Andhra Pradesh High Court grants relief to Margadarsi Chit Fund; restricts State from taking coercive action

Andhra Pradesh High Court


Andhra Pradesh High Court: In a writ of mandamus, Margadarsi Chit Fund Pvt. Ltd. (‘Petitioner’) prayed for declaring the actions of the State of Andhra Pradesh and their subordinate Assistant Registrars of Chits in refusing to perform their statutory functions under the Chit Funds Act, 1982 (‘The Act’) and the Andhra Pradesh Chit Fund Rules, 2008 (The ‘Rules’) as illegal and arbitrary who were maliciously bringing the chit business of the Margadarsi Chit Fund company to a standstill. The bench of Subba Reddy Satti, J., directed the the Company to not to take any coercive action against the petitioner company till the respondents follow the procedure mandated under S. 46(3) of the 1982 Act.

The petitioner being a private limited company have been complying with the provisions of the Act and Rules made by the State Governments. Accordingly, sufficient safeguards were provided under the Act to the subscribers pertaining to the rights and liabilities of the foreman, maintained registers, penalties and alike.

The petitioner alleged that the respondents started adverse campaign against the petitioner by issuing instructions to the concerned authorities, resulting into inspection and search being conducted of several branches of the office of the petitioner without the compulsory 7 days’ notice. However, the Telangana High Court granted stay of search for a period of one week in December 2022.

The petitioner further alleged that with the view to destroy and damage the reputation of the petitioner company, the State resorted to total non-functioning of its duties under the Act and Rules.

The Court while referring to various provisions of the Act and Rules noted that the scheme of the Act provided for safeguard at every stage to the subscriber of chit. Further, obligation was also casted upon the foreman to inform jurisdictional Registrar at every stage. Foreman without sanction could not run the chit. Even after the sanction, foreman must adhere to the procedure contemplated under the Act to run the business.

By way of interim relief, the petitioner had simultaneously prayed directing the State to not to take any coercive steps without discharging their statutory duties under the Act. In this connection, the Court stated that the petitioner had been running the chit business since the year 1962 and since then no complaint was ever made against the petitioner company by any of its subscribers.

The Court further stated that had there been any irregularity committed by the petitioner company in following the procedure contemplated under the 1982 Act, the authorities should have first issued a notice, however, no such notice was issued at any point. Thus, the Court held that prima facie the balance of convenience lay in favour of the petitioner and accordingly granted the interim relief, directing the authorities to follow the procedure qua sanction, registration, receiving documents, release of security deposit and to deal with arbitration cases.

Moreover, the Court was of the view that “Insofar as balance of convenience and irreparable loss are concerned, the petitioner is not a defaulter as of now and there is no complaint by any subscriber to that effect. Even the authorities did not complain receiving of any complaint qua default in payment prized money or any irregularity.”

The Court without commenting on the merits of the matter, directed the State Government to not take any coercive steps against the petitioner company and adhere to the procedure adumbrated under the Act qua sanction, registration, receiving of documents, releasing of security strictly in accordance with the provisions of the Act.

[Margadarsi Chit Fund Pvt. Ltd. v. State of Andhra Pradesh, 2022 SCC OnLine AP 3000, decided on 26-12-2022]

Advocates who appeared in this case :

For the petitioner- Senior Counsel B. Adinarayana Rao;

Advocate M.R.K. Chakravarthi;

For the Respondents- Advocate General.

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