THE CHIT FUNDS ACT-1982

CHAPTER I

Preliminary

chit fund act :

Short title, extent and commencement

This Act may be called the Chit Funds Act, 1982.
It extends to the whole of India except the State of Jammu and Kashmir.
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.

Definitions: in this Act, unless the context otherwise requires

“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 5 of the Banking Regulation Act, 1949 (10 of 1949), or a banking institution notified by the Central Government under section 51 of that Act or such other banking institution as the State Government may, in consultation with the Reserve Bank, approve for the purposes of this Act;
“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 of 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.
“Chit agreement” means the document containing the articles of agreement between the foreman and the subscribers relating to the chit;
“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;
“Chit business” means the business of conducting a chit;
“Defaulting subscriber” means a subscriber who has defaulted in the payment of subscriptions due in accordance with the terms of the chit agreement;
“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;
“Dividend” means the share of the subscriber in the amount of discount available under the chit agreement for relatable distribution among the subscribers at each instalment of the chit;
“Draw” means the manner specified in the chit agreement for the purpose of ascertaining the prized subscriber at any instalment of the chit;
“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;
“Non-prized subscriber” does not include a defaulting subscriber;
“Prescribed” means prescribed by rules made under this Act;
“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 prizes amount shall be the value at the time when it becomes payable;
“Prized subscriber” means a subscriber who has either received or is entitled to receive the prize amount;
“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;
“Reserve Bank” means the Reserve Bank of India constituted under the Reserve Bank of India Act, 1934 (2 of 1934);
“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;
“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;
“Ticket” means the share of a subscriber in a chit.

Act to override other laws, memorandum, articles, etc., save as otherwise expressly provided in this Act:

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
any provision contained in the memorandum, articles, bye-laws, agreement or resolution aforesaid, shall, to the extent to which it is repugnant to the provisions of this Act, become or be void, as the case may be.

CHAPTER II

Registration of chits, commencement and conduct of chit business

Prohibition of chits not sanctioned or registered under the Act:

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 subsection 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.
An application for the purpose of obtaining a sanction under subsection (1) shall be made by the foreman in such form and in such manner as may be prescribed.
The previous sanction referred to in subsection (1) may be refused, if the foreman,
     (i) 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
     (ii) 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
     (iii) 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.
The order of the State Government, and, subject to the provisions of subsection (5), the order of the officer empowered under subsection (1), issuing or refusing previous sanction under this section shall be final.
Any person aggrieved by the refusal to issue previous sanction by an officer empowered under subsection (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.

Prohibition of invitation for subscriptions except under certain conditions:

No person shall issue or cause to be issued any notice, circular, prospectus, proposal or other document inviting the public to subscribe for tickets in any chit unless such notice, circular, prospectus, proposal or document contains a statement that the previous sanction required under section 4 has been obtained and the particulars of such sanction.

Form of chit agreement:

Every chit agreement shall be in duplicate and shall be signed by each of the subscribers or by any person authorized by him in writing and the foreman and attested by at least two witnesses and it shall contain the following particulars, namely:
     (i) full name and residential address of every subscriber;
     (ii) The number of tickets including the fraction of a ticket held by each subscriber;
     (iii) 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;
     (iv) The probable date of commencement and the duration of the chit;
     (v) The manner of ascertaining the prized subscriber at each instalment;
     (vi) The maximum amount of discount which the prized subscriber has to forego at any instalment;
     (vii) the mode and proportion in which the discount is distributable by way of dividend, foreman’s commission or remuneration of expenses for running the chit, as the case may be;
     (viii) The date, time and place at which the chit is to be drawn;
     (ix) The instalment at which the foreman is to get the chit amount;
     (x) The name of the approved bank in which chit moneys shall be deposited by the foreman under the provisions of this Act;
     (xi) 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;
     (xii) The consequences of which a non-prized or prized subscriber or the foreman shall be liable in case of violation of the provisions of the chit agreement;
     (xiii) The conditions under which a subscriber shall be treated as a defaulting subscriber;
     (xiv) The conditions under which a subscriber shall be treated as a defaulting subscriber;
     (xv) The nature and particulars of the security to be offered by the foreman;
     (xvi) The dates on which and time during which the foreman shall, subject to the provisions contained in section 44, allow inspection of chit records to non-prized and unpaid prized subscribers;
     (xvii) The names of the nominees of each subscriber, that is to say, the names of the persons to whom the benefits accruing to the subscriber under the chit may be paid in the case of the death of the subscriber or when he is otherwise incapable of making an agreement;
     (xviii) Any other particulars that may, from time to time, be prescribed
Explanation—For the purposes of this subsection, it shall be sufficient if the signature of each subscriber is obtained in separate copies of the agreement.
The duration of a chit shall not extend beyond a period of five years from the date of its commencement: Provided that the State Government may permit the duration of a chit up to a period of ten years if it is satisfied that it is necessary so to do, having regard to,
     (i) The financial condition of the foreman;
     (ii) his methods of operation;
     (iii) the interests of prospective subscribers;
     (iv) The requirements as to security; and
     (v) Such other factors as the circumstances of the case may require.
The amount of discount referred to in clause (f) of subsection (1) shall not exceed 1 [thirty percent.] of the chit amount.
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.

Filing of chit agreement:

Every chit agreement shall be filed in duplicate by the foreman with the Registrar.
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:—
     (i) That the security offered by the foreman under section 20 is insufficient;
     (ii) 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;
     (iii) 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;
     (iv) 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.
Every endorsement made under subsection (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 subsection (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.

Minimum capital requirements for the commencement, etc., of a chit, and creation of a reserve fund, by a company:

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.
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 of 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.
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 profit.
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.

Commencement of chit:

Every foreman shall, after all the tickets specified in the chit agreement are fully subscribed, file a declaration to that effect with the Registrar.
As soon as may be after a declaration is filed under subsection (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.
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 subsection (2) is obtained by him.

Copies of chit agreement to be given to subscribers:

A foreman shall, as soon as may be after he has obtained the certificate of commencement under subsection (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
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 subsection (1) have been complied with.

Use of the words “chit”, “chit fund”, “chitty” or “kuri”:

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.
Where at the commencement of this Act, —
(i) any person is carrying on chit business without using as part of his name any of the words specified in subsection (1) ; or
(ii) any person not carrying on chit business is using any such word as part of his name,
He shall, within a period of one year from such commencement, add as part of his name any such word or, as the case may be, delete such word from his name:
Provided that the State Government may, if it considers it necessary in the public interest or for avoiding any hardship, extend the said period of one year by such further period or periods not exceeding one year in the aggregate.

Prohibition of transacting business other than chit business by a company:

Except with the general or special permission of the State Government, no company carrying on chit business shall conduct any other business.
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.

Aggregate amount of chits:

No foreman, other than a firm or other association of individuals or a company or co-operative society, shall commence or conduct chits, the aggregate chit amount of which at any time exceeds 1 [twenty-five thousand rupees].
Where the foreman is a firm or other association of individuals, 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 2 [one lakh]; (b) in any other case, a sum calculated on the basis of 1 [twenty-five thousand rupees] with respect to each such partner or individual.
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.

Utilization of funds:

No person carrying on chit business shall utilize 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—
     (i) carrying on chit business; or
     (ii) giving loans and advances to non-prized subscribers on the security of subscriptions paid by them; or
     (iii) investing in trustee securities within the meaning of section 20 of the Indian Trusts Act, 1882 (2 of 1882); or
     (iv) making deposits with approved banks mentioned in the chit agreement.
Where any person carrying on chit business has utilized 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 realized 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.

Alteration of chit agreement:

A chit agreement shall not be altered, added to or cancelled etc

Date, time and place of conducting chits:

Every draw in a chit shall be held on the date, at the time and place mentioned in the chit agreement and a notice therefor in such form and in such manner as may be prescribed shall be issued by the foreman to all the subscribers.
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.
Where any draw was not conducted on the ground that two subscribers required to be present at a draw under subsection (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.

Minutes of proceedings:

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 authorized agents, and at least two other subscribers who are present, and where a direction has been made under subsection (3) of section 16, also by the Registrar or the person deputed by him under that subsection.
The minutes referred to in subsection (1) shall state clearly—
     (i) The date and hour when proceedings began and ended and the place where the draw was held;
     (ii) The number of the instalment of the chit to which the proceedings relate;
     (iii) The names of the subscribers present;
     (iv) The person or persons who become entitled to the prize amount in the instalment;
     (v) The amount of discount;
     (vi) Full particulars regarding the disposal of the unpaid prize amount, if any, in respect of any previous instalment; and
     (vii) Any other particulars that may be prescribed.

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.

Restriction on opening of new place of business:

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.
Before granting approval under subsection (1), the Registrar shall consult the Registrar of the 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.
Where a person carrying on chit business opens a new place of business in a 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
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.

CHAPTER III

RIGHTS AND DUTIES OF FOREMAN

Security to be given by foreman:

For the proper conduct of the chit, every foreman shall, before applying for a previous sanction under section 4.
     (i) deposit in an approved bank an amount equal to the chit amount in the name of the Registrar; or
     (ii) transfer Government securities of the face value or market value (whichever is less) of not less than one and a half times the chit amount in favour of the Registrar; or
     (iii) transfer in favour of the Registrar such other securities, being securities in which a trustee may invest money under section 20 of the Indian Trusts Act, 1882 (2 of 1882), of such value, as may be prescribed by the State Government from time to time:
Provided that the value of the securities referred to in clause (c) shall not, in any case, be less than one and a half times the value of the chit amount.
Where a foreman conducts more than one chit, he shall furnish security in accordance with the provisions of subsection (1) in respect of each chit.
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 the security given by the foreman under subsection (1).
The security given by the foreman under subsection (1), or any security substituted under subsection (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.
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 furnished by the foreman under subsection (1), or the security substituted under subsection (3), as the case may be, and in doing so, he shall follow such procedure as may be prescribed.
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.

Rights of foreman:

The foreman shall be entitled:
     (i) In the absence of any provision in the chit agreement to the contrary, to obtain the chit amount at the first instalment 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;
     (ii) In the absence of any provision in the chit agreement to the contrary, to obtain the chit amount at the first instalment 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;
     (iii) To interest and penalty, if any, payable on any default in the payment of instalments and to such other amounts as may be payable to him under the provisions of the chit agreement;
     (iv) To receive and realize all subscriptions from the subscribers and to distribute the prize amounts to the prized subscribers;
     (v) 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 purposes of this clause if its value exceeds by one-third, or of it consists of immovable properties, the value of which exceeds by one-half, of the amount due from the prized subscriber;
     (vi) To substitute subscribers in place of defaulting subscribers; and
     (vii) To do all other acts that may be necessary for the due and proper conduct of the chit.
Where any dispute arises with regard to the value of the property offered as security under clause (e) of subsection (1), it shall be referred to the Registrar for arbitration under section 64.

Duties of foreman:

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 entitled 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 instalment, 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 agreement and he shall not withdraw the amount so deposited except for the payment of future subscriptions.
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 instalment, the foreman shall deposit the prize amount forthwith in a separate account in an approved bank mentioned in the chit agreement and intimate in writing the fact of such deposit and the reasons therefor to the prized subscriber and the Registrar:
Provided that where any prized subscriber does not collect the prize amount in respect of any instalment 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 instalment.
Every payment of the prize amount or the amount of future subscriptions under subsection (1), and the deposit of the prize amount under subsection (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.
The foreman shall not appropriate to himself any amount in excess of what he is entitled to under clause (b) or clause (c) of subsection (1) of section 21:
Provided that where the foreman is himself a prized subscriber, he shall be entitled to appropriate to himself the prize amount subject to his complying with the provisions of section 31:
Provided further that the foreman may appropriate to himself the interest accruing on the amount deposited under the second proviso to subsection (1).
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.
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 instalment, if any.

Books, records, etc., to be kept by foreman:

The foreman shall maintain in his 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 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;
A book containing the minutes of the proceedings of each draw;
A ledger containing;
     (i) The amounts paid by the 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;
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
such other registers and books in such form as may be prescribed by the State Government within whose jurisdiction the chit is conducted.

Balance sheet:

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 section 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 section 61 shall have the right to audit the balance sheet at any time if so authorized by the Registrar in this behalf.

Liability of foreman to subscribers:

Every foreman shall be liable to account to the subscribers for the amounts due to them.
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.

Withdrawal of foreman:

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 withdrawal 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 section 41.
The withdrawal from a chit of any one of the foreman shall not affect the security given by him under section 20 or section 31.

CHAPTER IV

TRANSFERS

Restrictions on transfer of rights of foreman:

No transfer of the rights of a foreman to receive subscriptions from the prized subscribers shall be made without the previous sanction in writing of the Registrar.
Any transfer of the rights of a foreman to receive subscriptions from the prized subscribers shall, if it is likely to defeat or delay the interests of a non-prized or unpaid prized subscriber, be voidable at the instance of such subscriber.
When under subsection (2), a transfer is disputed by a subscriber, the burden of proving that the foreman was in solvent in circumstances at the time of the transfer and that the transfer does not defeat or delay the interests of such subscriber is on the transferee.

Transfer of non-prized subscriber’s rights to be in writing:

Every transfer by a non-prized subscriber of his rights in the chit shall be in writing duly attested by at least two witnesses and shall be filed with the foreman.

Recognition of transfer by foreman:

Every transfer under section 35 shall, within a period of fourteen days from the date of receipt of the proposal for transfer by the foreman, be recognised by him unless the transferee is not solvent or the transfer was effected with a view to defeating the provisions of any law including this Act and the decision of the foreman to recognise the transfer or not shall forthwith be communicated to the parties concerned.

Entry of transferee’s name in the books:

Every transfer under section 34 or section 35 shall be entered by the foreman in the books of the chit forthwith and a true copy of such entry shall be filed by the foreman with the Registrar within fourteen days from the date of making such entry.

CHAPTER V

MEETINGS OF GENERAL BODY OF SUBSCRIBERS

Meetings of general body of subscribers:

The foreman may, on his own motion, convene a special meeting of the general body of subscribers for considering any proposal to pass a special resolution.
The foreman shall convene such a meeting on the requisition in writing of not less than twenty-five percent of the number of non-prized and unpaid prized subscribers, and the meeting so convened shall be held within thirty days of the date of receipt of the requisition and if the foreman refused or fails to call such a meeting within fourteen days of the date of receipt of such requisition, not less than twenty-five percent of the number of non-prized and unpaid prized subscribers may give notice of the fact to the Registrar.
The Registrar shall, within twenty-one days of the receipt of the notice under sub-section (2), convene or direct the convening of a special meeting of the general body of the subscribers and on receipt of such a direction, it shall be the duty of the foreman to comply with such direction.
Notice of not less than fourteen days shall be given to all the subscribers of a meeting under this section specifying the object, date, hour and place of meeting and a copy of the special resolution shall also be sent along with the notice of the meeting.
Explanation For the purposes of this section and section 39, “special resolution” means a resolution which is passed at a meeting of the general body of the subscribers specially convened for the purpose, by a majority of not less than two-thirds of the subscribers to the chit present at the meeting in person or by proxy and representing not less than three-fourths of the amount or, as the case may be, the value of the grain, subscribed by all the non-prized and unpaid prized subscribers, if any.

CHAPTER VI

TERMINATION OF CHITS

Provision for continuation of chits in certain cases:

Where a foreman dies or becomes of unsound mind or is otherwise incapacitated, the chit may continue in accordance with the provisions of the chit agreement.
Where a foreman is adjudicated an insolvent, or withdraws from the chit under section 26, or fails to conduct the chit at any instalment or on any other date before the next succeeding instalment as may have been agreed upon by a special resolution, any one or more of such subscribers authorized by such resolution may, in the absence of any provision in the chit agreement for the future conduct of the chit, take the place of the foreman and continue the chit or make other arrangements for the further conduct of the chit.

Termination of chits:

A chit shall be deemed to have terminated,
     (i) When the period specified therefore in the chit agreement has expired provided the payment of dues to all the subscribers has been completed; or
     (ii) when all the non-prized and unpaid prized subscribers and the foreman consent in writing to the termination of the chit and a copy of such consent is filed with the Registrar as required under section 41; or
     (iii) Where a foreman dies or becomes of unsound mind or is otherwise incapacitated and the chit is not continued in accordance with the provisions of the chit agreement:
Provided that, in a case where the foreman is a firm, if a partner thereof dies or becomes of unsound mind or is otherwise incapacitated, the chit shall not be deemed to have terminated and the surviving partner or partners shall conduct the chit in the absence of any provision to the contrary in the chit agreement.

Copy of assent or consent to be filed with Registrar:

A true copy of every assent referred to in section 26 and of every consent referred to in clause (b) of section 40 with their dates shall be filed by the foreman or by the surviving partner or partners, as the case may be, with the Registrar within fourteen days from the date of such assent or consent.

Refund of non-prized subscribers’ subscriptions:

Except in the cases referred to in clauses (a) and (b) of section 40,
(i) every non-prized subscriber shall, unless otherwise provided for in this Act or in the chit agreement, be entitled to get back his subscriptions at the termination of the chit without any deduction for dividend, if any, earned by him:
Provided that, any person to whom the rights of a non-prized subscriber are transferred in accordance with the provisions of section 35, shall, in addition to his own subscriptions, be entitled to get back the subscriptions paid by such non-prized subscriber, subject to the conditions specified in this section;
(ii) f a chit terminates on a date earlier than the date originally fixed in the chit agreement, the non-prized subscriber’s claim shall be deemed to have arisen on the date on which he has notice thereof.

Subscribers’ dues to be first charge on chit assets:

Any amount due to the subscriber from a foreman in relation to the chit business shall be a first charge on the chit assets.