The main legal point established in the judgment is that provisions in chit fund transactions empowering the foreman to demand immediate payment of the entire balance amount due from a defaulting prized subscriber in a lump sum with interest at 12% are not penal and are legally enforceable.

1. From very early times chit fund transactions have been highly popular in all parts of Kerala as an indigenous system providing financing facilities in the shape of advances from the common fund repayable in easy instalments and serving also as a scheme for investment and savings. The question that we are called upon to decide in these two appeals is one of vital importance for the conduct of such chit fund transactions since it concerns the legal validity and enforceability of a provision commonly found in most kuri varis and hypothecation bonds executed by prized subscribers in favour of the foreman which empowers the latter to demand immediate payment of the whole of the amounts due in respect of the future instalments in a lump sum with interest at 12% per annum if default is committed by a prized subscriber in due payment of two consecutive instalments. In Raghavan v. Subbrama Sastrigal,1971 KLT. 231, a Division Bench of this court had occasion to consider the enforceability of such a stipulation contained in a kuri variola. It was held in that case that the said provision when considered against the background of the several other clauses contained in the concerned kuri variola was "undoubtedly penal and unconscionable." These two appeals have been referred to a Full Bench since the Division Bench before which these cases came up for hearing was of opinion that the decision in Raghavan v. Subbrama Sastrigal,1971 KLT. 231, which was strongly relied on by the appeallant herein requires reconsideration, particularly in the light of the observations contained in the judgment of another Division Bench of this court reported in Mathai v. Varkey,1973 KLJ. 694.

2. Before we proceed to consider the question of law that has occasioned the reference to the Full Bench it is necessary to set out a few relevant facts. The Perintalmanna branch of the Chaldean Syrian Bank Ltd. had started an annual kuri from 1101949 consisting of 96 tickets of Rs. 1,000/- each, the term of the kuri being 16 years. The 1st defendant had subscribed for two tickets as per pass-books Nos. 108 and 131. The 1st defendant's ticket covered by pass-book No. 108 became prized at the fifth draw and thereby he became entitled to be paid Rs. 12,500/-after deducting the amount of Rs. 3,500/- being the permanent deduction allowed to the foreman. Defendants 1 and 2 jointly executed in favour of the Chaldean Syrian Bank Ltd. a hypothecation bond as per Ext. A3 dated 29-6-1954 mortgaging 15 items of immovable properties by way of security for the due payment by the 1st defendant of the remaining eleven instalments. On the strength of such security the prize amount was disbursed to the 1st defendant by the foreman. Similarly, in respect of the second ticket covered by the pass-book No. 131 also the 1st defendant bid the kuri at the fifth instalment and prized the same at a discount of Rs. 4,725/- and thereby he became entitled to receive the balance amount of Rs. 11,275/-. The very same 15 items of immovable properties were offered by defendants 1 and 2 as security for the said amount also and they executed in favour of the foreman Bank another mortgage deed as per Ext. A5 dated 29-6-1954 and drew the amount. The 1st defendant paid the instalments due in respect of the two tickets up to and inclusive of the eighth instalment payable on 1101956 but thereafter he committed default in payment of the subsequent instalments. Under the terms of the two mortgage deeds, if default is committed by the prized subscriber in the matter of payment of any of the instalments on the due date the amount of the instalment in default together with interest at 12% per annum is to be remitted on the date on which the next instalment falls due and if default is committed in payment of such amount with interest on that date also the entire balance amount due under the kuri security bond is recoverable in lump by the foreman with interest at 12% from the date of the original default