Dismissed

Sri M Prasanna Kumar v. Sri Sai Kishore

Karnataka HC5 Apr 2021CRP/56/2021

Case brief

AI extract

What is this about?

The Karnataka High Court dismissed a revision petition challenging the disposal of an application seeking rejection of a plaint in a money recovery suit involving an unregistered chit fund. The court held that Section 64 of the Chit Funds Act does not bar civil suits for unregistered businesses.

What the court decided

AI extract

Sri M Prasanna Kumar Vs Sri Sai Kishore — Contract and Commercial Disputes | Karnataka HC (2021)

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 5^TH DAY OF APRIL 2021

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BEFORE

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THE HON’BLE MR.JUSTICE N.S.SANJAY GOWDA

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C.R.P.No. 56/2021 (IO)

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BETWEEN:

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SRI. M.PRASANNA KUMAR, S/O M.SEETHARAMAIAH, AGED ABOUT 52 YEARS, No.34, 10^TH MAIN, COFFEE BOARD LAYOUT, NEAR BSNL TELEPHONE EXCHANGE, BANGALORE – 560 024. … PETITIONER

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(BY SRI.K.RAMA SETTY, ADV.)

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AND:

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SRI. SAI KISHORE, S/O SRI. H.R.RAMU, AGED ABOUT 41 YEARS, R/AT FLAT No.012, CUBIC’S APARTMENT, KEMPAPURA, 1^ST MAIN,

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HEBBAL, BANGALORE – 560 024.

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SMT. M.LAKSHMI, W/O M.PRASANNA KUMAR, AGED ABOUT 46 YEARS, No.34, 10^TH MAIN, COFFEE BOARD LAYOUT, NEAR BSNL TELEPHONE EXCHANGE, BANGALORE – 560 024. … RESPONDENTS

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(BY SRI. SACHIN V.R., ADV., FOR C/R-1)

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THIS PETITION IS FILED UNDER SECTION 115 OF CPC, AGAINST THE ORDER DATED 19.11.2020 PASSED ON I.A.No.I AND II IN O.S.No.5279/2017 ON THE FILE OF THE XL ADDITIONAL CITY CIVIL AND SESSIONS JUDGE, BENGALURU, DISMISSING THE I.A.No. I AND II FILED UNDER ORDER VII RULE 11(d) READ WITH SECTION 151 OF CPC., FOR REJECTION OF PLAINT.

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THIS PETITION COMING ON FOR ADMISSION THIS DAY, THE COURT MADE THE FOLLOWING:

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ORDER

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The respondent No.1 filed a suit for recovery of a sum of Rs.57,49,400/- from the first and the second defendants.

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As per the plaint averments, the plaintiff was a tenant of the defendants and on becoming acquainted with the defendants he was induced into investing his money in a chit business which was being conducted by the defendants. It was the case of the plaintiff that the defendants collected money from the plaintiff but did not repay the same and therefore, the plaintiff was constrained to institute a suit for recovery.

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In the said suit, after entering appearance and filing the written statement, the first defendant i.e., the petitioner herein filed an application for rejection of the plaint. It was contended that the plaint averments indicated that there

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were chit transactions entered into between the plaintiff and the defendants and since the alleged chit business was an unregistered one, the Civil Court did not possess the jurisdiction and the suit was barred by law.

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The trial Court rejected the said application. In order to reject the said application, the trial Court reasoned that the bar under Section 64 of the Chit Funds Act, 1982 (hereinafter referred to as ‘the Act’ for short) would be attracted only if the chit fund was registered under the Act and since, the chit fund had not been registered at all, the question of bar under Section 64 of the Act would not arise.

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Sri.K.Rama Setty, learned counsel appearing for the petitioner contended that since Section 4 of the Act prohibits the conduct of the chit business unless it was registered, the entire claim of the plaintiff could not have been entertained. It was his case that since it was admitted that the chit business conducted by the defendants was unregistered, it was an illegal activity and therefore, the suit for recovery of money which had been invested in an illegal activity could not be entertained by the Civil Court.

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He submitted that Section 64 of the Act would be attracted in respect of chit transactions, whether it emanated from a registered chit business or an unregistered chit business. He submitted that so long as the claim was based on chit transactions, the bar under Section 64 of the Act would be attracted.

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Section 64 of the Act reads as follows:

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“ Disputes relating to chit business. —( 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 if each party thereto is one or the other of the following, namely:—

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( 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;

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( b ) a surety of a subscriber, past subscriber, or a deceased subscriber.

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Explanation .— For the purposes of this sub-section, a dispute touching the management of a chit business shall include—

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( i ) a claim by or against a foreman for any debt or demand due to him from a subscriber, or due from him to a subscriber, past subscriber or the nominee, heir or legal representative of a

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deceased subscriber whether such debt or demand is admitted or not;

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( 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

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( 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.

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( 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 purposes of sub-section ( 1 ), the same shall be decided by the Registrar whose decision thereon shall be final.

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( 3 ) No Civil Court shall have jurisdiction to entertain any suit or other proceedings in respect of any dispute referred to in sub-section ( 1 ).”

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As could be seen from Section 64 of the Act, the bar for

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filing of a suit is in respect of any dispute touching the management of the chit business. The management of the chit business has been explained in the explanation appended to the said Section. It is obvious that this chit business would mean the chit business as defined under the Act in respect of

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a chit which is registered under the Act. In other words, if in an admitted case, the suit related to a chit business of a registered chit fund, then the Civil Court would not possess jurisdiction to adjudicate upon the dispute and the parties concerned would have to approach the mode of Arbitration prescribed under the Act.

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The argument that Section 64 of the Act would be applicable in respect of the registered and unregistered chit funds, cannot be accepted. The purpose of enacting Section 64 of the Act is to ensure that when a chit fund is registered, an appropriate and speed remedy is available to the participants in the chit. The bar under the Act cannot be enlarged to the chit funds which are not registered under the Act.

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Section 4 of the Act prohibits the conduct of chit transaction unless it is registered or sanctioned. If a person conducts a chit business without such sanction, obviously, such a business would be subjected to the penal provisions of the Act, if any. It is to be stated that the intent of the law is that every chit should be registered and if money was

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invested into an illegal chit fund, they could not avail of the remedy provided under the provisions of the Act. To put it differently, if a person wants to invest in a chit fund which is not a registered chit, it does not mean that he cannot approach the Civil Court for recovery of money that he has invested into an illegal chit fund.

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In the instant case, the only question to be tried by the Civil Court was to whether the plaintiff had invested his money into the chit being run by the defendants and whether he was entitled for recovery of the money so invested.

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The question as to whether the chit was registered or unregistered one would not be a factor which would be germane to the suit. In that view of the matter, the plaint cannot be rejected on the basis that the chit fund was not registered and there was a bar under Section 64 of the Act.

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I am therefore of the view that the trial Court was justified in rejecting the application or rejection of the plaint. There is no merit in this revision and this revision is accordingly dismissed .

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It is needless to state that any observations made in the impugned order or in this order shall be construed as an opinion rendered on the merits of the claim of either of the parties.

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Sd/JUDGE

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Sri M Prasanna Kumar v. Sri Sai Kishore

Case brief

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What the court decided

Sri M Prasanna Kumar v. Sri Sai Kishore

Case brief

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