The Chits Funds Act, 1982
Introduction to The Chits Funds Act
Statement of Objects and Reaons.
Be it enacted by Parliament in the Thirty-third year ot the Reublic of India as follows:
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 installments 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 installments 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.
2- In the wider context of examining in depth the activities of the non-banking financial intermediaries (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.
3- The recommendations of the Banking Commission were examined by Government. The Reserve Bank, 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.
4- The Bill has been finalized after taking into account the views of all the State Governments to whom a 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) chit fund institutions, providing for a self-contained machinery for the settlement of disputes between a foreman 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.
5.The “Notes on Clauses” appended to the Bill explain in detail the provisions of the Bill.
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 I – 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.
Constitutional validity of the Act.The Chit Funds Act, 1982, is within the leigislative competence of the Parliament. 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.
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 corresponding new bank constituted under Sec. 3 of the Banking Companies (Acquisition and Transfer of 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 installments 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.
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 installments 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 installment of the chit.
(g) “draw” means the manner specified in the chit agreement for the purpose of ascertaining the prized subscriber at any installment 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);
(p)“State Government”, in relation to a Union territory, means the administrator of that Union territory appointed by the President under Art.239 of the Constitution.;
(q)“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;
(r)“ticket”, means the share of a subscriber in a chit.
Chit business - If the transaction in question is a chit within the meaning of Cl.(b) of Sec.2 of the Act, then chit 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.
Kuri transaction – If unconscionable.-The suit was based on a kuri trancaction (Chit Fund). The respondents 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 installments is only a concessional facility and that stipulation enabling the foreman to withdraw the concessional facility on default of punctual payment of the installments would not be penal or unconscionable.
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 – Registration of Chits, Commencement and Conduct of Chit Business
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 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.
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.
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 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 installments, the amount payable for each ticket at every installments and the interest or penalty, if any, payable on any default in the payment of such installments;
(d) the probable date of commencement and the duration of the chit;
(e) the manner of ascertaining the prized subscriber at each installments;
(f) the maximum amount of discount which the prized subscriber has to forego at any installments;
(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 installments 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 installments 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;
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.
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.
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.
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 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 installment 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 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.
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 installments 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. Therefore, the transaction cannot be considered as loan. It does not partake of function of the foreman or stakeholder 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.
(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 or 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.
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;
(c) 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 subsection (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.
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 notice therefore in such form and in such manner as may be prescribed shall be issued by the oreman to 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.
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) of Sec.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 installments of the chit to which the proceedings relate;
(c) the names of the subscribers present;
(d) the person or persons who become entitled to the prize amount in the stalment;
(e) the amount of discount;
(f) full particulars regarding the disposal of the unpaid prize amount, if any, in respect of any previous installments; and
(g) any other particulars that may be pescribed.
18. Copies of minutes to be filed with Registrar.
A true copy of the minutes of the proceedings of every draw certified as such by the foreman shall be filed by the foreman with the Registrar within twenty-one days from the date of the draw to which it relates.
19. Restriction on opening of new place of business.
(1) No person carrying on chit business shall open a new place of business without obtaining the prior approval of the Registrar within whose territorial jurisdiction his registered office or, as the case may be, the place or the principal place of business is situated .
(2)Before granting approval under sub-section (1), the Registrar shall consult the Registrar of that State within whose territorial jurisdiction the new place of business is proposed to be opened and shall also keep in view the financial condition and methods of operation of the foreman, the extent to which public interest will be served by the opening of the new place of business and such other matters as may be prescribed.
(3)Where a person carrying on chit business opens a new place of business in a State other than the State other than the State (hereinafter referred to as the State of origin) in which his registered office or the place or the principal place of his business is situated, the Registrar of the State in which such new place of business is opened may also exercise and perform any of the powers and functions which the Registrar of the State of origin may exercise and perform in respect of the chit business carried on at such new place of business.
(4)For the purposes of this section, “place of business” shall include any branch office, sub-office, or any place of business where the chit business may be conducted by such person.
Section 19 provides that no person carrying the business of chit fund shall open its business to other new place new place without the prior permission and approval of the Registrar within whose territorial jurisdiction his place of business is or principal place of business is situated. Beforeconsenting the Registrar shall consult the Registrar shall consult the Registrar of the State.in whose jurisdiction the new place of business is proposed to be opened.
Chapter III – Rights and Duties of foreman
20. Security to be given by foreman.
(1) For the proper conduct of the chit, every foreman shall, before applying for a previous sanction under Sec. 4,-
(a) deposit in an approved bank an amount equal to the chit amount in the name of the Registrar, or
(b) transfer Government securities of the face value or market value (whichever) of not less than one and a half times the chit amount in favour of the Registrar; or
(c) transfer in favour the Registrar such other securities, being securities in which a trustee may invest money under Sec. 20 of the Indian Trusts Act,1882( 2 of 1882) of such value, as may be prescribed by the State Government from time of time;
Provided that the value of the securities referred to in Cl © shall not in any case, be less than one and a half times the value of the chit amount.
(2) Where a foreman conducts more than one chit, he shall furnish security in accordance with the provisions of sub-section (1) in respect of each chit.
(3) The Registrar may, at any time during the currency of the chit, permit the substitution of the security:
Provided that the face value or market value (whichever is less) of the substituted security shall not be less than one and a half times the value of the chit amounts.
(2) Where a foreman, conducts more than one chit, he shall furnish security in accordance with the provisions of sub-section (1) in respect of each chit.
(3) The Registrar may, at any time during the currency of the chit , permit the substitution of the security:
Provided that the face value or market value (whichever is less) of the substituted security shall not be less than the value of security given by the foreman under sub-section (1).
(4) The security given by the foreman under sub-section(1), or any security substituted under sub section(3), shall not be liable to be attached in execution of a decree or otherwise until the chit is terminated and the claims of all the subscribers are fully satisfied.
(5) Where the chit is terminated and the Registrar has satisfied himself that the claims of all the subscribers have been fully satisfied, he shall order the release of the security funished by the foreman under sub-section(1), or the security substituted under sub-section (3), as the case may be, and in doing so, he shall follow such procedure as may be prescribed.
(6) Notwithstanding anything to the contrary contained in any other law for the time being in force, the security furnished under this section shall not be dealt with by the foreman during the currency of the chit to which it relates and any dealing by the foreman with respect thereto by way of transfer or other encumbrances shall be null and void.
Validity of amendment requiring security to be furnished in cash by foreman,-Section 12 of the Tamil Nadu Chit Funds Act, 1961, as it stood before the amendment by Tamil Nadu Act 14 of 1975, required the foreman of the chit scheme to execute an indenture by mortgaging property in favour and to the satisfaction of the Registrar by way of security for the realization of the chit amount deposited in an approved bank. The said section . After amendment, required the foreman to deposit cash amount as security in such manner as prescribed .The conditions of depositing cash security were made more hazardous in the amended provisions of the section. The amended provision only varied the form of restriction which was already inherent in the original Act. Since the principal Act had the sanction of the President it was not necessary to obtain the sanction of the President for the amending Act.
21. Rights of foreman.
(1) The foreman shall be entitled,-
(a) in the absence of any provision in the chit agreement to the contrary, to obtain the chit amount at the first installments without deduction of the discount specified in the chit agreement, subject to the condition that he shall subscribe to a ticket in the chit :
Provided that in a case where the foreman has subscribed to more than one ticket, he shall not be eligible to obtain more than one chit amount in a chit without discount:
(b) to such amount not exceeding five percent. of the chit amount as may be fixed in the chit agreement, by way of commission. Remuneration or for meeting the expenses of running the chit.
(c) to interest and penalty ,if any, payable on any default in the payment of installments and to such other amounts as may be payable to him under the provisions of the chit agreement ;
(d) to receive and realize all subscriptions from the subscribers and to distribute the prize amounts to the prized amounts to the prized subscribers;
(e) to demand sufficient security from any prized subscriber for the due payment of future subscriptions payable by him.
Explanation:- A security shall be deemed to be sufficient for the purpose of this clause if its value exceeds by one- third, or if it consists of immoveable properties, the value of which exceeds by one- half, of the amount due from prized subscriber.
(f) to substitute subscribers in place of defaulting subscriber; and
(g) to do all other act that may be necessary for the due and proper conduct of the chit.
(2) Where any dispute arises with regard to the value of the property offered as security under Cl. (e) of sub-section (1), it shall be referred to the Registrar for arbitration under Sec.64.
22. Duties of foreman.
(1) The foreman shall .on the prized subscriber furnishing sufficient security for the due payment of future subscriptions, be bound to pay him the prize amount:
Provided that the prized subscriber shall be ntitled to the payment of the prize amount without any security whatsoever if he agrees to the deduction therefrom of the amount of all future subscriptions and in such a case, the foreman shall pay the prize amount to the prized subscriber within seven days after the date of the draw or before the date of the next succeeding installments , whichever is earlier;
Provided further that where the prize amount has been paid to the prized subscriber under the first proviso, the amount deducted shall be deposited by the foreman in an approved bank mentioned in the chit greement and he shall not withdraw the amount so deposited except for the payment of future subscriptions.
(2) If, owing to the default of the prized subscriber, the prize amount due in respect of any draw remains unpaid until the date of the next succeeding installments, the foreman shall deposit the prize amount forth with in a separated account in an approved bank mentioned in the chit agreement and intimate in writing the fact of such deposit and the reasons therefore to the prized subscriber and the Registrar:
Provided that where any prized subscriber does not collect the prize amount in respect of any installments of a chit within a period of two months from the date of the draw, it shall be open to the foreman to hold another draw in respect of such installments.
(3) Every payment of the prize amount or the amount of future subscriptions under subsection (1), and the deposit of the prize amount under sub-section (2), shall be intimated to the subscribers at the next succeeding draw and the particulars of such payment or deposit shall be entered in the minutes of the proceedings of that draw.
(4) The Foreman shall not appropriate to himself any amount in excess of what he is entitled to under Cl.(b) or Cl.(c) of sub-section (1) of Sec. 21 Provided that where the foreman is himself a prized subscriber, he shall be entitled to appropriated to himself the prize amount subject to his complying with provisions of Sec. 31
Provided further that the foreman may appropriate to himself the interest accruing on the amount deposited under the second proviso to sub-section (1).
(5) The foreman shall not admit any person as a subscriber to a chit, if, by such admission, the total number of tickets mentioned in the chit agreement is increased.
(6) The foreman shall distribute among the subscribers in accordance with the chit agreement, the dividend either in cash, grain or by way of adjustment towards the subscriptions payable for the next installments, if any.
23. Books, records, etc to be kept by foreman.
The foreman shall maintain in the registered office, or, as the case may be, in the place or the principal place of his business, or where the foreman has any branch office, sub-office or any place of business for the conduct of chit business in a State other than the State in which his registered office or the principal place of his business is situated, in such branch office, sub-office or place of business in respect of the business conducted in that State.
(a) a register containing-
(i) the names and full particulars of the subscribers in each chit together with the number of tickets held by each subscriber;
(ii) the dates on which the subscribers signed the chit agreement; and
(iii) in the case of an assignment of a ticket by a subscriber, the name and full address of the assignee with the date of assignment and the date on which the assignment had been recognized by the foreman:
(b) a book containing the minutes of the proceedings of each draw;
(c) a ledger containing-
(i) the amounts paid to the prized subscribers in each chit and the dates of such payments;
(ii) the amounts paid to the prized subscribers and the dates of such payments; and
(iii) in the case of any deposit in an approved bank mentioned in the chit agreement, the date and the amount of such deposit;
(d) a register in the prescribed form showing the amounts deposited in approved banks as required under the provisions of this Act in respect of all chits conducted by the foreman at his office; and
(e) such other registers and books in such form as may be prescribed by the State Government within whose jurisdiction the chit is conducted.
Without prejudice to the provisions of the Companies Act,1956 (1 of 1956), every foreman shall prepare and file with the Registrar within such time as may be prescribed, a balance- sheet as on the last date of each calendar year, or, as the case may be, the financial year of the foreman and a profit and loss account relating to the year of account, in the forms set out in Parts I and II of the Schedule, or as near thereto as circumstances admit, in respect of the chit business and audited by auditors qualified to act as auditors under the Companies Act, 1956, or by a chit auditor appointed under Sec. 61;
Provided that where a balance- sheet is audited by an auditor qualified to act as auditor under the Companies Act,1956 ( 1 of 1956), a chit auditor appointed under Sec. 61 shall have the right to audit the balance-sheet at any time if so authorised by the Registrar in this behalf.
25. Liability of foreman to subscribers.
(1) Every foreman shall be liable to account to the subscribers for the amounts due to them.
(2) Where there are more than one foreman in a chit, each one of them jointly and severally and, if the foreman is a firm or other association of individuals, each one of the partners or individuals thereof jointly and severally and, if the foreman is a company, the company as such, shall be liable to the subscribers in respect of the obligations arising out of the chit.
26. Withdrawal of foreman.
(1) No foreman, or where there are more than one foreman in a chit, none of them shall withdraw from the chit until its termination unless such with drawal is assented to in writing by all the non-prized and unpaid prized subscribers and a copy of such assent has been filed with the Registrar under Sec. 41.
(2) The withdrawal from a chit of any one of the foreman shall not effect the security given by him under Sec.20 or Sec. 31.
Chapter – IV
27. Non-prized subscribers to pay subscriptions and obtain receipts.
Every non-prized subscriber shall pay his subscription due in respect of every installments on the dates and time and at the places mentioned in the chit agreement and shall, on such payment, be entitled to obtain a receipt from the foreman.
28. Removal of defaulting subscribers.
(1) A non-prized subscriber who defaults in paying his subscription in accordance with the terms of the chit agreement shall be liable to have his name removed from the list of subscribers and a written notice of such removal shall be given by the foreman to the defaulting subscriber within fourteen days of the date of such removal:
Provided that if the defaulter pays the defaulted installments with interest at such rate as may be prescribed within seven days of the date of receipt of such notice, his name shall be re-entered in the list of such subscsribers.
(2) Every such removal under sub-section (1), shall with the date thereof, be entered in the relevant book maintained by the foreman.
(3) A true copy of the entry referred to in sub-section (2), shall be filed by the foreman with the Registrar within fourteen days from the date of removal.
Any defaulting subscriber aggrieved by the removal of his name from the list of subscribers may, within seven days of the date of receipt of the notice of removal refer the matter to the Registrar for arbitration under Sec.64.
29. Substitution of subscribers.
(1) A foreman may substitute in the list of subscribers any person (hereinafter in this chapter referred to as the substituted subscriber) in place of the defaulting subscriber whose name has been removed under sub-section (1) of Sec.28.
(2) Every substitution referred to in sub-section (1) shall, with the date thereof, be entered in the relevant book maintained by the foreman and a true copy of every such entry shall be filed by the foreman with the Registrar within fourteen days from the date of substitution.