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CHIT FUNDS ACT, 1982

CHIT FUNDS ACT, 1982

40 of 1982

19th August, 1982

An Act to provide for the regulation of chit funds and for matters connected therewith. Be it enacted by parliament in the Thirty-third year of the Republic of India as follows:-

CHAPTER 01: PRELIMARY

SECTION 01: SHORT TITLE, EXTEBTABD COMMENCEMENT

(1) This Act may be called the Chit Funds Act,

(2) It extends to the whole of India except the State of Jammu and Kashmir.

(3) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint, and different dates1may be appointed for different States.

SECTION 02: DEFINITIONS

In this Act, unless the context otherwise requires,-

(a) "approved bank" means the State Bank of India constituted under section 3 of the State Bank of India Act, 1935, or a subsidiary bank constituted under section 3 of the State Bank of India (Subsidiary Banks) Act, 1959or a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970,or a Regional Rural Bank established under section 3 of the Regional Rural Banks Act, 1976, or a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980, or a banking company as defined under clause (c) of section 5 of the Banking Regulation Act, 1949, or a banking institution notified by the Central Government under section 51-of that Act or such other banking institution as the State Government may, in consultation with the Reserve Bank, approve for the purposes of this Act; Sub-clause (a) defines "approved banks" as referring to commercial banks and such other banking institutions as the State Government may, in consultation with the Reserve Bank, approve for the purposes of the Bill. -Gaz. of Ind., 20-11-1980, Pt. II, S.2, Ext" p. 1009.

(b) "chit" means a transaction whether called chit, chit fund, chitty, kuri or by any other name by or under which a person enters into an agreement with a specified number of persons that every one of them shall subscribe a certain sum of money (or a certain quantity of grain instead) by way of periodical instalments over a definite period and that each such subscriber shall, in his turn, as determined by lot or by auction or by tender or in such other manner as may be specified in the chit agreement, be entitled to the prize amount, Sub-clause (b) defines the term "chit". This definition is on the same lines as the definition of the expression "conventional chit" in the Prized Chits and Money Circulation Schemes (Banning) Act, 1978 (43 ot 1978). - Gaz. of Ind., 20-11-1980, Pt. II, S. 2, Ext" p. 1009.

(c) "chit agreement" means the document containing the articles of 'agreement between the foreman and the subscribers relating to the chit;

(d) "chit amount" means the sum total of the subscriptions payable by all the subscribers for any instalment of a chit without any deduction of discount or otherwise;

(e) "chit business" means the business of conducting a chit;

(f) "defaulting subscriber" means a subscriber who has defaulted in the payment of subscriptions due in accordance with the terms of the chit agreement;

(g) "discount" means the sum of money or the quantity of grain which a prized subscriber is, under the terms of the chit agreement, required to forego and which is set apart under the said agreement to meet the expenses of running the chit or for distribution among the subscribers or for both; Sub-clause (g) defines "discount" as the sum of money which a prized subscriber is required to forego under the terms of the chit agreement. - Gaz. of Ind., 20-11-1980, Pt. II, S. 2, Ext., p. 1009,

(h) "dividend" means the share of the subscriber in the amount of discount available under the chit agreement for rateable distribution among the subscribers at each instalment of the chit; Sub-clause (h) defines "dividend" to mean the share of the subscriber in the amount of discount available under the chit agreement for rateable distribution among the subscribers at each instalment of the chit. - Gaz, of Ind., 20-11-1980, Pt. II, S. 2, Ext., p. 1009.

(i) "draw" means the manner specified in the chit agreement for the purpose of ascertaining the prized subscriber at any instalment of the chit;

(j) "foreman" means the person who under the chit agreement is responsible for the conduct of the chit and includes any person discharging the functions of the foreman under section 39-;

(k) "non-prized subscriber" does not include a defaulting subscriber;

(l) "prescribed" means prescribed by rules made under this Act;

(m) "prize amount" means the difference between the chit amount and the discount, and in the case of a fraction of a ticket means the difference between the chit amount and the discount proportionate to the fraction of the ticket, and when the prize amount is payable otherwise than in cash, the value of the prize amount shall be the value at the time when it becomes payable;

(n) "prized subscriber" means a subscriber who has either received or is entitled to receive the prize amount; ,

(o) "Registrar" means the Registrar of Chits appointed under section 61-, and includes an Additional, a Joint, Deputy or an Assistant Registrar appointed under that section;

(p) "Reserve Bank" means the Reserve Bank of India constituted under the Reserve Bank of India Act, 1934;

(q) "State Government", in relation to a Union territory, means the administrator of that Union territory appointed by the President under Article 239 of the Constitution;

(r) "subscriber" includes a person who holds a fraction of a ticket and also a transferee of a ticket or fraction thereof by assignment in writing or by operation of law;

(s) "ticket" means the share of a subscriber in a chit.

SECTION 03: ACT TO OVERRIDE OTHER LAWS, MEMORANDUM, ARTICLES, ETC

Save as otherwise expressly provided in this Act,-

(a) the provisions of this Act shall have effect notwithstanding anything to the contrary contained in any other law for the time being in force or in the memorandum or articles of association or bye-laws or in any agreement or resolution whether the same be registered, executed or passed, as the case may be, before or after the commencement of this Act; and

(b) any provision contained in the memorandum, articles, bye-laws, agreement or resolution aforesaid, shall, to the extent to which it is repugnant to the provisions of this Act, become or be void, as the case may be.

Clause 3.- This clause provides that the provisions of the Bill shall have effect notwithstanding anything to the contrary contained in the provisions of any other law in force or in the memorandum and articles of association, or bye-laws, etc., and if any such provision is repugnant to the provisions of the Bill, it shall, to the extent of the repugnancy become or be void. - Gaz. Of lnd" 20-11-1980, Pt. II, S. 2, Ext" p. 1009.

CHAPTER 02: REGISTRATION OF CHITS, COMMENCEMENT AND CONDUCT OF CHIT BUSINESS

SECTION 04: PROHIBITION OF CHITS NOT SANCTIONED OR REGISTERED UNDER THE ACT

Clause 4.- This clause provides that no chit shall be commenced or conducted without obtaining the previous sanction of the State Government within whose jurisdiction the chit is to be conducted and unless the chit is registered under the provisions of the Bill. It has also been provided that such sanction shall lapse if the chit is not registered before the expiry of six months from the date of such sanction or within such further period of six months as the State Government may allow. -Gaz. of Ind" 20-11-1980, Pt. II, S.2,Ext., p, 1009.

SECTION 05: PROHIBITION OF INVITATION FOR SUBSCRIPTIONS EXCEPT UNDER CERTAIN CONDITIONS

No person shall issue or cause to be issued any notice, circular, prospectus, proposal or other document inviting the public to subscribe for tickets in any chit unless such notice, circular, prospectus, proposal or document contains a statement that the previous sanction required under section 4 has been obtained and the particulars of such sanction.

Clause 5.- This clause prohibits the invitation for subscriptions to a chit by issuing a notice, circular, prospectus or j document unless such notice circular, prospectus or document contains a statement that the previous sanction referred to in clause 4 has been obtained and also the particulars of such sanction

SECTION 06: FORM OF CHIT AGREEMENT

(1) Every chit agreement shall be in duplicate and shall be signed by each of the subscribers or by any person authorised by him in writing and the foreman and attested by at least two witnesses and it shall contain the following particulars, namely:-

(a) full name and residential address of every subscriber:

(b) the number of tickets including the fraction of a ticket held by each subscriber;

(c) the number of instalments, the amount payable for each ticket at every instalment and the ! interest or penalty, if any, payable on any default in the payment of such instalments;

(d) the probable date of commencement and the duration of the chit;

(e) the manner of ascertaining the prized subscriber at each instalment;

(f) the maximum amount of discount which the prized subscriber has to forego at any instalment;

(g) the mode and proportion in which the discount is distributable by way of dividend - foreman's commission or remuneration or expenses for running the chit, as the case may be;

(h) the date, time and place at which the chit is to be drawn;

(i) the instalment at which the foreman is to get the chit amount;

(j) the name of the approved bank in which chit moneys shall be deposited by the foreman under the provisions of this Act;

(k) where the foreman is an individual, the manner in which a chit shall be continued when such individual dies or becomes of unsound mind or is otherwise incapacitated;

(l) the consequences to which a non -prized or prized subscriber or the foreman shall be liable in case of violation of any of the provisions of the chit agreement;

(m) the conditions under which a subscriber shall be treated as a defaulting subscriber;

(n) the nature and particulars of the security to be offered by the foreman;

(o) the dates, on which and time during which the foreman shall, subject to the provisions contained in section 44-, allow inspection of chit records to non-prized and unpaid prized Subscribers;

(p) the names of the nominees of each subscriber, that is to say, the names of the persons to whom the benefits accruing to the subscriber under the chit may be paid in the case of the death of the subscriber or when he is otherwise incapable of making an agreement;

(q) any other particulars that may, from time to time, be prescribed.

(2) The duration of a chit shall not extend beyond a pariod of five years from the date of its commencement: Provided that the State Government may permit the duratiuon of a chit up to a period of ten years if it is satisfied that it is necessary so to do, having regard to,-

(a) the financial condition of the foreman;

(b) his methods of operation;

(d) the requirement as to security; and

(e) such other factors as the circumstances of the case may require.

(3) The amount of discount referred to in clause (f) of sub-section (1) shall not exceed 2["forty per cent."]. of the chit amount.

(4) Where the prized subscriber at any instalment of the chit is required to be determined by auction and more than one person offer the maximum discount, the prized subscriber shall be determined by lot.

Clause 6.- While the various particulars which are required to be specified in every chit agreement and the other formalities to be complied with have been specified in sub-clause (1) of this clause, it has been provided in sub-clause (2) that the duration of a chit shall not extend beyond a period of five years from the date of its commencement. However, the State Government concerned has been empowered to permit the duration of a chit up to a period of ten years on the existence of certain conditions specified in that sub-clause. Sub-clause (3) provides that the amount of discount in any chit shall not exceed thirty per cent. of the chit amount (that is, the sum-total of subscriptions payable by all the subscribers for any instalment of a unit without any deduction for discount or otherwise), -Gaz. of Ind., 20-11-1980, Pt. II, S. 2, Ext., pp. 1009, 1010.

SECTION 07: FILING OF CHIT AGREEMENT

(1) Every chit agreement shall be filed in duplicate by the foreman with the Registrar.

(2) The registrar shall retain one copy of the chit agreement and return the duplicate to the foreman with an endorsement that the chit agreement has been registered: Provided that the Registrar may refuse to register the chit agreement on any one or more of the following grounds, namely:-

(a) that the security offered by the foreman under section 20 is insufficient;

(b) that the foreman had been convicted of any offence under this Act or under any other Act regulating chit business and sentenced to imprisonment for any such offence;

(c) that the foreman had defaulted in the payment of fees or the filing of any statement or record required to be paid or filed under this Act or had violated any of the provisions of this Act or the rules made thereunder;

(d) that the foreman had been convicted of any offence involving moral turpitude and sentenced to imprisonment for any such offence unless a period of five years has elapsed since his release: Provided further that before refusing to register a chit under the first proviso, the foreman shall be given a reasonable opportunity of being heard.

(3) Every endorsement made under sub-section (2) shall be conclusive evidence that the chit is duly registered under this Act and the registration of a chit shall lapse if the declaration by the foreman under sub-section (1) of section 9-is not filed within three months from the date of such endorsement or within such further period or periods not exceeding three months in the aggregate as the Registrar may, on application made to him in this behalf allow.

Clause 7. - Sub-clause ( 1 ) of this clause provides for the chit agreement being filed in duplicate by the foreman with the Registrar. Sub-clause (2) empowers the Registrar to retain one copy of the chit agreement and return the duplicate to the foreman with an endorsement that the chit agreement has been registered by him; and such an endorsement shall be conclusive evidence that the chit is duly registered under the provisions of the Bill. -Gaz. of Ind., 20-11-1980, Pt. II, S. 2, Ext" p. 1010.

SECTION 08: MINIMUM CAPITAL REQUIREMENTS FOR THE COMMENCEMENT, ETC. OF A CHIT AND CREATION OF A RESERVE FUND BY A COMPANY

(1) Notwithstanding anything contained in the Companies Act, 1956, but subject to the provisions of this Act, a company shall not commence or carry on chit business unless it has a paid up capital of not less than rupees one lakh.

(2) Every company having a paid-up capital of less than rupees one lakh and carrying on chit business on the commencement of this Act, shall, before the expiry of a period of three years from such commencement, increase its paid-up capital to not less than rupees one lakh: Provided that the State Government may, if it considers it necessary in the public interest or for avoiding any hardship, extend the said period of three years in respect of any company by such further period or periods not exceeding two years in the aggregate: Provided further that no such company shall commence any new chit the duration of which would extend beyond the said period of three years or such extended period or periods under the first proviso unless it in creases its paid-up capital to not less than rupees one lakh.

(3) Every company carrying on chit business shall create and maintain a reserve fund and shall, out of the balance of profit of each year as disclosed in its profit and loss account and before any dividend on its shares is declared, transfer to such reserve fund, a sum equal to not less than ten per cent. of such profit.

(4) No company shall appropriate any sum or sums from the reserve fund except with the prior approval of the Registrar and, for the purpose of obtaining such approval, it shall make an application in the prescribed form to the Registrar explaining the circumstances relating to such appropriation.

Clause 8.- Sub-clause (1) of this clause provides that a company shall not conduct any chit or carry on any chit business unless its paid-up capital is not less than rupees one lakh. Sub-clause (2) requires the existing companies having a share capital of less than rupees one lakh to increase its paid-up capital to not less than rupees one lakh within a period of three years from the commencement of the proposed legislation. The State Government has, however, been empowered to extend the period of three years in respect of any company for such further period not exceeding two years in the aggregate. Sub-clause (3) provides that every company carrying on chit business shall create a reserve fund and transfer lo such reserve fund a sum not less than twenty per cent of the balance of profit for each year as disclosed in its profit and loss account before declaring any dividend on its shares.- Gaz. of Ind., 20-11-1980, Pt, II, S. 2, Ext., p. 1010.

SECTION 09: COMMENCEMENT OF CHIT

(1) Every foreman shall, after all the tickets specified in the chit agreement are fully subscribed, file a declaration to that effect with the Registrar.

(2) As soon as may be after a declaration is filed under sub-section (1), the Registrar shall, after satisfying himself that all the requirements relating to sanction, registration of chit and other matters have been duly complied with, grant a certificate of commencement to the foreman.

(3) No foreman shall commence any auction of the draw of any chit or appropriate any chit amount unless a certificate of commencement referred to in sub-section (2) is obtained by him.

Clause 9.- This clause provides that every foreman shall, after all the tickets specified in the chit agreement are fully subscribed, file a declaration to that effect with the Registrar. Sub-clause (2) empowers the Registrar to issue a certificate of commencement after the filing of such declaration and no foreman can commence any auction or draw unless such certificate is granted.- Gaz. Of Ind., 20-11-1980, Pt. II, S. 2, Ext., p. 1010.

SECTION 10: COPIES OF CHIT AGREEMENT TO BE GIVEN TO SUBSCRIBERS

(1) A foreman shall as soon as may be after he has obtained the certificate of commencement under sub-section (2) of section 9-, but not later than the date of the first draw of the chit, furnish to every subscriber, a copy of the chit agreement certified to be a true copy.

(2) A foreman shall, within fifteen days after the close of the month in which the draw for the first instalment of the chit is held, file with the Registrar, a certificate to the effect that the provisions of sub-section (1) have been complied with,

Clause 10.- This clause requires every foreman to furnish a copy of the chit agreement to every subscriber after the foreman has obtained the certificate of commencement under clause 9 and before the first draw.- Gaz. of Ind., 20-11-1980, Pt. II, S. 2, Ext., p. 1010.

SECTION 11: USE OF THE WORDS "CHIT", "CHIT FUND", "CHITTY" OR"KURI"

(1) No person shall carry on chit business unless he uses as part of his name any of the words "chit", "chit fund", "chitty" or "kuri" and no person after other than a person carrying on chit business shall use as part of his name any such word.

(2) Where at the commencement of this Act-

(a) any person is carrying 'on chit business without using as part of his name any of the words specified in sub - section (1); or

(b) any person not carrying on chit business is using any such word as part of his name, he shall, within a period of one year from such commencement, add as part of his name any such word or, as the case may be, delete such word from his name: Provided that the State Government may, if it considers it necessary in the public interest or for avoiding any hardship, extend the said period of one year by such further period or periods not exceeding one year in the aggregate,

Clause 11.- This clause prohibits the use of the word "chit", "chit fund", "chitty" or "kuri" by any person other than a person carrying on chit business and makes it obligatory on a person carrying on chit business to use as part or his name any one of such words.-Gaz. of Ind., 20-11-1980, Pt. II, S.2, Ext., p. 1010.

SECTION 12: PROHIBITION OF TRANSACTING BUSINESS OTHER THAN CHIT BUSINESS BY A COMPANY

(1) Except with the general or special permission of the State Government, no company carrying on chit business shall conduct any other business.

(2) Where at the commencement of this Act, any company is carrying on any business in addition to chit business, it shall wind up such other business before the expiry of a period of three years from such commencement: Provided that the State Government may, if it considers it necessary in the public interest or for avoiding any hardship, extend the said period of three years by such further period or periods not exceeding two years in the aggregate.

Clause 12.- Sub-clause (1) provide that no company carrying on chit business shall conduct any other business except with the general or special permission of the State Government. Sub-clause (2) provides for the winding up of such other business before the expiry of a period of three years from the commencement of the proposed legislation or such extended period not exceeding two years.- Gaz. of Ind., 20-11-1980, Pt. II, S. 2, Ext" p. 1010.

SECTION 13: AGGREGATE AMOUNT OF CHITS

(1) No foreman, other than a Firm or other association of individuals or a company or cooperative society, shall commence or conduct chits, the aggregate chit amount of which at any time exceeds5["rupees one lakh"].

(2) Where the foreman is a firm or other association of individuals, aggregate chit amount of the chits conducted by the firm or other association shall not at any time exceed,-

(a) where the number of partners of the firm or the individuals constituting the association is not less than four, a sum of rupees6["six lakhs"];

(b) in any other case, a sum calculated on the basis of7[rupees one lakh] with respect to each such partner or individual.

(3) Where the foreman is a company or co-operative society, the aggregate chit amount of the chits conducted by it shall not at any time exceed ten times the net owned funds of the company or the co-operative society, as the case may be.

Clause 13,- Under this clause, no foreman other than afirm or other association of individuals or a company can commence or conduct chits, the aggregate amount of which at any lime exceeds ten thousand rupees. Where the foreman is a firm or other association of individuals, the aggregate chit amount shall not exceed rupees ten thousand for every partner or individual, as the case may be, subject to maximum of rupees forty thousand Where the foreman is a company, the aggregate chit amount of the chits conducted by it shall not, at any time, exceed ten times the net assets of the company that is the total assets of the company less its total liabilities, bad and doubtful debts as also other intangible assets as disclosed by its last audited balance sheet).- Gaz. of Ind" 20-11- 1980, Pt. U.S. 2, Ext., p. 1010.

SECTION 14: UTILISATION OF FUNDS

(1) No person carrying on chit business shall utilise the moneys collected in respect of such business (other than commission or remuneration payable to such person or interest or penalty, if any, received from a defaulting subscriber), except for-

(a) carrying on chit business; or

(b) giving loans and advances to non-prized subscribers on the security of subscriptions paid by them; or

(d) making deposits with approved banks mentioned in the chit agreement.

(2) Where any person carrying on chit business has utilised the moneys collected in respect of such business before the commencement of this Act, otherwise than for the purposes specified in sub-section (1), he shall secure that so much of such moneys as have not been realised before such commencement are realised before the expiry of a period of three years from such commencement: Provided that the State Government may. if it considers it necessary in the public interest or for avoiding any hardship, extend the said period of three years by such further period or periods not exceeding one year in the aggregate.

Clause 14.- This clause prohibits a person carrying on chit business from utilising the moneys collected in reipect of such business except for the purrposes mentioned therein, namely, for carrying on chit business, giving loans and advances to non-prized subscribers, etc. on the security of the subscriptions paid by them. investment in trustee securities, etc.. -Gaz. of Ind.,20-1 1-1980. Pt. II. S.2. Ext., p. 1011.

SECTION 15: ALTERATION OF CHIT AGREEMENT

A chit agreement shall not be altered, added to or cancelled except with the consent in writing of the foreman and all the subscribers to the chit.

SECTION 16: DATE, TIME AND PLACE OF CONDUCTING CHITS

(1) Every draw in a chit shall be held on the date, at the time and place mentioned in the chit agreement and a notice therefor in such form and in such manner as may be prescribed shall be issued by the foreman lo all the subscribers.

(2) Every such draw shall be conducted in accordance with the provisions of the chit agreement and in the presence of not less than two subscribers.

(3) Where any draw was not conducted on the ground that two subscribers required to be present at a draw under sub-section (2) were not present or on any other ground, the Registrar may, on his own motion or on an application made by the foreman or any of the subscribers, direct that the draw shall be conducted in his presence or in the presence of any person deputed by him.

SECTION 17: MINUTES OF PROCEEDINGS

(1) The minutes of the proceedings of every draw shall be prepared and entered in a book to be kept for that purpose immediately after the closure of the draw and shall be signed by the foreman, the prized subscribers, if present, or their authorised agents, and at least two other subscribers who are present, and where a direction has been made under sub-section (3) ofsection 16-, also by the Registrar or the person deputed by him under that sub-section.

(2) The minutes referred to in sub-section (1) shall state clearly-

(a) the date and hour when proceedings began and ended and the place where the draw was held;

(b) the number of the instalment of the chit to which the proceedings relate;

(d) the person or persons who become entitled to the prize amount in the instalment;

(e) the amount of discount;

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