Chit Funds Act: Cabinet approves amendment to enable access to other financial products

The Chit Funds (Amendment) Bill, 2018, has been introduced as Bill No. 72 of 2018, in the Lok Sabha on 12-03-2018. The Cabinet had, in a major policy initiative to protect the savings of the investors, given its approval to the Chit Funds (Amendment) Bill, 2018, in order to facilitate orderly growth of the Chit Funds sector and remove bottlenecks being faced by the Chit Funds industry, thereby enabling greater financial access of people to other financial products.

The Bill when passed is to be called as the ‘Chit Funds (Amendment) Act, 2018’, to further amend the Chit Funds Act, 1982, w.e.f. the date of its publication/notification in the Official Gazette, with the following amendments —

1. In the Chit Funds Act, 1982 (hereinafter referred to as the “principal Act”), in Section 2, in clause (b), after the word “kuri“, the words, “fraternity fund” shall be inserted.

2. For Section 11 of the principal Act, the following section shall be substituted, namely —

‘11. (1) No person shall carry on chit business unless he uses as part of his name any of the words “chit”, “chit fund”, “chitty“, “kuri” or “fraternity fund” 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 is 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 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.’.

3. In Section 16 of the principal Act, in sub-section (2), after the words “two subscribers”, the words “present in person or through video conferencing duly recorded by the foreman” shall be inserted.

4. In Section 17 of the principal Act, in sub-section (1), after the words “at least two other subscribers who are present”, the words “in person or through video conferencing” shall be inserted; and the following proviso shall be inserted, namely:—

“Provided that where two subscribers required to be present under sub-section (2) of section 16 are present through video conferencing, the foreman shall have the minutes of the proceedings signed by such subscribers within a period of two days of the date of the draw.”.

5. In Section 21 of the principal Act, in sub-section (1), in clause (b), for the words “five per cent.”, the words “seven per cent.” shall be substituted;

6. In Section 21 of the principal Act, in sub-section (1), for clause (f), the following clauses shall be substituted, namely:—

“(f) to substitute subscribers in place of defaulting subscribers; (fa) to exercise his right to lien against the credit balance in other non-prized chits; and “.

7. In Section 85 of the principal Act, in clause (b), for the words “one hundred rupees”, the words “such amount as may be specified, by notification in the Official Gazette, by the State Government” shall be substituted.

STATEMENT OF OBJECTS AND REASONS

1. The Chit Funds Act, 1982 was enacted to provide for the regulation of chit funds which are indigenous business in India and have conventionally satisfied the financial needs of the low-income households. The chit is a mechanism which combines credit and savings in a scheme, in which a group of individuals come together for a pre-determined duration and subscribe a certain sum of money by way of periodical instalments and each such subscriber, in his turn as determined by lot or by auction or by tender or any other specified manner, gets the collected sum. In this way, people who are in need of funds and those who want to save are able to meet their requirements simultaneously.

2. In past, concerns had been expressed by various stakeholders regarding challenges being faced by the chit business. Therefore, the Central Government constituted a Key Advisory Group on Chit Funds to review the existing legal, regulatory and institutional framework for Chit Funds and its efficacy and to suggest legal and regulatory initiatives required for orderly growth of the said sector. The Key Advisory Group submitted its recommendations relating to improvements in the institutional and legal structure to further develop the chit business in order to reduce the regulatory burden of the chit business and to protect the interest of the subscribers of the chits.

3. The Parliamentary Standing Committee on Finance (16th Lok Sabha), in its 21st Report on Efficacy of Regulation of Collective Investment Schemes (CIS), Chit Funds, etc., had also recommended to finalise the legislative and administrative proposals for strengthening and streamlining of the registered Chit Fund sector. Further, the said Committee, in its 35th Report on the Action Taken by the Government on the Recommendations contained in the 21st Report, had recommended the need to quickly firm up the legislative and administrative proposals for the Chit Funds sector.

4. In view of the above, it has been decided to amend the Chit Funds Act, 1982.

Accordingly, the Chit Funds (Amendment) Bill, 2018, inter alia, proposes—

(i)  the use of “fraternity fund” also for chits by amending Sections 2(b) and 11;

(ii)  to allow the mandatory presence of 2 subscribers, as required under Section 16(2), either in person or through video conferencing duly recorded by the foreman;

(iii)  that where the presence of the mandatory 2 subscribers was through video conferencing, the minutes of proceedings should be signed by them within 2 days;

(iv)  the increase of ceiling of foreman’s commission from 5 % to 7 % under Section 21;

(v)  to enable the foreman to have a right to lien for the dues from subscribers, so that set-off is allowed by the chit fund for subscribers who have already drawn funds, so as to discourage default by them;

(vi)  to amend Section 85(b), so as to confer power upon the State Government to specify the amount, by notification, up to which any chit fund shall be exempted under the said section.

5. The Bill seeks to achieve the above objects.

 

Cabinet

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