The recent swoop on the chit fund companies by the inspection teams of the department of Registration and Stamps reportedly followed by complaints of certain financial irregularities is most welcome.

As a subscriber of many chit fund companies in the combined state of AP for several years, and as a retired legal manager of the most respected public sector life insurance organization, the LIC of India, with considerable exposure in to the functioning of the financial activities and legal matters, I wish to draw the attention of the authorities, to the most common violation being perpetuated for decades unabated by almost all the chit fund companies of delaying the payment of prize amounts to the successful bidders even after submission of sufficient securities. Let me explain the matter a bit in detail.

Almost all of us are nowadays subscribers to the chits of one or the other chit fund company. When we need money we participate in the auction and become successful bidders. Most of us are facing difficulties in getting our prize amounts promptly even after submission of sufficient securities.

The Chit Fund companies are delaying the payments by taking a false stand that they can take one month’s time for making payment of the prize money.

But the fact is that the relevant Acts did not grant any time for release of the prize money when once sufficient security is provided.

Let us have a look at the provisions of the relevant Acts in the matter.

The very first sentence of the Section 14 of the Andhra Pradesh Chit Funds Act, 1971 reads as under:- 

Swoop on Chit Fund Companies

14. Duties of the 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;”

Similarly the very first sentence of the Section 22 of the central Act, The Chit Funds Act, 1982 too reads verbatim as under:-

“22.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:”

The wording  “on the prized sub-scriber furnishing sufficient security” and  “ be bound to pay” have to be closely studied and understood which  un-ambiguously and explicitly convey the meaning that no time is allowed for payment of the prize amount after submission of the sufficient security and it can never be at the discretion of the chit fund company.

In spite of very clear legal provision as explained above the payment of prize money is willfully and unlawfully delayed even today unabated by most of the chit fund companies for nearly a month or so even after submission of sufficient security.

When this malpractice of this intentional delay  by a reputed chit fund company  was challenged by me, it was clearly held by the District Consumer Forum, Kadapa, way back in the year 2010 itself  {in its Order dated 13-10-2010 in my CC No.72/2010}, that as per provisions of the A.P. Chit Funds Act, the  opposite parties should pay the prize monies immediately after furnishing security without any delay and concluded that there was deficiency of service on the part of the company, granting interest and costs thus clearly establishing  that withholding of prize amounts after submission of security is unlawful.

It is to be noted that though the District Forum has categorically concluded that no time is allowed in the relevant Act for payment of prize money after submission of the security, and ordered for payment of interest for the belated payment of the prize money and also awarded costs to me, in my individual case, it could not give any specific general direction, because of the obvious limitations of jurisdiction in the C P Act as it is concerned with only the aspect of the deficiency in service.

My enquiries revealed that almost all the chit fund companies in the two states of AP and Telangana are following this malpractice. The chit fund companies in the other states too, I don’t think would be more kind to the subscribers. They too would perhaps be cheating the subscribers in a similar way.

By following this unfair trade practice the chit fund companies are making unlawful gains by earning interest on the huge prize amounts which belonged to the subscribers the moment sufficient security was provided by them.

As no action was initiated in the desired direction, even by the District Registrar of chits concerned in the matter, even when the matter was brought to his notice by me it can be concluded that this is happening with the knowledge and connivance of the authorities who are supposed to regulate the activities of the chit fund companies.

This matter was brought to the notice of all the people who matter without any tangible result in the matter.

Thus the “……manifest injustice, should not be allowed to be perpetuated and failure to interfere with the same would amount to allow illegality to be perpetuated.” {SUPREME COURT IN CRIMINAL APPEAL NO.1428 OF 2011 Arising out of S.L.P.(Crl.) No. 6349 of 2010)}

Thus, there is an urgent need to probe in to the matter by the authorities and to stop this unfair trade practice being perpetuated by the chit fund companies, for generations and safeguard the interests of the gullible chit subscribers who are blissfully ignorant that they are being cheated.

Author Bio

Qualification: Graduate
Location: Hyderabad, Telangana, IN
Member Since: 02 Aug 2019 | Total Posts: 4

My Published Posts

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Telegram

taxguru on telegram GROUP LINK

Download our App


More Under Finance

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

December 2023