Case: Kerala State Fin. Entps Vs. Jacob Alexander

sufficient if they pay only the balance amount after such deduction (dividend). (c) Auction discount will be distributed to all subscribers in pro portion to their ticket share, irrespective of whether prized, non prized, auctioned or non auctioned. But prized and auctioned subscribers will not be eligible for the auction discount if they do not pay the instalments within the due date. The auction discount, so forfeited by the prized and auctioned subscribers will be distributed after the termination of the Kuri, in proportion to the share of the ticket . To the subscribers who have remitted regularly the instalment amount till that date. (d) Those subscribers who are eligible for the dividend as above stated, need remit at each instalment only the amount after deduction of dividend, as their share. But if the dividend amount exceeds the instalment amount, such exceeds the instalment amount, such excess will be paid in cash to the subscribers. 11(b ) If the non prized and non auctioned subscribers do not remit the instalment amount within ten days of the due date, they can pay the said amount together with 12% interest on or before the next due date. If it i s not so done, grace period (10 days) will not be allowed for the next and succeeding instalments and such subscribers will forfeit the discounts (dividend, auction discount)of the three defaulted instalments if they default continuously two instalments along with the interest and fail to remit the third instalment, unless otherwise permitted by the company, the tickets of subscribers, who have defaulted continuously three instalments, will be scratched and they will automatically lose their right to be subscribers. The company will have the right to remove their names from the kuri list and will have the power to transfer to itself or enroll fresh subscribers instead. But non- removal from the list of subscribers or non-substitution of another in such cases shall not be construed as having allowed the continuous defaulter to continue as a subscriber."The provisions of chit Funds Act. 1961 and its constitutional validity came up for consideration before this court in the case of Shriram Chits and Investment (P) Ltd. v. Union of India and others. S.C.C. 1993(4) Suppl. 226. The said Act is pari materia with the Act now under consideration. This court considered the role of foreman in the chit transactions and came to hold and indicated the manner in which unscrupulous foreman resorted to unfair methods to secure illegal gains, thus: "The foreman derives his income in different ways, both legal and illegal. In the former category can be included items such as admission fee from members, penal interest or penalty fee from defaulting members and forfeiture of their dividend, interest on loans to non-prized chit holders. fees for transfer of shares in the chit, deduction from the subscription paid by a member who wants to resign, dividends on the chit reserved for himself interest on the chit prize taken without deduction, interest on the chit prize which the prized member may not be in a position to collect immediately, and subscriptions paid by members who discontinue in the middle of the scheme but do not care to claim refund. The unscrupulous among the foremen resort to so many unfair methods to secure illegal gains. A few of these methods are briefly mentioned below: (i) Enrollment of fictitious members to completes the required number of members in a chit series. If a real and needy non-prized member is not able to come forward to offer a high discount at the auction. One of these benami members is Shown to get the prize thereby depriving the real members of the opportunity, (ii) Similarly, it is possible to exploit needy non-prized member or a new member so that he gets the prize only at the maximum discount. (iii) The prized member is supposed to get the amount soon after the draw or auction is over of course on furnishing the security. But the foreman adopts tactics which delay the actual payment for a considerable time, meanwhile he uses the money interest-free. If he succeeds in delaying the payment till the succeeding draw, the earlier prize winner is given the prize out of the collections of the succeeding draw. Thus, one instalment is perpetually in the hands of the foreman to be utilized in any way he likes.The above are only examples to illustrate the way in which some foremen minimize their profits. They do not take into account the cases where the foreman and his associates disappear from the scene and are untraceable. The police have many such cases on their record. During 1962-66, as many as 255 chitties collapsed in several districts of Kerala on account of such malpractices." Bearing in mind what has been stated by this court in the aforesaid case with regard to the manner in which the foreman exploits the subscribers and on examining the provisions of the Act and the Vaimpu referred to earlier, we have no hesitation to come to the conclusion that a foreman is only entitled to the commission as is provided in the vaimpu and is not entitled to anything more. In view of the specific language used in clause 8(c) of the vaimpu, the amount of auction discount has to be distributed among all the subscribers in proportion to their ticket share. We are further of the view that the forfeited discount of non-prized subscribers will have to be distributed among the subscribers who have remitted their subscriptions regularly.It is true that there is no specific provision in the vaimpu but since under the Act and the vaimpu the entitlement of the foreman has been indicated and the foreman cannot take anything more than what is provided for and therefore the amount has to be distributed among the regular subscribers. In our considered opinion, the Full Bench of the Kerala High Court rightly answered the question and we do not find any legal infirmity in the same.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]Even though notice had been duly served on the plaintiff respondent but since the plaintiff did not appear either in person or through counsel and in view of the importance of th e matter we thought it appropriate to take the assistance of a counsel and Mr. Sitaramiah, learned senior counsel agreed to render assistance to thein mind what has been stated by this court in the aforesaid case with regard to the manner in which the foreman exploits the subscribers and on examining the provisions of the Act and the Vaimpu referred to earlier, we have no hesitation to come to the conclusion that a foreman is only entitled to the commission as is provided in the vaimpu and is not entitled to anything more. In view of the specific language used in clause 8(c) of the vaimpu, the amount of auction discount has to be distributed among all the subscribers in proportion to their ticket share. We are further of the view that the forfeited discount ofsubscribers will have to be distributed among the subscribers who have remitted their subscriptions regularly.It is true that there is no specific provision in the vaimpu but since under the Act and the vaimpu the entitlement of the foreman has been indicated and the foreman cannot take anything more than what is provided for and therefore the amount has to be distributed among the regular subscribers. In our considered opinion, the Full Bench of the Kerala High Court rightly answered the question and we do not find any legal infirmity in the same.