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of <h1>High Court upholds validity of Chit Funds Act provisions</h1> <h3>Madurai Ramanathapuram Mavatta Seetu Companigal Sangam Versus Union of India</h3> The High Court dismissed the writ petitions and writ appeals, affirming the validity of Section 6(3) of the Chit Funds Act, 1982, and Rules 16, 28(1), ... Accounts - Annual account and balance sheet Issues Involved:1. Validity of Section 6(3) of the Chit Funds Act, 1982.2. Validity of Rule 16 of the Tamil Nadu Chit Funds Rules, 1984.3. Validity of Rules 28(1) and 28(2) of the Tamil Nadu Chit Funds Rules, 1984.4. Validity of Rules 31(1) and 31(2) of the Tamil Nadu Chit Funds Rules, 1984.Detailed Analysis:1. Validity of Section 6(3) of the Chit Funds Act, 1982:The petitioners challenged the validity of Section 6(3) of the Chit Funds Act, 1982, arguing that the ceiling on the discount is arbitrary and imposes unreasonable restrictions on their business. The Supreme Court, in Shriram Chits and Investments (P.) Ltd. v. Union of India, addressed this issue and held that the ceiling on the discount is not arbitrary or unreasonable. The Court stated, 'This restriction is neither arbitrary nor unreasonable.' Therefore, the High Court concluded that Section 6(3) of the Act is valid.2. Validity of Rule 16 of the Tamil Nadu Chit Funds Rules, 1984:Rule 16 prescribes the form and mode of notice to be given by a foreman to the subscribers under Section 16 of the Act. The petitioners contended that sending notices under a certificate of posting imposes a financial burden on the foreman. The Court found no infirmity in this rule, stating that 'sending of notice under certificate of posting is absolutely necessary' to ensure proper notice and prevent exploitation. The Court emphasized that the cost is minimal and necessary for transparency. Thus, Rule 16 was held valid.3. Validity of Rules 28(1) and 28(2) of the Tamil Nadu Chit Funds Rules, 1984:- Rule 28(1): This rule mandates that the balance sheet referred to in Section 24 of the Act be prepared within two months from the expiry of the relevant period. The petitioners argued that this curtails the time available under the Companies Act. The Court clarified that Section 24 of the Act is 'without prejudice to the provisions of the Companies Act, 1956,' and thus, the longer period under the Companies Act is still available. Therefore, Rule 28(1) does not curtail this period and is valid.- Rule 28(2): This rule requires the filing of receipts and expenditure accounts and statements showing the assets and liabilities of individual chit groups within specified periods. The Court found that this requirement ensures proper regulation and transparency in chit fund operations. It stated, 'Any procedural requirement ensuring proper conducting of chits and ensuring smooth carrying on of trade in chit funds and elimination of foul play, is always desired.' Hence, Rule 28(2) was held valid.4. Validity of Rules 31(1) and 31(2) of the Tamil Nadu Chit Funds Rules, 1984:- Rule 31(1): This rule stipulates the time for filing the balance sheet and profit and loss account audited by a chit auditor. The foreman must file these documents within one month from the receipt of the audit certificate or three months from the last day of the period covered by the balance sheet, whichever is earlier. The Court found this rule reasonable and within the regulatory scope.- Rule 31(2): This rule addresses audits by auditors qualified under the Companies Act, requiring the foreman to file the relevant documents within three months from the last date of the period covered by the balance sheet or within two months for individual chits. The Court reiterated that these rules do not infringe on the rights provided under the Companies Act and are regulatory. Thus, Rule 31 was held valid.Conclusion:The High Court dismissed the writ petitions and writ appeals, affirming the validity of Section 6(3) of the Chit Funds Act, 1982, and Rules 16, 28(1), 28(2), 31(1), and 31(2) of the Tamil Nadu Chit Funds Rules, 1984. The Court found these provisions to be reasonable, regulatory, and within the powers of the rule-making authority. There was no order as to costs.
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