Section 21 of the Chit Funds Act, 1982 - Rights of Foreman
Section 21 of the Chit Funds Act, 1982 sets out the principal statutory rights of the foreman who conducts a chit. These rights include receiving subscriptions, distributing the net chit amount, charging the agreed commission within the statutory ceiling, demanding security from a prized subscriber, substituting defaulting subscribers and exercising a lien in specified circumstances.
Updated: 15 September 2026
Meaning of "foreman"
Under Section 2(j) of the Chit Funds Act, a "foreman" is the person who, under the chit agreement, is responsible for conducting the chit. The definition also includes a person discharging the functions of the foreman under Section 39. The foreman's rights under Section 21 operate together with the duties imposed by Section 22 and the terms of the registered chit agreement.
Section 21 - statutory rights of the foreman
Section 21(1): The foreman is entitled to the rights specified in clauses (a) to (g), subject to the Act and the chit agreement.
Clause (a) - first instalment: In the absence of a contrary provision in the chit agreement, the foreman may obtain the gross chit amount at the first instalment without deduction of the discount specified in the chit agreement, provided that the foreman subscribes to a ticket in the chit. If the foreman subscribes to more than one ticket, the statutory restriction concerning obtaining more than one chit amount without discount continues to apply.
Clause (b) - commission and expenses: The foreman may receive the amount fixed in the chit agreement by way of commission, remuneration or expenses for running the chit, but it cannot exceed seven per cent of the gross chit amount.
Clause (c) - interest and penalty: The foreman may receive interest and penalty, where payable for default in instalments, and other amounts payable under the chit agreement.
Clause (d) - subscriptions and prize distribution: The foreman may receive and realise subscriptions from subscribers and distribute the amounts payable to prized subscribers in accordance with the Act and the chit agreement.
Clause (e) - security from prized subscriber: The foreman may demand sufficient security from a prized subscriber for due payment of future subscriptions. The Explanation to clause (e) prescribes the statutory test for sufficiency of security, including enhanced value requirements for security and immovable property.
Clause (f) - substitution: The foreman may substitute subscribers in place of defaulting subscribers, subject to the applicable provisions of the Act.
Clause (fa) - lien: The foreman may exercise the statutory right of lien against the credit balance in other non-prized chits. This clause was inserted by the Chit Funds (Amendment) Act, 2019 with effect from 1 January 2020.
Clause (g) - incidental powers: The foreman may do other acts necessary for the due and proper conduct of the chit.
Section 21(2): A dispute about the value of property offered as security under Section 21(1)(e) is to be referred to the Registrar for arbitration under Section 64.
Key legal effect of Section 21
- The foreman's rights are statutory but remain subject to the Chit Funds Act and the terms of the chit agreement.
- The commission or remuneration under Section 21(1)(b) must be fixed in the chit agreement and cannot exceed seven per cent of the gross chit amount.
- The foreman can demand sufficient security from a prized subscriber to protect future subscriptions.
- A valuation dispute concerning such security is dealt with through arbitration before the Registrar under Section 64.
- The lien under clause (fa) is a specific statutory right added by the 2019 Amendment Act.
Section 21 and Section 22 should be read together
Section 21 gives the foreman defined rights, while Section 22 deals with the duties of the foreman. A foreman therefore cannot rely on Section 21 in isolation to avoid statutory duties relating to payment of the net chit amount, handling of subscriptions, deposits, records or other obligations imposed by the Act.
Arbitration under Section 64
Section 21(2) expressly sends a dispute about the value of property offered as security under clause (e) to the Registrar for arbitration under Section 64 of the Chit Funds Act, 1982. Section 64 more broadly governs disputes touching the management of a chit business between specified persons connected with the chit, subject to its statutory conditions.
2019 amendment relevant to Section 21
The Chit Funds (Amendment) Act, 2019 made important changes to the terminology and rights appearing in Section 21. For Section 21, the principal practical changes include the use of "gross chit amount", the increase of the permissible ceiling in clause (b) to seven per cent, and insertion of clause (fa) relating to lien. These changes took effect from 1 January 2020.
Official legal source
For the authoritative statutory text and amendment history, refer to the Chit Funds Act, 1982 on India Code. State rules, notifications and local registration requirements may also apply to the conduct of chit business.