Karnataka High Court
V. Venkatamuniyappa vs Sudarshan Trading Co. Ltd. And Others on 11 April, 1991
Equivalent citations: [1992]73COMPCAS407(KAR), ILR1991KAR2660
JUDGMENT K. Jagannatha Shetty, J.
1. By an order of the Hon'ble Chief Justice dated February 5, 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 Shivakumar v. Sudarshan Trading Co. Ltd.. [1984] ILR 2 Kar 914 and an unreported decision in CRP No. 3750 of 1981 decided on February 16, 1984 (since reported as Economic Chit funds P. Ltd. v. P. S. Krishnoji Rao [1985] 58 Comp Cas 838 (Kar)). Admitted. Referred to be decided by a Division Bench."
2. In Economic Chit Funds P. Ltd. v. P. S. Krishnoji Rao [1985] 58 Comp Cas 838 (Kar) Nesargi J. (as he then was) had occasion to consider whether the chit transaction is a transaction between a creditor and debtor and whether the decretal amount does not amount to a debt within the meaning of the word "debt" as defined in section 2(5) of the Karnataka Debt Relief Act, 1980 ("the Act" for short). The learned judge, relying on the decision of the Full Bench of the Kerala High Court in P. K. Achuthan v. State Bank of Travancore, , has held that a 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. Sudarshan Trading Co. Ltd. [1984] ILR 2 Kar 914, Kulkarni J. (as he then was) following the ratio of the decisions of our High Court in Ganesh Rao Bisto Desai v. Nagesh Bisto [1977] 2 Kar LJ 476 and Rame Gowda v. Sarojamma [1980] 1 Kar LJ 345 held that, in the case of a 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 the use of the word "advanced" in section 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 of the character of a debt within the meaning of the Karnataka Debt Relief Act, 1976. In this decision, there is no reference to the earlier decision of the learned judge in Krishnoji Rao's case [1985] 58 Comp Cas 838 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 a 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, Sudarshan Trading Co. Ltd., 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 the two other judgment-debtors, was for the enforcement of a decree passed in O.S. No. 357 of 1977 against the judgment-debtors, viz., the 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 November 3, 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. No. 531 of 1979 before this court and this court, by its order dated September 3, 1984, made on the same date, relying on the decision in the case of Shivakumar [1984] ILR 2 Kar 914 set aside the order of the executing court holding that the Karnataka Debt Relief Act, 1976, does not apply to chit fund transactions and that the court should proceed with the further proceedings in the case.
7. When the decree-holder took out a warrant of attachment of the salary on the petitioner-judgment-debtor, again the petitioner, despite the order made in C.R.P. No. 531 of 1979 by this court rejecting his objection to the execution of the decree, filed an application in the court for recalling the salary attachment warrant and dismissing the execution petition, relying on the judgment of this court in Krishnoji Rao's case [1985] 58 Comp Cas 838. Thus, in substance, he wanted the Munsiff Court to set aside the order of this court in C.R.P. No. 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 [1984] ILR 2 Kar 914 and the case of the petitioner in C.R.P. No. 531 of 1979 by Kulkarni J. were subsequent to the decision of Nesargi J., in C.R.P. No. 3750 of 1981, dated February 16, 1984, In Economic Chit Fund (P.) Ltd.'s case [1985] 58 Comp Cas 838 and, in any event, the petitioner was bound by the order made by him in C.R.P. No. 531 of 1979, by which the 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 of the petition was dismissed by an order dated September 29, 1987. Being aggrieved by the order of the court below, the petitioner presented this revision petition.
9. At the outset, 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. No. 531 of 1979, dated September 3, 1984, to which he was a part-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 transactions was rejected by this court in C.R.P. No. 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. No. 531 of 1979 following the decision in the case of Shivakumar [1984] ILR 2 Kar 914 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. No. 531 of 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 but his conduct in raising the objection is contumacious and cantankerous. 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 decision, namely, the decision of Nesargi J. in Economic Chit Fund's case [1985] 58 Comp Cas 838 (Kar) on February 16, 1984, and the decision rendered by Kulkarni J. in the case of Sudarshan Chit Fund [1984] ILR 2 Kar 914, we proceed to resolve the controversy.
10. Learned counsel for the petitioner submitted that the view taken by Kulkarni J. in Sudarshan Chit Fund [1984] ILR 2 Kar 914 and in the case of the petitioner in C.R.P. No. 531 of 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 P. Ltd. [1985] 58 Comp Cas 838.
11. Learned counsel for the respondent decree-holder has argued that a chit fund transaction is not a transaction of lending or borrowing, much less is there any relationship of creditor and debtor in that it was subscribes money and it is taken by one of them depending upon his requirement with the 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. 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 dies not partake of the character of a debt within the meaning of debt as defined under the Act. He submitted that the view taken in the decision rendered by Kulkarni J. In the case of Sudarshan Trading Co. Ltd. [1984] ILR 2 Kar 914 was correct.
12. Let us examine the rival contentions of the parties. To appreciate and to render the 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.
13. The word "debt" is defined in section 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 Government or a local authority."
14. Section 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 provided 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 debt of to the creditor shall be deemed to be wholly discharged."
15. 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 a local authority. Section 4 of the Act makes it clear that a debt advanced gates discharged by the force of that section.
16. In the decision of the Full Bench of the Kerala High Court 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 a '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. Mammod [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 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 instalments, the benefit of the said facility being available to the debtor only."
17. Relying on the aforesaid decision, Nesargi J. had, in Economic Chit Fund Pvt. Ltd.'s case [1985] 58 Comp Cas 838 (Kar), held that the chit fund transaction is one of lending and borrowing and the amount due from a subscriber is 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 that a chit fund transaction is one of lending and borrowing is not correct.
18. From the chit fund, subscribed to by subscribers, a subscriber could take the fund amount by mutual understanding of the subscribers on the date of "kuri" or on the auction date. It is a sort of a mutual benefit scheme. The 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 a loan. It does not partake of the character of A "debt" advanced by a money-lender to a loan taker. The function of the foreman or stake-holder by whatever name he is called, in the chit fund scheme, is only to organise the chit fund transactions. The money taken in the chit held by the subscriber is not the foreman's money. The relationship that exist between the foreman and the subscriber is not of a creditor and debtor. The decision of Kulkarni J. in Sudarshan Chit Fund [1984] ILR 2 Kar 914 was rendered following the decision of the High Court of Kerala in Narayana Prabhu v. Janardhana Mallan, and of this court in Navjeevan Enterprises (Mysore) Pvt. Ltd. v. T. N. Ramalingaiah [1982] 2 Kar LJ 88 : [1985] 58 Comp Cas 217; Ganesh Rao Bisto Desai v. Nagesh Bisto [1977] 2 Kar LJ 476 and Rame Gowda v. Sarojamma [1980] 1 Kar LJ 345. He held that the chit fund transactions do not partake of the character of debt as defined in section 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.
19. The learned judge, further referring to section 4 of the Act, pointed to the words "debt advanced" used in section 4 and observed that it would be a debt within the meaning of the word "debt" in the Act, only if the amount when it was given was advanced as a debt. Relying on the Division Bench decision of this court in Ganesh Rao Bisto Desai v. Nagesh Bisto [1977] 2 Kar LJ 476, 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 a 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 a chit fund transaction will not partake of the character of a debt within the meaning of the Karnataka Debt Relief Act, 1976."
20. We are in respectful agreement with the view expressed by Kulkarni J. in the case of Sudarshan Trading Co. Ltd. [1984] ILR 2 Kar 914.
21. On an examination of the entire scheme of the Act, it appears to us that the Act is meant for giving relief to "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 wording of section 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 debt advanced within the meaning of section 4 of the Act. As we have already pointed out, a chit transaction is very different from a 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 the 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 P. N. Raghavan Pattar v. S. Arumugham, AIR 1935 Mad 385, and the same has been followed by Kulkarni J.
22. For the aforesaid reasons, we reiterate the view taken in Shivakumar's case [1984] ILR 2 Kar 914 and overrule the decision in Economic Chit Fund's case [1985] 58 Comp Cas 838.
23. 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).