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Judgment
K.A. Swami, C.J.—In these writ petitions and also the writ appeals, the validity of several provisions of 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 [1994] 79 Comp Cas 298, 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 [1994] 79 Comp Cas 298 to meet this contention. Paragraphs 29 and 30 of the judgment of the Supreme Court read
as follows (at page 327) :
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, power 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 u/s 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 whether the notice
has been in fact been sent. Therefore, we are of the view that sending of notice under certificate of posting is absolutely necessary in the light of the
past experience of exploitation and foul play in the matter of conducting chit funds. In addition to this, the Supreme Court has also held that even
five per cent. commission provided under the Act itself is on the higher side. While considering section 21 of the Act, it has been observed by the
Supreme Court thus (at page 334) :
We find no reason for the appellant/petitioners to have any objection to clause (a) or (c) of section 21. As regards the maximum commission of
five per cent. of the chit amount, the objection does not appear to be legitimate because any foreman is not debarred from the doing any other
business and he is not supposed to incur the expenditure at the cost of the subscribers and then claim higher commission. Expert bodies have only
recommended two per cent. commission whereas the Act provided for five per cent. commission. We do not find anything unreasonable in respect
of the commission"".
Therefore, it is not possible to accept the contention of learned counsel for the petitioner/appellants that the rule, in so far it provides for sending
notice under certificate of posting, casts an additional burden and that it cannot be met out of the commission which the foreman gets. Accordingly,
it is held that rule 16 is not ultra vires the power of the rule marking authority and it is not unreasonable. Accordingly we hold that it is valid.
Rules 28(1) and 28(2) of the Rules are as follows :
Date for submission of balance-sheet. - (1) The balance sheet referred to in section 24 shall be prepared within a period of two months from
the expiry of the period with reference to which it is prepared.
(2) Receipts and expenditure account and statement showing the assets and liabilities of the individual chit group shall be filed in Form XXI with the
Registrar within a period of two months from the termination of the chit when the duration of the chit does not exceed one year and when the
duration of the chit exceeds one year on expiry of every period of twelve months and also on the termination of the chit.
From the aforesaid rules, it is clear that the same are framed pursuant to section 24 of the Act. Sub-rule (1) of the rule 28 provides that the
balance-sheet referred to in section 24 shall be prepared within a period of two months from the expiry of the period with reference to which it is
prepared. It is contended that u/s 210 of the Companies Act, a longer time is available to chit fund company to file the balance-sheet, whereas the
provision contained under rule 28(1) of the Rules with section 24 of the Act curtails that period. Therefore, the rule is ultra vires the provisions of
the Act. In this regard, it is relevant to notice that what sub-rule (1) of rule 28 provides is with regard to the filling of the balance-sheet referred to
in the section 24 of the Act. Section 24 of the Act does not curtail the time that is provided for filing the balance-sheet by the chit fund company as
per the provisions of the Companies Act. It may be relevant to notice that section 24 of the Act opens with the words ""without prejudice to the
provisions of the Companies Act, 1956."" Therefore, chit fund companies are entitled to file the balance-sheet availing of the longer period that is
available to them u/s 210 of the Companies Act. That right of companies is not taken away in view of the fact that section 24 of the Act provides
contained in the Companies Act. Therefore, rule 28(1) of the Rules also has to be read in the light of the provisions contained in section 24 of the
Act and also section 210 of Companies Act. Therefore, rule 28(1) of rules specifically provides that the balance-sheet referred to in section 24
shall be prepared within a period of two months from the expiry and the period with reference to which it is prepared. These words would show
that if the balance-sheet is that of a chit fund company, under the Companies Act, it has to be filed within a period of two months from the expiry
of the period. Therefore, the period available to the chit fund company under the Companies Act for the filing the balance-sheet is not curtailed. On
the contrary, rule 28(1) of the Rules provides that the chit fund company can file it within two months from the expiry of the period relating to the
filling of the balance-sheet u/s 210 of the Companies Act. Thus, sub-rule (1) of the rule 28 does not in any way effect the right of chit fund
companies to file the balance-sheet as per the provisions of section 210 of the Companies Act and it also does not reduce the period available to
them under the Companies Act. Hence, we see no ground to hold that rule 28(1) of the Rules is ultra vires the provisions of the Act. Sub-rule (2)
of the rule 28 no doubt cannot be said to be specifically framed u/s 24 of the Act. But, at the same time, it cannot be said that it is extraneous to
the provision contained in section contained in the Act or more specifically the provisions contained in section 24 and section 89(2)(t) of the Act.
Sections 89(2)(t) of the Act specifically provides that the State Government may, in consultation with the Reserve bank, by notification in the
Official Gazette, makes rules for giving effect to the provisions of the Act and in particular and without prejudice to the generality of the foregoing
power, such rules may provide for all or may of the following matters, namely, (a) to (s) and (t) or any other matter which is required to be or may
be prescribed. The requirement of sub-rule (2) of the rule 28 is that the firm has to file the receipts and expenditure account and statement showing
the assets and liabilities of the individual chit group in Form XXI with the Registrar. If the durations of the chit is less than a year the said receipts
and expenditure account and statement have to be filed within two months from the date of expiry of the chit and in case the duration of the chit is
for a period of more than twelve months, within two months on the expiry of every twelve months. From XXI specifies several particulars to be
furnished. It is relevant to notice that the balance-sheet relates to the total business done by the chit fund company or an individual foreman,
whereas the receipts and expenditure account and statements showing the assets and liabilities to be filed under sub-rule (2) of rule 28 relates to
each chit. In order to ensure that there is no liability left under a chit and no dispute arises, such a return is necessary. Moreover, Form XXI has to
be filed once in a year. Therefore, we are of the view that such a requirement cannot be held to be onerous so as to hold that it amounts to an
unreasonable restriction on the right of a chit company or a foreman to carry on trade in chit funds. Any procedural requirement ensuring proper
conducting of chits and ensuring smooth carrying on of trade in chit funds and elimination of foul play, is always desired. Therefore, we are of the
view that rule 28(2) of the Rules, cannot be held to fall outside the scope to the Act inasmuch as the scope of the Act is to provide for the
regulation of chit funds and for matters connected therewith. Therefore, Form XXI cannot be held to be unconnected with the regulation of the chit
funds. Hence this contention is rejected and rule 28(2) of the Rules is held valid.
Rules 31(1) and 31(2) of the Rules are as follows :
Time for filing balance-sheet audited by a chit auditor or other auditors. - (1) Where the audit is done by the chit auditor the foreman shall file
with the Registrar a copy of the balance-sheet and profit and loss account together with the audit certificate and the auditor''s report within one
month from the date of receipt of the audit certificate and audit report from the chit auditor or within three months from the last day of the period
covered by the balance-sheet, whichever is earlier.
(2) In the case of audit by an auditor qualified to act as auditor of companies under the Companies Act, 1956 (Central Act 1 of 1956), the
foreman shall file with the Registrar, the documents referred to in sub-rule (1) within three months from the last date of the period covered by the
balance-sheet prepared u/s 24 and in the case of individual chit as referred to in sub-rule (2) of rule 28 within a period of two months.
It is not possible to appreciate as to how rule 31(1) and (2) of the Rules can be held to be ultra vires the rule making power. This rule only
provides that where the audit is done by the auditor, the foreman shall file with the Registrar a copy of the balance-sheet and the profit and loss
account together with the audit certificate and the auditor''s report within one month from the date of the receipt of the audit certificate and audit
report from the chit auditor or within three months from the last day of the period covered by the balance-sheet, whichever is earlier. Thus, it gives
sufficient time to the foreman to have the accounts audited and obtain the audit certificate and file the same. Similarly, sub-rule (2) of rule 31
provide that in the case of companies the foreman shall file with the Registrar the documents referred to in sub-rule (1) within three months from the
last date of the period covered by the balance-sheet prepared u/s 24 and in the case of an individual chits as referred to in sub-rule (2) of the rule
28 within a period of two months. In respect to section 24 of the Act, we have already pointed out that it is without prejudice to the provisions
contained in the Companies Act. Therefore, whatever right chit fund companies enjoy under the Companies Act is not taken away. The period
provide under sub-rule (2) of rule 31 is in addition to the period provided under the Companies Act. Therefore, we are of the view that rule 31
also cannot be held to suffer from any infirmity nor is it possible to hold that its is beyond the power of the rule-making authority. We may also
point out that these rules are regulatory in nature. They do not in any way take away the right of the foreman nor do those rules impose any
unreasonable restrictions in the matter of carrying on trade in chit funds. Therefore, we are of the view that these rules, looked from any point of
view, are reasonable and are regulatory. Hence, they are held valid. No other contention is advanced. Accordingly, following the aforesaid
decision of the Supreme Court, these writ petitions and writ appeals are dismissed. In the facts and circumstances of the case, there will be no
order as to costs.