Madras Act XXIV of 1961 received the assent of the President on the 22nd June, 1961, and was published on the 5th of July, 1961. Section 1(3) directed that the Act shall come into force on such date as the Government may by notification appoint, and that different dates may be appointed for different areas. By a notification dated 8th September, 1964, this Act was brought into force in Tirunelyeli and Kanyakumari districts of the Madras State. The Act is intended to provide for the regulation of Chit Funds. Broadly stated, certain companies and individuals have been carrying on business in the shape of chit transactions. The person who organises the business is called the stake-holder or the foreman. A certain number of individuals join together and subscribe daily, weekly or monthly instalments for a fixed period of days, weeks or months. On a date appropriate to each class, an auction is conducted in respect of the total of the subscriptions of any one instalment less certain discounts. The subscribers bid at the auction and the lowest bidder gets the amount. The difference between the collection and the bid is distributable among the other subscribers. The bidder (prize winner) draws the money and furnishes security for the payment of the further instalments for the duration of that chit. It is said this form of business transaction is widely prevalent and affords an opportunity to subscribers both to borrow on reasonable terms as it were or to make profitable investments. The conduct of this business is on these lines. The foreman takes Upon himself the responsibility of conducting the chit and financing the chit transactions. He gets a commission of 5 per cent, of the total chit amount. He has to finance every auction, even though some of the subscribers may be in default and to pay the full amount of the prize money even if the collections fall short. To that extent he has to advance his own moneys. If the security given by a prize winner proves useless or the amount is irrecoverable, the foreman has to face the loss. He has to enforce the security, if need be, by filing suits. In the Madras Act referred to, however, it is said these responsibilities have been completely ignored and so many restraints have been placed upon the foreman which affect his right to carry on the business. The Act requires by section 3 that every chit should be registered with the Registrar on payment of a fee. Even if the same foreman conducts more than one chit, each such chit has to be separately registered. The fee is a fixed sum of Rs. 25 irrespective of whether the total of the subscriptions collected is large or small. A chit agreement in duplicate has to be signed by every subscriber and attested by two witnesses, and such agreement has to be filed in duplicate with the Registrar. section 7 prohibits the commencement of any auction or drawing of any chit unless the foreman has obtained a certificate of commencement. Such a certificate is granted on his complying with the requisites of registration referred to and also on the foreman furnishing security provided for in section 12. This section requires that a foreman shall execute a mortgage in favour of the Registrar as trustee by way of security of properties sufficient for the realisation of the chit amount, the chit amount being the total of subscriptions payable by all the subscribers for any one instalment without any deduction. In the alternative, the foreman is required to deposit in an approved bank or invest in Government securities an amount not less than half the chit amount and transfer the amount so deposited or the securities in favour of the Registrar. Such security has necessarily to be given in respect of each chit transaction. The prized subscriber receives the prize amount on his furnishing security for the due payment of future subscriptions. It is open to the prized subscriber to set-off all future subscriptions and take only the balance of prize amount in which event the foreman is required to deposit the amount of the future subscriptions in an approved bank. This amount can be utilised by the foreman only for the purpose of payment of the future subscriptions. If the prized subscriber fails to receive the amount on furnishing security, the prize amount has to be deposited in an approved bank. If a subscriber defaults, it is open to the foreman to substitute another person. The defaulting subscriber is no longer entitled to the benefits of the chit transaction. But he is eligible for a return of the amount of subscription he had paid. The arrears of subscription of the defaulting subscriber have to be paid by the substituted subscriber, but these amounts have also to be deposited in an approved bank and cannot be utilised by the foreman for any purpose except that of meeting the future instalments. Another provision enables every subscriber to inspect all the documents such as security bonds, receipts and other records on payment of a fee. By section 52 of the Act, any person not a subscriber may on payment of fees inspect the documents relating to a chit transaction kept with the Registrar and even get a copy or extract of any document.

On behalf of the petitioners, it is contended that these provisions which are amplified by the Rules operate as very heavy and oppressive restrictions on the conduct of the chit business. It is claimed that the foreman is called upon to provide a heavy sum by way of security for the due conduct of the chit. It is contended that in the conduct of a business of this kind, the foreman occupies the position analogous to a banker and such restraints as the Act contemplates interfere with the normal conduct of a business. It is claimed that these restrictions are wholly unreasonable and are opposed to the guarantee contained in Article 19(1)(g) of the Constitution and also travel far beyond the scope of permissible restraints contemplated by Article 19(6).

On behalf of the State of Madras, it is claimed that the legislation was rendered necessary in order to put a check on defaults frequently committed by persons conducting the chits. The reasonableness of the various provisions of the Act is sought to be supported by the averments in the affidavit. It is principally pointed out that the foreman is permitted to obtain a very good return for the responsibility that he shoulders. Instancing a monthly chit running for a period of 20 months at Rs. 50 per instalment with 20 members, the total collection per month comes to Rs. 1,000. The foreman gets 5 per cent, of each instalment, so that he being a subscriber, is really not called upon to subscribe anything at all out of his pocket. In addition to that, it is the foreman's privilege to take the chit amount at any one instalment as a prize winner without any discount. The result is that he makes a profit of Rs. 1,000 less one instalment of Rs. 50, that is, Rs. 950. The only obligation he is under is to keep a deposit of half the prize amount in an approved bank. It is true that he has certain other responsibilities such as making up for defaulting subscribers, but when he substitutes another subscriber in the place of a defaulting subscriber, he is relieved of that responsibility. It is claimed accordingly that it is incorrect to say that the carrying on of the business of chit funds has been interfered with in any way by the legislation, Only certain safeguards both in the interest of the foreman and of the subscribers is contemplated and it is claimed that these restrictions are quite reasonable.

A preliminary objection has also been taken by the learned Advocate-General on behalf of the State of Madras that Article 358 of the Constitution has suspended the provisions of Article 19 as there is a proclamation of emergency and that the law made during this period save legislative action from any attack based upon Article 19. It is contended accordingly that the Act cannot be called into question as violating Article 19.

The Act received the assent of the President on 22nd June, 1961, and was published in the Fort St. George Gazette on the 5th of July, 1961. The learned Advocate-General does not deny that the proclamation of emergency was made on the 26th of October, 1962. While it is the contention of Mr. Rajah Iyer for the petitioners that this is a law made prior to the declaration of the emergency, the learned Advocate-General contends that the notification dated 8th July, 1964, issued under section 1(3) of the Act, which brought the Act into force in two districts and the publishing of the Rules under section 63 of the Act on the same date must be taken to mean that the Act was made only on this later date on the introduction of the Act in those districts. It is argued by the learned Advocate-General that though the Act was passed by the State Legislature in July, 1961, it was without effect, for it had to be brought into force only on a Notification issued under authority. Again, the Act could not be enforced in any manner of speaking in the absence of any Rules and such Rules were made and published only on 8th July, 1964. It is therefore urged that the Act could be said to have been made within the meaning of Article 358 only on the date of its introduction into those districts, or alternatively, it is urged that the framing of the Rules, which is necessary for the enforcement of the Act, amounts to executive action within the meaning of that Article. It is thus the contention that since these events took place after the declaration of the emergency, Article 358 saves the enactment from being impeached as violative of Article 19.

Article 358 reads thus:

“While a proclamation of emergency is in operation, nothing in Article 19 shall restrict the power of the State as defined in Part III to make any law or to take any executive action which the State would but for the provisions contained in that part be competent to make or to take.”

The rest of the Article is not necessary to be referred to. The first question is what is meant by the expression ‘make any law‘. I must accept the contention of Mr. Rajah Iyer in this regard that the law was made when the Legislature passed it, and in the present case, when the President accorded his assent . The making of the law by the Legislature is under the authority of Article 245 of the Constitution. It has been well recognised that despite the fact that the framing of the Rules for the carrying out of the law may be left to the rule-making authority, that is, the Executive Authority, the law as enacted by the Legislature lays down the principles which cannot be departed from or varied by the rule-making authority. The Rules are only for the purpose of enforcing the law. They cannot amplify or detract from what the Legislature has stated. If that should be the position, the law is made in the fullest sense of the term by the Legislature alone and the making of the law cannot be dependent upon the framing of the Rules or bringing the law into force in any specified area on any specified date, which is done only under the authority of the law as made by the Legislature. In Field v. Clark, the validity of a Tariff Act was questioned on the ground that the Act was not a law of the United States. A provision therein authorised the President to suspend the provisions of the Act in respect of certain goods and that was attacked as unconstitutional as delegating to him a legislative power and on this ground the entire Act was sought to be declared null and void. In dealing with this argument, the Supreme Court of the United States observed:

“That Congress cannot delegate legislative power to the President is a principle universally recognised as vital to the integrity and maintenance of the system of Government ordained by the Constitution. The Act of 1st October, 1890, in the particular under consideration is not inconsistent with that principle. It does not in any real sense invest the President with the power of legislation…. Legislative power was exercised when Congress declared that the suspension should take effect upon a named contingency. What the President was required to do was simply in execution of the act of Congress. It was not the making of the law. He was the mere agent of the law-making department to ascertain and declare the event upon which its expressed will shall take effect. It was a part of the law itself as it left the hands of the Congress……….“

Kalyanam Veerabhadhrayya, In re points out upon an examination of several earlier decisions that conditional legislation is not delegated legislation or delegation of a legislative power. The learned Judges observe:

“It is for the Legislature to determine whether an Act should be perpetual or of only a temporary duration. The period of the life of an Act is therefore determined by the exercise of the legislative will and is a legislative power. It is not analogous to the power of applying legislation which is already complete to a particular area or to class of persons or goods or even of determining the time of its commencement or the amount of its operation. Conditional legislation, as the decisions already referred to show, is of the latter description……….No doubt, in the case of conditional legislation, until the condition is determined or is fulfilled, the law may be in a state of suspended animation, but still it is a law, but needs its application to be determined by an extraneous authority……..”

In the Delhi Laws Act case, the question whether legislative power may be delegated at all was extensively examined and it was pointed out that the Legislature must normally discharge its primary legislative function itself and not through others. It cannot abdicate legislative functions and while entrusting power to an outside agency, it must see that such agency acts as a subordinate authority and not as a parallel Legislature. It was further pointed that delegated legislation as understood has become a present day necessity. It is often impossible to formulate legislation which would be self-contained and complete and to envisage all contingencies and local requirements. In order to confer some degree of flexibility, without the necessity of having to amend the law again and again, conditional or delegated legislation is resorted to. But that is not legislation, which should still be the primary function of the Legislature itself.

It may no doubt be correct to say in a manner of speaking that delegated legislation in the sense that it means the making of the Rules under the authority of the Act completes the legislation. But that is not essential legislative function. I am unable to agree with the learned Advocate-General that it is only by the making of the Rules or by the extension of the Act or by the bringing into force the Act by the relevant notification that the law is made. The law to my mind has been made already and these instances of delegated or conditional legislation do not amount to making the law.

Nor does the contention of the learned Advocate-General that the notification issued under section 1(3) of the Act bringing the Act into force in the two districts amounts to taking executive action within the meaning of Article 358, impress me. Obviously, the issue of such a notification is conditional legislation as it is understood. It cannot be regarded as executive action. In a Full Bench decision of the Allahabad High Court- Moti Lal v. Government of the State of Uttar Pradesh, what was executive power was somewhat briefly examined. After referring to Articles 53(1) and 154(1) of the Constitution of India and also Articles 73 and 162, the learned Judges observe (at page 293):

“It is difficult to define what is executive power. The easiest definition is to say that what is not legislative power or judicial power is executive power, though even this definition is imperfect, as the Executive can have even judicial and legislative powers. Where there is no written Constitution, what is ‘executive power ‘must always depend upon the form of the State and with the change in the form, the concept of executive power must also change. In a written. Constitution, the executive power must be such power as is given to the Executive or is implied, ancillary or inherent. It must include all powers that may be needed to carry into effect the aims and objects of the Constitution.”

Again, at pages 341 and 342:

“The question is, as we have said, by no means free from difficulty. But, upon the whole, we think that we may reasonably infer that the words ‘executive power ‘in the Constitution have substantially the same meaning as ‘executive authority’ in the Act of 1935 and that is, the superintendence, direction and control of the civil Government of a State which is vested in the Governor of the State. It follows therefore we think that although an executive act by a State Government may not be authorised by a legislative enactment, it will nevertheless be within the executive power of the State if-

(i) it is not an act which has been assigned in the Constitution of India to other authorities or bodies such as the Legislature, the Judiciary or the Public Service Commission,

(ii) it is not contrary to the provisions of any law, and

(iii) it does not encroach upon or otherwise infringe the legal rights of any member of the public………………..”

It seems to me accordingly that the issue of the notification under section 1 (3) of the Act bringing the Act into force or the promulgation of the Rules under the authority conferred by the Act did not amount to taking executive action within the meaning of Article 358. It follows that the law was made when the Act was placed on the Statute Book by the Legislature. Since that was on a date anterior to the proclamation of emergency, the petitioners are not denied the right to impugn the law on the ground that it offends Article 19 of the Constitution.

I now proceed to examine the contentions on their merits. I have been taken through the various provisions of the Act and it has been the endeavour of Mr. Rajah Iyer to show that what is called the normal conduct of the chit fund transaction is so hedged in by restrictive requirements that it has become exceedingly difficult for a citizen to carry on such a business. It is also argued that these restrictions travel far beyond the permissible limits contemplated by Article 19 (6).

That the Act is intended to provide a measure of safety for the subscribers to a chit fund transaction cannot be denied. When a person starts operating a chit transaction as the stake-holder or a foreman, he takes upon himself certain responsi-bilities. At the same time, he is entitled to certain benefits which, as the counter-affidavit points out, are not inconsiderable. I can find nothing objectionable in those provisions of the Act which call upon the foreman to register a chit transaction. Nor is there anything objectionable to a chit agreement being signed by the foreman and the subscribers, a copy of which is to be deposited with the Registrar. The provisions requiring that every subscriber shall be furnished with copies of chit agreements seems to me to be equally reasonable. It is not denied that a charge is levied for supplying such copies which should normally meet the expenses involved. Strong objection was however taken to section 12 of the Act, which requires the foreman to furnish security to be held by the Registrar in trust. This is to ensure fulfilment of the obligations of the foreman. The foreman receives at each instalment of the chit transaction a large amount of money which he has under the rules to disburse to the prize winner less certain deductions. If the foreman should not carry out his obligations in this regard, the numerous subscribers to the chit fund would be left without any remedy except by way of preferring suits, which may in some cases at least be fruitless. It is true that this provision calls upon the foreman to provide security even in advance of his commencement of the chit business. But as has been pointed out by the learned Additional Government Pleader, the foreman is at liberty to realise the whole amount of the security by taking to himself the prize at the first instalment. That is allowed by the bye-laws. But, nevertheless, the security will remain locked up in trust with the Registrar for the duration of the chit. This provision is to my mind necessary in the interests of the large body of subscribers. The real complaint on behalf of the petitioners is that till this legislation was passed, the foreman were not called upon to produce any funds of their own. They were also at liberty to utilise the difference between the collections and the prize amount for their own purposes. They no doubt had the right to utilise such amount lying with them for their own purposes. It is suggested that it is of the essence of any business that a businessman for the most part utilises moneys belonging to others and that that freedom is now denied to the foreman of a chit fund. I am not however prepared to hold that on this somewhat specious reasoning, this requirement can be regarded as unconstitutionally interfering with the carrying on of the business. It is clear that a balance had to be struck between the rights of a person carrying on the business and the safeguarding of the interests of the persons whose moneys come into his hands. section 12 of the Act fulfils that purpose and to my mind it is not unreasonable at all.

It is true that several returns have to be filed by the foreman from time to time during the pendency of a chit transaction. But if the underlying object of the Act is to be carried out, that is certainly necessary.

The various sections of the Act which require the deposit into an approved bank of the amounts remaining with the foreman are attacked. I am unable to see any justification for this contention. Admittedly, these amounts do not belong to the foreman. They are distributable to the subscribers at the close of the chit and if the law requires that these amounts should be kept in safe deposit earning an interest on behalf of the persons who are ultimately entitled thereto, the petitioners cannot be heard to complain that they are denied the present use of the moneys.

It is argued that a considerable amount of expenditure which the foreman has to incur is not provided for. These items of expenditure are in the nature of business expenditure and since the foreman himself is entitled to the collection at any one instalment, that appears to be more than enough to meet this item of expenditure. I am unable to see how this contention can serve to invalidate any of the provisions of the Act.

The only provision of the Act which seems to my mind to be wholly irrelevant for the purposes underlying the Act is section 52. I have already referred to section 35 which gives a right to the subscriber to inspect all the documents kept with the Registrar on payment of a fee. In so far as a subscriber is a party to the transaction, he cannot be denied that right. But section 52 of the Act enables any person not a subscriber to inspect the documents kept by the Registrar or to obtain a copy of such documents. It is argued by Mr. Rajah Iyer that this provision conceals a dangerous possibility. Suppose a prize winner has furnished security of his properties as required by the various provisions of the Act. To give a third party the right such as contemplated in section 52 of the Act may place the private business affairs of the subscriber in jeopardy. It is argued that persons may not be willing to be subscribers if they felt that third parties, who might be inimically disposed towards them, might become aware of the transactions of the subscriber and might take improper advantage of their financial condition. It seems to me that this argument has considerable force. Such a provision may result in operating as an unreasonable restraint upon the carrying on of this business. It has not at all been explained how such a provision giving a right of inspection to a person unconnected with the business is necessary for the proper control of chit fund transactions. This provision is struck down to the extent to which it permits parties unconnected with the Chit Fund transaction to inspect or obtain copies of documents.

Except for the above, there is no merit in the contentions of the petitioners that the other provisions travel beyond the scope of Article 19 (6). The petitions are accordingly dismissed. But there will be no order as to costs.