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Issues Involved:
1. Legislative Competence of Parliament to enact the Chit Funds Act, 1982. 2. Constitutional Validity of various provisions of the Chit Funds Act, 1982. Summary: Legislative Competence: The Supreme Court addressed the challenge to the legislative competence of Parliament to enact the Chit Funds Act, 1982. The appellants argued that the Act deals with money lending and falls within Entry 30 of List II (State List) of the VIIth Schedule to the Constitution of India. The Union of India contended that the Act falls within Entry 7 of List III (Concurrent List). The Court upheld the legislative competence of Parliament, stating that the Act regulates a special form of contract and does not constitute money lending. The pith and substance of the Act are to regulate chit funds, which falls within Entry 7 of List III. Constitutional Validity of Various Provisions: Section 4(3)(b): The Court found that this section, which gives discretion to the State Government to grant or refuse sanction for chit business, is regulatory and not violative of Article 19(1)(g) of the Constitution. Section 6(3): The ceiling of 30% discount on chit amounts was deemed neither arbitrary nor unreasonable, as it protects subscribers who may not be able to safeguard their own interests. Section 9(1): This provision, requiring the foreman to file a declaration once all tickets are subscribed, was found to be regulatory and in the interest of subscribers. Section 12: The prohibition on chit companies conducting other businesses without State Government permission was upheld. It prevents the misuse of chit funds for unrelated high-risk ventures, which could harm subscribers. Section 13: The limits on the aggregate amount of chits for individuals, firms, and companies were upheld. These limits ensure that foremen do not overtrade and have sufficient stakes in the business. Sections 16(2), 16(3), and 17(1): These provisions, which regulate the conduct of chit draws and the maintenance of minutes, were upheld as necessary to prevent fraud and protect subscribers. Section 20: The Court noted that the Reserve Bank of India had advised State Governments to amend rules to ensure that foremen receive interest on securities deposited with the Registrar, addressing concerns about the non-payment of interest. Sections 21(1)(a), (1)(b), and (1)(c): The Court found no issue with these provisions, which outline the rights of the foreman, including the commission, which was set at a reasonable maximum of 5%. Section 25: The statutory duty of the foreman to maintain records was upheld as reasonable and in the interest of subscribers. Section 48: The circumstances for winding up chits were upheld as necessary for protecting subscribers. The Supreme Court dismissed all appeals and petitions, affirming the constitutional validity of the Chit Funds Act, 1982, and its various provisions.
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