Shri Nithya Kalyani Chit Funds (P) Limited vs Government of Tamil Nadu

R. Banumathi, J.—This Writ Appeal arises out of the order dated 20.7.2001 made in W.P. No. 13925 of 1994, whereby the learned single

Judge dismissed the Writ Petition holding that the claim of the Appellant falls under Explanation (1) to Section 64(1) of the Chit Funds Act, 1982

and that the Respondents 1 and 2 have rightly rejected the claim of the Appellant as time barred.

The brief facts, which led to the filing of the Writ Petition, are as follows:

Appellant - M/s. Shri Nithya Kalyani Chit Funds Private Limited is a partnership firm promoting chit business at Door No. 6, South Veli street,

Madurai. The 3rd Respondent joined as a subscriber in Chit agreement 324/85, ticket No. 20. The chit group consists of 40 instalments payable

by Rs. 250/- every month and the chit amount is Rs. 10,000/-. The 3rd Respondent participated in the 10th auction held on 10.8.1987 and bid the

prize amount for Rs. 6,500/ - and received the prize amount on 9.9.1987. In respect of future instalments, 3rd respondent has executed a

promissory note. Case of the Appellant is that apart from promissory note, the subscriber had also deposited title deeds regarding his immovable

properties with intention to create equitable mortgage.

Case of the Appellant is that the 3rd Respondent defaulted from 27th instalment due on 10.12.1988. The Appellant filed a case u/s 64 of the

Chit Funds Act for recovery of the amount. The 2nd Respondent - Deputy Registrar of Chits dismissed the Claim Application No. 110/1992

finding that u/s 65(1)(b) the claim ought to have been filed within three years from the date on which the act or omission with reference to which the

dispute arose. The 2nd Respondent took the view that the 3rd Respondent has committed default in paying 27th instalment on 10.12.1988 and the

claim Petition filed on 24.8.1992 is beyond the period of three years and dismissed the Claim Petition on the ground that the Claim Petition is

barred by limitation. Aggrieved by the dismissal of the Claim Petition, the Appellant filed Appeal before the Government u/s 70 of the Chit Funds

Act. In the Appeal, the Appellant had taken plea that the Deputy registrar of Chits has failed to see that the original title deeds were deposited by

the 3rd Respondent with intention to create equitable mortgage and therefore the claim was well within time. Upon consideration of the case with

the connected records, the Government referred to the Circular sent by the Inspector General of Registration in his Letter No. 58290/H1/92 dated

23.10.1992 sent to all the Deputy Registrars that the stamp duty has to be collected for documents created by way of deposit of title deeds,

Government took the view that since stamp duty was not paid it was not necessary for the Deputy registrar to take into account of the limitation

period of 12 years prescribed for equitable mortgage while disposing of the case under the provisions of Chit Funds Act. Finding that the case

under Appeal has been filed beyond three years period, the Government dismissed the Appeal. Being aggrieved by the dismissal of the Appeal, the

Appellant filed Writ Petition - W.P. No. 13925 of 1994.

Pointing out that the subscriber failed to pay the dues to the Appellant - Foreman from 27th instalment fell due on 10.12.1988 and therefore the

claim filed on 24.8.1992 is beyond the statutory period of three years the learned single Judge dismissed the Writ Petition. Challenging the

dismissal of the Writ Petition, the Appellant has filed this Appeal.

Learned Counsel for the Appellant contended that by deposit of title deeds for the due repayment of the loan, it is an equitable mortgage within

the meaning of Section 58(f) of the Transfer of Property Act and therefore the transaction will fall only under Explanation (i) to Section 64(1) of the

Act for which limitation is prescribed in Section 65(1)(b) of the Act. It was further submitted that since the transaction was equitable mortgage,

Article 62 of the Limitation Act will apply, which stipulates limitation of 12 years and therefore the claim application filed on 24.8.1992 is well

within the limitation. Placing reliance upon Shriram Chits and Investments (P)Ltd., T. Nagar Vs. M. Krishnan and others, , it was further contended

that the limitation would start only from the date of termination of the chit and not from the date of defaulted instalments and therefore the claim

application filed on 24.8.1992 is well within the time.

We have heard Mr. Dhandapani, Special Government Pleader appearing for Respondents Nos. 1 and 2.

Before the 2nd Respondent as well as the Government, the Appellant mainly raised the plea that the 3rd Respondent has deposited title deeds

for due repayment of the loan with an intention to create equitable mortgage within the meaning of Section 58(f) of the Transfer of Property Act.

The contention of the Appellant is that Section 58 of Transfer of Property Act authorises equitable mortgage by way of deposit of title deeds and

therefore the transaction would fall only u/s 65(2) of Chit Funds Act, whereby the transaction shall be regulated by the provisions of the Limitation

Act and the limitation for equitable mortgage is 12 years. Further contention of the Appellant that the transaction would fall under Explanation (i) to

Section 64(1) of the Chit Funds Act for which limitation is prescribed in Section 64(1)(b) of the Act and that the Deputy Registrar should have

taken into account the relevant period of 12 years cannot be countenanced.

By perusal of the records, it is seen that the Inspector General of Registration in his letter No. 58290/H1/92 dated 23.10.1992 had sent

communication to all the Deputy Registrars that the stamp duty has to be collected for documents created by way of deposit of title deeds

produced as evidence for Chit Arbitration case. By perusal of the order of the Government in G.O.(D) No. 231 Commercial Taxes and Religious

Endowments Department dated 9.6.1994, in the instant case, the 2nd Respondent has directed the Appellant to pay the stamp duty and penalty

for equitable mortgage created by way of collateral security. Merely because of the direction to pay stamp duty and penalty for equitable

mortgage, the transaction would not fall u/s 65(2) and the contention of the Appellant that the transaction was an equitable mortgage was rightly

rejected by the respondents 1 and 2.

To appreciate the contentions, the following dates and events are relevant to be noted:

Date of auction : 10.8.1997

Date of payment of Prize amount : 9.9.1987

Due date for payment of 27th : 10.12.1988

instalment

Due date for payment of 40th : 10.9.1990

instalment and termination of chit

Date of filing of Claim Application : 24.8.1992

As pointed out earlier, the 3rd Respondent committed default from 27th to 40th instalments. The payment of 27th instalment fell due on

10.12.1988. The 2nd Respondent treated the claim of the Appellant u/s 65(1)(b) of the Chit Funds Act and found the claim is beyond the

stipulated time.

Section 65 of the Chit Funds Act reads as under:

Period of limitation

(i) Notwithstanding anything contained in the Limitation Act, 1963 but subject to the specific provision contained in this Act, the period of limitation

in the dispute referred to the Registrar u/s 64 shall -

(a) if the dispute relates to the recovery of any sum, including interest thereon, due to a foreman from a deceased subscriber be three years,

computed from the date on which such subscriber dies or ceases to be a subscriber, or

(b) if the dispute is between a foreman and a subscriber, or the nominee, past subscriber, or the nominee, heir or legal representative of a deceased

subscriber, and the dispute relates to any act of omission on the part of either party to the dispute, be three years from the date on which the act or

omission with reference to which the dispute arose, took place.

(2) The period of limitation in the case of any dispute other than those referred to Sub-section (1) which are required to be referred to the

Registrar u/s 64 shall be regulated by the provisions of the Limitation Act 1963, as if the dispute were a suit, and the Registrar, a Civil Court.

(3) Notwithstanding anything contained in Sub-sections (1) and (2), the Registrar may admit a dispute after the expiry of the period of limitation

specified therein, if the applicant satisfies the Registrar that he had sufficient cause for not referring the dispute within such period.

Section 65(1)(b) squarely covers the dispute between a foreman and a subscriber stipulating three years period from the date on which the act

or omission with reference to which the dispute arose took place. In the instant case, the default in payment of 27th instalment was on 10.12.1988

and the claim filed on 24.8.1992 was beyond the period of three years. Placing reliance upon Shriram Chits and Investments (P)Ltd., T. Nagar

Vs. M. Krishnan and others, , the Learned Counsel for the Appellant contended that the First Bench of this Court had taken the view that the

limitation period has to be computed from the date of last instalment payable and not only on the defaulted instalment. It was further submitted that

the Limitation has to be reckoned from 40th instalment/termination of chit i.e., on 10.9.1990 and not from 10.12.1988 on which date the

subscriber has defaulted 27th instalment. In support of the contention, reliance was placed upon paragraph No. 21, which reads as under:

That apart, as already pointed out the chit for a period of sixty months commenced in February 1984, and it terminated only on 10.3.1990. What

was sought to be recovered is not only the defaulted instalment but also the future instalment which is payable up to March, 1990. Admittedly, the

claim has been presented before the Registrar on 22.7.1991. Reckoned from the last of the chit instalments payable, namely, the 60th instalment, it

has to be held that it was well open to the Foreman to wait till the end of the last instalment and thereafter institute the Arbitration proceedings.

Reckoned from 60th instalment which fell due on 10.3.1990, the Arbitration Petition having been presented on 22.7.1991 is not barred by

limitation.

In the above case, the First Bench was mainly dealing with Section 65(3) and the interpretation of the expression ""sufficient cause"" occurring

therein. In the interregnum period of framing of Rules by the State Government under Chit Funds Act and published in the Gazette, foreman of the

Chit Company filed a Civil Suit and the said suit was returned as not maintainable on 31.7.1990 in view of bar of jurisdiction of Civil Court u/s 64

of the Act. The claim was presented to Registrar of Chits for adjudication on 22.7.1991. The First Bench has held that applying the principles

underlying Section 14 of the Limitation Act, the period, during which the Rules were not framed and authority was not constituted, is to be

excluded. Observing that a liberal construction has to be adopted for the expression ""sufficient cause"" so as to advance substantial justice, the First

Bench has held that u/s 65(3), on being satisfied that there was sufficient cause to condone the delay. In the said case, First Bench was mainly

dealing with the interpretation of Section 65(3) and incidentally it was observed that the period of limitation has to be reckoned from the last date

of the chit instalment payable viz, 60th instalment and it was open to the foreman to wait till the end of the last instalment and thereafter institute the

arbitration proceedings. The above observation was only a passing observation and not a ratio decidendi.

Section 65(1)(b) clearly stipulates the period of limitation from the date on which the act or omission with reference to which the dispute arose

took place. In the instant case, the subscriber defaulted from 27th instalment viz., on 10.12.1988. The claim filed on 24.8.1992 is beyond the three

years and the 2nd Respondent as well as the Appellate authority have rightly dismissed the claim application as barred by limitation. The learned

single Judge observing that the Appellant''s case squarely falls under Explanation (i) to Section 64(1) for which the period of limitation applicable is

Section 65(1)(b) dismissed the Writ Petition. There is no illegality or irregularity in the order passed by the learned single judge. Hence, the Writ

Appeal is dismissed. However, there is no order as to costs.