Madras High Court
K.Periyasamy vs Shriram Chits Tamil Nadu (P) Ltd on 27 February, 2013
Author: S.Manikumar
Bench: S.Manikumar
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 27.02.2013 CORAM THE HONOURABLE MR. JUSTICE S.MANIKUMAR C.R.P. NPD No.431 of 2013 AND M.P.No.1 of 2013 K.Periyasamy .. Petitioner ..vs.. Shriram Chits Tamil Nadu (P) Ltd., Namakkal Branch, Dr.Sankaran Road, Namakkal Town, Namakkal District. .. Respondent Prayer: Civil Revision Petition filed under Article 227 of the Constitution of India against the fair and final order dated 04.08.2012 made in Ar.O.P.No.20 of 2011, on the file of the Principal District Judge, Namakkal. For Petitioner : Mr.R.Sateeskumar For Respondent : Mr.Ravishankar Rao for Mr.K.V.Ananthakrishnan - - - - - O R D E R
Being aggrieved by the order made in Ar.O.P.No.20 of 2011 dated 04.08.2012, rejecting an application filed under Section 34 of the Arbitration and Conciliation Act, 1996, to set aside the award passed by Chits Arbitrator Deputy Registrar of Chits, Namakkal in AOP.No.26 of 2010 dated 23.07.2010, the present civil revision petition has been filed.
2.Material on record discloses that Sriram Chits Tamilnadu (Private) Limited conducted a chit transaction for Rs.25 lakhs. The chit number was 37/2007 and the chit agreement was No.30/2007. The group number was 91002. Monthly installment of sum of Rs.62,500/- for 40 installments, amounting to Rs.25 lakhs, is the periodical payment. The revision petitioner, has taken chit in auction at 8th installment, held on 21.01.2008, for a sum of Rs.15 lakhs, with a rebate of Rs.10 lakhs. He has repaid the chit amount for about 14 installments. Thereafter, the petitioner has committed default. Hence, under the Chit Funds Act, 1982, the matter has been referred to the Deputy Registrar of Chits. Notice has been issued to the petitioner. He has appeared and admitted that only Rs.10 lakhs has been paid. Based on the admission made by the petitioner, the Deputy Registrar of Chits by order dated 23.07.2010 in AOP No.26 of 2010, passed an award for Rs.6,25,000/-, the outstanding principal amount. A sum of Rs.65,000/- has to be paid as interest. Hence, he has passed an award for Rs.6,90,000/-.
3.Being aggrieved by the same, the defaulter has preferred an appeal before the learned Principal District Judge, Namakkal, under section 34 of the Arbitration and Conciliation Act, 1996 to set aside the award passed by the Deputy Registrar of Chits, Namakkal passed in A.O.P.No.26/2010 dated 23.07.2010. The Registry of the District court has numbered the petition as A.O.P.No.20/2011. As against the numbering, the representative of Sriram chits Tamilnadu (Private Limited), Namakkal branch has filed a memo stating that since an award relating to the chit transaction has been passed under the provisions of the Chit Funds Act, 1982, the appeal preferred under section 34 of the Arbitration and Conciliation Act, 1996, is not maintainable. He has also contended that an appeal remedy has to be preferred under section 70 of the Chit Funds Act, and the appeal preferred under section 34 of the Arbitration and Conciliation Act, 1996, is not maintainable. After considering the abovesaid contentions and also taking note of a letter issued by the Deputy Secretary to the Government, commercial taxes and Registration (G)Department, Chennai in Letter No.13154/G/2011-2 dated 14.10.2011, the learned Principal District Judge, Namakkal, has rejected the appeal preferred under section 34 of the Arbitration and Conciliation Act, 1996, as not maintainable. Being aggrieved by the same, the present revision petition has been filed.
4.Inviting the attention of this Court to Sub Section 4 of Section 2 of the Arbitration and Conciliation Act, 1996, Mr.R.Satheeshkumar, learned counsel for the petitioner submitted that as per the abovesaid section, the arbitration under the Chit Funds Act, ought to have been construed as an statutory proceedings under the Act 1996, and that therefore, any person aggrieved by an award, can prefer an appeal under section 34 of the Arbitration and Conciliation Act, 1996, to set aside the award.
5.Learned counsel for the petitioner further submitted that the court below ought to have seen that Section 74 of Chit Funds Act, provides only an appeal remedy and that the provision does not contain anything, to question the validity of an improper arbitration proceedings. Hence, he has prayed to set aside the impugned order and sought for a direction, to restore Ar.O.P.No.20/2011, to the file of the learned Principal District Judge, Namakkal, for passing orders on merits.
6. The Caveator is on record.
7. To advert to the contentions, this Court deems it fit to consider the objects and reasons of the Chit Funds Act, 1982 (Act 40 of 1982), which are extracted hereunder:
Objects and Reasons:-
A conventional chit is an old indigenous financial institution involving regular periodical subscriptions by a group of persons. It is, in law, a contract between the subscribers and the foreman which provides that the subscribers shall subscribe a certain sum by periodical installments for definite period. Each subscriber shall in his turn, as determined by lot or by auction or in such other agreed manner, be entitled to the prize amount. There will be as many periodical installments as there are members. As there is a mutuality of interest among the small number of subscribers to each chit fund, it constitutes a convenient instrument combining savings and borrowings.
In the wider context of examining in depth the activities of the non-banking financial intermediaries which term also includes institution conducting chit funds of kuries, the Banking Commission had recommended inter alia, that it is essential to have a uniform chit fund legislation applicable to the whole country and as such either an all India Chit funds Act my be enacted or a Model law my be prepared for adoption by all the States. The Commission also observed that it would e desirable to provide in the legislation that only public limited companies can run chit funds.
The recommendations of the Banking Commission were examined by Government. The Reserve Bank, at the instance of the Government, drafted a model Bill to regulate the conduct of chit funds for adoption by all the State Governments. The Reserve Bank also sent the draft Bill to the Study Group on non-Banking companies constituted by it in June 1974. The Study Group was unanimously of the view that the Bill should be enacted as a Central legislation, as such a step, besides ensuring uniformity in the provisions applicable to chit fund institutions throughout the country, would also prevent such institutions from taking advantage either of the absence of any law governing chit funds in any State or exploit the benefit of any lacunae or relaxation in any State law by extending their activities in such States. The Group further recommended that the administration of the law should be left to the State Government concerned which in turn could seek the advice and assistance of the Reserve Bank on policy matters. Further there should be according to the Group, no objection to chits being conducted by private limited companies also and on a limited scale even by unincorporated bodies such as, individuals, sole-proprietorships and partnership firms.
The Bill was finalised after taking into account the views of all the State Governments to whom a draft Bill was sent for comments.
The scheme of the Act and the provisions made therein largely follow the pattern of chit fund legislations in force in some of the States and includes certain new provisions, such as minimum capital requirements for companies conducting chit business, prohibiting companies carrying on chit business from doing any other business, placing a ceiling on the aggregate chit amounts of chits that are being conducted by chit fund institutions, providing for a self-contained machinery for the settlement of disputes between a foreman and the subscribers by means of arbitration,. Etc., The repeal of the existing State legislations on the subject has also been provided for in the Act."
8. Testing the constitutional validity of the Chit Funds Act, 1982, the Supreme Court in Shriram Chits & Investment (P) Ltd., v Union of India, AIR 1993 SC 2063, has held that the Chit Funds Act, in pith and substance, deals with special contract and consequently falls within Entry 7 of List III of Schedule VII. The Chit Funds Act is within the legislative competence of the Parliament. In Sowdambika Finance Pvt. Ltd. v. Union of India, AIR 1993 Mad 190, it is held that the nature, substance, purport and effect as well as the objects of the legislation would indicate it to be a law within Entry 7 of List III of the VII Schedule to the Constitution of India.
9.Thus, from the objects and reasons stated supra, it could be deduced that Chit Funds Act, 1982, is a self -contained machinery for the settlement of disputes between a foreman and the subscribers by means of arbitration. The scheme of the Act and the provisions, enable, filing of an appeal, by any foreman or any other person aggrieved by the order of the Registrar under sub section (1) of section 74 to file an appeal, to the State Government or to such Officer or authority as may be empowered by notification in the Official Gazette by the State Government in that behalf.
10.Section 3 of the Chit Funds Act, 1982 reads as follows:
"3.Act to override other laws, memorandum, articles, etc.,-
(a) the provisions of this Act shall have effect notwithstanding anything to the contrary contained in any other law for the time being in force or in the memorandum or articles of association or bye-laws or in any agreement or resolution whether the same be registered, executed or passed, as the case may be, before or after the commencement of this Act; and
(b) any provision contained in the memorandum, articles, bye-laws, agreement or resolution aforesaid, shall, to the extent to which it is repugnant to the provisions of this Act, become or be void, as the case may be."
11.Chapter XII of the Act deals with disputes and arbitration. Section 64 of the Chit Funds Act, 1982 deals with disputes relating to chit business, which reads as follows:
"(1) Notwithstanding anything contained in any other law for the time being in force, any dispute touching the management of a chit business shall be referred by any of the parties to the dispute, to the Registrar for arbitration of each party thereto is one or the other of the following, namely:-
(a) a foreman, a prized subscriber or a non-prized subscriber, including a defaulting subscriber, past subscriber or a person claiming through a subscriber, or a deceased subscriber to a chit;
(b) a surety of a subscriber, past subscriber, or a deceased subscriber.
Explanation:- For the purposes of this sub-section, a dispute touching the management of a chit business shall include-
(i) a claim by or against a foreman for any debt or demand due to him from a subscriber or due from him to subscriber, past subscriber or the nominee, heir or legal representative of a deceased subscriber whether such debt or demand is admitted or not;
ii) a claim by a surety for any sum or demand due to him from the principal borrower in respect of a loan by a foreman and recovered from the surety owing to the default of the principal borrower, whether such sum or demand is admitted or not; and
iii) a refusal or failure by a subscriber, past subscriber or the nominee, heir or legal representative of a deceased subscriber to deliver possession to a foreman of land or any other asset resumed by him for breach of conditions of the assignment.
(2) Where any question arises as to whether any matter referred to for the award of the Registrar is a dispute or not for the purpose of sub-section(1), the same shall be decided by the Registrar whose decision thereon shall be final.
(3) No Civil Court shall have jurisdiction to entertain suit or other proceedings in respect of any dispute referred to in sub section (1)."
12.Section 65 of the Chit Funds Act, 1982 is extracted hereunder:
"65. Period of Limitation:- (1) Notwithstanding anything contained in the Limitation Act, 1963, but subject to the specific provision contained in this Act, 1963, but subject to the specific provision contained in this Act, the period of limitation in the dispute referred to the Registrar under section 64, shall-
(a) If the dispute relates to the recovery of any sum, including interest thereon, due to a foreman from a deceased subscriber be three years, computed from the date on which such subscriber dies or ceases to be a subscriber; or (b) If the dispute is between a foreman and a subscriber or a past subscriber, or the nominee, heir or legal representative of a deceased subscriber, and the dispute relates to any act of omission on the part of either party to the dispute, be three years from the date on which the act or omission with reference to which the dispute arose, took place.
(2) The period of limitation in the case of any dispute other than those referred to in sub-section(1) which are required to be referred to the Registrar under section 64 shall be regulated by the provisions of the Limitation Act, 1963, as if the dispute were a suit, and the Registrar, a Civil Court.
(3) Notwithstanding anything contained in sub-sections (1) and (2), the Registrar may admit a dispute after the expiry of the period of limitation specified therein, if the applicant satisfies the Registrar that he had sufficient cause for not referring the dispute within such period."
13.Section 66 of the Chit Funds Act, 1982 deals with Settlement of disputes, which reads as follows:
"1) If the Registrar is satisfied that any matter referred to him or brought to his notice is a dispute within the meaning of section 64, he shall, subject to such rules as may be prescribed, settle the dispute himself, or refer it for disposal to a person appointed by him (hereafter in this chapter referred to as the nominee) (2) Where any dispute is referred under sub-section (1) for settlement to the nominee, the Registrar may, at any time for reasons to be recorded in writing, withdraw such dispute from the nominee and may settle the dispute himself, or refer it again for settlement to any other nominee appointed by him."
14.Section 68 of the Chit Funds Act, 1982 is extracted hereunder, "68.Attachment before judgment and other interlocutory orders:
(1)Where a dispute has been referred under section 64 and the Registrar or the nominee hearing the dispute is satisfied on enquiry or otherwise that a party to such dispute, with intent to defeat or obstruct the execution of any award or the carrying out of any order that may be made,-
(a) is about to dispose of the whole or any part of his property; or
(b) is about to remove the whole or any part of the property from the jurisdiction of the Registrar, he may, unless adequate security is furnished, direct conditional attachment of the said property, and such attachment shall have the same effect, as if it is made by a competent Civil Court.
(2) Where the Registrar or the nominee directs the attachment of any property under sub-section(1), he shall issue a notice calling upon the person whose property is so attached to furnish such security as he thinks adequate within a specified period, and if the person fails to provide such security, the Registrar or the nominee may confirm the order, and may, after the decision in the dispute direct the disposal of the property so attached towards the claim, if awarded.
(3) Any attachment made under this section shall not affect the rights, subsisting prior to the attachment of the property, of persons who are not parties to the dispute, or bar any person holding a decree against the person whose property is so attached from applying for the sale of the property under the attachment of such decree.
(4) The Registrar or the nominee may, in order to prevent the ends of justice being defeated, make such interlocutory orders pending the award in a dispute referred to in sub-section (1) as may appear to be just and convenient."
15.Section 69 of the Chit Funds Act, 1982 is extracted hereunder, "Decision of Registrar or nominee:- When a dispute is referred to arbitration under this Chapter, the Registrar or the nominee, may, after giving a reasonable opportunity to the parties to the dispute to be heard, make an award on the dispute, on the expenses incurred by the parties to the dispute in connection with the proceedings and the fees and expenses payable to the Registrar or the nominee, and such an award shall not be invalid merely on the ground that it was made after the expiry of the period if any fixed for deciding the dispute by the Registrar, and shall, subject to appeal under section 70, be final and binding on the parties to the dispute."
16.In exercise of the powers conferred by section 89 of the Chit Funds Act, 1982 (Central Act 40 of 1982), the Government of Tamilnadu have issued G.O.Ms.No.417, Commercial Taxes and Religious Endowments dated 12.04.1984, known as Tamil Nadu Chit Funds Rules, 1984. Chapter VI of the Rules deals with disputes and Arbitration.
17.Rules 45, 46, 47 of the Chit Funds Rules, 1984, are extracted hereunder:
"45.Reference of dispute:-A reference of a dispute under section 64 shall be made in writing to the Registrar in form XVII. Wherever necessary, the Registrar may require the party referring the dispute to him to produce a certified copy of the relevant records on which the dispute is based and such other statements or records as may be required by him, before the proceeding with the consideration of such reference.
46.Registrar's satisfaction regarding existence of a dispute:-Where any reference of a dispute is made to the Registrar or any matter is brought to his notice, the Registrar shall, on the basis of the reference (if any) made to him in Form XVII and the relevant records and statements submitted to him, record his decision together with the reasons therefor, whether he is or is not satisfied about the existence of a dispute within the meaning of section 64. Such recording of decision shall be sufficient proof of the Registrar's satisfaction whether the matter is or is not a dispute as the case may be.
47.Disposal of a dispute or reference to a nominee:-(1) Where the Registrar is satisfied that there is a dispute the Registrar may decide the dispute himself or refer it for disposal to his nominee.
(2) Neither the Registrar nor his nominee shall take up for consideration any dispute, unless the parties concerned comply with the conditions of affixing the court fees specified in Rule 57 for determining the dispute.
18.Rule 50 of the Chit Funds Rules, 1984, deals with summons, notices and fixing of dates, places, etc., in connection with the disputes, which is extracted hereunder, (1) The Registrar or, as the case may be, his nominee, may issue summonses or notices at least fifteen days before the date fixed for the hearing of the dispute requiring;
(i) the attendance of the parties to the dispute and of witnesses, if any; and
(ii) the production of all books and documents relating to the matter in dispute.
(2) summonses or notices issued by the Registrar or his nominee may be served through a Tahsildar or any employee of the Chit Department or by registered post with acknowledgment due.
(3) The Officer serving a summons or notice shall, in all cases in which summons or notice has been served, endorse or annex or cause to be endorsed on or annexed to, the original summons or notice, a return stating the time when, and the manner in which, the summons or, as the case may be notice was served, and the name and address of the person (if any) identifying the person served and witnessing the delivery or tender of the summons or the notice.
(4) The Official issuing the summons or notice may examine the serving officer on oath or cause him to be so examined by the officer through whom it is served and may make such further inquiry in the matter as he thinks fit; and shall either declare that the summons or as the case may be notice has been duly served or order it to be served in such manner as he thinks fit.
(5) The mode of serving summonses and notices as laid down in sub-rules (1) to (4) shall mutatis mutandis apply to the service of summonses or notices issued by the Registrar or the person authorised by him when acting under section 46."
19.Rules 52, 53, 54 and 55 of the Chit Funds Rules, 1984 are extracted hereunder, "52.Procedure for the custody of property attached under Section 68:- (1) Where the property to be attached is movable property, other than agricultural produce in the possession of the debtor, the attachment shall be made by actual seizure and the attaching officer shall keep the property in his own custody or in the custody of one of his subordinates, or of a Receiver, if one is appointed under sub-rule(2) and, shall be responsible for the due custody thereof.
Provided that, when the property seized is subject to speedy and natural decay, or when the expenses of keeping it in custody is likely to exceed its value, the attaching officer may sell it at once.
(2)Where it appears to the officer ordering conditional attachment under section 68 to be just and convenient, he may appoint a Receiver for the custody of the movable property attached under that section and his duties and liabilities shall be identical with those of a Receiver appointed under Order XL in the First Schedule to the Code of Civil Procedure, 1908.
(3)(i) Where the property to be attached is immovable, the attachment shall be made by an order prohibiting the debtor from transferring or charging the property in any way, and all persons from taking any benefit from such transfer or charge.
(ii) The order shall be proclaimed at some place on, or adjacent, to such property by beat of drums or other customary mode, and a copy of the order shall be fixed on a conspicuous part of the property and upon a conspicuous part of the village chavadi and where the property is land paying revenue to the State Government, also in the office of the Collector of the district, the Revenue Divisional Officer and the Tahsildar within whose jurisdiction the property is situated.
53.Procedure for attachment and sale property for realisation of any security given by person in course of execution proceedings:- The procedure liad down in rules 51 and 52 shall mutatis mutandis apply for attachment and sale of property for the realization of any security given by a person in the course of execution proceedings.
54.Issue of proclamation prohibiting private transfer of proerty:- The Registrar when acting under clause(a) of section 71 shall, at the time of signing a certificate affecting any property, issue a proclamation in Form XVIII and in the case of immovable property shall also forward a copy of the proclamation to the Tahsildar or any other revenue officer within whose jurisdiction the property is situated, who shall cause an entry about such certificate to be made in the Record of Rights.
55.Procedure for execution of awards:-(1)Every order or award passed by the Registrar, or his nominee under section 68 or 69 shall be forwarded by the Registrar to the foreman or to the party concerned with instructions that the foreman or as the case may be, the party concerned should initiate execution proceedings forthwith according to the provisions of section 71.
(2) If the amount due under the award is not forthwith recovered or the order thereunder is not carried out, it shall be forwarded to the Registrar with an application for executing along with all information required by the Registrar, for the issue of certificate under section 71. The applicant shall state whether he desires to execute the award through a civil court or through the revenue authorities as provided under section 71.
(3) On receipt of such application for execution, the Registrar shall forward the same to the proper authority for execution along with a certificate issued by him under section 71 and a proclamation issued under rule 54 in the manner prescribed therein.
(4) Every order passed in appeal under section 70 shall also be executed in the manner laid down in sub-rules (2) and (3)."
20.Chapter VII of the Chit Funds Rules, 1984 deals with appeals. Rules 58 and 59 of the Chit Funds Rules, 1984 are extracted hereunder:
"58.Appeal-(1)An appeal under section 70 or sub sections (1)(2) of section 74 shall be made in writing and shall be either presented in person or sent by registered post to the appellate authority.
Explanation:-For the purpose of this rule and rule 59, appellate authority means-
(a) in respect of an appeal under section 70, the State Government;
(b) in respect of an appeal under sub sections (1) and (2) of section 74, the State Government or such officer or authority as may be empowered by a notification in the Official Gazette by the State Government in that behalf.
(2) The appeal shall be in the form of a memorandum accompanied by fee prescribed in Appendix II.
(3) Every appeal shall-
(a) specify the names and addresses of the appellant as well as the respondent.
(b) state by whom the order appealed against was made;
(c) set forth concisely and under distinct heads the grounds of objections to the order appealed against with a memorandum of evidence;
(d) state precisely the relief which the appellant claims;
(e) give the date of the order appealed against.
59.Hearing and disposal of the appeal: (1) On receipt of the appeal, the appellate authority shall as soon as possible examine it and ensure that,
(a) Whether relevant fee has been paid on the appeal memorandum;
(b) the person presenting the appeal has the locus standi to do so;
(c) it is made within the specified time limit; and
(d) it conforms to all the provisions of the Act and these rules.
(2)In the proceedings before the appellate authority the appellant and the respondent may be represented by an agent holding on power of attorney or by a legal practitioner.
(3) The appellate authority, on the basis of the enquiry conducted and with reference to the records examined, pass such order on appeal as may deem just and reasonable.
(4) Every order of the appellate authority under sub-rule (3) shall be in writing and it shall be communicated to the parties concerned and the Registrar."
21. Material on record also discloses that when there was a doubt as to whom, the appeals have to be addressed under section 70 of the Chit Funds Act, 1982, directions have been issued by the Deputy Secretary to the Government, commercial taxes and Registration (G)Department, Chennai in Letter No.13154/G/2011-2 dated 14.10.2011, that the appeals have to be addressed to the Secretary of the abovesaid Department, within a period of 60 days, as provided for under section 70 r/w Rules 58 of the Chit Funds Rules, 1984.
22. Thus, a combined reading of the provisions of the Arbitration and Conciliation Act 1996 and the Chit Funds Act, 1982 and the Rules framed therein, manifestly makes clear that when the Act prescribes a definite procedure for filing an appeal and when Section 3 of the Chit Funds Act, 1982, overrides other laws, memorandum, articles, etc., the appeal filed under section 34 of the Arbitration and Conciliation Act, is not maintainable and hence, this Court is of the view that no manifest illegality is committed by the court below in rejecting the application. The civil revision petition is dismissed. No costs. The connected miscellaneous petition is closed.
vri To The Principal District Judge, Namakkal