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Andhra High Court
Margadarsi Chit Fund Private Ltd. vs Jogi Krishna Murthy on 19 September, 1980
Author: J Reddy
Bench: J Reddy


JUDGMENT

Jeevan Reddy, J.

1. Margadarsi Chit Fund Private Ltd., the decree-holder (revision petitioner) herein, obtained a decree against the respondent for a sum of money due in respect of a chit fund transaction. In execution proceedings, the respondent filed E.A. No. 596/1977, submitting that the decree debt has abated and been extinguished by virtue of the provisions contained in the Andhra Pradesh Agricultural Indebtedness (Relief) Act, 1977, being Act VII of 1977. The decree-holder submitted, on the basis of an unreported decision of the Madras High Court, that the provisions of the Act do not apply to chit fund transactions, since the amount due in respect of such a transaction is not a ” debt” as defined by the Act. The executing court, however, agreed with the judgment-debtor and held that the decree debt has become extinguished and discharged by virtue of the said Act. The executing court was of the opinion that the definition of the expression ” debt ” in the Andhra Pradesh Act is wider than the definition contained in the Madras Act and, therefore, the decision of the Madras High Court has no application.

2. The question in this civil ‘revision petition is whether the amount due in respect of a chit fund transaction is a ” debt” and whether a chit fund company and the subscriber can be called ” creditor ” and ” debtor “, respectively, as defined by the Act. In order to answer this question it is necessary to examine the provisions of the Act as well as the provisions of the Andhra Pradesh Chit Funds Act, 1971. I will first refer to the provisions of Act No. VII of 1977. The expressions ” creditor “, ” debt”, and “debtor” are defined in Clauses (h), (i) and (j) in Section 3. They read as follows:

” (h) ‘ creditor ‘ means a person from or in respect of whom the debtor has borrowed or incurred a debt and includes his heirs, legal representatives and assigns;

(i) ‘ debt’ includes any liability owing to a creditor in cash or in kind, whether secured or unsecured payable under a decree or order of a civil court or otherwise and subsisting at the commencement of this Act, but does not include-

(i) a debt due to the Central Government or any State Government or any local authority or a co-operative society or a bank, including arrears of taxes due to the Central Government or a State Government or a local authority;

(ii) a debt due to any Government company within the meaning of Section 617 of the Companies Act, 1956 ;

(iii) a debt due to the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956, or to any other corporation established by or under any law for the time being in force and owned or controlled by the Central Government or any State Government ;

(iv) any rent due in respect of any property including an agricultural land let out to a debtor;

(v) any liability arising out of breach of trust or any tortious liability;

(vi) any liability in respect of wages or remuneration due as salary or otherwise for services rendered ;

(vii) any liability in respect of maintenance whether under a decree of a civil court or otherwise;

(viii) any debt which represents the price of any goods or property, whether movable or immovable, purchased by a debtor or any amount due under a hire purchase agreement;

(ix) any advance of money given to a debtor by a person as the price of goods or property to be sold later on by the debtor;

(x) any sum recoverable as arrears of land revenue;

(xi) any sum payable to any religious, charitable or educational institution including wakf, of a public nature ;

(xii) any debt contracted by a debtor from a person who is an agricultural labourer, a rural artisan, or a small farmer;

(j) ‘ debtor ‘ means an agricultural labourer, a rural artisan or a small farmer, who has borrowed or incurred any debt before the commencement of this Act.”

3. This Act has come into force on December 29, 1976. Section 4 declares that, on and from the commencement of the Act, every debt including interest, if any, owing to any creditor by an agricultural labourer, a rural artisan or a small farmer shall be deemed to be wholly discharged. All proceedings relating to such a debt, including execution proceedings, are declared to abate on such commencement.

4. It may be mentioned that the executing court has found that the respondent (judgment-debtor) is a ” small farmer “, and that finding is not disputed before me.

5. Now coming to the provisions of the Andhra Pradesh Chit Funds Act, 1971, it defines the expression “chit ” as “a transaction, whether called chit fund, chitty, or by any other name, by which its foreman enters into an agreement with a number of subscribers that every one of them shall subscribe a certain sum of money or a certain quantity of grain or other commodity, by instalments for a definite period and that each subscriber, in his turn, as determined by lot or by auction or by tender or in such other manner as may be provided for in the agreement, shall be entitled to a prize amount, whether payable in cash, kind or any other article of value “. The Explanation to the definition clarifies that if some alone, but not all, of the subscribers get the prize amount without any liability to pay further subscriptions, it would not be a chit. Section 5 prescribes the form of chit agreement which is to be signed by the subscribers and the foreman. ” Foreman ” means the person who, under the chit agreement, is responsible for the conduct of the chit. (He is generally referred to as ” stake-holder”). Section 13 sets out the rights of the foreman. It makes it clear that he is entitled only to commission or remuneration, as the case may be, not exceeding 5% of the chit amount as may be fixed in the chit agreement. He is prohibited from appropriating any other amounts. He is also expected to keep the subscribers’ registers and books of account in the prescribed form, and to prepare and file a balance-sheet with the Registrar. By Section 17 he is made liable to account to the subscribers for the amounts due to them. It is clear that this Act has been made for regulating the chit fund transactions in the State.

6. The essential nature of a chit fund transaction has been set out by a Bench of this court in Dhoosa Narasimloo v. Yalala Rajanna [1958] 2 An WR 5.

” The chit fund organisation “, the Bench observed, “as is well known, is an organisation of a number of people who join together and subscribe amounts monthly so that that person or the subscriber who is in need of funds may draw the amount less discount. It is an organisation run on a co-operative basis for the benefit of the subscribers, the funds to be utilised by them as and when a particular subscriber needs it. It is to help thrifty persons to invest their savings with good chances of profit….”

7. To the same effect are the observations of the Kerala High Court in Narayana Prabhu v. Janardhana Mallan, . It is observed there (headnote):

” The normal incidents of a kuri chit transaction are that the chitty foreman and the subscribers enter into a contract whereby the subscribers oblige themselves to pay subscriptions in stated instalments and the foreman obliges himself to pay the prized amount when once the chitty is prized by the subscriber at any instalment. Even when he is a prized subscriber he has the same obligation to pay future subscriptions arising, not by reason of the fact that he has prized the kuri, but because of the contract entered into by him with the foreman to pay such subscriptions whether the kuri is prized or not. Subscriptions paid by the prized subscribers are not in discharge of the liability for the prized amount because the prize amount is received by the subscriber as of right and not as a loan……It is appropriate to treat the obligation to pay the future instalments as an obligation arising under the contract of kuri.”

8. The Chit Funds Act, it is clear, does not alter or modify the essential nature of a chit transaction, but only seeks to regulate it. Let me now consider the question whether the amount due under a chit is a ” debt ” within the meaning of Act 7 of 1977, and whether the relationship of the stake-holder and the subscriber is that of a creditor and debtor, as defined by the said Act. Mr. P. Raja Rao, the learned counsel for the petitioner, relies upon the decision in Dhoosa Narsimloo v. Yalala Rajanna [1958] 2 An WR 5, in support of his contention that it is not. He also relies upon the Kerala decision referred to above. Alternatively, it is argued that the debt in question falls within Clause (viii), which is one of the debts excluded from the definition of ” debt ” in Clause (i) of Section 3.

9. On the other hand, the learned counsel for the respondent relies upon the wide language employed by the Legislature in defining the expression ” debt”, and says that all liabilities due from one person to another, of whatever nature, are included within the said definition. Learned counsel contends that Clause (viii) relied upon by the counsel for the petitioner has no application herein.

10. I am inclined to agree with Sri P. Raja Rao, the learned counsel for the petitioner, that the amount due from a subscriber to a stake-holder or a foreman, as the case may be, in respect of a chit fund transaction, cannot be called a “debt” as defined by the Act. The expression ” debt” has been denned by the Act as including ” any liability owing to a creditor in cash or in kind……” Now, the expression ” creditor” is defined in Clause (h) to mean “a person from or in respect of whom the debtor has borrowed or incurred a debt……” The expression “debtor” is defined in Clause (j) to mean ” an agricultural labourer, a rural artisan or a small farmer, who has borrowed or incurred any debt before the commencement of this Act”. The definition of the word ” debt” is an inclusive one. The object, therefore, was to expand its meaning and field, but, certainly, the expression does not lose its original and natural meaning. In other words, there must be, broadly speaking, the relationship of creditor and debtor. Now, can it be said that in the case of a chit fund transaction, the relationship between the stake-holder/foreman and the subscriber is that of a creditor and debtor ? In my opinion, it is not. The essential nature of a chit fund transaction has already been adverted to by me with reference to the decisions in Dhoosa Narasimloo v. Yalala Rajanna [1958] 2 An WR 5, and Narayana Prabhu v. Janardhana Mallan, , and I have also pointed out that the Andhra Pradesh Chit Funds Act does not alter or change the essential nature of the transaction. The stake-holder/foreman merely organises the transaction. The money lent is not his money. It is really an organisation run on a co-operative basis for the benefit of subscribers, and the foreman is only an organiser collecting his remuneration in the shape of commission. In fact, the decision of this court, referred to above, i.e., Dhoosa Narsimloo v. Yalala Rajanna [1958] 2 An WR 5 was rendered under the provisions of the Hyderabad Money Lenders Act, and the question there was, whether an amount due by the subscriber of a chit fund transaction to the stake-holder is a ” loan ” within the meaning of the Hyderabad Act. The Bench held that it was not. The wide language employed in defining the expression ” debt” in Act 7 of 1977, in my opinion, does not make any difference to this essential position. To the same effect is the unreported judgment of a learned single judge of the Madras High Court, which was also placed before the court below. The court below was not right in distinguishing that decision on the ground that the expression ” debt” has been defined in wider language in our Act.

11. In view of the above finding, it is not necessary for me to go into the question whether Clause (viii) of the exemption clauses, enumerated in Clause (i) of Section 3 is attracted in this case.

12. Civil revision petition is, accordingly, allowed; but, in the circumstances, there shall be no order as to costs.


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