The law that governs chits
The Chit Funds Act, 1982.
Chit funds in India are governed by a central law, the Chit Funds Act, 1982 (Act No. 40 of 1982), and administered in each state by the Registrar of Chits. Here is what it means for you as a member, in plain words.
Eight ways the Act protects members.
01
Registration before a chit begins
No chit may begin until it has been registered with the Registrar of Chits. Every Srivatshava chit is registered with the Registrar of Chits, Medchal-Malkajgiri, Telangana.
02
A written chit agreement
Every member signs a chit agreement that sets out the chit value, number of instalments, subscription, auction arrangements, the foreman’s commission and other terms required by law.
03
Security from the foreman
Before a chit begins, the foreman must furnish security with the Registrar, as a safeguard for members (Section 20). For every scheme, Srivatshava Chits keeps a fixed deposit equal to the full chit value in a bank, in the Registrar’s name. It is released only after the scheme ends and every member has been paid.
04
Recorded auctions
Each auction is conducted as set out in the chit agreement and recorded. Since the 2019 amendment, members may also take part through video conferencing where arranged.
05
A limit on commission
The Act caps the foreman’s commission at 7% of the chit amount. Srivatshava Chits charges 5%, in line with our bye-laws.
06
Accounts and returns
The foreman must keep proper books and records and file returns with the Registrar, who may inspect them.
07
Rights of members
Non-prized members may bid in the auctions, receive their share of dividends, and obtain receipts for every payment. Prized members continue their subscriptions and must give security for them.
08
Dispute resolution
Disputes between members and the foreman about the conduct of a chit may be referred to the Registrar for settlement under the Act.
The Act at a glance
Chapter by chapter, in plain words.
- Chapter ISections 1–3
Preliminary
Short title, extent and the key definitions used throughout the Act, such as chit, chit amount, foreman, prize amount and dividend.
- Chapter IISections 4–19
Registration and conduct of chits
No chit may start without sanction and registration. It sets out what the chit agreement must contain, the commencement certificate, limits on chit business and how draws and auctions are held and minuted.
- Chapter IIISections 20–26
Rights and duties of the foreman
The security the foreman must give, the foreman’s commission and the foreman’s duty to pay the prize amount and keep proper records.
- Chapter IVSections 27–30
Non-prized subscribers
The rights and duties of members who have not yet taken the prize amount, including taking part in the auctions and receiving dividends.
- Chapter VSections 31–33
Prized subscribers
The duties of members who have taken the prize amount, such as paying the remaining subscriptions and furnishing security.
- Chapter VISections 34–37
Transfers
Restrictions on the foreman transferring rights, and the rules for substituting and transferring subscribers.
- Chapter VIISection 38
General meetings
When and how the foreman may call a general meeting of subscribers.
- Chapter VIIISections 39–43
Termination of chits
When a chit can be terminated, and how the amounts due to members are worked out and paid.
- Chapter IXSections 44–47
Inspection of documents
Members’ right to inspect the chit documents and the Registrar’s power to inspect the foreman’s records.
- Chapter XSections 48–60
Winding up of chits
The procedure if a chit has to be wound up, protecting what is owed to subscribers.
- Chapter XISections 61–63
Officers and fees
Appointment of the Registrar and other officers, and the fees payable under the Act.
- Chapter XII onwardsSection 64 →
Disputes, appeals and penalties
Disputes about the conduct of a chit go to the Registrar for settlement, with rights of appeal, and the Act sets penalties for breaking its rules.
Chapter summaries are simplified for readability. Section numbers follow the Act as published on India Code; refer to the official text for the exact wording.
Key terms
The words you will see in your chit agreement.
- Chit amount
- The total value of the chit, for example ₹10 lakh. It equals the monthly subscription multiplied by the number of members.
- Subscription
- The fixed amount each member pays every month, before any dividend.
- Foreman
- The company that conducts the chit, here Srivatshava Chits Private Limited, registered with the Registrar of Chits.
- Discount
- The amount a member agrees to give up, in the monthly auction, to take the prize amount that month.
- Prize amount
- What the successful bidder receives: the chit amount less the discount.
- Dividend (share of discount)
- The discount, after the foreman’s commission, shared equally by all members. It reduces what everyone pays that month.
- Prized / non-prized subscriber
- A prized subscriber has already taken the prize amount; a non-prized subscriber can still bid in future auctions.
- Foreman’s commission
- The fee for conducting the chit. The Act allows up to 7% of the chit amount; we charge 5%.
Recent changes
The 2019 amendment
The Chit Funds (Amendment) Act, 2019 modernised the law. Among other changes, it:
- raised the maximum foreman’s commission from 5% to 7% of the chit amount (Srivatshava Chits continues to charge 5%);
- allowed members to take part in the draw and auction through video conferencing;
- introduced clearer terms such as “share of discount” and “net chit amount”, and recognised the chit as a “fraternity fund”; and
- raised the limits on chit amounts that individuals and firms may conduct.
Our registration
How we comply
Srivatshava Chits has operated under the Chit Funds Act since 1995.
- RegulatorRegistrar of Chits, Medchal-Malkajgiri, Telangana
- Company Regd. No. (RoC)01-22108/95-96
- Foreman’s commission5% of the chit amount, plus 18% GST on the commission
- Corporate identity (CIN)U65992TG1995PTC022108
Disclaimer: This page is a plain-language summary for general information and is not legal advice. The official text of the Act and the applicable State rules prevail. Read the full text of the Chit Funds Act, 1982 on India Code. Full disclaimer