1. The suit was on a mortgage bond executed by defendant 1 in respect of a chit transaction conducted by the plaintiffs. The chit fund was started about 2nd May 1921 and it consisted of 50 chits. Defendant 1 was a subscriber for two chits and he took the chit in auction in the third instalment on 8th July 1921, for Rs. 197 and executed the suit mortgage bond as security for payment of the future instalments. While the chit was going on he also took the other chit in auction in 30tb instalment for Rs. 310 on 6th October 1923. The findings of fact are that towards the suit mortgage bond defendant 1 paid up the calls until 24th call only, and thereafter committed default. Under the terms of the bond all future instalments 25 to 50 became payable on the date of default. The plaintiff's case in the trial Court was that defendant 1 committed default in the fifth drawing, but the Court found that this default had been waived and, as I said, the finding is that default began after the 24th instalment. The plea of defendant 1 was that he had paid up to the end of the 27th instalment and that there was an adjustment as regards both the chits by means of Ex. 1. Ex. 1, has been found against.
2. The finding is that the plaintiffs' version that Rs. 310 due to defendant 1 for the second chit was adjusted towards the calls of the second chit and towards the amount due on some promissory note is correct. The trial Court following the decision of Srinivasa Ayyangar, J., in Ramalinga Adaviar v. Meenakshi Sundaram Pillai AIR 1925 Mad 177 found that the clause by which all future instalments became due on the date of default was penal. It accordingly only gave a decree for the instalments as they fell due at a certain rate of interest which is not clearly stated in the judgment and which it is unnecessary for the purpose of this appeal to work out. The rate stipulated in the bond is 30 per cent. The defendants appealed. The lower appellate Court held that the whole amount became due at the date of default, thereby impliedly dissenting from the view of the trial Court on that matter, but it held that the rate of 30 per cent was a penal clause added to this penalty for default and awarded interest only at 6 per cent. Although the whole argument recognized that the future instalments became due by non-payment of the 25th instalment, yet interest was only awarded from the date of the closing of the chit. No reason is given for this by the learned Subordinate Judge. This second appeal is preferred by the plaintiffs and is concerned only with interest.
3. The first matter is that mentioned just now that interest must begin from the date of default and that is clearly so on the finding of the learned Subordinate Judge himself. The other matter urged is that the Court is wrong in holding that 30 per cent interest stipulated in the bond is by way of penalty. In Vaithinatha Iyer v. Govindaswami Odayar AIR 1922 Mad 67, it was held that this was not a penal stipulation even when added to the loss of commission by the defaulter and to his having to pay all the instalments on default in one. In Muthukumaraswamiah v. Subramanian : AIR1927Mad1105 , Ramesam, J., one of the Judges in Vaithinatha Iyer v. Govindaswamy Odayar AIR 1922 Mad 67 referred to that case and it was argued that in the later case the learned Judge approved of the opinion of Srinivasa Ayyangar, J. As I read the case I do not think the learned Judge says that he approves of the test laid down by Srinivasa Ayyangar, J. If that test is correct it would unquestionably make the stipulation that the whole of the future instalments became due in default of payment of any of them in the case of these chit funds a penalty, because unquestionably these are debt instalments which are not due actually at the time of the bond. All that Ramesam, J., lays down in : AIR1927Mad1105 , is that it cannot be said that the terms of a chit fund contract can never be penal.
4. The whole effect of Ramesam, J's., judgment as compared with the decision of Srinivasa Ayyangar, J., in Ramalinga Adaviar v. Meenakshi Sundaram Pillai AIR 1925 Mad 177 is considered by Anantakrishna Ayyar, J., in Kunju Nair v. Narayanan Nair AIR 1933 Mad 252, and I have nothing to add to the remarks made by that learned Judge there. However the matter has recently been set at rest by the decision in Subbiah Pillai v. Muthiah Pillai AIR 1933 Mad 657 in which it has been held dissenting from the view of Srinivasa Ayyangar, J., that the clause that all the future instalments shall become due on default of payment of any one instalment is not penal and Vaithinatha Iyer v. Govindaswamy Odayar AIR 1922 Mad 67 is approved of. This sets the matter at rest and there can therefore be no doubt that this default clause in Ex. A, is not a penal clause. If the whole sum becomes due and there is no penalty, then there is no reason to call the interest which has to be paid on such sum until the principal sum is paid a penalty: see also Vaithinatha Iyer v. Govindaswamy Odayar AIR 1922 Mad 67, on this matter. No question was raised here that 30 per cent was per se an unduly high rate to be relieved against under the Usurious Loans Act. I am therefore of opinion that the plaintiffs are entitled to 30 per cent interest. Perhaps I may say this rate of interest was allowed by Ramesam, J., in : AIR1927Mad1105 , the case quoted for the respondent. The appeal is therefore allowed with costs in this Court and the lower Court and a decree will be passed accordingly.