Kerala High Court
Ernakulam District Chitty ... vs The Union Of India on 12 January, 2023
W.P.(C) No. 10712 & 10823 of 2013
:1:
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR. JUSTICE SHAJI P.CHALY
THURSDAY, THE 12TH DAY OF JANUARY 2023 / 22ND POUSHA, 1944
WP(C) NO. 10712 OF 2013
PETITIONER/S:
1 ERNAKULAM DISTRICT CHITTY FORMANS ASSOCIATION
KALOOR TOWERS, KALOOR, COCHIN - 17, REPRESENTED BY ITS
PRESIDENT, R.VISWAMBHARAN NAIR.
2 NAIPUNYA CHITS PRIVATE LIMITED AMBUJA ARCADE CANAL ROAD,
NORTH PARAVUR, REPRESENTED BY ITS
CHAIRMAN,R.VISWAMBHARAN NAIR.
BY ADV SRI.K.S.BHARATHAN
RESPONDENT/S:
1 THE UNION OF INDIA
REPRESENTED BY THE SECRETARY, MINISTRY OF FINANCE,NEW
DELHI - 110 001.
2 THE STATE OF KERALA, REPRESENTED BY THE SECRETARY, TAXES
(H) DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM 695 001
3 THE REGISTRAR OF CHITS, OFFICE OF THE INSPECTOR GENERAL
OF REGISTRATION, THIRUVANANTHAPURAM - 695 005.
4 THE DISTRICT REGISTRAR OF CHITS (ERNAKULAM)
OFFICE OF THE DISTRICT REGISTRAR (GENERAL),ERNAKULAM,
PIN - 682 016.
5 THE RESERVE BANK OF INDIA,
WORLD TRADE CENTRE COMPLEX, CUFFE PARADE,
COLOBA, MUMBAI - 400 005.
6 THE KERALA STATE FINANCIAL ENTERPRISES,
'BHADRATHA', MUSEUM ROAD, THRISSUR - 680 020,
REPRESENTED BY ITS MANAGING DIRECTOR.
BY ADVS.
MANU S., DSG OF INDIA
R2 TO R4 BY SRI. JOBY JOSEPH, SR. GOVERNMENT PLEADER
SRI.P.BENNY THOMAS
SRI.M.GOPIKRISHNAN NAMBIAR
SRI.K.JOHN MATHAI
R6 BY SRI. E.K. NANDAKUMAR (SR.)
SRI. JAIMON
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON
12.01.2023, ALONG WITH WP(C).10823/2013, THE COURT ON THE SAME
DAY DELIVERED THE FOLLOWING:
W.P.(C) No. 10712 & 10823 of 2013
:2:
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR. JUSTICE SHAJI P.CHALY
THURSDAY, THE 12TH DAY OF JANUARY 2023 / 22ND POUSHA, 1944
WP(C) NO. 10823 OF 2013
PETITIONER/S:
1 ALL KERALA ASSOCIATION OF CHIT FUNDS
(STATE UNIT OF THE ALL INDIA ASSOCIATION OF CHIT FUNDS,
NEW DELHI) HAVING ITS OFFICE AT ROOM NO. 1, 2ND FLOOR,
KALOOR TOWER, KALOOR, COCHIN, REPRESENTED BY ITS
PRESENT GENERAL SECRETARY K.P. GEE VARGHESE BABU.
2 ST. GEORGE CHITTIES
(KARAKKATT) PRIVATE LIMITED, KANINADU, PUTHENCRUZ,
ERNAKULAM DISTRICT, PIN - 682 310, REPRESENTED BY ITS
MANAGING DIRECTOR, K.P. GEEVARGHESE BABU.
BY ADV SRI.K.S.BHARATHAN
RESPONDENT/S:
1 UNION OF INDIA
REPRESENTED BY THE SECRETARY, MINISTRY OF FINANCE, NEW
DELHI - 110 001.
2 THE STATE OF KERALA
REPRESENTED BY THE SECRETARY, TAXES (H) DEPARTMENT,
SECRETARIAT, THIRUVANANTHAPURAM - 695 001.
3 THE REGISTRAR OF CHITS
OFFICE OF THE INSPECTOR GENERAL OF REGISTRATION,
THIRUVANANTHAPURAM - 695 005.
4 THE DISTRICT REGISTRAR OF CHITS ERNAKULAM
OFFICE OF THE DISTRICT REGISTRAR (GENERAL), ERNAKULAM -
682 016.
5 THE RESERVE BANK OF INDIA
WORLD TRADE CENTRE COMPLEX, CUFFE PARADE, COLOBA,
MUMBAI - 400 005.
6 THE KERALA STATE FINANCIAL ENTERPRISES
BHADRATHA, MUSEUM ROAD, THRISSUR - 680 020, REPRESENTED
BY ITS MANAGING DIRECTOR.
BY ADVS.
P.VIJAYAKUMAR
R2 TO R4 BY SRI. JOBY JOSEPH, SR. GOVERNMENT PLEADER
SRI.P.BENNY THOMAS
SRI.M.GOPIKRISHNAN NAMBIAR
W.P.(C) No. 10712 & 10823 of 2013
:3:
SRI.K.JOHN MATHAI
SRI. MANU S., DSG OF INDIA
R6 BY SRI. E.K. NANDKUMAR (SR)
SRI. JAIMON
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON
12.01.2023, ALONG WITH WP(C).10712/2013, THE COURT ON THE SAME
DAY DELIVERED THE FOLLOWING:
W.P.(C) No. 10712 & 10823 of 2013
:4:
SHAJI P. CHALY, J.
---------------------------------------------------------
W.P.(C). Nos. 10712 & 10823 of 2013
---------------------------------------------------------
Dated this the 12th day of January, 2023.
JUDGMENT
The petitioners, Chit Companies engaged in the chit business
as per the provisions of the Chit Funds Act, 1982 (Central Act) ('Act,
1982' for short) and the Kerala Chit Funds Rules, 2012 ('Rules,
2012' for short), seeking to quash Exhibits P2 to P5 State
Government Orders dated 14.05.2012, 30.05.2012, 29.06.2012 and
24.07.2012, by which the State Government has accorded sanction
to the Kerala State Financial Enterprises, a Government Company to
commence chitties as per Section 4(1) of the Act, 1982 and for
other related and consequential reliefs.
2. W.P.(C) No. 10712 of 2013 is treated as the main case
and the parties and exhibits are referred to as in the said writ
petition.
3. The Kerala Chitties Act, 1975 ('Act, 1975' for short) was in
vogue in the State of Kerala. The said Act was repealed later,
consequent to the introduction of the Act, 1982; but, the same was
not extended to the State of Kerala by issue of notification under
Section 1(3) of the Act, 1982. According to the petitioners,
W.P.(C) No. 10712 & 10823 of 2013
exemption was granted to the State due to the pressure exerted by
the Kerala State Financial Enterprises, respondent No.6, which has
been finding ways and means to ensure permanent exit of the
private players in the chit fund industry in Kerala. It is pointed out
by the petitioners that the sixth respondent, which is a
miscellaneous non-banking company, is fully owned by the State of
Kerala and the Chit business is the main product of the 6 th
respondent.
4. It is further submitted that the 6 th respondent was
exempted from the rigour of the Act, 1975 by issuing a notification
by the State of Kerala. Further it is submitted that the Hon'ble
Supreme Court in the State of Kerala and others v. Mar
Appraem Kuri Company Ltd. and others [(2012) 7 SCC 106]
held that the Act, 1975 is void and inoperative on the enactment of
the Act, 1982. According to the petitioners, in terms of Section 4(1)
of the Act, 1982, sanction of the State Government or empowered
officer and registration of the chit are mandatory for commencing
and conducting a chit; and that the procedure for obtaining sanction
and securing registration is prescribed in the Rules, 2012 by the
Government Order bearing No. G.O.(P) No. 94/2012/TD notified on
and with effect from 04.06.2012, and the power to grant sanction is
delegated exclusively to the Deputy Registrar of chits in each
W.P.(C) No. 10712 & 10823 of 2013
District.
5. The grievance highlighted by the petitioners is that the
Kerala State Financial Enterprises, which is an entity of the State
Government, has been granted sanction by the State Government
purportedly under the Act without following the procedure
prescribed under law. It is the case of the petitioners that the first
sanction was granted on 14.05.2012 on the basis of a letter dated
11.05.2012 and not on application in the manner prescribed by the
Rules; that no enquiry has been conducted on the request for
sanction as mandated under law; that 11.05.2012 was a Friday and
12.05.2012 was a second Saturday and 13.05.2012 was a Sunday
which were all holidays; and that Exhibit P2 order is issued on
14.05.2012. Therefore, according to the petitioners, the order was
issued on the next day of the application without conducting any
enquiry in contemplation of the law discussed above.
6. Similar contentions are also raised with respect to the
other Government orders. The sum and substance of the contention
advanced by the petitioners is that the practice followed by the 6 th
respondent appears to be that a list of chits proposed to be
commenced along with a copy of the sanction order are submitted
to the respective officers and the Registration Department, which is
treated as a sufficient compliance of the registration requirements
W.P.(C) No. 10712 & 10823 of 2013
prescribed under the Act.
7. In order to demonstrate the same, petitioners have
produced Exhibit P6, details of chitties proposed to be registered by
31.05.2012 with the Sub Registrar, Ayyanthole. The predominant
contention advanced by the petitioners is that the action of the 6 th
respondent violates Section 13(3) of the Act, 1982. It is also
contended that the aggregate chit amount of the chits conducted by
the 6th respondent far exceeds 10 times its net owned assets, which
violates Section 13 (3) of the Act 1982. The petitioner has also
produced Exhibit P7, the published balance sheet for the period
2009-2010, to show that the net owned funds of the 6 th respondent
i.e., the aggregate of paid up capital and free reserves is
Rs.20,00,00,000/- + Rs.1,47,86,65,632/- = Rs.1,67,86,65,632/-
(approximately Rs.167.86 crores), and therefore it is contended
that there is clear violation of the above said provision.
8. It is further contended that the aggregate chit amount of
the chits conducted by the 6th respondent as per the balance sheet
was Rs.5,152.2 Crores. In the above background, it is contended
that even the 6th respondent is conducting chits nearly five times
the limit prescribed by law and that even if the 6 th respondent is a
State Government Company, it is duty bound to follow the
provisions of the Act, 1982 and the Rules, 2012. According to the
W.P.(C) No. 10712 & 10823 of 2013
petitioners, even Exhibits P4 and P5 Government Orders would
show that it is issued after the Rules, 2012 has come into force, and
therefore, it is contended that the sixth respondent has not followed
the statutory requirements of the Act, 1982 and the Rules, 2012.
9. The 6th respondent has filed a detailed counter affidavit in
W.P.(C) No. 10712 of 2013 refuting the allegations and inter alia
contending that as per Section 4(1) of the Act, 1982, the State
Government or any such officer empowered in that behalf by the
Government is the authority to grant sanction for conducting
chitties in the State and therefore, the Government has absolute
jurisdiction and power to grant sanction for conducting chitties. It is
also pointed out that the 6th respondent has submitted the requisite
application to the Government for obtaining sanction under Section
4(1) of the Act, 1982; and the Government, after due consideration
of the said application, granted permission to the 6 th respondent to
conduct the chitty transaction in the State and therefore, the
chitties conducted by the 6th respondent based on sanction from the
Government is valid in law. The sum and substance of the
contention advanced by the 6th respondent is that the application
submitted by the 6th respondent is in substantial compliance with
the provisions contained in the Act, 1982 and the Rules, 2012.
10. That apart, it is contended that, at the time of issuance of
W.P.(C) No. 10712 & 10823 of 2013
Exhibits P2 and P3, Rules, 2012 was not notified. It is further
submitted that the 6th respondent was always obtaining registration
for conducting chits. The other contentions advanced by the
petitioner with respect to the attempt of the 6th respondent to
create monopoly in the chit business are all denied by the 6 th
respondent.
11. I have heard the learned counsel for the petitioners Sri.
K.S Bharathan, learned Senior Government Pleader Sri. Joby Joseph
for the State and its officials and the Senior Advocate Sri. E. K.
Nandakumar for the KSFE assisted by Sri. Jaimohan, and perused
the pleadings and material on record.
12. Respective counsel has advanced arguments based on
the pleadings deliberated above. In order to arrive at a logical
conclusion, the discussion of certain provisions of the Act, 1982 and
the Rules, 2012 are necessitated.
13. Section 2(j) defines "foreman" to mean the person who
under the chit agreement is responsible for the conduct of the chit
and includes any person discharging the functions of the foreman
under section 39. Therefore, it is clear that there is no distinction
by and between a private chitty company owner and the
Government company conducting chit business. The case projected
by the 6th respondent is that it is following the provisions of the Act,
W.P.(C) No. 10712 & 10823 of 2013
1982 and the sanction is being sought from the State Government
for conducting chits as and when they are insisted.
14. Section 4(1) of the Act, 1982 reads thus:
"4. Prohibition of chits not sanctioned or registered under the Act.
--(1) No chit shall be commenced or conducted without obtaining
the previous sanction of the State Government within whose
jurisdiction the chit is to be commenced or conducted or of such
officer as may be empowered by that Government in this behalf,
and unless the chit is registered in that State in accordance with
the provisions of this Act."
15. On an analysis of the said provision and correlating the
same with Exhibits P2 to P5 Government Orders, it is clear that the
Government has accorded sanction to the 6 th respondent to conduct
chitties during the said period. Section 13 deals with 'aggregate
amount of chits', and it reads thus:
"13. Aggregate amount of chits.--(1) No foreman, other than a
firm or other association of individuals or a company or co-
operative society, shall commence or conduct chits, the
aggregate chit amount of which at any time exceeds [rupees
one lakh].
(2) Where the foreman is a firm or other association of
individuals, the aggregate chit amount of the chits conducted
by the firm or other association shall not at any time exceed,--
(a) where the number of partners of the firm or the individuals
constituting the association is not less than four, a sum of
rupees [six lakhs];
W.P.(C) No. 10712 & 10823 of 2013
(b) in any other case, a sum calculated on the basis of [rupees
one lakh] with respect to each such partner or individual.
(3) Where the foreman is a company or co-operative society,
the aggregate chit amount of the chits conducted by it shall
not at any time exceed ten times the net owned funds of the
company or the co-operative society, as the case may be.
Explanation.--For the purposes of this sub-section, "net owned
funds" shall mean the aggregate of the paid-up capital and
free reserves as disclosed in the last audited balance sheet of
the company or co-operative society, as reduced by the
amount of accumulated balance of loss, deferred revenue,
expenditure and other intangible assets, if any, as disclosed in
the said balance-sheet."
16. The learned counsel for the petitioners has heavily relied
upon Section 13 of the Act, 1982 to contend that the Kerala State
Financial Enterprises has violated the aggregate amount of chits
prescribed under Section 13 of the Act, 1982. It is further pointed
out that the requirements contained under Sections 19 and 20 of
the Act, 1982 dealing with the restriction of opening of new places
of business and security to be given by the foreman, are all not
followed by the Kerala State Financial Enterprises.
17. However, it is the contention of the learned Senior
Counsel for the Kerala State Financial Enterprises that it has filed
W.P.(C) No. 10712 & 10823 of 2013
appropriate applications in order to comply with the requirements
contained under the Act, 1982 and the Rules 2012. It is also
pointed out that the petitioners could not point out any specific
instances where the provisions of the Act, 1982 are not followed by
the Kerala State Financial Enterprises.
18. The learned counsel for the petitioners has also relied
upon Rule 4 of the Rules, 2012 dealing with 'application for
obtaining previous sanction for commencement or conduct of chit',
which stipulates that subject to the procedure laid down in Rules 19
and 20, every application for obtaining previous sanction for the
commencement or conduct of a chit under Section 4 of the Act shall
be in Form I and shall be addressed to the Deputy Registrar of Chits
of the District concerned. Other procedures are also prescribed
thereunder.
19. The learned counsel for the petitioners has also relied
upon sub-Rule 2 of Rule 4, which stipulates that the Assistant
Registrar of Chits shall, on receipt of the application, forward two
copies each of the application, the balance sheet and the statement
of accounts if any, to the Deputy Registrar of Chits of the District
with his remarks, and the Deputy Registrar, as per sub-Rule (3) of
the Rules, 2012 shall send a copy each of the application and the
said documents to the Inspector of Chits of the District, for
W.P.(C) No. 10712 & 10823 of 2013
verification, enquiry and report.
20. The learned counsel has also relied upon sub-Rule (4) of
Rule 4 of the Rules, 2012 to contend that the Inspector of Chits
shall make necessary enquiries and submit a concrete report
containing his specific remarks and recommendations as to the
eligibility/fitness or otherwise of the case for sanction, to the
Deputy Registrar of Chits. Other contentions are also raised relying
upon the said rule.
21. The sole question to be considered is whether any
interference is required to the orders passed by the Government.
The orders passed by the Government according sanction to the
Kerala State Financial Enterprises Limited shows that the Company
is accorded with sanction to commence chits as per the details
appended by various branches of the company during a particular
period.
22. According to the petitioners, after the introduction of the
Rules, 2012, enquiries are contemplated when registration is sought
for. However, in my considered opinion, the petitioners have not
pointed out any specific instances with respect to the violation of
the provisions of the Act or the Rules.
23. It may be true that Exhibits P4 and P5 orders are issued
by the Government immediately after introducing the Rules, 2012.
W.P.(C) No. 10712 & 10823 of 2013
But, now 11 years have elapsed after the passing of the said orders.
The chitty period itself might be over and nothing survives to be
adjudicated on its merit. In that view of the matter, I do not think,
the petitioners are entitled to get the reliefs sought for to quash
Exhibits P2 to P5 orders passed by the State Government.
24. Accordingly I am of the view that, writ petitions can be
disposed of recording the above aspects. Accordingly, I do so.
However, I make it clear that if the petitioners find that any
registration is granted to the Kerala State Financial Enterprises
Limited without following the procedure contemplated under the
Act, 1982 and the Rules, 2012, it is for the petitioners to pursue any
remedy before the appropriate statutory authority. Since the
petitioners have not established any specific instance that the chits
commenced by the 6th respondent after 30.04.2012 are illegal or
void, no such omnibus declaration can be made by this Court.
25. So also, no writ of mandamus can be issued to the
respondents restraining the 6th respondent from commencing or
conducting any new chit, especially due to the fact that Exhibits P2
to P5 produced by the petitioners would show that sanction was
accorded by the State Government to conduct chits by the Kerala
State Financial Enterprises, and the contentions advanced on the
basis of the same have become inconsequential and redundant.
W.P.(C) No. 10712 & 10823 of 2013
Therefore, the petitioners are not entitled for any reliefs as sought
for in the writ petition, and accordingly they are declined. However,
it is made clear that the liberty of the petitioners to raise objection
to any Chitty conducted by the sixth respondent without following
the legal formalities is left open.
Writ Petitions are disposed of as above.
sd/- SHAJI P. CHALY, JUDGE.
Rv
W.P.(C) No. 10712 & 10823 of 2013
APPENDIX OF WP(C) 10712/2013
PETITIONERS' EXHIBITS:
P1 TRUE COPY OF THE RENEWAL CERTIFICATE DATED
14.10.2022 ISSUED BY THE OFFICE OF THE DISTRICT
REGISTRAR (GENERAL) DATED 30.04.2012 S.O.950(E)
P2 EXT.P-2 TRUE COPY OF THE G.O(RT) NO.351/12/TD
DATED 14.5.2012 ISSUED BY RESPONDENT NO.2
P3 EXT.P-3 TRUE COPY OF THE G.O(RT) NO.397/12/TD
DATED 30.5.2012 ISSUED BY RESPONDENT NO.2
P4 EXT.P-4 TRUE COPY OF THE G.O(RT) NO.463/2012/TD
DATED 29.6.2012 ISSUED BY RESPONDENT NO.2
P5 EXT.P-1 TRUE COPY OF THE NOTIFICATION DATED
24.07.2012 ISSUED BY RESPONDENT NO.2.
P6 EXT.P-6 TRUE COPY OF THE DETAILS OF CHITTIES
PROPOSED TO BE REGISTERED IN 31.5.2012 DATED
NIL.
P7 EXT.P-7 TRUE COPY OF THE RELEVANT PAGES OF
NOTICE TO SHARE HOLDERS AND BALANCE SHEET OF
RESPONDENT NO.6 DATED 17.8.2011
P8 EXT.P-8 TRUE COPY OF THE ADVERTISEMENT TAKEN
OUT BY RESPONDENT NO.6 IN MATHRUBHUMI DAILY
DATED 13.8.2012.
P9 TRUE COPY OF RENEWAL CERTIFICATE DATED
14.10.2022 ISSUED BY THE OFFICE OF THE DISTRICT
REGISTRAR (GENERAL) DATED 14.10.2022.
RESPONDENTS' EXHIBITS: NIL
True Copy
PS to Judge.
rv
W.P.(C) No. 10712 & 10823 of 2013
APPENDIX OF WP(C) 10823/2013
PETITIONERS' EXHIBITS:
P1 EXHIBIT-P1-TRUE COPY OF THE NOTIFICATION DATED
30/04/2012 NO. S.O. 950 (E)
P2 EXHIBIT-P2-TRUE COPY OF THE G.O(RT)
NO.351/12/TD DATED 14/05/2012 ISSUED BY
RESPONDENT NO.2
P3 EXHIBIT-P3-TRUE COPY OF THE G.O (RT) NO.
397/12/TD DATED 30/05/2012 ISSUED BY
RESPONDENT NO.2
P4 EXHIBIT-P4-TRUE COPY OF THE G.O(RT) 463/2012/TD
DATED 29/06/2012 ISSUED BY RESPONDENT NO.2
P5 EXHIBIT-P5-TRUE COPY OF THE G.O(RT) NO.
530/12/TD DATED 24/07/2012 ISSUED BY
RESPONDENT NO.2.
P6 EXHIBIT-P6-TRUE COPY OF THE DETAILS OF CHITTIES
PROPOSED TO BE REGISTERED IN 31/05/2012 DATED
NIL.
P7 EXHIBIT-P7-TRUE COPY OF THE RELEVANT PAGES OF
NOTICE TO SHARE HOLDERS AND BALANCE SHEET OF
RESPONDENT NO. 6, DATED 17/08/2011.
P8 EXHIBIT-P8-TRUE COPY OF THE ADVERTISEMENT
TAKEN OUT BY RESPONDENT NO. 6 IN MATHRUBHUMI
DAILY DATED 13/08/2012.
RESPONDENTS' EXHIBITS: NIL
True Copy
PS to Judge.
rv
