The main legal point established in the judgment is that the entire kuri vari, as a whole, must be considered to determine its unconscionable or penal nature. The court emphasized the need to test the provisions of the kuri vari in the light of the principle laid down in various legal cases and highlighted the lack of legislation to control such unsocial activities.

1. The respondents as stake-holders started a kuri (chit fund) in September 1962, wherein the appellants took two tickets. They bid both the tickets, one at the third draw and other at the tenth, and took the amounts. They also executed bonds to secure future instalments. However, they committed default in paying the future instalments; and the respondents brought the suit giving rise to the appeal for the realisation of the future instalments in a lump with insterest. The appellants raised two contentions before the lower court: one, that the kuri vari (the rules of the kuri) contained several unconscionable and penal provisions, more particularly, the provision relating to the payment of all the future instalments in a lump with interest at 12 per cent ignoring the claim of the appellants for their share in the reductions (the dividend); and two, that the respondents (the first respondent, to be more precise) acquiesced in the deafult and gave time to the appellants for the payment of the defaulted instalments, so that the suit for the realisation of all the future instalments together was not maintainable. Both the contentions were rejected by the lower court, and hence the appeal.

2. The main question argued by the counsel of the appellants is the first one mentioned above. Eight or nine decisions have been cited before us by the counsel on both sides-decisions of the Madras High Court, of the Travancore High Court and of the Cochin High Court. We shall refer only to the more important of them, they being all of the Madras High Court. The only other decision, to which we propose to refer, is the decision in Krishnan Raman v. Raman Aiyappen (21 TLR. 52), a decision of the Travancore High Court. A chitty scheme (a kuri is a chitty in Travancore) collapsed at the eighth draw; and the foreman assigned, with the consent of the non-prized subscribers, the security bond furnished by one of the prized subscribers to a non-prized subscriber. In the suit brought by the assignee for realising the future subscriptions in a lump, the contention raised was that, since the clause was penal, the benefit of the clause would not enure to the assignee. And this contention was rejected by the Travancore High Court holding that the clause was not penal.

3. Then we come to the decisions of the Madras High Court, the first being Vaithinatha Iyer v. Govindaswami Odayar (AIR. 1922 Mad. 67), a decision by a Division Bench. The Division Bench held that, where a chit agreement provided that in case the subscribers failed to pay their subscriptions regularly they were not only to forfeit the dividend but were also to pay the whole amount on demand with interest, the most material element to be decided was whether the terms of the agreement (the provisions in the kuri vari), as a whole, were unreasonable and whether they were so unreasonable that the parties never contemplated that they should receive effect and that the special relation of the parties justified the stringency of the conditions. And this -question the Division Bench answered ie favour of the stake-holder. (This decision, probably, may be the best for the respondents in this case.)

4. The next decision chronologically is the decision in Ramalinga Adaviar v Meenakshisundaram Pillai (AIR. 1925 Mad. 177) by Srinivasa Aiyangar J. The learned judge considered the principle underlying the law of penalty and held that the question whether any stipulation in a kuri vari was only by way of compensation or by way of penalty depended upon the construction of that particular document or contract and on the circumstances of the case. The learned judge referred to the leading English case in John Wallingford v. The Directors of Mutual Society (1880-5 AC. 685) and held that, if on a proper consideration and construction of the contract, the court came to the conclusion that.

"the real agreement between the parties was to the effect that the whole amount was on the date of the bound a debt due