12.38        ndian    onom
     directions applicable to NBFCs. As on date             Company) are essentially saving institutions. They
     (February 2013) RBI does not have any specified        are of various forms and lack any standardised
     regulatory framework for Nidhis.                       form. Chit funds have regular members who make
          The Central Government in March 2000              periodical subscriptions to the fund. The periodic
     constituted a committee to examine the various         collection is given to some member of the chit
     aspects of the functioning of Nidhi Companies.         funds selected on the basis of previously agreed
     There was no government notification defining          criterion. The beneficiary is selected usually on the
     the word ‘Nidhi’. Taking into consideration            basis of bids or by draw of lots or in some cases by
     the manner of functioning of Nidhis and                auction or by tender. In any case, each member
     the recommendations of the P. Sabanayagam              of the chit fund is assured of his turn before the
     Committee in its report and also to prevent            second round starts and any member becomes
     unscrupulous persons using the word ‘Nidhi’ in         entitled to get periodic collection again. Chit
     their name without being incorporated by the           funds are the Indian versions of ‘Rotating Savings
     Department of Company Affairs (DCA) and yet            and Credit Associations’ found across the globe.
     doing Nidhi business, the committee suggested               Chit fund business is regulated under the
     the following definition for Nidhis (a part of this    Central Chit Funds Act, 1982 and the rules framed
     definition is appearing in the new Companies Bill      under this Act by the various state governments
     2012 (Section 406):                                    for this purpose. The Central Government has
          “Nidhi is a company formed with the exclusive     not framed any rules of operation for them. Thus,
     object of cultivating the habit of thrift, savings and registration and regulation of chit funds are carried
     functioning for the mutual benefit of members by       out by state governments under the rules framed by
     receiving deposits only from individuals enrolled      them. Functionally, chit funds are included in the
     as members and by lending only to individuals,         definition of NBFCs by the RBI under the sub-
     also enrolled as members, and which functions          head miscellaneous non-banking company(MNBC).
     as per Notification and Guidelines prescribed by       But RBI has not laid out any separate regulatory
     the DCA. The word Nidhi shall not form part            framework for them.
     of the name of any company, firm or individual
                                                            Official Definition: As per the Chit Funds Act,
     engaged in borrowing and lending money without
                                                            1982, chit means “a transaction whether called
     incorporation by DCA and such contravention
                                                            chit, chit fund, chitty, kuri or by any other name by
     will attract penal action.”
                                                            or under which a person enters into an agreement
                                                            with a specified number of persons that every one
        chIt Fund                                           of them shall subscribe a certain sum of money
     Recently, Chit Fund was in centre of news after        (or a certain quantity of grain instead) by way of
     the Kolkata-based Saradha Chit Fund scam came          periodical installments over a definite period and
     to light. Most of the media people were themselves     that each such subscriber shall, in his turn, as
     not very clear about the ‘finer’ points related        determined by lot or by auction or by tender or
     to the idea of ‘chits’ in India, but they kept on      in such other manner as may be specified in the
     highlighting chits as they needed to report on the     chit agreement, be entitled to the prize amount”.
     scam. Let us try understand what ‘chits’ are and       A transaction is not a chit, if in such transaction :
     some other similar concepts in India:                       (i) Some alone, but not all, of the subscribers
          Chit funds (also known by their other names,                get the prize amount without any liability
     such as, Chitty, Kuri, Miscellaneous Non-Banking                 to pay future subscriptions; or