Section 40 of the Chit Funds Act, 1982 - Termination of Chits
Section 40 specifies the circumstances in which a chit is deemed to have terminated. It forms part of Chapter VIII of the Chit Funds Act, 1982, which deals with termination of chits.
Text of Section 40 - Termination of chits
40. Termination of chits. - 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.
Meaning and effect of Section 40
Section 40 creates statutory events upon which a chit is treated as terminated. The provision should be read with the chit agreement and the connected provisions of the Act, particularly Section 39 on continuation of chits in certain cases and Section 41 concerning the filing of a copy of the written consent to termination.
1. Expiry of the chit period and payment of dues
Under clause (a), expiry of the period stated in the chit agreement is not, by itself, sufficient. The statutory condition also requires completion of payment of dues to all subscribers. Accordingly, both the agreed period and settlement of subscriber dues are relevant to termination under this clause.
2. Termination by written consent
Clause (b) permits termination when all non-prized subscribers, all unpaid prized subscribers and the foreman consent in writing. A copy of that consent must also be filed with the Registrar as required by Section 41. The requirement of written consent and filing provides a formal record of the agreed termination.
3. Death or incapacity of the foreman
Under clause (c), a chit is deemed to terminate where the foreman dies, becomes of unsound mind or is otherwise incapacitated and the chit is not continued in accordance with the chit agreement. This clause should be read with Section 39, which deals with continuation of chits in certain cases.
4. Special rule where the foreman is a firm
The proviso prevents automatic termination merely because a partner of a foreman-firm dies, becomes of unsound mind or is otherwise incapacitated. Unless the chit agreement provides otherwise, the surviving partner or partners are to conduct the chit.
Key requirements under Section 40
- The chit agreement remains important for determining the agreed duration and, where relevant, continuation after incapacity of the foreman.
- For termination under clause (a), dues to all subscribers must have been paid.
- For consensual termination under clause (b), the consent must be in writing and must cover the persons specified in the section.
- The written consent under clause (b) must be filed with the Registrar as required by Section 41.
- The proviso contains a separate rule where the foreman is a firm and one of its partners dies or becomes incapacitated.
Official statutory source
The current statutory text can be checked on the Government of India's India Code portal: Chit Funds Act, 1982 - official India Code PDF.
This page is intended as a general legal reference. For a particular chit, the applicable chit agreement, State rules, notifications and facts should also be examined.