Section 86 of the Chit Funds Act, 1982 - Banks Not to Conduct Chit Business
Section 86 of the Chit Funds Act, 1982 places a specific statutory restriction on banks: after commencement of the Act, a bank cannot commence or carry on chit business. It also contains a transitional rule for a chit that had already been started by a bank before the relevant commencement.
Current legal position: The Chit Funds Act, 1982 is Central Act No. 40 of 1982. The 2019 amendment changed several provisions of the Act, but it did not amend Section 86. The text below therefore continues to state the rule applicable under Section 86.
Text of Section 86 - Banks not to conduct chit business
Section 86(1). Notwithstanding anything contained in this Act, no bank shall commence or carry on chit business after the commencement of this Act.
Section 86(2). Where a chit had been started by any bank before such commencement, such chit may be continued after such commencement until it is completed, and the provisions of the chit agreement and such laws, if any, as were applicable to it immediately before the commencement of this Act shall apply to such chit.
Explanation. For the purposes of this section, "bank" means an approved bank or a co-operative bank as defined in clause (bii) of section 2 of the Reserve Bank of India Act, 1934 (2 of 1934).
Meaning and effect of Section 86
1. Prohibition on banks conducting chit business
Sub-section (1) begins with a non-obstante clause - "Notwithstanding anything contained in this Act". Its effect is to give the prohibition in Section 86 overriding operation within the Chit Funds Act. A bank falling within the explanation to Section 86 cannot commence a new chit business or carry on chit business after the Act becomes applicable.
2. Saving for a chit already started
Sub-section (2) protects a limited transitional situation. If a bank had started a chit before commencement of the Act, that chit could continue only until completion. During that period, the chit agreement and the laws applicable immediately before commencement continue to govern that pre-existing chit.
3. Meaning of "bank" for Section 86
The explanation gives "bank" a specific statutory meaning for this section. It covers an "approved bank" and a "co-operative bank" as referred to in the explanation. The expression "approved bank" is separately defined in Section 2(a) of the Chit Funds Act, 1982.
Why Section 86 matters
The provision separates regulated banking activity from the business of conducting chits. Its central rule is categorical for banks covered by the section, while sub-section (2) prevents disruption of a chit lawfully begun before commencement by permitting only that existing chit to run to completion.
Related provisions
Section 86 should be read with the definitions in Section 2 of the Chit Funds Act, 1982 and the immediately adjoining provisions, particularly Section 85 - Act not to apply to certain chits and Section 87 - Power to exempt. Section 87 concerns the State Government's power, in consultation with the Reserve Bank, to grant specified exemptions by notification.
Updated: 16 September 2026. For legal proceedings or compliance, verify the applicable Central Act, State rules, notifications and amendments in force for the relevant jurisdiction and date.