The court emphasized the interpretation of penal provisions in the contractual agreement and highlighted the need for legislation to regulate Kuri transactions.

1. We will first deal with Civil Appeal 85/1972. The appellants were the plaintiffs in O.S. No. 78 of 1964 on the files of the Subordinate Judge's Court, Palghat. The suit was based on a Kuri transaction (Chit Fund). The respondents were subscribers to the Kuri. They committed default after they had prized it and realised the Kuri amounts. Hence the suit was filed for realisation of the principal sum with interest and the balance Kuri due.

2. The suit was decreed by the Subordinate Judge by his judgment dated 24th June, 1965. An appeal was filed before the High Court. A Division Beach of the High Court heard the appeal and partly allowed it by modifying the decree of the Trial Court re-fixing the interest, largely influenced by the fact that the Kuri transaction and the contract between the foreman of the Kuri and the subscribers (defaulted) burdened the subscribers with unconscionable interest and were unreasonable.

3. To appreciate the reasoning of the Division Bench it is necessary to set out the scheme of the Kuri. The respondents took two tickets in a Kuri (Chit Fund) started by the appellants in September, 1962. Under the scheme of the Kuri, there will be bidding at monthly intervals. The subscriber bids and prizes the ticket depending upon his need. When he does so, he voluntarily surrenders the benefit of dividends which is distributed among the subscribers. For example, suppose the Kuri amount is Rs.5,000/-consisting of 50 tickets valued at Rs.100/-. At the first bid the lowest bid is 3500/- by A. A gets this amount and the balance of Rs.1500/- will be distributed among the other subscribers. But the prized subscriber has a duty to pay the entire amount in instalments without default. Here the respondent bid and prized both the tickets; one on the third draw and the other at the 10th and received the amounts. As per rules of the Kuri they executed bonds to secure future instalments. However, they committed default in paying the future instalments. That resulted in the suit. The main contention which found favour with the High Court, raised in defence, was that the rules of the Kuri contained several unconscionable and penal provisions like the provisions relating to the payment of all the future instalments in a lump with interest at 12 per cent ignoring the claim of the defaulting subscribers to their share in the reduction (the dividend).

4. The Kuri system was in vogue in the erstwhile Travancore State and in the Cochin State, prior to the formation of Kerala State and they were governed in those two areas by the Travancore Chit Act of 1945 (Act 26 of 1120 M.E.) which came into force on 20-6-1945, and the Cochin Kuries Act, 7 of 1106. There was no corresponding Act for Malabar area from which area the present appeal arises. After the formation of the Kerala State, Kuri transactions in the State are governed by the Kerala Chitties Act, 1975, as amended by Act 19 of 1978. The High Court after taking into account the interest stipulated observed that it was unconscionable and penal and reduced the amount to Rs.10,000/- and modified the decree to that extent. The reason that persuaded the High Court to do so was its concern at the unreasonableness of the terms of the contract and the High Court expressed it in the following words:

"Before we leave this case, we wish to add a few words. In our experience, we have not yet come across such a kurivari which has so many unconscionable provisions. Ground No.5 in the memorandum of grounds of appeal shows the amount payable by the appellants, the amount received by them, etc. to show the unconscionableness. The appellants received only Rs.16,185/- (on both the tickets together); and, all told, they already paid back Rs.5,100/- as subscriptions. The claim in the suit towards future instalments is Rs.21,000/- with interest of Rs.1,785/-. And all this within less than two years, the date of commencement of the kuri being 20th September, 1962 and the date of suit being 2nd