M. Gopal and Another vs Sri Vetrivel Chit Funds Pvt. Ltd.

K.A. Swami, C.J.—These two second appeals are preferred against the common judgment and decree passed in A.S. Nos. 148 and 188

of 1982 dated 18th January, 1983. Those appeals arose out of the judgment and decree dated 27th February, 1982 passed in O.S. No. 770 of

1981 by the District Munsif, Vellore.

The plaintiff/respondent in both the appeals filed the aforesaid suit for recovery of a sum of Rs. 7,712.50 being the principal with interest at 12%

per annum. The first defendant in the suit subscribed two chits in Group No. 3C and Group No. 16 payable in 20 monthly instalments of Rs. 500

each. The payment of instalments commenced in April, 1975. He paid 10 instalments. He was declared as the successful bidder in the auction held

on 1.1.1976. He executed the pro-note on 24.1.1976 for the remaining sum of Rs. 5,000 and paid the first instalment in February, 1976.

Thereafter, the instalment fell due on 17.3.1976, but, he did not pay the second instalment nor did he pay the subsequent instalments.

He was also a subscriber to another chit in chit Group No. 13A and Group No. 18 for a sum of Rs. 5,000 payable in 20 monthly instalments at

the rate of Rs. 250 per month. The payment of instalment commenced in November, 1974. After payment of certain instalments, on 1.9.1975, the

chit was auctioned. The first defendant became the auction purchaser. For, the balance of the amount of Rs. 2,250, defendants 1 and 2 executed a

pronote on 24.09.1975. The instalment under the pronote became payable on 1.4.1976. However, the instalment amount was not paid. Hence,

the whole amount became due on the default committed by the first defendant in payment of instalments recurring in both the chits. The trial Court

decreed the suit.

The trial Court raised the following issues :-

Whether the chit fund transaction as alleged in the plaint is true?

Whether the defendants are entitled to the benefits of Act 13 of 1990?

Whether the suit is barred by limitation?

Whether the cause of action alleged is true? The trial Court answered all the issues in favour of the plaintiff except in respect of one chit.

Accordingly, it decreed the suit for a sum of Rs. 1,423 with proportionate costs. Hence, the plaintiff and the defendants also preferred appeals.

Therefore, both the appeals were heard together and decided by a common judgment.

It may be pointed out here that in respect of chit Group No. 3C, the suit was held to be in time, whereas in respect of the other chit No. 13A, it

was held to be barred by time. Whereas, the learned appellate Judge has allowed the appeal preferred by the plaintiff and dismissed that of the

defendants. Consequently, the learned appellate Judge has decreed the entire suit.

When these appeals came up before Raju, J. the learned Judge considered that the question of limitation is a recurring question, therefore, it has

to be decided by a larger Bench. Accordingly, these appeals have been referred to a Division Bench by the order of reference dated 10.06.1996.

The learned single Judge has also expressed that it is not possible to agree with the view expressed in Sudarsan Chit Fund v. Mrs. Jagadambal

1982 (II) MLJ 169 and has further held that the suit cannot be filed for the entire consolidated payment and future subscription unless the notice is

issued u/s 25(2) of the Tamil Nadu Chit Funds Act (for short ""the Act""); that u/s 24 of the 1961 Act, limitation would commence only when the

demand is made as per Sub-section (2) of Section 25 of the Act.

Therefore, the following points arise for consideration:

1) Whether the limitation under Article 37 of the Limitation Act for recovery of the amount due under the chit funds as per the provisions of the

Tamil Nadu Chit Funds Act, 1961 would commence on the date when default is committed in payment of the instalments or on the date the notice

demanding the entire sum is issued as per Sub-section (2) of Section 25 of the Act?

2) Whether the chit amount can be considered to be a debt?

3) Whether the suit is in time?

Point No. 1: Chapter V of the Act deals with prized subscribers. Section 24 of the Act which falls under Chapter V provides that every prized

subscriber shall pay his subscriptions regularly at the time and place and on the date mentioned in the chit agreement and on his failure to do so, he

shall be liable to make a consolidated payment of all the future subscriptions at once. Section 25(1) of the Act further provides that a foreman shall

not be entitled to claim consolidated payment of all the future subscriptions at once, from a defaulting prized subscriber unless he shall have

demanded the same in writing.

6.1 Sub-section (2) of Section 25 of the Act with proviso reads thus :

If in a suit by a foreman for consolidated payment of future subscriptions from a defaulting prized subscriber, the defendant pays into Court on or

before the date to which the suit is posted for hearing the arrears of subscriptions till that date together with interest thereon at the rate provided for

in the chit agreement, or at twelve per cent, per annum simple interest whichever is lower, and the costs of the suit for payment to the plaintiff, then,

notwithstanding any contract to the contrary the Court shall pass a decree directing that the defendant shall deposit in Court for payment to the

plaintiff, the future subscriptions on or before the dates on which they fall due and that, in default of payment by the defendant of any future

subscription on or before the due date, the plaintiff shall be at liberty to realise in execution all the future subscriptions and interest thereon, less the

amount, if any, already deposited by the defendant:

Provided that if any such suit is upon a promissory note, no decree shall be passed under this sub-section unless such promissory note expressly

states that the amount due under the promissory note is towards payment of subscriptions to the chit.

As far as Sub-sections (3) and (4) of Section 25 of the Act, are concerned, they are not relevant for our purpose.

The learned single Judge is of the view that unless the right u/s 25 of the Act is exercised, the foreman will not be entitled to claim the entire

amount. Therefore, the right to sue does not accrue merely because there is a default committed in payment of the instalment of chit amount. On

this reasoning, the learned single Judge has not found himself in agreement with the view expressed in Sudarsan Chit Fund Vs. Mrs. Jagadambal

and Others, . The view taken in the Sudarsan Chit Fund Vs. Mrs. Jagadambal and Others, accords with the view taken in M. Thirumalachariar Vs.

S.P. Varadappa Chettiar, . We may also point out that the same is the view taken in Krishnan Madhavan Vs. Narayanan Jayadevan and Another,

.

Article 37 of the Limitation Act is applicable to the suit in question. It reads thus :

_____________________________________________________________________________________________

Description of Suit Period of Time from which period

Limitation begins to run

_____________________________________________________________________________________________

On a promissory-note or bond pay- Three years, When the default is made unless

able by instalments,which provides where the payee or obligee

that,, if default be made in payment waives the benefit of the

of one or more instalments,, the provision and then when fresh

whole shall be due., default is made in respect of

which there is no such waiver.

As far as Section 25 of the Act is concerned, it is only an enabling provision which enables the foreman by issuing notice to sue for recovery of

the entire amount. If the foreman fails to issue such notice as required by Section 25 of the Act, he would be entitled to seek only the amount which

was due under the instalments which the subscriber failed to pay and not the whole sum. The commencement of limitation under Article 37 does

not depend upon the accrual of the right to sue for the whole amount by the foreman on making a demand in writing. The instalments become

payable on the default committed by the subscriber to the instalments and that cannot be stopped or arrested or postponed by the foreman by

causing delay in issuing the notice u/s 25 of the Act to enable himself to sue for the entire amount. Once the limitation commences, the foreman will

have not less than three years to file the suit. He can, within that period, make a demand in writing for payment of the whole amount and sue for the

entire amount. If as opined that it is only on the issuance of the notice u/s 25(1) of the Act, the limitation would commence, it would result in

handing over the law into the hands of the plaintiff who can wait as long as he wants and issue a notice even after three years also. This cannot be

the legal position and the law cannot be so vague. Any interpretation must be workable and must be specific and must not lead to any vagueness.

In the instant case, especially Section 25 of the Act does not allow any such interpretation, when it specifically says that on the default the entire

amount of payment of the instalment becomes due and the subscriber becomes liable to pay all the future subscription at once. Therefore, we are

of the view that the view expressed in Sudarsan Chit Fund Vs. Mrs. Jagadambal and Others, correctly interprets the effect of Sections 24 and 25

of the Act and Article 37 of the Limitation Act. We affirm the view expressed therein.

In M. Thirumalachariar Vs. S.P. Varadappa Chettiar, , while dealing with Article 75 of the old Limitation Act which is equivalent to Article 37

of the new Limitation Act, the learned single Judge has observed thus :

It is clear from this that the period of limitation commences the moment there is a default made in payment of the installment due. A suit beyond

three years from the date of such default would prima facie be out of time. It would be within time only if the plaintiff has waived the benefit of the

default provision. Whether there is a waiver or not is a question of fact. Obviously, it will have to be pleaded and established, if it is to be relied

upon as a ground for the exemption from the bar of limitation provided by Article 75. The mere fact that a waiver will be to the advantage of the

plaintiff inasmuch as that will save him from the bar of limitation, will not ipso facto be a proper basis for the view that he should be assumed to

have waived the benefit and that on that basis the defendant who pleads to the contrary, should be called upon to establish the negative namely,

that the plaintiff has not waived.

We are in entire agreement with the view expressed above.

In Lazer v. P. Selvamony and Ors., 1978 TLNJ 60, it has been decided on the basis of the pronote executed by the subscriber holding that

the limitation commences from the date of the pronote. We may point out here that we are not in the instant case concerned with the pronote

because the suit is not filed on the basis of the pronote. Even otherwise, in the light of the provisions contained in Section 24 read with Article 37 of

the Limitation Act, it is not possible to hold that the limitation commences from the date of the pronote as the amount becomes due only on the

commission of the default and it is the date of commission of the default which is the starting point of limitation.

The similar is the view expressed by the learned single Judge of the Kerala High Court in Krishnan Madhavan Vs. Narayanan Jayadevan and

Another, . Accordingly, we find it difficult to agree with the view expressed by the learned single Judge, while referring the matter to a larger Bench

that the demand by issue of a notice is a condition precedent and it is only after the expiry of the period of demand made in any such notice issued

by the foreman, the limitation will start to run against the foreman and not earlier and that too from the date of default of anyone of the instalments.

Hence, point No. 1 is answered as follows : The amount becomes due on the commission of default in payment of the instalments by the

subscriber. The limitation for the suit to recover such amount commences from the date the default is committed. Article 37 governs the period of

limitation. Therefore, from the date of commission of the default, the suit shall have to be filed within three years. Section 25 of the Act cannot be

interpreted as having the effect of postponing the starting point of limitation. It is only an enabling provision which if availed by the foreman, he will

be entitled to claim the entire amount and he can have such availment within the period of three years.

Point No. 2: The second point to be considered is whether the chit amount can be considered to be a debt? It is contended on behalf of the

plaintiff that the suit could not have been filed earlier to 10.10.1979 because before the expiry of the period of three years starting from the date of

commission of the default, Act 14 of 1975 and Act 15 of 1976 came into force viz., the Tamil Nadu Indebted Persons (Temporary Relief) Act,

1976 and during the subsistence of the provisions of those Acts, the limitation of filing a suit for recovery of a debt was postponed. Therefore, if

that period is excluded, the suit will be in time. In order to avail the benefits of the provisions of those Acts, what the plaintiff has to do is to prove

that the amount due under the chit is a debt. The definition of the expression ""debt"" as contained in that Act is that any liability in cash or kind,

whether secured or unsecured, due from an indebted person whether payable under a decree or order of a Civil or Revenue Court or otherwise,

but does not include - (i) rent as defined in Clause (5) ; and (ii) any debt to which the Tamil Nadu Indebted Agriculturists (Temporary Relief) Act,

1976 is applicable.

A Division Bench of this Court in Raghavan Pattar v. Arumugham, 1935 MWN 70 : 41 LW 376 has held that transaction with the auction

purchaser is one of sale and not of borrowing, the consideration being the highest discount, and, a bond for the future payment of instalments. A

chit transaction of that kind is entirely different from a loan transaction in which the borrower at the time of the loan gives a bond for more than the

amount he borrows. It is a case of a purchase and it is a part of the contract that the purchaser has to pay the principal sum reserved by the bond

together with interest. Therefore, it cannot be considered to be a debt. Same is the view expressed in Arunagiri Chit fund v. Mohammed Hanaf, 89

LW 687. Accordingly, we hold that the amount due by the auction purchaser of the chit is not a debt. That being so, the plaintiff was not entitled to

avail the benefit of limitation under the provisions of the Tamil Nadu Act 14 of 1975 and Tamil Nadu act 15 of 1976. Point No. 2 is answered in

the negative.

Point No. 3 : In the light of the finding recorded on point No. 1, the entire amount became due under the chit Group No. 3C No. 16 on

17.03.1976, the date on which the purchaser of the chit viz., the first defendant committed default in payment of the instalment. Similarly, under chit

Group No. 13-A No. 18, the first plaintiff the amount payable towards the purchase of the said chit, in the auction became due on 1.4.1976, but

on which date he failed to pay the instalment. Consequently, in the case of chit Group No. 3C No. 16, the suit ought to have been filed on or

before 17.3.1979 and in respect of the claim under chit Group No. 13A No. 18 on or before 1.4.1979. The present suit which is filed on

10.10.1979 claiming the amount due under both the chits is clearly barred by time. Point No. 3 is answered accordingly.

Hence, for the reasons stated above, we allow the second appeals and set aside the judgments and decrees of the Courts below and dismissed

the suit. No costs.