TMI Blog1988 (2) TMI 482X X X X Extracts X X X X X X X X Extracts X X X X ..... by the same Foreman, Uma Investments, through its branch at Palani. The monthly subscription payable by him was Rs. 250 and the chit was for 20 months. The respondent became the prized subscriber at the auction held on 9-7-1973 for Rs. 4000 and received the amount. On 21-9-1973, the respondent executed a promissory note for Rs. 425,0 in favour of Uma Investments for the balance of the amounts payable, by him to it. On 20-8-1974; Uma Investments assigned the promissory note executed by the respondent for Rs. 4250 in its favour on 21-9-1973, in favour of the appellant for Rs. 3000 towards portion of the amount payable to her by Uma Investments. On the strength of the assigned pronote, the appellant sued for the recovery of a sum of Rs. 3750 together with interest at 12% p.a. on Rs. 3000 from 21-9-1976 till the date of decree and thereafter at 6% p.a. till the date of realisation and for Costs. 2. In the written statement filed by the respondent, he stated that he had been subscribing for three chits with Uma Investments and that with reference to one of such chits for Rs. 5000, he bid at the auction held on 9-7-1973 for Rs. 4000 and received the amount and also executed a promissory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant cannot derive rights to recover the amount due under the promissory note from the respondent. In addition, the lower appellate Court also found that even the Foreman is not entitled to claim a consolidated payment of the future subscriptions from a defaulting subscriber without issuing a notice and inasmuch as Uma Investments did hot issue any notice to the respondent, the assignee from it, viz., the appellant cannot have a better right and, therefore, the appellant cannot call upon the respondent to pay the future instalments in one lump sum. The assignment by Uma Investments was also held to have been effected in contravention of Section 26 of the Tamil Nadu Chit Funds Act, 1961 (hereinafter referred to as the Act). Holding that the assignment of the promissory note was made with a view to defeat the right of the respondent to claim adjustment in respect of the amounts paid towards other chits, the lower appellate Court concluded that the appellant cannot be considered to be a holder in due course entitled to recover the amount from respondent. On the aforesaid conclusion, the lower appellate Court allowed the appeal and dismissed the suit. It is the correctness of this, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that being decided either by lots or by auction, as the case may be. When a subscriber is allowed to draw the chit amount, he becomes a prized subscriber and the transaction is nothing but the grant of a loan to him from out of the common fund in the hands of the Foreman. The relationship between the Foreman and the subscribers in a chit is of such a nature that there is need and justification for making strict provisions for the protection of the interests of the Foreman as well as the non-prized subscribers. The Foreman is obliged after a prized subscriber gets paid the amount, to find an equivalent amount from other sources to fulfil his obligation for payment of the chit amount to the other subscribers, who may prize the chit at the subsequent auctions or draw. With a view to raise this amount, the Foreman may have to pay higher rates of interest. The dominant purpose in the prized subscriber executing a promissory note in favour of the Foreman is to enable him to recover from the prized subscriber the balance of the amount in instalments so as to minimise at least to some extent his obligation in finding amounts from other sources for meeting in turn his obligation for payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alment, he would withdraw the concession, then it would not be penal. Though the latter decision of the Kerala High Court in Janardhana Mallan v. Gangadharan, AIR1983Ker178 (FB) appears to take the View that no debt is incurred by the subscriber for the amount of future instalments payable, in view of the approval by the Supreme Court in Subbarama Sastri v. Raghavan, of the decision of the Kerala High Court in P. K. Atchuthan v. State Bank, Travancore, AIR1975Ker47 , the latter decision in Janardhana Mallan's case, AIR1983Ker178 cannot be taken to have correctly laid down the law. It follows from the aforesaid decision of the Supreme Court that the prized subscriber, viz., respondent became a debtor in respect of the prize amount paid and he had merely been afforded the facility of payment of the amount due in instalments, as a matter of concession, and no more. The promissory note, under Ex. A 3, represented this liability of the respondent and that Had been assigned in favour of the appellant. The question whether the execution of a promissory note would only be some kind of a security for the payment of the money due on the future instalments of the chit and not negotiable, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a demand under Exs. A-5 and 7 and that would be sufficient to fulfil the requirements of Section 25 of the Act, if the provisions of the Act applied to the promissory note sued upon. Therefore, the first contention of the teamed counsel for the appellant is well founded. 8. Learned counsel for the appellant next submitted that the view taken by the lower appellate Court that Section 26 of the Act would invalidate the assignment in favour of the appellant, is erroneous, as a transfer of rights of a Foreman, without the previous sanction in writing of the Registrar, had not been declared void, but only voidable and the transfer in favour of the appellant had not in any manner been challenged by any non-prized subscriber or unpaid prized subscriber. Reference in this connection was also rnade to the decision in Sankaran Nair v. Chellappa Pillai 1966 Ker LT 517 and Anirudhan v. Damodaran Asari 1971 K LT 240 . Per contra, learned counsel for the respondent contended that the couching of Section 26(1) of the Act in a prohibitive or negative language indicated that the provision was intended to be mandatory and, therefore, an assignment made in the face of the provision contained in Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aside oh application by a non-prized or unpaid prized subscriber, whose interests are likely to be affected prejudicially by such transfer. There is thus an indication even in Section 26(1) and (2) of the Act, that the transfer is riot rendered void. In Sankaran Nair's case 1966 Ker LT 517 , Section 33(1) and (2) of the Chitties Act, 1120 came up for consideration and it was argued that the provisions of Section 33(1) are mandatory and would nullify the assignment. In rejecting this argument, Kerala High Court pointed out that the object of the provision is to protect the interest of non-prized subscribers and, therefore, it is riot open for the respondent to contend that the assignment is invalid, because the sanction in writing of the Registrar was not obtained. In the statutory provisions contained in that case also, there was no indication regarding the consequences, which would flow, from a violation of Section 33(1), which is in pari materia with Section 26(1) of the Act. Further, under Section 26(2) of the Act, it is clearly provided that any such transfer of rights' referring to such transfer without the previous sanction in writing of the Registrar, could beset asi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ules 1964, a subscriber is entitled to the benefit of a set off when amounts are due from the Foreman to a subscriber and also from the subscriber to the Foreman. Though in the written statement, the respondent had stated that he had been subscribing for, three chits and had also paid certain amounts, as detailed in para 4, the respondent did not place the relevant chit pass book or even the receipts for payment of amounts. Even in the course of the evidence of the respondent examined as D.W. 1, he has not mentioned anything about the payment of amounts towards the other chits. There is thus no evidence of any payment having been made by the respondent in respect of other chits and no question therefore, of any adjustment of the amounts stated to have been paid as against the claim made by the appellant in the suit, could arise. The lower appellate Court was therefore in error in non-suiting the appellant on the ground that the respondent will be entitled to an adjustment of the amount paid by him to the Foreman in respect of other chits. 11. Lastly, learned counsel for the respondent submitted that if at all, the respondent could be made liable only in a sum of Rs. 1550, after giv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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