The Supreme Court has annulled the Kerala Chit Funds Act of 1975, dismissing an appeal against the order of a single judge.
The Supreme Court declared that only the Central Chit Funds Act, 1982, would be applicable to all chit fund firms operating in the country.
A five-member Constitution Bench chaired by Chief Justice S. H. Kapadia ruled that the Kerala act had become redundant in the context of a Central Act of 1982.
The Supreme Court also annulled an amendment Kerala had incorporated in the 1975 Act in 2002.
The amendment had stipulated that any chit company having at least 20 per cent of its subscribers domiciled in the State should get itself registered under the Kerala Act.
But the amendment had excluded Kerala State Financial Enterprises, a State government-owned chit company, and cooperative institutions from its ambit.
This was challenged in the High Court by 44 private chit fund companies, who argued that the State could not legislate on a subject already acted on by the Centre.
Chit companies operating in the State would now be governed only by the 1982 Act following the verdict of the constitution bench.
The State Finance Minister, Mr K.M. Mani, said the government would consult with the Advocate-General on options available for the State following the Supreme Court ruling.
Chit fund business in the State, estimated to be around Rs 85,000 crore, has been demanding for long that it be brought under the common Central rule.
There are an estimated 5,000 chit fund companies operating in the State, at least half of them based in Thrissur district.
Unfavourable rules framed by the State government had driven many of these companies to other States, mainly Haryana and Jammu and Kashmir.