A. N. Nadarajan v. K. C. Nadarajan — 1999 DIGILAW 137 (KER)

Judgment :- The complainant in C.C. 546/92 on the file of the Chief Judicial Magistrate's Court, Kottayam is the appellant. 2. The appellant filed complaint before the lower Court against the 1st respondent alleging offence punishable under section 138 of the Negotiable Instruments Act. According to the appellant, the 1st respondent conducted a private chitty in gold in which the appellant subscribed one ticket and deposited 148 grams of gold in the chitty. Since the 1st respondent did not possess sufficient quantity of gold to pay back to the appellant he agreed to pay Rs. 49,000/- being the value of 148 grams of gold. In order to discharge that liability the 1st respondent issued two cheques for Rs. 22,400/- dated 25-3-92 and Rs. 26,600/- dated 2-4-92 drawn on Kumaranelloor Service Co-operative Bank in favour of the appellant. When the cheques were presented for encashment, they were dishonoured for want of sufficient funds to the credit of the 1st respondent. Though the 1st respondent received the notice caused to be sent on behalf of the appellant intimating about the dishonour of the cheques and calling upon him to pay the amount, he has not paid the amount. Therefore, he is guilty of the offence punishable under section 138 of the N.I. Act. 3. The lower Court after trial found that the appellant has failed to prove all the ingredients of Section 138 of the N.I. Act and no offence is made out against the 1st respondent under that section, as such the 1st respondent not guilty and acquitted him by judgment dated 21-9-1995. Hence this appeal is preferred before this Court. 4. The contention of the appellant that he joined one ticket in the private chitty in gold conducted by the 1st respondent, he has altogether subscribed 148 grams of gold at 4 grams. per month and the 1st respondent agreed to pay Rs. 49,000/- being the value of the gold and for that amount he issued Exts. P1 and P2 cheques in favour of the appellant, is not in dispute. 5. The contention of the 1st respondent is that the private chitty conducted by him without obtaining the permission from the Government or from the competent authority and without registration under the Chitties Act in contravention of the provisions of the Chitties Act is illegal and void and therefore, the consideration for Exts. 5. The contention of the 1st respondent is that the private chitty conducted by him without obtaining the permission from the Government or from the competent authority and without registration under the Chitties Act in contravention of the provisions of the Chitties Act is illegal and void and therefore, the consideration for Exts. P1 and P2 cheques is illegal under section 23 of the Contract Act. The 1st respondent further contended that the cheques are not issued in discharge of a legally enforceable debt or other liability so as to attract the provisions of Section 138 of the N.I. Act. The lower Court has accepted the contention of the 1st respondent and found him not guilty in this case. 6. In this case the lower Court has formulated six points for consideration. In point No. 1 it is found that Ext. P5 notice dated 14-5-92 issued by the appellant to the 1st respondent is proper and valid. In point No. 2 it is found that the 1st respondent has issued Exts. P1 and P2 cheques in favour of the appellant to discharge the liability due from him to the appellant. In point No. 3 the lower Court found that Exts. P1 and P2 cheques were dishonoured due to insufficiency of funds to the credit of the 1st respondent in the Bank. But in point No. 4 the lower Court found that Exts. P1 and P2 cheques are not issued in discharge of the legally enforceable debt or other liability in favour of the appellant and accordingly found in point Nos. 5 and 6 that the 1st respondent is not guilty of the offence alleged against him. The findings arrived at by the lower Court in favour of the appellant are not challenged. Therefore, the only point for consideration is whether the 1st respondent has executed Exts. P1 and P2 cheques in favour of the appellant to discharge a legally enforceable debt or other liability. 7. It is contended by the 1st respondent that admittedly the private chitty in gold is conducted by the 1st respondent without obtaining sanction from the Government or from the competent authority and without registration under the provisions of the Kerala Chitties Act. Section 3 of the Act prohibits chitty not sanctioned or registered under the Act which reads as follows : "3. Section 3 of the Act prohibits chitty not sanctioned or registered under the Act which reads as follows : "3. Prohibition of chitty not sanctioned or registered under this Act :- (1) No chitty shall, after the commencement of this Act, be started and conducted unless the previous sanction of the Government or of such officer as may be empowered by the Government in this behalf is obtained therefor and unless the chitty is registered in accordance with the provisions of this Act : Provided that the previous sanction under this sub-section shall lapse unless the chitty is registered before the expiry of six months from the date of such sanction :" x x x x x x x x x x x x Sub-section (6) of Section 3 provides penalty for contravention of sub-section (1) of Section 3 which reads as follows : "(6) Whoever contravenes the provisions of sub-section (1) shall be punishable with imprisonment for a term which shall not be less than three months but which may extend to two years and with fine which shall not be less than five hundred rupees but which may extend to two thousand rupees." 8. The counsel for the appellant submitted that sub-section (1) of Section 3 of the Kerala Chitties Act only prohibits the conduct of the chitty without the sanction from the Government or the empowered officer and without registering the same under the provisions of the Chitties Act and provides penalty to the person who conducts the chitty in contravention of the provisions of the Act under sub-section (6) of Section 3 of the Act. But Section 3(1) does not make the chitty conducted without obtaining sanction from the Government or authorised officer and without registering the same under the provisions of the Act as void, illegal or unlawful. Therefore, according to him, the appellant is legally entitled to recover the value of the gold subscribed by him to the 1st respondent in the gold chitty in spite of the fact that he has conducted the gold chitty without the sanction from the Government or the authorised officer and without registering the same under the provisions of the Kerala Chitties Act and as such the lower Court is in manifest error in finding that Exts. P1 and P2 cheques in this case are not supported by legal and valid consideration so as to make the 1st respondent liable for the offence punishable under section 138 of the Negotiable Instruments Act. 9. On the other hand, the counsel for the 1st respondent submitted that it is clear from the provisions of Section 3(1) of the Kerala Chitties Act that conduct of chitty without the sanction from the Government or the authorised officer and without registering the same under the provisions of the Chitties Act is illegal and void, apart from providing penalty to the foreman who conducted the chitty in contravention of the provisions of Section 3(1) of the Chitties Act, under section 3(6) of the Act. Therefore, according to him, any liability arising out of that illegal contract cannot be enforceable under law and that transaction is hit by Section 23 of the Contract Act. 10. It is clear from the statement of objects and reasons for the enactment of the Kerala Chitties Act, 1975 that since the law relating to chitties in force in the Travancore area of Kerala State is the Travancore Chitties Act, 1120, the corresponding law in force in Cochin area being the Cochin Kuries Act, VII of 1107 and Cochin Starting of Kuries (Restriction) Act, XII of 1120 and there is no law on the subject in the Malabar area of the State, it was considered necessary to enact a uniform law relating to chitties applicable to the whole of the State and the enactment is intended for that purpose. 11. Section 4 of the Travancore Chitties Act, XXVI of 1120 as amended by Act X of 1964 stipulates that transactions partaking of the nature of a chitty but not falling within the definition in clause (2) of Section 3 are void. Section 5 of the Act prescribes punishment for partaking in transactions declared void by Section 4 which provides that any person who conducts or is responsible for the conduct of any transaction of the nature of those declared void by Section 4 shall be punishable with imprisonment of either description for a term which may extend to six months or with fine or with both. Section 6 of the Act prohibits chitties not registered under the Act. Section 6 of the Act prohibits chitties not registered under the Act. Sub-section (1) of Section 5 stipulates that no chitty shall after the commencement of the Act, be conducted unless it is registered in accordance with the provisions of the Act. Sub-section (2) of Section 6 provides that any person contravening the provisions of sub-section (1) shall be liable to a fine which may extend to five hundred rupees. 12. Section 4 of the Cochin Kuries Act, VII of 1107 stipulates that transactions partaking of the nature of a Kuri but not falling within the definition in sub-section (1) of Section 3 are void and any person who starts such a transaction or conducts such a transaction started after coming into force of that Act without the previous sanction of the Government shall be liable to a fine not exceeding five hundred rupees. Section 5 of the Act lays down that every Kuri shall be registered in accordance with the provisions of the Act, and if not so registered, it shall be void and the foreman shall be liable to a fine not exceeding five hundred rupees. 13. Even though it is clear that the Kerala Chitties Act, 1975 is enacted to bring forth a uniform law relating to chitties applicable to the whole State of Kerala in the place of the Travancore Chitties Act and the Cochin Kuries Act, and the Travancore Chitties Act, the Cochin Kuries Act and the Cochin Starting of Kuries (Restriction) Act are repealed under section 72 of the Kerala Chitties Act, no provision is incorporated in the Kerala Chitties Act to the effect that the chitties started and conducted after the commencement of the Act in contravention of the provisions of the Act are void, even though there were provisions in the Cochin Kuries Act declaring the transactions as void. The Kerala Chitties Act only prohibited the starting and conduct of kuries after the commencement of the Act without the previous sanction from the Government or the authorised officer and without registering the same under the provisions of the Act and provides penalty to whoever contravenes the provisions of Section 3(1) of the Act. No clause is inserted in the Act making such kuries started after the commencement of the Act in contravention of the provisions of the Act as void, illegal or unlawful. No clause is inserted in the Act making such kuries started after the commencement of the Act in contravention of the provisions of the Act as void, illegal or unlawful. Therefore, it is contended by the counsel for the appellant that the Legislature in its wisdom did not find it necessary to make the chitties started after the commencement of the Kerala Chitties Act in contravention of the provisions of the Act, as void, illegal or unlawful, as provided in the Cochin Kuries Act, Though the foreman who started the Kuries after the commencement of the Act in contravention of the provisions of the Act is liable under the penal provision, the chitty transaction will not become void, illegal or unlawful so as to make the claims under the chitty void or illegal. 14. By interpreting Section 5 of the Cochin Kuries Act, VII of 1107 and Section 23 of the Contract Act, this Court in the decision in Madhavan Nair v. Kunchu Nair, 1959 Ker LT 43 held that the rights and liabilities of the parties in that case which spring directly out of the kuri transaction cannot be enforced since the kuri agreement itself was illegal as the kuri had not been registered under the Act. 15. The above decision rendered by this Court while interpreting the provisions of Section 5 of the Cochin Kuries Act and Section 23 of the Contract Act has no direct bearing on the facts and circumstances of this case since the Kerala Chitties Act does not contain such a provision making the chitties conducted without obtaining sanction from the Government or the authorised officer and without registering the same void as provided under the Cochin Kuries Act. 16. In the decision in Chellappan Pillai v. Kunju Pillai, 1969 Ker LR 659 this Court while construing the provisions of Sections 6 and 7 of the Travancore Chitties Act held that the obligation to register Chitties, or to take out licences for Chitties is cast on the foreman and his failure to do either invites penalty upon him and the subscriber has nothing to do with the registration or the taking out of the licence. It is also held that the default of the foreman to obtain the licence for the conduct of the chitty will not absolve him from the liability for payment of the prize money. It is also held that the default of the foreman to obtain the licence for the conduct of the chitty will not absolve him from the liability for payment of the prize money. It is also held that the claim by the subscriber for refund of the paid-up subscription is maintainable even if the foreman had defaulted to register the chitty. 17. The counsel for the respondent submitted that Section 3 of the Kerala Chitties Act prohibits the conduct of chitties without obtaining permission from the Government or the competent authority and without registering the same after the commencement of the Act and therefore, the entire transaction being illegal and void, the sub-scriber cannot under law claim either the prize amount or the amount he has subscribed to the foreman under the illegal and void transaction. The counsel for the appellant submitted that since Section 3(1) of the Act only prohibits the conduct of the kuri without the sanction from the Government or competent authority and without obtaining registration and provides penalty for violation of the provisions against the person who conducts the chitty, it cannot be construed that the chitty conducted in violation of Section 3(1) is illegal. According to him, a similar provision in the Money Lenders Act, 1985 is considered by this Court in the decision in Balakrishnan v. Babu, (1994) 1 Ker LR 947 and found that a suit can be instituted by a money lender even if he has advanced money in contravention of the provisions of the Money Lenders Act unless and until the contract is void by virtue of any of the provisions contained in the Contract Act. In that case a suit filed by the plaintiff for realisation of money with interest was resisted by the defendant contending that the suit is not maintainable since it is based on an illegal contract whose object is unlawful and the transaction is void and unenforceable since the plaintiff had not obtained licence under the Kerala Money Lenders Act. Section 3 of the Money Lenders Act prohibited any person from carrying on or continuing business as money lender without a licence obtained under the Act or in contravention of the terms of the Act. Section 3 of the Money Lenders Act prohibited any person from carrying on or continuing business as money lender without a licence obtained under the Act or in contravention of the terms of the Act. Though Sections 17 and 18 of the Act provided for penalties to be imposed against the person contravening any of the provisions of the Act or the Rules made thereunder or of any terms and conditions of the licence, Section 20 of the Act stipulated that where a money lender is guilty of an offence punishable under that Act, any contract made by him in relation to his business of money lending shall not be void by reason only of that offence, nor shall be lose his lien on or right to the pledge of to the loan and to the interest and other charges, if any, payable in respect thereof. Therefore, the provisions of the Money Lenders Act in respect of which the decision reported in (1994) 1 Ker LT 947 is rendered and the provisions of the Kerala Chitties Act are not identical since there is no provision in the Chitties Act similar or akin to Section 20 of the Money Lenders Act safeguarding the interest of foreman who has contravened the provisions of the Kerala Chitties Act as that of the interest of money lender who has infringed the provisions of the Money Lenders Act and the rules framed thereunder. 18. But while considering the legality of the contract where the statute merely imposes a penalty on the parties to the contract without declaring the contract to be illegal and void, this Court has observed in that reported decision as follows : "The legal position has been stated by Anson in his Law of Contract, 19th Edn., at p. 206 thus :- The effect in such a case depends on the proper construction of the particular statute. But where the words the words of the statute leaves room for doubt as to its intention, it is material to ask whether the object of the Act in imposing the penalty is merely to protect the revenue or whether its object or one of its objects is to protect the general public or some class of the general public by requiring that the contract shall be accompanied by certain formalities or conditions, as, for example, registration in the case of money-lender. In the latter case, it is probable that the act for the doing of which the penalty is imposed is impliedly prohibited by the statute and therefore illegal'. 9. A distinction is drawn in Victorian Daylesford Syndicate Ltd. v. Dott, (1905) 2 Ch 624 and the Statutes are grouped under two heads : (1) Those in which a penalty is imposed against doing an act for the purposes only of the protection of the revenue, and (2) those in which a penalty is imposed upon an act not merely for revenue purposes but also for the protection of the public. It is also observed that there is no question that a contract which is prohibited either expressly or by implication by a statute is illegal and cannot be enforced. The grouping was done only to see whether the contract in that case was prohibited expressly or by implication." 19. In this case from the enactment of the Kerala Chitties Act in the place of the Cochin Kuries Act and the Travancore Chitties Act, to make a uniform law relating to chitties to the whole of Kerala by repealing the Travancore Chitties Act and the Cochin Kuries Act, it is clear that S. 3(1) is enacted in the Kerala Chitties Act imposing the penalty is only for the purpose of protection of the revenue and not for the protection of public interest. If in fact, the Legislature intended to declare the chitty transaction conducted without the permission of the Government or the authorised officer or without registration under the Act, it would have provided a similar provision as is found in Section 5 of the Cochin Kuries Act declaring the kuri conducted without registration under the Act as void. Therefore, the intention of the Legislature is manifest in this case that the provisions of the Kerala Chitties Act are incorporated to protect the interest of the sub-scribers and also the revenue of the State. Therefore, the contention of the respondent that the kuri involved in this case is void being conducted without obtaining sanction from the Government or the competent authority and without registering the same as provided u/S. 3(1) of the Kerala Chitties Act and in contravention of the provisions of the Act, is not sustainable. 20. The next question to be considered is whether the transaction between the appellant and the respondent is against public policy. 20. The next question to be considered is whether the transaction between the appellant and the respondent is against public policy. Section 23 of the Contract Act lays down that the consideration and object of an agreement is lawful unless. - (1) It is forbidden by law, (2) it is of such a nature that if permitted it would defeat the provisions of any law or is fraudulent, (3) It involves or implies injury to the person or property of another, and (4) The Court regards it as immoral or opposed to public policy. In this case the transaction between the appellant and the respondent will not come within the ambit of clauses (1) to (3) of S. 23 of the Contract Act noted above. The only question for consideration is whether the transaction can be regarded as immoral or opposed to public policy. 21. The chitty transaction without obtaining the consent from the Government or the authorised officer and without registering the same under the provisions of the Kerala Chitties Act cannot be characterised as a transaction immoral or opposed to public policy. The Kerala Chitties Act only penalises the foreman who conducts the chitty in contravention of the provisions of the Act and it does not declare such a transaction illegal or unlawful. Apart from infringing the provisions of the Chitties Act, a chitty conducted in contravention of the provisions of the Chitties Act cannot be construed as immoral or opposed to public policy by any stretch of imagination. Therefore, it cannot be held that Exts. P1 and P2 cheques issued by the respondent to the appellant in this case towards the value of the gold subscribed by the appellant to the respondent though in a chitty conducted by the respondent without obtaining sanction from the Government or the competent authority and without registering the same under the provisions of the Chitties Act, is illegal or opposed to public policy. Therefore, the finding of the lower Court that Exts. P1 and P2 cheques are not issued for legally enforceable debt or other liability so as to attract the provisions of Section 138 of the Negotiable Instruments Act is absolutely illegal and unsustainable. 22. From my foregoing discussions it is clear that those cheques are issued in discharge of a legally enforceable debt or liability by the respondent to the appellant. 22. From my foregoing discussions it is clear that those cheques are issued in discharge of a legally enforceable debt or liability by the respondent to the appellant. Hence the finding of the lower Court that the respondent it not guilty of the offence punishable u/S. 138 of the Negotiable Instruments Act has to be reversed and he has to be found guilty of the offence punishable u/S. 138 of the Negotiable Instruments Act and convicted and sentenced for that offence. Considering the facts and circumstances of the case I find that the imposition of fine will meet the ends of justice in this case. Hence this appeal is allowed. The judgment passed by the lower Court is set aside. The respondent is found guilty of the offence punishable u/S. 138 of the Negotiable Instruments Act. He is convicted and sentenced to pay fine of Rs. 55000/- in default of payment to undergo simple imprisonment for six months. The fine if realised, Rs. 49,000/- will be paid to the appellant. Appeal allowed.