Appraem Co. Ltd. vs V.M. Narendranath and Others

P.K. Shamsuddin, J.—The plaintiff in O. S. No. 290 of 1982 on the file of the Sub-Court, Trichur, is the appellant. The suit was for realisation of amount on the basis of kuri security agreement.

The plaintiff company started a kuri from its Bangalore branch on June 5, 1979. The first defendant was a subscriber. The defendants prized the kuri and received the amount and they executed a security agreement on January 30, 1980, in favour of the plaintiff agreeing to pay a sum of Rs. 10,300 being the amount due for the future 103 instalments at the rate of Rs. 100 per month from February 5, 1980, onwards. They also agreed that in case of default of one instalment, the subscription for that month shall be paid with 12% interest on the date of the next instalment. In case of default of the subsequent instalment also, the foreman shall be entitled to realize the entire future instalments in lump with 12% interest on the whole amount from the date of the first instalment and that the defendants shall be liable jointly and severally for the amount due. They paid the subscription up to October 5, 1980, and committed default from November 5, 1980, onwards. In spite of demand made for payment of the subscription, they failed to pay the amount. In the circumstances, the plaintiff filed the suit for realisation of the entire instalments together with interest.

The defendants filed a joint written statement stating that they were prepared to discharge the defaulted subscription and the suit filed for the entire future instalments is not maintainable.

The court below relying on a Full Bench decision of this court in Janardhana Mallan v. Gangadharan [1983] KLT 197 ; [1985] 58 Comp Cas 390 held that the plaintiff is entitled to recover only the defaulted instalments and not the entire instalments and in that view of the matter, a decree was given in favour of the plaintiff for realisation of a sum of Rs. 2,230 with costs and 6% interest on the principal amount from the date of suit till realisation.

In this appeal, learned counsel for the appellant contended that in view of the Supreme Court decision in K.P. Subbarama Sastri v. K.S. Raghavan, : AIR 1987 SC 1257, the Full Bench decision referred to above is no longer good law. In the decision which came up for the consideration of the Supreme Court referred to above, the Supreme Court has approved the Full Bench decision of this court in P.K. Achuthan and Another Vs. State Bank of Travancore, Calicut, . A similar question came up before a larger Full Bench of this court, consisting of five judges in Janardhana Mallan''s case [1985] 58 Comp Cas 390. After discussing the question and reviewing the decision of the earlier Full Bench in P.K. Achuthan and Another Vs. State Bank of Travancore, Calicut, , the court observed (at page 416) :

"In the light of the above discussion, we do not think it would be possible to say that on entering into the chitty agreement a debt is incurred by the subscriber for the amount of all the future instalments and in respect of such amount there is a debtor-creditor relationship. As we have stated earlier in this judgment the chitty variola only embodies a promise to pay on future dates. That is not a promise to repay an existing debt, but to pay in discharge of a contractual obligation. For similar reasons neither the prizing of the chitty nor the execution of the security bond would give rise to a debt, for the prize amount is not received as a loan, but as of right by virtue of the terms of the contract between the parties. We reiterate that the provisions of the relevant Acts relating to chitties to which we have made advertence also indicate this. In this view we are of the opinion that to the extent the earlier decision of the Full Bench in P.K. Achuthan and Another Vs. State Bank of Travancore, Calicut, has referred to the creation of a debtor-creditor relationship on the prizing of the chitty and the execution of the security bond we respectfully differ. The decision of the Division Bench in State Bank of Travancore Vs. May C. George, which follows the Full Bench decision must also, therefore, be found to have not rightly stated the law."

In the Supreme Court case, the appellants were the plaintiffs. The suit was based on a kuri transaction. The respondents were subscribers to the kuri. They committed default after they had prized the kuri and realised the prize amount. Hence the suit was filed for realisation of the principal sum with interest. The suit was decreed by the Sub-Court. An appeal was filed before the High Court. The Division Bench of the High Court heard the appeal and partly allowed it and modified the decree refixing the interest. The court was largely influenced by the fact that the kuri transaction and the contract between the foreman of the kuri and the subscribers burdened the subscribers with unconscionable interest and was unreasonable. The Supreme Court then referred to the Full Bench decision in P.K. Achuthan and Another Vs. State Bank of Travancore, Calicut, and made the following observation AIR 1987 SC :

"Before the Full Bench, it was contended that this stipulation in the agreement where a subscriber 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 instalment, 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."

After quoting the observations of the Full Bench in P.K. Achuthan and Another Vs. State Bank of Travancore, Calicut, the Supreme Court held (at page 1260) :

"We agree with the law so laid down by the Full Bench."

In that view of the matter, the Supreme Court set aside the judgment of the High Court and allowed the appeal. In view of the Supreme Court decision referred to above, which I am bound to follow, it has to be held that the view taken by the lower court is not correct. P.K. Achuthan and Another Vs. State Bank of Travancore, Calicut, has taken the view that it is a debt and the Supreme Court approved the same and upheld the provision enabling the foreman to realise the entire future instalments with interest. No doubt a larger Bench of this court in Janardhan''s case [1985] 58 Comp Cas 390 differed from the view expressed in P.K. Achuthan and Another Vs. State Bank of Travancore, Calicut, but in view of the Supreme Court''s decision in Subbarama Sastri''s case, : AIR 1987 SC 1257, approving the view in P.K. Achuthan and Another Vs. State Bank of Travancore, Calicut, , I have no option but to follow the Supreme Court decision.

In the result, the appeal is allowed and a decree is given in favour of the plaintiff as prayed for in the plaint with 12% interest on the principal amount till date of decree and at 6% from the date of decree till realisation. In the circumstances of the case, there will be no order as to costs.