Section 40 of The Chit Funds Act, 1982
A chit shall be deemed to have terminated,
- (a)when the period specified therefor in the chit agreement has expired provided the payment of dues to all the subscribers has been completed; or
- (b)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
- (c)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.
Summary
- A chit officially terminates (ends) when its agreed period expires, provided that all dues have been fully paid to every subscriber.
- A chit terminates early if the foreman (the chit manager) and all non-prized subscribers (members who have not won yet) and unpaid prized subscribers (members who won but have not been paid yet) consent in writing, and a copy of this consent is filed with the Registrar (the government official who regulates chits).
- A chit terminates if the foreman dies, becomes of unsound mind, or is otherwise incapacitated, and the chit is not continued under the chit agreement's provisions.
- If the foreman is a partnership firm, the death, insanity, or incapacity of one partner does not terminate the chit, and the surviving partners must continue running it unless the chit agreement says otherwise.
Practical examples
FAQ
1. Does the death of a partner in a foreman firm automatically end the chit?
No, if the foreman is a firm, the death of a partner does not terminate the chit. The surviving partners must continue to conduct the chit, unless the chit agreement has a provision saying otherwise.
Test yourself
Q1.Under Section 40 of The Chit Funds Act, 1982, when a chit's scheduled period expires, what additional condition must be met for it to be deemed terminated?
Q2.Under Section 40 of The Chit Funds Act, 1982, whose written consent is required to terminate a chit before its scheduled expiry date?
Q3.Under Section 40 of The Chit Funds Act, 1982, if the foreman is a partnership firm and one partner dies, what is the default legal status of the chit?
Q4.Under Section 40 of The Chit Funds Act, 1982, if a sole foreman dies and the chit agreement contains no continuation clause, what happens to the chit?