Sampath Financial Chit Fund (P.) Limited vs N.P.M. Abdul Rahman and Another

V. Ramaswami, J.—The plaintiff (appellant) is a company incorporated under the Companies Act, 1956. It was carrying on business in Chit

transactions. In respect of a chit in Group No. 73, Chit No. 11 of the face value of Rs. 4,000 and consisting 20 monthly instalments of Rs. 200

each, the first defendant was a subscriber. Each subscriber had to pay a monthly instalment of Rs. 200 for 20 months. This chit is what is usually

known as ""next auction chit"" and each subscriber is entitled to bid at the auction held in each month. As per the general rules whoever has bid at

the lowest will be paid the prize amount and the difference between the total amount after deducting the commission of 5 per cent payable to the

plaintiff and the prize amount is divided among the subscribers as dividend or Kasar. A person who had bid at the auction will have to execute a

promissory note along with the surety guaranteeing payment of the future instalments. The general rules relating to the chit of the plaintiff company

also provided that in case of default of any one instalment, the entire future instalments become payable in one lump sum. If a subscriber, after

bidding at the auction and receiving the prize money defaults to pay the future subscription, Rule 30 of Exhibit A-2 provided that the security bond

executed by him is enforceable and that in such a case the defaulting subscriber will not be entitled to the Kasar payable in respect of the earlier

instalments also. The first defendant in this case regularly paid the subscription for the first ten months. At the 10th auction held he bid the chit for

Rs. 2,780. On his executing the promissory note for Rs. 4,000 along with the second defendant as surety agreeing to repay the same with interest

at 12 per cent per annum, the prize amount of Rs. 2,780 was paid to the first defendant. After the bid in the tenth auction the first defendant paid

three more instalments and defaulted in payment on the 14th instalment onwards. The plaintiff thereafter had filed this suit for recovery of a sum of

Rs. 2,510 with subsequent interest and costs. In arriving at this sum of Rs. 2,510 the Kasar earned by the first defendant prior to his default

amounting to Rs. 836.25 was not given credit to on the ground that by reason of default to first defendant had forfeited his right to the same.

The first defendant filed a written statement contending that the forfeiture of the earned Kasar of Rs. 836.25 is against law and that the plaintiff

should give credit to the said sum. He also claimed that he paid a sum of Rs. 150 on 31st July, 1971 and another sum of Rs. 200 on 17th

September, 1971 and those two amounts also will have to be given credit to.

The trial Court found that the said sum of Rs. 150 and Rs. 200 were paid by defendants and they will have to be given credit to. So far as the

Kasar amount of Rs. 836.25 is concerned, the trial Court held that the forfeiture of the same by the plaintiff was against law and that therefore the

defendants are entitled to get credit for the same. Thus after giving credit to the Kasar amount and the other two amounts referred to above, a

decree was given in favour of the plaintiff for the balance of Rs. 1,286.22 with proportionate costs.

The plaintiff preferred an appeal before the learned Subordinate Judge of Mayuram. The lower appellate Court held that though the forfeiture

itself might not be illegal each case will have to be decided on merits as to whether the forfeiture of the Kasar amounts to penalty. On the facts it

came to the conclusion that in the instant case in view of the provisions in the chit agreement the forfeiture of the Kasar amount is penal in nature

and therefore not enforceable. Accordingly the decree and judgment of the trial Court was confirmed. It is against this judgment the plaintiff has

filed the present appeal.

The chit transactions of this nature, so far as the Tamil Nadu is concerned is governed by the provisions of the Madras Chit Funds Act (XXIV

of 1961) u/s 13(b) of that Act, the foreman shall be entitled only to such commission or remuneration not exceeding 5 per cent of the chit amount

as may be fixed in the chit agreement. Section 14(4) of the Act specifically prohibits the foreman from appropriating for himself any amount in

excess of what he is entitled to as commission or remuneration u/s 13(b) of the Act. Chapter V dealing with prized subscribers required every

prized subscriber to furnish sufficient security for the due payment of the future subscription and on his failure to pay future subscriptions, he shall

be liable to make a consolidated payment of all future subscriptions at once. Thus the liability of a prized subscriber on his defaulting to pay future

instalments was only to pay a consolidated amount of all future subscriptions immediately and on such defaults the Act also requires payment of

interest on the total amount of such future instalments. The Act does not recognize any forfeiture of the Kasar already earned and given credit to

the subscriber before the prize amount was paid to him. Under the provisions, the foreman was also not entitled to claim anything more than the

commission or the remuneration. He is, therefore, not entitled to appropriate the Kasar for himself in default of payment by the subscriber. The

provision in the general rules relating to the chit in the present case enabling the forfeiture of the Kasar amount already given credit to the subscriber

by reason of default in payment of the instalments is therefore clearly against the provisions and not enforceable.

The decree and judgment of the lower appellate Court are therefore correct and they do not call for any interference. The second appeal

accordingly fails and it is dismissed. But there (will be no order as to costs.