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CHIT FUNDS ACT

Ministry of Law and Justice

Act nº 40 of 1982


  • Chapter I
  • Chapter II
  • Chapter III
  • Chapter IV
  • Chapter V
  • Chapter VI
  • Chapter VII
  • Chapter VIII
  • Chapter IX
  • Chapter X
  • Chapter XI
  • Chapter XII
  • Chapter XIII
  • Schedules
  • Appendices
  • Amending Acts
  • Act nº 40 of 1982

Preamble

THE CHIT FUNDS ACT, 1982

[Act, No. 40 of 1982]

[19th August, 1982]

PREAMBLE

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 I

Section 1. Short title, extent and commencement

(1) This Act may be called the Chit Funds Act, 1982.

(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 dates2 may be appointed for different States1.

1. This Act came into force-

States :

1. In Bihar on 2-10-1987, vide Gazette of India, Extra., Pt. II, Sec. 3 (ii) (No. 484), dated 28th September, 1987.

2. In Himachal Pradesh on 1-11-1984, vide Gazette of India, Extra., Pt. II, Sec. 3 (ii) (No. 525), dated 29th October, 1984.

3. In Karnataka on 2-1-1984, vide Gazette of India, Extra., Pt. II, Sec. 3 (ii) (No. 590), dated 30th December, 1983.

4. In Madhya Pradesh on 1-7-1986, vide Gazette of India, Extra., Pt. II, Sec. 3 (ii) (No. 254), dated 27th June, 1986.

5. In Meghalaya on 2-1-1988, vide Gazette of India, Extra., Pt. II, Sec. 3 (ii) (No. 662), dated 30th December, 1987.

6. In Orissa on 1-9-1985, vide Gazette of India, Extra., Pt. II, Sec. 3 (ii) (No. 409), dated 26th August, 1985.

7. In Rajasthan on 1-7-1989, vide Gazette of India, Extra., Pt. II, Sec. 3 (ii) (No. 373), dated 26th June, 1989.

8. In Sikkim on 6-11-1984, vide Gazette of India, Extra., Pt. II, Sec. 3 (ii) (No. 549), dated 14th November, 1984.

9. In Tamil Nadu on 13-4-1984, vide Gazette of India, Extra., Pt. II, Sec. 3 (ii) (No. 176), dated 12th April, 1984.

10. In West Bengal on 2-4-1984, vide Gazette of India, Extra., Pt. II, Sec. 3 (ii) (No. 93), dated 1st March, 1984.

11. In Andhra Pradesh and Mizoram the act comes in force w.e.f. 15th September, 2008 vide Notification No. S.O. 2197(E) dated 15.09.2008.

Union territories

1. In Andaman and Nicobar Islands on 1-7-1985, vide Gazette of India, Extra., Pt. II, Sec. 3 (ii) (No. 310), dated 27th June, 1985.

2. In Chandigarh on 1-5-1984, vide Gazette of India, Extra., Pt. II, Sec. 3 (ii) (No. 194), dated 27th April, 1984.

3. In Dadra and Nagar Haveli on 3-9-1984, vide Gazette of India, Extra., Pt. II, Sec. 3 (ii) (No. 415), dated 30th August, 1984.

4. In Goa, Daman and Diu on 1-1-1986, vide Gazette of India, Extra., Pt. II, Sec. 3 (ii) (No. 603), dated 24th December, 1985. Goa is now a State-See Act 18 of 1987, sec. 3 (30-5-1987).

5. In Lakshadweep Islands on 3-9-1984, vide Gazette of India, Extra., Pt. II, Sec. 3 (ii) (No. 415), dated 30th April, 1984.

6. In Pondicherry on 1-11-1986, vide Gazette of India, Extra., Pt. II, Sec. 3 (ii) (No. 436), dated 28th October, 1986.

2. Act enforced on 1-4-2007, vide Notification No. SO338(E), dated 09.03.2007.


Section 2. 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, 1955 (23 of 1955), or a subsidiary bank constituted under section 3 of the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), or a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or a Regional Rural Bank established under section 3 of the Regional Rural 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 35 of the Banking Regulation Act, 1949 (10 of 1949), or a banking institution notified by the Central Government under section 51 of the 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 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;

(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 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; (1) "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 (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 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 3. 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 null or be void, as the case may be.

Chapter II

Section 4. Prohibition of chits not sanctioned or registered under the Act

(1) No 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 lapse 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 sub­ section (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 the 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 any 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.

Section 5. Prohibition of invitation for subscription 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.

Section 6. 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 un-paid prized subscribers;

(p) the names of the nominees of each subscriber, that is to say, the name 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 purpose 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 af 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 case may require.

(3) The amount of discount referred to in clause (f) of sub-section (1) shall not exceed1[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.

1. Substituted for the words "thirty per cent" by The Chit Funds (Amdt.) Act, 2001. w.e.e. 01.10.2001


Section 7. Filing of chit agreement

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

Section 8. 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 (1 of 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 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 make an application in the prescribed form to the Registrar explaining the circumstances relating to such appropriation.

Section 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 amount unless a certificate of commencement referred to in sub-section (2) is obtained by him.

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.

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 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 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 words 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.

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.