AP puts off central Act on chit funds for now

The Andhra Pradesh government for the moment has put on hold the implementation of the Central Chit Fund Act in the state. The members of the Andhra Pradesh Federation of Chit Funds would be meeting government officials next month to discuss the issue further.

Speaking to Business Standard, Boorugu Surya Prakash Rao, president of the Andhra Pradesh Federation of Chit Funds, said: "Taking note of the memorandum that we submitted to revenue minister D Prasada Rao last month, he assured us that the Act would not be implemented in the state for the time being."

"The Central Chit Fund Act has some stringent norms that would come in the way of the functioning of chit fund companies, and wherever the act was implemented the chit industry was in a bad shape," he said.

According to the Central Chit Fund Act, a person who desires to set up a chit fund company needs to deposit 100 per cent security at the time of registration of the chit group with the registrar of chits, whereas under the State Chit Act one requires to deposit only 50 per cent.

"If the government was to implement the central Act, about 75 per cent of chit fund companies would be out of business as it would be difficult for them to collect dues from defaulters. This would in turn lead to default in payments to subscribers," he said.

"Only 1,200 companies are registered members of the federation with a combined annual turnover of Rs 15,000 crore. There are nearly 6,000 unregistered companies that run chits across the state with an estimated turnover of Rs 40,000 crore and we have submitted a memorandum to the concerned authorities in the state to seriously look into the issue," Rao said.

Rao also urged the government to make the existing chit laws in the state more stringent.

"There are two types of chits, conventional and price-based chits. Though the price-based chits "� where a customer gets returns in terms of goods for the money invested "� was banned about 20 years ago, it is still existing in the unorganised sector where many customers are being duped of their money. We want the concerned authorities to take note of this and punish the defaulters," he said.

The federation has also urged the government to establish special fast-track courts for early realisation of the defaulted amount and measures to keep tab on the unregistered chit fund companies to ensure safe transactions of public money.

"According to the central Act, a person can file a case with the registrar of the chit funds, but then even after an order is passed, the person has to go to the civil court to get his dues back," he said.

"This was implemented in Karnataka and Tamil Nadu, which was not successful, and customers were having difficulty in getting back their dues. The federation has urged the government not to implement this in the state," he added.