IMPORTANT POINT
The court affirmed the enforceability of chit fund agreements and the validity of associated guarantee agreements, emphasizing the burden of proof on the defendants.

JUDGMENT :

T. MALLIKARJUNA RAO, J.

1. The Appeal, under Section 96 of the Code of the Civil Procedure, 1908 (for short ‘C.P.C.’) is filed by the Appellants/Defendants 1 to 3 challenging the decree and Judgment, dated 17.08.2009 in O.S. No. 67 of 20 08 passed by the learned Senior Civil Judge, Kothapet, East Godavari District (for short ‘trial court’).

2. Respondent is the Plaintiff, who filed the suit in O.S. No. 67 of 2008 for passing of a preliminary decree for recovery of Rs.5,37,422/- with subsequent interest at 12% p.a., on Rs.4,75,000/- from the date of suit till the date of realization. The Appellants are the Defendants 1 to 3 in the said suit.

3. The parties will hereinafter be referred to as arrayed before the trial Court.

4. The facts leading to the present Appeal, in a nutshell, are as under:

The Plaintiff is a company registered under the Indian Companies Act, with its registered office located in Hyderabad and a branch in Amalapuram. 1st Defendant joined the chit group FT001Z AM-17 by executing a chit agreement on 10.01.2006. The chit has a total value of Rs.10,00,000/- with monthly subscriptions of Rs.21,000/- for a period of 40 months. In the fourth auction conducted by the Plaintiff on 22.01.2006, 1st Defendant emerged as the successful bidder, agreeing to forego Rs.4,00,000/-. For the future payment of monthly installments, 1st Defendant provided Defendants 2 to 5 as guarantors. Defendants 2 to 5 executed guarantee agreements, and all the Defendants executed a promissory note on 29.05.2006, for a future liability of Rs.9,00,000/-. On 29.05.2006, 1st Defendant offered the plaint schedule property as security by depositing the title deeds with the Plaintiff, intending to create a mortgage by deposit of title deeds. 1st Defendant also executed a confirmation letter on 30.05.2006. 1st Defendant was disbursed a prize amount of Rs.6,00,000/- comprising Rs.5,24,690/- paid by cheque No. 174089 and Rs.75,310/- adjusted via receipt No. 835453 on 06.06.2006. 1st Defendant issued a cash voucher acknowledging these payments. Subsequently, while 1st Defendant made some installment payments, he defaulted on payments starting from 15.07.2007. The Plaintiff issued a legal notice dated 08.08.2008, demanding the outstanding amount along with interest from the Defendants. Although the Defendants received this notice, they have failed to make any payments to the Plaintiff.

5. 1st Defendant filed a written statement, which was adopted by the Defendants 2 and 3, they refuted most of the plaint averments, asserting that 1st Defendant never provided guarantors and did not execute any agreement of guarantee on 29.05.2006 in favour of the Plaintiff. They further contended that no promissory note was executed on 29.5.2006 in favour of Plaintiff and that 1st Defendant did not offer the plaint schedule property as security by depositing his title deeds with the Plaintiff. Instead, the title deeds were given for the purpose of verifying 1st Defendant’s status, not as security. Additionally, the 1st Defendant did not execute any confirmation letter on 30.05.2006 regarding the deposit of title deeds as security. Plaintiff has miscalculated the accounts and that, if correctly computed, there would be no outstanding balance due from the 1st Defendant. The suit is intended solely to harass the defendants and that the Plaintiff seeks to gain unjustly. 1st Defendant has paid the entire amount due and has not defaulted on any payments; the suit is barred by limitation, and therefore, lacks merit.

6. Defendants 4 and 5 have remained ex-parte.

7. Based on the above pleadings, the trial Court framed the following issues:

(1) Whether the Plaintiff is entitled to the relief of passing preliminary decree for recovery of the suit claim with subsequent interest and costs as prayed for?

(2) Whether the suit is barred by limitation?

(3) To what relief?

8. During the trial, on behalf of the Plaintiff, PW1 was examined and marked Exs.A.1 to A.14. On behalf of the defendant