JANNET CHIT FUNDS PRIVATE LIMITED IN RE AND S MUTHUSWAMY OFFICIAL LIQUIDATOR Vs. JANNET CHIT FUNDS PRIVATE LIMITED E LAKSHMIPATHY

JUDGEMENT

(1.) THE official liquidator as liquidator of Jannet Chit Funds Private Limited (in liquidation) has taken out this application and is seeking in the judge's summons a direction against the respondents to pay a sum of Rs. 13, 666.98 being the amount due by them to the company in liquidation together with interest thereon and for other incidental reliefs. On October 27, 1972, in Com. Appln. No. 349 of 1972 in Comp. Petn. No. 80 of 1972, the official liquidator (the applicant) was appointed as the provisional liquidator of the company and by a subsequent order made on February 2, 1973, he was directed to administer the affairs of the company as official liquidator. THE main object of the company in liquidation was to carry on the business by conducting and promoting the auction of the chit funds and other financing schemes. THE first respondent was a subscriber in chit group D/2 conducted by the company for a total value of Rs. 25, 000. On December 10, 1971, he became the successful bidder in the auction conducted by the company, his prize amount for the chit being Rs. 11, 400. Consequent upon his having struck at the prize amount and having received the said consideration in advance, the first respondent together with respondents Nos. 2 and 3 as sureties executed a promissory note dated March 9, 1972, in favour of the company for a sum of Rs. 24, 317 being the future instalments due and payable by him towards the chit as above agreeing to pay interest thereon at 12 per cent. per annum. THE first respondent paid towards the subscriptions a sum of Rs. 2, 459 between November 10, 1971, and July 7, 1072, and earned a dividend of a sum of Rs. 2, 041. THE above sum of Rs. 4, 500 has been duly credited in the accounts of the company. On and from August 10, 1972, the first respondent committed default. Pursuant to the demands made by the official liquidator, the second respondent as surety paid a sum of Rs. 925. After some time, respondents Nos. 2 and 3 paid a sum of Rs. 16, 305 on 27th November, 1976. After giving credit to all such amounts together with counter--interest on the amounts paid, a sum of Rs. 13, 666.98 is still due and payable by the respondents under the promissory note executed by them jointly on March 9, 1972. THE company was wound up by orders of court and the applicant, therefore, as its official liquidator is entitled to a direction as prayed for under s. 446(2) of the Companies Act. In the counter--statement of respondents Nos. 2 and 3, the respondents deny that there was any agreement. to pay interest and as the company went into liquidation even during the currency of the chit and before the date of termination thereof, they are not liable to pay any future instalments even though the amount is covered by the promissory note. As no chits were conducted and no auction was held on and after the date of the petition for winding up, it cannot be said that the respondents were in default and the official liquidator cannot seek to enforce the promissory note, as if there was one. It is also said that as under s. 24 of the Act, the subscriber is bound to pay the subscription at the time and place mentioned in the chit agreement and as no office was functioning after October 27, 1972, the respondents cannot be deemed to have committed any default. THE official liquidator is characterised as the agent of the company or as an officer who has stepped into the shoes of the company for its administration and, therefore, he cannot demand the payment of interest on the alleged defaulted instalments. THEir further case is that in connection with the other chit taken by the first respondent a sum of Rs. 3, 000 is lying in credit with the company and in any event that sum has to be set off as against the present claim made by the official liquidator. THE case is that if the interest is waived, as it is not payable, and if the sum of Rs. 3, 000 which is admittedly with the company to the credit of the first respondent is also taken into account, no amount would be payable by the respondents to the applicant. THE objection is taken against the rate of interest at 12 per cent. per annum, as it is against the provisions of the Tamil Nadu Chit Funds Act of 1961.It is not in dispute that the first respondent after discounting a sum of Rs. 13, 600 took a prize chit in group No. D/2 valued at Rs. 25, 000 for a prize money of Rs. 11, 400. He, along with the second and the third respondents as sureties, executed a promissory note dated March 9, 1972, for a sum of Rs. 21, 317 and it is in respect of this promissory note that a net balance towards the principal in the sum of Rs. 20, 500 and interest from August 12, 1972, in the sum of Rs. 10, 499.37 is due. Towards the said sum, the second respondent individually and along with the third respondent paid substantial sums in 1976 and the amount as claimed on the promissory note by the official liquidator in the judge's summons is Rs. 13, 666.98. It is also not in dispute that in another group the first respondent became a member and contributed a sum of Rs. 3, 000 and could not continue the same because of the supervening liquidation of the company. It is, in these circumstances, the two questions that were argued before me are that the sum of Rs. 3, 000 though paid for a different chit group by the first respondent the same has to be set off against the claim. Secondly, the claim for interest is objected to on the ground that as the company went into liquidation the claim is not justified.

(2.) A Division Bench of this court has expressed the view that in a case where the prize holder along with sureties executes a promissory note, then that debt having been merged in the suit promissory note and as the promissory note is supported by consideration, the obligations arising therein have to be respected (vide Durgachalam v. Jannet Chit Funds P. Ltd. The Division Bench also expressed that interest is payable on the debt due as the same could be claimed by the official liquidator on the basis of the negotiable instrument, which is the foundation for the claim. It, therefore, follows that the second contention that the respondents are not liable to pay interest does not survive having regard to the decision of the Division Bench of this court.As regards the first contention, it is necessary to understand the import of a chit fund company. Such companies are organized with the co-ordinated efforts of various subscribing members. There is legislative sanction behind the running and conducting of chits by such companies or organisations. Madras Act No. 24 of 1961 is an Act which provides for the regulation of chit funds in the State of Madras. "Chit" has been defined in s. 2(2) of the Act, which is as follows : "(2)'Chit'means a transaction whether called chit fund, chit, kuri, 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 or a certain quantity of grain 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."