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The Judgment of the Court was delivered by KHALID, J. We will first deal with Civil Appeal 85/1972. The appellants were the plaintiffs in O.S. No. 78 of 1964 on the files of the Subordinate Judge's Court, Palghat. The suit was based on a Kuri transaction (Chit Fund). The re- spondents were subscribers to the Kuri. They committed default after they had prized it and realised the Kuri amounts. Hence the suit was filed for realisation of the principal sum with interest and the balance Kuri due. The suit was decreed by the Subordinate Judge by his Judgment dated 24th June, 1965. An appeal was filed before the High Court. A Division Bench of the High Court heard the appeal and partly allowed it by modifying the decree of the Trial Court refixing the interest, largely influenced by the fact that the Kuri transaction and the contract between the foreman of the Kuri and the subscribers (defaulted) burdened the subscribers with unconscionable interest and were unrea- sonable.

To appreciate the reasoning of the Division Bench it is necessary to set out the scheme of the Kuri. The respondents took two tickets in a Kuri (Chit Fund) started by the appel- lants in September, 1962. Under the scheme of the Kuri, there will be bidding at monthly intervals. The subscriber bids and prizes the ticket depending upon his need. When he does so, he voluntarily surrenders the benefit of dividends which is distributed among the subscribers. For example, suppose the Kuri amount is Rs.5,000 consisting of 50 tickets valued at Rs.100. At the first bid the lowest bid is 3500 by A. A gets this amount and the balance of Rs.1500 will be distributed among the other subscribers. But the prized subscriber has a duty to pay the entire amount in instal- ments without default. Here the respondent bid and prized both the tickets; one on the third draw and the other at the th and received the amounts. As per rules of the Kuri they executed bonds to secure future instalments. However, they committed default in paying the future instalments. That resulted in the suit. The main contention which found favour with the High Court, raised in defence, was that the rules of 'the Kuri contained several unconscionable and penal provisions like the provisions relating to the payment of all the future instalments in a lump with interest at 12% ignoring the claim of the defaulting subscribers to their share in the reduction (the dividend).

"Before we leave this case, we wish to add a few words. In our experience, we have not yet come across such a kurivari which has so many unconscionable provisions. Ground No. 5 in the memorandum of grounds of appeal shows the amount payable by the appellants. the amount received by them, etc. to show the unconscion- ableness. The appellants received only Rs. 16,185 (on both the tickets together); and, all told, they already paid back Rs.5,100 as subscriptions. The claim in the suit towards future instalments is Rs.21,000 with interest of Rs.1,785. And all this within less than two years, the date of commencement of the Kuri being 20th September, 1962 and the date of suit being 2nd September, 1964 for receiving a little over Rs.16,000 the appellants have to pay a little less than Rs.28,000. In our considered opinion, such transactions should not be allowed, and people who carry on such transactions are really unsocial elements. We are told that the same stake-holders are carrying on such kuries even now without any hindrance, because there is no law to control the conduct of chit funds now in the Malabar area. It is time that the Government moved in the matter and brought some legislation to control such unsocial activities."

A full Bench of the Kerala High Court had occasion to consider the correctness of this view and in a decision reported in 1974 K.L.T. 806, such Kuri transactions were upheld and the decision of the Division Bench was reversed. According to the full Bench, there was nothing unconscion- able about the contract. Before the full Bench it was con- tended that this stipulation in the agreement where a sub- scriber prized his chit, providing that on default the Kuri foreman would be entitled to recover the entire balance amount with 12% interest in a lump sum without giving credit to the subscribers, is penal in nature and held in terrorem for securing due performance of their promise and hence not enforceable. Eradi, J. as he then was, speaking for the full Bench held that a subscriber truly and really becomes a debtor for the prized amount paid to him, that the facility of repayment in instalments is only a concessional facility and that stipulation enabling the foreman to withdraw the concessional facility on default of punctual payment of the instalments would not be penal or unconscionable. We quote below the observations made by the full Bench in paragraphs 6 & 7: