Dismissed

Siri Chit Fund Pvt. Ltd. v. Nafeesunnhis Begum

Telangana HC5 Nov 2014SA/98/2014

Case brief

AI extract

What is this about?

This Second Appeal arose from a conflict regarding the computation of limitation periods in suits filed by chit fund companies. The Court resolved a reference to determine if Article 37 applies to such suits based on defaults, allowing recovery from the date of default rather than the agreement's termination.

What did the court decide?

The Second Appeal was dismissed; the judgment of the lower appellate court dismissing the suit on limitation grounds was affirmed.

Siri Chit Fund Pvt. Ltd. Vs Nafeesunnhis… — Contract and Commercial Disputes | Telangana HC (2014)

¶1

***** HON’BLE SRI JUSTICE L. NARASIMHA REDDY AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM

¶2

+ Second Appeal No.98 of 2014

¶3

% Dated 05-11-2014

¶4

# M/s. Siri Chit Fund Pvt Ltd., having its Head Office at 9-10-38/1, D.S. Temple Lane, Warangal, rep., by its Foreman E. Rajaiah, S/o. Mallaih, aged about 60 years, R/o Warangal

¶5

…Appellant

¶6

VERSUS

¶7

$ Smt. Nafeesunnhis Begum and five others

¶8

…..Respondents

¶9

! Counsel for the Appellant: Sri Subba Rao Korrapati

¶10

^Counsel for the Respondents: Sri G. Ramachandra Reddy

<GIST:

>HEAD NOTE:

? Cases referred

1. 2005 (3) ALD 881 = 2005 (3) ALT 405

¶15

2. AIR 2006 Madras 210

¶16

3. AIR 1999 Madras 186

¶17

4. AIR 1978 Kerala 28

¶18

THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY

¶19

AND

¶20

THE HON’BLE SRI JUSTICE C. KODANDA RAM

¶21

Second Appeal No. 98 of 2014

¶22

JUDGMENT: (Per the Hon’ble Sri Justice L. Narasimha Reddy)

¶23

This Second Appeal is being heard by us, on a reference made by the learned single Judge, who heard it at the stage of admission.

¶24

Briefly stated the facts are that the appellant, a Chit Fund Company, filed O.S.No.340 of 2006 in the Court of Principal Senior Civil Judge, Warangal, against the prized subscriber and the sureties, i.e. respondents 1 to 6 herein. One of the defences taken by the respondents was that the suit is barred by limitation. The trial Court decreed the suit through judgment dated 30-07-2013. The 1^st respondent i.e. the prized subscriber filed A.S.No.6 of 2002 before the Court of Principal District Judge, Warangal. The appeal was allowed through judgment dated 12-08-2013 and the decree passed by the trial Court was set aside. Hence, the plaintiff in the suit filed this Second Appeal.

¶25

Notice was ordered at the stage of admission itself and after the

¶26

respondents entered appearance, the matter was heard at length. In the course of hearing of the Second appeal, the learned single Judge felt that the judgment of this Court in Vastava Chit Funds (Private) Ltd., Vijayawada v. Medala Benarjee^[1] (rendered by another learned single Judge), wherein it was held that Article 37 of the Schedule to the Limitation Act applies to the suits filed by the Chit Fund Companies for recovery of remaining installments from a prized subscriber; requires re-consideration. The judgments of the Madras High Court in C. Dhanam v. A.M. Srinivasan^[2] (Full Bench) and in Tuticorin Trading and Credit Corporation Pvt. Ltd. V. J.S. Sundarara j^[3] were taken note of. Accordingly the reference was made to this Court.

¶27

Sri Subba Rao Korrapati, learned counsel for the appellant submits that Article 37 applies only to suits, which are filed based upon promissory notes or bonds and in the instant case, the suit is based upon the chit transaction. He contends that the learned single Judge, who decided Vastava Chit Funds (Private) Ltd., Vijayawada v. Medala Benarjee (1 supra) virtually misread the precedents cited before him and nowhere in those precedents there exists any ratio to the effect that Article 37 applies to the suits of that nature. He contends

¶28

that the Kerala High Court in Nanoo Sukumaran v. P. Sankaran^[4] , and the Madras High Court in

¶29

C. Dhanam v. A.M. Srinivasan (2 supra) specifically dealt with the class of suits that arise under the Chit Funds Act and have taken the view that Article 113 applies to such suits and thereby the limitation has to be reckoned from the date on which the concerned chit has been closed. He pleads that the trial Court has examined all these aspects and decreed the suit, whereas the lower Appellate Court

¶30

reversed the decree on an erroneous view of facts and law.

¶31

Sri G. Ramachandra Reddy, learned counsel for the respondents on the other hand, submits that the transaction under a chit, is almost a combination of a promissory note and bond and that even otherwise, the appellant has obtained a promissory note from the prized subscriber as well as the sureties i.e. respondents 2 to 6 for repayment of the amount. He contends that the fact that the suit is based upon the promissory note is evident from the very impleadment of respondents 2 to 6, and if the suit were to have been based upon the chit fund agreement alone, there would not have been any occasion for impleading those defendants. Learned counsel submits that the suits filed in relation to chit transactions, in the ultimate analysis are only for recovery of money and if one takes into account, the parameters that govern suits of this nature, it becomes clear that the starting point for limitation is the date on which, the default was committed. It is urged that even in the chit fund agreement, the prized subscriber becomes liable to pay all the future installments also with the consecutive default for three months, and thereby, the transaction assumes the character of a pure claim for recovery of money, bereft of any facility of installments.

¶32

The suit was filed for recovery of money based upon a chit transaction. The trial Court framed the following issues for consideration:

¶33

1) Whether the plaintiff is entitled for the suit claim as prayed for?

¶34

2) Whether defendant No.1 did not participate in the auction conducted by the plaintiff company at any point of time and whether D.1 never agreed to forego Rs.45,000-00?

¶35

On behalf of the appellant, PW-1 was examined and Exs.A-1 to A-19 were filed. The 1^st respondent was examined as DW-1 and she filed Ex.B-1, a passbook of Siri Chit Fund Pvt. Limited. The trial Court decreed the suit through its judgment dated 04-11-2008. Aggrieved by the same, the 1^st respondent filed A.S.No.6 of 2009 in the Court of Principal District Judge, Warangal. The lower Appellate Court framed the following points for its consideration:

¶36

1) Whether the suit under the appeal is barred by limitation? If so, what is its effect?

¶37

2) Whether there are any grounds to interfere with the judgment and decree passed by the trial Court in O.S.340/2006 dated 4.11.2008?

¶38

It answered all of the subsidiary questions pertaining to point No.2, in favour of the appellant herein. However, the first point relating to limitation was answered against the appellant and thereby, the suit was dismissed.

¶39

The learned single Judge admitted the Second Appeal on finding that the following question of law arises for consideration: “Whether the limitation for recovery of arrears of installments payable by a subscriber of a chit fund company would commence from the date of the first default in the payment of such installments or from the date of termination of the chit agreement?”

¶40

It is not in dispute that the 1^st respondent was a prized subscriber of the appellant. The chit commenced on 31-05-2000. The 1^st respondent emerged as a successful bidder in an auction conducted on 16-07-2000. However, the amount was paid only on 13-

¶41

12-2000, after respondent Nos.2 to 6 came forward to furnish guarantee.

¶42

It is the case of the appellant that the 1^st respondent committed default in payment of instalment on 10-04-2001. The chit agreement, marked as Ex.A-1 contains clauses which provide for the consequences for default in payment of instalments. Paragraph 2 of Clause 17 reads:

¶43

“When a prized subscriber defaults in payment, a penalty of 6 paise per rupee or part thereof will be charged for the first month. If the default continues over a month, such a member will not be entitled to dividend also in addition to the foresaid penalty charges. If the default is continued consecutively for a period of 3 months the prized subscriber and the executants of the security bonds of sureties loose the future dividends and the benefit of paying the future subscriptions in instalment. They shall become liable to make a consolidated payment of the future subscription inclusive of all defaulted instalments with interest at the rate of 12% per annum from the date of default.”

¶44

From this, it becomes clear that the prized subscriber who received the entire amount would not only forego the future dividends, but also would become liable to make the consolidated payment of future instalments as well as the defaulted instalments, if the default continues for three months. The default on the part of the 1^st respondent which commenced on 10-04-2001 continued uninterruptedly. Therefore, she became liable to pay the entire amount covered by the chit on expiry of three months from the date of default, i.e., 10-07-2001, apart from foregoing the right to be paid the dividends. From then onwards, the appellant got a corresponding right to recover the entire amount. For that purpose, the suit ought to have been filed on or before 09-07-2004. No acts of acknowledgement on

¶45

the part of the 1^st respondent before 09-07-2004 have either been pleaded or proved.

¶46

The appellant insist the limitation for filing of the suit must be reckoned from the date on which the chit as a whole was terminated i.e., 31-08-2003. Part II of the schedule to the Limitation Act deals with the suits relating to contracts. Article 37 which figures therein reads as under:

¶47

Description of suit	Period of limitation	Time from which period begs to run
On a promissory note or bond payable by instalments, which	Three years	When the default is made, unless where the payee or obligee
provides that, if default be made in payment of one or		waives the benefit of the provision and then when fresh
more instalments, the whole shall be due.		default is made in respect of which there is no such waiver.

¶48

The plea of the appellant is that Article 37 does not apply since the suit is not based either on a promissory note or on a bond. On that basis, they rely upon the residuary clause i.e., Clause 113. There again, the period of three years is to be reckoned from the date on which the right to sue has accrued. If the date on which the third consecutive default in payment of instalments is taken into account, the suit becomes barred by limitation even under that article.

¶49

Though it is pleaded that the suit is not based upon promissory note, it is clear that a reference has been made in para 4 of the plaint to the agreement of guarantee dated 05-12-2000 as well as the promissory note of the same date, for a sum of Rs.92,500/- executed

¶50

by the respondents herein. Further, in the absence of any promissory note, and the guarantee from respondent Nos.2 to 9, there would not have been any occasion for the appellant to implead at least respondent Nos.2 to 6. The 1^st respondent alone is party to Ex.A-1. In case, the suit was filed only on Ex.A-1, it ought to have been filed against the 1^st respondent alone.

¶51

We have perused the judgment rendered by the Kerala High Court in Nanoo sukumaran’s case (4 supra). Firstly, the judgment is in relation to an enactment of that State. Assuming that the provisions are in pari mateira with the Chit Funds Act, we find it difficult to cull out any principle to the effect that the limitation for filing the suits for recovery of amount from a prized subscriber commences from the date on which the chit is concluded. In the instant case itself, the appellant made a mention in the paragraph pertaining to cause of action to 0512-2000, the date on which the promissory note and the agreements of guarantee were executed and 10-04-2001, the date on which the appellant committed default. Though reference was made to the date on which the chit was terminated, that hardly is of any relevance. We also express our inability to concur with the judgment of the Madras High Court in C. Dhanam v. A.M. Srinivasan (2 supra). Though the judgment of this Court in Vastava Chit Funds (Private) Ltd., Vijayawada v. Medala Benarjee (1 supra) is not based upon any authoritative pronouncement of the Supreme Court, we subscribe the view expressed therein.

¶52

We accordingly answer the reference and dismiss the second appeal. There shall be no order as to costs.

¶53

__________________________ L.NARASIMHA REDDY,

¶54

¶55

__________________________ C. KODANDA

¶56

RAM,J. Dt.05-11-2014

¶57

KO/ks Note: LR copy to be marked. B/O ks

¶58