AYYAKANNU PILLAI Vs. DORAISWAMI PILLAI

JUDGEMENT

(1.) The suit was on a mortgage bond executed by defendant 1 in respect of a chit transaction conducted by the plaintiffs. The chit fund was started about 2nd May 1921 and it consisted of 50 chits. Defendant 1 was a subscriber for two chits and he took the chit in auction in the third instalment on 8 July 1921, for Rs. 197 and executed the suit mortgage bond as security for payment of the future instalments. While the chit was going on he also took the other chit in auction in 30tb instalment for Rs. 310 on 6 October 1923. The findings of fact are that towards the suit mortgage bond defendant 1 paid up the calls until 24 call only, and thereafter committed default. Under the terms of the bond all future instalments 25 to 50 became payable on the date of default. The plaintiff's case in the trial Court was that defendant 1 committed default in the fifth drawing, but the Court found that this default had been waived and, as I said, the finding is that default began after the 24 instalment. The plea of defendant 1 was that he had paid up to the end of the 27 instalment and that there was an adjustment as regards both the chits by means of Ex. 1. Ex. 1, has been found against.

(2.) The finding is that the plaintiffs version that Rs. 310 due to defendant 1 for the second chit was adjusted towards the calls of the second chit and towards the amount due on some promissory note is correct. The trial Court following the decision of Srinivasa Ayyangar, J., in Ramalinga Adaviar V/s. Meenakshi Sundaram Pillai AIR 1925 Mad 177 found that the clause by which all future instalments became due on the date of default was penal. It accordingly only gave a decree for the instalments as they fell due at a certain rate of interest which is not clearly stated in the judgment and which it is unnecessary for the purpose of this appeal to work out. The rate stipulated in the bond is 30 per cent. The defendants appealed. The lower appellate Court held that the whole amount became due at the date of default, thereby impliedly dissenting from the view of the trial Court on that matter, but it held that the rate of 30 per cent was a penal clause added to this penalty for default and awarded interest only at 6 per cent. Although the whole argument recognized that the future instalments became due by non- payment of the 25 instalment, yet interest was only awarded from the date of the closing of the chit. No reason is given for this by the learned Subordinate Judge. This second appeal is preferred by the plaintiffs and is concerned only with interest.

(3.) The first matter is that mentioned just now that interest must begin from the date of default and that is clearly so on the finding of the learned Subordinate Judge himself. The other matter urged is that the Court is wrong in holding that 30 per cent interest stipulated in the bond is by way of penalty. In Vaithinatha Iyer v. Govindaswami Odayar AIR 1922 Mad 67, it was held that this was not a penal stipulation even when added to the loss of commission by the defaulter and to his having to pay all the instalments on default in one. In Muthukumaraswamiah v. Subramanian , Ramesam, J., one of the Judges in Vaithinatha Iyer v. Govindaswamy Odayar AIR 1922 Mad 67 referred to that case and it was argued that in the later case the learned Judge approved of the opinion of Srinivasa Ayyangar, J. As I read the case I do not think the learned Judge says that he approves of the test laid down by Srinivasa Ayyangar, J. If that test is correct it would unquestionably make the stipulation that the whole of the future instalments became due in default of payment of any of them in the case of these chit funds a penalty, because unquestionably these are debt instalments which are not due actually at the time of the bond. All that Ramesam, J., lays down in , is that it cannot be said that the terms of a chit fund contract can never be penal.