Gosri Chit Funds (P) Ltd. v. K.K. Karunakaran and others

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE M.L.JOSEPH FRANCIS SATURDAY, THE 3RD DECEMBER 2011 / 12TH AGRAHAYANA 1933 RSA.No. 1111 of 2005() ---------------------AS.88/2004 of VI ADDL.DISTRICT COURT, ERNAKULAM OS.302/2000 of I ADDL.SUB COURT,ERNAKULAM .................... ## APPELLANTS/APPELLANTS/DEFENDANTS: ------------------------------------------ 1. K.K. KARUNAKARAN, AGED 55 YEARS, S/O. KELAN, KIZHAKKEKARA HOUSE, MANGANAM, KOTTAYAM, WORKING AS STATION MANAGER, COCHIN HARBOUR TERMINALS, SOUTHERN RAILWAY, KOCHI-3. 2. B. RADHAKRISHNAN, AGED 43 YEARS, S/O. A.B. BHASKARAN PILLAI, PALLISSERY NAMBIATH HOUSE, AZHAKAM, KOTHAMKULANGARA, ERNAKULAM, WORKING AS SR.COMMRCIAL CLERK SOUTHERN RAILWAY, ANGAMALY. 3. C.M. GEORGE KUTTY, AGED 36 YEARS, S/O. MATHEW, CHOTTUPARAYIL HOUSE, EDAPPALLY, MOOLAMATTOM, IDUKKI, WORKING AT CHIEF COMMERCIAL CLERK, SOUTHERN RAILWAY, ANGAMALY. BY ADV. SRI.C.S.MANU ## RESPONDENT/RESPONDENT: PLAINTIFF: ------------------------------------------------------------- GOSRI CHIT FUNDS (P) LTD., A COMPANY REG.UNDER THE COMPANIES ACT 1956, HAVING ITS REGISTERED OFFICE AT MARKET ROAD, COCHIN-35, AND BRANCH AT FARIDABAD AND OTHER PLACES REP. BY CHAIRMAN JOSE THOMAS, S/O. M.P. THOMAS, RESIDING AT MANAVALAN HOUSE, COCHIN-18. ADV. SRI.JIMMY JOHN VELLANIKARAN THIS REGULAR SECOND APPEAL HAVING BEEN FINALLY HEARD ON 01/12/2011, THE COURT ON 3/12/2011 PASSED THE FOLLOWING: ## **M.L.JOSEPH FRANCIS, J. ----------------------------------------------R.S.A. No.1111 of 2005 ----------------------------------------------Dated 3[rd] December, 2011.** ## **J U D G M E N T** This Second Appeal is filed by the defendants 1 to 3 in O.S.302/2000 on the file of I Additional Sub Judge, Ernakulam. The respondent herein was the plaintiff in that suit, which was filed for realization of money due under a chitty transaction. 2. In O.S.302/2000, the case of the respondent/plaintiff is briefly as follows : The respondent/ plaintiff is a chitty company and the first appellant was a subscriber of the chitty and he bid the chitty and for due payment of the instalments the appellants executed an agreement on 9.2.1993 with the respondent/plaintiff. The instalments were to be paid at the rate of Rs.2,500/-. A demand promissory note was also stated to have been executed by the first appellant. Since subsequent instalments were not paid, a total sum of Rs.87,500/- was the amount due from the appellants/defendants. The interest on the said amount was calculated at 12% per annum and including the notice charges and interest, a total amount of Rs.1,35,000/- is RSA 1111/05 2 claimed. 3. Appellants/defendants filed written statements, contending as follows : The first appellant/1[st] defendant admitted that he has bid the chitty on 27.11.1992 for an amount of Rs.40,000/- and he had received the prize amount on 9.2.1993 for which receipt was executed in favour of the respondent/plaintiff. But the appellants/defendants have not executed any other documents in favour of the plaintiff. The promissory note dated 9.2.1993 produced along with the plaint is not enforceable under law and is not for value received from the respondent/plaintiff. The appellants/ defendants have not executed an agreement dated 9.2.1993 for payment of future chitty instalments. It is also denied that a sum of Rs.87,500/with interest is due from the appellants/ defendants. The appellants/ defendants also contended that the suit is barred by limitation. The cause of action even according to the plaintiff arose on 27.11.1995, whereas the suit was filed only on 1.6.2000. The prescribed time for filing the suit expired on 26.11.1998. It is absolutely incorrect to state that as per letter RSA 1111/05 3 dated 15.10.1999 the first appellant/1[st] defendant acknowledged debt of Rs.87,500/-. Even according to the averments in the plaint, the alleged letter of acknowledgment was said to be executed on 15.10.1999 only, much after the expiry of the time prescribed for filing the suit. It is also contended that the person who verified and signed the plaint is not competent to do so. The document which has been produced as Document No.5 along with the plaint is not stamped as per the provisions of the Kerala Stamp Act, 1959 and the same is not admissible in evidence. The appellants/ defendants have never furnished any security bond or any other agreement to the respondent/ plaintiff. It is also contended that any demand promissory note for Rs.1,05,000/and letter of continuity, which is not valid as it does not contain any date, was not at all executed by the appellants. It is also not stamped as per the provisions of Kerala Stamp Act, 1959. The suit is time barred and also the appellants/ defendants are not liable to pay any amount to the respondent/plaintiff. 4. When the case was posted for evidence before RSA 1111/05 4 the Additional Sub Court, the defendants 1 to 3 remained ex parte. PW1 was examined and Exts.A1 to A12 were marked on the side of the plaintiff. The learned Sub Judge, on considering the evidence found that that Ext.A7 letter sent by the first defendant saves the period of limitation. The learned Sub Judge, relying on the testimony of PW1 and Exts.A1 to A12 decreed the suit with costs, allowing the plaintiffs to realize a sum of Rs.1,35,000/- with 12% interest per annum on Rs.87,500/- from the date of the suit till realization from the defendants and their assets. The defendants did not take any steps to set aside the ex parte decree by filing the petition under Order 9 Rule 13 of the Civil Procedure Code. Instead, they filed appeal before the V Additional District Court, Ernakulam as A.S.88/2004, which was allowed in part and a modified decree was passed reducing the interest as 6% per annum payable from the date of suit till date of realization. With regard to other aspects, the judgment and decree of the Sub Court was confirmed. Against that judgment and decree, defendants 1 to 3 filed this Second Appeal. RSA 1111/05 5 ## 5. Heard learned counsel for the appellants and the learned counsel for the respondent. 6. The following substantial questions of law were raised in the Second Appeal : - “(i) Whether the suit is barred by limitation? - (ii) Whether the alleged letter of acknowledgment of liability made by the principal debtor (1[st] appellant) after the debt is time barred, will save the limitation as against the sureties (appellant nos.2 and 3)? - (iii) Whether Ext.A1 promissory note is valid and enforceable due to want of consideration for the execution of the promissory note? - (iv) Whether the suit is liable to be decreed in favour of the plaintiff on the basis of Ext.A2 letter of continuity, Exts.A4 and A5 agreements which are not stamped as per the provisions of the Kerala Stamp Act, 1959?” At the time of hearing, learned counsel for the appellants raised the following arguments : The judgment and decree of the court below are against law, facts and evidence of the case. The courts below ought to have found that Exts.A4 and A5 agreements said to have been executed by the first appellant and the 2[nd] and 3[rd] appellants were not stamped as per the RSA 1111/05 6 provisions of the Kerala Stamp Act, 1959 and hence the same were inadmissible in evidence. The courts below ought to have found that Ext.A1 promissory note is not enforceable under law. On 9.2.1993 that is, on the date of Ext.A1 the first appellant had no liability towards the plaintiff for a sum of Rs.1,05,000/-. The court below ought to have found that Ext.A1 promissory note is also not for value received and same is inadmissible in evidence. The courts below misconstrued the evidentiary value and admissibility of Ext.A2 letter of continuity. The courts below ought to have found that the said Ext.A2 is not at all admissible as the same is not stamped. The courts below ought to have found that the suit is barred by limitation. The courts below ought to have found that first appellant has not executed Ext.A7 document dated 5.10.1999 and even if going by the version of the plaintiff relying on Ext.A7 does not save the limitation as the first appellant is alleged to have defaulted chitty instalments from 27.11.1995 and the suit is filed on 27.5.2000 whereas the respondent ought to have filed the suit on or before 26.11.1998 for saving the limitation. The courts RSA 1111/05 7 below erred in holding the defendants 2 and 3 liable, considering the fact that they had not signed Ext.A7 letter which is relied upon by the trial court for overcoming the limitation. The courts below ought to have found that the prescribed time for filing the suit expired on 26.11.1998 as the cause of action for filing the above suit arose on 27.11.1995 and even according to the averments in the plaint the alleged letter of acknowledgment of the alleged debt was said to be executed on 15.10.1999 only, i.e., much after expiry of the time prescribed by law for filing the suit. The learned counsel for the respondent/plaintiff supported the judgment of the trial court and the appellate court. 7. In the plaint, the plaintiff claims Rs.87,500/towards the amount due under 35 defaulted instalments from the 16[th] instalment, which fell due on 27.11.1995 till termination at the rate of Rs.2,500/- per instalment. The suit is filed on 1.6.2000. According to the defendants, the cause of action in the suit arose on 27.11.1995 and the prescribed time for filing the suit expired on 26.11.1998. For saving the period RSA 1111/05 8 of limitation, the plaintiff relied on Ext.A7 dated 5.10.1999, which is a letter written by the first defendant to the plaintiff, agreeing to remit the defaulted instalments before 31.12.1999. Learned counsel for the respondent/plaintiff submitted that the plaintiff is not claiming the benefit of Section 18 of the Limitation Act as that acknowledgment is not made within the period of limitation, but claiming the benefit under Section 25 (3) of the Contract Act. The acknowledgment under Section 18 of the Limitation Act, in order to be valid, must be made before the expiry of the period of limitation, whereas a promise under Section 25(3) of the Contract Act to pay a debt may be made after the debt has become barred by limitation. Ext.A7 letter of undertaking creates a fresh starting point of limitation. Since the first defendant made a promise to pay the debt as per Ext.A7 letter, the suit is not barred by limitation against the first defendant. ## 8. In the decision reported in **P.J.Kuriakose v. K.C.Cherian** [1984 KLT 744], it was held : “The security bond has to be read along with the statutory RSA 1111/05 9 provision. The statutory provision has to be treated as a proviso or a term in the security bond. Though it is stipulated in the bond that the foreman is entitled to claim all the future subscriptions, when the prized subscriber commits default of payment of any instalment, the statute intervenes and makes it obligatory on the foreman to exercise that right stipulated in the security bond only after making a demand in writing. It is clear from the statutory provision that the foreman's entitlement to claim consolidated payment of all the future subscriptions depends on making a demand in writing by the foreman. It is significant to note that the words used in the provision are 'entitled to claim'. This denotes that the title enabling the foreman to recover the entire future subscription is dependant on the demand in writing for the future subscriptions. The terms in the contract may at best enable the foreman to make a demand in writing; but it is the latter event of demand in writing that gives him the right to consolidated payment. The consolidated payment becomes due only on the making of a written demand and hence the starting point of limitation is only when the written demand is made. The plaintiff can recover in the suit only the amount of such of the instalments as had fallen due within three years prior to the date of institution of the suit.” As per the pooval kuri transaction, the instalments were payable in March, July and November in every year. The first defendant defaulted the payment of instalments from RSA 1111/05 10 November, 1995 at the rate of Rs.2,500/- per instalment. Since the defendants 2 and 3 have not given acknowledgment or letter agreeing to pay the time barred instalments, the plaintiff can recover only three years' defaulted instalments fell due within three years prior to the date of suit from defendants 2 and 3. Therefore, five instalments which fell due in November 1995, March 1996, July 1996, November 1996 and March 1997 at the rate of Rs.2,500/- per instalment are barred as against defendants 2 and 3 and the plaintiff can claim only Rs.75,000/with 12% interest from the date of default till date of suit and thereafter, at the rate of 6% per annum till date of realization. 9. Since Ext.A1 promissory note was executed by defendants 1 to 3 for the receipt of prize amount of the chitty, I find that Ext.A1 promissory note is supported by consideration. As already mentioned, the suit was decreed ex parte and the documents including Exts.A2, A4 and A5 agreements were admitted in evidence without any objection and it is not open to the defendants to question that order admitting those documents in this Second Appeal. RSA 1111/05 11 10. In view of my findings on the questions of law, it follows that the judgment and decree against the first defendant have to be confirmed and the judgment and decree against defendants 2 and 3 have to be modified. 11. Accordingly, this appeal is allowed in part. The judgment and decree allowing the plaintiff to realize a sum of Rs.1,35,000/- with 6% interest on Rs.87,500/- from the date of the suit till date of realization with costs from the first defendant is confirmed. The judgment and decree against defendants 2 and 3 are modified and the plaintiff is allowed to realize only Rs.75,000/- together with 12% interest from the date of default till date of suit and thereafter, interest at the rate of 6% per annum till date of realization and proportionate costs of the suit from defendants 2 and 3 and their assets. Parties are directed to suffer their respective costs in this Second Appeal. ## **Sd/-** **M.L.JOSEPH FRANCIS, JUDGE.** tgs