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Courts can look into chit fund disputes

After the coming into force of the Consumer Protection Act, 1986, several cases of disputes pertaining to chit funds have been brought before consumer courts.

Rosy Kumar | January 24, 2011 | Updated 12:08 IST

Call it a chit, chitty, kuri or a committee, the system of raising money for day-to-day needs through this process is prevalent throughout the country. Traders and shopkeepers raise funds through chit funds, household needs are met through the chitty or kuri in the South and ladies collect money every month during kitty parties.

According to the scheme of chit funds, a specified number of persons join together and agree to subscribe a certain sum of money by way of monthly installments over a defined period and the subscriber, in his turn, gets entitled to the prize amount. This is determined either by auction or by tender or by such other manner as may be specified in the chit agreement.

On occasions, disputes arise between the members and/ or the sponsors of the chit fund and to resolve the same, the Chit Fund Act of 1982 has laid down in Section 64 a mechanism according to which any dispute regarding the management of a chit business has to be referred by the parties to the dispute to the Registrar of Chit Funds for arbitration.

The Section further provides that no civil court shall have jurisdiction to entertain any suit or other proceedings in respect of any dispute relating to the management of the chit.

After the coming into force of the Consumer Protection Act, 1986, several cases of disputes pertaining to chit funds have been brought before consumer courts. But invariably it has been contented before the courts that they have no jurisdiction over matters related to chit funds and all disputes in this behalf should be referred to the Registrar of Chit Funds.

Way back in 1996 the National Consumer Commission had to consider the above question in Dwarkadhish Chits Pvt Ltd v. Sanju Ram Aggarwal 1996 CTJ 299 (CP). The Delhi State Consumer Commission directed the chit fund company to make the payment with 15 per cent interest.

This order was confirmed by a majority judgment of the National Commission.

In 2002, once again the National Consumer Commission had to deal with a similar matter in Narendra Kumar v. Surya Financers. In this case also the National Commission held that the Consumer Protection Act provided an additional remedy in terms of Section 3 of the said Act and hence the complaint was maintainable.

The National Commission has followed consistently this approach and has held so even in 2009 in Sri Ram Priya Chit Fund Pvt Ltd v. Yara Srinivasa Rao IV (2009) CPJ 83 . Likewise the Andhra Pradesh State Consumer Disputes Redressal Commission in P. B. V. P. Vijay Chandra v. Margadarshi Chit Funds Ltd IV (2009) CPJ 109 and Tamil Nadu State Commission in Sri Ram Chits Tamil Nadu Ltd v. C. B. Srinivasan IV (2009) CPJ 190 adopted the same approach.

The divergence of opinion, however, appears in the judgments delivered by the two High Courts. The Madras High Court held on February 14, 2002 in N. Venkatsa Perumal v. State Consumer Disputes Redressal Commission 2003 CTJ 261 ( CP) that the Consumer Forums have no jurisdiction to entertain complaints pertaining to chit transactions. On the other hand, the Andhra Pradesh High Court has held a contrary view in Margadarsi Chit Fund Ltd v.

District Consumer Disputes Redressal Forum 2004 CTJ 704 ( CP) that the consumer forums can deal with disputes arising out of chit fund transactions. Though this controversy could have been resolved by the Supreme Court before which an appeal on this subject was filed by Kiran Chit Fund, the apex court, in its wisdom, by its judgment dated June 11, 2008 in K. Sagar, M. D., Kiran Chit Fund v.A. Bal Reddy 2008 CTJ 793 (SC) ( CP) directed the Andhra Pradesh State Consumer Commission to decide the jurisdictional issue.

So, it is manifest that though the jurisdictional issue is still fluid, yet till such time the Supreme Court takes up this issue again, consumer courts except those located in Tamil Nadu (whose High Court has held otherwise) can validly file complaints before consumer courts.

(The author is an advocate and editor of Consumer Protection And Trade Practices Journal (CTJ). Email: rosykumar2000@ yahoo. com)

Courtesy: Mail Today 

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