LexK.P. SUBBARAMA SASTRI & ORS. ETC. versus K.S. RAGHAVAN & ORS. ETC.
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K.P. SUBBARAMA SASTRI & ORS. ETC. A v. K.S. RAGHAV AN & ORS. ETC. APRIL 3, 1987 [V. KHALID AND G.L. OZA, JJ.] B ~ Contract Act, 1872: s. 74--Kuris a~d Chitties-Prized subscriber executing bond-Provision for payment in lump sum with 12% interest on default-Whether unconscionable and penal. • ,,..,- Kera/a Chitties Act, 1975: ss. 6, 7 & 28-Prized subscriber de- c faulting to pay subscriptions-Consequences of-Whole sum becoming ~ payable in lump sum with 12% interest-Such provision whether un- conscionable and penal. The respondents who were subscribers to a Kori (Chit Fund) in 1962, committed default after they had prized the tickets and realised D the amounts. The bonds executed by them contained a provision that in case of default they would be liable to pay all tbe future instalments in a lumpsum with interest at 12% without giving any credit for the dividend. J: The suit filed for realisation of the principal sum with interest and E the balance Kuri due was decreed by th~ trial court in 1965. In appeal before tbe High Court it was contended for the defendant-respondents that the stipulation in the agreement that on default the Kuri foreman )- would be entitled to recover the entire balance amount with 12% in- terest in a lump sum without giving credit to the subscribers was uncon- I scionable and penal and hence not enforceable. The Division Bench F ~- I ·-y took tbe view that the Kori transaction and the contract between the Kori foreman and the subscribers burdened them with unconscionable interest and were unreasonable. It, therefore, partly allowed the appeal by modifying the decree ref'ixing the Interest. Allowing the appeal by appellants-plaintiffs and dismissing the G appeal by other subscribers by special leave, the Co'urt, -f HELD: Where a contract provides for payment of money in ins- talments and contains also a stipulation that on default being committed in paying any of the instalments the whole sum shall become payable at once, the true test for determining whether the said condition is in the H 767 768 SUPREME COURT REPORTS [1987] 2 S.C.R. A nature of a penalty is to find out whether the amounts referred to in the ").-· agreement were aebita in praesenti although solvenda in futuro or Whether they were to become due to the promisee on the respective B c D E F dates when the instalments were payable. [771E·G] If on proper consideration of a contrllct it is found that the whole amount was on the date of the bond a debt due but the creditor for the convenience of the debtor allowed it to be paid by instalments then the ~ stipulation would not be penal. If on the other hand the court comes to the conclusion that the debt becomes due only on the respective dates - ·~. ~ fixed for the instalments, the stipulation would be in the nature of a penalty. [771G·H; 772A·B] In the instant case there was nothing unconscionable about the contract. A subscriber to a Kori truly and really becomes a debtor for the prized amount paid to him. The facility of repayment in instalments is only a concessional facility. The stipulation enabling the foreman to withdraw this facility on default of punctual payment of the instalment could not, therefore, be said to be penal. [770G-H; 771A·B] P.K. Achuthan v. State Bank of Travancore, Calicut, ·[1974] K.L. T. 806 (F.B.), approved. ~ CIVIL APPELLATE JURISDICTION: Civil Appeal No. 85 (N) of 1972. From the Judgment and Order dated 27.11.1970 of the Kerala High Court in A.S. No. 380 of 1965. WITH SPECIAL LEA VE PETITION (CIVIL) No. 2908 of 1975. From the Judgment and Order dated 15.1.1975 of the Kerala High Court in Second Appeal No. 390 of 1971. T.S. Krishna Murthy Iyer, A.S. Nambiar, G.N. Rao and Ms. f ~·· y" G Shanta Vasudevan for the Appellants in C.A. No. 85(N) of 1972 and Respondents in SLP. No. 2908 of 1975. N.M .. Ghatate and S. Balakrishnan for the Respondents in C.A. No. 85(N) of 1972 and Petitioners in S.L.P. No. 2908of1975. H The Judgment of the Court was delivered by K.P.S. SASTRI v. K.S. RAGHAVAN (KHALID ,J.] 769 KHALID, J. We will first deal with Civil Appeal 85/1972. The A appellants were the plaintiffs in O.S,. No. 78 of 1964 on the files of the Subordinate Judge's Court, Palghat. The s11it was based on a Kuri transaction (Chit Fund). The respondents were s11bscribers to the Kuri. They committed defa11lt after they had prized it and realised the Kuri amounts. Hence the
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