Andhra HC (Pre-Telangana)
Goverdhan Upadhyan vs Aekelle Kameswara Rao (Died) And Ors. on 16 August, 1996
Equivalent citations: 1996(4)ALT1
Author: R. Bayapu Reddy
Bench: R. Bayapu Reddy
JUDGMENT R. Bayapu Reddy, J.
1. This appeal is filed by the plaintiff in O.S.No. 2/1981 on the file of the Subordinate Judge, Kothagudem (originally O.S.No. 48/76 on the file of the Sub Court, Khammam) questioning the decree and Judgment dated 29-3-1982 by which the suit filed by the plaintiff for recovery of the suit amount was dismissed.
2. The appellant-plaintiff had filed the above said suit seeking recovery of Rs.l5,0000/- from the defendants 1 to 4 contending as follows: The 4th defendant is a registered Chit Fund Company registered under the A.P. Chit funds Act and the plaintiff and the first defendant are the subscribers in the chits run by the 4th defendant. The first defendant became the prized subscriber for chit No. A-l bearing ticket No. 16 and the chit was for Rs. 20,000/- of 40 instalments of Rs. 500/- per each instalment The said chit was started on 20-4-1972 and it was terminated by 10-5-1975. The first defendant executed an agreement on 24-2-1972 in favour of the 4th defendant agreeing to abide by the by-laws of Chit No. A-l. He participated in the auction and became the prized subscriber and received an amount of Rs. 830/- on 10-6-1972 and he had to repay the amount in 34 equal monthly instalments payable in its entirety by 10-5-1975. First defendant executed a pro-note and also a security bond on 13-7-1972 in favour of the 4th defendant undertaking to pay the amount due from him regularly without making any default. Subsequently, the first defendant paid the instalments till the 8 th instalment and later on committed default in paying the subsequent instalments. In view of the penalty clause and other terms of the agreement executed by the first defendant, the 4th defendant became entitled to collect the amount with interest without giving the benefit of dividends to the first defendant. Subsequently, the 4th defendant could not pay the chit amount due to the plaintiff who was also a subscriber to Chit No. B-l bearing ticket No. 5 and as such, he assigned his rights to collect the amounts due from the first defendant to the plaintiff by executing an assignment deed dated 28-5-1975 authorising the plaintiff to collect and receive the amounts due to him from the first defendant as well as from his sureties who are defendants 2 & 3. As the defendants 1 to 3 failed to pay the amounts and as the plaintiff became entitled to collect such amounts on account of the assignment deed, the suit was filed for recovery of the suit amount from all the defendants.
3. The 4th defendant did not contest the suit and on the other hand, he supported the claim of the plaintiff. The defendants 1 to 3, however, contested the suit contending that the first defendant did not voluntarily execute the agreement in favour of the 4th defendant at the time when he became a subscriber in the chit run by the 4th defendant; that the said agreement was signed by him in a mechanical manner in one of the model forms supplied by the 4th defendant without understanding its purport; that such agreement is in contravention of the provisions of the Indian Contract Act; that the bye-laws framed by the 4th defendant are inconsistent with the provisions of A.P.Chit Funds Act, 1971; that-he received only a sum of Rs. 8,580/- as against the chit amount of Rs. 20,000/- and he paid instalments amounting to Rs. 2,500/- and further amount of Rs. 6,500/- in various instalments making a total of Rs. 9,000/- and as such the entire prize amount of Rs. 8,580/- stood discharged; that no penalty can be levied and no interest can be collected from him as alleged in the plaint as the penalty clause in the bye-laws of the 4th defendant regarding the forfeiture of dividend and levy of penalty is not valid and legal; that the security bond executed by him in favour of the 4th defendant is not admissible in evidence; that the plaintiff is not entitled to file the suit on the basis of the alleged assignment deed executed by the 4th defendant as such assignment is in contravention of the provisions of Section 26 of the A.P. Chit Funds Act, 1971 and mat, therefore, the suit is not maintainable and the plaintiff is not entitled to collect the suit amount from the defendants 1 to 3.
4. On the basis of the evidence placed before him the learned Subordinate Judge dismissed the suit having found on various issues against the plaintiff and having come to the conclusion that the suit itself is not maintainable in view of the provisions of Section 26 of the A.P. Chit Funds Act, 1971. Aggrieved by such findings given and the decree and Judgment passed by the lower Court, the present appeal is filed by the plaintiff. The lower Court found under various issues that Ex. A-1 agreement executed by the first defendant in favour of the 4th defendant is not valid as it was mechanically executed by him; that such agreement is inconsistent with the provisions of the Indian contract Act and, therefore, not valid; that the bye-laws of the 4th defendant Society are not valid as they are in contravention of the provisions of A.P. Chit Funds Act and that the suit is, therefore, not maintainable. The lower Court also found that the first defendant was entitled for the dividend of Rs. 2,000/- as claimed by him and that the calculation of interest made by the plaintiff in the suit on the amount said to be due to him is also not correct. He further came to the conclusion that the suit filed by the plaintiff is not maintainable in view of the provisions of Section 26 of the A.P. Chit Funds Act, 1971 and the plaintiff is, therefore, not entitled to collect the suit amount on the basis of Ex.A-l1 deed of assignment executed in his favour by 4th defendant.
5. During the course of arguments the learned Counsel for the first respondent who is the first defendant in the suit tried to support the findings given by the lower Court only with regard to the right of the first defendant to claimdividend and other amounts and regarding the maintainability of the suit in view of the provisions of Section 26 of the A.P. Chit Funds Act, 1971 and did not tiy to argue regarding the findings given on various other issues. As a matter of fact, it is seen from a perusal of the Judgment of the lower Court and the evidence adduced before it, that the lower Court is not justified in observing that the first defendant executed Ex.A-1 agreement only in a mechanical manner without understanding the purport of such agreement and in coming to the opinion that the agreement is not valid as it is inconsistent with the provisions of the Indian Contract Act and also in further observing that the bye- laws framed by the 4th defendant are against the provisions of A.P. Chi t Funds Act, 1971. Regarding the right of the first defendant to seek dividends as a subscriber and the right of the plaintiff to recover interest on the prized amount, it is to be seen that as per Ex.A-1 agreement, the 4th defendant is entitled to deny the dividend to a subscriber and also entitled to claim interest on the amounts that will be found due from such subscriber if he commits default in paying the instalments. In the present case after becoming the prized subscriber and receiving the a mount of Rs. 8,580 /- from the 4th defendant and after paying the instalments only for a few months, the first defendant committed default in paying the subsequent instalments and as such, the first defendant is not entitled to claim the benefit of dividends in the chit transaction and the 4th defendant is also entitled to recover interest on the amount that will be found due from the first defendant. Therefore, the findings of the lower Court in that regard cannot be sustained as rightly contended by the learned Cousnel for the appellant. The Counsel for the appellant as well as the respondents therefore, mainly argued on the question regarding the maintainability of the suit on the basis of Ex.A-11 deed of assignment executed by the 4th defendant in favour of the plaintiff in view of the provisions of Section 26 of the A.P. Chit Funds Act, 1971.
6. Therefore, the point for consideration in the present appeal is whether the suit filed by the plaintiff is not maintainable in view of the provisions of Section 26 of the A.P.Chit Funds Act, 1971 and whether he is not entitled to recover the suit amount on the basis of Ex.A-11 deed of assignment executed in his favour by the 4th defendant
7. The first defendant is one of the prized subscribers for Chit No. A-l bearing ticket No. 16 and he executed Ex.A-1 agreement in favour of the 4th defendant at the time when he became such subscriber. He became the prized subscriber on 10-6-1972 as he was the highest bidder and he received the amount of Rs. 8,580/- towards the prize amount from the 4th defendant and he then executed Ex.A-2 security bond undertaking to pay the subsequent instalments due from him and the second and third defendants stood as guarantors for the first defendant. The first defendant also executed Ex.A-4 pro-note on the same day for the above said amount received from the 4th defendant. The plaintiff was also one of the subscribers under Chit No. B-l bearing ticket No. 5 and he had paid all the instalments under his chit and thus became entitled to receive the entire chit amount due to him from the 4th defendant. As the 4th defendant was not in a position to pay the chit amount due to the plaintiff, he executed Ex.A-11 deed of assignment dated 28-5-1975 in favour of the plaintiff transferring all his rights and interests to recover the entire amount due from the defendants 1 to 3 together with penalty and interest on such amount and authorising him to recover such amount from defendants 1 to 3. On the basis of such deed of assignment executed in his favour, the plaintiff has filed the present suit. As already stated above there cannot be any dispute now in view of the evidence adduced before the lower Court, regarding the actual amount that the plaintiff will be entitled to recover from the defendants 1 to 3 in view of the default clause in the agreement executed by D-l and in view of the evidence placed on record. The only point in dispute now between the parties and relating to which alone the arguments were addressed during the course of hearing of the appeal, is with regard to the maintainability of the suit on the basis of Ex. A-l1 deed of assignment in view of the provisions of Section 26 of A.P. Chit Funds Act, 1971. The contention of the contesting respondents is that under Section 26(1) of the A.P. Chit Funds Act, 1971, no transfer of the rights of a Foreman to receive subscriptions from prized subscribers shall be made without the previous sanction in writing of the Registrar; that in the present case the 4th defendant did not obtain any such previous sanction in writing from the Registrar and that the suit is, therefore, not maintainable on the basis of Ex. A-l1 deed of assignment executed by 4th defendant in favour of the plaintiff. On the other hand, the contention of the learned Counsel for the appellant is that the deed of assignment executed by the 4th defendant in favour of the plaintiff cannot be said to be void and the plaintiff is not barred from filing a suit on the basis of such deed of assignment in view of other provisions of Section 26 of the Act and that the suit is, therefore, maintainable and the plaintiff is entitled to receive the amount on the basis of Ex.A-l1 deed of assignment executed in his favour. In order to appreciate the respective contentions of the parties in this regard, it will be useful to refer to the provisions of Section 26 of the A.P. Chit Funds Act, 1971, which are as follows:-
"26. Restrictions on transfer of rights of foreman:- (1) No transfer of the rights of a foreman to receive subscriptions from prized subscribers shall be made without the previous sanction in writing of the Registrar.
(2) Any such transfer of the rights of a foreman to receive subscriptions from a prized subscriber shall, on application by the subscriber and if it is likely to affect prejudicially the interest of any non-prized subscriber or unpaid prized subscriber, be set aside by such officer as may be empowered by the Government in this behalf.
(3) When under sub-section (2), a transfer is disputed by a subscriber, the burden of proving that the foreman was in insolvent circumstances at the time of the transfer and that the transfer is not likely to affect prejudicially the interests of any such subscriber is upon the transferee."
It is, no doubt, true that the 4th defendant did not seek and obtain any previous sanction in writing from the Registrar of Chit Funds before executing Ex.A-11 deed of assignment in favour of the plaintiff, transferring the right to recover the amount due to him from the defendants 1 to 3. But the learned Counsel for the appellant has, however, tried to contend that the relationship between the first defendant who is a prized subscriber and the foreman who is the 4th defendant is that of a debtor and creditor and the prized subscriber is, however, given the concessional facility to effect repayment of the amount in instalments subject to the withdrawal of such facility in the event of default being committed by the prized subscriber in the payment of any instalment; that the debt payable by the prized subscriber can be transferred by the foreman in favour of the third party and that such third party can recover the amount from the defaulting prized subscriber on the basis of such transfer. He has also tried to rely upon the decision of the Madras High Court reported in Angammal v. R. Sankaranarayanan, , the facts in which are similar to the facts in the present appeal and which also related to the same question with reference to the provisions of the Tamilnadu Chit Funds Act, 1961 which are similar to the provisions of Section 26 of A.P. Chit Funds Act, 1971. It is observed by the Court in that decision that the dominant purpose in the prized subscriber executing a promissory note in favour of the Foreman is to enable him to recover from the prized subscriber the balance of the amount in instalments so as to minimise at least to some extent his obligation in finding amounts from other sources for meeting in turn his obligation for payment of chit amounts to other subscribers at the subsequent auctions or draws; that the relationship between the prized subscriber and the Foreman is that of a debtor and creditor but the prized subscriber is given the concessional facility of effecting repayment in instalments, subject to the withdrawal of that facility in the event of default being committed by the prized subscriber in the payment of any such instalment. It is also observed in that decision that the debt payable by the prized subscriber is one in praesenti and he is allowed to pay it in instalments, which facility would be available only so long as the instalments are regularly paid. The decision of the Supreme Court reported in Subbaratna Sastri v. Raghavan, AIR 1987 SC 1257, ( 1987 ) 2 CompLJ 98 ( SC ), JT 1987 ( 2 ) SC 53, 1987 ( 1 ) SCALE 681, ( 1987 ) 2 SCC 424, [ 1987 ] 2 SCR 767, and the decision of the Kerala High Court reported in P.K. Achuthan v. State Bank, Travancore, (F.B.), are also referred to in the above said decision of the Madras High Court in support of the view that a subscriber truly and really becomes a debtor for the prized amount paid to him, that the facility of repayment in instalments, (sic) a concessional facility and that a stipulation enabling the Foreman to withdraw the concessional facility on default of the punctual payment of the instalments would not be penal or unconscionable. After referring to the above said decisions of the Supreme Court and the Full Bench decision of the Kerala High Court, it was observed by the High Court of Madras in the above (sic) decision that the prized subscriber becomes a debtor in respect of the prized amount paid to him and he is merely afforded the facility of payment of the amount due in instalments, as a matter of concession and that the suit instituted against the prized subscriber on the basis of the transfer effected in favour of the third party to recover the amount from the prized subscriber will be maintainable. In the present case also the first defendant committed default in paying the subsequent instalments having received the prized amount and having executed Ex.A-4 pronote as well as Ex.A-2 security bond in favour of the 4th defendant agreeing to repay the amount regularly. In view of such default committed by the first defendant who has to be considered as a debtor vis-a-vis the 4th respondent, the latter subsequently transferred his rights to recover the amounts due from the former in favour of the plaintiff by executing Ex.A-11 deed of assignment. Therefore, the suit filed by the plaintiff on the basis of Ex.A-11 is maintainable and the plaintiff is entitled to recover the suit amount from the defendants 1 to 3. The learned Counsel for the respondents however, tried to contend that in the case concerned in the above said decision of the Madras High Court, what was transferred was a pro-note and not a mere right to recover the amount; that in the present case Ex.A-4 pro-note executed by the first defendant was not the subject matter of transfer to the plaintiff and that, therefore, the observations made by the Madras High Court in the said decision cannot be made applicable to the present case. This contention cannot, however, be accepted. It is, no doubt, true that Ex.A-4 pronote was as such not assigned to the plaintiff under Ex.A-11. But, it is to be seen that the first defendant executed Ex.A-4 pro-note as well as Ex.A-2 security bond in favour of the 4th defendant specifically agreeing to repay the amounts payable by him to the 4th defendant. It is already found from the observations of the Madras High Court as well as the Supreme Court and Kerala High Court referred to above, that the relationship between the prized subscriber and the Foreman is of a debtor and creditor when the prized subscriber receives the amount and undertakes to pay the subsequent instalments due to the Foreman. Therefore, the 4th defendant is entitled to transfer his rights to recover such amounts from the first defendant who is in the position of debtor, to the plaintiff enabling him to recover such amounts from the first defendant as well as the defendants 2 & 3 who are the guarantors. Therefore, in view of such transfer deed executed in favour of the plaintiff, he is entitled to recover the amounts on the basis of such transfer deed from the defendants 1 to 3 even though Ex.A-4 pro-note was not subsequently transferred in his favour under Ex, A-11 deed of transfer.
8. It is further to be seen from the observations made by the Madras High Court in the above cited decision reported in Angammal v. R. Sankaranarayanan (1 supra) that the suit itself cannot be said to be not maintainable on the basis of Ex.A-11 deed of transfer even though there was no prior written sanction obtained from the Registrar of Chit Funds inasmuch as the transfer effected by the 4th defendant in favour of the plaintiff is only voidable but not void. It is observed by the Madras High Court in the above cited decision that a breach of sub-section (1) of Section 26 of the Tamilnadu Chit Funds Act, 1961 which is quite similar to the provisions of Section 26 of A.P. Chit Funds Act, 1971, only renders the transfer voidable under sub-section (2) and not null and void and that, therefore, the transfer of rights in favour of another subscriber by the Foreman cannot be considered to be invalid and inoperative. Under Section 26(1) of the A.P. Chit Funds Act, no transfer of the rights of a Foreman to receive subscriptions from prized subscribers shall be made without the previous sanction in writing of the Registrar. Sub-section (2) of Section 26 states that any such transfer of the rights of a Foreman to receive subscriptions from a prized subscriber shall, on application by the subscriber and if it is likely to affect prejudicially the interest of any non- prized subscriber or unpaid prized subscriber, be set aside by such Officer as may be empowered by the Government in this behalf. It is, no doubt, true that under Section 26(1) there is an interdict relating to the transfer of the rights of a Foreman to receive subscriptions from prized subscribers without prior sanction in writing of the Registrar. The sub-section (2) declares the effect of such a transfer of rights without the permission in writing of the Registrar. There is no provision in the Act declaring as void the transfer of rights of a Foreman without the previous sanction in writing of the Registrar. On the other hand, under Section 26(2) of the Act, such a transfer is declared to be voidable which can be set aside on an application by a non-prized subscriber or unpaid prized subscriber whose interests are likely to be affected prejudicially by the transfer. A reading of sub- sections (1) & (2) of Section 26 therefore, clearly establishes that there is no total prohibition for a transfer of the rights of a Foreman to receive subscription from a prized subscriber and if such transfer is made, it is only a voidable transfer which can be set aside on an application by a non-prized subscriber or unpaid prized subscriber whose rights are likely to be affected prejudicially by such transfer. Therefore, there is a clear indication in Section 26(1) and (2) of the Act I that the transfer is not rendered void and that it is only a voidable transaction. In the present case also, the transfer effected by the 4th defendant in favour of the plaintiff under Ex.A-11 deed of transfer is not a void transaction, but only a voidable transaction. Therefore, the plaintiff cannot be barred from filing the suit on the basis of Ex. A-11 deed of assignment to recover the amour is due from the defendants 1 to 3. The lower Court has clearly erred in dismissing the suit mainly on the ground that the suit itself is not maintainable in view of the provisions of Section 26 of the A.P. Chit Funds Act, 1971. The suit is clearly maintainable and the appellant/plaintiff is entitled to recover the suit amount from the defendants 1 to 3.
9. In the result, the appeal is allowed with costs and the decree and judgment of the Lower Court are set aside and the suit filed by the appellant/plaintiff is decreed with costs as prayed for.