Chit Fund Act, 1982

Section 64 of Chit Fund Act stipulates that notwithstanding anything contained in any other law for the time being in force, any dispute touching the management of chit business shall be referred by any of the parties to the dispute to the registrar for arbitration. The Act mandates the Registrar of Chit Funds to be included as an arbitrator. As per Section 64, ‘no civil court shall have jurisdiction to entertain any suit or other proceedings in respect of any dispute relating to the management of the chit fund.’

So, can consumer forums handle chit fund cases? Read on to find out.

National Commission’s Stance

In 1996, the National Consumer Disputes Redressal Commission had to consider the above question in the case of Dwarkadhish Chits Private Limited versus Sanju Ram Aggarwal. Sanju Ram had complained against malpractices of the chit fund company and the Delhi State Consumer Commission had directed the latter to make all due payments with 15 per cent interest.

This order was subsequently confirmed by the majority of judgements by National Commission. In 2002, National Commission had to deal with a similar matter in the case of Narendra Kumar versus Surya Financers. To clarify their stance, National Commission held that the Consumer Protection Act provided an additional remedy in terms of Section 3 of the said Act and hence the complaint was maintainable.

In their decision reported in Kovilakam Chits & Financial Service versus KL Benny, the Commission observed that remedy under Consumer Protection Act was an addition to any law in force at that time. Provisions of the Act shall override provisions of older statutes including Chit Fund Act. Hence, chit fund cases fall within the jurisdiction of consumer forums.

Contradictory Verdicts of Two High Courts

A divergence of opinion, however, appears in the judgements delivered by two High Courts. While handling the case of N Venkatsa Perumal versus State Consumer Disputes Redressal Commission, the Madras High Court in February 2002 held that consumer forums had no jurisdiction to entertain complaints pertaining to chit transactions. However, the verdict got altered two years later when Andhra Pradesh High Court, in Margadarsi Chit Fund Ltd versus District Consumer Disputes Redressal Forum, held that consumer forums could deal with disputes arising out of chit fund transactions.

Supreme Court’s Stance

While deciding the case of K Sagar (managing director of Kiran Chit Fund) versus A Bal Reddy, the apex court directed the Andhra Pradesh State Consumer Commission to decide the jurisdictional issue.

Although a section of law scholars felt that Supreme Court did not settle the controversy by remanding the case to Andhra State Commission, it should be noted that the case was sent back to the forum to ‘procedurally’ clear the issue of jurisdiction. The State Commission as a part of procedure should have clarified that the case fell under their jurisdiction and then made the verdict.

It may further be noted that Supreme Court did not reverse the orders of the State Commission. Hence, unless Supreme Court reverses the opinion established by the National Commission, chit fund activities will continue to fall under Consumer Protection Act.

Section 64 of Chit Fund Act

Section 64 of Chit Fund Act, 1982, bars the jurisdiction of civil courts. However, the apex commission says that consumer forums are not civil courts. They are categorical that they have no hesitation in holding that chit fund cases fall very much within the ambit of consumer forums and chit fund falls within the definition of ‘service’ as defined in Section 2 (1) (o) of Consumer Protection Act.