Sir Charles Gordon Spencer, J.—Two questions have been argued in this Civil Revision Petition. The first is whether the chit transaction, in which the petitioner was the promoter and the respondent was a subscriber, partook of the character of a lottery or consisted of wagering agreements between the subscribers and the promoter. The second is whether the respondent is entitled to recover the money which he subscribed either upon the terms of the contract between him and the petitioner, or by reason of the obligation cast by Sect. 65, Indian Contract Act, upon persons who have received any advantage, of restoring it upon an agreement or contract becoming void or being discovered to be void.
The mere fact that the order in which members of a Mutual Benefit Society take their benefits is determined by the drawing of lots does not constitute the transaction a lottery (vide Wallingford v. Mutual Society.
In the particular form of chit transaction that is before us 500 persons undertook each to subscribe two rupees at each instalment and there were to be 50 drawings at each of which the winner was to get Rs. 100 and walk out without any liability to subscribe for any subsequent instalments. In other words the promoter laid odds of 98 to 2 at the first drawing against any particular subscriber drawing the winning ticket. At the second drawing he laid odds of 96 to 4 with each of the remaining 499 subscribers, and so on till 50 drawings had taken place and 50 subscribers had drawn the prize of Rs. 100.
The promoter was secure against loss as he got two rupees from each of the 500 subscribers for the first instalment and he paid out only Rs. 100 to the winner. After the 50th drawing those who had not drawn a prize were entitled to get their money back without interest. The promoter was able to pay the prizes to those who drew the winning numbers out of the subscriptions paid into his hands by the others, and he recouped himself from loss at the end, by putting the money left in his hands from each instalment of subscriptions out to usury and pocketing the interest. The chance of getting a prize of Rs. 100 for a payment of Rs. 2, at the first drawing, Rs. 4 at the second, and Rs. 6 at the third and so on, free from any further liability to the winner, was the bait for attracting investors. The adventitious character of the gains also had the effect of making the whole transaction a lottery and the agreements between the promoter and the subscribers wagering agreements within the meaning of Sect. 30, Contract Act. All who took part in what the law regards as an unlawful transaction were in pari delu to and no participator in it can invoke the help of the law for enforcing his claims to recover any money entrusted to any person to abide the result of the drawings, even though the return of sums subscribed by those who were not lucky enough to draw winning tickets was one of the conditions of the transaction, I agree with the opinion of Odgers, J., in Nagappa Pillai v. Arunachala Chetty, that the agreement to repay the subscriptions in a case like this is not severable from the prize arrangement. Neither can a subscriber invoke Sect. 65 of the Contract Act, for the agreement in this case did not become void nor was it discovered to be void but it was void for illegality from its inception (see. Indian Contract and Specific Relief Acts by Pollock and Mulla, 4th Edition, pages 365-368); and the object of the subscription, which was the formation of an association for conducting an unlawful system of lottery has been accomplished. When money has been paid under an illegal contract which has been partially carried into effect it cannot be recovered back. (Vide Kearley v. Thomson).
The respondent's vakil relied upon Shanmugha Mudali v. Kumaraswami Mudali(3) which, with due respect, I feel difficulty in regarding as a decision based on sound principles. That case and the one before us possess the common feature that the prize winners in the first 50 drawings were not bound to subscribe to instalments after they had won a prize. The significance of this feature in a chit transaction, which makes it a gamble, has been missed by the learned Judges. In In re Duraisamy Mudali(4) there was a similar feature in a chit transaction and it was observed by Collins, C.J, and Shepherd, J.
“This is clearly a lottery, for it depends entirely on the drawing of lots whether or not the prize of Rs. 100 falls to any given subscriber. As the prize winner thereafter ceases to be a subscriber to the fund, it must necessarily follow that the rest out of whose subscriptions be prize has been paid and who continue to he subscribers, are the lesers”.
In Shanmugha Mudali v. Kumarswami Mudai, Venkatasubba Rao, J., expresses an opinion that the fact that the money for the prizes really comes out of the interest on the capital fund contributed differentiates this case from other cases of lotteries. He says at p. 409.
“What the 449 members lose is the interest in their money and what the first 49 members gain is a portion of the interest thus lost by the other subscribers.”
But in Richards v. Starck, it was held that the loss of interest upon a subscriber's subscription was a sufficient loss to make a contract resting on a future event of an uncertain nature a gaming or wagering contract. In the present chit transaction, out of 500 subscribers there were 450 losers of interest on their money deposited with the promoter. The remaining 50 made a gain, the amount of which varied according to an order determined by the drawing of lots which thus depended not on skill but on pure chance.
It is true, as Ramesam, J., observes, that the Criminal law by Sect. 294-A.? Indian Penal Code, only makes punishable the keeping of an office for holding a lottery and the publication of proposals for drawing a lottery. The Civil law, however, goes further and prevents obligations arising out of lotteries being enforced in a Court of law, whether the lottery is held in an office to which the public have access or in a private place to which admission is not to be had for the more asking. The learned Judges were evidently much influenced in their decision by the case of Wallingford v. Mutual Society. That was a case of legitimate business free from speculation in which there were no losers and no one gained an unearned sum of money by the chance of drawing lots. The same may be said of the kuri chit dealt with in Vasudevan Nambudri v. Mammod.
The Civil Revision Petition is allowed with costs and the plaintiff's suit is dismissed.
Plaintiff and defendant will each bear their own costs in the trial of the Small Cause Suit in the District Munsif's Court.
Madhavan Nair, J.:—I have had, the advantage of reading my learned brother's judgment with which I agree. The suit which has given rise to this Civil Revision Petition was instituted by the respondent for the recovery of a sum of Rs. 119-13-5, being the principal and interest due to him on account of the 48 instalments of subscriptions paid by him to a chit fund conducted by the petitioner. The chit fund consisted of 500 subscribers, each subscribing Rs. 2 per mensem. At the end of each month a chit was drawn by lot and the winner was paid Rs. 300. Thereafter his connection with the chit fund ceased altogether and he was not under any obligation to continue his subscriptions. According to the rules of the fund the drawings would thus go on for 50 months when the chit fund would be wound up, the stakeholder paying back to the remaining subscribers the total amount subscribed by each of them. The respondent, a non-prize-winner, after subscribing for 48 instalments asked the petitioner the stakeholder, to return to him with interest the money he has subscribed. The petitioner refusing to refund the amount contended that the chit fund was a lottery and that a suit was not maintainable to recover the amount. The learned District Munsif holding that the chit in question is not a lottery so far as non-prize-winners like the plaintiff are concerned, gave him a decree for the amount claimed.
It is argued for the petitioner that the transaction set-forth above constitutes “agreements by way of wager” between the stakeholder and the subscribers and, as such is void both on principle and on the authority of the decisions of this Court and that, therefore, the decree of the Lower Court should be set aside. In Sunkunni v. Ikkora Kirtti, it was held by Phillips, J., that a “kuri” conducted on similar lines is a lottery and that the plaintiff's suit to recover the money paid is not maintainable. This decision was followed by Krishnan and Odgers., JJ., in Nagappa Pillai v. Arunachelam Chetty though the learned Judges differed on the question whether it was possible to hold that the agreement to repay the subscriptions at the end of the period was severable from the arrangement to give the prize. In Shanmuga Mudali v. Kumaraswami Mudali, Ramesam and Venkatasubba Rao, JJ., did not follow these decisions, their opinion being mainly influenced by a decision of the House of Lords in Wallingford v. Mutual Society. It may be stated that the chit fund in all those cases was conducted in the same manner as in the present case, the successful drawer of the ticket having nothing to do with the chit fund after drawing his prize.
In the light of these decisions and of what is meant by an “Agreement by way of wager”, we have to determine whether the present case has been rightly decided by the learned District Munsif.
The Indian Contract Act does not contain any definition of a “wagering contract.” Sect. 30 states that agreements by way of wager are void. In Thacker v. Hardy(5), Cotton, L.J, said:
“The essence of gaming and wagering is that one party is to win and the other to lose upon a future event, which at the time of the contract is of an uncertain nature—that is to say, if the event turns one way A will lose, but if it turns out the other way B will win.”
In Subramanian Pattar v. Kirudadasan alias Thirumalapad Avergal(6), it was pointed out that in a chit fund transaction the contracting parties are the stakeholder on the one side and each of the subscribers on the other side and there are as many separate contracts as there are subscribers. On analysis it will be found that the contract of the stakeholder with the subscribers in the present case partakes of the nature of a wagering contract. As pointed oat in my learned brother's judgment:
“The promoter laid odds of 98 to 2 at the first drawing against any particular subscriber drawing the winning ticket. At the second drawing he laid odds of 96 to 4 with each of the Remaining 499 subscribers, and so on till 50 drawings has taken place and 50 subscribers had drawn the prize of Rs. 100.
This shows that the arrangement is really a bet between the subscribers and the stakeholder as to how a future event of an uncertain nature, i.e, the drawing of a winning ticket will eventually turn out. If a subscriber happened to draw one of the “winning tickets”, i.e, if the uncertain event turned one way, obviously he would gain an increased amount of money; would he lose, if the event turned out the other way.
Since, according to the rules, the non-prize-winners get back their subscription-amount, it is argued that the present case falls within the principle of the decisions in Iyyanar Kone v. Vidoomada Kone, Kamakshi Achari v. Appavu Pillai and Vasudevan Nambudri v. Mammod, wherein it was held that, in chit fund transactions to which subscribers contribute monthly subscriptions, each subscriber in his turn as determined by lot taking the entire subscription for one month, there was no element of chance or risk, the money paid by each subscriber being eventually returned to him. In Kamakshi Achari v. Appavu Pillai, such a transaction was thus characterised by the learned Judges:
“It is not the case of a few out of a number of subscribers obtaining prizes by lot. By the arrangement all get a return of the amount of their subscriptions. It is simply a loan of the common fund to each subscriber in turn and neither the right of the subscribers to the return of the contributions, nor to a loan of the fund is made a matter of risk or speculation. No loss appears to be necessarily hazarded, nor any again made a matter of chance.”
I do not think the same can be said of the transaction in the present case. I have already shown how the subscriber's gain is made a matter of chance. As regards the loss, the plaintiff, no doubt gets back the entire capital which he has subscribed. In one sense, therefore, it is true that the transaction involves no loss in any event to the plaintiff as he is to have his money returned to him, but he loses his interest. In England it has been pointed out in 2 cases of wagering contracts, similar in this respect (viz., Loss of Interest) to the present case, that this “loss of interest” is “sufficiently a loss to bring the contract within the spirit, though not perhaps within the actual wording, of the definition” of a wagering contract (see Richards v. Starck). In In re Doraismy Mudali, in which also as in the case before us, the prizewinner after securing the prize ceased to be a subscriber the fund closing after a stated period with a refund of their subscriptions to the unsuccessful members, it was held by Collins, C.J, and Shepherd, J., that the transaction is clearly a lottery, “for it depends entirely on the drawing of lots whether or not the prize of Rs. 1,00 falls to any given subscribes”. The learned Judges state:
“As the prize winner thereafter ceases to be a subscriber to the fund, it must necessarily follow that the rest, out of whose subscriptions the prize has been paid and who also continue to be subscribers, are the losers. The case, therefore, is quite different from that in Kamakshi Achari v. Appavu Pillai.
These decisions were not brought to the notice of the learned Judges in Shanmugha Mudali v. Kumaraswami Mudali.
In my view, the agreement in this case shows that the plaintiff gave his subscriptions to the defendant upon the terms that, in an uncertain future event, he was to recover, if that event went one way, the sum subscribed with considerable increment; and, in the other event he was to recover the total amount subscribed by him but without interest. This means that the transaction, is, in substance, a wagering contract, which may be described, in the language of Channel J., in Richards v. Starck.
“As a bet on terms very favourable to the plaintiff.”
For the above reasons, I am of opinion that the decisions; in Iyyanar Kone v. Vidoomada Kone, Kamakshi Achari v. Appavu Pillai and Vasudsvan Nambudri v. Mammod, are clearly distinguishable and that the chit fund transaction in this case is an agreement by way of wager and is, therefore, void.
In the decision in Shunmugam Mudali v. Kumaraswami Mudali, strongly relied on by the respondent, the learned Judge, Venkatasubba Rao, J., states:
“There is some element of chance, in regard to the first 49 subscribers; but the dominant feature of the transaction is that it enables a large number to gradually lay by money and receive their savings in a lump sum and the scheme is in their case an incentive to thrift.”
With due respect to the learned Judge, I am inclined to think, that it cannot be said that the primary object of a person in taking a chit in a fund like the present one is to lay by money for receiving it back in a lump sum. The chance of winning a prize of Rs. 100 on payment of a subscription of Rs. 2 at the first drawing, Rs. 4 at the second drawing, and so on during the fifty drawings is the attraction which tempts the subscribers to join in such a chit fund.
In arriving at their conclusion the learned Judges in Shunmuga Mudali v. Kumarasamy Mudali were mainly influenced by the decision of the House of Lords in Wallingford v. Mutual Society. In that case a society called the “Mutual Society” was registered under the Companies Act. Its declared object was to accumulate capital by means of monthly subscriptions from members) to advance such capital to the members on rotation, to secure payment of such advances by taking over and holding real or other securities—and ultimately to divide among the members all the profits that had been made. The mode of operation of the Society appeared to be this: To obtain subscription from members, to advance them money, on interest, upon “certificates of appropriation”. By Art. 27 it was declared that,
“Appropriations shall be allotted in two ways, the first and every fourth one thereafter, by drawing, free of any premium or interest, while those intermediate shall be allotted to the member or members tendering the highest premium for the same respectively.”
All appropriations were to be repaid by equal quarterly payments extending over twenty years from the advance. It was held that though the benefits of the society were made available to the members by a process of periodical drawings, the society did not come within the mischief of the Lottery Acts and that the transaction it carried on was not a gambling transaction. The facts of the case show that amongst the subscribers, there were no losers and no one derived any undue gain by the chance of drawing lots. As pointed out in 15 Halsbury, 301.
“Where the scheme has, for its object, the carrying on of a legitimate business, the fact that it provides for the distribution of its profits, in certain events, by lot will not vitiate the scheme”.
The case resembles the decision in Kamakshi Achari v. Appavu Pittai and Vasudevan Nambudri v. Mammod already referred to and on principle is clearly distinguishable from the present case. It may be mentioned that Ramesam, J., deals with the case in Shanmugha Mudali v. Kumaraswami Mudali as a suit to enforce the terms of a contract collateral to another transaction which can be enforced, even when the main transaction is void on account of being a wagering contract, unless it amounts to an offence punishable by law; though, in the course of the judgment, the learned Judge agrees with Venkatasubba Rao, J., that the main contract itself is not void.
The respondent argues that if the transaction is an agreement by way of wager and is invalid on that account, he is still entitled to get a refund of the amount claimed by him, either under Sect. 65 of the Indian Contract Act, or on the ground that the agreement to return the amount is severable from the arrangement to give the prize. I entirely agree with the opinion of Odgers, J., in Nagappa Pillai v. Arunachellam Chetty for the reasons given by him in that judgment that the claim of the respondent in this case cannot be substantiated on either of the above grounds.
In the result, I must hold that the decision of the learned District Munsif is wrong, and the Civil Revision Petition must be allowed with the costs as ordered by my learned brother.
K. V. S.Revision allowed.