Mad. 186. A learned Single Judge of Madras High Court, sitting under Sec. 100 of the Code of Civil Procedure, while dealing with Article 37 of the Limitation Act, 1963, held that in a suit based on chit transactions, the limitation and cause of action would arise only on termination of contract as provided under agreement and not from the date of default. This decision of the learned Single Judge, is based on a decision of the Apex Court in Shriram Chits and Investments (P) Limited v. Union of India, wherein it was held that having regard to the nature of a chit agreement it did not create a debtor-creditor relations and there was no promise to repay an existing debt, but to pay in discharge of a contractual obligation and, therefore, accepted that there cannot be a relationship of creditor and debtor between the stake holder and a subscriber in a chit transaction. It is further held that the claim of the plaintiff is not based on the promissory note but on the original cause of action of the agreement between the subscriber and the plaintiff and the cause of action would arise only on termination as provided under the agreement and as such, the contention of the learned counsel for the respondent therein, cannot be accepted.
6. I shall now advert to the decision in Shriram Chits and Investments (P) Limited v. Union of India, based on which the decision in J.S. Sundararaj (1st supra) was rendered by a learned Single Judge of Madras High Court. The Legislative competence of the Parliament in enacting the Chit Funds Act came up for consideration before the Full Bench of the Apex Court. On scrutiny of plethora of decisions, the Apex Court held that the pith and substance, deals with special contract and consequently falls within Entry 7 of List III of the Third Schedule and therefore, the Chit Funds Act is within the legislative competence of the Parliament. Adverting to Sec. 6 of the Act, relating to entering into Chit Agreement it clearly shows that a contract has to be entered into between the subscribers and the foreman and in view of the definition provided in Sec. 2(b), 2(c), 2(d), 2(e) and 2 (j) enforceable contracts come into existence and the Act provides how the contract has to be implemented and acted upon by the parties to the contract. Therefore, it is a special form of contract contemplated by Entry 7 of List III of VII Schedule of the Constitution of India and it cannot be termed as money lending business. It is further held that the foreman does not lend his money to any of the subscribers. The foreman acts only as a person to bring together the subscribers and certain obligations are cast upon him with a view to protect the subscribers from the mischief and fraud committed by the foreman in view of his position. It is also observed that the agreement between the parties that is entered as per Sec. 6 of the Act, only provides for distribution of the chit amount and this agreement has to be treated as contract between the subscribers and the foreman and it is the foreman who brings the subscribers together and therefore, the Act provides for payment of commission for the services rendered by the foreman as he does not lend money belonging to him. Thus the dominant purpose of the Act is to regulate the chit and control the activity of the foreman and protect the interests of the subscribers. Thus the Apex Court in this decision, based on which a learned Single Judge of Madras High Court has ruled that the limitation and cause of action would arise only on termination of the contract, did not deal with the aspect of limitation and cause of action for fling the suit by the companies.
7. I shall now advert to the decision of this court in Jillellamudi Dhanalakshmi v. The Union Bank of India, (D.B.) wherein a Division Bench of this court, while dealing with Article 37 of the Limitation Act has held that the period of three years begins to run when the default is made unless payee or obligee waives the benefit. It is held that when the first instalment fell due on 30-6-1976, the limitation began to run from 30-6-1976 and the suit filed beyond three years is held to be barred by limitation.
8. In yet another decision of this court in K.V. Raghavulu v. The Hindupur Mutual Benefit Permanent Fund Limited, 1982 (2) ALT 48 (SN) based on which the plaint is returned, this court held that it is quite manifest from the promissory note that there is absolutely no reference whatsoever towards the payment of subscription towards chit, as postulated under Sec. 25(2) of the A.P Chit Funds Act and, therefore, no decree can be passed on the basis of the promissory note. It is further held that by payment of the instalments, the subscriber has held out a promise that he would comply with the conditions of the agreement and thereby stopped the running of time against the cause of action arising, and as and when the breach of it occurs, will give rise to cause of action, and it is that point from which the period of limitation starts.
9. Applying the ratio that emerges from the above decisions to the facts and circumstances of the case, in the instant case, condition No.17 of the agreement of chit between the plaintiff and the defendants contemplates:
"17. Period within which subscription for each instalment is payable and the fine and/or penalty for belated payments:
Non-Prized Subscriber: If a non-prized subscriber fails to deposit his monthly subscriptions before, the due date penalty will be charged at the rate of 3 paise per rupee or part thereof. If the default is continued to second month, penalty will be charged at the rate of 6 paise per rupee or part thereof per month. If default continues for more than two months the subscriber will not be entitled to dividends in addition to the aforesaid penalty charges. A subscriber, who has not made up-to-date payments of the entire instalment due from him, will not be permitted to bid in the auction. If a non-prized subscriber fails to pay subscription for three consecutive instalments, he shall be liable to be removed from the list of subscribers and the Foreman, at his option shall be entitled to substitute a new subscriber in place of defaulting subscriber and may himself subscribe for the ticket and the defaulted ticket of the chit will be dealt with subject to the bye-laws and the relevant provisions of the Chit Funds Act.
The Foreman, at his discretion, can waive the penalties partly or fully and also can postpone the removal in suitable and deserving cases. An expelled member may be re-admitted on such terms as the Foreman deems proper.
Prized subscriber: When a prized subscriber defaults in payment, a penalty of 6 paise per rupee or part thereof will be charged for the first month. If the default continues over a month, such a member will not be entitled to dividends also in addition to the aforesaid penalty charges, of 6 paise per rupee or part thereof per month.
If the default is continued consecutively for a period of 3 months the prized subscriber and the executants of the security bonds or sureties lose the future dividends and the benefit of paying the future subscriptions in instalments. They shall become liable to make a consolidated payment of all the future subscriptions inclusive of defaulted instalments with interest at the rate of 12% per annum from the date of default.
The Foreman at his discretion, condone such defaults and receive any amount from the chit holders or any of the executants of the security Bond or sureties after entering into an agreement with any or all of them and to allow them to continue as subscribers. Such condonations will not in any way discharge the liability of all or any of the executants of security document or of the nominees or legal heirs. The death of a subscriber will also not discharge the liability of the nominee, legal heirs of the sureties.
(a) Authentic/Official receipts are issued against payments made at counters in Foreman's Office or to the Recovery Staff authorized by the Foreman in this connection. The Foreman shall not be responsible for payments made otherwise, or pleaded without receipts."
10. The first respondent herein is a prized subscriber, and therefore, penalty of 6 paise per rupee or part thereof will be charged for the first month. If the default continues over a month, such a person will not be entitled for the dividend in addition to the penalty charges of 6 paise per rupee or part thereof. If the default is continued consecutively for a period of three months, the prized subscriber and the executants of the security bonds or sureties lose the future dividends and the benefit of paying the future subscriptions in instalments with interest at the rate of 12% per annum from the date of default. Therefore, this clause makes it abundantly clear that if the prized subscriber commits default in payment of instalments, the plaintiff Chit company is entitled to impose penalty of 6 paise per rupee or part thereof for the first month, if the default continues over a month the subscriber will not be entitled to dividends also, in addition to the aforesaid penalty at 6 paise per rupee or part thereof. If the default is continued for more than three months, the prized subscriber and the executants of the security bonds or sureties lose the future dividends and the benefit of paying the future subscriptions in instalments. But they shall become liable to make a consolidated payment of all the future subscriptions inclusive of defaulted instalments with interest at the rate of 12% per annum from the date of default.
11. Therefore, having regard to the ratio laid down by the Apex Court as well as this court, in the decisions referred to above and this being a special contract, the limitation prescribed under Article 37 of the Limitation Act is relevant. Evidently, on 12-5-1995 the chit agreement was entered into between the plaintiff and the defendants and the defendants have committed default on 15-6-1996 and the contract was terminated on 31-5-1997, therefore, the limitation to file the suit, be it a special contract or otherwise, the limitation starts from the date of default in payment of first instalment or from the dates of continuous default of payment of instalments for a period of three months, on which date both the prized subscriber and the sureties who executed the surety bonds are liable to pay all the future subscriptions including defaulted instalments with interest at the rate of 12% per annum, but the limitation does not start from the date of termination of the contract i.e. from 31-5-1997. Therefore, the Court below had rightly rejected the plaint following the Division Bench Judgment of this Court referred to above.
12. It is pertinent to note here that the Apex Court in Shriram Chits and Investments (P) Limited v. Union of India and Ors. (2nd supra) did not consider the aspect of reckoning the period of limitation, but a Division Bench of this Court in Dhanalakshmi's case (3rd supra) and a learned Single Judge of this court in K.V. Raghavulu's case (4th read above), have taken the view that the contract based on promissory note, or bond or on documents more than one, period of three years begins to run when the default is made unless the payee or obligee waives the benefit. Admittedly, the contract in the present case, arose out of chit transaction, which is based on more than two documents viz., Ex.A-3 dated 12-5-1995-agreement of chit executed by the defendant No.1 in favour of the plaintiff, Ex.A-4 dated 23-6-1995 - agreement of guarantee executed by the defendants 2 to 4 in favour of the plaintiff, Ex.A-5 dated 23-6-1995 promissory note executed by the defendants 1 to 4 in favour of the plaintiff's company. Therefore, I am unable to accede with the reasoning and view expressed by learned Single Judge of the Madras High Court in J.S. Sundararaj's case (1 supra).
13. The impugned Order does not suffer from any legal infirmity requiring any interference of this Court. The Civil Revision Petition fails and shall accordingly stand dismissed. No order as to costs.
14. The plaint was rejected by the court below inasmuch as the suit filed by the company was beyond three years from the due dates of 29 to 32 instalments, as they are time barred. Therefore, it is needless to mention here that the plaintiff company is at liberty to lay the plaint before the court below, after complying the objections, for recovery of the consolidated sum, in terms of the agreement.