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Thanuvan Velayudhan v. Velayudhan Mudaliar Appavu Mudaliar, And Another Counter-Petitioners.
Factual and Procedural Background
This matter is a Civil Revision Petition on a question of law concerning recovery by the foreman (stake-holder) of a chit fund from a prized subscriber for arrears of defaulted subscriptions. The advocate on record for the petitioner did not appear and no one appeared on his behalf. The court declined to dismiss the petition for default and chose to dispose of the petition on its merits. The lower (trial) court had held the suit barred by limitation; the revisional court examined that conclusion and other legal questions and remanded the suit for determination consistent with its directions.
Legal Issues Presented
- Whether the foreman of a chit fund can claim a period of limitation of six years in a suit against a prized subscriber for arrears of defaulted subscription on the ground that the variola of the chit is registered.
- Whether Article 75 of the Limitation Act applies to the case.
Arguments of the Parties
Respondent's Arguments
- The respondent's advocate (Mr. S.A. Nagendran) relied on authorities, including a Travancore High Court decision and a decision of this Court, to show that where there is a registered variola but the suit is based on unregistered security bonds the six-year rule does not apply.
Petitioner's Position
- No appearance was made for the petitioner; there is no detailed account of the petitioner's legal arguments in the opinion.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Kesava Pillai Velayudhan Pillai v. Krishna Pillai Velayudhan Pillai, 1948 Trav. L.R 162 | The Travancore High Court held that where there was a registered variola but the suit itself was based on an unregistered security bond, the six years rule did not apply. | The court treated this decision as applicable and, on the facts before it (registered variola but unregistered security bonds), held that the learned Munsif's decision on the six-year point was correct. |
| Chellamma Jagadamma v. Parameswaran Nair, 1960-1 Ker LR 320 | Followed the principle in Kesava Pillai regarding the effect of registration of variola when suit is based on unregistered security bonds. | The court noted that this decision had followed the Travancore rule and treated it as supporting the conclusion on the first question. |
| Gopala Menon v. Kallingalakath, AIR 1935 Mad 303 | A Madras decision dealing with a chit fund transaction (cited as authority on limitation in such transactions). | The court expressed doubt about the correctness of this Madras decision, stating that upon reconsideration it does not lay down the correct law for the present type of case. |
| Kunjamma George v. P.R Kesava Pillai, 1963 Ker LT 68 | A decision in which the present court earlier had occasion to consider Gopala Menon and had expressed doubt about it. | The present court referred to its prior expression of doubt and confirmed that further consideration reinforces the conclusion that Gopala Menon is not correct law for the circumstances of the present case. |
Court's Reasoning and Analysis
The court proceeded in two stages, addressing each of the two framed questions.
On the first question (six-year limitation based on a registered variola), the court accepted the line of authority that where the suit is founded on unregistered security bonds, the registration of the variola does not permit the foreman to claim the six-year limitation. Applying the Travancore decision (Kesava Pillai) and the subsequent Ker. L.R. decision (Chellamma Jagadamma), the court concluded that, in the present case—though the variola was registered—the security bonds underlying the suit were not registered; hence the six-year rule did not apply and the learned Munsif's decision on that point was correct.
On the second question (applicability of Article 75 of the Limitation Act), the court explained a categorical distinction between:
- a bond or promissory note payable by instalments, where the whole amount is in substance immediately payable but for the instalment clause (so that on default the entire liability is treated as revived and Article 75 can apply); and
- a bond executed by a prized subscriber to secure future instalments in a chit, where the subscriber is only liable to pay instalments as they fall due and the foreman's right on default is merely a right to claim all future subscriptions in a lump (a right which does not automatically make the consolidated amount immediately payable until the foreman exercises it).
The court held that because the consolidated claim does not become due automatically upon default—and limitation does not run until the foreman exercises the right to claim all future subscriptions—the situation does not fall within Article 75. The court further relied on Section 32(1) of the Travancore Chitties Act of 1120, which provides that a foreman shall not be entitled to claim consolidated payment of all future subscriptions from a prized subscriber until he has demanded the same in writing. That statutory provision also prevents time from running against the foreman until a written demand is made.
The court also considered the Madras decision in Gopala Menon v. Kallingalakath and, having previously expressed doubt in Kunjamma George v. P.R Kesava Pillai, concluded that the Madras decision was not authoritative for the present legal principle and should not be followed.
Holding and Implications
The Civil Revision Petition is allowed.
Direct consequences and instructions:
- The stake-holder (foreman) is entitled only to those instalments which had accrued and fallen due within three years immediately prior to the filing of the suit.
- The suit is remanded to the lower court with a direction to fix the amount payable in accordance with the court's conclusions and to pass an appropriate decree.
- The court held that Article 75 of the Limitation Act does not apply to the present type of chit-fund claim and that Section 32(1) of the Travancore Chitties Act of 1120 prevents limitation from running against the foreman until a written demand for consolidated payment is made.
- Because there was no appearance for the petitioner, the parties were directed to bear their respective costs.
The opinion does not state that a new general precedent was established beyond the application of the cited authorities to the facts; it applies existing decisions and statutory provision to the case and remands for a determination consistent with those conclusions.
1. In this case the advocate on record of the petitioner has not appeared, nor has anybody else appeared on his behalf. Being a Civil Revision Petition on a question of law, I do not think it is proper to dismiss the case for default. Moreover, when I look into the judgment, I feel that the judgment is also not correct. Therefore, I propose to dispose of the case on merits.
2. Two questions arise for consideration in the case. One is whether the foreman of a chit fund can claim a period of limitation of six years in a suit against a prized subscriber for arrears of defaulted subscription, on the ground that the variola of the chit is registered.
3. The next question is whether Article 75 of the Limitation Act applies to the case.
4. On the first question Mr. S.A Nagendran the learned advocate of the respondents, has brought to my notice two decisions, one of this Court and the other of the Travancore High Court. The decision of the Travancore High Court laid down in a case, where there was a registered variola, that if the suit itself was based on an unregistered security bond, the six years rule did not apply. The case is Kesava Pillai Velayudhan Pillai v. Krishna Pillai Velayudhan Pillai, 1948 Trav. L.R 162. That decision has been followed by my learned brother Vaidailingam, J. in Chellamma Jagadamma v. Parameswaran Nair, 1960-1 Ker LR 320. In the case before me, though there is a registered variola, the security bonds on which the suit is based were not registered. Therefore, applying the above ruling I hold that the decision of the learned Munsif on this question is correct.
5. But, on the other question, as to whether Article 75 of the Limitation Act applies to the case, I am afraid I cannot agree with the view of the learned Munsif. A bond or a promissory note payable by instalments coming within Article 75 of the Limitation Act is different from a bond executed by a prized subscriber to secure the payment of the future instalments. In the former the amount covered by the bond or promissory-note is immediately payable, but for the instalment clause; and the instalment clause suspends as it were, that immediate liability. If by defaulting to pay the instalments in time that suspension is removed, the liability to pay the entire sum immediately resumes or resettles. In the latter case the prized subscriber's liability is only to pay the future instalments as and when they fall due; but the foreman is given the right by the default clause to claim all the future subscriptions in a lump, or, if I may use the expression, to telescope or consolidate all the future instalments into one, in the event of default. By the mere default of one or more of the future instalments the entire amount does not immediately and automatically fall due. By the default of the subscriber what the foreman gets is a right to claim the entire future subscriptions in a lump; and until he exercises that right by claiming the entire amount it does not become due and therefore limitation cannot run against him. In that view I hold that Article 75 of the Limitation Act cannot apply to a case like this.
6. But, a decision of Madhavan Nair, J. in I. Gopala Menon v. Kallingalakath, AIR 1935 Mad 303 dealing with a chit fund transaction has been brought to my notice. Recently I had occasion to consider that case in Kunjamma George v. P.R Kesava Pillai, 1963 Ker LT 68 and I expressed doubt regarding the correctness of that decision. More thought bestowed upon the question has only confirmed my doubt and my considered opinion is that the Madras decision does not lay down the correct law. According to me, Article 75 of the Limitation Act cannot apply to a case like this.
7. In addition, Section 32(1) of the Travancore Chitties Act of 1120 is also a bar against I the running of time against the foreman until he claims in writing all the future subscriptions in a lump from the defaulting prized subscriber. The sub-sec. lays down that a foreman stall not be entitled to claim consolidated payment of all the future subscriptions from a prized subscriber until he shall have demanded the same in writing. Therefore, until such a demand in writing is made, the amount does not become payable and limitation cannot also run against the stake-holder. In that view also the decision of the lower court that the suit is barred cannot be sustained.
8. The result is the stake-holder will be entitled to all the instalments accrued due within three years immediately prior to the filing of the suit. The Civil Revision Petition is allowed and the suit is remanded with a direction that the lower court will fix the amount and pass an appropriate decree. Since there has been no appearance for the petitioner, I direct the parties to bear their respective costs.
IG/AGT/R.G.D
9. Revision allowed.
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