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2025 Supreme(Ker) 1808
IN THE HIGH COURT OF KERALA AT ERNAKULAM
N.NAGARESH, J.
Ajith Kumar R.C - Appellant
Versus
The Kerala State Financial Enterprises Ltd.(KSFE) - respondent
WP(C) No. 8412 of 2025
Decided on : 03-07-2025
Advocate Appeared:
For the Appellant : SHRI.SHINTO THOMAS, SRI.RAM VINAYAK, SHRI.MOHAMED ASLAM V.P.
For the Respondent: ADV SRI.K.A.SALIL NARAYANAN
IMPORTANT POINT
The requirement for a Blood Relationship Certificate in property security for chits is ultra vires the Chit Funds Act, 1982, as it imposes unjustified additional conditions.
Headnote:
(A) Chit Funds Act, 1982 - Requirement of Blood Relationship Certificate for property as security - Clause in KSFE Circular demanding such certificate is challenged as ultra vires the Act - The court finds that the imposition of additional conditions exceeds legal authority and does not align with the Chit Funds Act's purpose. (Paras 4 , 12 )
(B) Security for Chit Funds - The respondents justified the refusal to accept the proposed security based on existing liabilities on the property, emphasizing the need for unencumbered assets in commercial transactions. (Paras 13 , 14 )
Facts of the case:
The petitioner, managing a partnership firm, sought to release a prize amount from KSFE after successfully securing multiple chits but faced challenges in providing acceptable security due to the requirements imposed by KSFE.
Findings of Court:
The court concluded that the KSFE's demand for a Blood Relationship Certificate was unjustified and the petitioner did not provide adequate unencumbered security, leading to the dismissal of the writ petition.
Issues: The primary issue was the legality of the KSFE's requirement for a Blood Relationship Certificate and whether the proposed security was adequate.
Ratio Decidendi: The court ruled that the KSFE's additional requirements exceeded its authority under the Chit Funds Act, while also recognizing the necessity of ensuring that properties offered as security are free from encumbrances.
Result: The writ petition hence fails and it is dismissed.
| Table of Content |
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| 1. the court finds the ksfe justified in requiring unencumbered property as security. (Para 8 , 13 , 14) |
| 2. the ksfe's demand for the certificate is based on protecting innocent sureties. (Para 10 , 12) |
JUDGMENT :
N.NAGARESH, J.
The petitioner is the Managing Partner of a Partnership Firm named M/s. Ashirvad Builders. The petitioner joined six different Chits of KSFE. The petitioner duly paid the instalments. In the auctions conducted, the petitioner successfully secured all the six Chits in the year 2024. The total prize amount was Rs.42,15,122/-. An amount of Rs.21 lakhs was given to the petitioner.
2. In order to release the balance prize amount, the petitioner offered a property jointly owned by the petitioner and his mother. As the mother could not come from Bangalore consequent to a knee surgery, the petitioner proposed another property owned by the petitioner's Partner Mr. Aravind. The said property has an extent of 3.84 Acres. The said property is more than sufficient to release the balance amount of Rs.21,15,122/-. Mr. Aravind later withdrew his consent to offer his property as security for the petitioner's Chit.
3. The petitioner thereupon proposed to substitute the security by another property belonging to Ms. Valsala Kumari. The KSFE had already accepted the said property as security in other chits. The petitioner states that by Ext.P6 communication, the KSFE demanded Blood Relationship Certificate in order to accept the property of Valsala Kumari as security. Though the petitioner filed W.P. (C) No.42419/2024 before this Court, the said writ petition was disposed of directing the KSFE to consider Ext.P7 representation therein. Again, the respondents issued Ext.P11 letter requiring the petitioner to produce a Blood Relationship Certificate establishing the petitioner's relationship with Valsala Kumari.
4. The petitioner states that the Clause in the Circular of the KSFE requiring production of Blood Relationship Certificate to accept a property as security is ultra vires the Chit Funds Act, 1982. Any Circular or Clause that imposes additional conditions beyond what is expressly provided in the Act exceeds the legal authority of the issuing body. The impugned Clause runs contrary to the object and purpose of the Chit Funds Act, 1982. The respondents are therefore compellable to disburse the prized amount of Rs.21,15,122/- to the petitioner accepting the security offered by the petitioner, urged the petitioner.
5. The 2nd respondent resisted the writ petition filing counter affidavit. The 2nd respondent stated that the writ petition is filed by just being a name lender to another person who has subscribed to various chits with the respondent company and has failed to remit the outstanding dues and has forced the KSFE to resort to revenue recovery proceedings. The said person does not stand to lose anything as he never mortgages any property of his own and at the same time cheats gullible persons who are in need of money and utilise their ignorance and makes them pledge their properties and he takes advantage of their ignorance and their stringent financial condition and makes them a prey to his own fraudulent activities.
6. The said person had even approached this Court by producing fabricated documents which were found out and the Court had strictly warned him in the said case. The present petitioner is only a name lender to the said person and the original culprit is doing a back seat pedalling. The petitioner, after prizing the chit, failed to produce sufficient security to the satisfaction of the respondent company so as to get the prized chit amount released. The person who initially offered his property as security, found out the illegal motive of the petitioner and withdrew from giving his property as security.
7. The allegation that it was the officers of the respondent company who instigated him to join the above Chitty is baseless. His initial Partner found out his fraud and he withdrew from the promi
