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Ramasami Bhagavathar Vs. Nagendrayyan and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtChennai
Decided On
Judge
Reported in(1896)ILR19Mad31
AppellantRamasami Bhagavathar
RespondentNagendrayyan and ors.
Cases ReferredKraal v. Whymper I.L.R.
Excerpt:
.....casting of lots to one of the subscribers, who is thereupon required to execute a bond with a surety obliging him to continue his subscriptions to the end of the period for which the arrangement is agreed to hold good. it was suggested that the real object which subscribers to a chit fund have in view is, not the chance of an early drawing of the lot, but the securing of a safe deposit for savings and the consequent inducement to save money. best, j......i would make no order as to costs.best, j. 4. i concur. the object of the association was the business of money-lending--the member to whom the loan was to be given being decided by drawing lots. these lots were drawn once a month, when also were due the monthly subscriptions of each of the members--and the whole amount of the month's subscriptions was paid over to the drawer of the loan for that month, on his executing a bond (with a surety) for his continuing to subscribe during the remaining months for which the kuri was established : the whole number of months of its existence being equal to the number of subscribers, so that each subscriber should have a month in which he must be the drawer of the loan. those who drew the loan in the earlier months were decidedly gainers, as.....
Judgment:

Shephard, J.

1. The question is whether the association formed by the plaintiffs and the deceased Subbayyan, not having been registered under the Companies Act, was an illegal one. If they were associated together for the purpose of carrying on a business and had in view the acquisition of gain, the action, being brought to enforce a contract made for an illegal purpose, clearly cannot be maintained. The facts are not fully stated in the judgment, bat it was admitted before us that the chit fund, or kuri as it is called, in which the deceased Subbayyan and the plaintiffs took part, was managed in the following way. Periodically the subscribers pay each a certain sum to a stakeholder. The sum-total of their subscriptions is then assigned by casting of lots to one of the subscribers, who is thereupon required to execute a bond with a surety obliging him to continue his subscriptions to the end of the period for which the arrangement is agreed to hold good. The subscriber who at any one drawing happens to take the prize enjoys the benefit of the money without paying interest--and accordingly an advantage is gained by those who gain the prize in the early part of the period as compared with those who, having to keep up their subscriptions all the time, do not receive anything until towards the end of the period see Kamakshi Achari v Appavu Pillai 1 M.H.C.R. 448--also Logan's Malabar District Manual, page 172, and as to analogous institutions in China, Simcox's Primitive Civilization, vol. II, page 332.

2. It can hardly be doubted that persons associated together in this way must be said to carry on a business. It is true that they have no business relations with persons outside their circle as in cases when a trade is carried on; there is no subsisting fund with which such business could be carried on. But money-lending is a business, and here upon each drawing of lots there is a loan of the common fund made by ninety-nine members of the association to the hundredth. The point taken by Mr. Bhashyam Ayyangar was that business was not carried on for the purpose of gain either to the association or to the individual members of it. It was suggested that the real object which subscribers to a chit fund have in view is, not the chance of an early drawing of the lot, but the securing of a safe deposit for savings and the consequent inducement to save money. It is possible that the idea of enforced economy may weigh with those who contribute to a fund, but I am unable to believe that the chance of gain by the securing of a loan on easy terms is not also an object which contributors have in view, Mr. Bhashyam Ayyangar's argument was the same as that used in Shatv v. Benson 11 Q.B.D. 563. The object of the society in that case was first to advance money to shareholders to enable them to build or purchase houses, and secondly to lend money to shareholders on approved personal security. Interest was charged on the moneys so advanced and the business was so conducted that at the end of the period for which it was intended to go on, the members who had not borrowed would pay 84 on each 100 share, whereas the member who had borrowed from the beginning would pay 119. In that case, therefore, it was rather the lenders than the borrowers who acquired gain. It was argued that the object of the society being the encouragement of saving, all members received equal advantage; there was therefore no acquisition of gain. But it was held that at any rate for the lending members there was a gain and therefore the society was an illegal one. In that case, as it seems to me, the contention that the encouragement of saving was the object of the association was more entitled to weight than it is in the present case in which all the subscribers must at the outset have had in contemplation the borrowing of the fund.

3. The case of Kraal v. Whymper I.L.R. 17 Cal. 786 was cited on the plaintiffs' behalf. The decision, which turns on the particular conditions of the society in question, a society established on the mutual principle for the maintenance of widows and children, appears to me to have no bearing on the present case. The cases in which the object is to make some of the members to acquire gain by their dealings with the rest are expressly distinguished in the judgment. The present case, in my opinion, belongs to that class and, acting on the principle enunciated in the English cases that the Act should be carried out without a too minute or hypercritical consideration of its terms In re Padstow Total Loss and Collision Assurance Association 20 Ch. D. 137 I think we are bound to hold that the association was an illegal one and that therefore the decree should be reversed and the suit dismissed. I would make no order as to costs.

Best, J.

4. I concur. The object of the association was the business of money-lending--the member to whom the loan was to be given being decided by drawing lots. These lots were drawn once a month, when also were due the monthly subscriptions of each of the members--and the whole amount of the month's subscriptions was paid over to the drawer of the loan for that month, on his executing a bond (with a surety) for his continuing to subscribe during the remaining months for which the kuri was established : the whole number of months of its existence being equal to the number of subscribers, so that each subscriber should have a month in which he must be the drawer of the loan. Those who drew the loan in the earlier months were decidedly gainers, as they at once got the money on condition of repaying the portion of it merely in excess of their theretofore paid subscriptions by punctual payment of future subscriptions--no interest being charged except on such subscriptions as should not be paid as they fell due. The hope of gain by drawing an early prize is no doubt the motive which induces persons to become subscribers to these kuris--and such gain is sufficient to bring the associations within the scope of the Companies Act, cf. Shaw v. Benson 11 Q.B.D. 563 and In re Padstow Total Loss and Collision Assurance Association 20 Ch. D. 137 . Kraal v. Whymper I.L.R. 17 Cal. 786 is distinguishable, as pointed out in that case itself, from a case in which the object of the business is 'to enable some of the members to acquire gain by their dealings with the rest, ' which is a not inapt description of the object of the association now in question.

5. The bond A on which the suit was brought is executed not only to the first plaintiff as stakeholder, but to him and the subscribers to the kuri.

6. It is, therefore, a contract to pay money according to the rules of an association illegal for want of registration under Section 4 of the Companies Act (VI of 1882).

7. I concur in dismissing the suit without any order as to costs.


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