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P.N. Raghavan Pattar and ors. Vs. Minor S. Arumugham by His Mother and Guardian Singarammal and anr. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtChennai
Decided On
Reported inAIR1935Mad385; (1935)68MLJ283
AppellantP.N. Raghavan Pattar and ors.
RespondentMinor S. Arumugham by His Mother and Guardian Singarammal and anr.
Cases ReferredSubbiah Pillai v. Muthiah Pillai
Excerpt:
.....but has also failed to pay the lump sum so that he has not paid at all. to hold that the obligation to pay the lump sum on failure to pay an instalment is a penalty would have the effect of relieving the purchaser of the chit fund from his obligation to carry out the contract that he has made and to pay the consideration that he has offered at the time of the auction......in the bonds.'3. the material facts are as follows:4. the plaintiffs are the stake-holders of a chit fund. the scheme of this fund was to collect from the contributors to the fund so many rupees, gather by that means a fund and put that fund up to auction. the person who offers the highest discount at the auction gets that fund less the discount (which was distributed between the other contributors) and less the current contribution due from the auction-purchaser. it was a term of the purchase that the person offering the highest discount should bind himself to pay the future instalments. the defendant accordingly bound himself in this case by two bonds exs. a and b. in essence the bonds provide that he shall pay the future instalments as they become due and if he fails to pay any.....
Judgment:

Stone, J.

1. This appeal raises a simple point in connection with a chit fund transaction. The Subordinate Judge has treated a certain clause in a mortgage bond as a penalty clause and has varied its terms in favour of the defendants. The question is whether he was right in so doing. The examination of the point is to be found on page 16 of the printed pleadings under the heading of the 4th issue. The learned Judge does not refer to any cases. He does not definitely give the reasons why he considers that the clause in question is penal but he puts it on the following ground.

2. 'As the plaintiffs are mere stakeholders who have merely to collect the instalments at stated intervals and as they do not require the entire amount from the first defendant for distribution among the share-holders at once, the ends of justice will be met with in this case if a decree is passed for the instalments that are overdue on the date of the plaint with interest at 18 percent. per annum on the amount of each instalment from the date of default to the date of the plaint as provided for in the bonds.'

3. The material facts are as follows:

4. The plaintiffs are the stake-holders of a chit fund. The scheme of this fund was to collect from the contributors to the fund so many rupees, gather by that means a fund and put that fund up to auction. The person who offers the highest discount at the auction gets that fund less the discount (which was distributed between the other contributors) and less the current contribution due from the auction-purchaser. It was a term of the purchase that the person offering the highest discount should bind himself to pay the future instalments. The defendant accordingly bound himself in this case by two bonds Exs. A and B. In essence the bonds provide that he shall pay the future instalments as they become due and if he fails to pay any instalments on the due date then he says in the bond,

5. 'I shall pay the same within 15 days from the date of the default with interest at 2 per cent, per mensem. If default is made even in respect of the payment by that time and thus default is committed in respect of any one instalment I shall pay in one lump the entire amount of all the instalments to come with interest at Rs. 1-8-0 per cent, per mensem from the date of default after excluding the payments that I have made for the instalments that had gone by previous to the one in respect of which default is committed by me without having anything to do with the instalments yet to come'.

6. Now it is said that the default clause brings this case within Section 74, I11.(g) of the Indian Contract Act because in essence this chit fund transaction is a contract of loan wherein the borrower borrows a sum of money and gives a bond for a larger sum of money with a default clause in that bond. The case in Muthukrishna Aiyar v. Sankaralingam Pillai I.L.R.(1912) 36 Mad. 229 : 24 M.L.J. 135 was accordingly pressed as showing that a clause of this nature should be regarded as a default clause. Muthukrishna Aiyar v. Sankaralingam Pillai I.L.R.(1912) 36 Mad. 229 : 24 M.L.J. 135 is a case of a loan of money on an instalment bond and it has no applicability whatsoever to a case like the present unless this is in essence a loan transaction. In our opinion this is not a' case of borrowing at all. At the auction the person bidding the highest discount is regarded as a purchaser of the subject-matter of the auction. There is no reason we can see why a chit fund auction is different from any other auction save that as a rule what is sold is a present sum of money which is 'moveable property' and no 'goods' within the meaning of the Contract Act, whereas at most auctions what is sold are goods, in the ordinary sense. But even a chit auction in some cases has as the subject-matter the sale of goods in the ordinary sense viz., rice, and it seems to us clear that in essence the person who offers the highest discount and therefore becomes the owner of the chit fund is a purchaser at an auction and the contract is one of sale and not of borrowing. Different considerations may apply after the coming into force of the Indian Sale of Goods Act, 1930, which excludes money from this class of Goods. As to this we express no opinion. The highest bidder purchases the chit by offering (1) the highest discount (2) a bond for the future payments of instalments and these two things together constitute the consideration that he gives for the right which he buys immediately, the subject-matter of the chit. From that it seems to us to follow that it is irrelevant to consider, in determining whether the clause in the bond which he gives is a penalty or not, whether the amount of the chit that he buys and the amount of the instalments that he undertakes to pay are or are not the same. Yet this is the essence of the argument addressed to us by the counsel for the respondent who sought to bring this case within III(g) to Section 74 of the Indian Contract Act which illustration is a case of loan where the borrower borrows a hundred rupees but gives a bond for rupees two hundred. Here it is said that the chit - purchaser borrows the amount of chit fund and gives a bond for the amount of his instalments. Thus if the amount of the instalments happens to be more than the chit fund that he buys the case is on all fours with the case of a borrower of Rs. 100 who gives a bond for Rs. 200 and is therefore distinguishable from illustration (F). Now the effect of the default clause in a bond given by the purchaser in a chit fund has been considered by a number of Judges and benches of this High Court and the decisions are all one way excepting a decision of Srinivasa Aiyangar, J., in Subbiah Pillai v. Shanmugam Pillai : AIR1928Mad245 , which was reversed on appeal, and another decision of the same learned Judge which was referred to in Subbiah Pillai v. Muthiah Pillai : AIR1933Mad657 in appeal and was distinguished but not expressly overruled and a decision of Ramesam, J., reported in Muthukumaraswami Pillai v. Subramania Chettiar (1926) 102 I.C. 14, which it is said is in favour of the respondent but which on perusal will be found to be a case wherein the learned Judge has expressly refused to decide the point now in issue. On the other hand there is a very careful decision of Anantakrishna Aiyar, J., reported in Kunju Nair v. Narayanan Nair (1932) 65 M.L.J. 29, wherein all the authorities are considered that existed up to that date including Muthukrishna Aiyar v. Sankaralingam Pillai I.L.R.(1912) 36 Mad. 229l : 24 M.L.J. 135. There are also two bench decisions, Vaithianatha Aiyar v. Govindaswamy Odayar (1921) 42 M.L.J. 551 and Subbiah Pillai v. Muthiah Pillai : AIR1933Mad657 which followed Vaithi-natha Aiyar v. Govindaswami Odayar (1921) 42 M.L.J. 551. There is also the decision of my learned brother, Pakenham Walsh, J., reported in Ayyakannu Pillai v. Doraiswami Pillai (1933) 38 L.W. 344. The only way in which it is sought to distinguish this case as I understand the argument from that series is this. Here it is said that the bond is for a larger sum than the amount of the thing purchased, the chit and in the other cases this was not so. We are also pressed with Muthukrishna Aiyar v. Sankaralingam Pillai I.L.R. (1912) 36 Mad. 229 : 24 M.L.J. 135 on the view that in essence the chit purchaser is a borrower of money.

7. Now we have examined the records in Subbiah Pillai v. Muthiah Pillai : AIR1933Mad657 and we can find no distinction between that case and this case on the facts. There the bond was larger than the chit fund. Further we are of the opinion that it can make no difference that the amount of the bond is larger than the amount of the chit fund and further we are of the opinion that a chit fund transaction of this kind is entirely different from a loan transaction in which the borrower at the time of the loan gives a bond for more than the amount that he borrows. This is a case of a purchase and it is part of the contract that the purchaser has to pay the principal sum reserved by the bond together with interest. There are two ways provided in which he shall pay, vis.,(1) either by instalments or (2) by a lump sum. We do not consider it necessary to express an opinion on the question as to whether Section 74 applies at all to cases of this kind. Section 74 of course only applies when a contract has been broken and if a contract of sale provides alternative modes whereby a purchaser may pay either by instalments or by a lump sum down it may be a question as to whether there is any breach until the purchaser has failed to pay at all not merely failed to pay in one mode. It may be there is only a breach when he has not merely failed to pay his instalments but has also failed to pay the lump sum so that he has not paid at all. To hold that the obligation to pay the lump sum on failure to pay an instalment is a penalty would have the effect of relieving the purchaser of the chit fund from his obligation to carry out the contract that he has made and to pay the consideration that he has offered at the time of the auction.

8. In view of the Bench decisions being the same way as the decision of Ananthakrishna Aiyar, J., which reviews all the cases and with which we entirely agree and which we think is indistinguishable from this case, and the decision of my learned brother and also bearing in mind the fact that Ramesam, J.'s judgment does not deal with this point and that of the two decisions of Srinivasa Aiyangar, J., one has been reversed on appeal and the other not followed in subsequent cases, we are of the opinion that this appeal succeeds with costs throughout and that the decree should be as prayed for less the amount decreed by the lower Court which we understand has been paid into Court and drawn out.

9. Time for redemption four months.


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