[An Act to provide for the regulation of chit funds and for
matters connected therewith 9th August,
1982]
STATEMENT OF OBJECTS AND REASONS
1-A
‘conventional chit’ is an old indigenous financial institution involving regular periodical subscriptions by
a group of persons. It
is, in law, a contract between the subscribers and the foreman which provides that the
subscribers shall
subscribe a certain sum by periodical instalments for a definite period. Each subscriber
shall,
in his turn, as
determined by lot or by auction or in such other agreed manner be entitled to the prize
amount.
There will be as many
periodical instalments as there are members. As there is a mutuality of interest among
the small number of
subscriber to each chit fund, it constitutes a convenient instrument combining savings and
borrowings.
(which term also
includes institutions conducting chit fund or kuries) , the Banking Commission (1972)had
recommended inter alia
, that it is essential to have a uniform chit fund legislation applicable to the whole
country and as such
either an all India Chit Funds Act may be enacted or a model law may be prepared for
adoption by all the
states. The Commission also observed that it would be desirable to provide in the
legislation
that only public
limited companies can run chit funds.
at the instance
of the Government, drafted a model Bill to regulate the conduct of chit funds for adoption
by all
the State
Governments. The Reserve Bank also sent the draft Bill to the Study Group on non-Banking
companies
constituted by it
in June, 1974 under the Chairmanship of late Shri James S. Raj, the then Chairman of the
Unit Trust
of India. The
Study Group was unanimously of the view that the Bill should be enacted as a Central
legislation, as
such a step.
Besides ensuring uniformity in the provisions applicable to chit fund institutions
throughout the country,
would also
prevent such institutions from taking advantage either of the absence of any law governing
chit funds in
any State or
exploit the benefit of any lacuna or relaxation in any State Government concerned which in
turn could
seek the advice
and assistance of the Reserve Bank on policy matters. Further, there should be according
to the
Group no
objection to chits being conducted by private limited companies also and on a limited
scale even by
unincorporated
bodies, such as, individuals, sole proprietorships and partnership firms.
Draft Bill was
sent for comments. The scheme of the Bill and the provisions made therein largely follow
the pattern
of chit fund legislations in force in some of the States
and includes certain new provisions, such as, minimum capital
requirements for
companies conducting chit business, prohibiting chit fund companies from doing any other
business,
placing a ceiling
on the aggregate chit amounts of chits that are being conducted by
(2)
and the
subscribers by means of arbitration, etc. The
repeal of the existing State legislations on the subject
has also
been provided for
in the Bill.
Comments
Objects
and reasons of the Act.-The objects and reasons of the Act are to be taken into
consideration in
interpreting the provisions of the statute and not the debates in Parliament on the Bill.
The
law is well settled that it is permissible to look into the circumstances which prevailed
at the time when the law
was passed and which necessitated the passing of that law to determine the purpose or
object of the legislation.
Penal Statute-Interpretation of –In order to
interpret sections of the Indian Penal Code or any other penal statute
the principal applicable is that the Penal
Statute must be strictly construed in favour of the subject.
The
maxim “contemporanea expositio”- Application of.– The maxim
“contemporanea ecpositio” as laid
down by Coke is applied
in construing ancient statutes but not to interpreting Acts which are comparatively
modern.
Further, it has been
observed that in a modern progressive society it would be unreasonable to confine the
intention
of a Legislature to the
meaning attributable to the word used at the time the law was made and, unless a contrary
intention appears, an
interpretation should be given to the words used to take in new facts and situations, if
the words
are capable of
comprehending them.
CHAPTER – 1
Preliminary
1-
Short title
and commencement.-(1) This Act may be called the
Chit Funds Act, 1982.
2-
It extends to the whole of the 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.
It was declared that Secs.4 (3), 6(3), 7,8,12,16,(2), 17(1), 19,20,21,70,76,77 and 84 of
the Act challenged
through writ-petitions are constitutionally valid
and are not violative of Arts. 14 and 19 (1) (g) of the Constitution.
2- Definitions – In this Act, unless the context otherwise requires,-
(a)
“ approved bank” means the State Bank of India
constituted under Sec.3 of the State Bank of India Act,
1955 (23 of 1955), or a subsidiary bank constituted under Sec. 3 of the State Bank of
India (Subsidiary Banks)
Act, 1959.(38of 1959), or a corresponding new bank constituted under Sec.3of the Banking Companies
(Acquisition and Transfer of Undertakings) Act, 1970 ( 5 of 1970), or a Regional Rural
Bank established under
Sec. 3 of the Regional Rural Banks Acts, 1976 (21 of
1976), or a
Under takings) Act.1980 (40 of 1980), or a banking company as defined under Cl.©
of Sec.5 of the Banking
Regulation Act. 1949 (10 of 1949) or a banking
institution notified by the Central Government
under Sec.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;
(a) “chit
agreement” means the document containing the articles of agreement between the
foreman and the
subscribers relating to the chit;
(b) “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;
(c) “chit
business” means the business of conducting a chit;
(d) “defaulting
subscriber” means the subscriber who has defaulted in the payment of subscriptions
due in
accordance with the terms of the chit agreement;
(e) “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;
(f) “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.;
(g) “draw”
means the manner specified in the chit agreement for the purpose of ascertaining the
prized subscriber
at any instalment of the chit;
(h) “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;
(i)“non-prized subscriber” does not include a
defaulting subscriber;
(j) “prescribed” means prescribed by rules
made under this Act.;
(l) “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;
(m)
“prized subscriber” means a subscriber who
has either received or is entitled to receive the prize amount ;
(n)“Registrar” means the
Registrar of Chits appointed under Sec.61, and includes an Additional, a Joint, Deputy
or an Assistant Registrar appointed under that section;
(o)“Reserve Bank” means
the Reserve Bank of India constituted under the Reserve Bank of India Acr. 1934 (2 of
1934);
by the President under Art.239 of the Constitution.;
by assignment in writing or by operation of law;
(r)“ticket”, means the share of a subscriber
in a chit.
Comments
business
refers to a transaction within the meaning of the word ‘chit’ under Cl.(b) of
Sec. 2 of the Act and it would
be a chit
business as definied Cl.(e) of Sec. 2 of the Act and that chit business is sought to be a
regulated
under Sec.
4 of the Act.
were subscribers
to the kuri. They committed default after they had prized it and realized the kuri
amounts. Hence
the suit was
filed for realization of the principal sum with interest and balance kuri due. The suit
was decreed by
subordinate Judge by his judgement, dated 24th June. 1965. An appeal was filed
before the High Court. A Division
Bench of the High
Court heard the appeal and partly allowed it by modifying the decree of the Trial Court
refixing
the
interest, largely influenced by the fact that
the kuri and the subscribers (defaulters) burdened the subscribers
with
unconscionable interest and were unreasonable. The kuri system was in vogue in the
erstwhile Travancore State
and in the
Cochin State, prior to the formation of the kerala
State and they were governed in those two areas by the
Travancore Chit Act of 1945 (Act 26 of 1120-M.E.) which
came into force , on 20th
June,1945 and the Cochn Kuries Act of 1106. There was no corresponding Act for Malabar
area from which area
the present appeal arises. After the formation of
the Kerala State, kuri transactions in the
State are governed by
the Kelala Chitties Act,dddddddddddd 1975,
as amended by Act 19 of 1978. The High
Court after taking into
account the interest stipulated observed that
it was unconscionable and a full Bench of
the Kerala High Court
had occasion to consider the correctness of this view and in a decision reported in 1974
ker. L.T. 806. Such
kuri transactions were upheld and the decision of the Division Bench was reserved.
According
to the Full Bench,
there was nothing unconscionable about the contract. Before the full Bench it was
contended
that this stipulation
in the agreement where a subscriber prized
his chit, providing that on default the Kuri foreman
would be entitled to
recover the entire balance amount with 12 percent. Interest in a lump sum without giving
credit to the
subscribers, is penal in nature and held in terrorem for securing due performance of their
promise
and hence not
enforceable.Eradi, J, as he then was, speaking for the Full Bench held q that a subscriber
truly and
really becomes a debtor
for the Full Bench held that a subscriber truly and really becomes a
debtor for the prized
amount paid to him that
the facility of repayment in instalment is only a concessional facility and that stipulation
enabling the foreman to
withdraw the concessional facility on default of punctual payment of the instalments would
not be penal or
unconscionable.
(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
to the extent to
which it is repugnant to the provisions of this Act, become null or be void, as the case
may be.
