Chitfundvictim (Software) 24 November 2021

Chit fund

Dear esteemed members, kindly advice on the below scenario.
My mother(age-70)has been transacting with a chit fund in Telangana for over 8 yrs. The chit fund had issued put option on land as a bond and taken a good sum of money for annual interest(nearly 12%). At the expiry of the bond, when she asked for the principle to be returned, the chit fund said they cannot return the sum as they are out of funds due to covid(no buyers for the land on which the bond is based). After a delay of 6months, they finally issued cheques after taking the original bonds. However, when she deposited the cheques, the cheques bounced due to insufficient funds. Kindly suggest the immediate steps that we should take.

Also, kindly guide us on rules around chit fund auction, since we have a few more chits that we had to subscribe, since the chit fund suggested to convert some of the expired bonds into running chits.

Thank you

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6 Replies

Rama chary Rachakonda (Secunderabad/Highcourt practice watsapp no.9989324294 ) 24 November 2021

When the payee presents a cheque to the bank for payment, and the cheque is returned unpaid by the bank with a memo of insufficient funds, then the cheque is said to have bounced. ... In such a case, the payee of the cheque can issue a cheque bounce notice to the drawer demanding to pay the cheque amount immediately within 15 days from the date of the bounced.

Dr J C Vashista (Advocate) 24 November 2021

Consult and engage a local prudent lawyer for proceeding under the provisions of Negotiable Instruments Act, 1881

Kevin Moses Paul 04 December 2021

Send a notice to the party regarding bouncing of cheque asking for the amount to be paid in full within a span of 2 weeks. In cass the amount is not paid and the prescribed time passes, file a case u/s 138 of NIA, 1881 against the drawer.

Regards,
Kevin M. Paul

Chitfundvictim (Software) 25 December 2021

Dear sirs,

My lawyer sent the notice to the board of directors of the pvt ltd company, which issued cheque to me, but it was returned with "left without instructions". I am consulting with my advocate, however, any suggestions from you would be really useful.

Megha 29 January 2022

Hi,

Cheque bounce is a criminal offence punishable under section 138 of the Negotiable Instruments Act, 1881 and is punishable with imprisonment for a term not more than 2 years or fine which may extend to twice the amount of the cheque.

A cheque may bounce due to a number of reasons. As a first step, you should ask the issuer to re-issue a cheque bu issuing a cheque bounce notice. The drawer of the cheque will be required to make good the amount within 15 days of issue of notice. In case of failure to pay within the stipulated time, you can initiate a criminal action suit within 30 days after the expiry of the 15 day period. This suit must be filed before the magistrate at any of the following places:

place where the cheque was drawn
place where the cheque was presented for payment
place where the cheque was dishonored
place where the demand notice was issued
place where payment had to me made.

Alternatively, you may also consider filing a civil suit for the same.

Best regards,
Megha

Dr J C Vashista (Advocate) 30 January 2022

Organised chit fund schemes are required to register with the Registrar of Firms, Societies and Chits. A chit fund company is a company that manages, conducts, or supervises such a chit fund, as defined in Section of the Chit Funds Act, 1982.

According to Section 2(b) of the Chit Funds Act, 1982:

"Chit means a transaction whether called chit, chit fund, chitty, kuree or by any other name by or under which a person enters into an agreement with a specified number of persons that every one of them shall subscribe a certain sum of money (or a certain quantity of grain instead) by way of periodical installments over a definite period and that each such subscriber shall, in his turn, as determined by lot or by auction or by tender or in such other manner as may be specified in the chit agreement, be entitled to the prize amount".

Though they are not required to be registered under the RBI Act, chit funds are regulated as Miscellaneous Non-Banking Companies (MNBCs). Their activities relating to soliciting deposits are governed by the Non-Banking Financial Companies and Miscellaneous Non-Banking Companies (Advertisement) Rules (1977) framed by the Government of India under Section 58A of the Companies Act 1956.

Whether chit fund is a legal transaction ?