1982 (12) TMI 221 - HC - Companies Law

Summary

Issues Involved:
1. Whether a debt arises for a prized subscriber in a chitty upon receiving the prize amount and executing a security bond for future subscriptions.
2. Validity of a sale deed executed by a Hindu father in respect of ancestral property for discharging antecedent debts.

Issue-wise Detailed Analysis:

1. Whether a debt arises for a prized subscriber in a chitty upon receiving the prize amount and executing a security bond for future subscriptions:

The court examined whether a prized subscriber who receives the prize amount and executes a security bond for future subscriptions becomes a debtor to the foreman. Historically, different views were expressed by various courts. The Travancore High Court in Sundaram Pillai Easwaramoorthiya Pillai v. Vallithavi Narayana Vadivu (1926) held that the debt arises only when the instalment falls due, not at the execution of the security bond. This view was supported by subsequent decisions, including Varkey Thomas v. Travancore Forward Bank Ltd. (1962) and Narayana Prabhu v. Janardhana Mallan (AIR 1974 Ker 108).

The court reviewed the evolution of chitty laws, noting that the chitty institution has undergone significant changes and is now regulated by statutes such as the Kerala Chitties Act 23 of 1975. These statutes define the rights and obligations of the foreman and subscribers, emphasizing the contractual nature of the relationship.

The court concluded that the obligation to pay future subscriptions arises from the original contract and not from the execution of the security bond. The prized subscriber does not become a debtor upon receiving the prize amount. The debt arises only when an instalment is defaulted. The court thus answered the referred question in the negative, stating that "no debt due to the foreman arises by reason of the receipt of the prize amount or of the execution of the security bond for securing future subscriptions."

2. Validity of a sale deed executed by a Hindu father in respect of ancestral property for discharging antecedent debts:

The plaintiffs challenged the sale deed executed by their father, arguing that it was not supported by consideration and necessity, and the debts recited were not antecedent debts. The trial court found that the sale deed was executed for the discharge of antecedent debts to the extent of Rs. 5,750, while the appellate court concurred, though it did not categorically find family necessity.

The court reiterated that a Hindu father's right to alienate ancestral property to discharge his debts is recognized, provided the debts are antecedent and not tainted. If an alienee, after due inquiry, advances funds to discharge these debts, the sale can be upheld even if the entire consideration is not shown to be for antecedent debts.

However, in this case, only half of the consideration was proved to be for antecedent debts. The court emphasized that an alienation cannot be sustained if a substantial part of the consideration is not for antecedent debts. The court found that the sale deed could not be upheld solely on the ground of discharging antecedent debts.

The court also noted the necessity to consider whether the sale deed could be upheld for family necessity. The trial and appellate courts did not provide a clear finding on this issue. The court remitted the case back to the trial court to determine whether the sale deed was supported by family necessity, considering various factors such as the family's financial position and obligations.

The court directed the trial court to decide the matter afresh in accordance with the law, focusing on the question of family necessity. The parties were directed to bear their own costs in the appeal, and the court fee paid on the memorandum of Second Appeal was ordered to be refunded to the appellants. The case was posted for further proceedings on 17-2-1983.