The central legal point established in the judgment is that the provision for future instalments in the chit fund's security bond was not a penal clause, as it was essential for the operation of chit funds and the subscriber had received the total amount due to him.

Horace Owen Compton Beasley, Kt., C.J.

1. In this Letters Patent Appeal the only point arising for consideration is upon a construction of Ex. A. This was a security bond executed by the 1st defendant in the suit who was a subscriber in the chit fund in favour of the stake-holder giving security for the amount of the instalments engaging to pay the sums as and when they fell due regularly. This chit was to run throughout sixteen half-yearly instalments. The 1st defendant was apparently the holder of half a chit and his subscription, half-yearly, was Rs. 125. He bought the chit at the very first auction and became entitled to Rs. 2,000. From this amount of Rs. 2,000 there was deducted Rs. 125, being the first subscription payable by him. That left a total amount of Rs. 1,875. In accordance with the rules of the chit, having bought the chit and received payment of the amount due to him the 1st defendant had to execute a security bond in favour of the stake-holder and as the learned Judge in second appeal says the bond he executed was one of the usual documents. It appears to us to be the usual form of document executed with regard to chit funds. That is Ex. A. There is a provision in the deed with regard to the future instalments. Having bought the chit at the first auction there still remained fifteen subscriptions to be paid by him; and although a person buys a chit he is under the rules of the chit liable to go on paying and in fact must go on paying all the future instalments and on buying the chit he has to give security for the amount of the future instalments. This is how the matter is provided for in Ex. A:

If I fail to pay on the dates mentioned above, I shall pay the amount in default together with interest thereon at the rate of half a pie per rupee per each day of default, within the succeeding one month. In default of even such payment, you can demand in a lump the amount due for the remaining instalments after deducting the amount paid till then, without reference to subsequent instalments.

2. It is this provision which has given rise to the Second Appeal and this Letters Patent Appeal. It was argued in second appeal that this was a penal provision and should be relieved against by the Court. It was held in the Lower Appellate Court that it was a penal provision although that it was does not seem to have been raised specifically in the trial Court. However, that is a matter which may be allowed to pass. In second appeal Srinivasa Aiyangar, J., held that the provision was a penal one. He says:

Looking at the document it seems to me that the provision with regard to the whole amount becoming payable must be regarded as a provision to be held in terrorem over the party in order that thereby he may persuade himself to pay up the amount on the due date. Further in this case it is clear from a careful reading of the document that the debt itself according to the scheme of the document arises only on the due dates. It is not a debt due at present to be discharged subsequently on the dates agreed to or by instalments prescribed. I am satisfied that on a proper construction of the document each instalment on the due date and then alone accrues as a debt due and in that view there can be no doubt whatever that the provision with regard to the whole amount becoming payable on default must be regarded as a penal clause and should be relieved against.

3. He then quotes a decision of his own, Ramalinga Adaviar v. Meenakshisundaram Pillai m which it is argued on behalf of the respondents distinguishes this case from other cases by reason of the fact that in that case the subscriber had not received the full amount due to him as it is argued in this case he has not done when he bought the chit. Whatever the facts of that case may have been, the premises upon which the argument presented on behalf of the respondents is based do not exist here because in Ex. A itself the 1st defendant states that he received Rs. 1,875 and he giv