The Chits Funds Act,1982
In this Act, unless the context otherwise requires,-
(a) ” approved bank” means the State Bank of India constituted under Sec.3 of the StateBank of India Act,1955 (23 of 1955), or a subsidiary bank constituted under Sec. 3 of the StateBank of India (Subsidiary Banks) Act,1959.(38of 1959), or a corresponding new bankconstituted 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 shal
l be the value at t
he 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.