THE CHIT FUNDS ACT, 1982
(5)
Registration of Chits, Commencement and Conduct of Chit Business
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 manners 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 an
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
© 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.
Comments
Validity of fee enhancement.-The enhanced fee, is justified on the legal as well as
the factual anvil of quid pro quo.
Apart from the appointment of the Registrar ,staff and
various other functionaries, the scheme of the Act .in its
operation, involves huge expenditure which is entirely met
out of the fee fund. The fees collected under the Act
have, therefore, a live nexus with the expenditure incurred
for the benefit of the “chit
fund’ business.
Right of appeal.- A right of appeal is provided to a high authority like the State
Government and, therefore, it cannot
be said that right to appeal is illusory attracting the
vice protected under Art.14 of the Constitution .
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 Sec. 4 has been obtained and the
particulars of such sanction.
subscribers or by any persons authorised by him in writing
and the foreman and attested by at least two witnesses a
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 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 Sec.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 name of 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, form time to time, be prescribed.
Explanaiton;-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 upto
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 case may require.
(3) The amount of discount referred to in Cl.(f) of sub-section (1) shall not exceed thirty percent. 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.
7. Filling 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;
(7)
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 Sec, 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 his 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 registrar 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 Sec.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.
Shall.- It is settled law that
when used in a statute, the word “shall” sometimes may be enterpreted to mean,
“may” and sometimes “may” is equivalent to “shall” depending
upon the context .
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 percent of such porofit.
(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
from to the Registrar explaining the circumstances relating to such appropriation.
Comment
Proviso.-A
proviso to a section has various functions. Sometimes a
proviso may be simply an exception to
what has been said before it in the substantive portion, sometimes it may be contrary to
the substantive portion.
At times a proviso may widen the scope of substantive part or it may narrow down the scope
or it may clarify
or quieten a doubt in the substantive
portion.
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.
obtained the certificate of commencement under
sub-section (2) of Sec.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.
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.
Comment
Chit
fund transaction whether a debt.-Considering the
intent of the legislation and the wording
of Sec. 3 (b) and
Secs. 4 and 8 of the Karnataka Debt Relief Act, it was held that the chit fund
transaction in
which the member- subscriber undertakes to
repay the amount taken by him in
instalments is
not a debt advanced within the meaning of Sec. 4 of the Act. These two things together
constitute
consideration for the purchase. From the chit fund. Subscribed to by subscribers, a
subscriber
could take the
fund amount by mutual understanding of the subscribers on the date of “kuri” or
on the
auction date.
It is a sort of a mutual benefit scheme. The subscriber also is a giver as
well as a taker
and the
foreman acts for and on behalf of all subscribers including the taking
subscription. There fore,
the transaction
cannot be considered as loan. It does not partake of function of the foreman or
stake-holder by
whatever name he is called, in the chit fund scheme . is only to organise the chit
fund
transactions The
money taken in the chit held by the subscriber is not the
foreman’s
money. The relationship that exists between the foreman and the subscriber is not of a
creditor and
debtor.
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.
it shall wind up such other business
before the expiry of a period of three years from such commencement;
hardship, extend the said period of three
years by such further period or periods not exceeding two years in the
aggregate.
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 invididuals, the 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 rupees one lakh:
(b)
in any other case, a sum calculated on the basis of twenty-five thousand rupees 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.
Explanation.-
For the purpose 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.
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;
© investing in trustee securities within the meaning of Sec. 20 of the Indian Trusts Act,1882 (2 of 1882) ; 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 realized 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
15.Alternation 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.
