Decided on October 11,1974

P.K. ACHUTHAN Appellant


- (1.) From very early times chit fund transactions have been highly popular in all parts of Kerala as an indigenous system providing financing facilities in the shape of advances from the common fund repayable in easy instalments and serving also as a scheme for investment and savings. The question that we are called upon to decide in these two appeals is one of vital importance for the conduct of such chit fund transactions since it concerns the legal validity and enforceability of a provision commonly found in most kuri varis and hypothecation bonds executed by prized subscribers in favour of the foreman which empowers the latter to demand immediate payment of the whole of the amounts due in respect of the future instalments in a lump sum with interest at 12% per annum if default is committed by a prized subscriber in due payment of two consecutive instalments. In Raghavan v. Subbrama Sastrigal, 1971 KLT 231 , a Division Bench of this court had occasion to consider the enforceability of such a stipulation contained in a kuri variola. It was held in that case that the said provision when considered against the background of the several other clauses contained in the concerned kuri variola was "undoubtedly penal and unconscionable." These two appeals have been referred to a Full Bench since the Division Bench before which these cases came up for hearing was of opinion that the decision in Raghavan v. Subbrama Sastrigal, 1971 KLT 231, which was strongly relied on by the appellant herein requires reconsideration, particularly in the light of the observations contained in the judgment of another Division Bench of this court reported in Mathai v. Varkey, 1973 KLJ 694 .
(2.) Before we proceed to consider the question of law that has occasioned the reference to the Full Bench it is necessary to set out a few relevant facts. The Perintalmanna branch of the Chaldean Syrian Bank Ltd. had started an annual kuri from 1-10-1949 consisting of 96 tickets of Rs. 1,000/- each, the term of the kuri being 16 years. The 1st defendant had subscribed for two tickets as per pass books Nos. 108 and 131. The 1st defendant's ticket covered by pass book No. 108 became prized at the fifth draw and thereby he became entitled to be paid Rs. 12,500/- after deducting the amount of Rs. 3,500/- being the permanent deduction allowed to the foreman. Defendants 1 and 2 jointly executed in favour of the Chaldean Syrian Bank Ltd. a hypothecation bond as per Ext. A3 dated 29-6-1954 mortgaging 15 items of immovable properties by way of security for the due payment by the 1st defendant of the remaining eleven instalments. On the strength of such security the prize amount was disbursed to the 1st defendant by the foreman. Similarly, in respect of the second ticket covered by the pass book No. 131 also the 1st defendant bid the kuri at the fifth instalment and prized the same at a discount of Rs. 4,725/- and thereby he became entitled to receive the balance amount of Rs. 11,275/-. The very same 15 items of immovable properties were offered by defendants 1 and 2 as security for the said amount also and they executed in favour of the foreman Bank another mortgage deed as per Ext. A5 dated 29-6-1954 and drew the amount. The 1st defendant paid the instalments due in respect of the two tickets up to and inclusive of the eighth instalment payable on 1-10-1956 but thereafter he committed default in payment of the subsequent instalments. Under the terms of the two mortgage deeds, if default is committed by the prized subscriber in the matter of payment of any of the instalments on the due date the amount of the instalment in default together with interest at 12% per annum is to be remitted on the date on which the next instalment falls due and if default is committed in payment of such amount with interest on that date also the entire balance amount due under the kuri security bond is recoverable in lump by the foreman with interest at 12% from the date of the original default. The defendants did not pay the ninth instalment which fell due on 1-10-1957 in respect of both the tickets. They did not also remit the amounts in default together with interest as stipulated in the mortgage bond on 1-10-1958 when the next instalment fell due. As a matter of fact, the defendants did not remit any of the instalments that accrued due subsequent to 1-10-1956. While matters stood thus, all the rights and assets of the Chaldean Syrian Bank Ltd. became vested in the State Bank of Travancore as per the notification Ext.A11 issued by the Government of India in exercise of the powers conferred by sub-s.(2) and (3) of S.38 of the State Bank of India (Subsidiary Banks) Act, 1939. The present suit has been instituted by the State Bank of Travancore for recovery from the defendants of the entire balance amounts due under the aforementioned two mortgage bonds with interest at 12%.
(3.) The execution of the mortgage bonds was admitted by the defendants. They, however, contended that the plaintiff Bank had not validly acquired the rights of the Chaldean Syrian Bank Ltd. to recover the amounts due under the two mortgage bonds since only the banking assets of the Chaldean Syrian Bank Ltd. had become vested in the plaintiff under Ext. All. According to the defendants the conduct of kuri was not part of the banking business of the Chaldean Syrian Bank Ltd. and hence the amounts due under the kuri mortgage deeds d id not fall within the category of "banking assets". Other grounds of defence put forward by the defendants were that they had paid some more instalments of the kuri besides the amounts for which credit had been given to them in the plaint and that in any event the claim for interest at the rate of 12% on the consolidated amount is not sustainable in law. The 1st defendant also raised a plea that he is an agriculturist entitled to the benefit of Act 31 of 1958 and that hence he is liable to pay interest only at 5% per annum and that too for the amount of the defaulted instalments only and not for the consolidated amount claimed in lump in the plaint.;

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