M/S ORIENTAL KURIES LTD. REPRESENTED BY ITS CHAIRMAN P. D. JOSE versus LISSA & ORS.

Citation: [2019] 15 S.C.R. 258 · Decided: 06-11-2019 · Supreme Court of India · Bench: INDU MALHOTRA, SANJIV KHANNA · Disposal: Amount Awarded

cites 3 · see the full citation network in Lexace

Judgment (excerpt)

A
B
C
D
E
F
G
H
258
SUPREME COURT REPORTS
[2019] 15 S.C.R.
M/S ORIENTAL KURIES LTD. REPRESENTED
BY ITS CHAIRMAN P. D. JOSE
v.
LISSA & ORS.
(Civil Appeal No. 5401 of 2009)
NOVEMBER 06, 2019
[INDU MALHOTRA AND SANJIV KHANNA, JJ.]
Chits Funds Act, 1982: s.32 – Jural relationship between a
chit fund entity and subscribers created by chitty agreement –
Whether by entering into a chitty agreement, a debt is not created at
once by the subscriber with respect to the amount of all the future
instalments  – Held: Where a contract provides for payment of money
in installments, and contains a stipulation that on default being
committed in paying any of the installments, the whole sum shall
become payable at once, such a stipulation is not in the nature of
penalty – The provisions of Chapter V of the 1982 Act clearly
stipulate that if a prized subscriber defaults in making payment of
an installment, the chit foreman has the right to recover the amount
covering all future subscriptions from the defaulting subscriber as
a consolidated amount – The object is to empower the foreman to
recover the amount in a lump sum from a defaulting subscriber, so
as to secure the interest of the other subscribers, and ensure smooth
functioning of the Chit Fund – Such a provision would not amount
to a penalty – The stipulation of empowering the foreman to recover
the entire balance amount in a lump sum, in the event of default
being committed by a prized subscriber, is to ensure punctual
payment by each of the individual subscribers of the chit fund –
Without punctual payments, the system would become unworkable,
and the foreman would not be in a position to discharge his
obligations to the other members of the chit fund – Thus, the
relationship between a chit subscriber and the chit foreman is a
 [2019] 15 S.C.R. 258
258
A
B
C
D
E
F
G
H
259
contractual obligation, which creates a debt on the day of
subscription – On default taking place, the foreman is entitled to
recover the consolidated amount of future subscriptions from the
defaulting subscriber in lump sum.
Allowing the appeal, the Court
HELD: 1. Where a contract provides for payment of money
in installments, and contains a stipulation that on default being
committed in paying any of the installments, the whole sum shall
become payable at once, such a stipulation would not be in the
nature of a penalty.  When a prized subscriber is allowed to draw
the chit amount, which is in the nature of a grant of a loan to him
from the common fund in the hands of the foreman, with the
concessional facility of effecting re-payment in installments; this
is subject to the stipulation that the concession is liable to be
withdrawn in the event of default being committed in payment of
any of the installments. The chit subscriber at the time of
subscription, incurs a debt which is payable in installments. If a
subscriber is permitted to withdraw the collected sum on his turn,
without being bound to pay the future installments, it would
jeopardize the interest of all other subscribers, and the entire
mechanism of the chit fund system would collapse. [Paras 8, 10]
[268-D-E, G-H; 269-A-B]
2. Section 32 of the 1982 Act empowers the foreman to
recover the consolidated payment of all future subscriptions
forthwith in the case of a default. Chapter V of the 1982 Act
prescribes the rights and duties of prized subscribers.  The object
is to empower the foreman to recover the amount in a lump sum
from a defaulting subscriber, so as to secure the interest of the
other subscribers, and ensure smooth functioning of the Chit
Fund. Such a provision would not amount to a penalty.  The
relationship between the foreman and the subscribers in a chit
fund transaction is of such a nature that there is a necessity and
justification for making stringent provisions to safeguard the
M/S ORIENTAL KURIES LTD. REPRESENTED BY ITS CHAIRMAN P. D.
JOSE v. LISSA & ORS.
A
B
C
D
E
F
G
H
260
SUPREME COURT REPORTS
[2019] 15 S.C.R.
interest of the other subscribers, and the foreman. If a prized
subscriber defaults in payment of his subscriptions, the foreman
will be obliged to obtain the equivalent amount from other
sources, to meet the obligations for payment of the chit amount
to the other members, who prize the chit on subsequent draws.
For raising such an amount, the foreman may be required to pay
high rates of interest. [Paras 11-13][269-C-D; 271-C-E]
3. The stipulation of empowering the foreman to recover
the entire balance amount in a lump su

Excerpt shown. Read the full judgment & AI analysis in Lexace.