Back
1993 Supreme(Mad) 526
High Court of Judicature at Madras
K.A. SWAMI & SOMASUNDARAM
Madurai Ramanathapuram Mavatta Seetu Companigal Sangam and Others
Versus
Union of India and Others
W.P. Nos. 1952/86, (Batch of 76 Writ Petitions)
Decided On :Decided on: 08-09-1993
Vijay Narayan, K. Chandramouli, P. M. Bhaskaran, M. S. Krishnan, R. Deshabandhu, Sukumar, M. Agni, R. Sivaprakasam, G. Bharadavaj, D. Suresh, V. Varadarajan, Mohanram, T. Ferozkhan, K. Venkatasubramaniam, Advocates.
The provisions of the Chit Funds Act, 1982, and rules 16, 28(1), 28(2), 31(1), and 31(2) of the Tamil Nadu Chit Funds Rules, 1984, are valid and not ultra vires the Act or the rule-making power.
Headnote:
CHIT FUNDS ACT - VALIDITY OF PROVISIONS - RULES 16, 28(1), 28(2), 31(1) AND 31(2) OF THE TAMIL NADU CHIT FUNDS RULES, 1984 - VALIDITY - INTERPRETATION AND APPLICATION.
Fact of the Case:
Writ petitions and writ appeals challenging the validity of several provisions of the Chit Funds Act, 1982, and the validity of rules 16, 28(1), 28(2), 31(1), and 31(2) of the Tamil Nadu Chit Funds Rules, 1984.
Finding of the Court:
The court upheld the validity of all the provisions of the Chit Funds Act, 1982, including section 6(3), and held that rules 16, 28(1), 28(2), 31(1), and 31(2) of the Tamil Nadu Chit Funds Rules, 1984, are valid and not ultra vires the Act or the rule-making power.
Issues: 1. Whether the provisions of the Chit Funds Act, 1982, are valid? 2. Whether rules 16, 28(1), 28(2), 31(1), and 31(2) of the Tamil Nadu Chit Funds Rules, 1984, are valid and within the rule-making power?
Ratio Decidendi: 1. The Supreme Court had already upheld the validity of all the provisions of the Chit Funds Act, 1982, in Shriram Chits and Investments (P.) Ltd. v. Union of India, and the court was bound by that decision. 2. Rule 16 prescribes the form and mode of sending notices to chit subscribers and is a reasonable requirement to ensure proper communication. 3. Rule 28(1) provides a reasonable time frame for preparing the balance sheet and does not curtail the period available to chit fund companies under the Companies Act. 4. Rule 28(2) requires the filing of receipts and expenditure accounts and statements of assets and liabilities for each chit, which is necessary to ensure proper conduct and eliminate foul play. 5. Rules 31(1) and 31(2) provide reasonable time frames for filing audited balance sheets and profit and loss accounts and are not ultra vires the rule-making power.
Final Decision: The court dismissed the writ petitions and writ appeals, upholding the validity of the provisions of the Chit Funds Act, 1982, and rules 16, 28(1), 28(2), 31(1), and 31(2) of the Tamil Nadu Chit Funds Rules, 1984.
K.A. SWAMI C. J.
1. In these writ petitions and also the writ appeals, the validity of several provisions of the Chit Funds Act, 1982 (hereinafter referred to as "the Act"), is challenged. In the meanwhile, the Supreme Court has considered the validity of the provisions contained in the very Act in Shriram Chits and Investments (P.) Ltd. v. Union of India, and held that all the provisions of the Act are valid. Therefore, these writ petitions and the writ appeals are liable to be dismissed in the light of the pronouncement made by the Supreme Court. However, an argument is advanced before us that the validity of section 6(3) of the Act has not been specifically considered and, therefore, the same be considered in these cases. We may only refer to paragraphs 29 and 30 of the judgment of the Supreme Court in Shriram Chits and Investments (P.) Ltd.s case to meet this contention. Paragraphs 29 and 30 of the judgment of the Supreme Court read as follows :
"Section 6(3) of the Act reads thus :
6(3). The amount of discount referred to in clause (f) of sub-section (1) shall not exceed thirty per cent. of the chit amount.
It was submitted that the ceiling of the discount is highly arbitrary and imposes unreasonable restrictions on the business of the petitioners. It appears to us that the ceiling of discount is on the higher side and the subscribers, who are in need of money, per force, have to give the discount to that extent and cannot be expected to take care of their own interest when they bid at the time of chit auction. This restriction is neither arbitrary nor unreasonable."*
Thus, it is clear that the Supreme Court has specifically considered the validity of section 6(3) of the Act and held that the said provision of the Act is valid.In addition to this, learned counsel appearing on behalf of the petitioners/appellants also contended that rules 16, 28(1), 28(2), 31(1) and 31(2) of the Tamil Nadu Chit Funds Rules, 1984 (hereinafter referred to as "the Rules"), are ultra vires the provisions of the Act, powers of the rule making authority and some of them are unconstitutional. No doubt, in the aforesaid judgment of the Supreme Court, the validity of these rules are not considered. Therefore, we have heard both sides on the validity of the aforesaid rules. We now proceed to consider the validity of these rules. Rule 16 of the Rules reads thus :
"Form of notice to chit subscriber".--Every notice to be given by a foreman to the subscribers in a chit under section 16 shall be in Form IX. It shall be sent to each subscriber under certificate of posting and shall also be exhibited on the notice board of the office of the foreman".
We have not been able to see any infirmity or invalidity in this rule as the said rule only prescribes the form of the notice and the mode in which the notice has to be sent. Section 16 of the Act specifically provides that every draw in a chit shall be held on the date, at the time and place mentioned in the chit agreement and a notice, therefore, in such form and in such manner as may be prescribed shall be issued by the foreman to all the subscribers. It is pursuant to this provision that rule 16 has been framed prescribing the form of the notice and the mode in which the notice shall be sent. However, it is contended that the rule in so far as it directs that the notice shall be sent under certificate of posting is invalid inasmuch as it casts a financial burden upon the foreman which he cannot meet out of the five per cent. commission he gets. It is necessary to ensure that a notice is issued to a subscriber. Sending of notice under certificate of posting is one of the cheapest modes which the rule provides. The fact that the foreman maintains a register for having sent the notice by itself will not be sufficient because there will be no other records to cross-check it. If it is made compulsory to send the notice under certificate of posting, there will be a record to cross-check and ascertain as to w
