Limitation in chit defaults runs from the date of default, not contract termination, leaving the plaint time barred.

In a chit transaction, limitation for recovery of defaulted instalments was held to run from the date of default, or when the contractual default consequences were triggered, rather than from termination of the contract. The chit clause made the prized subscriber liable, on continued default, to pay future subscriptions in consolidated form with interest, and the Court noted that cause of action arose on default unless the benefit was waived. The plaint was instituted more than three years after the relevant defaults, so it was correctly treated as time barred and its return was upheld.

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Issues: Whether, in a chit transaction, limitation for recovery of defaulted instalments begins from the date of default or from the date of termination of the contract, and whether the plaint was rightly returned as time barred.

Analysis: The dispute arose out of a chit agreement containing a specific clause that made a prized subscriber liable, on continued default, to pay the future subscriptions in a consolidated form with interest. The Court applied the settled position that, in such contractual arrangements, the period of limitation starts when default occurs or when the contractual default consequences are triggered, unless the obligee waives the benefit. The Court found that the earlier decision relied on by the petitioner did not deal with limitation, while the Division Bench view and the earlier Single Judge view of this Court held that the cause of action arises on default and not on later termination of the contract. On the facts, the suit was instituted beyond three years from the relevant defaults, so the plaint was correctly treated as time barred.

Conclusion: Limitation commenced from the date of default and not from the date of termination of the chit contract, and the return of the plaint as barred by limitation was upheld.

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