Chit Fund Act, 1982

Consumer Voice - - Le­gal Mat­ters -

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.

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