DHARMODAYAM CO Vs. UNION OF INDIA

JUDGEMENT

(1.) Writ Petitioners challenge the constitutional validity of Sub-section 1(a) to Section 4 of the Kerala Chitties Act, 1975 introduced by the Kerala Finance Act, 2002 (Act 7 of 2002) with effect from 1.4.2002 as beyond the legislative competence of the State Legislature and also prayed for a declaration that the same is unconstitutional, void and violative of Articles 14 and 19(1)(g) of the Constitution of India. Petitioners have also sought for a writ of mandamus directing the Union of India to exercise its powers under Section 1(3) of the Chit Funds Act, 1982 (Central Act) to notify that Act within the State of Kerala. Learned Single Judge rejected the prayers of the writ petitioners and dismissed the Writ Petitions, against which these appeals have been preferred.

(2.) Before examining the above mentioned prayers we may trace the history of both the legislations, Kerala Chitties Act, 1975 as well as the Chit Funds Act, 1982 and the provisions contained therein for a proper appreciation of the contention raised by the writ petitioners. Articles 245 to 255 of the Constitution of India deal with legislative powers of the Union and the States. Entries in List I of Schedule VII reserve power exclusively to Parliament to make law and List II confines solely to the State Legislature and List III concurrent list in which both Parliament as well as State Legislature have concurrent jurisdiction to make laws in the occupied field. Article 245 stipulates that subject to the provisions of the Constitution, Parliament may make laws for the whole or any part of the territory of India, and the Legislature of a State may make laws for the whole or any part of the State. No law made by Parliament shall be deemed to be invalid on the ground that it would have extra-territorial operation. Articles 246 of the Constitution states that notwithstanding anything contained in Clauses (2) and (3), Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule. Legislature of a State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule. Parliament has also got power to make laws with respect to any matter for any part of the territory of India not included in a State notwithstanding that such matter is a matter enumerated in the State List. The entries in the three lists of the Seventh Schedule to the Constitution are legislative heads or fields of legislation. Legislatures enact law in respect of topics covered by several entries in the three lists. Contracts dealing with chitties and other related transactions fall under Entry 7, List III of the Seventh Schedule. The Apex Court in M/s. Sriram Chits and Investment (P) Ltd., AIR 1993 SC 2063, held that the Chit Fund Act, in pith and substance, deals with special contract and consequently falls within Entry 7, List III of the Seventh Schedule. State Legislature and the Parliament therefore could legislate on those areas which squarely fall under Entry 7, List III of the Seventh Schedule.

(3.) State Legislature has therefore enacted the Kerala Chitties Act, 1975 (Act 23 of 1975) which came into force on 25th August, 1975 as per the notification published in the Kerala Gazette Extra Ordinary No. 480 dt. 25th August 1975 which has received the assent of the President on 18th July, 1975. The Act was also included in the 9th Schedule of the Indian Constitution as item No. 149. Section 3 of the Kerala Chitties Act states that no chitty shall be started and conducted unless the previous sanction of the Government or such Officer as may be empowered by the Government on that behalf is obtained and unless the chitty is registered in accordance with the provisions of the Act. Certain categories are exempted from the above said requirement. As per Sub-section (2) of Section 3, certain disqualifications are made in regard to the Foreman in which case no previous sanction as contemplated in Sub-section (1) shall be given. There is further restriction as per Sub-section (5) of Section 3, which says that if the Foreman is a Banking Company as defined in the Banking Companies Act, no such Banking Company shall be entitled to conduct at a time chitties the aggregate amount of which exceeds 60% of the net assets of the Foreman. Section 4 of the Chitties Act states that where previous sanction is required by Section 3 for starting and conducting a chitty, no person can issue or publish any invitation for subscription unless such invitation contains a statement that the previous sanction required under Section 3 has been obtained, together with the particulars of such sanction. Section 5 says that if the chitty amount is less than Rs. 100/-, the provisions of the Act will not be applicable, but a license has to be taken. Sections 6 to 11 deal with the particulars relating the Variola and filing it with the Registrar and endorsement thereof etc. Section 12 states that the drawing of the chitty should be at the time and place mentioned in the variola. Sections 13 and 14 deal with the keeping of the minutes of the proceedings of drawing of chitty and filing of the same with the Registrar. Sections 15 to 22 of the Act relate to the foreman. Sections 15 to 17 deal with the security to be given by the Foreman, his rights and duties. Section 18 and 19 deal with books to be kept by the foreman and punishment for failure to keep such books. Section 220 deals with the preparation and filing of balance sheet. Sections 21 and 22 provide for the liability of the foreman and his withdrawal from the chitty. Section 23 to 25 deal with non-prized subscribers. Sections 23 and 24 deal with the payment of subscribers by non-prized subscribers and the removal of defaulting subscribers. Section 25 prescribes the method by which the amount due to a defaulting subscriber has to be dealt with. Sections 26 to 29 deal with the signing of minutes, providing security etc. by prized subscribers. Section 30 to 33 deal with transfer of rights by Foreman etc. Section 34 deals with meetings of the general body of subscribers. Section 35 to 39 deal with termination of chitties. Section 40 to 42 deal with inspection of documents by subscribers and Registrar. Section 43 to 55 deal with winding up of chitties. Section 56 to 59 deal with registration of office and fees. Section 60 to 72 are miscellaneous provisions. Kerala Chitties Act was enacted to define, amend and consolidate the law relating to chitties in the State of Kerala.