Prize Chits and Money Circulation Schemes (Banning) Act, 1978

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Prize Chits and Money Circulation Schemes (Banning) Act, 1978
- 1. Short title and extent
- 2. Definitions
- 3. Banning of prize chits and money circulation schemes or enrolment as members or participation therein
- 4. Penalty for contravening the provisions of section 3
- 5. Penalty for other offences in connection with prize chits or money circulation schemes
- 6. offences by companies
- 7. Power to enter, search and seize
- 8. Forfeiture of newspaper and publication containing prize chit or money circulation scheme
- 9. Power to try offences
- 10. offences under this Act to be cognizable
- 11. Act not to apply to certain prize chits or money circulation schemes
- 12. Transitional provisions
- 13. Power to make rules
- 14. Repeals and saving

The Prize Chits and Money Circulation Schemes (Banning) Act, 1978

(43 of 1978)

Last Updated 30th December, 2019 [20/911]

LEGISLATIVE HISTORY ▼

[12th December, 1978]
An Act to ban the promotion or conduct of prize chits and money circulation schemes and for matters connected therewith or incidental thereto.
Be it enacted by Parliament in the Twenty-ninth Year of the Republic of India as follows:-
1. Short title and extent .-(1) This Act may be called The Prize Chits and Money Circulation Schemes (Banning) Act, 1978.
(2) It extends to the whole of India [***].

Object & Reasons▼

Statement of Objects and Reasons.-In June, 1974, the Reserve Bank of India had constituted a Study Group under the Chairmanship of Shri James S. Raj, the then Chairman, Unit Trust of India, for examining in depth the provisions of Chapter III-B of the Reserve Bank of India Act, 1934, and the directions issued thereunder to non-banking companies in order to assess their adequacy in the context of ensuring the efficacy of the monetary and credit policies of the country and affording a degree of protection to the interests of the depositors who place their savings with such companies. In its report submitted to the Reserve Bank in July, 1975, the Group observed that the prize chit/benefit/savings schemes benefit primarily the promoters and do not serve any social purpose. On the contrary the Groups has stated that they are prejudicial to the public interest and affect the efficacy of the fiscal and monetary policies of the country.
2. Prize chits would cover any kind of arrangement under which moneys are collected by way of subscriptions, contributions, etc., and prizes, gifts, etc. are awarded. The prize chit is really a form of lottery. Its basic feature is that the foreman or promoter who ostensibly charges no commission collects regular subscriptions from the members. Once the member gets the prize, he is very often not required to pay further instalments and his name is dropped from further lots. The institutions conducting prize chits are private limited companies with a very low capital base contributed by the promoters, directors or their close relatives. Such schemes confer monetary benefit only on a few members and on the promoter companies. The Group had, therefore, recommended that prize chits or money circulation schemes, by whatever name called, should be totally banned in the larger interests of the public and suitable legislative measures should be undertaken for the purpose.
3. The Bill proposes to implement the above recommendation of the Group by providing for the banning of the promotion or conduct of any prize chit or money circulation scheme by whatever name called, and of the participation of any person in such chit or scheme. The Bill provides for a period of two years within which the existing units carrying on the business of prize chits or money circulation schemes may be wound up and provides for penalties and other incidental matters. The repeal of the existing State Legislations on the subject has also been provided for in the Bill.

2. Definitions .-In this Act, unless the context otherwise requires,-

(a) “conventional chit” means a transaction whether called chit, chit fund, kuri or by any other name by or under which a person responsible for the conduct of the chit enters into an agreement with a specified number of persons that every one of them shall subscribe a certain sum of money (or certain quantity of grain instead) by way of periodical instalments for a definite period and that each such subscriber shall, in his turn, as determined by lot or by auction or by tender or in such other manner as may be provided for in the chit agreement, be entitled to a prize amount.

Explanation .-In this clause “prize amount” shall mean the amount, by whatever name called, arrived at by deducting from out of the total amount paid or payable at each instalment by all the subscribers;

(i) the commission charged as service charges as a promoter or a foreman or an agent; and

(ii) any sum which a subscriber agrees to forego, from out of the total subscriptions of each instalment, in consideration of the balance being paid to him;

(b) “money” includes a cheque, postal order, demand draft, telegraphic transfer or money order;

(c) “money circulation scheme” means any scheme, by whatever name called, for the making of quick or easy money, or for the receipt of any money or valuable thing as the consideration for a promise to pay money, on any event or contingency relative or applicable to the enrolment of members into the scheme, whether or not such money or thing is derived from the entrance money of the members of such scheme or periodical subscriptions;

(d) “prescribed” means prescribed by rules made under this Act;

(e) “prize chit” includes any transaction or arrangement by whatever name called under which a person collects whether as a promoter, foreman, agent or in any other capacity, monies in one lump sum or in instalments by way of contributions or subscriptions or by sale of units, certificates or other instruments, or in any other manner or as membership fees or admission fees or service charges to or in respect of any savings, mutual benefit, thrift or any other scheme or arrangement by whatever name called, and utilises the monies so collected or any part thereof or the income accruing from investment or other use of such monies for all or any of the following purposes, namely:-

(i) giving or awarding periodically or otherwise to a specified number of subscribers as determined by lot, draw or in any other manner, prizes or gifts in cash or in kind, whether or not the recipient of the prize or gift is under a liability to make any further payment in respect of such scheme or arrangement;

(ii) refunding to the subscribers or such of them as have not won any prize or gift, the whole or part of the subscriptions, contributions or other monies collected, with or without any bonus, premium, interest or other advantage by whatever name called, on the termination of the scheme or arrangement, or on or after the expiry of the period stipulated therein, but does not include a conventional chit;

(f) “Reserve Bank” means the Reserve Bank of India constituted under the Reserve Bank of India Act, 1934 (2 of 1934).