Soudambika Finance Pvt. Ltd. Coimbatore and vs Union of India and others

Since common and similar as well as overlapping questions of law and facts arise for consideration and submissions have been made by counsel

appearing on either side, these writ petitions are considered and dealt with in common.

The above writ petitions involve challenge to the constitutional validity of the Chit Funds Act, 1982 (Central Act 40 of 1982), hereinafter

referred to as ""the Act"" and the Tamil Nadu Chit Funds Rules, 1984, hereinafter referred to as ""the Rules"", on various grounds. As a matter of fact

in some of the writ petitions the challenge is confined only to some specific provisions in the Act and the Rules alone. Of the various petitioners,

some are either public or private Ltd. companies incorporated under the Companies Act, 1956, or proprietary or partnership concerns or

individual organisers themselves. Since different writ petitions have been filed seeking different reliefs in relation to different provisions, 1 consider it

enough, instead of referring to them all in the course of the judgment itself, to classify them under different groups with reference to the prayers in

the writ petitions and make it as annexure to this judgment.

The impugned Act has been brought into force in the State with effect from 13-4-1984. Prior to this, so far as the State of Tamil Nadu is

concerned, it had a law in the form of the Tamil Nadu Chit Funds Act, 1961 (Tamil Nadu Act 24 of 1961) and the Tamil Nadu Chit Funds Rules,

1964. So far as the State of Pondicherry is concerned, in respect of which also, there are certain number of writ petitions in this batch of cases, the

Central Act 40 of 1982 has been brought into force in the said State with effect from 1-11-1986 the date on which the Chit Funds (Pondieherry)

Rules, 1986 was published in the Gazette of Pondieherry. Prior to this, the Pondieherry Chit Funds Act(18/1966) and the Rules made thereunder

were in force in the said State. Prior to the Central Act, it is only in some of the States, the subject-matter under consideration was governed by

the local was enacted by the Legislatures of the State concerned and to some places by extension of laws of the other States. Be that as it may, it

can be safely stated that there was no law regulating to running of Chit Funds in several States and that even in the laws in force in some of the

States they had their own variations. Before the contentions raised by the various petitioners are considered, it would be not only necessary, but

useful to deal with the history of the legislation and the circumstances which necessitated and the object sought to be achieved as well as the

imminent need feit by the Parliament to protect the unwary and innocent subscribers from the scheming machinations and manipulations of those

running these conventional chit transactions and unscrupulous organisizers invariably identified by the name of Foreman. The institution carrying on

Chit Fund Business is indisputably of more than a century old, and was at no point of time under regulation of a Central enactment. The various

aspects and facts of this business the anomalies and unfair methods and unhealthy practices adopted by many of those running this business came

to be noticed after a thorough investigation and on the basis of relevant as well as substantial materials gathered by the Reserve Bank of India,

memoranda received from various chit fund companies as well as materials submitted by the representatives of some of the leading chit funds to the

Banking Commission and the Annual Reports of a new chit funds which were made available. On the basis of the said and such other materials, the

report of the Banking Commission prepared in the year 1972, the report of the study group on Non-banking Financial Intermediaries dated 10-8-

1971 constituted by the Banking Commission and the Report of the Study Group of Non-Banking Companies headed by its Chairman J. S. Raj

identified as ''Raj Committee Report'' dated 14-7-1975 submitted from time to time would throw considerable light on the historical development

of this institution. Likewise, the report of the Select Committee constituted for considering the Chit Funds Bill, 1980 introduced in the Lok Sabha

to provide for the regulation of Chit Funds which culminated in the Central Act 40 of 1982 also throw not only considerable light on some of the

aspects raised in these proceedings but also contain an analysis of the various clauses in the Bill, with reference to some of which the challenge has

been made in these writ petitions.

The first of the reports dated 10-8-1971 submitted by the Study Group of the Non-Banking Financial Intermediaries appointed by the Banking

Commission devoted an entire chapter to the subject of Chit Funds. The various aspect of the Chit Fund business meticulously referred to by this

report and particularly the origin of this financial institution in India have been dealt with in paragraphs 6.2 and 6.3 in the following terms :--

Chit Fund is perhaps the oldest indigenous Financial Institution in India. The origin of chitty or kuri or chit fund is traceable beyond more than a

century in the rural parts of Southern India. Periodically, a fixed measure of grain could be deposited with a trustee and received back when

sufficiently large quantity was collected. The needy person was ascertained through draw of lots. The word ''chit'' suggests its origin. Chit means a

written note on a small piece of paper. Since the winner of the Chit amount was to be ascertained through draw of lots, it involved writing of names

of eligible members on separate chits, as in a lottery. The Scheme thus came to be known as ''chit funds''. It equivalent in Malayalam ''kuri'' is

derived from ''Kurippu'' which is a synonym of chit.

The trustee''s reputation for honest attraded more savers to him. In the earlier stages when the idea of modern banking had not reached the people,

chit fund institution the people, chit fund institution developed quickly and spontaneously. It was an expression of co-operative efforts of mustering

savings through instalments and advancing the pooled savings as loan to the members with facilities of repayment in instalments. With the growing

importance of commerce and industry and the consequential rise in the population of towns and cities, chit fund was brought to the urban areas.

In paragraphs 6.7 to 6.9, the working method of this Chit business and particularly of the type with which we are concerned has been stated in

the following terms :--

In this case, there is a promoter called foreman who enrolls a number of subscribers and draws up the terms and conditions of the scheme in the

form of an agreement. Every subscriber has to pay his subscription in regular instalments. The foreman charges, for his service, a commission on

which there is a ceiling fixed by law in some States. He also reserves the right to take the entire chit amount at the first or second instalment as

prize. Depending the terms of the agreement, a fixed amount is also sometime set aside for distribution among the non-prized members. After

making provision for the above deductions, the balance is put to auction (except at the last instalment) and given as prize to the member who is

prepared to forego the highest discount. The amount of discount is distributed as dividend either among all the members or only among the non-

prized members. In some States a ceiling has been fixed on the discount that a member can offer. In case more than one person is prepared to

offer the same discount or when there are no bidders, lots are drawn to choose the prize winning members. The number of subscribers in a chit

series equal the number of instalments so that every member is assured of the opportunity of getting the prize. Sometimes with a view to catering to

as many subscribers as possible, a chitty comprises a series expressed in terms of a sub-division or fraction of a full ticket (ticket means the share

of a subscriber which entitles the holder thereof to the prize amount at any one instalment). In such cases the number of subscribers can exceed the

number of instalments. In some cases only auctions are held to determine the prize winner while there are chit funds in which prize winning tickets

are determined both by lots and by auction.

The prize winner can get the prize only on furnishing security acceptable to the foreman for the payment of the remaining instalments. In the event of

default by subscribers in payment of instalment on due dates, penalties are imposed in various forms, e.g. forfeiture of dividends or levy of penal

interest.

The above are the essential features of a business chit scheme although there are any number of variants. Chit Fund can thus be described as a

mutual recurring deposit scheme under which every member is entitled to receive prize amount as loan from the chit fund; for the last prize winner,

however, the prize amount cannot be considered as loan. Although no rate of interest is specifically mentioned, the deductions on account of

discount and the foreman''s commission make the loan in a majority of the cases, an interest-bearing one, the interest rate depending on the specific

terms and conditions under which the scheme operates. For the foreman, however, no interest rate is involved on his ''loan''.

The type and nature of malpractices, manipulations and abuses by the organizer called the foreman have been dealt with in paragraphs 6.13 to

6.18 in the following terms :--

At this stage it would be useful to study the foreman''s role in the chit transactions. Subject to law, he decides practically eveything about the chit -

- the number of members, the amount of instalments, the chit amount, his commission, the instalment at which he himself would retain the prize, the

penalties to be imposed on defaulting members, etc. It is easy for him to exercise his powers because the number of subscribers is in many cases

large and they are usually scattered over many places.

Some foremen, in addition to carrying on the business of chits, also accept deposits from third parties. These are utilised as working funds and lent

at high rates of interest to subscribers and perhaps to others. According to Reserve Bank survey, the amount of deposits of 106 reporting chit fund

companies at the end of March, 1968, was about 1.1 crores. In terms of Reserve Bank''s directions, a chit fund company cannot accept deposits

repayable after a period of less than 12 months from the date of receipt of such deposits nor can the amount of such deposits exceed 25 per cent

of its paid up capital and free reserves. It may be noted that the subscriptions received from the members of chit funds in terms of contract are not

treated as ''deposits'' for the purpose of Reserve Bank''s directions. According to available information, one-third of the outstanding loans and

advances as on 31st March, 1967, given by the foremen of 100 chit fund companies were personal loans; 27 per cent were meant for the

commerce sector and 15 per cent were professional loans. ''Industry'' and ''agriculture'' got a negligible proportion, these advances accounting

respectively for 0.5 per cent and 0.1 per cent of the total.

The foremen derives his income in different ways, both legal and illegal. In the former category can be included items such as admission fee from

members, penal interest or penalty fee from defaulting members and forfeiture of their dividend, interest on loans to non-prized chit holders, fees

for transfer of shares in the chit, deduction from the subscription paid by a member who wants to resign, dividends on the chit reserves for himself,

interest on chit prize taken without deduction, interest on the chit prize which the prize member may not be in a position to collect immediately, and

subscriptions paid by members who discontinue in the middle of the scheme but do not care to claim refund.

The unscrupulous among the foremen resort to so many unfair methods to secure illegal gains. A few of these methods are briefly mentioned below

:--

(i) Enrolment of fictitious members to complete the required number of members in & chit series. If a real and needy non-prized member is not

able to come forward to offer a high discount at the auction, one of these benami members is shown to get the prize thereby depriving the real

members of the opportunity,

(ii) Similarly, it is possible to exploit needy non-prized member or a new member so that he gets the prize only at the maximum discount.

(iii) The prized member is supposed to get the amount soon after the draw or auction is over of course of furnishing the security. But the foreman

adopts tactics which delay the actual payment for a considerable time, meanwhile he uses the money interest free. If he succeeds in delaying the

payment til! the succeeding draw, the earlier prize winner is given the prize out of the collections of the succeeding draw. Thus, one instalment i.e.

perpetually in the hands of the foreman to be utilised in any way he likes.

The above are only examples to illustrate the way in which some foremen maximise their profits. They do not take into account the cases where the

foreman and his associates disappear from the scene and are untraccable. The police have many such cases on their record. During 1962-66, as

many as 255 chitties collapsed in several districts of Kerala on account of such malpractices.

It may be noted that the foreman has to undertake some responsibilities and risks. He is responsible for regular collection of subscriptions from a

widely scattered body of members. He has to conduct the draws or the auction and maintain accounts. He is under obligation to pay the prize

amount on the due date whether or not all the members have paid their subscriptions. In case of defaults, he has often to make good the deficit out

of his own resources. If the prized member defaults in his instalments, litigation follows to recover the amount. If the defaulter is a non-prized

member, the foreman has to find out a suitable subslitute or, in the alternative, has to take over the chit himself and continue the business.

According to the memoranda submitted by some chit funds to the Banking Commission, the foreman requires finance from banks as well as

money-lenders and other private sources. Some companies have also pointed out that their profits are not very large in relation to the risks

involved. According to memoranda submitted to the Study Group, 15 to 18 per cent of the subscribers fail to pay their subscriptions after getting

the prize amount.

After all these, the report noticed certain highlighting points with special emphasis in the following terms in paragraphs 6,30 and 6,31 :--

As emphasised earlier, the rate of return on the savings of a subscriber to a chit fund and the interest rate that is involved for a subscriber joining

the chitty as a borrower, will vary according to the terms and conditions of the chit fund. In fact, examples can be worked out on the basis of

certain assumptions where the rate of return to prized subscribers at late stages will be quite high and the interest rate involved for a prize winner

will be comparatively low. The essential point is that the rate of interest involved in chit funds is discriminatory and various from person to person

so that there is an irrational distribution of gains and tosses. Ordinarily, the more needy a person, the higher will be the discount that he would be

prepared to offer for winning a prize. Therefore, the more urgent his need the higher the rate of interest that a borrower has to pay. Another point

is that there are institutions which offer savings schemes which are superior to the one involved in a chit fund. The savings and fixed deposits,

recurring deposits, monthly income deposits schemes, cash certificate schemes, annuity or retirement scheme, insurance linked deposit schemes,

small savings, provident funds and insurance schemes, cash certificate schemes, annuity or retirement schemes, insurance linked deposit schemes,

small savings, provident funds and insurance schemes have features which are superior to -those in chit funds. The popularity of chit funds can be

explained by the fact that a subscriber is entitled to borrow from it. Also, long standing social habits and the ganning element involved in the

scheme, which perhaps provided and added attraction to some subscribers are also factors accounting for popularity of this institution.

So far as the end use of the prize is concerned, there are conflicting views. It would appear that the likelihood of productive use of the prize money

is small. A prospective producer would not depend on the uncertainties involved in a chit fund. The rates of interest generally involved for a prize

winner in a chit fund are so high that an inference can be drawn that the prize money is mostly used for consumption or speculative purposes. Some

persons joint chit funds anil are prepared to pay high rates of interest by way of large discount for the purpose of hoarding certain scarce

commodities. They are not only able to recover the interest but also earn a profit on account of the difference between the relatively low price at

which they buy the goods and the high price at which they sell them later.

The Study Group in its report also dealt with the legislative measures considered in its view to be necessary for eliminating the malpractices

usually found in this business and suggested the following measures :--

We considered the above two suggestions, viz., starting of chit funds in the public sector and the commercial bank entering the chit fund business

with a view to eliminating, through competition, the malpractices, usually prevalent in private chit funds. It may be noticed that most of the unhealthy

practices arise from the lack of integrity of the foreman. It was, therefore, natural that the regulation of chit fund business assessed high priority in

the States where the business is concentrated, i.e., in the Southern States.

At present State legislation regulates the running of chit funds in the areas where such legislation is in force. The Tamil Nadu Chit Funds Act of

1961, seeks to regulate the chit fund business in the State of Tamil Nadu. With appropriate changes, this Act was adopted, with effect from 15th

July, 1964, in the Union Territory of Delhi. The Union Territory of Pondicherry has the Pondicherry Chit Funds Act, 1966, which came into force

from 1st August, 1967. In Kerala, the Travancore Chitties Act of 1964, and Cochin Kuris Regulations, 1932, are in force in some areas of the

State. The question of introducting a Uniform enactment in Kerala has been under the consideration of the Government for some time. Some

States are in process amending or enacting laws to regulate chit fund activity. In Andhra Pradesh a bill on the lines of the legislation in the

neighbouring State is under consideration. Mysore and certain Other State Government are also contemplating passing of legislation for regulating

Chitties. Punjab Government is contemplating the starting of chit funds in the public Sector on the lines of Kerala Government. In Uttar Pradesh,

chit funds, lotteries etc., are regulated by the provisions of the Manual of Government Orders. According to these regulations, publication of

advertisements in newspapers, of any proposals regarding lotteries not authorised by the Government is an offence under the Indian Penal Code.

Also local authorities have been asked not to accord sanction for holding lotteries nor should they authorise advertisements regarding such

undertakings.

The object of legislation is to regulate the conduct of chit funds by requiring the foreman to obtain permission of competent authorities before a chit

fund can be started, stipulating security to be provided by the foreman to the Registrar, detailing his rights and obligations and providing for

punishment for infringement of law. Wherever legislation is in force, no foreman can start a chit fund until the Registrar is satisfied about the bye-

laws of the fund and the security offered by the foreman.

(vide : paragraphs : 6.52 to 6.54).

The Banking Commission Report of the year 1972 had felt the need for a legislation at national level and commended for the same in the

following terms in paragraph 17.33 of its report :--

A few States have legislation on chit funds, the object of which is to safeguard the interests of the members. The Commission feels that it is

essential to have a uniform chit fund legislation applicable to the whole country. Depending upon the constitutional position, whether chit funds

come under the Union list, Concurrent list or the State list, either an All-India Chit Fund Act may be enacted or a model law may be adopted by all

the States with such modifications as may be necessary. It will be desirable to provide in the legislation that only Public Limited Companies can run

chit funds. Pending such uniform legislation, existing State laws regulating chit funds registered within the State should be made applicable to their

branches in the States having no legislalion. This will essentially be an interim measure because only the members of those chit funds which are

registered in States where chit fund laws have been enacted will get protection.

Having regard to the recommendations of the Banking Commission with reference to the regulation of the activities of non-banking financial

intermediaries, the Central Government appears to have resolved to formulate a model law to regulate chit business, for being adopted by States

which have no legislations of their own and after getting a draft of the Model Bill from the Reserve Bank of India, had the same referred to a study

group and the said study group appears to have made the following vital recommendations :--

(a) Since the legal opinion is that Parliament is competent to enact the chit legislation in view of the provision contained in Entry 7 of List III

(Concurrent List) of Schedule VII to the Constitution of India, the proposed Bill should be enacted as a Central legislation. Such a step would,

besides ensuring uniformity in the provisions applicable to Chit Fund institutions throughout the Country, also prevent such institutions from taking

undue advantage either of the absence of any law governing chit funds in any State or exploit benefits of any lacuna or relaxation in any State law

by extending their activities to such States;

(b) While the Bill should be enacted as a Central Act, its administration should be left to the State Governments concerned which, in turn, may

seek the advice of the Reserve Bank on policy matters. (For the purpose of tendering advice to the Central or State Governments, the Reserve

Bank may have to inspect chit fund institutions on a selective basis to have an idea of their working including their methods of operation. Chit funds

arc ""financial institutions"" as defined in Cl. (c) of S. 451 of the Reserve Bank of India Act, 1934. hence, it would be open to the Reserve Bank to

undertake inspections of chit fund institutions whenever deemed necessary in exercise of the powers vested in it under S. 45-N ibid);

(c) as regards the question whether only Public Limited Companies should be allowed to conduct chit funds, the Group is of the view that there

should be no objection, in principle, to chits being conducted by Private Limited Companies also, and on a limited scale even by unincorporated

bodies such as individuals/sole proprietorships/partnership firms. It might be of relevance to note in this connection that the enactments regulating

chit funds in force in certain States do not prohibit chit funds being conducted by unincorporated bodies; and

(d) having regard to the nature of their business, there is no necessity for chit fund institutions to borrow from the public by way of deposits and as

such they may be prohibited from accepting deposits except as advance payment of subscription or deposits from prized subscribers by way of

security towards payment of their future instalments.

The Study Group has also dealt with about several other issues which arose for consideration and they are as follows :--

(i) Conduct of other business by Chit Fund Institutions : Chit Fund institutions may be prohibited from conducting any other type of business except

chit business or granting of loans to subscribers against their paid-up subscriptions.

(ii) Utilisation of funds : Chit Fund Institutions should utilise their surplus funds only for giving loans or advances to non-prized subscribers against

the security of the subscriptions paid by them or investing in trustees securities or in deposits with the approved banks.

(iii) Restriction on the opening of new places of business : Chit Fund Companies should obtain the prior approval of the Director of Chits within

whose jurisdiction their registered offices are situated. The Director of Chits should take certain criteria into account before granting permission for

the opening of offices. Unincorporated bodies should not be allowed to conduct business at more than one place.

(iv) Maximum duration of chits: The duration of chits should not ordinarily exceed five years; but chits of a longer duration up to ten years may be

started in very special cases only by chit fund companies/banks with the prior approval of the State Government concerned which should take into

account factors such as the financial position and methods of operation of the company in question, interests of the prospective subscribers,

requirements as to security, etc. (The security deposit to be kept by the foreman of company in the case of chits of longer duration may be

proportionately higher).

(v) Mode of settlement of disputes : The machinery for settlement of disputes arising between the foreman and the subscribers relating to the

adequacy of security offered by prized subscribers to the foreman for payment of future instalments, substitution of subscribers in case of default,

etc. should be self-contained, cheap and expeditious on the lines of the machinery prescribed under the State Co-operative Laws for settlement of

disputes by arbitration.

(vi) Ceilings in respect of the aggregate amount of chits that may be conducted at any point of time : The aggregate amount of chits conducted by a

Chit Fund Company at any point of time may not exceed 50 per cent of the net worth of the company, i.e., the paid up capital plus free reserves

less the balance of accumulated loss and other intangible assets such as deferred revenue expenditure and goodwill, if any. In the case of

commercial banks conducting chit funds, no ceiling on the aggregate amount of chits that may be conducted at any point of time need by

prescribed since these chits are subject to the close scrutiny of the Reserve Bank. As regards chit funds conducted by unincorporated bodies such

as individuals, sole proprietorships and partnerships, the aggregate amount of chits should not, at any point of time, exceed Rs. 10,000/-.

(vii) Minimum capital requirements and the creation of a reserve fund : The minimum paid up capital of chit fund companies incorporated under the

Companies Act, 1956, whether private or public, should be Rs. 1 lakh. Companies having paid-up capital of less than Rs. 1 lakh may be allowed

time up to three years to increase their paid-up capital to the minimum referred to above. The State Government concerned may be authorised to

grant extension of time for a period not exceeding two years in appropriate cases. These companies should also be required to credit 20 per cent

of their annual net profits to a reserve fund.

The terms of reference made to the Raj Committee for its consideration and recommendations are as hereunder :--

I. To examine the relative provisions of the Reserve Bank of India Act, 1934, the Non-Banking Financial Companies (Reserve Bank) Directions,

1966 and the Miscellaneous Non-Banking Companies (Reserve Bank) Directions, 1973, with a view to assessing their adequacy in regulating the

conduct of business by Non-Banking Companies covered by the said directions in the context of the monetary and credit policies laid down by the

Reserve Bank from time to time; to suggest measures for further tightening up the provisions so as to ensure that the activities of such companies, in

so far as they pertain to the acceptance of deposits, investments, lending operations etc., subserve the national interest and serve more effectively

as an adjunct to the regulation of the monetary and credit policies of the country besides affording a degree of protection to the deposits monies. In

this connection, the Study Group may examine and make recommendations for regulating the conduct of the business of non-banking companies

governed by the above sets of directions generally, and in particular, in regard to-

(a) the norms which may be adopted in respect of the capital structure and debtequity ratio that may be maintained by the various classes of non-

banking companies covered by the said directions;

(b) the extent to which and the periods for which such companies may borrow by way of deposits/unsecured loans and the distinctions, if any, to

be made between public and private companies;

(c) the maintenance of cash reserves and/ or a percentage of their deposit liabilities in the form of liquid assets by such companies.

(d) the norms which may be adopted in respect the rates of interest payable by such companies on their borrowings by way of deposits/unsecured

loans and also those which may be charged on loans and advances made by them;

(e) the extent to which any of the activities carried on by these companies through their subsidiaries can or should be controlled;

(f) the need for the imposition of a ceiling of risk assets to be acquired or loans to be granted by the companies;

(g) the restrictions, if any, on the grant of loans to directors and their friends and relations and companies in which they are interested;

(h) the manner in which the loopholes, if any, in the existing directions taken advantage of by private limited companies in the context of certain

concessions enjoyed by such companies under the provisions of the Companies Act, 1986, could be plugged; and

(i) the need to empower the Bank to apply for compulsory winding up of non-banking financial companies under certain circumstances.

(ii) to make recommendations on any other related topic which the Study Group may consider germane to the subject-matter of the enquiry.

The Committee discussed the terms of reference with various individuals of eminence and learned and also the representatives of Companies

Associations all over India and in Bangalore.

The Raj Committee while referring to the enactment of chit fund legislation only by few States Union Territories and the diversity of such

regulatory provisions and the abuse by unscrupulous promotions of chit companies by exploiting the situation by conducting chits in States where

there was no regulation highlighted the need for the en- actment of an uniform legislation applicable throughout the country in respect of chit fund

institutions. The draft bill prepared by the Reserve Bank of India referred to and considered by the Study Group and the salient features of the

various recommendations noticed in the annexure are as hereunder. The same may be set out in its entirety at this stage and as hereunder :--

ANNEXURE

Issues for consideration Views of the Study Group

Whether institutions conducting chit funds should be Companies as also unincorporated bodies suchas

prohibited from doing any other type of business? if so, individuals/sole proprietorship/partnership firms

the period that may be allowed to such companies to conducting chits may be prohibited from doing any other

divert themselves of non-chit business type of business except chit business Or granting of loans

to subscribers against their paid-up subscriptions. If they

are currently conducting non-chit business, they may be

allowed time not exceeding three years or such extended

period not exceeding three years as may be allowed by

the State Government for divesting themselves of non-chit

business. During such period, they may be allowed to

carry on non-chit business for the benefit winding up of

such business as proposed in C1.5 of the Bill. Further, if

the institution conducting chits is an incorporated body, it

shall use as pan of its name any of the words ''chit'', ''chit

fund'' or ''kuri'' and no company shall carry on the

business of chit funds unless it uses as part of its name at

least one of such words.

Utilisation of funds. Institutions conducting chits may be permitted to utilise

their funds only in the manner contemplated in Clause 6

of the Bill. Those holding investments of type other than

those mentioned in the said clause may be required to

regularise them within a period of three years from the

date of coming into operation of the Act or such extended

period not exceeding three years as the State

Government may allow.

Opening of Offices/branches The Group is in agreement with the proposal that Chit

Fund Companies may be prohibited from openingnew

places of business without obtaining the prior approval of

the Director of Chits within whose jurisdiction the

registered offices of the companies are situated. Before

granting such approval, the Director of Chits may take

into account the criteria laid down in Clause 7(2) of the

Bill. Unincorporated bodies should not be allowed to

conduct business at more than one place.

Particulars to be given by chit fund companies in the It does not appear necessary that ihe particulars specified

advertisement to be issued by them inviting/ soliciting in clause 9, should be given in the advertisements issued

subscriptions from the public to theirschemes. on each occasion when new schemes are started since it

would prove to be very expensive to the companies.

Instead, such particulars may be given in the application

forms for enlisting members for each chit.

Maximum duration of chits. The duration of chits should not ordinarily exceed five

years, but chits of longer duration up to ten years may be

started in very special cases only by chit fund companies/

banks with the prior approval of the State Government

concerned which should take into account factors such as

the financial position of the company in question and its

methods of operation, interests of the prospective

subscribers, requirements as to security etc. (The security

deposit to be kept by foreman in the case of chits of

longer duration should be proportionately higher).

Period of preservation of chit records. This may be six years from the date of the termination of

chits, as proposed in clause 40 of the Bill.

Mode of settlement of disputes. The machinery for settlement of disputes arising between

the foreman and the subscribers relating to adequacy of

security offered by prized subscribers to the foreman for

payment of future instalments, substitution of subscribers

in case of default, etc., should be self-contained, cheap

and expeditious on the lines of the machinery prescribed

under the State Co-operative laws for settlement of

disputes by arbitration. For this purpose, the provisions in

Chapters IX and XIII of the Maharashtra State Co-

operative Societies Act, I960 may be considered.

Uniformity in the presentation of annual accounts by The bill may prescribed a pro forma of the balance sheet

chit fund institutions. and profit and loss account in which chit fund institutions

may be required to present their annual accounts.

Ceiling in respect of the aggregate amount of chits that The aggregate amount of chits conducted by a chit fund

may be conducted at any point of time. company at any point of time may not exceed 50 per cent

of the net worth of the company i.e., the paid-up capital

plus free reserves Jess baiance of accumulated loss,

andexpenditure, goodwill, etc., if any (vide cl. 8(6). In the

case of commercial banks conducting chit funds, no ceiling

on the aggregate amount of chits that maybe conducted at

any point of time need be prescribed.

Since chits conducted by commercial banks are subject to

the close scrutiny of the Reserve Bank.

As regards the chit funds conducted by unincorporated

bodies such as individuals, sole proprietorships and

partnerships, the aggregate amount of chits should not at

any point of time exceed Rs. 10,000/-. They are

prohibited from opening branches (vide: Item 3 above).

Minimum capital requirements and creation of a The minimum paid-up capital of chit fund companies

reserve fund - incorporated under the Companies Act - whether private

or public -- should be Rs. I lakh. Companies having paid-

up capital of less than Rs. 1 lakh may be allowed time up

to three, years to increase their paid-up capital to the

minimum referred to above. The State Government

concerned may be authorised to grant extension of time

for a period not exceeding two years in appropriate cases.

Such companies may also be required to credit 20 per

cent of their annual net profits to a reserve fund.

Certain offences of a serious nature under the proposed

Cognizability of offences.

legislation may be made cognizable.

Before further considering the various contentions raised in these cases, it would be necessary to refer to the Report of the Select Committee

which considered the Chit Funds Bill, 1980, as found summarised by the learned Judges of the Division Bench of the Karnataka High Court in Sri

Visalarn Chit Fund Ltd. and Another Vs. Union of India and Others, in the following terms (Para 11):--

The Committee held as many as 25 sittings after issuing notices to the State Government, Chit Companies, public bodies and organisations,

individuals etc., interested in the subject-matter of the Bill and also decided to hear oral evidence on the provisions of the Bill from interested

parties. The Committee also issued Press communique fixing 21st February, 1981, as the last date for receipt of memoranda and requests for oral

evidence. Wide publicity was given on three successive days by broadcasting the matter from all stations of All India Radio and telecast from all

Doordarshan Kendras. Several requests were received from various parties for being heard by the Committee and accordingly several sittings

were held at Madras on 28th, 29th and 30th of May, 1981, at Bangalore on 1st and 2nd of June, 1981 and at Trivandrum on 4th and 5th of June,

1981. Oral evidence was taken from the representatives of various Chit Companies, Associates, federations, individual etc. and the Committee

also heard the representatives of the State Government of Tamil Nadu, Karnataka, Kerala and the Union Territory of Pondicherry. Since the

Committee felt that sufficient number of subscribers were not forthcoming for tendering oral evidence, they decided to extend the time for receiving

memoranda and receiving oral evidence up to 30th June, 1981. Further, a series of sittings were held at Ahmedabad, Hyderabad, Calcutta, and

New Delhi and the Committee, in all, examined 101 witnesses who appeared before the Committee for giving oral evidence. The Bill was

considered clause by clause and the report of the Committee was adopted on 18th November, 1981. The recommendations of the Committee in

respect of the following clauses in the Bill are :

Clause 4: The period of 12 months was substituted for the period of six months in the proviso to the said clause since the Committee felt that the

period of 6 months was not sufficient for registering the chit from the date of sanction. Under Cl. 6(i)(c) the words ''interest'' or penalty'' were

included for any default in the payment of instalments. Likewise, in Cl. 6(i)(d) amendment was proposed to specify the probable date of

commencement of the Chit agreement. Clause 7 (3): The words ''within a period of three months'' were incorporated with a view to ensure that the

foreman did not take unduly long time to start the chit and did not misappropriate the subscribers'' money. Clause 8: Instead of the figure 20 per

cent, 10 percent was suggested as the amount to be transferred to the Reserve Fund. Clause 11(2): A period of one year was incorporated for

complying with the requirements of Cl. 11(1) to avoid any hardship being caused to such persons carrying on business on the commencement of

the proposed legislation. Clause 13: The Committee considered the aggregate amount of chit to be conducted by an individual foreman,

partnership foreman and foreman Company. The Committee felt that in order to ensure that the foreman has sufficient stage in the chit business

conducted by him, recommended an increase of the amount from Rs. 10,000/- to Rs. 25,000/- in the case of individual formen, from Rs.40,000/-

to Rs. 1 lack in case of partnership foreman. As regards the foreman-Company, the Committee recommended for the words ''net assets'' the

words ''net owned funds'' to be substituted and that should be made applicable also to co-operative Societies. This recommendation was because

of the fact that the concept of net owned funds will be in tune with the Reserve Bank of India directions to financial companies which would mean

that aggregate of the paid-up capital and free reserves reduced by the amount of accumulated balance of loss, deferred revenue expenditure and

other intangible assets, if any, as per the latest audited balance sheet of the Company. Clause 14: The representation for extension of the period of

2 years was rejected as the Committee felt that the period of three years was sufficient for securing the money invested by the person carrying on

chit business in any other business. The Committee was also of the view that the State Government''s power to extend the period of two years

should be limited to one year only and proviso to sub-el. (2) was accordingly amended. Clause 15: By substitution of a new clause it was provided

that chit agreement shall not be altered, added to or cancelled except with the consent in writing of the foreman and all the subscribers in the chit.

The Committee felt that since the foreman was a party to the agreement, his consent must be obtained before altering the agreement. Clause 16

was suitably amended by the Committee in order to ensure that there was no mischief in conducting the chits by making it obligatory for the

Chairman to issue notices to all the subscribers and the draw should be held in the presence of at least two subscribers, Clause 18: 21 days'' time

was granted to the foreman to file the returns instead of 14 days. Clause 19: A new sub-clause (3) was added to enable the subscribers to know

the State where the new business is opened by approaching the Registrar of that State instead of the Registrar of the State where the main office is

situated for making any complaints with regard to the conduct of chit business at the new place of business. Clause 20: Sub-clause (1) was

amended as the Committee was of the view that in order to ensure that the foreman does not utilise the subscriptions so collected for the purpose

of depositing the security and also to ensure further that the financial position of the foreman is found to conduct the chit, he should be required to

furnish security before he applies for previous sanction of the State Government under Cl. (4) of the Bill. Clause 21: The provisions of sub-cl. (1)

(a) was amended since the Committee was of the view that where as foreman has subscribed to more than one ticket, he should be allowed to get

more than one chit amount in a chit without discount. Clause 22: Sub-clause (2) was amended since the Committee felt that the existing clause

would cause hardship to the foreman and therefore, he may be required to make deposit of the Brize money in respect of the draw only if it

remains unpaid before the date of the next succeeding instalment in a separate account in an approved Bank. A new proviso to sub-clause (2) was

added to avoid any hardship to the foreman by such contingencies by allowing the foreman to hold another draw in respect of the instalment if the

prize amount is not drawn by the prized subscriber for a period of two months from the date of draw. Clause 23: The Committee made the

necessary amendment, on the representation that inspection of records of the foreman by the Registrar should be made permissible not only at the

registered office of business but also at the place where the foreman is carrying on business, so that the Registrar in such cases will be able to

exercise proper control and supervision over the business carried on by the foreman. Clause 40: Clause (b) of this clause was amended by the

Committee since the Committee was of the view that termination of a particular chit, as contemplated in part (b) of this clause, should be with the

consent of all the non-prized, unpaid prized subscribers and the foreman who is also a party to the chit. Clause 66: The Committee was of the view

that allowing the disputes to be taken to the Civil Courts will cause considerable delay in the settlement of dispute because of the long procedure in

the Courts and this would particularly go against the interest of the subscribers and hence, sub-clause (3) of the Bill was omitted. Clause 77: The

Committee felt that a provision for punishing the commission of second and subsequent offences should be included and the penalty of

imprisonment and fine should be provided for. Accordingly, a new Cl. 77 was added. These clauses in the Bill correspond to the respective

sections in the Act. The other amendments proposed by the Committee are of a clarificatory nature and are only consequential, therefore, there is

no need to refer to them. This Report of the Select Committee but for a lone dissenting member who was totally opposed to the continuance of

chit business, was unanimous.

The Parliament has, in the above circumstances, enacted the Act in question. Paragraphs 3 and 4 of the Statement of Objects and reasons

would disclose the broad purpose, aim and object of the Act in the following terms:--

The recommendations of the Banking Commission were examined by Government. The Reserve Bank, at the instance of the Government,

drafted a model Bill to regulated the conduct of chit funds for adoption by all the State Government. The Reserve Bank also sent the draft Bill to

the Study Group on Non-Banking Companies constituted by it in June, 1974, under the Chairmanship of late Shri James S. Raj, the then Chairman

of the Unit Trust of India. The Study Group was unanimously of the view that the Bill should be enacted as a Central legislation, as such a step,

besides ensuring uniformity in the provisions applicable to chit fund institutions throughout the country, would also prevent such institutions from

taking advantage either of the absence of any law governing chit funds in any State or exploit the benefit of any lacuna or relaxation in any State law

by extending their activities in such States. The Group further recommended that the administration of the law should be left to the State

Government concerned which in turn could seek the advice and assistance of the Reserve Bank on policy matters. Further, there should be

according to the Group, no objection to chits being conducted by private limited companies also and on a limited scale even by unincorporated

bodies such as, individuals, sole proprietorship and partnership firms.

The Bill has been finalised after taking into account the views of all the State Government to whom a draft Bill was sent for comments. The

scheme of the Bill and the provisions made therein largely follow the pattern of chit fund legislations in force in some of the States and includes

certain new provisions, such as, minimum capital requirements, for companies conducting chit business, prohibiting chit fund companies from doing

any other business, placing a ceiling on the aggregate chit amounts of chits that are being conducted by chit fund institutions, providing for a self

contained machinery for the settlement of disputes between a foreman and the subscribers by means of arbitration, etc. The repeal of the existing

State legislations on the subject has also been provided for in the Bill.

Though some of the writ petitions have been filed challenging the provisions of the Act and the rules made thereunder, as a whole and some

confined to some selected provisions of the Act and the rules made under the Act, none except the petitioners in W.P. Nos. 8454 and 8455 of

1984 questioned the legislative competency of the Parliament. Leading arguments were addressed by some of the learned counsel appearing for

some of the petitioners who mutually adopted also the submissions made by the other learned counsel and the other counsel merely conveyed the

fact that they are simply adopting the submission of the learned counsel who argued the matter to the extent they are relevant and necessary for the

case pleaded by them in their writ petitions. Before adverting to consider the various submissions made in support of the relief claimed, I consider it

necessary to refer to those submissions made, counselwise, rather then casewise since the counsel were appearing on behalf of the petitioners in

more than one case and common submissions have been made. Such submissions generally centered round the alleged violation of Arts. 14 and

19(1)(g) of the Constitution of India.

(a) Mr. K. Chandramouli, learned senior counsel for some of the writ petitioners, contended that u/s 4, the foreman has to apply for

registration every time, that an embargo is plaved from a chit being commenced and conducted without obtaining the previous sanction of the

Government or the Authorised Officer therefore and unless the chit is registered under the Act. Apart from the plea that such a requirement would

cause innumerabel problems it is stated that no time limit is stipulated within which the authorities would grant such sanction or registration and the

absence of such a provision would render the requirement arbitrary and unresonable. In so far as the provision in S. 4(3)(b) is concerned, it is said

to be draconian since it makes even routine or a technical lapse or default in the payment of fees or filing of any statement or record required to be

filed under the Act or the rules on par with the conviction for an offence and entitles the refusal of the previous sanction sought. The provisions

contained in Section 4(3)(c) are said to be vague and not indicative of as to whether it has application to a company. The provisions in Section

6(1)(f) and Section 6(3) in so far as it has the effect of fixing a ceiling on the discount that it shall not exceed thirty per cent of the chit amount. It is

stated that fixation of such a ceiling would dissuade bona fide subscribers from joining the long term chits, Since the long term investor will only get

about 12 per cent return and it would not make the Chit Scheme attractive to the subscribers. So far as Section 7 is concerned, the same manner

of challenge that has been made against Section 4(3) has been made against this provision also.

(b) While dealing with Section 12, the prohibition to transact any business other than the chit business, is said to be violative of Arts. 14 and 19(1)

(g) of the Constitution of India and that there was no justification for the financing or hire purchase or incidental business being allowed to be

carried on provided the Articles of Association of the Company so permit and the restriction in this regard is not only unreasonable but runs

counter to the provisions of the Companies Act. Redundancy is also attributed to the said provision in so far as it provides for winding up such

business even though there is a provision in the Section itself for obtaining general or special permission to carry on other business too. So far as

Section 14 is concerned, it is contended that in the light of the provisions to ensure furnishing of sufficient security for each chit by the foreman, the

ceiling on aggregate amounts of the chit is contended to be unreasonable, wholly unnecessary and uncalled for. Section 16 is also challenged on the

ground that subscribers already knew the date, time and place of the draw and, therefore, the provision relating to notice every time is superfluous.

It is also contended that the stipulation to have not less than two subscribers for every draw at times is impossible of performance and the foreman

cannot compel any subscriber to be personally present at the time of draw. To the extent, the minutes of the proceedings of every draw is required

to furnish the particulars including the presence of the two subscribers. Section 17 is also challenged. Section 20(b) and (c) is also challenged. So

far as Section 21(1)(b) is concerned, it is contended that 5 per cent commission allowed is not economically viable and, therefore, the same is

arbitrary and unreasonable particularly for carrying out the duties and obligations enjoined u/s 22. Section 24 and Rule 28 made thereunder is said

to be arbitrary and unreasonable besides being discriminatory. The penalties contemplated u/s 76 is also said to be harsh and draconian.

(C) The learned counsel next directed his challenge against Section 30 and contended that the stipulations contained therein would result in

immobilisation of funds. The provision for arbitration for settling disputes is said to be not a reasonable one particularly since execution has been

provided for to be before only the Civil Court. In other respects, while adopting the submissions of the other learned counsel, it has been

contended by Mr. Chandramouli learned senior counsel, that many of the provisions ceased to be regulatory in their purport and effect and that

they go beyond the purpose and object sought to be achieved. The learned senior counsel also relied upon the decisions in Dr. N.B. Khare Vs.

The State of Delhi, , State of Madras Vs. V.G. Row, , M.C.V.S. Arunachala Nadar etc. Vs. The State of Madras and Others, , C.S.D. Swamy

Vs. The State, , and Superintendent (Tech. I) Central Excise, I.D.D. Jabalpur and Others Vs. Pratap Rai, .

Mr. A.L. Somayji, learned counsel for one of the petitioners, while reiterating the plea regarding the challenging to S. 4(3) also contends that

though S. 4 visualises a company being a foreman too, that on the face of S. 50(c) and S. 7(2)(b) those provisions could not be applied to a

company or a society. It is contended that the foreman''s conviction cannot be used as a ground to refuse sanction or registration to the company

or society when it applies and that there is absolutely no nexus whatsoever for these provisions with object sought to be achieved by the legislation.

The learned counsel also high-lighted the alleged conflict between S. 12(1) and S. 12(2) of the Act. The learned counsel also contended that there

are no guidelines or principles laid down for granting or refusing the permission contemplated and that the State Government has been conferred

with absolute and arbitrary powers. The further plea made is that there is no justification or necessity for S. 13 when the provisions of Section 20

provides for sufficient safeguards in the form of security in respect of each chit. The provision in Section 16(2) insisting upon the presence of at

least two subscribers at the time of each draw, as well as the alternative method stipulated under sub-section (3) is also challenged as being

unworkable and unnecessary. The consequential provisions in Section 17 also to that extent is stated to be bad. Section 21(1)(b) in so far as it

fixes a commission not exceeding 5 per cent is stated to be uneconomical and unviable, particularly having regard to the several duties and

obligations to be discharged and complied with. Section 21(2) in so far as it provides for a reference to Registrar for Arbitration u/s 64 in case of

disputes regarding the sufficiency of the security to be furnished by any prized subscriber for the due payment of future subscriptions, is said to be

unworkable and unreasonable since the satisfaction of the sufficiency or otherwise of the security should be that of the Foreman only. Challenge is

also directed against Rule 28(2) and the period of time limit stipulated therein as well as Section 24 under which the rule has been made. Section

39(2) and Section 48(1) are challenged on the ground of they being vague and also for allegedly conferring sweeping powers on the authorities.

Likewise, Rule 29(2) is said to be ultra vires the rule making power u/s 24 read with Section 31. The rate of interest provided for under Rule 63 is

stated to be unreasonable and arbitrary. While contending that column. No. X Violates Section 28 and 29, it is stated that Form Nos. 9 and 10

are said to be unworkable, too. The learned counsel vehemently contended that pursuant to the Interim orders dated 15-10-1984 in W.M.P. Nos.

10305 etc., of 1984 in W.P. Nos. 6611 etc., of 1984 passed by the learned Judge (S. Natarajan, J., as he then was) the system even under the

new Act was working well and the reasons assigned in the said order may be adopted as the submission of the petitioners in support of the plea in

the main writ petition. It may be stated at this stage that in the above matters, the learned Judge was pleased to stay the operation of Sections 4(3)

(b), 6(3), 7(2)(c), 12(2), 13, 16(2), 16(3), 21(1)(b), 21(2), 22(2), 48(c) and 76 and X(1) of Form No. VIII of the Appendix to the rules, pending

disposal of the writ petitions.

Mrs. Nalini Chidambaram, learned senior counsel, contended that the petitioners themselves are for the legislation in question and that if the

rigour of some of the provisions noticed by S. Natarajan, J., as the learned Judge then, was taken away they would have no objection for this

legislation since after the interim orders were granted, the scheme of the provisions was also working well. It is the further submission of the

petitioners that the fact that even in the absence of the provisions stayed by the learned Judge by means of interim orders the scheme was

otherwise working well without any complaints whatsoever from any quarters, it only proved that those provisions are superfluous and unnecessary

and that even without then the other provisions of the Act could survive and effectively serve and achieve the purpose and object of the legislation.

Mr. O.V. Balusami, learned counsel for the petitioners in W.P. Nos. 8454 and 8455 of 1984, was the only learned counsel who raised and

argued the question of the legislative competency of the Parliament to enact the law in question and that no other learned counsel has touched the

said issue. As a matter of fact, every other learned counsel specifically stated that they do not challenge the legislative competency of the

Parliament to enact the law in question. In support of the challenge made to the legislative competence, the learned counsel relied upon the ratio of

the decisions in The Mayavaram Financial Corporation Limited and Others Vs. The Reserve Bank of India and Others, , Angammal Vs. R.

Sankaranarayanan, and The Management of Marina Hotel Vs. The Workmen, . The submission is that the chit funds partakes the character or

money-lending or debt or loan and, therefore, it is pure and simpliciter a subject within the purview and competence of the State Legislature and

that, therefore, beyond the competence of the Parliament. The further submission of the learned counsel was that Sec. 20 in so far as it excluded

the provision of immovable property as security is arbitrary and unreasonable and the stand taken by the respondent in para 12 of the counter

affidavit that it is permissible to give such security runs counter to Section 20 itself. In challenging the provisions contained in Section 12 it has been

contended that Section 12 refers to only company and not to any other category of Foreman and consequently constitutes hostile discrimination

against only a company and, therefore, is violative of Art. 14 of the Constitution of India. The provisions of Section 5 of the Act in prohibiting

invitation for subscriptions unless the previous sanction required under S. 4 of the Act has been obtained is asking for an impossibility and seem to

or purport to run into a vicious circle, as to which should precede what?

Mr. V. Shanmugham learned counsel for the petitioners in some of the writ petitions, contends that the provisions in Section 16(1) for second

notice for every draw was superfluous and unnecessary apart from casting and imposing unnecessary and unreasonable additional burden invoking

avoidable expenditure. The requirement relating to the presence of two subscribers at the time of draw is stated to be unreasonable and

unenforceable. It is also contended that the agreement contains several clauses which are one sided and unilateral besides being discriminatory. The

provisions of Section 24 are also said to be unreasonable.

Mr. E. Padmanabhah, learned counsel for the petitioners in W.P. No. 1683 of 1985 contended that the stipulation in Section 8(3) is made

applicable only in respect of companies and such a stipulation deprives the Directors and shareholders of the Company, to that extent, their income

and percentage of profit and thereby violative Art. 19(1)(g) of the Constitution of India. The absence of guidelines and criteria or norms for the

grant of prior approval or refusing the same under S. 8(4) leads to unnecessary reservation of unlimited funds resulting in hostile discrimination,

violative of Art. 14 of the Constitution of India. It is also contended for the petitioners that Rules 28(1) and 31(1) and (2) are contrary to the

provisions of an existing law of the Parliament enshrined under the Companies Act, 1956. The provision for extension of time contemplated u/s 75

is said to be unreasonable and insufficient. So far as Ss. 76, 77 and 79 are concerned the learned counsel contended that the penalties provided

are too harsh and severe and expose the persons concerned to prosecution even in respect of trivial, routine and technical lapses or defaults and

irregularities. This, it is stated to be arbitrary and violative of Art, 14 of the Constitution of India.

Mr. Raju K. Lukose, learned counsel, as well as the other learned counsel appearing in the batch of cases adopted the submissions of the

other learned counsel referred to above, Mr. R. Subbiah, learned counsel appearing for the petitioner, in W.P. No. 8464 of 1985 contended that

the order impugned in the writ petition is contrary to law and liable to be set aside since though the relevant Rule viz., Rule 18(4)(ii) and (5)

provides for furnishing immovable security, the authority mechanically rejected the offer of immovable security and that there was no proper or due

application of mind whatsoever. Though in the affidavits filed in all these batch of cases all possible grounds have been raised, during the course of

argument only the points referred to supra, alone have been urged and pursued.

Mr. T. Srinivasamurthy, learned Central Government Standing Counsel, elaborately answered the various claims made for the petitioners by

referring to the relevant provisions of the Act and the Rules as well as by placing heavy reliance upon the decision of a Division Bench of the

Karnataka High Court in Sri Visalarn Chit Fund Ltd. and Another Vs. Union of India and Others, . The said decision was extensively referred to

and relied upon by the learned counsel for the respondent. It may be stated at this stage that the learned Judges of the Division Bench have taken

great pains so analyse the genesis of the legislation in question, the reports and the recommendation which may be stated to have sparked the

imminent need, the contents of relevant reports themselves as well as the various points raised before them and dealt with them at considerable

length and in many- respects I find the conclusions arrived at by the learned Judges agreeable to me. The learned counsel contended that the

provisions of Section 4 do not suffer any infirmity as alleged and that it obliges the authority to have regard to the various criteria mentioned in

passing orders either way and do not mandate a rejection only on such factors and that the State Government has also since amended Rule 4 and

added Rule 4A to alleviate the fear expressed. It is also contended that the absence of any time limit within which the order shall be passed, when

moved, does not undermine the validity of S. 4 itself and that at any rate the authorities would pass orders always within a reasonable time. The

learned counsel also contended that many of those provisions challenged were incorporated in order to prevent exploitation of innocent, meek and

needy members of the public and were found to be necessary and also essential on a careful consideration of and on the basis of reports obtained

from those expertise concerned and specialised in the field viz., Reserve Bank Authority and the Study Group and Committees constituted

therefor, and also after great deal of deliberation by the Select Committee of the Parliament. It is in this context heavy reliance was placed on the

decision of the Division Bench of the Karnataka High Court which referred to the contents of these various reports and the recommendations.

With reference to some of the provisions imposing certain duties and obligations on certain of Institution which organise chits, it is contended that

the object of the law is to impose such restriction or obligation in order to regulate chit business and not with any view to alter the other laws or

effect any change in those laws as such. It is also contended that both on the principle of ""pith and substance"" as also on grounds of relevance,

reasonableness and necessity such provisions are very well justified and the objections to the contrary are devoid of merit. The ceiling on the prize

amount in a draw or chit and also on the commission and remuneration of the Foreman as well as the prohibition to carry on any other business

except with the special permission of the competent Authority were all said to be essential and necessitated in the light of the malpractices and

anomalies in vogue in the method of conduct of chit business, as noticed by the specialist and study groups and that they are not only just and

reasonable but designed in public interest and in furtherance of a noble and public cause. The learned counsel would also contend that there is no

impediment at all in law, fof giving immovable property security and the grievance in this regard is wholly unjustified. So far as the legislative

competence of the Parliament is concerned. It is contended that having regard to the earlier decision of this Court in Srinivasa Enterprises v. Union

of India (1981) 51 Com Cas 464 (sic) and of the decision of the Apex Court in Srinivasa Enterprises, Represented by the Managing Partner,

Peddi Venkateswarlu and Others Vs. Union of India (UOI), Represented by Ministry of Law, Justice and Company Affairs and Others, , the issue

stood already concluded against the plea of the petitioners and that is why the same was not pursued by all the others except the petitioners in

W.P. Nos. 8454 and 8455 of 1984.

Mr. V. Raghupathi, learned Additional Government Pleader for the State Government, while reiterating the stand taken in the counter-affidavit,

contended that the provisions in the Act and the Rules complained of in these batch of writ petitions are just and reasonable to effectively achieve

the public purpose involved and are not either arbitrary or unreasonable or discriminatory as alleged. Mr. Krishnamurthy, learned Government

Pleader for Pondicherry contended that the challenge to the various provisions are not well merited and that the very legislation as well as some of

the provisions both in the Act and the Rules which are the subject matter of challenge have been specially devised in the best interests of the

subscriber public dictated by reason, prudence and wisdom of policy and in public interest and that the alleged violation of Articles 14 or 19(1)(g)

of the Constitution have no merit whatsoever. It is also stated for the State of Pondicherry that they have already notified all Registering Officers

discharging duties under the Indian Registration Act, 1908 to discharge the functions of Registrar and so far as the said state concerned, there is no

inconvenience in this regard. In other respects, the learned counsel adopted the submissions of the other learned counsel for the respondents.

Mr. K. Chandramouli, learned senior counsel, while reiterating the submissions made for the petitioners, submitted, in reply, that the object of

the writ petitioners is not to obstruct the introduction of the law itself but only to ensure a proper and reasonable modulation of the law to make it

reasonable, practical and really useful. It was also contended that the provisions complained of have the effect of overreaching the very object due

to excessive rigour and draconian severity and that they should be made to be reasonable in their implementation. The decisions in Abdul Hakim

Quraishi and Others Vs. The State of Bihar, , The State of Madras Vs. Murray and Co. and Others, , A. Giridharilal Vs. State of Tamil Nadu and

Others, were also relied upon to reinforce the claim for the petitioners, Mr. A. L. Somayaji, learned counsel submitted that the provisions of S. 8 in

so far as it picksup companies alone for such harsh and hostile treatment cannot be justified even if the object is to protect subscribers and relied

upon the decision in Rustom Cavasjee Cooper Vs. Union of India (UOI), in support of his claim.

I have carefully considered the various submittions of the learned counsel appearing on either side, in the light of the several judicial

pronouncements relied upon by them to fortify their submissions. Before proceeding to consider the submissions challenging several provisions of

the Act and the rules made, it would be appropriate to deal with the challenge made to the legislative competence of the Parliament to enact the

Act in question, raised by one of the learned counsel appearing for two of his petitioners. In my view, this question should be held to have been

concluded firmly and finally by the decisions of this Court as well as that of the Apex Court. In Mayavaram Financial Corporation Ltd. v. Reserve

Bank of India, (1971) 41 Com Cas 890 and in Chockanathan Chit Fund and Finance (P) Ltd., Pondicherry and Others Vs. Union Territory of

Pondicherry and Others, , the Division Bench of this Court consisting of Veeraswami, C.J., and Raghavan, J., while considering the constitutional

validity of the Madras Chit Funds Act, 1961 and the Pondi-cherry Chit Funds Act, 1966 held that the laws under consideration by them are those

relating to a special form of contract falling under Entry 7 of List 111 and not referable to or either falling under Entry 26 or 30 of List II of the VII

Schedule to the Constitution of India. The Apex Court, in its judgment in Srinivasa Enterprises, Represented by the Managing Partner, Peddi

Venkateswarlu and Others Vs. Union of India (UOI), Represented by Ministry of Law, Justice and Company Affairs and Others, has categorically

held that these are all special species of contracts and what is sought to be dealt with would squarely fall within Entry 7 of List III of the VII

Schedule to the Constitution of India and merely because some of the provisions in the Act may have some incidental impact on some other

subject in the State list does not disable the Parliament from enacting the law of the nature in question. The nature, substance, purport and effect as

well the objects of the legislation would indicate it to be a law within entry 7 of List III only. Consequently, I see no merit in the plea raised

questioning the legislative competence of the Parliament and the objection raised in this regard shall stand rejected.

The challenge made in respect of the several provisions of the Act and the rules made thereunder were broadly projected only vis-a-vis the

rights guaranteed under Arts. 14 and 19(1)(g) of the Constitution of India. Before adverting to the merits of challenge to the various provisions the

extent to which the provisions in an enactment may be challenged on the ground of alleged violation of Arts. 14 and 19(1)(g) of the Constitution of

India may be noticed at this stage. The object of Art. 14 is not confined to merely the doctrine of classification but has been held to be wider and

meant to ensure fairness and equality of treatment and if an action is arbitrary, it results in denial of equality and consequently Art. 14 of the

Constitution of India was held to strike at arbitrariness of State action in any form. When a law is challenged as offending against guarantee under

Art. 14 of the Constitution of India, the primary duty of the Court it to examine the purpose and policy of the Act and once held to be within the

legislative competence thereafter sec whether the provisions have a reasonable relation and nexus to the object sought to be achieved by the

legislature. The policy of law and the expediency of passing it are matters for the legislature to decide and Courts are concerned only with the

construction or interpreting the law enacted and adjudicating upon the constitutional validity of the law so made. A Jaw, though nol discriminatory

may yet offend the guarantee under An. 14 of the Constitution of India if the executive or some public authority is given an unguided or

uncontrolled discretionary power, though discretionary power is nol necessarily discriminatory or arbitrary or unreasonable. So far as Art. 19(1)(g)

is concerned, it could be seen that Art. 19(6) permits reasonable restrictions in the interests of the general public on the exercise of the rights

secured under Art. 19(1)(g). As observed by the Apex Court, it is a constitutional truism that restrictions or regulatory measures, in extreme cases

may be pushed to the point of prohibition, if any lesser strategy will not achieve the purpose. It has been held by the apex Court in Srinivasa

Enterprises, Represented by the Managing Partner, Peddi Venkateswarlu and Others Vs. Union of India (UOI), Represented by Ministry of Law,

Justice and Company Affairs and Others, itself that the twin requirements of Art. 19(6) are (i) the reasonableness of the restriction upon the

fundamental right to trade and (ii) the measure of reasonableness being the compelling need to promote the interest of the genera! public and in

matters of economics, sociology and other specialised subjects courts should not embark upon views halflit in fallibility and reject what economists

or social scientists, have after detailed studies commended as the correct course of action. Though the final word is with the Court in constilutional

matters Courts hesitate to ''rush in'' where even specialist ''fear to tread'' and if experts fall out court, perforce, must guide itself and pronounce

upon the matter from the constitutional angle since final verdict where constitutional contraventions are complained of belongs to the judicial aim.

So far as the case on hand is concerned, it cannot be disputed that public interest is not only involved and necessitated the enactment in question

with the various provisions and safeguards contained therein but is absolutely in it and the only question would be about the extent of severity of the

conditions to be imposed to protect the public interest concerned. The Raj Committee report and other materials referred to supra have had the

recognition of the Apex Court itself on more than one occasion and the recommendations contained therein squarely justified the need for those

regulations and restrictions on the basis of the past experience and the intensive and indepth study of the malpractices adopted in running the chit

business.

The various decisions relied upon for the petitioners only lay down certain general principles in the matter of testing the reasonableness of

aprovision of an order. On the other hand, the decision of the Supreme Court in Srinivasa Enterprises, Represented by the Managing Partner,

Peddi Venkateswarlu and Others Vs. Union of India (UOI), Represented by Ministry of Law, Justice and Company Affairs and Others, and the

principles laid down in the decision of the Division Rcnch of the Karnataka High Court in Sri Visalarn Chit Fund Ltd. and Another Vs. Union of

India and Others, have direct relevance and application to the case before me and the various issues involved for consideration in those cases and I

propose to consider the contentions raised on behalf of the petitioners in the light of the principles laid down therein. The legislation under

consideration before me is very peculiar one in that before the legislation in question was drafted as a Bill there had been detailed investigation for

the necessity of the legislation in the light of the existing malpractices and anomalies in the field of chit business and the absolute need for eliminating

them and protecting the subscribers and depositors public and, therefore, the same require to be considered in the light of such materials. As a

matter of fact, the Parliamentary Select Committee also has gone into these aspects at considerable length, clause by clause when the same was at

the stage of Bill.

So far as the challenge to S. 4 is concerned, the same is aimed at keeping a close vigil both on the credibility and the manner of functioning of

the business by the Foreman and the mere fact that S. 20 provides for furnishing security does not preclude the legislature to devise additional

securities or safeguards in the interests of the subscribers. The fact that in the State Act which was in force no such provision was available does

not mean that the safeguard provided in the form of S. 4 is superfluous or irrelevant, particularly when the need for the same was felt by the study

group which submitted its report on the subject and accepted by the Parliament as necessary. The prohibition introduced restraining

commencement or conduct of a chit transaction without prior permission and registration cannot be claimed to be unreasonable or arbitrary. Sub-

clause (3) of S. 4 is purely directory enjoining consideration of all such material referred to therein and need not be construed as a mandatory

provision to refuse permission or registration on such ground alone. Likewise, the challenge to Ss. 6 and 8 also do not merit acceptance since

those are specially designed to minimise the risks involved as far as possible, and protect the innocent subscriber public. The decision in Rustom

Cavasjee Cooper Vs. Union of India (UOI), relied upon particularly the passage in para 77 of the judgment has no application to the case on hand

since unlike in that case the necessary materials have been placed before this Court to justify the need or provision of S. 8 of the Act. The

prohibition contained in S. 12 has been specially designed on the specific recommendations, of the Raj Committee Report. Even the restriction on

the aggregate amount of chits in respect of an individual foreman was considered to be necessary only on the basis of the recommendations of the

above expert committee and as a matter of fact, the legislature adopted a liberal attitude in implementing the same. The alleged violation of Arts. 14

and 19(1)(g) of the Constitution, therefore, does not survive or merit acceptance. The provisions in Ss. 15 to 19 were not shown to be in any

manner arbitrary or unreasonable. S. 19 as well as S. 20 of the Act have also been designed on the recommendation of the Study Group and that

no exception could be taken to the same or the justification for those provisions having regard to the definite object and aim of the legislation. As a

matter of fact, the validity of a provision providing for such requirement as now contained in S. 20 was upheld, while considering the challenge to

the Pondicherry Chit Funds Act, 1966, by a Division Bench of this Court in Chockanathan Chit Fund and Finance (P) Ltd., Pondicherry and

Others Vs. Union Territory of Pondicherry and Others, . So far as the absence of any provision for payment of interest on the security deposit in

cash made by the Foreman it could safely be held that Foreman concerned shall be held entitled to the interest earned by the deposit in cash made

by the Foreman under S. 20(1) read with S. 4 in the name of the Registrar, and the interest shall be at the rates offered by the Scheduled Banks

and shall be payable to the foreman at the time of termination of the Chit or annually or on substitution of security whichever is earlier.

So far as the rights and duties of foreman as stipulated in Ss. 21 and 22, the imposition of ceiling of the percentage of commission and the

provisions for notice as contemplated under S. 22(3) are concerned, they have been so devised and provided for on the basis of the

recommendations contained in the reports of Expert Committees which studied about the prevailing serious evils and malpractices and suggested

measures to eliminate them. The challenge to the provisions contained in S. 24 and the Rules made thereunder by making a comparison with the

provisions in the Companies Act, 1956 also does not commend for my acceptance. Those provisions provided only for the purpose of this Act

cannot be said to be purposeless or said to interfere with the rights of the petitioners as such in any manner and particularly the provisions in the

Companies Act for the purposes of that Act. The vagueness alleged in respect of S. 39(2) as well as S. 48(e) is again purely an imaginary

grievance only and on this ground alone, the legislative provision cannot be struck down. The provisions in S. 30 are regulatory in nature and

considered to be necessary in order to further the objects of the Act to protect the interests of the subscriber public and I see no invalidity in the

same. The challenge to the provisions of the Act providing for arbitration as well as the provisions for creation of offences and penalties cannot be

sustained since they are matters of policy and the expediency of providing for them in the enactment under consideration cannot be the subject

matter of review in these writ petitions before this Court. The challenge to Rule 63 regarding payment of 12% interest by a defaulting subscriber at

12% for purposes of S. 28(1) of the Act cannot be said to be unreasonable in the context of the very plea for the petitioners that the ceiling on

prize amount up to a maximum of 30% of the chit amount works out only to a 12% return on the amounts remitted by the subscriber. The

challenge to some of the clauses in the agreement prescribed under the rules also does not merit acceptance since it is not for this Court to review

those provisions as if reviewing a judicial or quasi-judicial order.

There was a general submission uniformly made by all counsel that this Court granted certain interim orders and the position in vogue in the

matter of implementation of the provisions of the Act in the light of and subject to such interim orders was encouraging and the same may be

considered as requirements sufficient in law while considering the validity of the provisions vis-a-vis Arts. 14 and 19(1)(g) of the Constitution of

India. The interim orders have been granted, as could be seen from the order itself, mainly on account of the position of law emanating from the

Tamil Nadu Chit Funds Act and the Rules made thereunder in force, preceding the coming into force of the Central Act and as an interim

arrangement, pending final adjudication on the plea of unconstitutionally raised in respect of certain provisions of law in the writ petitions which

were admitted and entertained for further consideration, While considering the constitutional validity of a provision in an enactment or a rule made

thereunder, it would be inappropriate and to my mind impermissible to make a comparison with an other law, though made on the subject, by a

different legislature and decide about its reasonableness or otherwise under Art. 14 and 19(1)(g). The provisions introduced by the Parliament in

the Act in question was meant to be an improvement in the law prevailing in some States also to meet the exigencies of the situation and the serious

problems and anomalies found to be rampant in the chit business, based on the experiences noticed in the working of the several chit companies in

the country and the reports and recommendations of the Expert bodies which have gone into the matter on more than one occasion as well as the

views of the State Governments themselves who were consulted before the passing of the Act. The restrictions and prohibitions and regulatory

measures, introduced by the Central Act and the Rules made thereunder, in my view, have been carefully designed on the basis of actual

experiences gained on the working of these chit organisations and with the only hope and aim of protection of the subscriber public who were

invariably the target of exploitation in the hands of those manning the chit organisations. The materials made available in the form of the various

reports of Expert bodies, Select Committee report and the consultation had with the State Governments as well as some of the chit organisations

and Institutions themselves, in my view, ensured fairness in approach and the reasonableness as well as the relevance and necessity for the

impugned provisions in order to strike a proper balance between the need for greater protection of the subscriber public and the right to carry on

the business. It should also be kept in view that the report of the Expert Committee, as a matter of fact, did not favour the continuance of the chit

funds business in any form having regard to the irregularities found to be rampant in the business but since the legislature as well as the Expert

bodies thought that the available Banking facilities are insufficient to cope up with the demands of the class of people in the particular strata of

society, it was resolved to permit the conventional chit business to go on subject to certain strict and stringent regulations and restrictions with the

object of curbing abuse and misuse of the position by the foreman and those in charge of running the chits.

The mere fact that the effect of the provisions under challenge is to make the chit business less lucrative to those who organise and carry on

them or that some problems to be faced in adhering to the expectations of the law in day to day practice are by themselves no basis or could be

heid to be valid grounds to countenance of plea of unreasonableness of those provisions or to strike down such provisions as being opposed to

Arts. 14 and 19(1)(g) of the Constitution of India, ignoring the vital fact the Parliament after great deliberations, about the alarming situation thought

fit and necessary to pass the legistation in its present shape and form after careful analysis and examination of the recommendations and the views

of the persons and authorities who were concerned with, involved in and affected by the chit business. Inconveniences, if any, cannot be raised to

the status of infirmities or illegalities of the nature which go to invalidate the law itself. As observed in Srinivasa Enterprises, Represented by the

Managing Partner, Peddi Venkateswarlu and Others Vs. Union of India (UOI), Represented by Ministry of Law, Justice and Company Affairs

and Others, by the Apex Court, Judicial validation of a social legislation only keeps the path clear for enforcement and spraying of legislative socio-

moral pesticides alone cannot serve any purpose unless the target area is relentlessly hit. The impugned legislation and the provisions sought to be

challenged by the petitioners were only aimed at eradicating the evils in the running of the chit business and considered necessary in achieving the

object mainly of safeguarding the subscriber public and eliminate by stringent measures envisaged the malpractices and avert exploitation of the

innocent subscribers by those who run the chit business and that too based upon the recommendations of the Expert Committees which had made

an all round and exhaustive in-depth study of the problems afflicting this area of the fiscal economy of the State. Consequently, I am of the view

that there is absolutely no merit in the challenge made for the petitioners and the provisions contained in Ss. 4(3), 6(1)(g) and (2) & (3), 7(2)(c), 8,

12, 13, 15, 16(2) and (3), 17(2), 18(4) and (5), 20(1), 21, 22(2), 24, 30, 39(2), 76, 77, 79 of the Act, Rules 28, 31 and 63 and the agreement in

form VIII prescribed under the Rules are constitutionally valid and are not violative of Arts. 14 and 19(1)(g) of the Constitution of India. No

specific and separate challenge has been made to any of the rules in the Chit Funds (Pondicherry) Rules, 1986.

Before parting with this matter, it is necessary and appropriate to refer to some aspects of the grievances expressed by the petitioners which in

my view merits serious consideration and deserve proper response and taking of sufficient steps to avoid hardship and inconvenience in the mailer

of enforcement of the provisions. In my view many of these problems could be solved even at the instance of the rule making authorities and the

authorities entrusted with the enforcement of the provisions of the Act. To highlight some of such problems are :

(i) The delegation of powers under Ss. 4 and 7 of the Act to the Authorities in such a manner that least inconvenience is caused in securing orders

or complying with the requirements of those provisions expeditiously and within a time bound schedule, if necessary;

(ii) To specifically provide for interest on the cash deposit of security in the name of the Registrar at rates normally allowed by the Scheduled or

Nationalised Banks and their payment periodically to the foreman; and

(iii) Rules laying down the guidelines or criteria for granting the special permission under S. 12 relating to the conduct of other business and the

conditions subject to which the same will be granted, and on any other or further genuine working difficulties which requires to be attended to in the

opinion of the State Government, in the course of implementation of the provisions of the Act and the Rules made thereunder.

The respondents may do well to consider these aspects and take appropriate action in this regard expcditiously.

So far as Writ Petition No. 8464 of 1985 is concerned, the order challenged therein is liable to be set aside since the same is not only opposed

to Rule 18(4) which provides for furnishing immovable property security but also betrays total non-application of mind. In the light of the specific

provisions in the statutory rules themselves the authorities are obliged to accept immovable property security also, of course after assessing the

value as is expected of them and subject to the acceptability of the particular property. W.P. No. 8464 of 1985 is allowed, and the respondents

are directed to consider the matter afresh in the light of Rule 18(4) of the Rules. All other writ petitions shall stand rejected. But, in the

circumstances, there will be no order as to costs.

ANNEXURE.

(a) Writ petitions in which the Chit Funds Act, 1982 and the Tamil Nadu Chit Funds Rules, 1984 have been challenged :--

W.P. No. 6611 of 1984; 2. W.P. No. 6612 of 1984; 3. W.P. No. 6867 of 1984; 4. W.P. No. 6903 of 1984; 5. W.P. No. 7493 of 1984; 6.

W.P. No. 12460 of 1984; 7. W. P. No. 12461 of 1984; 8. W. P. No. 12462 of 1984; 9. W.P. No. 12463 of 1984; 10. W.P. No. 7207 of

1984; 11. W.P. No. 13042 of 1989; 12. W. P. No. 8454 of 1984; 13. W.P. No. 8455 of 1984.

(b) Sections 8(3), 76, 77 and 79 and Rules 28(1), 31(1) and (2) of the Tamil Nadu Chit Funds Rules made u/s 24 of the Act.

W. P. No. 1683 of 1985; 2. W.P. No. 4158 of 1985; 3. W.P. No. 4245 of 1985; 4. W.P. No. 1735 of 1986.

(c) Sections 76, 77 and 79 and Rules 28 (1), 31(1) and 31(2) made u/s 24 of the Act.

W.P. No. 5867 of 1985; 2. W.P. No. 5868 of 1985; 3. W.P. No. 5869 of 1985; 4. W.P. No. 5870 of 1985; 5. W.P. No. 5768 of 1985; 6.

W.P. No. 5769 of 1985; 7. W.P. No. 5770 of 1985; 8. W.P. No. 5771 of 1985; 9. W.P. No. 6215 of 1985; 10. W.P. No. 6216 of 1985; 11.

W.P. No. 6217 of 1985; 12. W.P. No. 6218 of 1985; 13. W.P. No. 6219 of 1985; 14. W.P. No. 6360 of 1985; 15. W.P. No. 6417 of 1985;

W.P. No. 6418 of 1985; 17. W.P. No. 6419 of 1985; 18. W.P. No. 6420 of 1985; 19. W.P. No. 6430 of 1985; 20. W.P. No. 6431 of

1985; 21. W.P. No. 6432 of 1985; 22. W.P. No. 6433 of 1985; 23. W.P. No. 6565 of 1985; 24. W.P. No. 6567 of 1985; 25. W.P. No. 6568

of 1985; 26. W.P. No. 6569 of 1985; 27. W.P. No. 6570 of 1985; 28. W.P. No. 6572 of 1985; 29. W.P. No. 6612of 1985; 30. W.P. No.

6613 of 1985; 31. W.P. No. 6614 of 1985; 32. W.P. No. 6667 of 1985; 33. W.P. No. 6791 of 1985; 34. W.P. No. 7020 of 1985; 35. W.P.

No. 7021 of 1985; 36. W.P. No. 7096 of 1985; 37. W.P. No. 7300 of 1985; 38. W.P. No. 7236 of 1985; 39. W.P. No. 121 of 1986; 40.

W.P. No. 2562 of 1986; 41. W.P. No. 2563 of 1986; 42. W.P. No. 2564 of 1986; 43. W.P. No. 2565 of 1986; 44. W.P. No. 2566 of 1986;

W.P. No. 2567 of 1986; 46. W.P. No. 2568 of 1986; 47. W.P. No. 3549 of 1986; 48. W.P. No. 3860 of 1986; 49. W.P. No. 5572of

1986; 50. W.P. No. 4029 of 1986; 51. W.P. No. 5765 of 1986; 52. W. P. No. 6128 of 1986; 53. W.P. No. 13414 of 1986; 54. W.P. No.

173 of 1987; 55. W.P. No. 2185 of 1987; 56. W. P. No. 6518 of 1987; 57. W.P. No. 9024 of 1987; 58. W.P. No. 9025 of 1987; 59. W.P.

No. 9026 of 1987; 60. W. P. No. 9027 of 1987; 61. W.P. No. 11706 of 1987; 62. W.P. No. 8030 of 1986.

(d) Writ Petitions challenging the provisions contained in Articles, 1, 6, 7, 8, 10(g), 13, 14, 15 and 16 of Appendix II of the Tamil Nadu Chit

Funds Rules, 1984.

W.P. No. 7453 of 1985; 2. W. P. No. 1889 of 1985; 3. W.P. No. 12871 of 1987 -- Rules 28(1), 28(2) and 31 are also challenged.

(e) Writ Petition in which Sections 15, 16, 76(2)(b) and 77 of the Act are being challenged;

W.P. No. 4361 of 1987; 2. W.P. No. 7819 of 1987; 3. W.P. No. 13885 of 1989 -- Rule 13 also; 4. W.P. No. 6499 of 1987 --Section 9(1)

also.

(f) Writ Petitions in which Sections 6(2) and 6(3) of the Act alone are challenged :

W.P. No. 2365 of 1988; 2. W.P. No. 337 of 1991 (Section 6(3) only).

(g) Writ Petition in which Section 13(2) of the Act alone is being challenged :

W.P. No. 4754 of 1988.

(h) Writ Petition in which Section 20(1)(b) of the Act alone is being challenged :

W.P. No. 6938 of 1991.

(i) Writ petition in which Sections 6(2), 76 and 77 of the Act and rule 13 of the Rules are challenged :

W.P. No. 9871 of 1990;

(j)Writ Petition in which Sections 6(2), 14(2), 20(1)(b), 22(2), 24 and Sees. 76, 77, 79 of the Act with reference to Sections 6, 14, 20, 22 and

24 Rules 13 read with Form VIII Rules28 (1), 31(1), 31(2) are being challenged :

W.P. No. 6838 of 1985.

(k) Writ Petitions in which Sections 6(1), 6(2), 8(3), 14(2), 20(1)(b), 22(2), 76, 77 and 79 of the Act and Rale 13 of the Rules read with Form

VIII are being challenged :

W.P. No.5122 of 1986; 2. W.P. No. 8467 of 1986; 3. W.P. No. 16082 of 1988; 4. W.P. No. 11118 of 1989; 5. W.P. No. 7676 of 1991.

(l) Writ Petition No. in which Sections 6(2), 7(2), 20(1)(b), 22(2), 24, 76, 77 and 79 of the Act and Rule 13 of the Rules read with Form VIII

Rules 28(1) and 31(2) are being challenged :

W.P. No. 2658 of 1986.

(m) Writ Petition No. in which Sections 6(2), 9(1), 14(2), 20(1)(b), 22(2), 24, 76, 77 and 79 of the Act are being challenged :

W.P. No. 754 of 1987.

(n) Writ Petition No. in which Sections 4(3)(b), 6(3), 7(2)(c), 12(2), 13, 16(2), 16(3), 21(1)(b), 21(2), 22(2), 48(c), 76, 77 and 79 of the Act

and Rules 28(1)(2) and 31 and Articles 1, 6, 7, 8, 10(g), 13, 14, 15 and 46 of the Rules are being challenged :

W.P. No. 6324 of 1987.

(o) Writ Petition No. in which Sections 4(3)(b), 6(2), 6(3), 7(2)(c), 9(1), 12(2), 13, 14(2), 15, 16, 16(2), 16(3), 17(2), 21(2), 22(2), 24, 48(c),

76, 77 and 79 of the Act are being challenged :

W.P. No. 7266 of 1989.

Order accordingly.