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TMI Blog1982 (2) TMI 267X X X X Extracts X X X X X X X X Extracts X X X X ..... iah, was a subscriber to two chits in the company in liquidation which was carrying on business in chit fund transactions. In group NSD II, he had subscribed to chit No. 24 having a value of Rs. 5,000. At the auction held on September 10, 1973, he was the successful bidder in that group and he was paid the prize amount of Rs. 3,400 on October 13, 1973. He executed a promissory note for Rs. 3,400 in favour of the company agreeing to pay interest at the rate of 18 per cent per annum. T. N. Satyanarayana Shetty, the second respondent, joined the first respondent in the execution of the pronote as a surety. The first respondent has subscribed Rs. 4,001 50 up to May 20, 1975, including the dividends due to him in respect of the chit in question leaving a balance of subscription in the sum of Rs. 998 50. The official liquidator has claimed other sums as follows : Rs. Bank charges 1.50 M.D. visit expenses 27. 50 Registered notice 3. 30 Lawyer notice, charges 25 00 M.D. visit expenses . 17. 50 Interest up to 31-1-1975 489. 00 Interest up to 30-6-1977 281. 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess. He has stated that he lost heavily in business and life became very difficult and, therefore, he is dependent on his brother with whom he is staying. He has stated that he has no income whatsoever and no properties either. He admits having taken two chits in the company in liquidation. He admits having executed a pronote for Rs. 3,400 as per Exh. P-1 and another pronote as per Exh. P-5 for Rs. 2,500 relating to C.A. No. 44 of 1980. He admits having executed the said pronotes along with the second respondent. He also admits having executed the payment slips and consideration receipts in respect of both the transactions. However, he asserts on oath that there was no agreement to pay any interest in respect of the chit transactions. He has also produced the two pass books in respect of the two chits which have been marked as Exhs. R-1 and R-2. Exhibit R-1 relates to chit group NSD-II while Exh. R-2 relates to chit group NSE-II. The last closing entry on April 18, 1974, shows a sum of Rs. 2,000 while in Exh. R-2, the last entry on April 18, 1974, shows a sum of Rs. 1,100. In the light of the admission, it is not necessary to question the transactions themselves, but as already n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... denned to mean and include persons whose annual income from all sources does not exceed four thousand and eight-hundred rupees. By section 6(2) of the KDR Act, it is provided that in a suit or other proceeding in a court, the burden of proof as to whether a person is a debtor or not shall lie on the creditor. In the instant case, the first respondent on oath has stated that he has no income whatsoever and no properties whatsoever since he has closed his business on account of losses sustained by him. The official liquidator has not led any evidence to discredit the statement of the first respondent in this behalf. In fact, the official liquidator has been content with cross-examination of the witness and no evidence whatsoever is led except to obtain admissions in respect of the suit pronotes, Exh. P-1 and Exh. P-5, and other documents connected therewith. Therefore, it is necessary to hold that the first respondent answers to the description and definition of a debtor in the KDR Act. The question is whether on that account the first respondent is entitled to the benefit of section 3 of the KDR Act. I see two difficulties in the way. First, in the aforementioned case, Unico Trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... occurring in sub-section (1) of section 10 of the KDR Act, it is reasonable to construe that the registration required would be in respect of the institution organising the chits and bye-laws has only reference to the memorandum and articles of association of a company or cooperative society which may carry on that activity, as there is no prohibition either in the Karnataka Co-operative Societies Act or the Companies Act for carrying on chit fund activities. I must, at the cost of repetition, say that while the Legislature appears to have the clear intention to exclude the liability incurred on account of chit transactions to be outside the purview of the KDR Act, it is advisable to clearly state so by properly providing for the same instead of the manner in which it has been done. In the view I have taken, the KDR Act itself provides a clear answer to the defence set up by the respondents and, therefore, their plea that they are entitled to the benefit of the KDR Act is also liable to be rejected. There is yet another reason which comes in the way of the respondents seeking the protection of the KDR Act. More than one High Court has taken the view that a liability of a subscri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er a chit transaction was a debt or not, held as follows (headnote): "The normal incidents of a kuri chit transaction are that the chitty foreman and the subscribers enter into a contract whereby the subscribers oblige themselves to pay subscriptions in stated instalments and the foreman obliges himself to pay the prized amount when once the chitty is prized by the subscriber at any instalment. Even when he is a prized subscriber, he has the same obligation to pay future subscriptions arising, not by reason of the fact that he has prized the kuri, but because of the contract entered into by him with the foreman to pay such subscriptions whether the kuri is prized or not. Subscriptions paid by the prized subscribers are not in discharge of the liability for the prized amount because the prize amount is received by the subscriber as of right and not as a loan. The liability to pay future subscriptions in terms of the kuri variyola is only reinforced by the execution of the security bond. Quite often the amount of the security bond may bear no relation to the prize amount. The security bond is only for securing future subscriptions. It is appropriate to treat the obligation to pay t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejected for want of pleadings as well as proof. However, as is customary in chit transactions, the defaulting subscriber is bound to pay interest at the contracted rate which is indicated in the pro-note from the date of his last default till the date the court makes the winding-up order and thereafter from the date of the winding-up order at the statutory rate. This would be the same position in C. A. No. 44 of 1980. Therefore, the respondents will be liable to pay interest in- both the claims from the date of last default at the rate of 18 per cent, per annum and at 6 per cent, per annum after the date of winding-up order till date of application and continue to pay interest at 6 per cent per annum till the date of realisation. Therefore, the claim is disallowed to the extent indicated, i.e ., in the case of C. A. No. 172 of 1980, a sum of Rs. 844 95 is disallowed and interest will be calculated afresh from May 21, 1975, till date of winding-up order at 18 per cent per annum and at 6 per cent per annum from January 6, 1978, to April 5, 1980. Similarly, in C. A. No. 44 of 1980, the claim of Rs. 450 is disallowed for want of pleadings and proof. However, interest in the same m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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