Full Judgment Text
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PETITIONER:
THE KERALA STATE FINANCIAL ENTERPRISE LTD.
Vs.
RESPONDENT:
JACOB ALEXANDER & ANR.
DATE OF JUDGMENT: 01/03/1996
BENCH:
G.B. PATTANAIK (J)
BENCH:
G.B. PATTANAIK (J)
RAMASWAMY, K.
CITATION:
1996 AIR 1552 1996 SCC (3) 427
JT 1996 (3) 421 1996 SCALE (2)790
ACT:
HEADNOTE:
JUDGMENT:
J U D G M E N T
G.B.PATTANAIK. J.
Leave granted.
This appeal by the defendant no. 2 is directed against
the Full Bench Judgment of Kerala High Court in A.S. No. 235
of 1987 arising out of D.S. No. 120 of 1983.
The plaintiff filed the suit for a direction to the
State of Kerala as well as Kerala State Financial
Enterprises Limited. Trichur to pay the amount due as the
plaintiff’s share from the unpaid auction discount with
interest. The plaintiff’s case in nutshell is that the
defendant no. 2 was conducting a kuri which started on
17.3.1972 and terminated on 17.7.1980. The kuri had 200
tickets each with four divisions, viz., A, B, C and D and
the total amount of a ticket was Rs. 50, 000/-. The
subscription for a ticket per month was Rs. 500/-. In all
(Rs. 200 for A Division, Rs. 150/- for Division) there were
100 such instalments and 1018 subscribers. On each
instalment two tickets were prized, one by lot and the other
by auction. In case of prize by lot Rs. 5,000/- will be
deducted as fixed discount and Rs. 45,000/- will be paid to
the prized subscriber. Out of the fixed discount of
Rs.5,000/-, Rs. 2,500/- would go as commission for the
foreman and balance Rs. 2,5000/- would be divided among the
subscribers in proportion to their share. In case of
auction, the subscriber who bids for the maximum reduced
amount would be prized and he would get an amount of Rs.
45,000/- less the auction deduction. The auction discount of
all the divisions will be pooled together and would be
divided among the subscribers. This auction discount is paid
to those subscribers who pay the subscriptions promptly. A
prized subscriber loses the share of the discount on default
of payment of even one instalment. A non-prized subscriber
would lose the share of auction discount if he defaults
three or more instalments consecutively. The conduct of
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kuries is governed by the Cochin kuries Act VII of 1107
(hereinafter referred to as ’the Act’). The plaintiff was a
subscriber to Division A and Division B of the ticket and
paid all the subscriptions promptly and regularly. But even
after the termination of kuri plaintiff was not paid the
proportionate share of unpaid auction discount, he filed the
suit. Since the entire information remained with the
foreman, the plaintiff expected to get Rs. 4,000/- and on
the said amount he also calculated interest @ 12% per annum
and filed the suit.
The defendant no. 2 contested the suit taking the stand
that the kuri Vaimpu stipulate that the auction discount
lost by the subscriber is to be divided among prompt
subscribers and prompt suscribers are only entitled to the
forfeited dividend as mentioned in clause 8(c) of the
Vaimpu. According to defendant no. 2 the subscribers are
entitled to get the amount as per the Vaimpu and since the
Vaimpu does not contain any provision for distribution of
the auction discount lost by a subscriber. The plaintiff’s
claim is untenable. Defendant no. 1, State of Kerala filed
written Statement stating that the State is not a necessary
party and State has nothing to do with the kuries conducted
by defendant no. 2. On these pleadings the learned Trial
Judge framed as many as six issues and on examining the
relevant provisions of the Act as well as the Vaimpu and on
examining the materials on record came to the conclusion
that the foreman cannot claim anything more than what is
specifically provided in the Vaimpu and under the Vaimpu the
foreman can have commission as indicated. So far as amount
of forfeited discount in respect of the non-Prized
subscribers is concerned the learned Trial Judge came to the
conclusion that in the absence of any specific provision
either in the Act or in the Vaimpu and since the foreman
cannot take or appropriate the amount more than what is
provided for in the Vaimpu, the same should be distributed
among the prompt subscribers on the termination of the kuri.
On examining the documentary evidence on record the
court came to the conclusion that a sum of Rs. 1,81,003.35
remained outstanding with the foreman as undivided auction
discount and to this amount a sum of Rs. 2.232.87 was to be
added and therefore the total amount which remained with the
foreman by way of unpaid auction discount was Rs.1,82,667.94
and the said amount has to be distributed among the prompt
subscribers including the plaintiff. On calculating the
number of prompt Subscribers the court came to the
conclusion that the plaintiff was entitled to Rs. 41,247.40.
With this conclusion the suit having been decreed, defendant
no. 2 preferred an appeal to the High Court of Kerala.
The Division Bench which initially heard the appeal
being of the opinion that it raises a substantial question
of law, referred the matter to a Full Bench. The question
formulated by the Division Bench for being answered by the
Full Bench was "Whether the discount forfeited by the non-
prized subscribers is liable to be distributed among the
prompt and regular subscribers?" The Full Bench having
considered the different provisions of the Act as well as
the Vaimpu and taking into account the fact that the foreman
has no right to retain any amount other than the commission
or remuneration fixed under the Act and the Vaimpu, came to
hold that the caution discount forfeited by the "non-prized"
subscribers also will have to be distributed after the
termination of the kuri in proportion to the share of the
ticket. to the subscribers who have remitted regularly the
installment amounts till that date. With the aforesaid
finding the appeal having been dismissed and the judgment
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and decree of the Principal Subordinate Judge, Trichur
having been confirmed, the present appeal by special leave
has been preferred.
Mr. Krishnamani, the learned senior counsel for the
appellant placed before us the relevant provisions of the
Act and the Vaimpu and contended that the High Court
committed error by misreading clause 8(c) of the Vaimpu and
by coming to the conclusion that the unpaid auction discount
has to be distributed among the prompt and regularly paid
subscribers. According to Mr. Krishnamani, it is the Vaimpu
which determines the rights of the parties and since Vaimpu
does not authorize distribution of the auction discount
forfeited by the "non prized" subscribers, the conclusion of
the High Court is erroneous in law.
Even though notice had been duly served on the
plaintiff respondent but since the plaintiff did not appear
either in person or through counsel and in view of the
importance of the matter we thought it appropriate to take
the assistance of a counsel and Mr. Sitaramiah, learned
senior counsel agreed to render assistance to the court. We
keep on record our deep appreciation for the services
rendered by Mr. Sitaramiah, learned senior counsel. Mr.
Sitaramiah placed before us the different provisions of the
Act as well as the Vaimpu and contended that the foreman is
not entitled to get a pie more than what is provided in the
Vaimpu. In that view of the matter the reasonable conclusion
is that the auction discount forfeited by the "non-prized"
subscribers will have to be distributed among the regular
subscribers on the termination of the kuri. He placed on
record similar provisions in the Central Act, Andhra Pradesh
and Tamil Nadu Acts.
In View of the rival submissions at the bar, it will be
appropriate for us to examine different provisions of the
Act as well as the relevant provisions of the Vaimpu:
"Kuri" has been defined in Section 3 of the Act. thus :
"Kuri" means a transaction by which
one or more person hereinafter
called the foreman or foremen enter
into an agreement with a number of
persons that every one of the
contracting parties shall subscribe
a certain amount of money or
quantity of grain by periodical
instalments for a certain definite
period, and that each in his turn
as determined by lot or by auction
or in such manner as may be
provided for in the Vaimpu Shall be
entitled to the prize amount’.
"Vaimpu" has been defined in Section 3(2) of the Act. thus :
"Vaimpu" is a document containing
the terms of agreement between the
foreman and the subscribers
relating to the Kuri.
"Kuri amount" has been defined in Section 3(3) of the Act,
thus :
"Kuri amount" means the sum total
of the contributions payable by the
subscribers for any instalment
without any deduction for discount
as defined in clause (4).
"Discount" has been defined in Section 3(4) of the Act,
thus:
"Discount" means the amount of
money or quality of grain which a
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prize-winner has, under the terms
of the vaimpu, to forego for the
payment of Veethapalisa, foreman’s
commission and other expenses.
"Prize amount" has been defined in Section 3(6) of the Act,
thus:
"Prize amount" means the Kuri
amount less the discount; it
includes in the case of the
fraction of a ticket the difference
between the proportionate Kuri
amount and the discount on the
particular fraction of the ticket.
"Foreman" has been defined in Section 3(7) of the Act, thus:
"Foreman" is the person who under
the Vaimpu is responsible for the
conduct of the Kuri.
"Veethapalisa" has been defined in Section 3(9) of the Act,
thus.
"Veethapalisa" is the share of a
Subscriber in the discount
available under the vaimpu for
rateable distribution among the
subscribers at each instalment of
the Kuri.
Section 6(6) of the Act provides that in every Kuri
there shall be a Vaimpu in duplicate and such vaimpu shall
contain the mode and proportion in which the discount is
distributed by way of veethapalisa, foreman’s commission and
other allowances, if any. Under Section 14 of the Act the
foreman is entitled to obtain his prize at the instalment
specified in the vaimpu without any deduction for discount
and to such commission or remuneration as may be fixed by
the vaimpu for the conduct of Kuri. Section 15 stipulate the
duties of a foreman. Under Section 17 a foreman remains
liable to subscribers for the amount due to them. Under
Section 19 non-prized subscribers are required to pay their
subscription in accordance with the provisions contained in
the Vaimpu, within a period of 10 days grace from the due
date to pay the subscription and in default of such payment
then he is liable to such consequences as may be provided
for in the Vaimpu. Section 20 of the Act empowers the
foreman to remove a non-prized subscriber from the list of
subscribers and to substitute any other person in his place
if the non-prized subscriber defaults to pay his
contribution in accordance with Section 19. Under Section 21
even a defaulting non-prized subscriber is entitled to
recover from the foreman his contributions subject to such
deductions as may be provided for in the Vaimpu. Section 22
deals with prized subscribers. Section 23 deals with the
manner in which a prized subscriber is required to pay his
subscription in accordance with vaimpu. English translation
of Clauses 8 and 11b of the Vaimpu, which was produced
before us by Mr. Krishnamani, may be quoted hareinbelow in
extenso:
"8(a) Out of the amount of Rs.
10,000/- realised by the company as
fixed discount from the two
scratched numbers. One prized and
the other auctioned, at every
instalment, Rs 5,000/- will be
appropriated as the Foreman’s
commission for the management of
the Kuri by the company and the
balance Rs. 5,000/- will be
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distributed as dividend to the
subscribers in two divisions, who
have not been prized or who have
not bid and auctioned ticket.
(b) Since the company does not take
a forman’s ticket all subscribers
are entitled to the dividend from
the first instalment and it is
sufficient if they pay only the
balance amount after such deduction
(dividend).
(c) Auction discount will be
distributed to all subscribers in
proportion to their ticket share,
irrespective of whether prized, non
prized, auctioned or non auctioned.
But prized and auctioned
subscribers will not be eligible
for the auction discount if they do
not pay the instalments within the
due date. The auction discount, so
forfeited by the prized and
auctioned subscribers will be
distributed after the termination
of the Kuri, in proportion to the
share of the ticket. To the
subscribers who have remitted
regularly the instalment amount
till that date.
(d) Those subscribers who are
eligible for the dividend as above
stated, need remit at each
instalment only the amount after
deduction of dividend, as their
share. But if the dividend amount
exceeds the instalment amount, such
exceeds the instalment amount, such
excess will be paid in cash to the
subscribers.
11(b) If the non prized and non
auctioned subscribers do not remit
the instalment amount within ten
days of the due date, they can pay
the said amount together with 12%
interest on or before the next due
date. If it is not so done, grace
period (10 days) will not be
allowed for the next and succeeding
instalments and such subscribers
will forfeit the discounts
(dividend, auction discount)of the
three defaulted instalments if they
default continuously two
instalments along with the interest
and fail to remit the third
instalment, unless otherwise
permitted by the company, the
tickets of subscribers, who have
defaulted continuously three
instalments, will be scratched and
they will automatically lose their
right to be subscribers. The
company will have the right to
remove their names from the kuri
list and will have the power to
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transfer to itself or enroll fresh
subscribers instead. But non-
removal from the list of
subscribers or non-substitution of
another in such cases shall not be
construed as having allowed the
continuous defaulter to continue as
a subscriber."
The provisions of chit Funds Act. 1961 and its
constitutional validity came up for consideration before
this court in the case of Shriram Chits and Investment (P)
Ltd. v. Union of India and others. S.C.C. 1993(4) Suppl.
226. The said Act is pari materia with the Act now under
consideration. This court considered the role of foreman in
the chit transactions and came to hold and indicated the
manner in which unscrupulous foreman resorted to unfair
methods to secure illegal gains, thus:
"The foreman derives his income in
different ways, both legal and
illegal. In the former category can
be included items such as admission
fee from members, penal interest or
penalty fee from defaulting members
and forfeiture of their dividend,
interest on loans to non-prized
chit holders. fees for transfer of
shares in the chit, deduction from
the subscription paid by a member
who wants to resign, dividends on
the chit reserved for himself
interest on the chit prize taken
without deduction, interest on the
chit prize which the prized member
may not be in a position to collect
immediately, and subscriptions paid
by members who discontinue in the
middle of the scheme but do not
care to claim refund.
The unscrupulous among the foremen
resort to so many unfair methods to
secure illegal gains. A few of
these methods are briefly mentioned
below:
(i) Enrollment of fictitious
members to completes the required
number of members in a chit series.
If a real and needy non-prized
member is not able to come forward
to offer a high discount at the
auction. One of these benami
members is Shown to get the prize
thereby depriving the real members
of the opportunity, (ii) Similarly,
it is possible to exploit needy
non-prized member or a new member
so that he gets the prize only at
the maximum discount. (iii) The
prized member is supposed to get
the amount soon after the draw or
auction is over of course on
furnishing the security. But the
foreman adopts tactics which delay
the actual payment for a
considerable time, meanwhile he
uses the money interest-free. If he
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succeeds in delaying the payment
till the succeeding draw, the
earlier prize winner is given the
prize out of the collections of the
succeeding draw. Thus, one
instalment is perpetually in the
hands of the foreman to be utilized
in any way he likes.
The above are only examples to
illustrate the way in which some
foremen minimize their profits.
They do not take into account the
cases where the foreman and his
associates disappear from the scene
and are untraceable. The police
have many such cases on their
record. During 1962-66, as many as
255 chitties collapsed in several
districts of Kerala on account of
such malpractices."
Bearing in mind what has been stated by this court in
the aforesaid case with regard to the manner in which the
foreman exploits the subscribers and on examining the
provisions of the Act and the Vaimpu referred to earlier, we
have no hesitation to come to the conclusion that a foreman
is only entitled to the commission as is provided in the
vaimpu and is not entitled to anything more. In view of the
specific language used in clause 8(c) of the vaimpu, the
amount of auction discount has to be distributed among all
the subscribers in proportion to their ticket share. We are
further of the view that the forfeited discount of non-
prized subscribers will have to be distributed among the
subscribers who have remitted their subscriptions regularly.
It is true that there is no specific provision in the vaimpu
but since under the Act and the vaimpu the entitlement of
the foreman has been indicated and the foreman cannot take
anything more than what is provided for and therefore the
amount has to be distributed among the regular subscribers.
In our considered opinion, the Full Bench of the Kerala High
Court rightly answered the question and we do not find any
legal infirmity in the same. This appeal is accordingly
dismissed but in the circumstances without any order as to
costs.