Oriental Kuries Ltd. Vs. Lissa and Ors. - (Supreme Court) (06 Nov 2019)

Chit foreman authorized to recover amount of future subscription from defaulting subscriber

MANU/SC/1519/2019

Contract

The issue which has arisen for consideration in the present Civil Appeal is with respect to the jural relationship between a chit fund entity and the subscribers, created by a chitty agreement; and whether it is a debt in praesenti or a promise to discharge a contractual obligation.

The present Appeal arises out of a Chit Fund conducted by the Appellant, a chit fund entity. The duration of the chit fund was from 1978 to 1990. The Respondents were subscribers of the chit fund. During the subsistence of the chit fund, the Respondents defaulted in the payment of 12 instalments.

The chit subscriber at the time of subscription, incurs a debt which is payable in instalments. If a subscriber is permitted to withdraw the collected sum on his turn, without being bound to pay the future instalments, it would jeopardize the interest of all other subscribers, and the entire mechanism of the chit fund system would collapse.

A perusal of the provisions of Chapter V of the Chit Funds Act, 1982 makes it clear that, if a prized subscriber defaults in making payment of an instalment, the chit foreman has the right to recover the amount covering all future subscriptions from the defaulting subscriber as a consolidated amount. 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.

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 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.

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.

The relationship between a chit subscriber and the chit foreman is a 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 a lump sum. The impugned judgment passed by the Division Bench of the High Court is set aside. The Civil Appeal is allowed.

Tags : DEFAULTING SUBSCRIBER PAYMENT RECOVERY