Section 39 of the Chit Funds Act, 1982 - Continuation of Chits in Certain Cases
Section 39 of the Chit Funds Act, 1982 provides a statutory mechanism for the continuation of a chit when the foreman cannot, or does not, continue to conduct it in specified circumstances. The provision protects continuity while making the chit agreement and, in certain cases, a special resolution of subscribers central to the process.
What Section 39 provides
Section 39(1): Where a foreman dies, becomes of unsound mind, or is otherwise incapacitated, the chit may continue in accordance with the provisions of the chit agreement.
Section 39(2): Where the foreman is adjudicated insolvent, withdraws from the chit under Section 26, or fails to conduct the chit at an instalment or at another date fixed before the next succeeding instalment by special resolution, one or more subscribers authorised by that special resolution may, where the chit agreement does not provide for future conduct, take the place of the foreman and continue the chit or make other arrangements for its further conduct.
Meaning and effect of Section 39
The section deals with two different situations. Under sub-section (1), the first point of reference is the chit agreement. If the foreman dies, becomes of unsound mind, or is otherwise incapacitated, continuation depends on what the agreement provides.
Sub-section (2) addresses insolvency of the foreman, withdrawal under Section 26, or failure to conduct the chit. If the chit agreement contains no provision for future conduct, subscribers can use the statutory special-resolution mechanism to authorise one or more subscribers to take the foreman's place or arrange for the chit to be conducted further.
What is a "special resolution" for Section 39?
The Explanation to Section 38 of the Chit Funds Act, 1982 expressly applies to Sections 38 and 39. A special resolution must be passed at a specially convened meeting of the general body by the statutory majority. In substance, it requires not less than two-thirds of the subscribers present in person or by proxy and the prescribed representation of the subscribed amount or value attributable to non-prized and unpaid prized subscribers.
Section 38 also regulates the calling of the special meeting and requires notice to subscribers. These procedural requirements matter where Section 39(2) is invoked.
Connection with Section 26
Section 39(2) specifically refers to a foreman who withdraws from the chit under Section 26. Accordingly, where withdrawal is the event relied upon, Section 39 should be read together with the statutory provisions governing withdrawal of the foreman and with the terms of the chit agreement.
When Section 39 becomes relevant
- The foreman dies.
- The foreman becomes of unsound mind.
- The foreman is otherwise incapacitated.
- The foreman is adjudicated insolvent.
- The foreman withdraws under Section 26.
- The foreman fails to conduct the chit at the relevant instalment or other date contemplated by Section 39(2).
Practical legal position
Section 39 does not treat every disruption as an automatic termination of the chit. It permits continuation in the circumstances specified by the section. The applicable route depends on the event that affected the foreman, the provisions of the chit agreement, and, for cases falling under sub-section (2), the statutory special-resolution process.
Official statutory source
The current text of the central legislation can be verified from the Government of India's India Code portal: Chit Funds Act, 1982 - India Code. The Chit Funds (Amendment) Act, 2019 amended several provisions of the principal Act; the official consolidated text should be checked for the law applicable to a particular transaction and State.
Updated: 16 September 2026. This page is an informational explanation of the statutory provision and is not a substitute for professional advice on the facts of a particular chit.