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K.C. Gopakumar

Kochi , May 31

A DIVISION Bench of the Kerala High Court on Tuesday declared void Section 4(1)(a) of the Kerala Chitties Act, which required chit fund companies operating outside the State to open their branches and obtain sanction from the Government before commencing their business in the State.

The Bench comprising Mr Justice K.S. Radhakrishan and Mr Justice M.N. Krishnan struck down the section as `unconstitutional' while allowing a batch of writ appeals filed by the chit companies against rejection of their plea by a single judge.

The section was incorporated into the Kerala Chitties Act 1975 by an amendment in 2002. The section stipulated that the chit fund companies located outside the State and which had 20 per cent of its subscribers residing in Kerala should open its branch in the State after obtaining sanction from the Government.

The court said that it had come across certain inconsistencies in the provisions of the Act with the Chit Funds Act 1982, enacted by Parliament. The court held that the Section 4(1)(a) was repugnant to various provisions in the Chit Fund Act (Central Act).

The Bench was of the view that if Section (1)(a) was given effect to, a foreman who had obtained registration under the Central Act, would be subject to various provisions of the Kerala Chitties Act. Besides, the State Act would have "extra-territorial operation".

The Bench observed that if a law made by the State Legislature was "repugnant" to the law made by Parliament, the State law should be treated as void to the extent of the repugnancy.

As per the section of the State Act, a chit fund company would be compelled to obtain sanction. The resident factor was not a reason to compel the companies to register in the State.

The court said that if the section was enacted, on account of complaints of malpractices by the chit companies, these practices could be dealt with by another law.

The court also held that the section was violative of Article 19(1)(g) of the Constitution (freedom to practice trade or business).

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