The Chit Funds Act, 1982
No.40 OF 1982
[19 th 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:-
Comment: "The dominant
purpose of the Act is to regulate the chit and control the activity
of the foreman and protect the interests of the subscribers. The
pith and substance of the Act is that it provides for a special
contract. The legislation provides for a special kind of contract
and thus squarely falls within Entry 7 of List III of Schedule VII.
"M/s. Shriram Chits &
Investment (P.) Ltd. v. Union of India, AIR 1993 SUPREME COURT
2063
CHAPTER
I
PRELIMINARY
1.Short title, extent and
commencement.- (1)This Act may be called the Chit Funds Act,
1982.
(2)I 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 dates may be appointed for different
States.
2.Definition.-In this Act,
unless the context otherwise require, -
(a)"approved bank"
means the State Bank of India constituted under section 3 of the
State Bank of India Act, 1955 (23 of 1955), or a subsidiary bank
constituted under section 3 of the State Bank of India (Subsidiary
Banks) Act, 1959 (33 of 1959), or a corresponding new bank
constituted under section 3 of the Banking Companies (Acquisition
and Transfer of Undertaking) Act, 1970 (5 of 1997), or a Regional
Rural Bank established under section 3 of the Regional Rules Banks
Act, 1976 (21 of 1976) , or a corresponding new bank constituted
under section 3 of the Banking Companies (Acquisition and Transfer
of Undertakings) Act, 1980 (40 of 1980), or a banking company as
defined under clause (e) of section 5 of the Banking Regulation Act,
1949 (10 of 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;
(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.
Explanation.- A transaction is not a chit within the
meaning of this clause, if in such transaction, -
(i)some
alone, but not all, of the subscribers get the prize amount without
any liability to pay future subscriptions; or
(ii)all the
subscribers get the chit amount by turns with a liability to pay
future subscriptions;
(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 he 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;
(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;
(i)"draw"
means the manner specified in the chit agreement for the purpose of
ascertaining the prized subscriber of 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 chit and includes any
person discharging the functions of the foreman under section
39;
(k)"non-prized subscriber" does not include a defaulting
sub-scriber;
(l)"prescribed" means prescribed by rules made
under this Act;
(m)"prize amount" means the difference
between the chit amount and the document, 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 then in cash, and value
of the prize amount shall be the value at the time when it becomes
payable;
(n)"prize subscriber" means a subscriber who has
either received or it 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 (2 of 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 hold 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.
3.Act to
override other laws, memorandium ,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.
CHAPTER II
REGISTRATION
OF CHITS, COMMENCEMENT AND CONDUCT OF CHIT BUSINESS
4.prohibition of chits not
sanctioned or registered under the Act.- (1)Not chit shall be
commenced or conducted without obtaining the previous sanction of
the State Government within whose jurisdiction the chit is to be
commenced or conducted or of such officer as may be empowered by
that Government in this behalf, and unless the chit is registered in
that state in accordance with the provisions of this
Act:
Provided that a sanction obtained under this sub-section
shall laps if the chit is not registered within twelve months from
the date of such sanction or within such further period or periods
not exceeding six months in the aggregate as the State Government
may, on application made to it in this behalf, allow.
(2)An
application for the purpose of obtaining a sanction under subsection
(1) shall be made by the foreman in such form and in such manner as
may be prescribed.
(3)The previous sanction referred to in
sub-section (1) may be refused, if foreman, -
(a)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; or
(b)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; or
(c) 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 that before refusing any such sanction, the
foreman shall be given a reasonable opportunity of being
heard.
(4)The order of the State Government, and, subject to
the provisions of sub-section (5), the order of the officer
empowered under sub-section (1), issuing or refusing previous
sanction under this section shall be final.
(5)Any person
aggrieved by the refusal to issue previous sanction by a officer
empowered under sub-section (1) may appeal to the State Government
within thirty days of the date of communication to him of such
refusal and the decision of that Government on such appeal shall be
final.
5.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.
6.Form of chit agreement.-
(1)Every chit agreement shall be is 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
prizing 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 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 of
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.
Explanation.- For
the purposes of this sub-section, it shall be sufficient if the
signature of each subscriber is obtained in separate copies of the
agreement.
(2)The duration of a chit shall not extend beyond
a period of five years from the date of its
commencement;
Provided that the State Government may permit
the duration 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;
(c)the interests of prospective
subscribers;
(d)the requirements as to security; and
(e)such
other factors as the circumstances of the easy may
require.
(3)The amount of discount referred to in clause (f)
of sub-section (1) shall not exceed their per cent, of the chit
amount.
(4)Where the prized subscriber at any instalment 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.
7.Filling 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 may 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.
8.Minimum capital requirements
for the commencement, etc., of a chit, and 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 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 at 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 increases 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 an application in the prescribed form to the
Registrar explaining the circumstances relating to such
appropriation.
9.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 or the draw of any chit or
appropriate any chit or appropriate any chit amount unless a
certificate of commencement referred to in sub-section (2) is
obtained by him.
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.
11.Use of the words chit, chit
fund, chitty or kurt.- (1)No person shall carry on chit business
unless he uses as part of his name any of the words "chit fund",
"chitty" or "Kuri" and no person 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.
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.
13.Aggregate amount of
chits.- (1)No foreman, other than a firm or other association of
individuals of a company or co-operative society, shall commence or
conduct chits, the aggregate chit amount of which at any time
exceeds twenty-five thousand rupees.
(2)Where the foreman is
a firm or other association of individuals, the aggregate chit
amount of the chit 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 rupees one lakh;
(b)in any other case, a
sum calculated on the basis of twenty-five thousand rupees with
respect to each 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.
Explanation.-For the purposes of this
sub-section, "net owned funds" shall mean the aggregate of the
paid-up capital and free reserves as disclosed in the last audited
balance sheet of the company or co-operative society, as reduced by
the amount of accumulated balance of loss, deferred revenue,
expenditure and other intangible assets, if any, as disclosed in the
said balance sheet.