Vijayapuram Chit Fund vs M.M. Farook and Another

S. Jagadeesan, J.—The unsuccessful plaintiff in O.S. No. 137 of 1988 on the file of the District Munsif, Tiruvarur is the appellant herein. The

appellant is running a Chit company. The first respondent herein joined as a subscriber in the chit value of Rupees 10,000/- and the monthly

subscription is Rs. 1,000/-. The first respondent paid the first instalment of Rs. 1,000/- and became the successful prized subscriber. He executed

a pronote for the balance of Rs. 9,000/- on 29-4-1985. Thereafter till 11-9-1987 the first respondent paid a sum of Rs. 3,600/- and failed to pay

the subscription arrears subsequently. Hence the suit was laid for recovery of a sum of Rs. 5,400/- with interest. The second respondent herein is

the guarantor and as such he has been impleaded as defendant in the suit.

The respondent disputed the claim of the appellant on the ground that the suit is not maintainable in view of Section 4 of the Chit Funds Act,

1982. Further the appellant did not issue any notice demanding the money and hence the suit is liable to be dismissed.

The trial Court, after considering the evidence let in by both the parties, by its judgment and decree dated 14-10-1988 dismissed the suit,

finding that the appellant failed to comply with the statutory provision of Section 33(1) of the Chit Funds Act which requires previous notice to the

subscriber demanding the arrears. As the appellant failed to sent the notices, as contemplated u/s 33(1) of the said Act, the suit is liable to be

dismissed. So far as the plea of the respondent that the suit is not maintainable pursuant to Section 64 of the Act is concerned, the trial Court held

against the respondents.

Aggrieved by the said judgment and decree of the trial Court, the appellant herein filed an appeal A.S. 24/89 on the file of the District Court,

East Thanjavur at Nagappattinam. The lower appellate Court concurred with the finding to the trial Court that the appellant is not entitled to

recover the amount, as they failed to issue the notice demanding the arrears, as contemplated u/s 33(1) of the Chit Funds Act, which is a condition

precedent to file the suit, and ultimately dismissed the appeal by its judgment and decree dated 20-6-1989. Hence the present second appeal.

At the time of admission, the following substantial questions of law were formulated ;

(1) Whether in a case filed for enforcement of the chit agreement and recovery of unpaid instalments by a prized subscriber after the termination of

the chit , a notice u/s 33 is necessary?

(2) Is not finding of the Courts below that Section 33 of the Chit Funds Act would be applicable to the facts of the case is against the express

provisions of Section 33 of the Chit Funds Act as the same provides only in respect of cases filed during the currency of the chit and not after all

the future subscriptions had fallen due.

The only contention of the learned counsel for the appellant is that the period of subscription towards the chit was over by the time the suit was

filed. The compliance of Section 33(1) of the said Act is necessary only if the period of subscription was not expired or the total chit period did not

come to an end. In this case, the chit period being 10 months, the total period of subscription came to an end by Feb. or March, 1986. Hence the

Courts below were not correct in dismissing the suit for non compliance of Section 33(1) of the Chit Funds Act.

None appeared for the respondents.

To appreciate the contention of the learned counsel for the appellant, it is worthwhile to look into the provision. Section 33 of the Chief Funds

Act reads as follows :

Foreman to demand future subscriptions by written notice-- (1) A foreman shall not be entitled to claim a consolidated payment from a

defaulting prized subscriber u/s 32 unless he makes a demand to that effect in writing,

(2) Where a dispute is raised under this Act by a foreman for a consolidated payment of future subscriptions from a defaulting prized subscriber

and if the subscriber pays to the foreman on or before the date to which the dispute is posted for hearing the arrears of subscriptions till that date

together with the interest thereon at the rate provided for in the chit agreement and the cost of adjudication of the dispute. The Registrar or his

nominee hearing the dispute shall, notwithstanding any contract to the contrary, make an order directing the subscriber to pay to the foreman the

future subscriptions on or before the dates on which they fall due, and that in case of any default of such payments, by the subscriber, the foreman

shall be at liberty to realize, in execution of that order, all future subscriptions and interest together with the costs, if any less the amount, if any,

already paid by the subscriber in respect thereof;

Provided that if any such dispute is on a promissory note, no order shall be passed under this sub-section unless such promissory note expressly

states that the amount due under the promissory note is towards the payment of subscriptions to the chit.

(3) Any person who holds any interest in the property furnished as security or part thereof, shall be entitled to make the payment under Sub-

section (2) .

(4) All consolidated payment of future subscriptions realised by a foreman shall be deposited by him in an approved bank mentioned in the chit

agreement before the date of the succeeding instalment and the amount so deposited shall not be withdrawn except for payment of future

subscriptions.

(5) Where any property is obtained as security in lieu of the consolidated payment of future subscriptions, it shall remain as security for the due

payment of future subscription.

Chapter V of the said Act deals with the rights and duties of prized subscriber. Section 31 of the said Act requires the prized subscriber to

furnish security. Section 32 of the said Act imposes a duty on the prized subscriber to pay the subscription regularly on the dates and times and at

the place mentioned in the chit agreement. On his failure to do so, he shall be liable to make a consolidated payment of all the future subscriptions

forthwith. Section 33 deals with, the right of the foreman to demand the future subscription. Section 33(1) imposes a restriction on the foreman that

he shall not be entitled to claim a consolidated payment from the defaulting prized subscriber u/s 32 unless he makes a demand to that effect in

writing. The suit was dismissed only for non-compliance of this provision i.e. the Foreman, the appellant herein did not make a demand from the

defaulting prized subscriber, the first respondent herein in respect of the consolidated payment of all future subscriptions.

The words of Section 32 is very clear that the prized subscriber has to pay his subscriptions regularly on the dates and time and at the place

mentioned in the chit agreement. Since the subscription being a monthly one, the prized subscriber is liable to pay the subscription on the due date

of the subscription of every month. In case if he fails to do so, the right conferred on the Foreman is to demand not only the defaulted subscribed

amount; but also the entire arrears of chit, as a consolidated payment. The consolidated payment in case of default arises on the default committed

by the prized subscriber. Hence only if the period of chit is yet to expire and the prized subscriber committed default, then it is open to the

Foreman to make a demand for the entire consolidated payment. This is necessary because the prized subscriber is entitled to pay the future

subscription of monthly instalments on the due date. Even though the defaulted prized subscriber commits default, he my claim his right to pay the

future subscription by monthly instalment after clearing the arrears, in case if the chit is subsisting. When the consolidated payment is demanded, the

prized subscriber is deprived of the privilege of paying monthly instalment and as such the notice of demand is necessary. The above condition of

issue of notice for the consolidated payment can be construed only in the above terms, if the same is considered along with Sub-clause (4) of

Section 33 of the said Act. Sub-clause (4) of Section 33 imposes a restriction on the Foreman that if he realised the consolidated payment, he has

to deposit the amount in an approved bank mentioned in the chit agreement before the date of the succeeding instalment and the amount so

deposited shall not be withdrawn except for payment of future subscriptions.

From this it is clear that the consolidated amount received from the prized subscriber on his default has to be deposited in the bank only to

safeguard the interest of the subsisting subscribers, in order to pay their dividend. The payment of dividend to other subscribers arise only during

the subsistence of the chit. When once the chit comes to an end, all the interest of the subscribers had been fulfilled and whatever the liability to be

recovered from the defaulting subscriber is on the Foreman. When that be the case, after the termination of the chit by efflux of time, there is no

need for the Foreman to issue any notice of demand to the defaulting subscriber. When once the chit comes to an end and the prized subscriber

had defaulted to pay the periodical subscriptions, then the Foreman is entitled by way of right to recover the entire arrears from the prized

subscriber. At that stage, the prized subscriber has no privilege to pay the amount of instalments by clearing the existing arrears as on that date.

Hence I find there is some force in the contention of the learned counsel for the appellant.

For the above reasons, I hold that the necessity of issuing notice u/s 33(1) of the Chit Funds Act arise only when the chit is a subsisting one.

On the other hand, if the chit is terminated by efflux of period, then there is no condition precedent of issuing any notice on the Fore-man to claim

the consolidated payment of arrears of subscription. Hence the reasoning of the Courts below for the dismissal of the suit cannot be sustained.

Accordingly the judgments and decrees of the courts below are set aside. The second appeal is allowed with cost throughout.