ORDER
1. These writ petitions may be disposed of by a common order, as the question that arise for consideration in all these writ petitions is one and the same.
2. The petitioners are the companies/ firms. They are doing chit fund business in the State of Andhra Pradesh. The details of each one of the petitioner and particulars of their business activity and the number of branches they have in the State of Andhra Pradesh need not be noticed as such details may have no bearing whatsoever on the question that falls for consideration.
3. The petitioners in this batch of writ petitions are aggrieved by the proceedings issued by the 1st respondent-Government of Andhra Pradesh dated 4-6-1992 contained in the Memo No.78348/Regn.II-2/91-92 which is purported to be in the nature of clarification issued at the instance of the 2nd respondent-Director of Chits and Inspector General of Registration and Stamps. Since the whole controversy revolves around the said Memo, it may be appropriate to notice the said memo:
GOVERNMENT OF ANDHRA PRADESH
REVENUE (REGN-II) DEPARTMENT
Memo No.78348/Regn-II-2/91-92 Dated 4-6-1992
Sub: A.P. Chit Fund Act 1971 Registration of the Bye-Laws of the chit – Incorporation certain clauses some
amounts from the subscribers-Clarification – Regarding.
Ref: From the I.G. of Registration & Stamps, Lr. No.CF/24005 of 1991 dated 4-6-1991.
—–
The attention of the Inspector General of Registration and Stamps, is invited to his reference cited and he is informed that clause (16) of Rule 3 provides for the procedure to be adopted for meeting the expenditure connected with the execution of chit agreement etc., but the said provision does not empower the foreman to levy and collect
any excess quantum of amount provided in Section 13(1)(b) of the said Act. Subsection (4) of Section 14 clearly puts an embargo on the foreman not to appropriate for himself any amount in excess of what is entitled to under clause (b) of Section 13(1).
In view of the above, the collection of any amounts in excess of what is provided in Section 13(1)(b) is clearly violative of the provision of the said Act and the Foreman of the Chit Company cannot collect the amounts of excess of what is provided in the said Act basing on clauses (16 and 17) of the Rule 3 as those clauses do not specifically empower the foreman to collect the amount in excess of what the Act provides.
The Inspector General of Registration and Stamps is requested to take further course of action in the matter accordingly.
T. Gopal Rao
Secretary to Government.
The 2nd respondent-Director of Chits and Inspector General of Registration and Stamps, Andhra Pradesh, Hyderabad in turn while communicating the said memo issued by the Government, instructed all the concerned to implement the said memorandum and (sic with) strict compliance.
4. It is evident from a bare reading of the impugned memorandum that according to the respondents that neither the A.P. Chit Funds Act, 1971 (for short ‘the Act’) nor the A.P. Chit Fund Rules, 1971 (for short ‘the Rules’) authorise the foreman to levy and collect any excess quantum of amount other than what is provided under Section 13(1)(b) of the Act. In nutshell, according to the 1st respondent-Government, the rules do not empower the foreman to levy and collect any excess quantum of
amount otherwise than what is provided under Section 13(1)(b) of the Act. It is the case of the petitioners that sub-rule (16) of Rule 3 of the said Rules is an enabling provision entitling the foreman to collect the expenses from the subscribers, which the foreman may incur relating to and conduct of the chit in the manner shown in the Bye-laws which are subject to the scrutiny and approval of the Registrar of Chits. The expenditure incurred by the foreman relating to and conduct of the chit has nothing to do with the commission or remuneration as provided for under Section 13(1)(b) of the Act. It is the case of the petitioners that the foreman is entitled to such commission or remuneration not exceeding five per cent of the chit amount and also entitled to collect from the subscribers all the expenses incurred by the foreman relating to and conduct of the chit in the manner shown in the Bye-laws.
5. Before dealing with the submissions made by all the learned Counsel appearing in the matter and the points that may arise for consideration, it may be appropriate to briefly notice the very object, scheme and the purpose which the Act intends to achieve.
6. The chit business in the State of Andhra Pradesh is controlled and regulated by the provisions contained in the A.P. Chit Funds Act, 1971 and the Rules framed thereunder. Section 2(2) of the Act defines the chit. Chit means a transaction, whether called chit fund, chitty or by any other name, by which its foreman enters into an agreement with a number of subscribers that every one of them shall subscribe a certain sum of money or a certain quantity of grain or other commodity, by instalments for a definite period and that each subscriber in his turn, as determined by lot or by auction or by tender or in such other manner as may be provided for in the agreement, shall be entitled to a prize amount, whether
payable in cash, kind or any other article of value. Section 2(10) of the Act defines foreman; “Foreman” means the person who under the chit agreement is responsible for the conduct of the chit and includes any other person discharging the functions of the foreman under Section 30. Section 3 of the Act mandates that no person shall start or conduct any chit unless he has registered with the Registrar the proposed Bye-laws of the chit. The Registrar, on being satisfied that the Bye-laws are not contrary to this Act or to the rules made thereunder, shall issue to the foreman, a certificate or registration and such certificate shall be conclusive evidence that the Bye-laws of the chit therein mentioned are duly registered. Section 4 of the Act completely prohibits the invitation for subscription to chit without registration of Bye-laws. Section 5 of the Act provides for the form of chit agreement and the particulars to be contained therein. Section 6 provides for the form and procedure for filing of the chit agreement with the Registrar of Chits. Section 7 mandates the obtaining of a certificate of commencement from the Registrar before the commencement of any auction or drawing of any chit. Section 8 of the Act obligates the foreman of furnishing copies of registered Bye-laws and certificate of chit agreement to every subscriber. Section 10 obligates the proceedings of every drawing to be minuted and prepared and entered in a book kept for that purpose and required to be signed by the foreman and all the subscribers present. Section 12 deals with the securities to be given by the foreman for the proper conduct of the chit by way of indenture of mortgage and trust in favour of the Registrar as trustee or deposit in any approved bank an amount not less than half of the chit amount. Section 13 of the Act deals with the rights of foreman and the same may be noticed in its entirety, as the whole issue in the instant writ petition may depend upon the interpretation of said section and Section 14 of the Act.
13. Rights of the foreman :–(1) The foreman shall be entitled-
(a) in the absence of any provision in the chit agreement to the contrary, to obtain, the chit amount at the instalment specified in the chit agreement;
Provided that a foreman shall not be eligible to obtain more than one chit amount in a chit:
(b) to such commission or remuneration not exceeding five per centum of the chit amount as may be fixed in the chit agreement;
(c) to realise and realise all subscriptions from the subscribers, and to distribute the prize amounts to be prized subscribers and the dividend among the subscribers;
(d) to demand sufficient security from any prized subscriber for the due payment of future subscriptions;
Explanation :–A security is said to be sufficient for the purposes of this clause, if its value exceeds by one-third, or if it consists of buildings, the value exceeds by one-half, the amount due from the prized subscriber;
(e) to substitute subscribers in the place of defaulting subscribers; and
(f) to do all other acts that may be necessary for the due and proper conduct of the chit.
(2) In case of any dispute in regard to the value of the property offered as security under clause (d) of subsection (1) the matter shall be referred to the Registrar, whose decision thereon shall be final.
Section 14(1) of the Act obligates the foreman to pay the prized amount to the
prized subscriber on his furnishing security, and without furnishing security where the prized subscriber is willing to deduct all future subscriptions from the prized amount; and it further obligates the foreman to deposit the amount of future subscriptions so deducted in an approved bank without a right to appropriate for himself, but withdraw the amounts so deposited only for payment of future subscriptions; similarly, Section 14(2) provides for the deposit of unpaid prized amount in an approved bank if the same is not paid to the prized subscriber due to the default of the prized subscriber in drawing the same; subsection (4) of Section 14 is once again important and relevant as its interpretation arise for consideration in this writ petition and it says that “the foreman shall not appropriate for himself any amount in excess of what he is entitled to under clause (b) of Section 13”
“Provided that where the foreman is himself a prized subscriber, he shall be entitled to appropriate for himself the prize amount.”
7. Sections 27 to 29 deal with the transfer of non-prized subscriber’s right and the procedure thereof and the recognition of transfer by the foreman. Section 51 of the Act deals with appointment of Director of Chits, Inspecting Officers, Registrar and Chit Auditors for the purpose of discharging the duties imposed upon them by or under the Act. The Inspecting Officers, Registrars and Chit auditors are required to discharge their duties under the general superintendance and control of the Director of Chits. The Registrar on coming to conclusion that the accounts of any chit are not properly maintained, is entitled to have the said accounts audited by the Chit Auditor and the foreman of the Chit concerned is bound to assist such auditor so appointed by furnishing the required information and production of accounts and records; Section 63 of the Act confers the power
on the Government to make Rules for carrying out all or any of the purposes of this Act including the matters in respect of which the provisions shall be made in the Bye-laws of the chit and the particulars which every chit agreement shall contain; Section 66 of the Act confers the power upon the Government to exempt any person or class of persons from all or any of its provisions subject to such conditions as the Government may deem fit.
8. We have already noticed about the mandatory requirement of registration of Bye-laws before starting or conducting any chit vide Section 3 of the Act. Rule 3 of A.P. Chit Fund Rules, 1971 declares as to the subject matter of Bye-laws and mandates that the Bye-laws shall provide for the matters detailed in Rule 3. The Bye-laws required to be registered shall contain scheme of the chit, details of foreman, rights of foreman, duties of foreman, subscription details; procedure for continuance of the chit in the event of death of foreman or his becoming of unsound mind, if the foreman is an individual etc. It also provides for the procedure to be adopted for meeting the expenditure connected with the execution of chit agreement and it may be relevant to notice the same in its entirety as its scope falls for consideration in this case: Sub-rule (16) of Rule 3 reads:
“Procedure to be adopted for meeting the expenditure connected with the execution of chit agreement, the security bond to be executed by prized subscribers, release of security and any other matter relating to the chit.”
9. The Act is basically and essentially intended to provide for the regulation of chit funds in the State of Andhra Pradesh. It is evident from the statement of Objects and Reasons that the Act intends to secure the observance on the part of the Promoters of the chit funds, the terms and the conditions subject to which the chit fund subscriptions
are collected by him. It has been noticed that many chit funds are promoted or conducted in the State without adequate safeguards, in respect of the monies invested in those chit funds without any proper control by the State Government over the transactions of the chit funds. In the circumstances, it was proposed to undertake the Legislation to have proper control by the State Government over the transactions of the chit funds and to regulate the business thereof.
10. Various expert committees in the country have gone into the origin of chit fund business in this country, the mechanism of Chit fund transactions, benefits that accrued to the needy public who are not in a position to avail themselves of the credit facilities from the financing banks, the evils that flow from such Chit Fund transactions on account of the un-scrupulous and unethical methods employed by persons who run and control Chit Fund business. The report of the Banking Commission prepared in the year 1972; report of the Study Group on Non-Banking Companies headed by the Chairman J.S. Raj dated 14-7-1975 and the report of the Select Committee of Parliament provide an insight into the origin of Chit fund business in this country. It is true, these reports were not available before enacting the Andhra Pradesh Chit Funds Act, 1971, in the State of Andhra Pradesh. The reports and recommendations of those committees were the basis for enactment of Chit Funds Act, 1982 (Central Act 40 of 1982). The Central Act is a comprehensive piece of Legislation, and the dominant purpose of the Act is to regulate the chit and control the activity of the foreman and protect the interest of the subscribers. The pith and substance of the Act is that it provides for a special contract. The Legislation provides for a special kind of contract Having regard to the volatile and vulnerable nature of chit transactions, the Central Act intends to protect the interest of the chit subscribers.
11. The first report dated 10th August, 1971, submitted by the Study Group on Non-Banking Financial Intermediaries appointed by the Banking Commission devoted a complete chapter to chit funds. The Study Group having studied the working and role of one of the oldest indigenous non-banking financial institution viz., chit funds, inter alia observed that:
“The foreman derives his income in different ways, both legal and illegal. In the former category can be included items such as admission fee from members, penal interest or penalty fee from defaulting members and forfeiture of their dividend, interest on loans to non-prized chit holders, fees for transfer of shares in the chit, deduction from the subscription paid by a member who wants to resign, dividends on the chit reserved for himself, interest on the chit prize taken without deduction, interest on the chit prize which the prized member may not be in a position to collect immediately, and subscriptions paid by members who discontinue in the middle of the scheme but do not care to claim refund.
The unscrupulous among the foreman resort to so many unfair methods to secure illegal gains.
A few of these methods are briefly mentioned below:
(i) Enrolment of fictitious members to complete the required number of members in a chit series. If a real and needy non-prized member is not able to come forward to offer a high discount at the auction, one of these benami members is shown to get the prize thereby depriving the real members of the opportunity, (ii) Similarly, it is possible to exploit needy non-prized member or a new member so that he gets the prize only at a maximum discount, (iii) The prized member is supposed to get the
amount soon after the draw or auction is over of course on furnishing the security. But the foreman adopts tactics which delay the actual payment for a considerable time, meanwhile he uses the money interest-free. If he succeeds in delaying the payment till the succeeding draw the earlier prize winner is given the prize out of the collections of the succeeding draw. Thus, one instalment is perpetually in the hands of the foreman to be utilized in any way he likes.
The above are only examples to illustrate the way in which some foreman maximise their profits.
They do not take into account the cases where the foreman and his associates dissappear from the scene and are untraceable. The police have many such cases on their record. During 1962-66, as many as 255 chitties collapsed in several districts of Kerala on account of such mal practices.
It may be noted that the foreman has to undertake some responsibilities and risks. He is responsible for regular collection of subscriptions from a widely scattered body of members. He has to conduct the draws or the auction and maintain accounts. He is under obligation to pay the prize amount on the due date whether or not all the members have paid their subscriptions. In case of defaults, he has often to make good the deficit out of his own resources, if the prized member defaults in his instalments, litigation follows to recover the amount. If the defaulter is a non-prized member, the foreman has to find out a suitable substitute or, in the alternative, has to take over the chit himself and continue the business. According to the memoranda submitted by some chit funds to the Banking Commission, the foreman requires finance from banks as well as
money-lenders and other private sources. Some companies have also pointed out that their profits are not very large in relation to the risks involved. According to memoranda submitted to the Study Group, 15 to 18 per cent of the subscribers fail to pay their subscriptions after getting the prize amount.”
12. After taking the reports of various Study Groups, the Banking Commission in its report dated 31st January, 1972 expressed that it is essential to have a uniform chit fund Legislation applicable to the whole country, an All-India Chit Fund Act may be enacted or a model law may be enacted which may be adopted by all the States with such modifications as may be necessary. The report of the Banking Commission found favour in the report of the Raj Committee on Non-Banking Companies in its report dated 14-7-1975. It was in view of the recommendations of various expert bodies that the Parliament enacted the Act 40 of 1982 and the same was brought into force in various States on different dates.
13. Of course, the Central Act is yet to be enforced in the State of Andhra Pradesh. The Andhra Pradesh Chit Fund Act, 1971 enacted by the Legislature is in force in the State of Andhra Pradesh.
14. The reports submitted by various expert bodies and Study Groups and the provisions of the Central Act may undoubtedly render assistance and guidence in interpreting the provisions of State Act with which we are now concerned. The scheme and the provisions of the said Act may have to be understood and appreciated in that background. The State Act is also intended to protect the subscribers and is one of the socio-economic Legislation which had been enacted primarily and predominantly to safeguard the interest of the chit subscribers like the Central Act and this Act also is intended to regulate and
to bring in financial discipline in the chit business, “as the foreman deal in and dabble with funds of the subscribing public.”
15. The reports of various Study Groups are extensively referred and relied upon by the Supreme Court in M/s. Shriram Chits & Investment (P) Ltd., v. Union of India and others, . The Apex Court referred to and relied upon the said reports in considering the Constitutional validity of the Central Act (40 of 1982). The Constitutional validity has been upheld.
Origin of the Issue:
Now, we proceed to examine the origin of the issue and the contentions raised in this batch of writ petitions in the light of the aforementioned background.
16. In the affidavit filed in support of the WP No.10015 of 1992 (more or less similar averments are made in all other writ petitions), it is stated that the petitioner framed the Bye-laws in accordance with the provisions contained in the Act and the Rules made thereunder and the same were being registered with the Registrar of Chits as and when the chit is organised. It is stated that the Bye-laws were never questioned either by any Statutory authority or by any subscriber so far. It is submitted that as provided in the approved registered Bye-laws of the company and as provided in chit agreement, the petitioner company has been collecting various amounts as shown in the registered Bye-laws and the certificate of chit agreement from the subscribers of the company to meet the actual expenses incurred by the company relating to the chit in the course of management and conducting the chit on behalf of the subscribers of the chit. Bye-law 18 of the Company’s Bye-laws prescribes the procedure for meeting the expenditure and it says that:
(a) Expenditure for the execution of the chit agreement shall be met by the subscriber.
(b) All expenses in connection with the inspection or verification of securities and sureties, legal charges and expenses incurred on the execution of security documents, promissory notes, agreements of guarantee, security bonds etc., or the release or cancellation of such documents shall be met by the prized subscriber concerned.
(c) The Foreman is entitled to collect from the subscribers, the cost of pass book and all other incidental charges or expenses such as:
(i) enrolment fee of Rs.50/- or Rs.100/-depending on the value of the chit.
(ii) cost of duplicate pass book Rs.10/-.
(iii) document charges for promissory note with a maximum of Rs.7.00.
(iv) stamp duty on the security documents and the cost of the execution.
(v) in the case of any other agreement not provided for, the stamp duty on such agreement.
(vi) legal charges for examining the title deeds etc.
However, it is stated that there is a further upward revision of amount mentioned in clause (c) and the details whereof may not be relevant for the present. This practice, however, appears to have continued until the impugned memorandum has been issued by the Government on 4-6-1992 declaring that the sub-rule (16) of Rule 3 provides for the procedure to be adopted for meeting the expenditure collected with the execution of chit agreement; but the same does not empower the foreman to levy and collect any amount except otherwise provided for under Section 13(1)(b) of the Act. The impugned Memo declares that the foreman cannot appropriate for himself any amount in excess of what is entitled to under
clause (b) of Section 13 of the Act. In the process of enforcement of the said Memo and under the circular instructions of the 2nd respondent, the Inspecting Officers of Chit and District Registrars in the State refused to register the Bye-laws unless the relevant Bye-law dealing with the procedure for meeting the expenditure referred to herein above is deleted from the proposed Bye-laws submitted for registration; that is the origin of the dispute.
17. It is the case of the petitioners that deleting the relevant provision dealing with procedure to be adopted for meeting the expenditure does not arise as the said Bye-law provides for collection of incidental expenditure from the subscribers which is actually incurred by the company in the course of chit funds business. According to the petitioners, the said expenditure has nothing to do with the ‘commission’ or ‘remuneration’ to which the foreman is entitled under the statute. It is the case of the petitioners that neither the said Act nor the said Rules put any embargo upon the chit fund companies in demanding and collecting the amounts from the subscribers actually incurred by the company in the course of conducting the chit. In nut shell, it is the case of the petitioners that they are entitled not only for the commission or remuneration not exceeding five per cent of the chit amount, but are also entitled to collect such amounts from the subscribers actually incurred and spent by the foreman in the course of conducting and managing the chit. The respondents seriously dispute the contentions putforth by the petitioners. In the counter affidavit filed by the respondents, it is inter alia stated that the collection of any amounts in excess of what is provided in Section 13(1)(b) of the Act would be clearly violative of the provisions of the Act and the foreman cannot collect the amounts in excess of what is provided in the Act. It is stated that sub-rules (16) and (17) of Rule 3 do not specifically
empower the foreman to collect any amounts whatsoever in excess of what all the said Act provides for. According to the respondents, the said sub-rule of Rule 3 speaks only about the procedure to be adopted to meet the expenditure and that too only in respect of execution of the chit agreements, security bond to be executed by the prized subscribers, release of security and such other important incidentals to the conduct and management of chits. But, the same does not empower the foreman to collect the amount or the quantum of amount in excess of the commission or remuneration due to him from the subscribers and such expenditure, if any, in conduct of chit has to be met by the foreman from out of such commission or remuneration not exceeding five per cent of the chit amount to which the foreman is entitled under the Act. It is further stated that since both the foreman and subscribers are parties to the chit agreement in the matter of execution of chit agreement, both are responsible and any expenditure incurred in this respect has to be met by both of them. Only in the case of obtaining prized amount, the prized subscribers have to execute the security bond and he has to bear the expenditure in this regard by him alone and not the foreman. In the matter of release of security, subscribers do not come into picture since the foreman applies to the Registrar for release of security held with the said Registrar as per Rule 20 and the Registrar shall have to release the security to the foreman after following the procedure. In nutshell, it is the case of the respondents that the foreman should meet all the expenses whatsoever incurred by him in the conduct of chit out of five per cent of the chit amount which he gets as commission of (sic or) remuneration.
Rival Submissions :
18. Learned senior Counsel, Sri E. Manohar, appearing on behalf of the petitioners, submits that the impugned
Memorandum dated 4-6-1992, issued by the first respondent-Government of Andhra Pradesh suffers from incurable legal infirmities. It is submitted that the interpretation placed by the State Government with regard to Section 13(1)(b) and subsection (4) of Section 14 of the Act, is contrary to the very scheme of the Act, apart from being contrary to the well known principles of interpretation of statutes. Learned senior Counsel would submit that Sections 3, 13 and 14 of the Act have to be read together alongwith Rule 3 of the Rules framed under the Act and if so read it would be clearly evident that the foreman are entitled, in law, to collect such amounts incurred by them towards expenditure connected with the execution of Chit Agreement, security bond to be executed by the prized subscriber, release of security and such other matters relating to the chit. It is submitted that the said amount shall be over and above the commission or remuneration to which the foreman is entitled for under the provisions of the Act. In brief, it is the submission of the learned senior Counsel that there is no embargo whatsoever imposed by the said Act prohibiting the foreman from collecting the amounts from the subscribers towards the expenditure actually incurred in connection with the execution of the chit agreement etc. On the other hand sub-rule (16) of Rule 3 provides the procedure adopted for meeting the expenditure connected with the execution of the Chit Agreement, Security Bond to be executed by the prized subscribers etc., and the same would sub silentio suggest as to the entitlement of the foreman to realise the expenditure actually incurred in connection with the execution of the Chit Agreement and Security Bond etc.
19. Sri E. Madanmohan Rao, learned Government Pleader for Revenue submits that under no circumstances the foreman is entitled to collect any amount, except the commission or remuneration, not exceeding five per cent of the chit amount, as may be
fixed in the chit agreement and specified in the Bye-laws. It is submitted that the foreman is not even automatically entitled for the commission or remuneration of five per cent of the chit amount, provided under the Act, which is the outer limit; as the commission or remuneration may even be fixed at less than five per cent of the chit agreement. It may depend upon mutual agreement and covenants stipulated in the chit agreement, subject to the maximum of five per cent of the chit amount. It is submitted that sub-section (4) of Section 14 prohibits the foreman from ‘appropriating’ for himself any amount in excess of what he is entitled to under clause (b) of Section 13-It is submitted that the Commission or remuneration not exceeding five per cent of the chit amount includes the expenditure, if any, incurred, in connection with the execution of the chit agreement, security bond by the prized subscriber etc. It is submitted that the foreman is not entitled to collect any amounts, other than the amounts authorised by or under the provisions of the Act.
20. The scope and amplitude of Section 13(1)(b) and Section 14(4) of the Act may have to be understood and interpreted in the background of the purposes for which the Legislature thought it fit to enact the present Act. The provisions of the Act are regulatory in nature. We have already noticed the Statement of Objects and Reasons and the intent, the Act seeks to achieve.
21. Section 13(1)(b) of the Act imposes a ceiling with regard to the entitlement and eligibility of the foreman in relation to the amount in a chit. It declares that the foreman shall be entitled to such commission or remuneration not exceeding five per cent of the chit amount as may be fixed in the chit agreement. Thus it is clear that a foreman is entitled to a commission or remuneration not exceeding five per cent of the chit amount. The percentage of commission or
remuneration is required to be fixed in the chit agreement and depends upon mutual agreement between the foreman and subscriber. There cannot be any agreement for payment of commission or remuneration exceeding five per cent of the chit amount; whereas, sub-section (4) of Section 14 of the Act mandates that the foreman shall not appropriate for himself any amount in excess of what he is entitled to under clause (b) of Section 13. Of course, if the foreman himself is a prized subscriber, he shall be entitled to appropriate for himself the prized amount. The foreman is also entitled to appropriate for himself the interest accruing on the amount deposited under proviso to sub-section (1) of Section 14. Thus, Section 14 itself provides for as to what are the amounts and circumstances under which the foreman is entitled to appropriate for himself any amount other than and in excess of what is provided under clause (b) of Section 13. It is, thus clear that the foreman is not entitled to appropriate for himself any other amount, other than what is provided towards the commission or remuneration and also the prize amount whenever the foreman himself is a prized subscriber and also for the interest accruing on the amount deposited under the proviso to sub-section (1) of Section 14. The intention of the Legislature is manifestly clear. The Act itself intends to secure the observance on the part of the promoters of the chit fund, the terms and conditions subject to which the chit fund subscriptions are collected.
22. It is now, well settled that in order to interpret a Law, one must understand the background and the purposes for which the Law was enacted and when one has to look the intention of the Legislature, one has to look the circumstances under which the Law was enacted. The Court is entitled to get assistance in order to interpret the provisions of a Law, from the Preamble of the Law, the mischief which was intended to be remedied by the enactment of the
statute. May be the objects and reasons cannot be the ultimate guide in interpretation of the statutes, but it often times aids in finding out what really persuaded the Legislature to enact a particular provision. (See: Bharat Singh v. Management of New Delhi Tuberculosis Centre, New Delhi and others, , Smt. Parayankandiyal Eravath Kanapravan Kalliani Amma and others v. K. Devi and others, and UP. Bhoodan Yagna Samiti, UP. v. Braj Kishore and others, . The Supreme Court not only referred to the Statement of Objects and Reasons, but also various reports of the Committees for appreciating the nature and scope of provisions of the Central Act (40 of 1982) and accordingly upheld the Constitutional validity of the provisions in Shriram Chits case (supra).
23. The question is as to whether the foreman is entitled to collect any amount for meeting the expenditure connected with the execution of chit agreement etc., apart from his commission or remuneration not exceeding five per cent of the chit amount. There is no provision in the Act which would enable the foreman to collect any amount for meeting the expenditure connected with the execution of chit agreement etc. There is no such right conferred upon him under any of the provisions of the Act. In fact, the foreman is duty bound not to appropriate for himself any amount in excess of what he is entitled to under clause (b) of Section 13. The amount for what he is entitled to is, only such commission or remuneration not exceeding five per cent of the chit amount as may be fixed in the chit agreement.
24. The question is as to whether the expression ‘commission’ or ‘remuneration’ would also include the expenses incurred, if any, by the foreman. The word ‘commission’ is used occasionally to mean ‘discount’. What is called ‘commission’, is a percentage deducted in the case of goods
which are consigned the ordinary invoice price. In commercial law; commission is a compensation to a factor or other agent for services to be rendered in making a sale or otherwise; a sum allowed as compensation to a servant, factor or agent who manages the affairs of others, in recompense for his services. It is an allowance, recompense or reward made to agents, factors, brokers and others for effecting sales or carrying out business transactions. It is generally calculated as a certain percentage on the amount of the transactions or on the profit to the principal. (Ramanatha Aiyar’s Law Lexicon). Remuneration means reward; recompense; salary; compensation. Recompense in its turn means a reward for services. The expression “remuneration” is a wider term than “salary”. ” ‘Remuneration’ means a quid pro quo. Whatever consideration a person gets for giving his services, seems to me a ‘remuneration’ for them. Consequently, if a person was in receipt of a payment or of a percentage, or any kind of payment which would not be an actual money payment, the amount he would receive annually in respect of this would be ‘remuneration’ “. (See: Stroud Judicial Dictionary, Fifth Edition). In one case, the expression was interpreted as including the expenses. “Remuneration” (Contracts of Employment Act, 1963 (C.49), Schedule 2, para 3(2) includes all that is quantifiable in money and paid to the employee for his work, including, in this case, a weekly payment of a specified sum “for expenses in connection with the use of his own motorcar.” (See: S. & V. Stores v. Lee, (1969) 1 SLR 626). Now a look at the expression ‘appropriate’ used in Section 14(4) of the Act. According to Black’s Law Dictionary, ‘appropriate’ means to make a thing one’s own;…. To prescribe a particular use for particular moneys; to designate or destine a fund or property for a distinct use, or for the payment of a particular demand.
25. Thus, a reading of Sections 13(1)(b) and 14(4) of the Act together clear that
the foreman is not entitled to appropriate any amount for the payment of a particular demand other than the prescribed commission and remuneration. The commission or remuneration to which the foreman is entitled, includes the amounts not only for the services rendered by the foreman, but also the expenditure, if any, incurred by him in connection with the chit. Any other interpretation would defeat the very purpose the Act’ intends to achieve and the scheme of the enactment. Section 13(1)(b) should be so construed as to implement the object and purpose enshrined in sub-section (4) of Section 14. It is the duty of the Court to give effect to the intention of the Legislature as expressed in Section 14(4) of tile Act. Therefore, Section 13(1)(b) has to be read by adding “or for meeting the expenses if any” after the word “remuneration” into it. After so adding, it would read, the foreman shall be entitled to “such commission or remuneration or meeting the expenses if any; not exceeding five per cent of the chit amount as may be fixed in the chit agreement.”
26. It is true that normally it is not permissible for the Court to read the words in statute which are not there. But if the meaning of statutes is not clear, it is permissible in certain cases to have recourse to a construction by implication and to draw inference for supply of obvious omissions. In Swjit Singh Kalra v. Union of India and another, , the principle is succinctly explained by the Supreme Court:
“19. True it is not permissible to read words in a statute which are not there, but “where the alternative lies between either supplying by implication words which appear to have been accidentally omitted, or adopting a construction which deprives certain existing words of all meaning, it is permissible to supply the words” (Craies Statute Law, 7th edition, page 109). Similar are the observations
in Hameedia Hardware Stores v. B. Mohan Lal Sowcar, where it was observed that the Court construing a provision should not easily read into it words which have not been expressly enacted but having regard to the context in which a provision appears and the object of the statute in which the said provision is enacted the Court should construe it in a harmonious way to make it meaningful. An attempt must always be made so to reconcile the relevant provisions as to advance the remedy intended by the statute. (See: Sirajul Haw Khan v. Sunni Central Board of Waqf, )”.
There should be compelling circumstances in adopting such rule of construction which involves reading into the Act, words which are not expressly included in it. The principle is explained by the House of Lords in Jones v. Wrotham Park Settled Estates and another, (1979) 1 All ER 286, at page 289:
“My Lords, I am not reluctant to adopt a purpose construction where to apply the literal meaning of the Legislative language used would lead to results which would clearly defeat the purposes of the Act. But in doing so the task on which a Court of justice is engaged remains one of construction, even where this involves reading into the Act words which are not expressly included in it. Kammins Ballarooms Co. Ltd. v. Zenith Investments (Torquay) Ltd., (1970) 2 All ER 871, (1971) AC 850, provides an instance of this; but in that case the three conditions that must be fulfilled in order to justify this course were satisfied. First, it was possible to determine from a consideration of the provisions of the Act read as a whole precisely what the mischief was that it was the purpose of the Act to remedy; secondly, it was apparent that the draftsman and
Parliament had by inadvertence overlooked, and so omitted to deal with, an eventuality that required to be dealt with if the purpose of the Act was to be achieved; and thirdly, it was possible to state with certainty what were the additional words that would have been inserted by the draftsman and approved by Parliament had their attention been drawn to the omission before the Bill passed into law. Unless this third condition is fulfilled any attempt by a Court of justice to repair the omission in the Act cannot be justified as an exercise of its jurisdiction to determine what is the meaning of a written law which Parliament has passed. Such an attempt crosses the boundary between construction and Legislation. It becomes a usurpation of a function which under the Constitution of this country is vested in the Legislature to the exclusion of the Courts.”
The provisions of Kerala Agriculturists’ Debt Relief Act (11 of 1970), were the subject matter of interpretation before the Supreme Court in State Bank of Travancore v. Mohammed Mohammed Khan, . Section 4(1) of the said Act provides that notwithstanding anything contained in any law or contract or in a decree or order of any Court, but subject to the provisions of sub-section (5), an agriculturist may discharge his debts in the manner specified in sub-sections (2) and (3). Sub-section (2) of Section 4 provides that if any debt is repaid in seventeen equal half-yearly instalments together with interest at the rates specified in Section 5, the whole debt shall be deemed to be discharged. The respondent therein claimed the benefit of the provision contained in Section 4(1) of the Act. Section 2(4) defined Debt as “Debt” means any liability in cash or kind, whether secured or unsecured, due from or incurred by an agriculturist on or before the commencement of this Act…….. The Supreme
Court observed that when clause (1) speaks of a debt due “before the commencement” of the Act to a banking company, it does undoubtedly mean what it says, namely, that the debt must have been due to a banking company before the commencement of the Act. But it means something more; that the debt must also be due to a banking company “at the commencement of the Act”. The Supreme Court has read into the clause, the word “at” which is not there in the said clause and in that context observed that:
“The plain language of the clause, if interpreted so plainly, will frustrate rather than further the object of the Act. Relief to agricultural debtors, who have suffered the oppression of private money-lenders, has to be the guiding star which must illumine and inform the interpretation of the beneficent provisions of the Act. When clause (1) speaks of a debt due “before the commencement” of the Act to a banking company, it does undoubtedly mean what it says, namely, that the debt must have been due to a banking company before the commencement of the Act. But it means something more; that the debt must also be due to a banking company at the commencement of the Act. We quite see that we are reading into the clause the word “at” which is not there because, whereas it speaks of a debt due “before” the commencement of the Act, we are reading the clause as relating to a debt which was due “at” and “before” the commencement of the Act to any banking company. We would have normally hesitated to fashion the clause by so restructuring it but we see no escape from that course, since that is the only rational manner by which we can give meaning and content to it, so as to further the object of the Act.”
This rule of purposive construction has been adopted and explained in Pickstone and
others v. Freemans PLC, (1988) 2 All ER 803 and Ulster and others v. Forth Dry Dock and Engineering Co. Ltd. and another, (1989) 1 All ER 1134.
27. We have already noticed that the Parliament enacted the Chit Funds Act, 1982 (40 of 1982) with a view to ensure the uniformity in the provisions applicable to such chit fund institutions through out the country. We have already noticed the recommendations of the Banking Commission. The Reserve Bank at the instance of the Central Government drafted a model Bill to regulate the conduct of chit funds for adopting by all the State Governments. The draft Bill was sent 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. The Bill, thereafter was introduced in the Lok Sabha and was referred to the Select Committee of the Lok Sabha. Select Committee gave wide publicity to the Bill and invited suggestions, received as many as 520 representations/memoranda from chit companies, Associations, Federations, State Governments, Cooperative Banks, individuals etc. Witnesses were examined. The Select Committee submitted its report dated 24-11-1981 and suggested certain modifications which were incorporated in the Bill and the Bill was passed by the Lok Sabha. Thereafter, it was introduced in Rajya Sabha and was again referred to the Select Committee of Rajya Sabha. The same has ultimately resulted in enactment of Chit Funds Act, 1982 by the Parliament. The provisions of the Central Act (40 of 1982) and A.P. Chit Funds Act (9 of 1971) are in pari materia. In fact, it may be noticed that Section 90 of the Central Act repeals the A.P. Chit Funds Act, 1971 and other State Acts. But the Central Act has not come into operation in the State of Andhra Pradesh, as the State Government failed to make the rules for giving effect to the provisions of the Act.
28. Section 21(1)(a), (1)(b) and of the Central Act deal with the rights of foreman. The provisions are in pari materia with Section 13 of the State Act. Section 21(1)(b) of the Central Act, which deals with the foreman’s right to get commission and remuneration reads as follows:
“21. Rights of foreman: (1) The foreman shall be entitled-
(a) …….
(b) to such amount not exceeding five per cent of the chit amount as may be fixed in the chit agreement, by way of commission, remuneration or for meeting the expenses of running the chit:
(c)…..
(d)…..
(e)…..
Like the State Act, Section 22 of the Central Act also prescribes the duties of the foreman and sub-section (4) of Section 22 mandates that the foreman shall not appropriate to himself any amount in excess what he is entitled to under clauses (b) and (c) of subsection (1) of Section 22. Thus the provisions of the State and Central Act are in pari materia. However, the Central Act clarifies the rights of the foreman and as to his entitlement to get maximum of five per cent of chit amount by way of commission, remuneration or for meeting expenses. The Central Act clearly lays down that the foreman is entitled for an amount not exceeding of five per cent of chit amount either by way of commission, remuneration or for meeting the expenses of running the chit. It means, the foreman is not entitled for any amount not exceeding of five per cent of chit amount by way of commission, remuneration including the expenses of running the chit. The Supreme Court while dealing with rights of the chit fund
companies, observed that “the foreman is not supposed to incur the expenditure at the cost of the subscribers and then claim higher commission.”
Therefore, Section 13(1)(b) of the State Act is to be construed and understood in the same manner as to what is expressly stated in Section 22 of the Central Act. In fact, what is implicit in the State Act is made explicit in the Central Act.
29. But, when the statutes are considered to be in pan materia? According to Sutherland. “Statutes are considered to be in pan materia to pertain to the same subject-matter when they relate to the same person or things, or the same class of persons or thing, or have the same purpose or object” (Statutes and Statutory Construction, Vol.2, page 535, 3rd Edition). We have already seen the object of either of these two Acts and the purpose for which they are enacted. The Supreme Court in The Sirsilk Ltd, and others v. The Textiles Committee and others, , relied upon the provisions of The Industries (Development and Regulation) Act, 1951 to ascertain the meaning of expression ‘textiles’ in Section 2(g) of the Textile Committee Act (41 of 1963), it is observed that:
‘The Industries (Development and Regulation) Act, 1951 is an Act earlier in point of time and we see no reason why if a subsequent statute by the same Legislature can be pressed in aid for the purpose of interpreting in the event of any doubt, the provisions of an earlier statute, the earlier statute cannot be made use of for the purpose of construing, in the event of ambiguity, the provisions of a later statute.”
It is thus clear that the subsequent statute considered to be in pari materia, can be pressed in aid for the purpose of interpreting the Act earlier in point of time in the event of any doubt and can be used
for the purpose of construing in the event of ambiguity in the provisions of an earlier statute. (See further: Deshraj Gupta v. Industrial Tribunal IV, U.P. Lucknow and another, ) and M/s. Fabril Gasosa v. Labour Commissioner and others, .
30. But the learned senior Counsel would place heavy reliance upon sub-rule (16) of Rule 3 of the Rules and strenuously contend that the rules themselves recognise the right of the foreman to collect amounts incurred by him for running the chit. The rule reads:
“Procedure to be adopted for meeting the expenditure connected with the execution of chit agreement, the security bond to be executed by prized subscribers, release of security and any other matter relating to the chit.”
Rule 3 of the Rules itself deals with the subject-matter of Bye-laws and provides the details of, as to what the Bye-laws shall provide for. Registration of Bye-laws of the chit with the Registrar is mandatory requirement, as no person shall start or conduct any chit unless he has registered the Bye-laws of the chit with the Registrar. The Bye-laws are required to be inconfirmity with the Act and the Rules made thereunder. The Rules framed under the Act are mostly procedural in nature and not substantive in their content. The Rule with which we are now concerned itself speaks about the procedure to be adopted for meeting the expenditure, but it does not reveal as to how and in what manner, the expenditure connected with the execution of chit agreement etc., is to be met. The very sub-rule (3) of Rule 3 which deals with the rights of foreman declares that the Bye-law should contain the rate of commission or remuneration to which the foreman is entitled to and sub-rule (4) of Rule 3 which deals with the duties of foreman declares that the Bye-law shall
provide the procedure to be adopted for meeting the expenditure. It is the duty of the foreman to declare the procedure to be adopted for meeting the expenditure. The said Rule cannot be invoked for the purpose of contending, as if, any right is conferred or created upon the foreman to collect any amount for meeting the expenditure. Such an interpretation of the Rule would be contrary to the very scheme and object of the Act. The Rule merely says that the Bye-laws shall provide for the procedure to be adopted for meeting the expenditure connected with the execution of the chit agreement etc. The memorandum regarding the Delegated Legislation itself declares that the rules are mainly intended to cover the matters of procedure. Section 14(4) of the Act provides a Legislative mandate. Sub-rule (3) of Rule 3 has a status of subsidiary Legislation prescribing as to what the Bye-laws should contain about the procedure to be adopted for meeting the expenditure. It is well settled that the Bye-laws framed in pursuance of the provisions of the relevant Act cannot have the force of the Law. The Bye-laws cannot be equated to that of statute or the statutory rules. It is equally well settled that if there is any conflict between the statute and Subordinate Legislation, the statute prevails over the Subordinate Legislation and the rule or Bye-law if any not inconfirmity with the statute in order to give an effect to the statutory provision and rule or the Bye-law has to be ignored. (See: Babaji Kondaji Card v. Nasik Merchants Co-operative Bank Ltd, Nasik and others, ). The Court in that situation has to read down the rule to avoid its being declared ultra vires. In this case, the Rule upon which reliance sought to be placed by the petitioners is to be so read, so as to be inconfirmity with the mandatory provisions of Sections 13(1)(b) and 14(4) of the Act. The rule, if so, read itself does not confer any right upon the foreman to appropriate for himself any amounts other than what he is entitled for under Section 13(1)(b) of the Act towards
the commission or remuneration not exceeding five per cent of the chit amount. Any other interpretation would render the rule ultra vires. Therefore, it is to be held that the said rule merely enables for incorporating a provision in the Bye-laws providing for the procedure to be adopted for meeting the expenditure in connection with and relating to the chit. The rule itself does not confer any substantial right upon the foreman to collect any amount as such for meeting the expenditure in connection with the chit.
31. Therefore, what emerges from a combined reading of Sections 13(1)(b) and 14(4) of the Act together with sub-rule (16) of Rule 3 of the Rules, is that no foreman is entitled to receive or appropriate to himself any amount other than the commission or remuneration not exceeding five per cent of the chit amount. Such commission or remuneration to which the foreman may be entitled is not only towards the services rendered by him, but also includes the expenses, if any, incurred by him in connection with and relating to the chit. The definition of the ‘chit’ and the explanation of the definition reveals that it is the co-operative effort amongst the subscribers. The foreman does not make any investment of his monies, and not precluded from making any other business. It is, under those circumstances, the enactment mandate that the foreman is entitled only for such commission or remuneration not exceeding five per cent of the chit amount, as may be fixed in the chit agreement and positively puts restraint on the foreman not to appropriate for himself any amount in excess of five per cent of the chit and that amount may include the expenses, if any, incurred by him.
32. For the aforesaid reasons, I hold that the memorandum impugned in this writ petition does not suffer from any legal infirmities.
33. I do not find any merit whatsoever in these writ petitions and the same shall accordingly stand dismissed. No order as to costs.
WP Nos. 10015 of 1992 and Batch
ORDER
34. After pronouncing the order, Sri B. Nalin Kumar, learned Counsel appearing on behalf of some of the petitioners requests to keep the operation of the order under suspension for a week to enable the petitioners to prefer a writ appeal and meanwhile permit the petitioners to avail the benefit of the interim order granted by this Court at the time of admission of the writ petitions.
35. I do not find any merit whatsoever in this oral request made by the learned Counsel for the petitioners. Having taken a clear and categorical view in the matter, it would not be appropriate for this Court to keep the operation of the order under suspension. The oral request is accordingly rejected.