Karnataka High Court
V. Venkatamuniyappa vs M/S. Sudarshan Trading Co. Ltd. And ... on 11 April, 1991
Equivalent citations: AIR1992KANT52, 1991(2)KARLJ591
ORDER K. Jagannatha Shetty, J.
1. By an order of the Hon'ble the Chief Justice dated 5-2-1988 the matter was referred to the Division Bench. It reads as follows:
"Prima facie there appears to be conflict between the two judgments in (1) ILR 1984 (2) Karnataka 914; and (2) Unreported decision in CRP 3750/1981 decided on 16-2-1984 : . Admitted. Referred to be decided by a Division Bench."
2. In Economic Chit Funds Private Limited v. P. S. Krishnoji Rao Nesargi, J. (as he then was) had an occasion to consider as to whether the Chit transactions is a transaction of creditor and debtor and whether the decretal amount does not amount to 'debt' within the meaning of the word 'debt' as defined in S. 2(5) of the Karnataka Debt Relief Act, 1980 ('Act' for short). The learned Judge, relying on the decision of the Full Bench of Kerala High Court in P. K. Achuthan v. State Bank of Travancore, has held that chit fund transaction is also a debt and brings about the relationship of a creditor and debtor and as such the person who takes advance from the fund was a debtor within the meaning of the Act.
3. In Shivakumar v. M/s. Sudarshan Trading Co. & another Kulkarni, J. (as he then was) following the ratio of the decision of our High Court in (1972) 2 Kar LJ 476 and (1980) 1 Kar LJ 345 held : that in the case of chit fund transaction at the time when the amount is given, it would not be an advance of a debt and as such a transaction which did not assume the character of debt at all, when it took place cannot become a debt subsequently. The learned Judge, held that use of the word "advanced" in S. 4 of the Act, makes it clear that in order that the act is attracted it must be a debt at the time when the amount was advanced and that (if) it is not so, then it cannot be considered to be a debt at all. Therefore, the learned Judge held that in substance the result of a chit fund transaction will not partake the character of debt within the meaning of the Karnataka Debt Relief Act, 1976. In this decision there is no reference to earlier decision of the learned Judge in Krishnoji Rao's case referred to above. Perhaps, it was not brought to the notice of the learned Judge, who rendered the later decision. However, it is found that in these two judgments there is conflict of opinion. Hence the matter is referred to the Division Bench.
4. Before we proceed to consider the question of law viz., whether the chit fund transaction which resulted in a civil court decree is a 'debt' within the meaning of the Act, it is necessary to set out briefly the relevant facts.
5. The petitioner is the judgment-debtor and the respondent M/s. Sudarshan Trading Co., is the decree-holder. The decree-holder is a company registered under the Companies Act. Execution Case No. 50 of 1977 filed by the respondent decree-holder against the petitioner and two other judgment-debtors was for enforcement of a decree passed in O. S. 357 of 1977 against the judgment-debtors viz., petitioners. They filed an objection and resisted the execution petition contending that the Karnataka Debt Relief Act, applied to their case, they being 'debtors' within the meaning of the Act and therefore their liability stood discharged and consequently, the other judgment-debtors were also absolved of the liability. The executing court held an enquiry and by its order dated 3-11-1978 closed the execution petition holding that the Karnataka Debt Relief Act, applied to the case and the judgment-debtor was absolved from the liability by the force of the provisions of the Act.
6. The said order was questioned by the respondent decree-holder in C. R. P. 531 of 1979 before this court and this court by its order dated 3-9-1984 made on the same date, relying on the decision in the case of Shivakumar setaside the order of the executing court holding that the Karnataka Debt Relief Act, 1976, does not apply to the chit fund transaction and the court should proceed with the further proceedings in the case.
7. When the decree-holder took out a warrant of attachment of salary on the petitioner judgment-debtor, again the petitioner despite the order made in C.R.P. 531 by this court rejecting his objection to the execution of the decree, filed an application in the court to recall the salary attachment warrant and dismiss the execution petition, relying on the judgment of this Court in Krishnoji Rao's case. Thus, in substance he wanted the Munsiff Court to setaside the order of this Court in C. R. P. 531 of 1979.
8. The lower court on consideration of the respective contentions of the parties pointed out that the decision in Shivakumar's case and the case of the petitioner in C.R.P. 531 of 1979 by Kulkarni, J. were subsequent to the decision of Nesargi, J. in C.R.P. 3750 of 1981 dated 16-2-1984 in Economic Chit Fund (PJ Ltd. : case and in any event the petitioner was bound by the order made by him in CRP 531/1979, by which earlier order of the executing court was set aside and the court was directed to proceed with the execution. Accordingly the application of the petitioner for recalling the salary attachment order and stalling the execution petition was dismissed by an order dated 29-9-1987. Being aggrieved by the order of the Court below the petitioner presented this revision petition.
9. At the out-set we deprecate the conduct of the petitioner in asking the executing court not to proceed with the execution, despite the direction issued by this court in C.R.P. 531 of 1979 dated 3rd September 1984 to which he was a party-respondent. His application in the court below, discloses contumacious and cantankerous conduct on the part of the petitioner and abuse of the process of the court. After his contention that the provisions of the Act, were applicable to chit fund transaction was rejected by this Court in C.R.P. 531 of 1979 and the petition was allowed and the executing court was directed to proceed with the execution, he could not have raised the same objection before the executing court, which had been rejected by this court. Assuming that he considered that the view taken in C.R.P. 531/79 following the decision in the case of Shivakumar was erroneous, he could have approached the Supreme Court or he could have filed a review petition before this court for reviewing the order in C.R.P. 531/1979. But he raised the same objection before the executing court after it was rejected by this Court. Therefore his objection, was not only barred by res judicata, his conduct in raising the objection is cantumacious and contankcrous. On this ground alone the petition is liable to be dismissed. However, as the matter is referred to the Division Bench to resolve the conflict between the two decisions namely the decision decided by Nesargi, J. in Economic Chit Fund's case on 16-2-1984 and the decision rendered by Kulkarni, J. in the case of Sudarshan Chit Fund, we proceed to resolve the controversy.
10. Learned counsel for the petitioner submitted that the view taken by Kulkarni, J. in Sudarshan Chit Fund and in the case of the petitioner in CRP 531/1979 was erroneous. In support of this submission, he relied on the Full Bench decision of the Kerala High Court in P. K. Achuthan v. State Bank of Travancore; and the unreported decision of Nesargi, J. of this Court in Economic Chit Fund Private Ltd.
11. The learned counsel for the respondent decree-holder has argued that the chit fund transaction is not a transaction of lending or borrowing, muchlcss there is any relationship of creditor and debtor, in that it was a subscribers money and is taken by one of them depending upon his requirement with mutual understanding of the subscribers. It is a kind of compulsory saving which is withdrawn by the subscriber on such mutual understanding of the subscribers of the fund, on the appointed date or dates. In other words, it is a mutual benefit fund. The learned counsel further argued that what the subscriber takes back from the fund is a sum total of the subscription to the fund which he undertakes to subscribe and takes it on mutual understanding and as such it is not a debt and, therefore, it does not partake the character of the debt within the meaning of the debt as defined under the Act. He submitted, the view taken in the decision rendered by Kulkarni, J. in the case of Sudarshan Trading Co., Ltd., was correct.
12. Let us examine the rival contentions of the parties. To appreciate and to render considered opinion of this court on, the point of law involved in this case, it is necessary to refer to the relevant provisions of the Act. The word 'Debt' is defined in S. 3(b) of the Act. It reads thus :--
"Debt means any liability in cash or in kind, whether decreed or not and includes any amount which is in substance a debt; but does not include arrears of taxes due to the Central or the State or a local authority."
S. 4 of the Act reads as under:--
"Notwithstanding anything in any law for the time being in force or in any contract or instrument having force by virtue of any such law and save as otherwise expressly provide in this Act, with effect from the date of commencement of this section.
(a) every debt advanced before the commencement of this section including the amount of interest if any, payable by the debtor to the creditor shall be deemed to be wholly discharged."
Thus from the foregoing definitions, it is clear that 'debt' means' any liability in cash or kind whether decreed or not and includes any amount which in substance is a debt. However, that does not include arrears of tax due to the Central or State Government or Local Authority. S. 4 of the Act, makes it clear that a debt advanced gets discharged by the force of that section.
13. In the decision of the Full Bench of Kerala High Court reported in P. K. Achuthan v. State Bank of Travancore which has been strongly relied upon by the petitioner, it has been held as follows :--
"That the stipulation contained in 'Kuri' (chit fund security bond) entitling the foreman to recover from the prized subscriber the whole of the amount due from him in lump sum on his committing default in payment of any of the instalments cannot be regarded as a penalty clause. Further relying on the decision of the Madras High Court in Vasudevan Nambudri v. Mamood, (1899) ILR 22 Mad 212, it has been held that it is manifest that what actually transpires when a prized subscriber is allowed to draw the kuri amount is the grant of a loan to him from the common fund in the hands of the foreman with a concessional facility of effecting the repayment in instalments subject to a stipulation that the said concession is liable to be withdrawn in the event of default being committed in payment of any of the instalments. Thus the Full Bench held that it was really a debt in praesenti, but permitted to be paid by inslalments the benefit of the said facility being available to the debtor only."
Relying on the aforesaid decision Nesargi, J. had, in Economic Chit Fund Private Ltd.,'s case held that the chit fund transaction is one of lending and borrowing and the amount due from a subscriber is a debt within the meaning of the word 'debt' defined under the Act and, therefore, the Act is applicable to such transactions. With respect we are unable to agree with the ratio of the said decision, as well as the ratio of the decision of the Full Bench of the Kerala High Court. We are of the view that the very basis of the decision of the Full Bench of the Kerala High Court chit fund transaction is one of lending and borrowing is not correct.
14. From the chit fund, subscribed by subscribers, a subscriber could take the fund amount by mutal understanding of the subscribers on the date of 'Kuri' or on auction date, it is a sort of mutual benefit scheme. Subscriber also is a giver as well as a taker and the foreman acts for and on behalf of all subscribers including the taking subscriber. Therefore, the transaction cannot be considered as loan. It does not partake the character of a 'debt' advanced by a money lender to a loan taker. Function of foreman or stake holder by whatever name he is called, in the chit fund scheme is only to organise chit fund transaction. The money taken in the chit held by the subscriber is not the foreman's money. The relationship that exists between the foreman and the subscriber is not of a creditor and debtor. The decision of Kulkarni, J. in Sudarshan Chit Fund was rendered following the decision of the High Court of Kerala in in Narayan Prabhu v. Janardhana Mallan; and of this Court reported in (1982) 2 Kar LJ 88 Navajeevan Enterprises Mysore (P) Ltd., v. T. N. Ramalingaiah; (1972) 2 Kar LJ 476 Ganesh Rao Bisto Desai v. Nagesh Bisto and (1980) 1 Kar LJ 345. He held that the chit fund transaction does not partake the character of debt as defined in Sec. 3(b) of the Act, and said that the definition could be attracted if at the time the amount was given it was given only as a debt.
The learned Judge, further referring to S. 4 of the Act, pointed out to the words 'debt advanced' used in S. 4 and observed that it would be a debt within the meaning of the word 'debt' in the Act, if only the amount when it was given was advanced as a debt. Relying on the Division Bench decision of this Court in Ganesh Desai v. Nagesh Bisto Desai, the learned Judge has stated thus :
"If the transaction in question when it took place did not assume the character of a debt at all, it cannot become debt subsequently. The use of the word 'advanced' makes it clear that it must be a debt at the time when the amount was advanced. If it is not so, then it cannot be considered to be a debt at all. Therefore, the amount in question, which is in substance the result of chit fund transaction will not partake the character of a debt within the meaning of the Karnataka Debt Relief Act, 1976."
We are in respectful agreement with the view expressed by Kulkarni, J. in the case of M/s. Sudarshan Trading Co.
15. On an examination of the entire scheme of the Act, it appears to us that the Act is meant for giving relief to the 'debtors' as defined in the Act and the purpose of the Act is for the welfare of the weaker sections of the society. Considering the intent of the legislation and the wordings of S. 3(b) and Sections 4 and 8 of the Act, we are of the opinion, that the chit fund transaction in which the member-subscriber undertakes to repay the amount taken by him in instalments is not a debt advanced within the meaning of S. 4 of the Act. As we have already pointed out, the chit transaction is very different from the loan transaction. It is not a case of borrowing. In the chit fund auction the subscriber offering the highest bid is regarded as a purchaser of a sum of money by offering to pay highest discount and undertaking to pay future instalments regularly. These two things together constitute consideration for the purchase. This is the view taken by the Madras High Court in AIR 1935 Madras 385, P. N. Raghavan Pattar v. Arumugham and the same has been followed by Kulkarni, J.
16. For the aforesaid reasons, we reiterate the view taken in Shivakumar's case and overrule the decision in Economic Chit Fund's case.
17. In the result, we make the following ORDER (1) The civil revision petition is dismissed with costs.
(2) Advocate's fee payable by the petitioner to the respondent is fixed at Rs. 2,500/-(Rupees two thousand five hundred).
18. Petition dismissed.