Section 42 of the Chit Funds Act, 1982 - Refund of Non-Prized Subscribers' Subscriptions
Section 42 of the Chit Funds Act, 1982 deals with the right of a non-prized subscriber to receive back subscriptions paid into a chit when the chit terminates. It also addresses transferred subscriber rights and the point at which a claim arises when a chit terminates earlier than originally scheduled.
Updated with the terminology introduced by the Chit Funds (Amendment) Act, 2019.
What does Section 42 provide?
Subject to the exceptions relating to termination under clauses (a) and (b) of Section 40 of the Chit Funds Act, Section 42 protects the entitlement of a non-prized subscriber to obtain repayment of subscriptions on termination of the chit, subject to the Act and the terms of the chit agreement.
Text of Section 42 - Refund of Non-Prized Subscribers' Subscriptions
42. Refund of non-prized subscribers' subscriptions.
Except in the cases referred to in clauses (a) and (b) of section 40,--
(a) every non-prized subscriber shall, unless otherwise provided for in this Act or in the chit agreement, be entitled to get back his subscriptions at the termination of the chit without any deduction for share of discount, if any, earned by him:
Provided that, any person to whom the rights of a non-prized subscriber are transferred in accordance with the provisions of section 35, shall, in addition to his own subscriptions, be entitled to get back the subscriptions paid by such non-prized subscriber, subject to the conditions specified in this section;
(b) if a chit terminates on a date earlier than the date originally fixed in the chit agreement, the non-prized subscriber's claim shall be deemed to have arisen on the date on which he has notice thereof.
Meaning of Non-Prized Subscriber
For the purposes of the Chit Funds Act, a "non-prized subscriber" is a subscriber who has not become a prized subscriber. The statutory definition expressly excludes a defaulting subscriber. This distinction is important because Section 42 specifically provides a refund right to a non-prized subscriber subject to the Act and the chit agreement.
Meaning of Share of Discount
Share of discount means the share of a subscriber in the amount of discount available under the chit agreement for rateable distribution among the subscribers at each instalment of the chit.
The terminology was introduced by the Chit Funds (Amendment) Act, 2019. Accordingly, the current statutory language of Section 42 refers to "share of discount" rather than the former expression "dividend".
Key Rights Under Section 42
- A non-prized subscriber is generally entitled to receive back the subscriptions paid when the chit terminates.
- The refund is subject to any applicable provision of the Chit Funds Act and the terms of the chit agreement.
- The subscriptions are refundable without deduction of the share of discount earned by the subscriber.
- A valid transferee of the rights of a non-prized subscriber under Section 35 may claim the subscriptions paid by the transferor in addition to the transferee's own subscriptions, subject to Section 42.
- Where a chit terminates before the date originally fixed, the claim of the non-prized subscriber is treated as arising when the subscriber receives notice of the early termination.
Refund on Termination of the Chit
The principal rule under clause (a) of Section 42 is that a non-prized subscriber is entitled to get back the subscriptions paid at the termination of the chit. This entitlement is expressly made subject to other provisions of the Act and to the chit agreement.
Section 42 must therefore be read together with the provisions governing the termination of chits and the relevant terms of the registered chit agreement.
Transfer of Rights Under Section 35
The proviso to Section 42 deals with a person to whom the rights of a non-prized subscriber have been transferred in accordance with Section 35 of the Chit Funds Act.
Where the statutory requirements for the transfer are satisfied, the transferee may, subject to Section 42, receive not only the transferee's own subscriptions but also the subscriptions paid by the non-prized subscriber whose rights were transferred.
Early Termination of a Chit
Clause (b) deals with a chit that terminates before the date originally specified in the chit agreement. In such a case, the non-prized subscriber's claim is deemed to arise on the date on which the subscriber receives notice of the termination.
The provision therefore links the arising of the claim in an early-termination case to notice of termination rather than merely to the date on which the chit actually terminates.
Relationship With Sections 40 and 43
Section 42 expressly begins with an exception for cases referred to in clauses (a) and (b) of Section 40. Section 40 specifies circumstances in which a chit is deemed to terminate.
Section 42 should also be read with Section 43, which deals with subscribers' dues as a first charge on chit assets.
Practical Effect of Section 42
In practical terms, Section 42 protects the financial interest of a subscriber who has continued to pay subscriptions but has not become a prized subscriber before termination of the chit. The statutory rule identifies the subscriber's entitlement to repayment and also accommodates a lawful transfer of subscriber rights.
The exact amount payable and the circumstances of an individual claim may depend on the statutory provisions, the chit agreement, the subscriber's payment history, any transfer of rights and the manner in which the chit terminated.
Official Legal Resources
For the current consolidated Central Act and amendments, readers may verify the statutory provisions through the official India Code portal.
The terminology used in the Chit Funds Act was amended by the Chit Funds (Amendment) Act, 2019, including substitution of "share of discount" for "dividend".