Section 12 of the Chit Funds Act, 1982: Prohibition of Business Other Than Chit Business by a Company
Section 12 restricts a company carrying on chit business from conducting another business unless it has the general or special permission of the State Government. The provision is intended to keep a company's chit operations separated from unrelated business activities, subject to the statutory permission mechanism.
Updated: 15 September 2026
Text of Section 12
12. Prohibition of transacting business other than chit business by a company.
(1) Except with the general or special permission of the State Government, no company carrying on chit business shall conduct any other business.
(2) Where at the commencement of this Act, any company is carrying on any business in addition to chit business, it shall wind up such other business before the expiry of a period of three years from such commencement:
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 three years by such further period or periods not exceeding two years in the aggregate.
Meaning and scope of Section 12
The section applies specifically to a company carrying on chit business. Its basic rule is that such a company cannot simultaneously conduct another business unless the State Government has granted general or special permission.
Section 12(1): State Government permission
Sub-section (1) creates the continuing restriction. A company engaged in chit business may conduct another business only where the State Government permits it. The permission may be general, applying to a class or category covered by it, or special, applying to a particular case according to its terms.
Section 12(2): Transitional requirement
Sub-section (2) dealt with a company that, when the Act commenced in the relevant State, was already carrying on another business in addition to chit business. Such other business was required to be wound up within three years from commencement.
Proviso: Extension in public interest or to avoid hardship
The proviso empowered the State Government to extend the three-year transitional period where it considered an extension necessary in the public interest or to avoid hardship. The additional period or periods could not exceed two years in the aggregate.
Key points for compliance
- The restriction concerns a company that carries on chit business.
- Other business is prohibited unless covered by general or special permission of the State Government.
- The statutory authority for granting the permission is the State Government.
- The three-year period in sub-section (2), and the possible aggregate extension of up to two years, are transitional provisions linked to commencement of the Act.
- Section 12 should be read with the other provisions of the Chit Funds Act, 1982 and the applicable State rules, notifications and permissions.
Related provisions
For the surrounding statutory scheme, see Section 11 - use of specified words in connection with chit business, Section 13 - aggregate amount of chits, Section 14 - utilisation of funds and Section 20 - security to be given by foreman.
Official legal sources
The consolidated Central Act can be checked on the India Code - Chit Funds Act, 1982. The official text of the Chit Funds (Amendment) Act, 2019 is also available through India Code. Users should additionally check applicable State Government rules and notifications for local regulatory requirements.
Frequently asked questions
Can a chit fund company carry on another business?
Not ordinarily. Under Section 12(1), a company carrying on chit business cannot conduct another business except with the general or special permission of the State Government.
Who can permit a chit company to conduct another business?
Section 12 identifies the State Government as the authority that may grant general or special permission.
Was Section 12 changed by the Chit Funds (Amendment) Act, 2019?
No. The 2019 Amendment Act changed several provisions of the Chit Funds Act, 1982, but it did not amend Section 12.