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TMI Blog2005 (3) TMI 826X X X X Extracts X X X X X X X X Extracts X X X X ..... an agreement on 12-5-1995. Under the terms and conditions, the subscribers get dividends so long as they pay the instalments regularly; and the prized subscribers will lose the dividends from the time of default, besides the fact that on such default, he is liable to pay the entire balance of future instalments in lump sum together with interest at 12% p.a. While so, on 28-5-1995, the first respondent herein was declared as the successful bidder, having agreed to forego Rs. 78,530/- and it was confirmed by the plaintiff company. The first respondent herein paid Rs. 80,000/- by way of 16 instalments, leaving future liability to the tune of Rs. 1,20,000/-. The first respondent herein furnished the respondents 2 to 4 as the guarantors and also executed agreement of guarantee jointly on 23-6-1995 in favour of the petitioner company. All the respondents herein have jointly executed promissory note on 23-6-1995. Therefore, on the guarantee of the defendants and in view of the documents executed by the defendants, the petitioner company disbursed the prized amount. Subsequently, the first respondent paid a sum of Rs. 1,40,000/- in all upto 28th instalment and committed defaults from 29th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debt, but to pay in discharge of a contractual obligation and, therefore, accepted that there cannot be a relationship of creditor and debtor between the stake holder and a subscriber in a chit transaction. It is further held that the claim of the plaintiff is not based on the promissory note but on the original cause of action of the agreement between the subscriber and the plaintiff and the cause of action would arise only on termination as provided under the agreement and as such, the contention of the learned counsel for the respondent therein, cannot be accepted. 6. I shall now advert to the decision in Shriram Chits and Investments (P) Limited v. Union of India, based on which the decision in J.S. Sundararaj (1st supra) was rendered by a learned Single Judge of Madras High Court. The Legislative competence of the Parliament in enacting the Chit Funds Act came up for consideration before the Full Bench of the Apex Court. On scrutiny of plethora of decisions, the Apex Court held that the pith and substance, deals with special contract and consequently falls within Entry 7 of List III of the Third Schedule and therefore, the Chit Funds Act is within the legislative competence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utual Benefit Permanent Fund Limited 1982 (2) ALT 48 (SN) based on which the plaint is returned, this court held that it is quite manifest from the promissory note that there is absolutely no reference whatsoever towards the payment of subscription towards chit, as postulated under Sec. 25(2) of the A.P Chit Funds Act and, therefore, no decree can be passed on the basis of the promissory note. It is further held that by payment of the instalments, the subscriber has held out a promise that he would comply with the conditions of the agreement and thereby stopped the running of time against the cause of action arising, and as and when the breach of it occurs, will give rise to cause of action, and it is that point from which the period of limitation starts. 9. Applying the ratio that emerges from the above decisions to the facts and circumstances of the case, in the instant case, condition No. 17 of the agreement of chit between the plaintiff and the defendants contemplates: 17. Period within which subscription for each instalment is payable and the fine and/or penalty for belated payments: Non-Prized Subscriber: If a non-prized subscriber fails to deposit his monthly subsc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e liability of the nominee, legal heirs of the sureties. (a) Authentic/Official receipts are issued against payments made at counters in Foreman's Office or to the Recovery Staff authorized by the Foreman in this connection. The Foreman shall not be responsible for payments made otherwise, or pleaded without receipts. 10. The first respondent herein is a prized subscriber, and therefore, penalty of 6 paise per rupee or part thereof will be charged for the first month. If the default continues over a month, such a person will not be entitled for the dividend in addition to the penalty charges of 6 paise per rupee or part thereof. If the default is continued consecutively for a period of three months, the prized subscriber and the executants of the security bonds or sureties lose the future dividends and the benefit of paying the future subscriptions in instalments with interest at the rate of 12% per annum from the date of default. Therefore, this clause makes it abundantly clear that if the prized subscriber commits default in payment of instalments, the plaintiff Chit company is entitled to impose penalty of 6 paise per rupee or part thereof for the first month, if the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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