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Karnataka High Court
Venkatesh - Appellant
Versus
Azad Commercial Chit Fund, Mandya - Respondent
Decided On : 08-23-88
C.R.P. : 3896 of 1985
Chit Fund - Scope and Ambit of Definition of 'Debt' - Karnataka Debt Relief Act - 1976 Act, 1980 Act - 3(b), 3(c), 8, 2(b), 2(6), 3, 10(1) - The court discussed the scope and ambit of the definition of 'debt' as defined in the Karnataka Debt Relief Act, 1976 and 1980 Act, and their applicability to chit transactions. It highlighted the nature of liability of the prized subscriber and the rights and liabilities of subscribers vis-a-vis the foreman as enjoined under the Chit Funds Act, and concluded that pooled money paid to the prized subscribers of chit fund do not constitute a 'debt' within the meaning of the Act.
Fact of the Case:
The court considered the conflicting views on whether the amount paid to a successful bidder in a chit transaction would amount to a 'debt' within the definition or is exempted from the provision.
Finding of the Court:
The court found that pooled money paid to the prized subscribers of chit fund do not constitute a 'debt' within the meaning of the Act and judgment-debtor cannot claim the benefit of the Debt Relief Act in respect of such transactions.
Issues: The main issue was whether the amount paid to a successful bidder in a chit transaction would amount to a 'debt' within the definition or is exempted from the provision.
Ratio Decidendi: The court held that the nature of liability of the prized subscriber and the rights and liabilities of subscribers vis-a-vis the foreman as enjoined under the Chit Funds Act do not constitute a 'debt' within the meaning of the Act.
Final Decision: The court dismissed the Civil Revision Petition, concluding that pooled money paid to the prized subscribers of chit fund do not constitute a 'debt' within the meaning of the Act and judgment-debtor cannot claim the benefit of the Debt Relief Act in respect of such transactions.
( 2 ) BOTH Karnataka Debt Reiief Act, 1976 (Act No. 25 of 1976) (1976 Act for short) and Karnataka Debt Relief Act, 1980 (Act No. 29 of 1980) (1980 Act for short) are in operation in the State of karnataka.
( 3 ) 'debt', 'debtor' and 'exemption' clauses in the said two Acts read thus : - k D. R. Act, 1976 3 (b) 'debt' means any liability in cash or in kind, whether decreed or not and includes any amount which is in substance a debt ; but does not include arrears of taxes due to the Central or the state Government or a local authority. 3 (c) 'debtor' means,- (i) a small farmer ; or (ii) a landless agricultural labourer ; or (iii) a person belonging to the weaker sections of the people ;
( 4 ) RELIEF from indebtedness : - notwithstanding anything in any law for the time being in force or in any contract or instrument having force by virtue of any such law and save as otherwise expressly provided in this Act, with effect from the date of commencement of this section,- (A) every debt advanced before the commencement of this section including the amount of interest, if any, payable by the debtor to the creditor shall be deemed to be wholly discharged ;8. Certain Debts and liabilities not to be affected : - k. D. R. Act, 19802 (B) 'debt' means any liability in cash or in kind whether secured or unsecured and whether decreed or not and includes any interest due on such debt;2 (6) 'debtor' means a person who is.- (i) a landless agricultural labourer; (ii) a person belonging to the weaker section of the people ; or (iii) a small farmer, and from whom a debt is due ;3. Relief from indebtedness : - not withstanding anything contained in any law for the time being in force or in any contract or instrument having force by virtue of any law or otherwise and save as otherwise expressly provided in this Act, with effect on and from the date of commencement of this Act,- (a) every debt incurred by a debtor before the date of commencement of this act and payable by him to his creditor on such date shall be deemed to be wholly discharged ;10. Certain debts and liabilities not to be affected : - (1) any liability incurred or arising under any chit the byelaws of which have been registered ;4. The question for consideration is -Whether the amount paid to a successful bidder (in the chit transaction) would amount to a 'debt' within the definition or is exempted from the provision ?
( 5 ) IN order to answer this issue, it is relevant to note the origin of Chit Fund business and mechanism of the chit transaction. There is no necessity to write a treatise on chit and chit fund as it has been elucidated fairly in good number of cases and, in addition, the Parliament has enacted a law regarding the conduct of chit, chit funds and persons involved, except to recaptulate its origin for branding it as 'chit' and incidents there of relevant for deciding the issue. As per Raj Committee Report, it is the oldest indigeneous financial institution in India, more predominant in the rural parts of Southern India. In the inception, it started with periodical deposit (contribution) of food-grains in fixed measures with a trustee and received back when sufficient large quantity was collected Amongst subscribers, the need was determined by casting lots; names drawn on chit as in the case of a lottery. That is how it is branded as 'chit'. It was mainly founded on mutusl help (Co-operative basis) and as a sort of savings b
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