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TMI Blog1974 (10) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... vision 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vancore 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 even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench since it was felt that the decision in Raghavan v. Subbrama Sastrigal, 1971 KLT 231, requires reconsideration. ( 6. ) The question whether a particular stipulation in a contractual agreement is in the nature of a penalty has to be determined by the court against the background of various relevant factors, such as the character of the transaction and its special nature, if any, the relative situation of the parties, the rights and obligations accruing from such a transaction under the general law and the intention of the parties in incorporating in the contract the particular stipulation which is contended to be penal in nature. If on such a comprehensive consideration, the court finds that the real purpose for which the stipulation was incorporated in the contract was that by reason of its burdensome or oppressive character it may operate in terrorum over the promiser so as to drive him to fulfil the contract, then the provision will be held to be one by way of penalty. ( 7. ) Where a contract provides for payment of money in instalments and contains also a stipulation that on default being committed in paying any of the instalments the whole sum shall become payable at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h, it is consistent both with principle and with authority to hold, that if the party who ought to have paid them, or any of them at the proper time failed to do so, the default was his own, and the time might lawfully be accelerated for the other payments which were originally deferred. I think, therefore, that it would not be right for your Lordships in your order to give effect to that contention on the part of the Appellant .... Based on the above dictum laid down by the House of Lords and also subsequent pronouncements by the English courts reiterating the same principle the law on the point has been succinctly summarised in Halsbury's Laws of England (third edition), Volume 3, Para.655 in the following terms: Where a bond is conditioned for the payment of a sum of money by stated instalments, and it is provided that in default of payment of any one instalment the whole sum remaining unpaid shall become payable, the acceleration of the payment of the remaining instalments is not a penalty, and on default in respect of any instalment the entire sum may be claimed. The same principle has been embodied in illustration (f) to S.74 of the Indian Contract Act, 1872 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain made a matter of chance, though some of the subscribers may gain their prizes earlier than others . Again in Guru Narasimha Aiyer v. Muthuswamy Chidambaram, 18 TLR 56, the same High Court observed as follows: -- An ordinary chitty however is essentially a loan transaction in which each subscriber gets a loan from a common fund, only the order of taking the loan is settled by lots and to that extent the getting of interest alone as distinguished from the principle is made to depend on chance. Further the benefit of the loan is given to all alike . Observations to the same effect have been made by the Madras High Court in Kamakshi Achari v. Appavu Pillai Madras 1 High Court Reports 448 and Vasudevan Nambudri v. Mammod, ILR 22 Madras 212. ( 11. ) Recently in The Commissioner of Income Tax, Kerala v. The Kottayam Cooperative Bank Ltd., Kottayam, ILR 1974 (1) Kerala 602: 1974 KLT 510 , a Division Bench of this court while dealing with the question that arose under S.80P(2)(a) (i) of the Income Tax Act, 1961 had occasion to consider whether in conducting a chit fund a cooperative society could be said to be providing credit facilities to its members. The observations con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Cases 685, the stipulation contained in the kuri security bond entitling the foreman to recover from the prized subscriber the whole of the balance amount due from him in a lump sum on his committing default in payment of any of the instalments cannot be regarded as a penalty clause. In this context it is necessary to remember that in the case of a stake holder (foreman) of a chit his relation to the subscribers is of such a special nature that special necessity exists justifying stringent provisions being - incorporated in the agreement for the protection of his interest. Without punctual payments by the individual subscribers the foreman will not be in a position to discharge his obligations to those who prize the kuri from time to time and hence it is necessary that he should reserve to himself powers to enforce such payments. It is in furtherance of this objective of ensuring prompt payments that the stipulation is incorporated in the bond empowering the foreman to recover in a lump sum the entirety of the balance amount due in respect of the future instalments on default being committed by a prized subscriber in prompt payment of any of the instalments. We are clearly of op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled to pay their subscriptions were liable to pay the whole amount on demand with interest at 1 1/2% per mensem. The contention that the said stipulation was in the nature of a penalty was rejected by the learned Judges following the view taken in an earlier unreported decision of the same court in S. A. No. 23 of 1902. The same principle was subsequently reiterated by Venkatasubba Rao, J. in P. Sankuni Menon v. Empire of India Life Assurance Co., Ltd., Bombay, AIR 1932 Mad. 241 , and by Ananthakrishna Ayyar, J., in a very illuminating judgment in M. Kunju Nair v. Narayanan Nair, AIR 1933 Mad. 252 . Even though a dissenting note was struck by Srinivasa Aiyangar, J. in two cases decided by the learned Judge sitting singly Ramalinga Adayiar and others v, Meenakshisundaram Pillai and others, AIR 1925 Mad. 177 , and Subbiah Pillai v. Shanmugam Pillai and others, AIR 1928 Mad. 245 the latter decision was reversed on Letters Patent Appeal by a Division Bench consisting of Beasley, C. J. and Bardswell, J. in Subbiah Pillai v. Muthiah Pillai and others, AIR 1933 Mad. 657 . The Division Bench approved the dictum laid down in Vaithinatha Iyer v. Govindaswami Odayar AIR 1922 Mad. 67 , and he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be occupying any position of vantage which would enable him to dominate the will of a subscriber. Persons join as subscribers in a chit fund of their own free will. After having knowingly and voluntarily agreed to abide by the rules and conditions of the kuri they cannot be heard to contend that they should be relieved of their obligations under the chit fund transaction on the ground of alleged unconscionableness of the bargain. ( 19. ) All that we have said while dealing with the stipulation for recovery of all the future instalments due by a defaulting prized subscriber in a lump sum are equally applicable in respect of the provision contained in the bond making the prized subscriber liable for interest at 12%. As already pointed out, the relationship between the foreman and the subscribers in a chit fund transaction is of such a nature that there is special necessity and justification for making stringent provisions for the protection of the interests of the foreman. Viewed against such background, the provision for interest at 12% cannot be regarded as unconscionable. In Vaithinatha Iyer v. Govindaswami Odayar, AIR 1922 Madras 67, a similar stipulation for payment of inte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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