SHRIRAM CHITS AND INVESTMENT (P) LTD. versus UNION OF INDIA AND ORS.

Citation: [1993] SUPP. 1 S.C.R. 54 · Decided: 13-07-1993 · Supreme Court of India · Bench: J.S. VERMA · Disposal: Dismissed
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Judgment (excerpt)

• 
A 
B 
SHRIRAM CHITS AND INVESTMENT (P) LTD. 
v. 
UNION OF INDIA AND ORS. 
JULY 13, 1993 
[J.S. VERMA, YOGESHWAR DAYAL AND 
N. VENKATACHALA, JJ) 
Chit Funds Act, 1982 : 
Sections 2(b ), 2(c), 2(d), 2(e), 2(j) and 6-Constitutionol validity of the 
Act-Legislative competence of Parliament to enact the Act-Held: 
C Valid-Predominant purpose of the Act is to regulate the chit and control 
activities of the foreman-Chit Fund transaction not some as money-Lend-
ing-Legislation squarely foils within Entry 7 of List III of Schedule VII of 
the Constitutiorr-Hence Parliament competent to enact the legi.slotion-Chit 
of agreement-Nature of 
D 
E 
4(3)(b), 6(3), 9(1), 12, 13, 16(2), 17(1), 20, 21(1)(0), 21(1)(b), 
21(1)(c), 25 and 48-Constitutionol validity of-Restrictions on Chit busi-
ness-Whether violative of Alticle 19( l)(g)-Held: Provisions ore merely 
regulatory in nature and safeguard the interest of subscribers-Hence not 
violative. 
Constitution of India, 1950: 
Article 19(1)(g) and Entry 7 of List III of Schedule VII....:.Chit Funds 
Act, 1982 and certain provisions thereof-Validity of 
· F 
On the recommendations of various Expert Bodies, Parliament 
enacted the Chit Fund Act, 1982, regulating the Chit Funds business. The 
Act was brought into force in various States on different dates. 
Consequent on the coming into force of the Act in the State of 
Karnataka, on 2nd January, 1984 the Appellant-Companies were asked for_ 
G the State to comply with the requirements of the Act. Therefore, they filed 
writ petitions before the High Court complaining of violation of their 
.constitntional rights to carry on the Chit Fund business and challenging 
the vires of the Act. Accepting the contention of the Union of India that 
the legislation in question fell within Entry 7 of List ill (Concurrent List) 
H of Seventh Schedule of the Constitution oflndia, the High Court dismissed 
54 
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r 
. JI. 
SHRIRAM CHITS v. U.0.1. 
55 
the writ petitions . 
A 
The appellants/Petitoners, Public/Private Limited Companies incor-
porated under Companies Act, 1956/Proprietory or Partnership con-
cerns/Individual organisers filed appeals and writ petitions before this 
Court, challenging vires of the various provisions, and also the legislative B 
competence of Parliament to enact the Act. It was contended that the 
Parliament had no legislative competence on the subject matter as the Act 
dealt with money-lending and the same fell within Entry 30 of List II (State 
List) of VII Schedule of the Constitution, that Sections 4(3)(b), 6(3), 9(1), 
12, 13, 16(2), 16(3),.17(1), 20, 21(1)(a), 21(l)(b), 2l(l)(c), 25 and 48 were 
violative of Article 19(1) (g) of the Constitution; that their Companies were C 
registered under the Companies Act and the Companies Act provided 
sufficient regulatory meas,ilres over their busines by prescribing provisions 
for running the day-to-day business through Board of Directors, who were 
responsible to the shareholders, maintenance of various statutory returns 
which had to be submitted to the Registrar of Companies from time to D 
time for enabling him to have an effective control over the business of the 
appellants/petitions and annual statutory audit proceeded by internal 
audits; and, therefore, an additional control by the Registrar of Societies 
under the Act made a serious inroad into their rights to carry on their 
business, that the provisions of Section 3 of the Act had an overriding. 
effect and imposed unreasonable restrictions on the existing rights of the E 
appellants/petitioners to carry on chit fund business, that the. ceiling on 
the discount provided in Section 6(3) was highly arbitrary aud imposed an 
unreasonable restriction on the business of the petitioners, that under 
Section 13 different criteria had been fixed for chit business for individual 
firms on the one had, and co-operative societies and companies on the 
p 
other, whereas in the case of individuals, the maximum permissible chit 
business w.is Rs.25,000, in the case of firms for each partner it was Rs. 
25,000 subject to the limit of rupees one lakh; and in the case of companies, 
the maximum business was linked with its 'net owned funds' which had 
been defined in the explanation thereto, that there was· no provision in 
Section 20 of the Act to pay interest to the Foreman on the bank G 
deposits/Government or approved securities that he was required to keep 
in the name of the Registrar of Chits; that in law, the beneficial
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