1. This appeal is by the 2nd defendant in O. S. No. 240 of 1950 on the file of the Subordinate Judge, Nellore. That was a suit instituted by the 1st respondent for recovery of a sum of Rs. 10,234-10-8 from the appellant and two others. The suit was decreed both against the 1st and 2nd defendants and dismissed against the 3rd defendant. The 1st defendant has not filed any appeal nor is there any appeal filed by the plaintiff seeking relief against the 3rd defendant.
2. Before we consider the arguments, it is necessary to state a few facts and give a resume of the pleadings. The plaintiff is a Bank with its Head Office at Madras and a branch office at Nellore. Apart from conducting other kinds of banking business, it runs what are known as chit fund transactions. Every person who subscribes to such a fund pays for a fixed number of months a monthly subscription whereof the amount varies according to what is fixed as the prize amount. Once every month there will be an auction at which the person who-offers to pay the largest discount is declared the successful bidder and he is awarded the prize amount.
But even after receiving it, he will still be liable for the subscription for the period of the duration of the fund. The plaintiff started the suit chit fund which was called Chit Fund No. 120/M and the prize amount was Rs. 10,000/-. It was to run for a period of 50 months and each subscriber was to pay a monthly subscription of Rs. 200/-It was started on 10-12-1946 and at the auction on 10-3-1957 the 1st defendant became the successful bidder he having made a bid for Rs. 6,795/-. By then he had paid five instalments of subscription find bad to pay 45 more, that is to say, he had still to pay Rs. 9,000/-.
Under the rules governing the fund, every successful bidder had to furnish security to the satisfaction of the plaintiff for the due payment of the future instalments. In the present case, according to the plaint allegations 'the defendants executed a promissory note dated 6-5-1947 in favour of the plaintiff-Bank for Rs. 9,000/- being the amount of unpaid 45 instalments and also a letter of the same date undertaking to pay the said sum in monthly instalments with interest at 12 per cent per annum with quarterly rest from the date of default of any instalment'.
The plaint proceeds to state that the 1st defendant paid seven more instalments aggregating to Rs. 2,400/- and committed default on 10-12-1947, when the 13lh instalment fell due. The plaint further avers that notices were given to all the defendants informing them of the default committed and demanding payment of the amount. The defendants received notices but did not make any payment. It is further stated in the plaint that the plaintiff bases its claim 'on the original chit fund contract as also on the suit promissory note and on the letter executed as security in respect of the unpaid instalments.'
3. The three defendants filed three different written statements but we are only concerned with that of the appellant. The material paragraphs therein which are brief may he extracted.
'3. The suit promissory note is not fully supported by consideration. Admittedly it was only a sum of Rs. 6,795/- that was paid to the 1st defendant. The 1st defendant appears to have paid in all Rs. 2,4007- towards the suit promissory note. Giving credit to this amount a sum of Rs. 4,395/-alone would he due to the plaintiff,
4. The chit-system conducted by the plaintiff is illegal and opposed to public policy. It amounts to lottery and the suit promissory note is therefore void and unenforceable.
5. The plaintiffs suit is further barred by law of limitation.''
The pleas embodied in paragraphs 3 and 4 of the written statement have not been seriously pressed in the Lower Court nor have they been raised before us.
4. Mr. Venkata Subbarao for the appellant however endeavoured at first to raise a point not covered by any one of these picas viz., that there was subsequent to the suretyship agreement a material variation in the contract between the creditor and the principal debtor without reference to his client and that he was consequently discharged from his obligation. At a latar stage of the hearing however he realised that he could nut pursue the point, because a plea of variation was not raised in his written statement and as it requires investigation of facts cannot be raised for the first time in appeal.
It is true that in his memorandum of grounds the appellant asserted that the learned Subordinate Judge erred in stating that he (the appellant) had raised no plea that he was discharged from his obligation by the variation of the terms of the contract between the Bank and the 1st defendant. But the real objection is that the facts necessary to sustain a pica of that sort have not been cut in issue.
5. The only point of substance that requires consideration in this appeal is therefore one of limitation. Before we go into it, it is necessary to note that though the plaint has stated that default for the first time occurred on 10-1.2-1947 i.e., the date of the 13th instalment, the evidence discloses that as a matter of fact no payment was made at all by the 1st defendant towards any of the instalments after the date of the promissory note but the Bank appropriated certain sums at its disposal to the credit of the 1st defendant towards the aggregate sum due for seven of the instalments in arrear.
That is how the plaint allegation as to default from the thirteenth instalment is to be understood. This adjustment was made in the following circumstances. According to P.W. 1 who is the Assistant Agent of the plaintiff-Bank, every subscriber to a chit-fund has to open what is called a chit fund Savings Bank account into which he can pay small amounts off and on, which, when they accumulate, may enable the subscriber to a chit fund: to meet his instalments.
It appeal's from Ex. A-18 which is the chit Savings Bank Pass-book relating to the 1st defendant covering the period from 16-5-47 to 27-9-1951 that there was in that account a sum of Rs. 1,339/, 10/0 to his credit. The book shows that out of this a sum of Rs. 1,204/14/0 was adjusted towards the instalments due from the 1st defendant in respect of the suit chit fund and the balance was adjusted to some other account. The 1st defendant as D.W.I denied having authorised any such adjustment.
Indeed he went so far as to deny knowledge even of the chit Saving account. That only shows, how unveracious he is. There is, however, on record, a letter Ex. A-ll dated 27-10-1949 in which the 1st defendant stated that he had lost the passbook relating to his Savings Bank Account and that he would like to have a copy of that account. P. W.1 in his evidence, says that it was on the date of that letter, i.e., on 27-10-1949, that the Bank made the adjustment of the saving bank amount towards the instalments due in respect of the chit-fund.
If as averred in the plaint the adjustment was towards the aggregate amount due in respect of seven instalments, the sum required would be Rs. 1,400/-. How the sum of Rs. 1,204/14/0 was therefore appropriated towards seven instalments is not clear. No explanation is offered by P.W.I. He only says that the lump sum of Rs. 1,204/14/0 was credited towards the seven instalments.
It is contended for the appellant that this appropriation was unauthorised by the 1st defendant that the first details must be deemed to have been made by him on 10-5-1947, that under the chit-fund rules the plaintiff thereupon became entitled to enforce his right to the payment of the whole amount and that the suit having been filed on 30-10-1950 beyond a period of three years from thab dale, is barred by time.
6. Now, Section 128 of the Indian Contract Act, lays down that the liability of the surety is coextensive with that of the principal debtor, unless it is otherwise provided by the contract. Two questions therefore arise for determination. Firstly, when did the liability of the defendant arise under the chit-fund rules, and secondly, when, in consequence, did that of the sureties arise under the promissory note dated 6-5-1947? At one stage of the arguments, Mr. Venkata Subbarao contended that his client was not aware of the rules of the chit-fund and not even of the fact that the promissory note, was made in relation to a chit-fund.
This contention it is perfectly clear, cannot for a moment be sustained in view of the appellant's picas in his written statement. Not only did he not say that he is not aware of the chit-fund transaction of the 1st defendant and that therefore he had no notion that the promissory note he was signing was in relation to a chit-fund, put on the other hand, he endeavoured to maintain that the chit system conducted by the plaintiff was illegal and opposed to public policy.
In view of this specific plea it is impossible to hold that the 2nd defendant was ignorant of the fact that the promissory note he signed was in. connection with the chit-fund or that he was un-aware of the terms of the chit-fund in respect of which he was undertaking the obligation of suretyship. Further, the terms of Ex. A-2, a letter which bears the same date as that of the promissory note, supports the view that the 2nd defendant was aware of the chit-fund transaction, it is a letter signed by the three promisors of the promissory note, and it contains the following material sentence :
''We hereby undertake to close the loan within 45 months from this date positively, failing which we agree to he charged with such other enhanced rate of interest as you may then fix on the loan for the overdue period.'
7. We, therefore, propose to proceed upon the footing that the appellant was aware of the nature and terms of the contract between the creditor and the principal debtor which he understood to guarantee. We must ascertain first the nature of the contract between the 1st defendant and the plaintiff and then the situation in which the liability under the suit promissory note would arise.
It is needless to point out that the promissory note though fully supported by consideration would remain unenforceable so long as the instalments payable by the 1st defendant in respect of the chit-fund were being regularly paid. It is only on default of payment of one or more of such instalments that the contract of guarantee of which Ex. A-l is the material embodiment, would at all become enforceable. Now, the relevant rule in Ex. B-1 which is a copy of the printed rules relating to the chit-fund, is in these terms :
'If default in the due payment of subscription for any one instalment be made by a subscriber who has received his prize, the Bank will, immediately on the happening of such default, become entitled to recover from him the arrears together with the full amount of subscriptions due for all future instalments in one lump sum with, interest, on the aggregate sum at one per cent per mensem from the date of default without any claim for any deduction on account of discount.'
The argument has mainly therefore centred round this clause and canvassed at considerable length its legal effect. On behalf of the appellant it was contended that the case fell within the scope of Article 75 of the Limitation Act, and that unless the Bank could be said to have waived the benefit of the provision, the first default which was really on 10-5-1947, constituted the terminus a quo. It is pointed out that there was no proof, not even a plea of waiver in the present case.
So it is argued that if time began to run against the plaintiff, as well as the sureties from 10-5-11947, the suit filed on 30-10-1950 was clearly barred. On this submission it becomes material to determine when the first default took place. If it took place on 10-5-1947, and the liability of the sureties too arose, eo instanti, the suit on the promissory note would be obviously out of time. If on the other band, the first default was on 10-12-1947 as the plaint stated it would be within time because the liability of the sureties could not spring into being before the principal debtor's own liability arose.
But as we have already indicated the case in the plaint cannot be held to have been established. In the first place, there was not a sum of Rs. 1,400/-available in the savings Bank account of the 1st defendant, for being credited to the chit-fund account. Secondly it is not established that the adjustment was made with the consent of the 1st defendant because though P. W. 1 stated at one stage of his evidence, that he (the 1st defendant) authorised the adjustment, he later admitted that the Bank did not obtain any such authorisation. Now tile sum of Rs. 1,200/- available with the Bank could only meet six instalments, and then the default would be on 10-11-1947.
It is true that in the latter case the suit would still be in time. But then, we would be proceeding on a basis different from that on which the plaint proceeded in order to claim exemption from the bar of limitation. It may however be noted that though the written statement raised a plea of limitation, there are no averments of fact in support! of such a plea. Therefore although it is true that we must dismiss a suit as barred by limitation --if the facts disclose that it is -- even when the defendant has not raised such a plea, we must make sure that it is so barred on the facts established on the evidence.
Now even if the plaint case of payment of seven instalments from 10-5-1947 to 10-11-1947 is not accepted and even if the first default should be held to have occurred on 10-5-1947, the question would still remain whether the promissory note became automatically enforceable against the promisors immediately on the date of the first default i.e., on 10-5-1947.
It is argued for the respondent that the promissory note became enforceable not on the date of the first or any other default made by the principal debtor hut when notice of such default was given to the sureties and they were intimated that their liability under the promissory note would be enforced.
8. As we have reached the conclusion that in the circumstances of the case, the view submitted by the respondent on this point is the proper view to take, we do not propose to record any finding on the question, as to when the first default occurred, i.e., whether it was on 10-5-47 as the appellant would have it, or on 10-11-1947 as above-indicated or on 10-12-1947 in accordance with the plaint case.
The nature of the surety's liability and the answer to the question whether or not a demand is necessary before a suit could be maintained against a surety, clearly depend upon the terms of the contract of suretyship. It is open to the parties under Section 128 of the Indian Contract Act to agree that the liability of the surety shall arise only in a particular contingency. On a review of all the facts and circumstances of this case we think that it was the intention of the parties that Ex. A-l should come into effect only when the sureties were notified of the default of the 1st defendant.
This seems to us to follow apart from the terms of Rs. A-2 and A-3--though it may be noted that Er. A-3 is not signed by the sureties but only by the principal debtor, -- from the nature of the chit-fund transactions and the terms we have already extracted from Ex. B-l embodying the chit-fund rules. These rules indeed provide for the right of the Bank to enforce at once the whole of the outstanding liability. But this must only be, we think if it chose to do so. In this connection, it must be borne in mind that it would hardly conduce to the success such a clause simply because it had the right to do so.
The Bank is as much interested in running such transactions as the subscribers and such transactions could not be successfully run if the Bank did not show forbearance where such forbearance could be shown without detriment to the Bank's interests. We are inclined therefore to construe that clause as giving an option to the Bank to enforce or not the liability for the whole according as it thought fit. If the Bank had an option, then until it elected to enforce its rights, the liability for the whole would not arise. I But such a liability cannot arise as a result merely of a subjective decision by the Bank.
The decision should, of course, be communicated to the persons to be rendered liable. So, it is not only when the Bank decided to do so, but that decision was communicated to the promisees that the liability under the promissory note would, in our opinion, commence.
9. Now it is not disputed that the first and indeed the last notice received by the sureties as to the default of the 1st defendant is dated 17-9-1948--vide Ex. A-24. It is true that therein the date of default is mentioned as 10-5-1947. But that in our opinion makes no difference to the date of the accrual of the right in favour of the Bank to proceed against the sureties. (10) It is contended however by Mr. Venkata Subbarao that the material clause in Ex. B-1 cannot be construed in the way we propose to construe it because there is authority to the contrary. He has referred us to three cases of the Calcutta High Court --Mohesh Chandra v. Prosanna Lal, ILR 31 Gal 83 (A), Jadab Chandra v. Bhairab Chandra, ILR 31 Cal 297 (B), and Basanta Kumar v. Navin Chandra, ILR 53 Cal 277 : (AIR 1926 Cal 789) (C). The first of these cases, Mohesh Chandra v. Prosanna Lal (A) dealt with an instalment-bond which gave the creditor the right to sue for the whole amount due thereunder on default of payment of a single instalment. The learned Judges held that mere acceptance by the creditor of part of an overdue instalment or receipt of interest did not amount to waiver of that right.
The contention of the defendants in that appeal was that the suit was premature because the plaintiff had waived the benefit of the provision by receipt of the amounts due for the subsequent instalments or interest thereon and that he could not sue for the whole. They held that the defendants had not established that there was such waiver on the part of the plaintiffs. The clause in the instalment bond which the learned Judges wore construing provided that all the instalments were to be ineffectual and the whole amount would become due with interest at one per cent per month after the first default of the instalments.
That would seem to bring the cause under Article 75 of the Limitation Act which speaks of cases where the whole amount shall be due. This case does not in our opinion throw any light upon the construction of a clause such as that we are dealing with nor are we concerned in the present case with any question of waiver.
11. The case, Jadab Chandra v. Bhairab Chandra (B), dealt with a money bond the material provision wherein was to the effect that on failure to pay any one of the said instalments the plaintiff in that suit should be at liberty to realise the amount covered by all the instalments immediately with interest. Their Lordships relied on Mon Mohan Roy v. Durga Churn, ILR 15 Cal 502 (D) and Hurri Pershad v. Nasib Singh, ILR 21 Cal 542 (E). This later decision differed from the earlier view of that Court as expressed in Chunder Komal Das v. Bisassurree Dassia. 13 Cal LR 243 (F), and held that limitation began to run against the plaintiff from the time when the first had his right to sue, unless it was proved that he had waived the right to demand the whole on default being made.
They also rejected the further contention on behalf of the plaintiff that his mere abstinence from suing amounted to waiver. It is unnecessary for us to consider whether this latter view of the learned Judges is right. We may in passing however observe that it seems to us that it is possible to argue that there is a difference between the nature of the evidence which would be necessary to sustain a plea of waiver on the part of a person claiming certain benefits to accrue to him by waiver by another of his (that other's) rights and the nature of the evidence necessary to sustain a plea on the part of a person who claims to have waived the right. The same view of the effect of such a clause was takes by another bench of the Calcutta High Court in Basanta Kumar v. Nabin Chandra, (C). A different note however was struck by the Allahabad High Court in Ajudhia v. Kunjal, ILR 30 All 123 (G), where a Bench of that Court dissented from Hurri Pershad v. Nasib Singh (E), and Jadab Chandra v. Bhairab Chandra (B). In doing so, they referred to the remarks made in an earlier case decided by their own Court Maharaja of Benares v. Nand Ram, ILR 29 All 431 (H), and observed as follows : --
'We agree with the remarks of the learned Judges who held in the last-mentioned case that it would bo very unfortunate if the view contended for by the appellant is sustained, as it would he to punish the creditor for forbearance shown to his debtor and compel him to press his demands at the earliest opportunity. It is conceivable that a bond might be so worded as to compel a creditor to sue for the whole amount immediately if any default occurred. The bond with which we have to deal is not so worded. It merely gives the creditor an option.'
12. But Mr. Venkata Subbarao would have it that this case was overruled by a Full Bench decision of that High Court in Jawahar Lal v. Mathura Prasad, ILR 57 All 108 : AIR 1934 All 661 (FB) (I); but we cannot agree with him. There each of three learned Judges who composed the Full Bench wrote separate judgments. The learned Judges were concerned with an instalment bond whereunder the debtors stipulated to pay a sum of Rs. 540/-with interest at the rate of one per cent per mensem by instalments of Rs. 25/- a month within one year and nine months.
There was a provision that in case the fixed instalments or the interest thereon were not paid for any two successive months, then the creditor would be authorised to realise the entire amount of principal and interest together with costs in a lump sum either within the stipulated period or after it. The period fixed would have expired on 5th June, 1929. On 21st May, 1928, default having been committed in the meanwhile, the creditor served a notice on the debtor claiming that the whole amount of principal and interest had become due and should be paid within a week of the receipt of the notice.
He also served a second notice dated 11th April, 1930, i.e., after the expiry of the period, demanding payment of the whole amount. A suit was filed on the 25th of July, 1931 for the recovery of the entire amount. Sulaiman C.J., said that the only question in the case was whether the money had become due within the meaning of column 1 of Article 75 of the Limitation Act and he pointed out that if Article 75 applied there could be no application of Article 74 which, according to him, applied only to cases of simple instalment bonds.
He alternatively held that if Article 80 applied, time would begin to run from the date when the money became payable, and that it became payable when the creditor exercised his right to insist upon the payment of the whole amount, and that in the case before him by serving the notice of demand OB the defendant the creditor had exercised such an option and made the amount become payable on that date. He held therefore that the suit was barred. Mukherji, J., the second learned Judge who was in the minority held that the claim for recovery of 11 instalments was not barred, He observed as follows in his judgment: --
'I must take it that when notice was given, it was the intention of the plaintiff to enforce the penalty clause. But he never brought a suit to enforce the penalty clause and there is nothing in the law to prevent him from not enforcing the penalty clause, if he so chooses. The plaintiff is certainly entitled to say : --
'When I gave that notice, I did not want to enforce the penalty clause, but for some reason, for example, owing to the poverty of the defendants, I decided not to enforce that clause.' King J., was of the view that Article 75 applied to the case and that no waiver having been found, time began to run from the date when the default was made. Alternatively he was of the view that even it the money did not become due until the creditor exercised his option, the creditor must be held to have exercised it by making a written demand on the 21st of May, 1928 for the whole of the money due. He preferred however to rest his judgment on the former view. We may notice that Sulaiman C.J., in the course of his discussion made these observations (at page 669): --
'I would guard myself against holding that in the case of every bond with a default clause the whole amount necessarily become due. The answer would depend on the particular language of the document employed. But I would certainly hold that even if it be held that money does not become due immediately on the occurrence of a default, it would certainly become due if the creditor exercises his option by demanding the amount and by serving notice on the defendant to pay the whole sum.' All the learned Judges however referred to the decision of the Privy Council in Lasa Di v. Gulab Kunwar, AIR 1932 PC 207 : ILR 7 Luck 442 (J). King J. alone being inclined to think that the Privy Council case applied only to the case of a mortgage. In the last mentioned case, their Lordships were dealing with a mortgage deed executed in 1912 which provided that the mortgage money was payable in 1918. The interest was to be paid annually.
It was however provided that on default of payment of interest in any one year the creditor would be entitled to realise the entire mortgage money with interest at once. No interest was paid. The mortgagee's suit was brought in 1928. It was contended for the defendant-mortgagor that the suit was barred under Article 132. Clause (b) of Article 132 provides that time begins to run under that Article when the money sued for becomes due.
The question was whether the money became due on the date of the first default. It was said by their Lordships that a proviso of that nature was inserted in a mortgage deed exclusively for the benefit of the mortgagees and that it purported to give them an option either to enforce their security at once or if the security was ample to stand by their investment for the full term of the mortgage.
They added that if on the default of the mortgagor, the mortgage money became immediately due it was clear that the intention of the parties was defeated and what was agreed to by them as an option in the mortgagee is converted into an option in the mortgagor. They pointed out that:
'......if the latter finds subsequently that he can make a better bargain elsewhere he has only to break his contract by refusing to pay the interest and so eo instanti entitle himself to redeem' and proceeded to observe;
'Their Lordships were not prepared to hold that the mortgagor could in that way take advantage of his own default and their Lordships did not think that upon such default he would have the right to redeem and therefore in their Lordships' opinion the mortgage money did not become due within the meaning of Article 132, Limitation Act, until both the mortgagor's right to redeem and the mortgagee's right to enforce the security had accrued. Their Lordships added that this would of course, also be the position if the mortgagee exercised the option reserved to him.'
It is also to be noticed that their Lordships pointed out that the other view was based upon an attempt to apply English decisions to the construction of Indian Acts which in their view is always 'dangerous'. It is true that their Lordships were dealing with the case of a mortgage. But if it is a matter of construction only, it seems to us that there can be no difference between the way a clause in a money bond and that in a mortgage bond should be construed. As we have already stated, on the particular facts and circumstances of the case before us, we are of the opinion that the plaintiff-Bank had an option and that it exercised that option for the first time only on the date of Ex. A-24. In this view, the defendant has not succeeded in showing that limitation had started at an earlier point of time.
13. In the result, the appeal fails and is dismissed with costs. (The rest of the judgment is not material for the purpose of reporting).