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Section 20 of the Chit Funds Act, 1982: Security to be given by foreman

Section 20 of the Chit Funds Act, 1982 requires a foreman to furnish security for the proper conduct of each chit before applying for previous sanction under Section 4. The provision also regulates substitution, protection and release of that security.

Current terminology: The Chit Funds (Amendment) Act, 2019 substituted the expression "gross chit amount" for "chit amount" throughout the principal Act with effect from 1 January 2020. The statutory text below therefore uses "gross chit amount".

Meaning of important terms

Foreman: Under Section 2(j), a foreman is the person who, under the chit agreement, is responsible for the conduct of the chit and includes a person discharging the functions of the foreman under Section 39.

Gross chit amount: Section 2(ja), inserted by the 2019 amendment, defines it as the sum-total of the subscriptions payable by all subscribers for any instalment of a chit without deduction of discount or otherwise.

Approved bank: Section 2(a) defines the banks falling within this expression for purposes of the Act. The current statutory definition should be read from the official text together with any applicable amendments.

Section 20 - Security to be given by foreman

(1) For the proper conduct of the chit, every foreman shall, before applying for a previous sanction under section 4, -

(a) deposit in the name of the Registrar an amount equal to -

(i) fifty per cent of the gross chit amount in cash in an approved bank; and

(ii) fifty per cent of the gross chit amount in the form of bank guarantee from an approved bank; or

(b) transfer Government securities of the face value or market value, whichever is less, of not less than one and a half times the gross chit amount in favour of the Registrar; or

(c) transfer in favour of the Registrar such other securities, being securities in which a trustee may invest money under section 20 of the Indian Trusts Act, 1882, of such value as may be prescribed by the State Government from time to time.

Proviso: The value of the securities referred to in clause (c) shall not, in any case, be less than one and a half times the value of the gross chit amount.

(2) Where a foreman conducts more than one chit, security must be furnished in accordance with sub-section (1) in respect of each chit.

(3) The Registrar may, at any time during the currency of the chit, permit substitution of the security, provided that the face value or market value, whichever is less, of the substituted security is not less than the value of the security furnished under sub-section (1).

(4) Security furnished under sub-section (1), or substituted under sub-section (3), is protected from attachment in execution of a decree or otherwise until the chit is terminated and the claims of all subscribers are fully satisfied.

(5) After termination of the chit, when the Registrar is satisfied that all subscriber claims have been fully satisfied, the Registrar shall order release of the security in accordance with the prescribed procedure.

(6) Notwithstanding anything contrary in any other law, the security cannot be dealt with by the foreman during the currency of the chit. Any transfer or other encumbrance by the foreman in respect of that security is null and void.

How Section 20 works in practice

Security precedes sanction: the foreman must furnish the required security before applying for previous sanction under Section 4.
Each chit requires separate security: a foreman running several chits cannot rely on one common security for all of them.
Permitted forms are controlled by the Act: the section allows the prescribed cash and bank-guarantee combination, Government securities, or other eligible trustee securities subject to the statutory valuation requirements.
Substitution needs Registrar approval: replacement security is permissible during the chit, but its statutory value cannot fall below the required level.
Subscriber protection continues until satisfaction: the security remains protected until the chit ends and subscriber claims are fully satisfied.
State rules remain important: Section 89 authorises State Governments, in consultation with the Reserve Bank, to make rules, including the procedure for release of security under Section 20. Applicable State rules should therefore also be checked.

2019 amendment relevant to Section 20

The Chit Funds (Amendment) Act, 2019 introduced the statutory expression "gross chit amount" and substituted it for "chit amount" throughout the Chit Funds Act, 1982. The change took effect on 1 January 2020. This is why the present Section 20 refers to the gross chit amount when calculating the security to be furnished.

Official legal source

For the authoritative consolidated text, amendments, notifications and subordinate legislation, refer to the official India Code record for the Chit Funds Act, 1982.

India Code - Chit Funds Act, 1982

Last reviewed: 15 September 2026. This page is for general legal information. State-specific rules, notifications and facts of a particular chit may affect the applicable requirements.