The Writ vs Unknown
2023 Latest Caselaw 3522 AP

            HIGH COURT OF ANDHRA PRADESH :: AMARAVATI

  MAIN CASE: WRIT PETITION No.16766, 16767 & 16768 of 2023
                                PROCEEDING SHEET


Sl.                                                                                         OFFICE
      DATE                                    ORDER                                         NOTE.
No
4. 18.07.2023
                NJS,J
                                        Common Order in
                             I.A.Nos.1 & 2 of 2023 in W.P.No.16766,
                             I.A.Nos.1 & 2 of 2023 in W.P.No.16767
                                                &
                         I.A.Nos.1 & 2 of 2023 in W.P.No.16768 of 2023

                         The    writ   petitioners,       subscribers     of   the    4th
                respondent-company         filed    the     present     writ   petitions

aggrieved by the orders dated 20.06.2023 passed by the Deputy Registrars of Chits arrayed as 3rd respondent.

Heard Ms.Meenakshi Arora, learned Senior Counsel appearing for the petitioners in W.P.No.16768 of 2023 and 16766 of 2023 and Mr.Posani Venkateswarlu, learned Senior Counsel appearing for the petitioners in W.P.No.16767 of 2023. Also heard learned Advocate General representing the respondents 1 to 3 in all the writ petitions.

Ms.Meenakshi Arora, learned Senior Counsel advanced arguments inter alia stating that in view of the series of actions initiated by the 1st respondent, the 4th respondent-company filed W.P.Nos.7626, 7629, 10925 and 13199 of 2023 in the High Court for the State of Telangana and interim orders were granted in the said writ petitions. She submits that in one of the writ petition filed by the 4th

respondent in W.P.No.40880 of 2022, a learned Judge of this Court while taking note of the 4th respondent- company's bank reserves and total prize money payable and observing that there are no complaints by the subscribers with regard to payment of prized money or any irregularity, passed interim orders on 26.12.2022. She submits that while these writ petitions are pending, the present impugned orders have been passed as a part of tirade or vindictive action against the 4th respondent- company and one of the coercive measures adopted by the 1st respondent.

Be that as it may. She submits that as a result of the ongoing tussle between the 1st respondent and the 4th respondent-company, the interest of the petitioners/subscribers is substantially affected. She submits the petitioners who are members in various chit groups are seriously prejudiced as the same were ordered to be wound up by virtue of the impugned orders. The learned counsel submits that no complaint was raised by any of the petitioners against the 4th respondent and in such circumstances, the impugned orders which are stated to be in the interest of the subscribers/petitioners, without issuing any notice or affording any opportunity to them is not sustainable. She submits that the petitioners invested their money in chits keeping in view their financial commitments/requirements and as a result of winding up orders, their future plans are adversely affected. She submits that the chit period in respect of some of the

groups was not completed and the prized subscribers would not be in a position to take the chit amount to meet their immediate requirements and some of them would also be deprived of getting dividends.

She also raised several legal contentions with regard to invocation of powers under Section 48(h) of the Chit Funds Act, 1982 (for short 'the Act').

Referring to Section 59 of the Act which provides for an appeal against the proceedings of winding up of a chit, the learned counsel submits that against the background of ongoing tussle between the 1st respondent and the 4th respondent, the petitioners cannot expect any just adjudication by the appellate authority and places reliance on the judgment of the Hon'ble Supreme Court in Ram and Shyam Company v. State of Haryana & Others(reported in (1985) 3 SCC 267). The learned counsel submits that the continuation of chit group is in the interest of the petitioners and that the impugned orders passed without any complaint of the subscribers and affording opportunity to the petitioners deserves to be suspended as prayed for.

Mr.Posani Venkateswarlu, learned Senior Counsel while supporting the said arguments, made his submissions to the effect that the chit period of some of the groups in Tanuku and other branch were already over and at this juncture passing of winding up orders without affording opportunity to the petitioners which have serious civil consequences are not sustainable in Law. He places

reliance on the judgment of Hon'ble Supreme Court in State Bank of India and Others v. Rajesh Agarwal and Others reported in (2023) 6 SCC 1.

The learned Advocate General, on the other hand, while refuting the various contentions advanced on behalf of the petitioners made his elaborate submissions. While distinguishing the judgment of Ram and Shyam Company(referred to above), he submits that the said judgment is not applicable to the fact situation. He advanced arguments to the effect that the very basis of the writ petition with reference to the so called clarifications/information furnished by the 4th respondent- company on the enquiries made by the petitioners raises a doubt as to filing of the writ petition at the behest of the 4 th respondent, which committed serious irregularities while conducting chit transactions. It is his contention that there are serious infractions of the provisions of the Act and the impugned orders are passed in the larger interest of subscribers.

The learned Advocate General contends that in the light of interim orders dated 26.12.2022, notices were issued to the 4th respondent-company on 10.03.2023 and on subsequent dates and after due enquiry, the orders of winding up have been passed. Referring to the various findings/observations of the 3rd respondent and the relevant provisions of the Act, the learned Advocate General submits that the 4th respondent-company is having huge reserves to meet its liabilities is not an answer to the

infractions of the provisions of the Act. He emphasizes that if there is a failure on the part of the 4th respondent to comply with the requirements under the Act, the consequences will follow. The learned Advocate General while impressing upon this Court that there is non-deposit of amount in the bank accounts and retention of the same by the 4th respondent-company etc., and in such circumstances, the conclusions of the 3rd respondent about fraudulent diversion of amounts to the other groups is well founded.

Insofar as the contention regarding non-issuance of notice before passing of the winding up order and consequential prejudice to the petitioners, the learned Advocate General contends that the Legislature in its wisdom has not contemplated issuance of any notice before passing of an order of winding up and it is a conscious omission. He submits that the 3rd respondent exercised his suo motu power in the instance case, therefore no notice need be issued to the subscribers. According to him, notice is also not contemplated to the chit fund company. He submits that even otherwise, a substantial safeguard is provided under Section 59 of the Act by way of an appeal to the petitioners/subscribers. He also submits that by providing an opportunity to the petitioners by issuing notice, they would not in any way be able to provide any answer with regard to infractions by the company nor would influence the decision of the 3rd respondent.

The learned Advocate General with reference to the contention regarding utilization of chit amounts to meet the immediate requirements and holding up of the same in view of the impugned orders, submits that pursuant to the said orders, appointment of receivers is in process and orders in that regard would be issued at any time. He, however, fairly states that no such orders have been issued so far and the directions in the interest of subscribers as may be appropriate on appointment of such receivers may be issued.

The learned Advocate General while contending that the orders under challenge have been passed in the regulatory regime in terms of the Act, in the interest of subscribers at large including the petitioners submits that the interim prayer for suspension would be more prejudicial to the interest of the petitioners, as the 4th respondent- company would continue its irregularities as noted in the impugned order. While stating that it is not a case for granting interim relief in such circumstances, he seeks to reject the same. The learned Advocate General also places reliance on the decisions of the Hon'ble Supreme Court in Escorts Farms Ltd., v. Commissioner, Kumaon Division(reported in (2004) 4 SCC 281) and Dharampal Satyapal Limited v. Deputy Commissioner of Central Excise, Gauhati and Others (reported in (2015) 8 SCC

519).

This Court has considered the submissions made and perused the material on record.

At the outset it is pertinent to mention that these cases raises important issues with regard to exercise of powers by authorities under the Act, vis-à-vis the rights and interest of the subscribers, that too in the absence of any complaint by the stakeholders/subscribers and exercise of suo motu powers and passing of orders under Section 48(h) of the Act, in the attending facts and circumstances of the case.

Though the learned Senior Counsel while attacking the impugned orders on various legal grounds sought to contend that in view ongoing tussle between the 1st respondent and the 4th respondent, as a coercive measure, the impugned orders are passed, that is a matter for adjudication after filing of counter-affidavits by the concerned respondents. Suffice to state that the writ petitions filed by the 4th respondent-company and the interim orders passed therein are matter of record and whether they have any relevancy to the present case can be looked into as and when required. Be that as it may.

On a consideration of rival submissions and pending adjudication of the various contentious issues, this Court is required to examine as to whether the petitioners are entitled to the interim relief as prayed for?

It is the foremost contention of the learned Senior Counsel for the petitioners that the order to wind up the chit groups in which the petitioners are members without issuing notice to them is not sustainable, more particularly, when it causes prejudice to them as mentioned earlier.

While it is the contention of the learned Advocate General that statute does not contemplate issuance of any notice that too where the order was passed in exercise of suo motu power.

Testing the arguments of both sides with reference to the orders under challenge, it is to be noted that the concerned Deputy Registrars passed the orders of winding up of the chit groups in question incidentally on the same day i.e., 20.06.2023 in the interest of subscribers while referring to the alleged irregularities/infractions.

At this juncture, it may be appropriate to refer to Section 49 of the Act, which provides for application for winding up, whereas Section 48 of the Act deals with the circumstances under which chits may be wound up. Sections 48 and 49 of the Act reads as follows:

"Section 48. Circumstances under which chits may be wound up:- A chit may be wound up by the Registrar within whose territorial jurisdiction the chit has been registered, either on his own motion or on an application made by any non-prized or unpaid prized subscriber,--

(a) if the chit has terminated under clause (c) of section 40; or

(b) if the foreman commits any such act in respect of the security specified in section 20 as is calculated to impair materially the nature of the security or the value thereof; or

(c) if he fails to deposit any amount required to be deposited under any of the provisions of this Act; or

(d) if it is proved to the satisfaction of the Registrar that the foreman is unable to pay the amounts due to the subscribers; or

(e) if the execution or other process issued on an order passed by the Registrar in favour of any subscriber in respect of amounts due to him from the foreman in relation to the chit business is returned unsatisfied in whole or in part; or

(f) if it is proved that there has been a fraud or collusion on the part of the foreman in the matter of taking securities from any prized subscriber; or

(g) if the foreman has appropriated the 1[net chit amount] in his capacity as a subscriber without furnishing sufficient security for future subscriptions; or

(h) if the Registrar is satisfied that the affairs of the chit are being conducted in a manner prejudicial to the interests of the subscribers; or

(i) if it is just and equitable that the chit should be wound up.

Section 49. Application for winding up:- An application for the winding up of a chit shall be made by a petition presented by any non- prized or unpaid prized subscriber to the Registrar signed and verified in the manner laid down by the Code of Civil Procedure, 1908 (5 of 1908), and shall contain such particulars as may be prescribed:

Provided that no application for the winding up of a chit under clause (d) or clause (i) of section 48 shall lie unless such application is presented,-

(a) by non-prized and unpaid prized subscribers representing not less than twenty-five per cent of the amount or, as the case may be, the value of the grain subscribed by all the non-prized and unpaid prized subscribers, if any; or

(b) with the previous sanction of the State Government within whose jurisdiction the chit is commenced or conducted.

It may be noted, the statute provides for Right to appeal under Section 59 of the Act which reads as follows:

59. Right to appeal:- The foreman or any subscriber or any other person aggrieved by a decision or order of the Registrar in any proceedings for the winding up of a chit may, within sixty days from the date of such decision or order, appeal to the State Government.

Though, it is the contention of the learned Advocate General that the Legislature has consciously not provided for issuance of any notice before passing of winding up orders, this Court with due respect, is not in agreement with the such submission, as the same has to be read into. The provisions of the Act are intended inter alia for the benefit and interest of the chit subscribers and when some action is being taken prejudicial to their interest viz., winding up of chit group in which they are members, this

Court prima facie is of the view that they should be afforded an opportunity. The above view of this Court gains support from the admitted position with regard to the provision of appeal referred to supra. The provision of appeal in the considered view of this Court is not empty formality. In the absence of the primary authority affording an opportunity to put forth the stand of the subscribers who are the stake holders, before passing of order of winding up by referring to the same and recording reasons/conclusions thereon, the subscribers who seek to avail the remedy of appeal cannot effectively pursue the same. By not affording an opportunity, the orders under challenge perhaps fails to satisfy the laudable object of protecting interest of subscribers. Filing of appeal in the above circumstances or in the light of the legal tussle leading to filing of writ petitions referred to supra in the prima facie opinion of this Court cannot be an effective remedy or solace to the petitioners or at any rate operate as a bar. Therefore, the contentions advanced by the learned Advocate General are rejected.

So far as the contention that granting of interim relief would be prejudicial to the interest of subscribers as the company would continue its transactions in violation of the provisions of the Act, the matter requires examination on filing of the counter-affidavits and as to whether the alleged violations/infractions are curable or serious so as to warrant winding up of chit groups. In the event of complaints which may lead to a situation like SAHARA or

AGRI GOLD, as sought to be impressed upon by the learned Advocate General, the authorities under the Act can initiate appropriate action. In the present case, no such complaints of defaults in payment of prized money/chit amount to the detriment of the subscribers/petitioners are present. Therefore, the justification of passing an order to wind up chit groups in which the petitioners are subscribers needs to be examined in a broader perspective.

Though another contention was advanced to the effect that by affording an opportunity to the petitioners/subscribers, they would not be in a position to change the decision of the 3rd respondent with regard to the alleged irregularities, the same, in the prima facie view of this Court, in the absence of affording any opportunity at the time of ordering winding up of chit groups, merits no appreciation at this stage.

Insofar as the judgments relied on by the learned counsel on both sides, there is no dispute about the ratio laid down therein. It is also settled law that an order which entails serious civil consequences, in the absence of providing an opportunity to the effected party is not sustainable.

This Court on appreciation of rival contentions and the statutory provisions, is of the prima facie opinion that the impugned orders are violative of principles of natural justice and not tenable.

Further, considering the submissions regarding the financial commitments and prejudice to the petitioners as a

result of holding up of their amounts invested in the chit groups ordered to be wound up, this Court is of the considered view that the balance of convenience in favour of the petitioners.

In the aforementioned view of the matter, there shall be interim suspension of the impugned orders passed by the 3rd respondent in the respective writ petitions and stay of all further proceedings as prayed for.

_______ NJS,J W.P.Nos. 16766, 16767 & 16768 of 2023

Rule Nisi. Call for records.

Issue notice to respondent No.4, returnable in three (3) weeks.

Learned counter for the petitioners are permitted to take out personal notice to respondent No.4 by RPAD and file proof of service by the next date of adjournment.

List these cases after four (4) weeks for filing counters of the concerned respondents.

_______ NJS,J BLV