Section 57 of the Chit Funds Act, 1982: Cessation of Winding Up Proceedings on Insolvency
Section 57 deals with what happens when, during proceedings for winding up a chit, the foreman becomes insolvent or, where the foreman is a company, the company is ordered to be wound up by the court. In those circumstances, the winding up proceedings under the Chit Funds Act cease and distribution of the chit assets moves to the competent insolvency court or company winding up court, subject to Sections 43 and 52.
Text and meaning of Section 57
Section 57 - Cessation of winding up proceedings on insolvency of foreman, etc., or the winding up of the company and transfer of such proceedings.
Where, while proceedings for winding up a chit are pending, the foreman is adjudicated insolvent; or, if the foreman is a firm, all partners or all except one are adjudicated insolvent; or, if the foreman is a company, the company is ordered to be wound up by the court, the winding up proceedings under the relevant Chapter cease. Distribution of the chit assets is thereafter to be made by the insolvency court or the court winding up the company, as applicable, subject to Sections 43 and 52.
When Section 57 applies
The provision operates during the pendency of proceedings for winding up a chit. It identifies three situations involving the legal status of the foreman:
- An individual foreman is adjudicated insolvent.
- The foreman is a firm and all partners, or all partners except one, are adjudicated insolvent.
- The foreman is a company and a court orders the company to be wound up.
Legal effect of Section 57
Once a situation specified in Section 57 arises, the winding up proceedings under the Chit Funds Act cease. The section therefore avoids parallel administration of the same chit assets under the chit winding up mechanism and the applicable insolvency or company winding up process.
The responsibility for distributing the chit assets shifts to the insolvency court or the court winding up the company, depending on the case. That distribution is expressly made subject to Sections 43 and 52 of the Chit Funds Act.
Relationship with Section 43
Section 43 concerns the subscriber's right to receive the net chit amount and the manner in which payment may be secured or dealt with under the Act. Because Section 57 expressly makes distribution subject to Section 43, the relevant rights and obligations under that provision must be considered when chit assets are administered after the transfer contemplated by Section 57.
Relationship with Section 52
Section 52 of the Chit Funds Act deals with an injunction restraining specified persons from transferring, charging or otherwise dealing with property where winding up proceedings are pending, subject to the statutory conditions. Section 57 expressly preserves the operation of Section 52 when responsibility for distribution of chit assets passes to the relevant court.
Who is a foreman?
Under Section 2 of the Chit Funds Act, the term "foreman" refers to the person who, under the chit agreement, is responsible for conducting the chit. The Act imposes statutory duties and responsibilities on the foreman in relation to the administration of the chit, subscribers, records, security and payments.
Practical significance
Section 57 is a coordination provision. Its purpose is to determine which legal process will control distribution of chit assets when the foreman's insolvency or the winding up of a foreman company intervenes during an existing chit winding up proceeding. It directs the distribution process to the court already administering the insolvency or company winding up, while preserving the statutory requirements referred to in Sections 43 and 52.
Official legal resources
For the authoritative statutory text and amendments, refer to the Chit Funds Act, 1982 on India Code and the Chit Funds (Amendment) Act, 2019.
Disclaimer: This page provides general legal information and is not a substitute for professional advice on the facts of a particular matter.